View / Renewables to the rescue?

The war in Iran looks like it should be a breakthrough moment for a clean energy sector that has been hammered on multiple fronts in recent years, but for now the industry could face more risks than rewards.

Surging prices for oil and gas, on their own, should improve the economic competitiveness of non-fossil energy sources. And in a broader sense, the price volatility currently underway — which could get far more extreme depending on the US ability to control the Strait of Hormuz — underscores a point that climate activists and European politicians have repeatedly hammered since the invasion of Ukraine: The supposed energy security benefits of fossil fuels are actually very fragile.

Shale bosses in the US were quick to warn that they can’t fully cover the gap left by a drop in Middle East exports. The US Strategic Petroleum Reserve remains relatively depleted from when the Biden administration tapped it in 2022. And at least one LNG tanker bound for Europe has already been diverted to Asia as competition for scarce supplies grows. So overall, Trump’s options to limit the energy price fallout from the war could be limited.

“The priority now should be very much on getting out of commoditized energy technologies as quickly as you can,” Jon Fuller, a former director of the clean tech investor Breakthrough Energy who recently launched a new energy-security-focused advocacy group called Catalyse Europe, told me. “Electrification and clean energy provide you with sovereignty and security of supply.”

Yet the share prices of several big clean energy companies plunged this week. Some of that just reflects general nerves across the stock market. But there are more tangible headwinds, said Alex Jacquez, a former official in Biden’s National Economic Council. While the Strait of Hormuz isn’t critical for shipping renewable energy hardware or critical minerals, it is a vital thoroughfare for industrial gases and chemicals used by the industry. And if energy-related inflation causes the Federal Reserve to ramp up interest rates, that would also choke off capital for new renewables projects.

Still, the inevitability of fossil fuel price shocks is a compelling reason for both exporters and importers to think hard about what they can do to build a moat around their energy industries, Jacquez said: “Having such a core economic commodity influenced by forces completely outside your domestic control is an economic and national security vulnerability no matter how you slice it.”