Renewable energy: A weapon of mass disinflation?

Mirova’s Bertrand Rocher says European companies have made investments into a new trajectory

Bertrange Rocher


Bertrand Rocher, portfolio manager and senior credit analyst, Mirova

Mere days after the launch of Russian military operations in Ukraine, everyone woke up to Europe’s extreme dependency on Russia for its gas supplies: in 2021, the European Union (EU) imported 90% of the gas it consumed, of which 45% came from Russia.

However, other raw materials come from, or transit through, Russia, Belarus and Ukraine, including wheat, of which these three countries account for 40% of total world exports, as well as oil, wood, titanium, aluminium, palladium, etc.

It seems quite illusory to imagine we will find substitutes for each of these products; indeed, autarky has never been a viable solution in European history.

German troops’ attempts to join the Baku oil fields, to which their defeat at Stalingrad during the Second World War denied them access.

Meanwhile, the British could count on their immense empire to support their war effort, the use of Baltic hemp for the best ropes produced at the Corderie Royale de Rochefort under Louis XIV, imports of sugar, cinnamon, pepper, ginger, indigo or lacquers from the East to the whole of Europe from the Middle Ages onwards – all remind us that the Old World has never been, and will never be, able to rely solely on its own resources to satisfy its needs, and also, in passing, that it needs not necessarily use domination to obtain them.

On the other hand, dependence on oil and gas is recent, historically speaking, and renewable energies are an obvious solution.

The good news is that we did not wait for this conflict to install capacity; the bad news is that this capacity is not yet sufficient to replace fossil fuels. It will take time for energy self-sufficiency to appear feasible.

The EU REPowerEU plan sets targets that, while proactive, with recourse to photovoltaic, wind, biomethane and hydrogen, do nothing to conceal the scale of the task.

Some sincerely feared the inflationary effects of installing such power sources, and their doubts were perfectly legitimate. However, the current situation has shown them the extent to which renewable energies, once able to produce enough electricity, will contribute to lowering rather than aggravating inflationary pressures.

In the end, greenflation is better than brownflation, the latter being both bloody and endless…

Furthermore, Europe, long dependent on the dollar – as the currency in which most raw materials are invoiced – and on the pax americana, will find energy autonomy to be a means of restoring sovereignty in a less virtual form than that currently proclaimed.

Not depending for energy on distant suppliers or their primary sponsors and clients is no longer a mere asset in the 21st century, but a priority.

For anyone in need of a reminder, they need look no further than the current procrastination shuffle of German diplomacy, fully cognizant that without Russian gas, the country’s industry cannot operate at full capacity.

Of course, Europe’s various national and community institutions, accustomed for decades to their comfortable alignment with the United States, will need time to free themselves from certain reflex reactions.

But unless they disappear, they will have to adapt: achieving independence in terms of procurement to enjoy an unfettered energy supply is a step towards sovereignty. Energy first, then economics, and, later, political sovereignty.

European corporations, faithful soldiers

Another piece of good news is that Europe already has companies standing by to provide all, or part, of the value chain needed to build a sovereign energy system. This can be seen in the share of these companies. Among green bond issuers, for example, it is close to 40%.

Significant efforts have already been made by utility providers, such as Orsted, ERG and EDP, not to mention those trying to follow suit, including Iberdrola, as well as wind turbine producers such as Gamesa or Vestas, and the many companies supplying systems associated with a production mix based on renewable energies (Saint-Gobain, ABB…), to say nothing of those leveraging these capabilities, as in the automotive industry.

Indeed, looking at this last, all the European players have made investments, some of them considerable, to develop battery-powered electric vehicles (EVs).

Mercedes and Volkswagen already offer fairly extensive ranges of EVs, and Renault, whose new launches look promising, is joining them after having had the lead.

BMW, also a pioneer, and Volvo Cars will not let themselves be distanced for long, and even Stellantis will soon follow…

European companies have a stake in the continuation of globalisation, to which they have largely contributed and from which they have derived significant growth over the last two decades.

They are, however, aware of its new trajectory, which they have taken the measure of and decided to adapt to.

This is important, particularly because these companies remain essential to the health of an industrial fabric that can restore the conditions necessary for more uniformly shared prosperity.

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