Will Europe’s energy crisis slow down switch to renewables or accelerate it?

Are we transitioning away from oil and gas – or just away from Russian oil and gas? That’s perhaps the biggest question coursing through global energy markets at the moment.

You could argue that Russia's war in Ukraine has reversed or even halted the switch to renewables, deepening our reliance on hydrocarbons and undermining climate targets. Despite their pledges to reduce emissions, governments are now talking about ramping up fossil fuel infrastructure.

As part of his trip to Europe for G7 and Nato meetings last week, US president Joe Biden announced a new joint agreement with Europe that promises 15 billion cubic metres in new shipments of liquefied natural gas (LNG) this year. That will be on top of the shipments already going to Europe, and will replace about a quarter of the gas imported from Russia.

Much of the US gas will come from fracking, arguably the most destructive fossil fuel extraction process on the planet.

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The US has also announced plans to release one-third of its oil reserves over the next six months – equivalent to one million barrels a day – to combat the surge in crude oil prices and, by extension, inflation while indicating it may punish companies sitting on idle wells.

“The scale of this release is unprecedented: the world has never had a release of oil reserves at this one million per day rate for this length of time,” the White House said.

The energy regulator here meanwhile has called for LNG infrastructure to be constructed as a matter of urgency to ensure the State’s future energy needs.

Commission for the Regulation of Utilities (CRU) chairwoman Aoife MacEvilly said the move would not lock the State into fossil fuels for decades, as some have claimed, as LNG facilities could be adapted at a later date to cater for green hydrogen.

"LNG should be considered in the context of energy security . . . There are insufficient safeguards at present," she told the Oireachtas Joint Committee on Environment and Climate Action on Tuesday.

To illustrate her argument, she pointed to the State’s energy mix that day. There was more than 5,000 megawatts (MW) of renewable electricity capacity including wind, but, due to it being a calm day, “this morning we were getting as little as 19MW from that capacity.” Presumably gas and coal was supplying the rest.

LNG terminal

An Bord Pleanála is considering an application from US energy group New Fortress for a €650 million LNG terminal beside the Shannon estuary. The Government's position – pending an interdepartmental review of the State's energy security – is that "it would not be appropriate" to build any LNG terminals in Ireland.

This, however, could change in the face of the current crisis. Soaring energy prices might be stripping household budgets bare but energy security, or the lack of it, has the potential to trigger even bigger problems in the form of outages, rationing and a full-blown recession.

Germany and others have already activated emergency plans in the face of Moscow's gas-for-roubles gambit. Vladimir Putin says Russian energy customers will now have to pay their bills via a rouble account with the non-sanctioned Gazprombank or be considered in "default", a threat that could result in a complete shutdown of Russia's gas supply to Europe.

Carsten Brzeski, chief economist at Dutch bank ING, warns that while German households could cope with a potential shock to supply emanating from this stand-off, German businesses could not, and the result would be a major disruption in production and a recession in the euro zone's powerhouse economy.

As bleak as all this sounds from a climate perspective, you could conversely argue that the current energy crisis has the potential to career us into renewables at a faster rate. The energy transition was always going to be hard but maybe the looming spectre of outages and rationing combined with soaring prices will serve to pull off the plaster quicker.

From a position of relying on Russia for more than half its energy needs, Germany now expects to be independent of Russian energy by mid-2024. This would have been unthinkable even last year.

Storage plants

The ESB has recently applied for planning to construct two major energy storage/battery plants at its midland sites in Lanesborough and Shannonbridge that will facilitate more renewable electricity on the State's grid.

These sites will be able to store the wind energy generated on good days for use on bad days, a potential game changer in the switch to renewables.

The Government’s forthcoming energy review is also likely to push for an acceleration in offshore wind projects. This will initially focus on building fixed turbine projects along the east and south coasts but might also envisage bigger floating infrastructures far out at sea.

Rising fuel and energy costs are also likely to accelerate an already growing demand for EVs (electric vehicles) and heat pumps. Sales of new EVs now account for 12.6 per cent of total new car registrations here while the Government’s recent doubling of grants for heat pumps appears to be cementing strong demand.

Europe’s energy crisis is creating strong price incentives around climate-friendly solutions.

“The invasion of Ukraine, and the subsequent fossil fuel energy crisis, has underpinned the importance of accelerating the switch to our own indigenous, renewable energy systems and reducing our reliance on imported fossil fuels,” a spokesman for the Department of Environment said.

The next two winters, however, will be the true test of whether Europe can wean itself off Russian oil and gas, whether we revert back to fossil fuels in the face of greater geopolitical instability or if we will push on to the promised land of renewables.