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Europe's energy costs 'helping to fuel clean energy demand,' analyst says

Bloomberg Intelligence Senior Clean Energy Analyst Rob Barnett joins Yahoo Finance Live to discuss elevated energy costs, clean energy demand, geopolitical tensions, solar installation, and the outlook for renewables.

Video transcript

[MUSIC PLAYING]

JULIE HYMAN: President Biden set to announce executive actions to address climate change as a heat wave hits Europe and the UK seeing record high temperatures. With all this and the current state of the energy crisis-- in Europe, in particular-- where does this leave clean and renewable energy and the demand for them? For a deeper dive, let's bring in Rob Barnett, Bloomberg Intelligence Senior Clean Energy Analyst.

Rob, thanks for being here. And I kind of set that backdrop because there obviously is a lot going on right now that leads people to think more about climate change. Because it's sort of more immediate, right? It's not this looming thing in the distance when the temperature is 104 degrees Fahrenheit in London, for example. So I just wonder if that broader backdrop is increasing demand, if you see it increasing demand for renewable energy products on top of the already fundamental demand that was there.

ROB BARNETT: Well, as someone living in London that doesn't have air conditioning, I can tell you that the temperatures over the last few days have been pretty unbearable. But, no, I think you're right. I do think that there is increasing focus on all sorts of solutions to try to help manage emissions and tackle the concerns of climate change.

But I would actually argue that the bigger driver for clean energy demand, particularly here in Europe, is elevated energy costs. Natural gas prices are very high in Europe right now. They're about the equivalent of $45 per MMBtu. In the US, they're much closer to about $7. So we've got this big divergence. And that's really helping to fuel demand over here. And I think policy, of course, on the margins, adds some incremental push there. But I think energy prices are a big piece of the overall picture that's helping to fuel clean energy demand.

BRAD SMITH: So what are some of the levers that will be necessary for you to see come to fruition in order for the energy prices to actually start to diminish?

ROB BARNETT: Well, in the near term, we're going to need a lot of new supply and perhaps some easing of geopolitical risk tensions. So supply is not something you can flip a switch on overnight. And, over the long future, I think we're quite optimistic that renewables are going to continue to grow very rapidly.

When we look at something like solar, solar demand is on track to grow over 30% this year. And that's great, all well and good, but we also still need quite a bit of oil and gas here in the short term because we haven't completely switched out all the capital stock in our economy to be ready for the wind, solar, plug-in-type future that seems to be on the horizon. And so there's this challenge that I think a lot of the energy companies are dealing with about how to get the investment calculus right between that immediate need for molecules today versus that long-term vision about wind, solar, and all sorts of other clean technologies.

JULIE HYMAN: Yeah, Rob, sort of on a related note, what have we seen in past cycles? In other words, when we see fossil fuel prices go up, do we tend to see an uptick in renewable investment? But then does renewable investment fall back a little bit if traditional fuel prices come back down?

ROB BARNETT: I mean, it's certainly possible that if you had some easing in the traditional fuel markets, that it might take the accelerator off. But I don't really see that as being a material risk on the demand side of the equation for clean energy.

A big part of the idea there is that wind and solar are already the cheapest forms of electrons you can put on the grid. Now, they're intermittent, and you've got to solve all kinds of other problems when you put them on the grid. I mean, it's not a turnkey solution. But I do think that the economics are already quite good. And so you'd have to see such a sea change in terms of gas prices or coal prices, if you're thinking about the power grid, to really reverse some of the trends. And I just don't think there's any appetite for it either.

Here in Europe, we have carbon pricing. So even if the gas market were to ease a little bit, you still got this CO2 price signal out there that's helping to drive some of those investment trends we're seeing. The US isn't quite there. The idea of a carbon price in the US is probably not something we're going to see, at least at the national level, any time soon. But in other parts of the world, this is one way that policymakers are trying to help manage the risk around emissions and help to drive up demand for clean energy.

But, yeah, I think to your question specifically, I don't see a big falloff in clean energy demand, even if you get some kind of reversal in the traditional fuel markets.

BRIAN SOZZI: Rob, I'm real sorry to hear that you do not have AC during this challenging time. Can you just explain to us how you've been dealing with the situation and how your friends and family have been dealing with it?

