Energy insecurity is changing the case for renewables, with Vegard Vollset

**Let's Talk Energy** Does the Middle East war accelerate the energy transition? Host: Noah Brenner | Guest: Vegard Vollset, Head of Renewables & Power Market Research, Rystad Energy [0:00] Noah Brenner: This is Let's Talk Energy, your go-to podcast for smart energy insights. I'm Noah Brenner. As we tape this on Monday, April 13th, the world is in the middle of an energy crisis, or at least one for fossil fuels. Prices for oil have jumped 40% or more, while prices for LNG in Europe and Asia are up more than 50% from pre-war levels, often dragging up electricity prices as well — and that is in countries that can secure supplies at all. The situation has led many to argue that importing countries should build out domestic renewable energy capacity to insulate themselves from future oil and gas supply shocks. But in many places, secure and affordable energy could look more like a chunk of coal from a domestic mine than an imported solar panel. And the same inflation and higher interest rates that are already squeezing consumers can make renewables more expensive as well. So what does today's fossil fuel crisis mean for the adoption of renewable energy and the pace of the energy transition? What countries should we be looking at as bellwethers for how the world might be responding and why? And finally, do the pressures and corresponding responses that we're experiencing today change our longer-term thinking about the energy system of tomorrow? To help us understand the impact of the war in the Middle East on the renewable sector and the energy transition, I'm joined today from Oslo by Vegard Vollset, who heads Rystad Energy's renewables and power market research. Vegard, welcome to the program. Vegard Vollset: Hi Noah, good to see you again. Noah: Great to see you as well. Let's talk energy. Let's jump right to it. Does the Middle East war and the current energy crisis improve the outlook for renewables? Vegard: Short answer, yes. I think that's the kind of short headline answer you could say. But it would be quite a lot more nuanced than that, because it depends also on the time horizon you're looking at. If it's short-term, medium-term, long-term — it depends on the geography that you're looking at. I think structurally, I mean, things have changed a lot in the last couple of years. I mean, already right now we're installing a tremendous amount of renewable energy. Globally last year we installed about 1,100 gigawatts of capacity of power. More than 80% of that was renewable energy. So the economic argument for deploying renewable energy is already there because renewable energy is getting so much cheaper. But you can argue that this crisis — what it really has done — is kind of accelerated the timeframe and really just compressed that political willingness. I'm sorry, not political willingness, but the timeframe from a political standpoint to deploy more renewables in a lot of markets, which I think will be quite important. So short answer yes, but definitely more nuanced than that. Noah: In the short term, I guess, what does that shift towards renewables — what could it look like? I mean, first off, very near-term, is there any flexibility in the installed asset base that we could potentially increase production in any way to meet some of these needs? Vegard: The reality of the situation is that the majority of renewables that are installed or being deployed right now are intermittent. It's either solar or it's wind to a large extent, and they basically generate whatever they can generate based on the weather system that exists right now. So short-term, the only real thing you can do is to replace thermal generation with, unfortunately, thermal generation. So you see cases of, for instance, gas-to-coal switching, which is really the only thing you can ramp up. And you can argue we have some small flexibility here and there on hydro or pumped hydro, but not of any material size, I would say. So short-term it's more policy discussions. What can you do in terms of incentivising investments within renewables? You can't really switch to renewables at the moment. That's the bit of the issue at the moment — what we see. [4:00] Noah: How much renewable capacity do we see coming online this year already? I mean, even before this, that might actually augment some of the power supply issues this year. Vegard: Historically we've seen more and more additions every single year coming online, and we see also in 2026 a tremendous amount of new capacity coming online. I think we saw 1,100 gigawatts of capacity of power — 80% of that was renewables last year — and then this year we're looking still at around 550 gigawatts or a bit higher than that of solar, 140 gigawatts of wind for instance. But actually it's a bit reduced from what it was last year, so we are seeing some headwinds already prior to this invasion of Iran, just because there are some structural issues happening right now. And I think if you're looking at the deployment of renewables in the world right now, you have to look at China, just because China is such a big market and accounts for around 80% of global additions. That's really where we're seeing the biggest change at the moment, just because until roughly May last year there was an incentive to install as quickly as possible because you were getting these fixed feed-in tariffs. But then with the market-based reform that came in May 2025, we're now seeing that assets are more exposed to the market fundamentals of the power markets themselves. So we're actually seeing quite a slowdown in both the solar and wind markets when it comes to Chinese renewables. Still installing a lot in China, but not as much as