By Sverre Alvik
The ongoing Russian invasion of Ukraine has caused the world, but foremost Europe, to fret over its energy security. Prices at petrol stations hit record highs, and low-income households struggle to pay their gas and energy bills. A tough autumn and winter can be expected.
Apart from the war-inflicted burden on consumers and many industries, I believe an important question is whether the war in Ukraine will derail Europe's energy transition? This is tricky to answer as it depends on several variables, including the extent and duration of the war.
However, given the present circumstances, I believe that improved energy security will not occur at the expense of decarbonization.
In fact, Europe, which had been so dependent on Russian oil and gas, should expect a small acceleration in its energy transition, with less fossil fuels in the mix and thus lower greenhouse gas emissions. This is supported by DNV's Energy Transition Outlook (ETO) model which effectively captures some of the emerging global complexities and assumes a scenario where zero Russian gas will be imported into Europe in 2025 at the latest.
To set the context, European policymakers are determined to slash their dependence on Russian gas by two-thirds already this year, which seems like a tall order. This would be a painful and costly switch, as it explores the increased import of LNG. Currently, the role of imported LNG is restricted by the regasification capacity.
Production in places linked to the European gas pipeline networks in Norway, Algeria and Azerbaijan can only inch their output upwards, while the building of additional infrastructure takes two to five years. This means, LNG import by ships is needed to fill the gap. Despite the challenges, LNG will still play an important part in Europe's overall energy security strategy.
Other alternatives include Belgian nuclear, French heat pumps, German solar and pan-European wind. However, the time needed for some of these options to take meaningful effect could take multiple years, and they are far from perfect.
For example, though the delayed retirement of nuclear plants is somewhat easy to implement, maintenance and security issues may arise. Germany, for example, remains committed to eliminating all domestic atomic energy by the end of this year, which is backed by its population even in the current energy crisis.
The following are some insights highlighted by our model:
― Coal is needed in the very short term as a bridging energy source to meet Europe's demand. Its higher cost due to the war will not be a major problem since it is a source of last resort, and it will only replace six percent of the shortfall of Russian gas in 2024.
― Renewables and nuclear will help to produce 34 percent of Europe's energy by 2024, two percentage points higher than our pre-war forecast. Specifically, bioenergy, which is sourced mainly from sewage and waste, is expected to make up 20 percent of the shortfall in 2024.
While it offers little relief in 2023, meaningful effects should be observed by 2030, where solar PV and wind will contribute to more than 50 percent of the shortfall in Russian gas supply. As for nuclear, it is expected to provide one-third of the shortfall in Russian gas in 2023. In the long run, its place in Europe's energy mix is possibly driven by country specific politics rather than costs.
― Energy emissions will similarly fall by 2.3 percent in Europe between 2022 and 2030 compared to the absence of the Ukraine war because of the usage of low carbon energy (renewables and nuclear), higher energy efficiency, and lower economic growth in the intermediate term. Overall, Europe's gas use will drop by 9 percent in 2024 compared with DNV's pre-war forecast.
Although non-fossil supply and energy efficiency can be accelerated, there are counterforces at work regarding the energy transition that must be acknowledged. Examples include burning more coal to replace natural gas as well as rising costs of EV batteries and PV panels. Thus, the push for energy security will work against the energy transition.
As a result of the Ukraine war, global trade and cooperation have been seriously impacted. Global logistics must be realigned to tackle the escalating food crisis and there is also a shortage of critical materials. These grave repercussions could slow down the energy transition in Europe.
No one can predict the duration and outcome of the Ukraine war, or the strength of the policies imposed by the European nations to address energy security and sustainability. However, in the current circumstances, I would anticipate a small acceleration of the energy transition in Europe despite the ongoing Ukraine war.
Unlike other leading economies that deepened their reliance on fossil fuels during the COVID-19 pandemic by providing subsidies for heavily polluting industries to protect jobs, the EU kept its promise to focus on low carbon energy in preparation for its post-pandemic economy.
One notable initiative is its NextGenerationEU package, which is worth 2 trillion euro, and encourages the adoption of low carbon energy. So far, Europe has been able to cope with the effects of the short-term pandemic alongside the long-term climate crisis, which is why I believe that Europe can push through the energy transition during this uncertain period.
It will be interesting to see how policymakers in Asia will adjust their policies, learning from Europe's trial and error.
