Ukraine invasion reshaping discussion about energy, pricing, renewables

Prof. Overland, the war in Ukraine appears to have already disrupted the European and global energy landscape. Have we already crossed a point of no return? Do you believe the ‘back to normal' option can now be completely excluded?  

Yes, I am certain that we will not return to the status quo that existed before Feb. 24, 2022. Although there are many uncertainties and possible outcomes, I don’t see how a return to the past could happen.

Relations between Russia and Europe have always been complex when it comes to energy supplies. Europe may encounter big problems by completely cutting gas supplies from Russia, but Moscow will always need a buyer, and Europe may still be its best client in the decades to come. Do you really think Russian gas can be sold in other markets, such as Asia or elsewhere? 

In principle, a good bit of Russian gas previously sold to Europe could go to Asia. However, it would require new infrastructure such as pipelines or liquefaction terminals for liquid natural gas (LNG) and take some years to prepare. And LNG may be difficult now because it requires foreign technology and know-how and sanctions will cause a lot of problems. Access to capital will be a problem both for LNG and pipelines, though in principle the Chinese could provide it for pipelines. However, even if it worked out with new pipelines, they would eat up a bit of the profit and the lack of competition between buyers would reduce profits even more.

What could be expected if Europe loses access to Russian gas? And what's the likely scenario if gas supplies go back to normal?

If the Russian gas supply is lost, it may be a very tough situation for Europe. However, it may also help overcome the Putin regime in Russia, solving some of Europe’s long-term problems. High energy prices are usually a problem for politicians, but may be less so when the population knows they are due to the Russian invasion of Ukraine. How it will play out, I don’t think anyone knows.

Which countries can most easily find alternative solutions if Russian energy supplies are interrupted?

I believe Spain and possibly the UK are relatively well-positioned to handle this. Perhaps also the Netherlands, if they are willing to start producing from the Groningen gas field again for a short period to alleviate the situation. Perhaps the most exposed country is Germany. Although I am a big fan of Germany, it has to be admitted that it has brushed aside all warnings and made itself highly dependent on Russian energy, in the process in fact helping facilitate the Russian invasion of Ukraine and imperilling Europe’s energy supply. Thus Germany also has the greatest moral obligation to make sacrifices to help resolve the situation. So far we have not seen this.

I think it may be too soon to outline possible scenarios, but do you believe the current situation will really be a big driver for more renewables expansion in the short term in Europe and globally, as expected by many analysts? Do you see more challenges or opportunities at this stage? 

Yes, I cannot see how these developments can avoid leading to massive investment in renewable energy, probably also nuclear power. I think the only question is how fast it can be done, and here lack of labor and equipment and dependence on Chinese equipment will be important factors. Anyone who has acquired skills related to the installation of solar panels, wind turbines, heat pumps or electric vehicles is guaranteed good work for a long time.

Higher energy and gas prices may be a good driver for renewable energy, especially for unsubsidized projects under bilateral purchase agreements. However, the current price volatility is discouraging this market trend. Do you believe this unstable scenario could last for a long time? What kind of impact could this have on clean energy development? 

As I can’t see how the conflict between Russia and the West over Ukraine can be solved, I expect fossil fuel prices to remain high for long. However the current war develops, it will be very difficult for Russia to give up Crimea, and it will be impossible for the West to accept the continued occupation of Crimea. And as this intractable nature of the conflict becomes clear to markets, they should gain confidence and their willingness to take long-term financial risk should grow.

We have seen many governments in Europe taking measures to support new deployments of solar, wind and heat pumps. Authorizations are now being given more easily in several countries and fiscal incentives are being awarded. Do you think that politics could now turn to renewables on a scale we have never seen before? Would this be a real mindset change? 

Yes, I think that is the direction we are going in. I expect to see a lot more regulatory easing than we have seen so far and it should also become easier to overcome ‘NIMBY' (not in my backyard) instincts, which are a major obstacle for renewable energy developments, especially wind power. This is because I think the invasion of Ukraine qualitatively changes the nature of many arguments and discussions about energy, pricing and what people must accept. In addition, Russia has also very actively been supporting right-wing populists all over the West who are anti-climate and anti-renewables, both major politicians and parties. The reduction of this support, both because of crackdowns from Western governments and because of less Russian money and access, should also help reduce resistance to new renewable energy installations.

Which countries will be the biggest winners and losers of this crisis?

In the short term, Russia and Ukraine are the biggest losers. Ukraine has been subjected to a gruesome attack, Russia is shooting itself in the foot with all the weapons it has. Tens of thousands of young Russian men are killed, wounded or traumatized; weapons worth billions and billions of dollars are destroyed; the economy is devastated; the most educated and dynamic young people are leaving; Russia has become and will remain a pariah among all developed countries; it will take decades or centuries for the Ukrainians to forgive the Russians. Unlike the weak sanctions after the occupation of Crimea, the current sanctions will have a more substantial effect. In the longer term, Russia will inevitably continue to be a big loser as long as Putin is in power, while Ukraine may emerge victorious and greatly strengthened. Concerning winners, other oil and gas exporters like Canada, Norway, Qatar, and Saudi Arabia are big winners.

The USA is also a big winner, both as a major oil and gas producers and because Russia’s aggression hugely strengthens the USA’s position in Europe, as well as that of NATO. Countries that are at the forefront of renewable energy equipment manufacturing may also see great long-term benefits, for example Denmark. The current developments will also reinforce the trend towards a geopolitical rebalancing based on the decline of fossil fuels and rise of renewables. The invasion also strengthens the Democrats within the USA, which is again good for the USA as long as Trump is the alternative. Russophobes of all hues are also big winners and can send a big thanks to Vladimir Putin.

Prof. Indra Overland is an expert on Russian and global energy issues and has published academic works on the Russian natural gas sector and Russian oil companies. In previous interviews with pv magazine, Overland has discussed geopolitical issues related to the GeGaLo Index, the geopolitics of hydrogen, the myths around the geopolitics of renewable energy, and the combination of solar and hydropower. He has also talked about countries such as China, the United States, Russia and Saudi Arabia, as well as technologies such as storage, super-grids and the energy transition in general.