before. And then other markets — I mean, there are lots of different things I can talk about. I can talk about the US, Europe, Australia, and all different things. But just the headline: additions all across the world, but in markets where you've deployed a lot of solar already and you're starting to hit some of these saturation points that we're seeing in different markets, things are structurally starting to slow down a bit in some key markets. But we're still going, I would say, full steam ahead and installing a tremendous amount of renewable energy. Noah: Well, let's talk a little bit about those short-term headwinds you mentioned — certainly higher interest rates, inflation. These are things that are being actually exacerbated by the war in the Middle East as well. I mean, how does this impact the cost of renewable projects? As we're looking at a potential tailwind from higher power prices and the security of supply issues that we're seeing, how big of a headwind could these potentially longer higher-for-longer interest rates and higher inflation be for the industry when it comes to renewable deployment? Vegard: It depends a bit, to be honest. As you said, tailwinds from higher power prices of course help build up the renewable case in a situation where gas is the marginal source of supply and really sets the prices in the power markets. But just by the nature of how renewable energy investments are done, they are capex-heavy — you invest everything up front, so you don't really pay that much to run the assets. So the proportional effect of an increase in interest rates is just much higher on renewable energy compared to, for instance, a thermal fossil plant. The difference there is quite pronounced. But even with bumping up interest rates by a percentage point, we're still not talking about the orders of magnitude of the increase in gas prices that we're seeing now. So there's the scale of things. There are some headwinds, but the sheer increase in gas prices and, in some places, power prices is much bigger — a greater order of effect — than just the inflation or interest rate component. Sorry, interest rate properties. [8:00] Noah: How are you thinking about that geographic component? Which countries perhaps are worth watching? You mentioned China earlier in our discussion, but where are you keeping some of your attention in terms of the response that we might see from an energy perspective? Vegard: Relating it purely to gas, you then have to look at countries which are exposed to that gas element. Of course, countries which have no gas in the generation stack — you can argue there's no incentive right now to kind of increase your deployment of renewable energy. But those key markets: you have Japan, which has a lot of gas but also the potential to switch to coal. You have China, obviously, which is the bellwether — also nuclear, but harder to deploy quickly. You have the US, which will just be interesting to watch — not exposed to LNG markets per se, but just an important part of the entire energy system. And of course, everything happening in Europe is going to be important, just because that's where the transition is happening quite quickly, and the policy response can happen quite quickly as well. Noah: You had mentioned earlier in the discussion this existing penetration of renewables within the market is one of the factors that you're paying attention to. Tell us a little bit more about that — initially I would think, okay, if a country has embraced renewables so far to date, they would tend to push more into renewables when they have a fossil fuel security of supply issue. But maybe that's not necessarily the case if you've already got high renewables penetration. If I'm understanding that right, unpack that a little bit for us. Vegard: I think it's easy to just look at what historically has happened and say, "Okay, in Germany we installed a tremendous amount of solar, in ERCOT, in Texas we installed a tremendous amount of solar — let's do more of that." That's just like the natural storyline and people just go, "Let's just deploy more capital and install more solar." The problem is the intermittent nature of solar and wind, which means that you quickly saturate that point of day or that point of year when you generate at the same time. So unless you're able to be flexible and either move demand or supply one way or another, you quite quickly saturate the grid at those elements and points in time where you generate all that solar. For instance in ERCOT, or in California, or in Texas, or in Spain, or in Australia, we are starting to see some structural issues and saturation points. So there you can't just deploy more renewable energy — that's not the business case you go for anymore. So there we've seen a fundamental shift. Instead of just deploying more solar, you either have to deploy solar plus batteries, because that's one way to do it, or you have to deploy just batteries. Just as an example — both in Australia and California, everything being built now, or everything in the interconnection queue in California, or everything under construction in Australia, is either hybridised solar with batteries or it's just batteries by itself. So you can't just say, "I want to deploy more solar." You have to then be smarter about how you deploy the flexibility component of it. So the impact of how much renewable will grow is, as I alluded to in the beginning, very dependent on which market you're in. You can't just say, "Let's invest billions of dollars in solar in this market and it'll have the same effect as in these other markets." You have to go market by market and be very specific. Noah: Is there a rule of thumb percentage — in terms of, if there's X% of solar in a market, then