Sverre Alvik is director of energy transition research at global risk management company DNV, which is based near Oslo, Norway. The company is also the world's leading classification society for ships and has been operating in Korea for more than 50 years, having stations at all major Korean shipyards.
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Apart from the war-inflicted burden on consumers and many industries, I believe an important question is whether the war in Ukraine will derail Europe's energy transition? This is tricky to answer as it depends on several variables, including the extent and duration of the war.
However, given the present circumstances, I believe that improved energy security will not occur at the expense of decarbonization.
In fact, Europe, which had been so dependent on Russian oil and gas, should expect a small acceleration in its energy transition, with less fossil fuels in the mix and thus lower greenhouse gas emissions. This is supported by DNV's Energy Transition Outlook (ETO) model which effectively captures some of the emerging global complexities and assumes a scenario where zero Russian gas will be imported into Europe in 2025 at the latest.
To set the context, European policymakers are determined to slash their dependence on Russian gas by two-thirds already this year, which seems like a tall order. This would be a painful and costly switch, as it explores the increased import of LNG. Currently, the role of imported LNG is restricted by the regasification capacity.
Production in places linked to the European gas pipeline networks in Norway, Algeria and Azerbaijan can only inch their output upwards, while the building of additional infrastructure takes two to five years. This means, LNG import by ships is needed to fill the gap. Despite the challenges, LNG will still play an important part in Europe's overall energy security strategy.
Other alternatives include Belgian nuclear, French heat pumps, German solar and pan-European wind. However, the time needed for some of these options to take meaningful effect could take multiple years, and they are far from perfect.
For example, though the delayed retirement of nuclear plants is somewhat easy to implement, maintenance and security issues may arise. Germany, for example, remains committed to eliminating all domestic atomic energy by the end of this year, which is backed by its population even in the current energy crisis.
The following are some insights highlighted by our model:
― Coal is needed in the very short term as a bridging energy source to meet Europe's demand. Its higher cost due to the war will not be a major problem since it is a source of last resort, and it will only replace six percent of the shortfall of Russian gas in 2024.
― Renewables and nuclear will help to produce 34 percent of Europe's energy by 2024, two percentage points higher than our pre-war forecast. Specifically, bioenergy, which is sourced mainly from sewage and waste, is expected to make up 20 percent of the shortfall in 2024.
While it offers little relief in 2023, meaningful effects should be observed by 2030, where solar PV and wind will contribute to more than 50 percent of the shortfall in Russian gas supply. As for nuclear, it is expected to provide one-third of the shortfall in Russian gas in 2023. In the long run, its place in Europe's energy mix is possibly driven by country specific politics rather than costs.
― Energy emissions will similarly fall by 2.3 percent in Europe between 2022 and 2030 compared to the absence of the Ukraine war because of the usage of low carbon energy (renewables and nuclear), higher energy efficiency, and lower economic growth in the intermediate term. Overall, Europe's gas use will drop by 9 percent in 2024 compared with DNV's pre-war forecast.
Although non-fossil supply and energy efficiency can be accelerated, there are counterforces at work regarding the energy transition that must be acknowledged. Examples include burning more coal to replace natural gas as well as rising costs of EV batteries and PV panels. Thus, the push for energy security will work against the energy transition.
As a result of the Ukraine war, global trade and cooperation have been seriously impacted. Global logistics must be realigned to tackle the escalating food crisis and there is also a shortage of critical materials. These grave repercussions could slow down the energy transition in Europe.
No one can predict the duration and outcome of the Ukraine war, or the strength of the policies imposed by the European nations to address energy security and sustainability. However, in the current circumstances, I would anticipate a small acceleration of the energy transition in Europe despite the ongoing Ukraine war.
Unlike other leading economies that deepened their reliance on fossil fuels during the COVID-19 pandemic by providing subsidies for heavily polluting industries to protect jobs, the EU kept its promise to focus on low carbon energy in preparation for its post-pandemic economy.
One notable initiative is its NextGenerationEU package, which is worth 2 trillion euro, and encourages the adoption of low carbon energy. So far, Europe has been able to cope with the effects of the short-term pandemic alongside the long-term climate crisis, which is why I believe that Europe can push through the energy transition during this uncertain period.
It will be interesting to see how policymakers in Asia will adjust their policies, learning from Europe's trial and error.
Sverre Alvik is director of energy transition research at global risk management company DNV, which is based near Oslo, Norway. The company is also the world's leading classification society for ships and has been operating in Korea for more than 50 years, having stations at all major Korean shipyards.
