Policy & Market


Triumphant Putin’s fresh grip on power only strengthens the need for renewables in Europe

There was nothing surprising about Vladimir Putin cruising to victory in the Russian presidential poll and few in the renewables industry might think they have cause to take much notice.

But the future leadership of this sprawling nation has considerable significance because of what it means for the gas market.

What happens in that sector has great importance for clean-tech, particularly in Europe, which is why UK regulator Ofgem is in the middle of a major review of the global gas market. Many outside the renewables field are convinced that a combination of shale gas and new Russian Arctic natural gas from the Shtokman field means the whole wind and solar game is a waste of time.

This week, AF Consult has relaunched a report on the future of energy in Britain arguing just that. With gas and nuclear there to take the strain, who needs to “waste” money on heavily subsidising renewables, it claims.

“If we are concerned about cost, then renewables have no part to play in [policies] reducing greenhouse gas emissions by 80% by 2050,” it is argued in the report’s introduction.

That foreword was written by Clare Spottiswoode, the former director-general of the defunct Ofgas regulator who now chairs nuclear power group Magnox. No vested interest there, then, Clare? I say “relaunch” because this paper by AF Consult was set to be published a couple of months ago, under the banner of accountant KPMG.

This used the figure of £34bn ($53bn) being saved by 2020 — £550 per person in the UK — if plans to replace coal-fired power stations with wind were swapped for gas and nuclear. AF has now expanded that figure to £45bn. But there was such a furore over the original analysis that KPMG — a major auditor to the corporate world and a government adviser on energy — decided to distance itself from the report. Indeed, the Department of Energy and Climate Change said the report was “so flawed the conclusions are near-pointless”.

The relaunched version of the report comes less than a week after Bloomberg New Energy Finance (BNEF) brought out its own research on the UK’s energy future.

BNEF came to the conclusion that enough gas-fired power stations were already being built to avoid a much-feared blackout in 2015-20.

The situation has been helped by the huge downturn in electricity demand as a result of the European credit crunch and more efficient use of fuel, it argues.

But BNEF believes the UK will need all the renewables it can get too, especially given question marks over the speed of new nuclear and longer-term demand growth. I wholeheartedly agree. We have already been told of further delays at the Olkiluoto atomic plant being built by French engineering group Areva in Finland. It is now running five years late and is scheduled to open in August 2014.

EDF, the French company leading the charge with British nuclear plants, has also revised backwards its schedule for opening any new atomic facilities in the UK. The nuclear revolution in Europe is largely in French hands, but even in that country presidential challengers are talking of scaling back. So we have grave uncertainty over the timing of new nuclear-energy capacity and question marks over the future of gas.

Shale has transformed the economics of the North American gas industry, but that is less likely in Europe. There are all sorts of environmental concerns about the use of chemicals in “fracking” that make a shale-gas revolution in much more densely populated Europe unlikely.

Then there is gas supply. Putin has won his election but lost much public confidence and Russia looks more politically unstable than ever. Equally, Putin’s style of state capitalism looks like deadening the scope for rapid economic — or gas export — growth. Putin’s biggest chance of increasing his popularity might be through sabre-rattling with the West. That will make state energy company Gazprom’s job of growing export markets even harder.

Britain, or anyone else going down the gas path, will need to compete with growing demand around the world. Yes, there may be exports of shale gas eventually from the US, but I see gas prices rising not falling — as I do with oil, to which the price of most gas contracts is still linked. Wind and solar, meanwhile, are rapidly coming down in cost while they also represent diversification and self-sufficiency.

The former KGB strong man winning another presidential term only strengthens the need for renewables.