you probably are looking at a need for either solar plus battery or pure battery? Vegard: It's kind of a trifecta, I would say: how flexible is your grid, how much solar or wind do you have, and how flexible is the remaining piece of your baseload. For instance, if you have a nuclear-based system and then you're chucking a lot of solar and wind on top of it, that saturation point can be reached very, very quickly. On the flip side, if you have lots of batteries and you have lots of gas — and we're talking about gas in this storyline, but gas is very flexible — you can make room for a lot more renewables into that system. So we're talking, for solar, in the range of everything from 15 to 30%, and for wind, everything from — on the worst case — around 25% up to 50, 60, 70% if you're very flexible in different senses. [12:00] Noah: From your perspective, what are the important similarities and differences to the setup today versus the 2022–23 energy crisis? How are you looking at that comparison? Vegard: On the offset it looks quite similar, right? You have the same storyline of a massive disruption of LNG — you lose lots of LNG from the market, randomly happened at the same point of the year. The Russian invasion of Ukraine happened on the 24th of February — which also happens to be my birthday — and then this invasion happened on the 27th of February. But that's kind of where the similarities stop. Or one more similarity: the size of the disruption on an annualised basis is roughly the same. In terms of volumes of LNG, we're talking about, I think, 100 million tons in the 2022 crisis, and now we're talking about maybe 80. So the volume is roughly the same. But then the massive difference is that in 2022 the markets expected it to last for quite a while, because this was a complete shock — an invasion of another country. People were basically saying, "We need to completely diversify for longer." So it was a longer, systematic shock to the LNG markets. Whereas now, if you just look at the forward prices, the market is kind of pricing it to be maybe not that long-term. So we're not talking about a fundamental shift of the global energy markets for the longer term — it's more of a shorter shock that we're seeing now. And I think that's just on the actual impact of LNG. Another thing that has changed as well, for Europe for instance, is that at the end of 2021 we had about 180 gigawatts of solar installed — we now have 400. So like a doubling of the total installed capacity. So just the call on gas and the relative time of day we use gas has just been reduced by quite a lot. So that dependency is reduced as well. And then the last effect as well is that the global LNG volumes in total have increased. So the relative impact of 100 or 80 million tons on the global LNG markets is just substantially smaller than it was four or five years ago. So on the offset they look quite similar, but they are quite fundamentally different when you go really into the weeds of things. And if you just look at the prices — that's what you see now, right? Back in 2022 we had power prices of about €600 per megawatt hour. We're not even remotely close to that now. So quite fundamentally different. Noah: What policy measures could we be looking at — should we be looking at — when thinking about the ability of this crisis to shift the balance towards renewables? Perhaps different types of policies for different types of geographies? Vegard: If you focus on Europe, subsidies to build out more renewables is one thing — which is what we're seeing now. For instance, Germany just announced that they're going to accelerate about 12 gigawatts of capacity of wind by 2030. The UK accelerated their latest offshore wind award around eight gigawatts to be this summer. So we've seen some money being put on the table just to subsidise your way of building out more renewables. But I think fundamentally what you need is a reduction in permitting red tape, which is already ongoing — it just needs to be more fast-tracked. And then regulators have to be pushed to be able to integrate more batteries and more demand-side flexibility into the system. That's what can materially impact the market dynamics right now — flexibility. You need to add flexibility in every box of the system as possible. Because if you want to replace gas, gas is inherently very flexible. It is the most difficult energy source to replace, just because it is very useful and very practical — it just has CO₂ emissions and you're also reliant on choke points in the world, which is not ideal. So if we can build up flexibility in other parts of the energy system, that's basically how we can reduce dependency on these sorts of energy sources. [16:00] Noah: Many parts of the world, particularly Europe but other places as well in Asia, are perhaps not necessarily starting from scratch when it comes to putting those policies in place that would allow renewables to take a greater share of power markets. I remember back in 2022 a contact I had who worked in Brussels and had followed the policy game there for several years said he'd never seen the pace and acceleration of policy implementation he saw back then — policy implementation that used to take years was suddenly reduced to months, which was just insane from a policy perspective. Are policy actors really seeing that need and necessity for speed? Vegard: If you want to be able to deploy a lot of renewables by 2030, you need to decide on things right now. If you're going to deploy offshore wind, you'll struggle to build and deploy by 2030. But if you're going to deploy onshore wind, or solar, or batteries by 2030, you really need to put your foot down right now if you're going to have a material impact by 2030. Noah: