Renewable Energy After Fossil Fuel Crisis

The Strait of Hormuz blockade is the second time in the last few years where military conflict is impacting energy security. After Russia's invasion of Ukraine, energy trade relationships were shattered leading many governments to question how to securitise their energy dependency and buffer themselves from future shocks. Renewable energy has increased dramatically, especially in Asian countries, which has helped in the current crisis. Many countries can boast that they are switching over to renewable energy sources but there are still some that are heavily dependent on fossil fuels like coal and LNG. Diversification of energy sources is more important than ever to ensure affordable energy to consumers and its downstream effects to production in general.

The infographic from Ember highlights how vulnerable fossil fuels are to global energy trade. Over a quarter of the world’s oil and gas exports are impacted by Iran’s blockade of the strait. This is a significant issue for buyers in Asian countries as 40% of their oil demand comes from this region and over a quarter of Asian LNG imports. Japan, South Korea, India and Thailand depend on exports as their main source of supply. 

China has been less panicked regarding the oil price surging as it not only has larger oil reserves than other Asian countries but it has greatly developed in the renewable energy sector in recent years. CNBC has quoted that “China has accumulated one of the world’s largest strategic and commercial crude reserves,” the analysts said, adding that its “rapid transition toward electric vehicles and renewable energy provides an additional structural hedge.”They have also developed new overland oil pipelines and diversified to renewables meaning that the country now only relies on the Strait of Hormuz for about 40% to 50% of its seaborne oil imports.

As for the Europeans, the redirection towards renewable energy has been more complicated. Many countries boast of their successes using renewable energy, like Spain. Prime Minister Pedro Sánchez of Spain explains that Spaniards enjoy a certain degree of immunity from the high oil and gas prices due to the current conflict in the Middle East. Other world leaders are dealing with the fallout from rising fuel costs, but Mr. Sánchez says Spain is less at risk because it has shifted so quickly to renewable energy like solar, wind and hydroelectric power.

“Spain can demonstrate examples of how investing in renewable energy helps our households experience a lower impact from gas price increases,” Mr. Sánchez said other leaders in Brussels earlier this week. One example he cited was that electricity in Spain cost roughly one-seventh what it did in France and Germany. While Spain still relies on some fossil fuels for energy, the chart below shows how other European countries have almost eliminated their dependency all together:

The volatility of the energy market is unsustainable for national economies to continue business as it is. Geopolitical tensions are creating more problems in fragile chokepoints and the ripple effects are global. Transitioning to renewable energy diversifies the energy markets and the electrotech is falling in price to help make it more affordable. Ember estimates that:

“Solar panels have halved in price since 2022. Annual solar installations have nearly tripled in four years. Battery prices have fallen by 36%. Annual deployment of grid batteries is seven times higher. The total cost of dispatchable solar – panel plus battery – is now just $76/MWh for countries that import tariff-free. EVs are increasingly at sticker price parity with combustion cars, and EV sales have doubled since 2022.”

The fluctuation in oil prices is going to continue long after the current crisis in the Gulf has been resolved. Some of the infrastructure inflicted on energy facilities in the region are estimating it will be several years before they are able to fully online again. Using renewable energy technology and investing in diverse energy capabilities can help governments pivot from foreign energy dependency in an uncertain geopolitical world.