How the War in Ukraine is Accelerating Clean Energy Adoption

Research from the International Energy Agency shows just how reliant the EU became on Russia’s gas when, between 2010 and 2021, Russia's share of total EU gas demand increased from 26% to more than 40%. This left EU countries exposed to the kinds of risks that have now surfaced amid the war in Ukraine.

The EU has managed to recover for the moment by dramatically reducing consumption and increasing its output of non-Russian supplies. IEA member countries have also tapped into their emergency reserves on two occasions. In March of 2022, IEA member countries released almost 63 million barrels. In the following month, they released an additional 120 million barrels which represents the largest stock release in the IEA’s history. These two drawdowns account for two of the five times this has happened in the history of the IEA.  

Finding a long-term solution, however, will be more challenging. Europe will need to accelerate its movement towards clean energy alternatives. The motivation to do so has never been stronger given that the war has no end in sight. Moreover, emergency reserves can only last so long.

Here we look at how the war in Ukraine is accelerating clean energy adoption and what it means for investors who want to position themselves for this future now.

The European Commission Aims to Double Deployment of Renewables

In May of 2022, the European Commission initiated the REPowerEU Plan with the intent to achieve three goals - save energy, produce clean energy, and diversify its energy supplies.

The plan has already experienced some success in reducing dependency on Russia’s fossil fuels, saving nearly 20% of EU energy consumption, and most importantly, doubling the additional deployment of renewables. In fact, since the end of the fourth quarter of 2022, Russian gas accounts for just 8% of all pipeline gas imported into the EU. This is possible through increased purchases of liquified natural gas and building strategic partnerships with Namibia, Egypt, and Kazakhstan to access renewable hydrogen.

The REPowerEU Plan has also increased the production and capacity of renewables “generating, for the first time, more electricity from wind and solar sources than from gas” according to the European Commission. The output of terawatt-hours is expected to increase by at least 15% over 2021 figures due to the record amount of additional solar PV and wind power capacity created. These investments in green technology are allowing the European Commission to fulfill its goal of ensuring that 39% of electricity comes from renewables. The amount of funding allocated to the initiative illustrates the scope and scale of the project. Almost €300 billion has been committed to date. This level of investment clearly communicates that the time for real change is now.

As Frans Timmermans, the commissioner in charge of the European Green Deal, explained, “The European Union now understands that if we want to increase our energy sovereignty, it can only go through renewables because we have very little gas left, we have almost no coal left, and we have no oil,

Additional research published by global energy think tank Ember, reinforces the massive shift happening in Europe today. Some of their data shows, for example, that 20 EU countries reached their highest-ever share of solar electricity. Some countries like the Netherlands, produced 14% of their power from solar allowing them to surpass coal generation for the first time. There are more numbers that tell the story of Europe’s new approach:

In 2022…

• Europe experienced the largest-ever absolute increase in solar electricity generation nearly doubling the rise of any other year
• New solar power installations increased by 47% over 2021
• 12% of the EU’s power came from solar between May and August, a considerable improvement from the previous record of 10%
• Solar generation was greater than goal generation in several European countries
• Greece’s electricity grid ran entirely on renewables for five hours in October
• The government of Belgium offered free solar panels to households who could not afford them, and a new rooftop solar mandate started in several states in Germany

What This Means for Investors

Investors have a number of ways to participate in Europe’s shift to renewable green technology. There are several diversified ETFs that offer exposure to the industrials that will be critical to meeting the EU’s long-term goals as well as those established by other initiatives globally like the GX Green Transformation program in Japan and the Inflation Reduction Act in the US.

L&G Clean Energy UCITS ETF (XLON:RENG)

The L&G Clean Energy UCITS ETF focuses on companies involved in the global clean energy industry across different segments of the value-chain. Nearly half (45.7%) of the holdings are in the industrial sector while 37.8% are in the utilities sector. The top five holdings are SMA Solar Technology, Neoen, Siemens Energy, Iberdrola, and Fugro. The fund is also a great choice for investors aiming for sustainable companies given that the fund focuses on companies that do not significantly harm any environmental or social objectives, and follow good governance practices.

iShares Global Clean Energy UCITS ETF (INRG)

The iShares Global Clean Energy UCITS ETF is made up of companies largely found in the industrial, utilities, and information technology sectors. The fund has 109 holdings and has an Article 8 SFDR classification. The top five holdings are Solaredge Technologies, First Solar, Enphase Energy, Consolidated Edison Inc, and Vestas Wind Systems. The 5-year total return is 14.80%.

Fidelity Clean Energy UCITS ETF (XLON:FRNW)

The Fidelity Clean Energy UCITS ETF, which tracks the Fidelity Clean Energy ESG Tilted Index, consists of 50 companies found in the industrials and utilities sectors. The top five holdings are Orsted A/S, Vestas Wind Systems A/S, First Solar Inc, EDP Renovaveis SA, and Enphase Energy Inc. About one-quarter (24.80%) of the companies are US-based with 10.70% in China and 10.50% in Spain.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.