What role can renewables play in strengthening Europe’s energy security?

Winter threatens to bring the first severe European energy crisis in decades. As leaders grapple with potential solutions, renewable energy capacity is in the spotlight.



Richard Nourse
Managing Partner, Schroders Greencoat
Karin Kaiser
Head of Private Markets Europe

As temperatures are dropping and Russian gas supplies to Europe have fallen to almost zero, energy security has moved from being a theoretical policy concept to having real supply implications across the continent. Following the destruction of the Nordstream pipelines, it is clearer than ever that there is no going back to normal. This has sharpened the focus on alternative energy supplies, including renewables.

The role of renewables in the longer-term energy mix is certain, backed by strong fundamentals and policy frameworks. However, the extent to which renewables can meet immediate demand varies widely by country.

European countries most vulnerable to the energy crisis

Gas stores are approximately 87% full (according to Reuters as of 24 August), just below the 90% capacity required by most countries to comfortably get through winter. Huge efforts have been made to secure alternative sources on the supply side. On the demand side, the bloc has agreed to a voluntary 15% target reduction in gas use, the implication of which again varies country by country.



Prior to Russia’s invasion of Ukraine, Germany was the largest importer of Russian gas in Europe and is currently the most vulnerable. Europe’s largest economy is treating the energy shortage as a crisis that it expects to worsen. Germany has had some success in diversifying its gas suppliers, including newly negotiated contracts with Canada and the UAE. Meanwhile, it has also decided to extend the life of two out of its three remaining nuclear power plants until after the winter – a significant shift for Germany’s Green economic minister.

Consumers and local authorities are being encouraged to cut back consumption already through a range of measures. Germany’s energy-intense industries, including chemicals and ceramics manufacturers, have been assessing and communicating how dependent they are on Russian gas. The country is fearing a wave of insolvencies driven by high gas prices, from bakeries to chemicals and other energy intense industries.


France is considered Europe’s nuclear champion, with 56 reactors contributing to almost half of the country’s energy supply, and it therefore has little dependency on gas. However, about half of the country’s nuclear plants remain offline due to repairs. France has suddenly become a net importer of electricity, having historically been a supplier to its neighbouring countries.

Most of the nuclear capacity is scheduled to come back online as we approach the end of the year, but any delays to the repair schedule could put the country at a serious risk of blackouts. Demand reduction measures will be key to maintain grid stability in any scenario.

Italy and Spain

After Germany, Italy has been the second largest European importer of Russian gas. Italy has moved quickly to secure alternative gas sources – including a contract from Algeria, for example. However, Italy might also be affected by the nuclear situation in France, where it has historically imported electricity from. Both Italy and Spain can make greater use of liquified natural gas (LNG), given existing infrastructure for importing LNG. According to Clean Energy Wire, “ Germany does not have its own regasification terminals for LNG and imports enter through neighbouring countries’ terminals, especially Belgium and the Netherlands.”

Spain has also forged ahead with a range of energy-saving measures, such as restrictions on air-conditioner use, for example, which other countries have since followed.

Renewables in focus: energy transition becomes greater political imperative

The Russia-Ukraine war has given fresh vigour to the energy transition. Political will is strengthening as energy security agendas become aligned with net-zero. This was the central ambition of the REPowerEU Plan, announced in May 2022, with the twin aims of ending the EU’s “dependence on Russian fossil fuels” and tackling the climate crisis.

At a domestic level the need for self-reliance in relation to energy supply is growing. Governments’ recent Covid experience provides a reference point: most large countries have developed vaccine-manufacturing capacity in the wake of the pandemic. We expect a similar effect with renewable energy. That is to say, by being within domestic control – as well as cheap and low-carbon – it has significant political appeal.

Longer-term trajectory for renewable growth is clear

Even without the impetus of the Russian-Ukraine conflict, a significant renewables buildout is predicted for Europe in the 2020s.

The International Energy Agency estimates that last year, a record breaking 290 gigawatts in renewable energy capacity was added globally. If that trend persists, renewables could overtake fossil fuel and nuclear combined by 2026.

Europe is already a leading global region for renewables investment, and similarly saw very strong renewables addition in 2021. Annual additions increased by almost 30%. Despite its strong starting position, tackling the new issue of energy security as well as reaching Europe’s net zero ambitions by 2050 requires many hundreds of billions of additional capital. Aurora Energy estimate capex requirements of more than €1.5 trillion until 2050, with accelerated deployment in the 2020s. By 2050, renewable energy is projected to form a key part of energy security in every major economy in Europe, overall contributing 80% to the regions energy mix, facing electricity demand of more than 1.5x of today’s base demand.


Shorter-term mix: fossil fuels continue to play a part

Short-term consideration of fuel sources like coal and oil are practical and necessary for the protection of lives and livelihoods. We do not see a way around fossil fuel use while capacity in the renewable sector is built, and while investment is made into storage solutions and grid stability. Europe must act quickly in this transition period, and while the roll-out of renewable capacity has been augmented by the energy security crisis, it still faces impediments.

Obtaining a permit for a wind project in Europe can take up to nine years. Solar schemes can take four to five years. While governments have pledged to accelerate these processes, real action is needed at local levels.

We believe that nuclear facilities, run safely, are practical energy options as well, from a climate point of view. Only two countries in Europe have significant capacity: France, with around sixty reactors and facing issues described above, and the UK, with five plants. In terms of short-term energy security, nuclear offers little: projects would take approximately five years to obtain consent and a further five to ten years to construct.

Evolving investment appeal: renewables offer yield security in an unstable world

Despite the pandemic, and now greater economic uncertainty, the pace of private investment in renewables has shown little sign of slowing.

In 2021, global energy transition investment hit $755 billion, according to BloombergNEF, a massive 27 percent annual rise and more than $200 billion higher than levels achieved in 2019.

Investment into the renewables sector has historically focused on capital gains. However, we see an opportunity for capital to benefit from a different form of returns – which could help grow this sector at scale. Key features of this asset class are its low technology risk, predictable resource, and – properly managed – the predictability and security of cash flows. Investors are showing increased interest in yield stability as war, economic fragility, and rising inflation converge.

This long-term approach was fairly unique when we started investing, and our client base has embraced it. We see an opportunity across Europe to widen access to this form of return, for clients looking to allocate capital into the sector. Consistency of yield may be “boring”, but we are unapologetic about seeking to do the boring well and in a way that works for investors.

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Important information

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.


Richard Nourse
Managing Partner, Schroders Greencoat
Karin Kaiser
Head of Private Markets Europe


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