GLOBAL ISSUES: How renewable energy shields countries from oil price shocks

Even countries with a lot of renewable electricity are still vulnerable to price shocks at the gas pump and for home heating, because those are largely fossil-fuel based – Image: Frederic J. Brown/AFP

The Iran war has sent oil and gas prices surging. As countries like the US double down on fossil fuels, experts say the conflict shows how speeding up homegrown renewables is the only way to avoid future energy crises.

Countries that generate more of their power from wind, solar and other renewable sources are better protected from global energy shocks, experts say, as the escalating conflict in the Middle East rattles global markets.

The war has widened since the US and Israel launched strikes on Iran more than 10 days ago. Critical infrastructure in the region has come under attack and the risk of Iranian strikes has essentially shut down the Strait of Hormuz,the crucial waterway used to transport 20% of the world’s oil and gas.

The disruption means fuel may struggle to reach the countries that depend on it to generate electricity, heat homes, power industry and run transport. The resulting supply squeeze is pushing prices higher around the world and could intensify cost-of-living pressures.

“Energy is the lifeblood of our societies and our industries,” said Antony Froggatt, aviation, shipping and energy expert at Brussels-based NGO Transport & Environment. “And we’re still highly dependent on fossil fuels.”

The world still gets about 80% of its primary energy from fossil fuels, the main source of greenhouse gas emissions driving climate change. In his second term, US President Donald Trump has also doubled down on fossil fuels, scrapping Biden-era green energy and climate regulations aimed at cutting emissions.

That dependence makes economies and societies vulnerable to geopolitical shocks, said Rana Adib, executive secretary of the Renewable Energy Policy Network for the 21st Century (REN21).

Countries with a higher share of “homegrown” renewables in their energy mix are “less vulnerable to these shocks,” she argued.

Green energy technologies like wind turbines, solar panels and batteries — and the rare earths required in their manufacture — have global supply chains that can also be affected by geopolitical tensions and trade disruptions. But the energy renewables produce typically comes from within national borders.

“Once you bring the technology into the countries, the fuel you’re using is the sun, is the wind, is the heat that is local,” Adib told DW. “And this is a reason why renewable energy as a solution for energy production is much more resilient to those global shocks.”

Uruguay bets on wind and hydro

After the financial crisis in 2008, unease about a reliance on oil and gas imports was what drove Uruguay to go all in on renewables.

Two decades ago, the small South American country with a population of 3.5 million embarked on a plan to phase fossil fuels out of its power grid by rapidly expanding wind farms.

Today, more than 90% of the country’s electricity comes from renewables — mainly wind, solar, hydropower and biofuels. That figure has reached 98% in some particularly wet and windy years.

“It shows us that a 100% renewable electricity grid is fully possible,” said Adib, adding that Uruguay has managed to do so without the massive amounts of storage required for when the sun isn’t shining and wind isn’t blowing.

Adib said the shift to green power helped limit Uruguay’s exposure to past energy price surges.

“During the energy crisis linked to the war in Ukraine, Uruguay energy prices remained stable,” Adib said. “This is extremely important because it means that the inflation does not hit this country in the same way as a country that has a high dependence on fossil fuel imports.”

Renewable energy advocates say countries with more homegrown solar, wind and hydro could insulate themselves from oil shocks in the future – Image: VCG/IMAGO

Adib said the investment in renewables created 50,000 jobs and has allowed the country to save $500 million (€430 million) in energy import costs annually.

Still, Uruguay, like most countries, remains reliant on fossil fuels to power transport, run its industrial sector and heat homes. It is moving to electrify its public transport and decarbonize industry. But phasing out fossil energy entirely could take decades.

More electricity needed to bolster transition

Another country that has significantly reduced reliance on fossil fuels is Denmark. The oil crisis in the 1970s hit the small Scandinavian country hard, prompting it to begin developing renewables early.

Today, more than 80% of Denmark’s electricity is supplied by green energy, with wind making up almost 60% of that amount, followed by biogas. The country of 6 million has cut its planet-heating emissions by half since 1990 and wants to have a fossil-fuel free electricity system by 2030.

Its district heating systems, which link up more than 65% of homes, have largely phased out coal and are planned to rely 100% on renewable biomethane by 2030.

Froggatt said having renewables dominate the grid keeps prices down, citing an IMF study showing that every 1% increase in the amount of renewables translates on average to the wholesale electricity price falling by 0.6%.

“And that’s in normal circumstances. Obviously, when you have vastly inflated gas prices, then the economic advantage of renewables goes up even higher,” he added.

But he stressed that consumers will only be protected from rising oil and gas prices when things like transport and heating are fully electrified, for example, with electric vehicles and heat pumps.

High fossil fuel prices and the vulnerability of the commodities to supply bottlenecks are expected to make clean energy more competitive and financially attractive, as well as pressuring governments to find alternative solutions, say analysts.

The Strait of Hormuz is one of the world’s most critical maritime chokepoints, carrying around a quarter of global seaborne oil trade – Image: Benoit Tessier/REUTERS

“The current crisis shows again that we need to enter the renewable-based era and leave the fossil fuel-based era behind” if we want societies and economies that are more resilient, said Adib.

But accelerating renewables to secure a more stable energy supply will take massive investment and system change. Though green power sources are now much cheaper than fossil fuels, oil and gas are highly subsidized.

Froggatt said making the switch is not just about slowing climate change, but about energy security.

“These two things go hand in hand. And so, if there is an upside of what we’re seeing now, it’s that energy and how we get our energy and affordability of energy goes back up the political agenda,” Froggatt said.

DW.com/NAN 13-3-26

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