Russia's Ukraine incursions highlight EU energy concerns

Construction of the pipeline was completed in September 2021 and operator Gazprom said it is filled with gas and ready to go.

However, the pipeline still requires certification from the German authorities before it can start operating and, on Tuesday, the German government said it would not give that certification due to Russian incursions in Ukraine.

The reason for the escalation this week is that Russian President Vladimir Putin said on Monday that Russia now recognised the regions Donetsk and Luhansk as independent of Ukraine. This is a decision Putin said meant Russia could send in troops for “peacekeeping” – but which countries including Germany, the US and the UK said was a pretext to justify war.

Germany is not the only government to warn about the potential impact of Russian actions in Ukraine on Nord Stream 2. US President Joe Biden this month said that the US would “bring an end to” the project if Russia invaded Ukraine. The US does not have direct authority to cancel the pipeline project, but the Biden administration has been working in lockstep with Germany. We saw the result of that this week.

Nord Stream 2 has long been criticised by those who argue it grows Europe’s reliance on Russian gas and leaves the region vulnerable. Now it will sit idle.

The European Union is also planning sanctions on Russia, which could affect assets in sectors including energy, and it seems clear this is not a situation that will end quickly. The immediate impact will be that natural gas prices continue to rise as Nord Stream 2 will not be able to come online as planned in 2022 or 2023 to alleviate the current challenges in the European gas market.

We cannot ignore its potential impacts on wind either.

Crunch time

In the short term, we expect the impact on wind in most of Europe to be negligible. It has long been the contention of those in the wind sector that expanding renewables in Europe and electrifying more of the energy system is important, in part to reduce the region’s reliance on Russian gas imports. The fundamental point will not change.

We may see the current crisis focus the minds of politicians across Europe on how important it is to diversify their energy mix, so they are less reliant on gas imports. There has been a great deal of discussion in the last two years about how delays in the permitting of wind projects in Europe are holding up the expansion of renewables, and this is weighing heavily on the sector in Europe.

The current crisis may prompt governments to move more quickly to de-risk energy supplies by unblocking hurdles to renewables. That could help firms working in wind.

But that is not a guaranteed outcome. In Germany, we could see the country delay its planned shutdown of its final three nuclear power plants this year to maintain that part of its energy mix. Unlikely but possible. It may even prompt a short-term increase in coal use, although that would be politically difficult for an incoming government that has committed itself to green energy this year. It is impossible to predict exactly how countries will react.

We may also see media criticism of renewables increase.

Europe’s energy crisis has so far amplified the voices of those in the fossil fuel sector that seek to blame wind farms and green tariffs for raising power prices. In the UK, this will lead to more calls to start fracking or intensify North Sea oil exploration, and for the UK government to move away from commitments to reaching net zero and growth of renewables.

De-carbonisation and electrification can help European countries to reduce reliance on Russian gas imports, but are not the only solutions that politicians will reach for. Progress for renewables may be stalled as countries prioritise security of supplies. The growth of green energy is not a foregone conclusion.

Finally, we can only echo the calls from those who want to see a quick de-escalation of the tensions in Russia and Ukraine.

It is natural for those of us who work in energy to focus on key issues such as energy security, and the impacts on our market. But we should not lose sight of the human cost or our hope for a peaceful outcome.