Certainly, renewables are quicker than maybe a nuclear response. If you're starting Greenfield Nuclear, there's still a lead time there, and there's a base amount of policy work that needs to be done if you're going to materially accelerate that. Am I hearing that correctly? Vegard: The lead time is different for different types of energy sources. If you just talk about renewable energy — like offshore wind, for instance — it's complex to install. You have to have massive wind turbine installation vessels, large offshore structures in place. So even if you start right now, you'll struggle to install that by 2030. Then you have onshore wind, which is slightly easier, but you're still talking about quite large structures to be put in place, so that will still take a couple of years. Then things start to get faster and faster. You start to have solar — utility-scale solar you can install relatively quickly now. And the most extreme examples are just what's happening in Germany, for instance, because solar is now so simple that you can go and buy what's called balcony solar. You just go to your local shop, buy a balcony solar panel, plug it into your own socket in your own house, and suddenly you have solar. So you're talking about deployment which is, you know, a day. And then batteries as well are also very modularised, very — it's turning into a commodity almost — so also very, very fast to install. And for the most extreme examples, you see, for instance, in Saudi Arabia and the Middle East — quite relevant to this discussion — we're seeing extremely large battery parks being installed in six to eight months. We're talking gigawatt scale here. So things can happen very quickly if you allow for it. But different technologies definitely have different lead times and paces of installation. Noah: Consumers — we talk about policies, we talk about corporate strategies, but consumers now have the ability with the renewable technologies that are out there to go out and make some of their own energy decisions in a way that perhaps they haven't been able to, say, ten years ago. We've seen that in many markets — can it happen very quickly? Vegard: We've seen it in, again, Australia — behind-the-meter solar in the state of Victoria is just a massive component piece. And then you see it in more nascent countries in terms of renewables adoption, like Pakistan, where suddenly we saw a huge surge of imported panels. We didn't really know where it was installed because nothing was reported, but when you started to look at satellite imagery you just saw solar panels popping up everywhere — I think a bit to the frustration of the local utility because they didn't necessarily know what was going on. But it at least shows the pace of how quickly things can be installed in these different markets as well. [20:00] Noah: Renewable supply chains are dominated by China, and there are — we talk about oil and gas supply chains and the disruptions we're seeing — but renewable supply chains have their own issues, particularly for Western countries that have security concerns about potentially relying on Chinese technology. How do we see that factoring into the question of whether the war in the Middle East accelerates renewable energy development? Are there supply chain worries in renewables that might actually slow things down, particularly in the US? Vegard: Maybe more so in the US than other countries, just because there are some policies and regulations in place to limit how much Chinese solar panels you can deploy, for instance. But if you look on a global scale, the renewable supply chain is already Chinese — it's very hard to circumvent that fact. The reason why we have very cheap solar panels, why we have very cheap batteries, why we now have cheaper and cheaper wind turbines in different geographies of the world is just that massive scale-up from China and that expertise in terms of manufacturing. So it's not as if that suddenly became an issue now — people have been very aware of the concentration of supply chains. But the key difference between being reliant on a supply chain from China when it comes to solar and wind turbines, versus being reliant on global LNG markets, is this: if you have a sudden disruption in the global LNG markets, prices spike straight away. But if you lose the ability to import solar panels from China, for instance, or wind turbines from China, you still have that installed base that you already have. They're not going to come and take that away from you. It just limits your potential to build more solar or more wind going forward. So you do have a bit more of a buffer there compared to being fully reliant on a global LNG market or a crude market. I think the markets are talking about it — even the EU is talking about needing a homegrown supply chain. But the reality is the cost differences are so drastic that you need to subsidise your way out of it, which, you can argue, we don't necessarily have the budget for at the moment. Certainly as we see energy spending competing with defence spending, competing with industrialisation policies and those types of things as well. Noah: Is there a way to quantify all this — to sit back and say, okay, 30 years from now the world is going to look different in XYZ way, or we're going to have X amount of more renewables than we might have had were it not for this crisis? Vegard: I think if someone comes out and says they have a very firm answer with two lines under it, I would put a huge question mark on that. At the moment, no one really knows. It depends on what's happening on the policy side, it depends on the appetite once this crisis goes away — because six months from now, LNG prices might go back down again to what they were. Hopefully the crisis