The Middle East war had bolstered the case for investment in clean energy sources and battery storage, Microsoft said, as nations rushed to secure oil and gas supplies.
Microsoft’s global vice-president for energy Bobby Hollis, responsible for buying power for the tech group worldwide, said the oil and gas price surge had underscored the need for renewable energy in power supply as protection from volatile fuel costs.
“Wind and solar as, as part of that mix, is a huge benefit from the standpoint of price stability, because once you install it you have more certainty around what that actual cost profile looks like,” he told the FT.
“Fuel flexibility is always important, whether it’s a time of conflict or whether it’s a time of fuel scarcity, or changes in the fuel marketplace,” Hollis added. “That’s not a revolutionary idea.”
Hollis, who previously worked at Bill Gates’ Breakthrough Energy and Apple, said the lesson had been learnt from Russia’s war on Ukraine and the subsequent energy crisis in 2022.
“I think Europe recognised that when they came out of the Ukraine crisis, about looking at how they could get more diversity in their fuel supply and in their energy mix.”
Climate policy advisers and analysts also cited the benefits of the surge in sales of cheap solar panels in Germany and Hungary, and heat pumps in Italy and Poland, following the squeeze on Russian oil and gas after the Ukraine invasion.
Linda Kalcher, who has served as an adviser to European climate policymakers, said that while some governments might see a need to boost gas storage, the policy debate would turn once again to redoubling efforts on renewable energy sources including nuclear.
“Europeans are still importing 90 per cent of their fossil fuels, so that’s an extremely high exposure to the vulnerability of global markets,” she said.
Sam Reynolds, a specialist in LNG and Asia’s energy sectors at green think-tank the Institute for Energy Economics and Financial Analysis (IEEFA), said that the “commodity market shocks completely undermine the case for LNG as an affordable, reliable ‘transition fuel’, particularly for emerging markets.”
For Beijing, China expert Lauri Myllyvirta, co-founder of the Centre for Research on Energy and Clean Air, said the energy market ructions would reinforce the electrification of its economy to protect it from geopolitical risk.
“This kind of disruption is exactly what has driven China’s energy security approach and strategy over the years,” he said. “Certainly, seeing the US seize Russian oil tankers and seeing a major global oil trade choke point closed is additional validation to China’s approach.”
However, he noted that it would also shore up the case for increased use of its low-cost domestic coal for conversion into other polluting products such as gas and synthetic fuels.
Another paradoxical effect of the war in causing disruption to supply chains for renewable energy infrastructure could be resulting delays to efforts to expand.
European wind manufacturers, in particular, suffered from a sharp increase in the costs of materials and shipping in 2022.
But former US intelligence official Tom Ellison, deputy director of the Washington-based Center for Climate and Security, said the energy squeeze was a reminder that “fossil fuels have to constantly flow or else all hell breaks loose”.
“That’s just a fundamental vulnerability that fossil fuels have compared to renewable energy,” he said.
At the same time, renewables energy infrastructure, including the capacity of electricity grids, was “very dependent on upfront capital expenditures and are hurt by things like inflation and interest rates and broader kind of economic shocks”, he said. But the payback was a resulting enduring supply.
There were a mix of “climate friendly and climate unfriendly incentives at play in the short term”, Ellison said.
“The key is . . . breaking out of the doom loop that might incentivise you to just turn coal plants back on and secure alternate LNG suppliers that keeps building this longer term vulnerability into the system.”
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IEEFA’s Reynolds noted that following Russia’s war in Ukraine, many countries in Asia had already begun re-evaluating the build-out of LNG import infrastructure, including Pakistan, which had instead started importing large amounts of solar panels.
“Emerging markets in Asia are widely expected to be the largest growth markets for LNG demand globally, but — depending on the duration of the Iran conflict — they could once again find themselves at the mercy of global commodity markets and geopolitical uncertainty,” he said.
“I expect that the current conflict, if not de-escalated quickly, could once again cause countries in Asia to reconsider LNG plans, potentially hindering the long term growth of demand that the industry is counting on.”
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