ROB BARNETT: A lot of sleepless nights, actually. It's very hard to get a comfortable night's rest when the temperatures are above, let's call it, 80 degrees in the evening. We did hit 100. And even as the temperature cools off a bit, it's definitely a challenge.

So I think it'll be very interesting to see whether there is a big move for folks here in the UK to go out and install air conditioning over the next 10, 15 years. Most homes, most businesses here don't actually have air conditioning. And that's because it wasn't necessary because of the climate.

But if we do see an increasing number of days where you get these really high temperatures, it will be interesting to see if the demand for AC picks up over time. I know I certainly wish I had it, at least for the few days when you get these really high temperatures.

JULIE HYMAN: Yeah, as a Bloomberg alum, I'm pretty sure the office in London does have AC. I don't know if you're tempted to hide out under your desk when it's lights out time there, Rob. [LAUGHS]

ROB BARNETT: Indeed. I spent a lot of extra time in the office over the last few days, just to enjoy the benefits of air conditioning.

JULIE HYMAN: I'm sure that that is a fringe benefit. I want to turn it to the investment opportunities within solar in particular because it sounds like with this robust demand forecast that you have-- and I know it's for global solar demand. That's much harder to say than I would think. It's on track to rise more than 30% this year. Are there-- is the broad industry just sort of poised to benefit from that? Would investors do well to sort of look at the industry as a whole?

ROB BARNETT: Yeah, look, I think there's certainly always some marginal demand that could come from increased policy support in the US or California or whatever. I mean, there are policy factors that matter. But, at the end of the day, the global solar picture is just staggering at this point. We are on track to install something like 250 gigawatts of solar capacity this year.

I know most folks don't think in gigawatts, but that is a very large amount. It's more than the installed capacity of a number of European countries. And as you mentioned, we think it's on track to grow 30%, maybe even a little more. And we see double-digit growth being sustained in 2023, through 2025 even.

And so there really is this big, top-line growth scenario that we see unfolding for all of the companies that are participating in the solar supply chain. You've got First Solar, Canadian Solar-- these companies that make the modules that you see out on, perhaps, roofs or out in a field somewhere. And then you've got other supporting companies like SolarEdge or Enphase, which make the inverters that convert the DC electricity from solar into AC for the grid. So there are a lot of interesting ways to think about the big boom in solar demand and what the investment implications are of it.

BRAD SMITH: Rob, since you mentioned the European Union a moment ago, of course, the news earlier today was that they were putting forward a proposal-- just a proposal at this point in time-- for countries to cut their gas demand by 15% from August through March of next year. The likelihood that that proposal makes it all the way through, from your perspective?

ROB BARNETT: Well, [LAUGHS] in some ways, it doesn't-- the policymakers can think about this from an academic perspective in some ways, but at the end of the day, the imperative to reduce gas use is really a function of the geopolitical dynamic between Russia and Europe. If Russia continues to withhold gas supply and gas flows into Europe, it will be imperative to reduce demand.

And so the idea that you're going to reduce demand 15% over the next 6 to 12 months, I think that that's very challenging. There are a lot of economic implications of doing that. But it may simply be the reality.

There are longer-term solutions where you can switch to wind and solar. And there are longer-term solutions where you could imagine more liquefied natural gas coming to Europe from places like the United States. But there's no light switch for that. Those things will take time.

And so if the gas is not available this winter, folks are going to have to turn down the thermostats. Some of the big industrial activity that happens in places like Germany-- car plants, these kinds of things-- they may have to run at a slower pace, this kind of stuff. So there are some pretty staggering economic consequences if the European Union really does have to reduce demand something like 15% and if we continue to live with these really high prices.

BRAD SMITH: Rob, if you hit a tipping point over there in the UK and you say I just can't take it anymore, you are more than welcome to join us for an in-studio interview next time, for at least a bit of a reprieve here. We've got a great green room as well that we've got no cap on.

So Rob, appreciate you joining us here today. And all the best to you over there for right now, for sure, and your friends and family.

ROB BARNETT: My pleasure. Thank you so much. Take care.