July 19, 2022

Market Spotlight: Are Renewables Key to European Energy Security?

In European energy, one event has defined the market in 2022—Russia’s invasion of Ukraine. The consequences of that crisis, in the short and long term, cannot be understated.

Gas prices have soared, exacerbating inflation. How organizations, consumers, and governments respond could mark the beginning of an evolution in European energy, both in terms of regional security and renewables growth.

Tightened  Supplies
At end-2021, the price of Dutch TTF, a leading natural gas benchmark, stood at €70.34-per-megawatt-hour, per Trading Economics. Following the outbreak of conflict in Ukraine, prices skyrocketed, hitting €227.2 on 7 March.

Prices hovered around €100 for much of Q2 before rising again, reaching €183.18 on 7 July. This largely reflects the impact of what Moscow calls scheduled maintenance on Nord Stream 1, the main gas pipeline connecting Russia to Germany. EU officials feared gas flows would not come back online once maintenance ended; Russia restarted shipments on 21 July, although it remains unclear as to whether the same amount will continue to be delivered as before the shutdown. As a result of these fears, EU leaders have urged members to cut gas use to prepare for further uncertainty around future supply.

Given these developments, European countries are reassessing their reliance on Russian energy. The crisis has demanded immediate responses, including energy rationing and reigniting coal plants to preserve gas supplies. But in the long term, expanding the region’s renewable energy capabilities will be crucial.

Renewables Boom
Policymakers now know they must move swiftly on renewables, but dealmakers are already keenly aware of the benefits. Renewables deals came to the fore last year, such as when Engie and Crédit Agricole bought Spanish renewable power producer Eolia for €2.2bn.

The trend has carried into 2022, in spite of the macroeconomic turmoil that has characterized much of this year. In fact, three of the five biggest EMEA energy deals in H1 fell into the renewables sphere. The largest involved Danish power company Ørsted, which sold a 50% stake in a UK offshore wind farm to French financial giants Axa and Crédit Agricole for €3.6bn.

The need for green energy investment has long been evident, and the market is swiftly maturing. Accelerated by Russia’s invasion of Ukraine, increasing M&A activity in Europe’s renewables sector seems inevitable.

Dealmaking Trends Across the World

If you'd like to see how M&A is faring in other sectors and regions, check out our other Deal Drivers reports from EMEA, APAC, and the Americas to gain the latest insight into dealmaking.

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