The return of energy security

Investment Energy transition Energy transition investment Risk

How geopolitics and a more volatile world are reinforcing the case for the energy transition

Energy systems built on imported fossil fuels are structurally exposed to geopolitical risk. The pandemic, Ukraine and the current Middle East conflict have each demonstrated this and each time the policy response has pointed in the same direction: accelerate the transition, reduce import dependence, build domestic resilience.

Scroll down to explore our key findings

The three forces driving the energy transition

The energy transition is driven by three reinforcing forces:
- decarbonisation
- energy security
- growth in aggregate electricity demand.
All three have been operative for several years, but the current geopolitical environment has shifted the balance decisively – in our view energy security is now the dominant near-term driver.

Geopolitical shocks, energy markets and the economy

Russia's invasion of Ukraine showed how quickly gas dependence becomes a systemic vulnerability - prices reached multi-decade highs within months and transmitted directly into household bills, industrial costs and inflation.
The ongoing Middle East conflict has caused oil and gas prices to rise considerably from pre-conflict levels, and where fossil fuels remain the marginal price-setter in power markets, geopolitical volatility will continue to negatively impact the real economy in terms of inflation and growth.

Energy dependency is not necessarily poor energy security

Fossil-fuel dependence does not automatically mean poor energy security. A country with substantial domestic reserves is arguably more resilient from a supply perspective than one that imports the same volume from distant or unstable sources.
Countries vary significantly in their resilience - and those with weaker energy security will likely face the strongest political pressure to mitigate energy security concerns.

What governments are likely to do next

In the near term, expect affordability interventions, strategic reserve deployment and heightened political commitment to energy independence - with clean power, storage and grids being considered akin to national security assets.
Over the medium term, the post-2022 playbook will be reinforced: accelerated investment in domestic low-carbon capacity, renewed support for LNG diversification, and reassessment of domestic fossil fuel reserves as a bridging measure.

What this means for investors

Reducing reliance on imported fossil fuels and building domestic low-carbon capacity is likely to increase capital requirements across the energy system.
A possible investment strategy approach considers not only low carbon power generation, but also the enabling infrastructure - networks, storage, grid flexibility and demand-side assets.
Taking a whole-of-system approach, may help investors consider the full opportunity set that the energy transition affords – including not only the assets themselves but also the supply chain that sustains them.