The recent political developments in Europe have shown how much our society depends on fossil fuels. Even countries who can cater to their own needs have felt the consequences from the war in Ukraine. How can we address this going forward?
In the short term, geopolitical conflicts with Russia will stress global oil & gas supply and increase energy price. The issue with fossil fuels is that some countries own oil and gas and others don’t: but no one owns sun, wind, water, geothermal energy or green hydrogen, which we can replace oil & gas with. They are infinite amounts of energy - and they are free; when coupled with efficient batteries, they can be used any time, night and day, wind or no wind.
Moreover, they are not centralized but distributed, so we will not need central energy generation plants and high power transmission lines. But we can generate and use alternative energy at a local level, without risk of grid failures and at lower cost. In terms of security, this also significantly increases safety and minimizes risk associated with existing plants: not only they do not risk exploding or create catastrophes like oil, gas and nuclear, but they will also be distributed and connected in redundant grids. This will make our world sustainable and safer across energy generation, and also in mobility and buildings.
The cost of energy will be less volatile, as it will not depend on the decisions of few oil & gas producing countries, and the energy supply will be infinite, depending on technologies rather than fuels. At the current price of oil, alternative energy is already cheaper than fossil fuels. Also, from a financial perspective, this will also reduce volatility of cash flows for these projects - much smaller in size and with lower cost of capital - resulting in much lower interest rates and longer term contracts.
Europe is most motivated to move to alternative energy: limited fossil fuel supply; instability due to Russian war; technology to quickly move to new solutions. It has indeed already committed to end its dependence from Russia by 2030 (and Germany will do it by 2025 to show the way). In the short term, this may be costly, as we will need alternative supply like LNG from the US or oil & gas from Norway. But it will push EU countries to accelerate the energy transition, thus achieving an advantage vs other countries, while cutting their dependency from oil & gas.
As a result, in VC we observe:
- an immediate acceleration of investments in start-ups facilitating energy transition
- the elimination of solutions providing increased efficiency to existing fossil fuels
- the rejection of capital coming from Russia.
Fossil fuels have been often the cause of conflicts, from Russia to Middle East or Venezuela. Alternative energy may well be the way to not only limit climate change, but also to eliminate one of the key causes of global conflicts and instability. “
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