What does the need for greater energy security mean for investors?
Other nations also import energy sources from Russia, but at much lower levels, meaning countries such as the UK and the US are able to include an energy import freeze as part of their economic sanction on Russia.
While Europe’s reliance on Russian fuel means it is held over a barrel to some extent, the EU has announced plans to cut Russian gas imports by two-thirds within a year in a bid to reduce this dependency.
Many countries have announced plans to speed up their green energy transitions.
Germany, in a rather historic move, has turbocharged its transition agenda by moving its target to be 100% renewable forward by 15 years to 2035 – bringing it in line with US and UK. The German government also plans for 80% of its power to come from renewables as soon as 2030, which will be achieved by onshore wind additions that will produce 10GW a year from 2027 (versus only 2 GW a year ago) and solar installations that produce an additional 20GW from 2028 (versus 5 GW a year ago). In addition, the new-installed government intends to dramatically shorten the timespan for onshore wind permits, which has been a significant barrier for growth in renewables.
The EU’s new energy plan also seeks to boost renewable energy generation and cut demand through efficiency measures, but it concedes that the bloc will also seek to import more liquefied natural gas and that it may need to burn coal for longer.
In addition, in the US shale oil producers are being looked on to provide short-term supplies and in the UK efforts to increase its self-sufficiency have prompted calls to increase North sea oil and gas production as well as an easing of restrictions on fracking.
In his State of the Union speech, President Biden promoted the argument that fighting climate change will translate into energy savings for American households. He pledged to “provide investments and tax credits to weatherise your home and your businesses to be energy efficient and get a tax credit” and “Double America’s clean energy production in solar, wind and so much more. Lower the price of electric vehicles, saving you another $80 a month that you’re not going to have to pay at the pump.”
Several big-name car manufacturers have announced plans to accelerate electric vehicle production and the world’s leading EV car manufacturer has been given the go ahead for its first car and battery plant in Europe4.
Unfortunately, more consumers suddenly recognising the appeal of electric vehicles means demand is now outstripping supply. Inventories are particularly poor given EV production is caught up in the global semiconductor shortage and broader shipping delays. Some companies have now paused taking orders for new EVs, while other popular models are facing up to a year’s wait for delivery.
The best ‘get out of jail free’ card countries can play to gain energy independence is to ramp up their green energy output, but this requires more than just rhetoric and long-term planning. Green energy infrastructure projects need to start now and planning needs to take the world’s changing geopolitical structure into consideration.
In short, the world needs to do more, faster.
At BNP Paribas Asset Management, our environmental strategies team believes that the alignment of energy security and the energy transition means the investment case has never been stronger.
They feel valuations levels have reached attractive levels amid equity market volatility and macro concerns and that perception of good value is reinforced by the fact that merger and acquisition opportunities within this area are rising.
Our Environmental Strategies capabilities aim to identify ‘tomorrow’s winners today’ among companies addressing climate change, biodiversity and ecosystems. Our concentrated portfolios are diversified across all market-capitalisations, which can provide a cushion to current volatility.
For more information about our Environmental Strategies, performance and a more detailed investment approach please click HERE.