Many countries boast rather ambitious plans when it comes to developing alternative energy and making the green transition. Moreover, the energy crisis that is about to hit the global economy due to manual regulation of prices in the global markets, is only speeding up the energy shift. Investment in renewable energy exceeded $1 trln as of 2022 while the budgets spent on clean energy technology grew by 30%.
The current energy crisis is not the first in world history. The world similarly responded to the energy crisis of the 1970s, shifting to nuclear energy and entering the first stage of renewable energy production. Each transition has been caused by pricing trends: the higher the price of fossil energy sources, the faster the energy shift, as proved by the popularity of renewable energy sources in the EU. Last year, due to high gas prices, Europe boosted its renewable energy production by 4% against fossil energy sources.
Russia is a significantly stronger competitor when it comes to developing alternative energy and shifting to renewable sources due to its Soviet background in using renewable energy sources and the high level of technological development. The green agenda in Russia has been under discussion and in development for a long time. In the early 20th century, Russia had a program for building a network of small hydropower plants on small rivers. Soviet scientists’ research into the use of the energy from volcano hot springs, biomass splitting experiments and using thermal energy of soil were among the first in the world. However, cheap oil and gas interfered with the implementation of almost all of these green projects, and renewable energy was pushed into the long grass. Russia could become a leader in renewable energy production but statistics stubbornly puts the United States, the EU and Japan in the top three for alternative energy patents.
Russia is a leader in nuclear energy production and construction of nuclear power plants. Nuclear energy is considered economically efficient but, even despite the development of the closed-cycle nuclear fuel use technology which is in development in Russia, nuclear energy use is not feasible for all purposes. Firstly, building a nuclear power plant is a capital-intensive process that requires substantial investment. Secondly, not every location requires large electricity consumption capacities. Therefore, the future of renewable energy and the green transition stands on green hydrogen that transforms pollution-intensive production into environmentally clean one. Hydrogen energy is already driving the renewable energy segment forward. In addition to abandoning fossil fuels, clean hydrogen deals with the issue of accumulating energy during the peak workloads of solar and wind power plants depending on weather conditions.
Green and renewable energy sounds just as appealing as oil and gold in the past. Global funding of clean energy projects has grown exponentially in recent times. Investment in clean hydrogen production technology has soared from $70 mln to $600 mln in the past three years. The structure of investment in renewable energy in 2022 shows that Americans invested more than 50% of the total amount in this industry.
The green economy has enormous potential – and costs. The green economy today requires immense capital while its facilities take significantly longer to pay off than in the conventional economy.
Companies that have joined the green revolution are significantly outperforming their competitors, which is evidenced by various indices. There are companies that have boosted their value 30 times by working in the green economy sector (for example, Plug Power). The Green Deal in many economies means a heightened tax burden on companies that exceed emissions limits. Therefore, it is important to turn environmental efficiency into a capitalization factor.
Many companies have already begun to diversify their operations, investing in renewable energy, developing refueling infrastructure for electric vehicles and expanding into other green technologies. In many countries, this activity is subsidized and supported by the state. For example, the US has adopted the Inflation Reduction Act (IRA) that provides tax incentives for cleantech suppliers. The US government plans to spend over $200 bln under the IRA on environmentally friendly technologies and semiconductors. The dynamics of such investments is striking; despite the current banking crisis, investment in renewable energy is now twice last year’s level and almost 20 times the 2019 figure. This policy is expected to help cut renewable energy cost by 90%.
According to expert estimates, solar panels will become 35% cheaper, the cost of wind energy will decrease by half, and green hydrogen technologies will reduce energy costs by more than 60%. As a result, all types of renewable energy will be cheaper than fossil fuels by double-digit values.
China should not be discounted when it comes to the transition to renewable energy sources. The country is facing an urgent need to improve the environmental situation, so it makes sense for Beijing to become a leading supplier of hydrogen technologies, especially clean hydrogen produced using renewable energy. China has almost everything it needs to achieve this goal. Chinese electrolyzers that are used to split water into hydrogen and oxygen are 66% cheaper than their counterparts made in the US and the EU. China plays a key role in the mineral supply chain and is the world’s factory. Moreover, China’s huge industrial capacity and demand for renewable energy can make it a leading producer of green hydrogen.
Naturally, renewable energy is facing many challenges that will slow down the green transition process. It is hard to believe today that alternative energy will be cheaper than oil, gas and coal. But the experience of the shale revolution shows that renewable energy is not a remote future but the present. Therefore, when forecasting the future strategy for commodity market behavior, Russia needs to invest in the development of innovative technologies that will make energy production more advanced, greener, and as a result, cheaper.
By Tatyana Skryl, Associate Professor at the Economic Theory Department, Plekhanov Russian University of Economics