The Russia/Ukraine Conflict: Another Tailwind for Renewables Infrastructure

Renewable energy companies have been one of the few bright spots in global equity markets since the Russia/Ukraine conflict began two weeks ago.  The conflict has the potential to upend global energy supplies and require countries to re-evaluate their energy supply chains.  As the focus turns to energy security and independence, renewable energy will likely have a major role in their plans.

This is most clearly evident in Europe, which has made great strides towards using renewable energy but remains reliant on fossil fuels from Russia. Indeed, Russia supplies more than 25% of Europe’s oil and nearly 40% of its natural gas.1  This week the EU unveiled the REPowerEU plan, which aims to make Europe independent of Russian fossil fuels by 2030.  The plan, which prudently combines the use of both traditional and renewable energy, should pull forward investments in renewables and speed up the permitting process.  Moreover, it may catalyze the use of nascent technologies, such as green hydrogen and biogas.  According to Matt Breidert, Senior Portfolio Manager at EcoFin, “This represents a material acceleration of the Energy Transition in one of the largest demand centers in the world.  We believe this will meaningfully improve cost and price stability for the long term and set Europe up for a more competitive position in future years.”

Planning this transition started long before this conflict. Additions of renewable power capacity reached an all-time high last year, surpassing the previous record set in 2020.  By 2026, global renewable electricity capacity is forecasted to rise more than 60% from 2020 levels.2  These additions are expected to amount to 95% of the total increase in power capacity over the next five years.  We have previously discussed the variety of catalysts behind this secular energy transition and the tremendous amount of public and private investment necessary for its continued progress.

While much of the popular media has focused on companies developing the technology for clean energy, we believe owners of renewable infrastructure assets will also benefit from this transition. Persistently higher fossil-fuel prices should improve the economics involved with substituting  renewables for traditional energy.  In the current geopolitical environment, firms that can deliver renewable energy today, rather than those with technologies that are years away from producing energy, should be well positioned to profit while making a positive contribution to the environment.

1 Los Angeles Times, “One way to Combat Russia? Move faster on clean energy.”

2 IEA, “Renewables 2021”