What the War in Ukraine Means for Renewables and How Storage Could Fight the War on High Gas Prices
Since Russia invaded Ukraine in February 2022, energy prices have soared. Russia supplies about 14% of the world’s natural gas and crude oil, so the imposition of sanctions have sent gas prices skyrocketing domestically. In March, the national average for a gallon of gas in the U.S. exceeded $4, reaching the highest amount since July 2008. A similar story has unfolded in Europe. In March, Germany saw natural gas prices rise 62% and electricity prices rise 23% since December 2021. Oil and gas industry experts doubt the ability of producers to meet the supply gap in the short-term, implying higher prices for the near future.
Exogenous shocks like the war in Ukraine and the resulting sanctions highlight both the interconnectedness and the fragility of global energy markets. The war is also a reminder that other shocks, like climate change and changing regulatory landscapes, can quickly, dramatically, and even permanently disrupt economic equilibria in those markets. Destabilized energy markets may seem like an abstract malady until the effects hit consumers’ pocket books, threaten national security (by, for example, forcing the Administration to tap into its strategic oil reserves), and enable countries like Russia to blackmail Western governments.
So what can be done? One way to incorporate more resilience into the system would be to shift away from fossil fuels and towards renewable energy sources, paired with sufficient energy storage. That technological tandem would better insulate the electricity system, while paving the way for more electric vehicle adoption.
What could be different
Today, fossil fuels such as oil and natural gas still make up nearly 70% of the energy that the U.S. consumes. Much of that energy goes to transportation, which represents 37% of energy consumed in the U.S., according to the U.S. Energy Information Administration. Electricity production itself requires approximately the same amount of primary energy flows. But less than 1% of the electricity produced in the U.S. is used to power electric vehicles.
Even though the United States’ reliance on foreign oil has abated in recent years, the bottomline is that fossil fuels still play an outsized role in our economy. Renewable energy sources constitute only about 11% of all energy consumed today, despite rapid growth in recent years. Therefore, not only is our energy system dirty, but it is also vulnerable.
Some have called for prolonging that reliance on fossil fuels, advocating for reopening North American shale oil production. But prolonging a dependence on fossil fuels is unwise. It jeopardizes the world’s ability to meet the emission pathways goals of the Paris Agreement while cementing everyday consumers’ exposure to the risks of sudden price increases, like the ones seen today.
A better path is to begin investing in renewable energy paired with storage while also removing legal and policy barriers that restrict deploying said infrastructure. Such a shift could have its own positive spillover effects, such as insulating electricity markets from swings in natural gas prices.
A storage-forward strategy can also work to extend the life of existing infrastructure. For example, had Germany kept 10 of its 17 nuclear plants online and then invested into storage the amount of money it is currently paying in natural gas premiums, we estimate that it could have installed approximately 3.25 GW of 4 hr storage capacity. It would have also avoided nearly 400 Mt of carbon dioxide emissions as a result.
The Path Forward
Despite runaway inflation, trillions of dollars of cash are sitting on the sidelines. According to the Federal Reserve, over $1 trillion was sitting in retail money market accounts alone, as of January 2022. Instead of allowing the value of those stockpiles of cash to erode, that capital could be deployed to fund the next wave of clean energy.
Investors, consumers, and those worried about national security or the war in Ukraine should not have to wait. Whether the motivation is to help national security, to fight prices at the pump, or to build a bridge to a cleaner future, policy-makers and the private sector should mobilize to help everyday Americans take matters into their own hands.
Some startup companies are trying to do just that. For example, Firn, the company I helped launch, is developing a platform called ecoFunds, which will help mainstreet investors invest in (and therefore help deploy) new solar, wind, and battery storage infrastructure. In turn, their investments will also provide developers finance for their solar, wind, and battery storage projects at affordable rates.
Of course, more needs to be done at the state and federal level to solve issues around transmission, clear backlogs of interconnection agreements, and streamline the permitting process for more energy storage. And those transformations will take time. But the war in Ukraine should be a stark, if not humbling reminder, that the best time to have begun that journey was yesterday; the second best time is today.
Author Bio – Byron Ruby is the co-founder of Firn. He is an attorney, former climate negotiator in Obama’s State Department, and a former McKinsey consultant with their finance, risk, and sustainability practices.
