Nicolas Jacob et Baptiste Lemaire, Equity Fund Managers, ODDO BHF AM
In this latest ODDO BHF Green Planet Monthly Flash, we focus on the "REPowerEU" emergency plan presented by the European Commission on 8 March, which aims to reduce Russian gas imports by 65% over the coming year. Although the objectives seem very ambitious (the International Energy Agency estimates a possible reduction of 30% over one year) and several details of implementation will not be published before May (speeding up and simplifying procedures for renewable energy projects), this is a major strategic breakthrough marking Europe's desire to move towards greater energy independence. This sudden shift confirms and amplifies the growth prospects for the ecological transition theme, in particular through the deployment of clean energy and the search for energy efficiency.
A dual ambition: diversifying gas supplies and reducing dependence on fossil fuels
The European Union's energy dependence is currently very high as it imports around 90% of its annual gas consumption, 45% of which comes from Russia1 (i.e. around 155 billion cubic meters (bcm)). The "REPowerEU" plan presented on 8 March attempts to respond to this initial emergency through a number of action levers:
- Substitute 60 bcm by turning to other suppliers, i.e. by sourcing 10 bcm from pipelines from Norway and Azerbaijan and 50 bcm of liquefied natural gas (LNG) from partners such as the United States, Qatar and Egypt
- Generate the equivalent of 20 bcm by accelerating the deployment of renewable energies from 11GW in 2021 to 15GW in 2022 for wind power, and from 26GW to 28GW for solar power. This acceleration should also help increase the production of renewable hydrogen, allowing to replace 25 to 50 bcm of Russian gas imports by 2030
- Strengthen measures to foster energy efficiency and savings in buildings by accelerating the installation of heat pumps and by advocating a 1°C drop in ambient temperature. These measures would save about 15 bcm of gas consumption per year
- Accelerate the production of biomethane to 3.5 bcm by 2022
- Iberdrola, a Spanish group with a global presence in networks (transmission and distribution) and renewable energy generation. 50% of the group's investments by 2026 will be in renewable assets, 45% of which will be in Europe (i.e. around €17 billion)
- EDP , a Portuguese group active in the generation, transmission and distribution of electricity and conducting around 70% of its business in Europe (mainly Portugal and Spain). EDP plans to invest €24bn by 2025, including €8bn in new renewable capacity in Europe
- Orsted, a Danish company and world leader in the development, construction and operation of offshore wind farms. The group is also active in onshore wind power and wants to accelerate the production of green hydrogen. In 2021, more than 90% of its revenues will come from the European markets (Denmark, Germany, the Netherlands and the United Kingdom).
These measures, if rapidly implemented, should enable the European Union to reduce its gas imports from Russia by about 65% within a year, excluding the effect of restocking by the end of 2022 (the storage capacity left to be refilled are essentially part of the assets managed by Gazprom on the territory of the European Union) and excluding the effect of substitution by coal.
The main lever for action lies in the diversification of gas supply sources, but the measures aimed at reducing dependence on fossil fuels reinforce the ambitions of the "Fit for 55" plan presented in 2021 and aimed at reducing CO2 emissions by 55% by 2030. The utilities sector could see its growth prospects strengthened by the necessary increase in renewable energy production capacity.
Our exposure to Europe's energy independence theme
We currently have exposure to three companies that are well positioned to seize opportunities related to Europe's quest for energy independence and the transition to more renewable energy:
