A remarkable year for global energy markets

One year on from Russia’s invasion of Ukraine and this excellent, upbeat piece in The Economist got me thinking about what a wild ride global energy has been on over the last 12 months. 

The energy landscape today is virtually unrecognisable to the one we were looking at a mere year ago, and the transition shows how Putin’s aggression is playing out in a number of unprecedented ways. Encouragingly, some of the developments are positive. 

Astonishing levels 

First, it’s astonishing to note that wholesale gas prices in Europe are now actually below where they were a year ago. 

If you’d have asked many about the impact of a war of this scale on energy prices 12 months on, I’d guess that where we are today would not have been the popular consensus. Mild weather, ample and innovative storage solutions and a lightning-fast shift towards alternatives have allowed prices to sharply fall back. 

Further, gas storage remains around 64% full, compared to around 45% for a normal February pre-war, which is another remarkable measure of the strange forces that have been at work over the past 12 months. 

A shift towards green 

One outcome of the war has been that it has accelerated the transition towards green energy on an unprecedented and, largely, unexpected level. We all knew that we were slowly but surely heading towards a green future - but few would have had us this far along in early 2023.

As The Economist notes, “last year the world economy became 2% less energy intensive, as measured by the amount of energy used to produce one unit of GDP,” which is a staggering shift caused in no small part by a largely outlier event, with both alternative sources now being sought but global energy usage also falling, too.

Investment abounds 

In further green developments, solar installations increased by 50% last year, with German solar plants an being an encouraging example of the pace of change, as they now take a mere 3 years to become profitable, compared to 11 years in pre-war years. 

The level of investment from both the private sector and government is booming, with capital expenditure on solar and wind growing from $357bn to $490bn in the past year. It is now surpassing the total investment in oil and gas for the first time in history. 

As prices fall as a consequence, the increased output is being matched by increasing consumer appetite for all things greens, which has remained buoyant despite pressures from the cost of living crisis for households. 

Upwardly trending

The Inflation Reduction Act (IRA) in the US, and any further potential green industrial policy, should unleash further vast sums of money that will only speed up investment in the private sector, especially if the war continues to rumble on. As a consequence, the IEA has also revised its renewable energy forecast up for 2027 by 30%. 

The Economist concludes with its belief that the war has accelerated the green transition by some 5-10 years. This is remarkable, given that we have about 30 years to reach our shared global aim of achieving “net zero”. With the war showing no sign of reaching a conclusion anytime soon, we can expect that these predictions may change even further as we move through 2023, and that target may fall even further towards our grasp. 

The power of a crisis 

It’s amazing how so many things can magically happen faster during times of crisis. For example, vaccines that would normally have taken more than 10 years to develop, test and distribute (largely due to bureaucracy and red tape), were released in pretty close to 12 months when COVID caused us to rip up the standard playbook for their development. 

Similarly, it was predicted that a significant shift towards all things green would take many years, if not decades. But with a war and an energy crisis spurring the world on, it looks as if we’ve forged a faster path forward. 

It’s interesting to muse about what else we might be able to achieve if we took on the crisis mindset a little more often.

In a year where there has been nothing but bad news and hardship for many millions throughout the world, and especially for the people of Ukraine, the shift away from old energy towards the new is a faint but remarkable silver (and green) lining.