NN IP: Energy transition - security of supply highlighted as the second important driver

NN IP: Energy transition - security of supply highlighted as the second important driver

March 22, 2022

Energy Transition
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Russia's invasion of Ukraine has emphasized the need to accelerate the energy transition from fossil fuels to renewables. In 2021 Russia still provided 155 billion cubic meters (bcm) of gas to the European Union (EU), equal to 45% of imports and some 40% of all EU gas consumption1.

On March 8 the European Commission launched REPowerEU, a proposal to make Europe independent from Russian fossil fuels before 2030, starting with gas. The plan aims to replace the Russian volume based on two pillars: (1) diversifying gas supplies via LNG and pipeline imports from non-Russian suppliers and larger volumes of biomethane and renewable hydrogen, and (2) faster reducing the use of fossil fuels by boosting energy efficiency, adding renewables and electrification as well as addressing infrastructure bottlenecks.

The commission believes almost two thirds of the targeted reduction can be realized within a year by speeding up existing plans. It is an ambitious goal for the short-term as building the necessary infrastructure takes time. In March 2022, the IEA estimated the EU could reduce imports of Russian gas by just over one-third within a year. To reduce Russian gas dependence further, the EU would likely temporarily need more coal for generation, while countries like Belgium and Germany might be forced to delay nuclear closures. 

It’s clear that investments in renewable generation, power transmission and distribution infrastructure, energy efficiency and insulation need to be stepped up quickly. This will drive additional growth for companies enabling the energy transition. This also seems to be reflected in relative stock performance since the war started. The energy sector had outperformed the overall stock market since the start of 2022. That trend has reversed in recent weeks, as oil and gas prices have moderated after the sharp spike following the invasion. In contrary, stocks of leading solar, wind and hydrogen companies have performed very well in the past four weeks.

Oskar Tijs, Senior Portfolio Manager Sustainable Equity, NN Investment Partners:

“The invasion of Ukraine has reminded all of us that the world, and Europe specifically, needs to speed up the energy transition. Replacing fossil fuels by renewable energy is key, not just to stop global warming but also to create energy independence. Therefore, we continue to take active positions, favoring companies with sustainable solutions to support this transition.”

 

References

[1] IEA, How Europe can cut natural gas imports from Russia significantly within a year, 3 March 2022

European Commission, REPowerEU: Joint European action for more affordable, secure and sustainable energy, 8 March 2022

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