Investing in Europe's Renewable Energy Market
A New Play on Russian Gas Dominance
One of the coldest winters I've ever experienced was in Germany back in 1993.
The skeleton trees were suffocated by coats of thick blue ice, the frozen ground was as hard as steel, and it seemed like the sun only made an appearance for about 15 minutes a day.
My cheap, thrift-store jacket proved useless against the chain of below-zero days that put the kibosh on many of my sightseeing plans, and I learned rather quickly that it is unwise to visit Deutschland without the proper winter gear.
So needless to say, I wasn't particularly surprised yesterday after reading that the European Union is considering a ban on gas exports and a limit on industrial use in an attempt to provide an emergency plan to protect energy supplies for its citizens.
After all, it's entirely possible that Russia could halt gas supplies in a few months. And that could cause some major damage to the EU.
Detour at Ukraine
Today, Russia remains the EU's largest supplier of oil, gas, and coal. And much of it must travel through Ukraine to get to its European destinations.
Now, over the past few months, buyers in the EU have been seeking out new oil, gas and coal supplies, and stockpiles have been building. But it's still unlikely to be enough to meet demand — particularly in Southeast Europe, where nearly all of the gas comes from Russia.
As a result, a regulation that was passed in 2010 banning gas companies from selling natural gas outside of Europe may soon be implemented.
Given the EU's already shaky economy, this whole scenario does not bode well for Europe's financial struggles. And let's be honest: Europe will never enjoy the same oil and gas boom the U.S. is undergoing right now.
An Energy Predicament
Overall, the EU is in a bit of an energy predicament.
Europe has limited available oil and gas supplies right now. Coal is certainly attempting to move in to fill some of the void.
We've seen this in Germany in particular, where the nation's nuclear fleet is about to be phased out. But strict environmental standards in Western Europe will limit the impact coal will have on the energy economy there.
Outside of Germany, nuclear is still quite active. But from an economic perspective, I don't see how much longer this can last, especially considering the burdensome costs of maintaining antiquated nuclear power plants, some of which are operating long past their expected retirement dates.
In fact, there was an article last week in Reuters about this very issue. Here are some of the highlights from that piece...
- Europe's aging nuclear fleet will undergo more prolonged outages over the next few years, reducing the reliability of power supply and costing plant operators many millions of dollars.
- Nuclear power provides about a third of the European Union's electricity generation, but the 28-nation bloc's 131 reactors are well past their prime, with an average age of 30 years.
- Jean Tandonnet, EDF Group's nuclear safety inspector, said in January that its French fleet last year had a series of "problematic unit outages", and scheduled outages were extended by an average of more than 26 days. Regular maintenance and major equipment replacement jobs had increased by 60 percent in the last six years, he said.
- France is the EU's nuclear leader, its 58 reactors producing nearly three quarters of the country's electricity. France's nuclear watchdog will make a final decision on whether to extend the life of the French fleet to 50 years in 2018 or 2019. EDF has estimated the extension would cost 55 billion euros.
The Threat of Mother Russia
The truth is, the EU has limited options when it comes to energy resources. And access that it has now to natural gas is going to be under increased scrutiny as the threat of Russian energy dominance becomes more ominous.
As I mentioned, coal is likely to fill some of the void, but that void will become wider, as the prohibitive costs of running some of these older nuclear power plants will be too great to ignore.
This isn't to say coal, gas, and nuclear are going to be wiped out in 20 years. But the EU is certainly going to be much more careful about how quickly it plows through its fossil fuel resources. It has to be.
And that's one of the reasons I'm so incredibly bullish on renewable energy in the EU.
Currently, the EU has a renewable energy portfolio target of 20% by 2020. Some member states have already exceeded this, and more will hit their targets before 2020.
Now the EU is calling for a new target, which could be as high as 30%. I believe the threat of Russian gas dominance coupled with popular opinion, which is bullish on a 30% standard, will lead to a 30% mandate by 2030.
Of course, with renewables becoming increasingly more competitive, reliable, and, in many cases, necessary for the sake of energy security, I wouldn't be a bit surprised to see that 30% target hit before 2030. And by that time, the economic advantages of renewable energy with gas, coal, and nuclear as backup will be enough to make any mandate superfluous.
Mark my words: As we head into 2015, renewables are going to get a massive boost throughout the EU. So you should definitely have some exposure to the space.
To a new way of life and a new generation of wealth...
@JeffSiegel on Twitter
Jeff is the founder and managing editor of Green Chip Stocks, a private investment community that capitalizes on opportunities in alternative energy, organic food markets, legal cannabis, and socially responsible investing. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.
Energy Demand will Increase 58% Over the Next 25 Years
After getting your report, you’ll begin receiving the Energy and Capital e-Letter, delivered to your inbox daily.