is de-escalating. And then the bigger question is: is there a continued appetite to fully fund and invest in more projects? So it will be a question answered over time, and you can't really quantify that specifically right now. The only thing we can say is it probably will mean that we'll deploy more renewables — but how much? You really have to go power market by power market, policy by policy, look at that individual country basis to see what's happening, what's being deployed, what's the current power market situation, what's the supply chain situation, and combine that with the commodity view that we have from the oil and gas space as well. [24:00] Noah: Is there an argument that it really just takes a couple of key countries — one, two, three major energy growth centres — to shift their outlook towards renewables in order to have a material impact? I mean, if we see India really rethink its gas procurement, or the mix of gas versus renewables versus coal, or Brazil, or South Africa — could a single country actually bend the curve when it comes to the overall outlook for certain energies? Vegard: That's what we've seen for renewables, right? China just decided to put their foot down and now we're deploying more solar, more wind than ever before. And if you just look at the concentration right now: if you look at the coal generation of the world, if you take China, India, and the US, that's 75%. So those three countries can make a material difference and impact if they manage to reduce that coal dependency. But again, those systems need to be put in place to make sure that they don't hit those saturation points which already exist inherently in some systems. So yes, those countries can really bend the curve. But of course you have to look at those individual power markets as well to see where you hit those constraints. As we're seeing now — solar slowing down slightly in China, for instance — you can't just chuck more solar panels down. You need to put the infrastructure in place around it as well. Grid flexibility — I'll say flexibility again because it's so important — batteries, demand-side flexibility. Noah: The other global event that I hear discussed with a similar type of impact is COVID. But yet, some of the changes — massive changes: work from home, shutting down of economies — some of which we're starting to see some types of measures like that, particularly in Asia, when it comes to working from home and trying to limit energy usage. But a lot of those trends during COVID were not so long-lasting. We thought we might be in a quite different world, I suppose, looking back from the heart of COVID. What can we learn from COVID and the durability of the changes that were put in place, as we think about what could potentially result from the current war? Vegard: As a personal anecdote, I think the COVID crisis really shone a light on how quickly people forget. Because I remember here in Norway there were quite strict lockdowns, especially here in Oslo. If you wanted to take public transport you had to socially distance by 2 metres. Everyone was wearing face masks. And I remember talking to friends being like, "Nothing will ever be the same. I mean, it's been so handy wearing face masks because you don't get a cold — super practical. I like having this social distancing, that's going to remain for such a long time and is going to structurally change how we interact in society." And then everything opened up and two months later you were just back to normal. So everyone suddenly just took off their masks, social distancing wasn't a thing anymore. For me, it really demonstrated — and back to the previous point you had — what's the structural impact of this? Things will kind of have to be proven once things return to normal in terms of the appetite for change. I think that's where you can learn from the COVID disaster: what actually is long-lasting structural change, and what's just reactionary to what we're seeing right now in terms of market fundamentals? Time will tell, to put it that way. [28:00] Noah: Vegard, it's been a great conversation — a really interesting question and a difficult one to necessarily forecast. Is there anything that we've missed? Anything that we should be talking about that we haven't touched on? Vegard: The value that we need to deploy right now is basically flexibility — and it's flexibility and flexibility. That's the bit: the issue with the reduction of gas from the power system is that gas is inherently flexible. It is the most difficult energy source to replace, just because it is very useful and very practical. It just has CO₂ emissions and you're also reliant on choke points in the world, which is not the best. So if we can build up flexibility in other parts of the energy system, that's basically how we can reduce dependency on these sorts of energy sources. So as long as you've captured flexibility, I'm very happy. That's the key message I want to give to the audience. Noah: Sounds great. Well Vegard, thank you so much for joining us. Vegard: Of course. Thanks Noah. Let's recap. The current shortages and high prices seen in fossil fuel markets are pushing some countries and consumers to look at renewable power as a more secure and less volatile energy source. However, renewable costs rise with higher inflation and higher interest rates, and their competitiveness against options such as coal will vary based on each country's power market. And finally, some crisis-driven shifts in energy usage may not last, as we saw with adaptations to COVID. However, the longer the war drags on, the higher the potential for more durable changes to energy policies that could accelerate the energy transition. Thanks for listening to Let's Talk Energy. This podcast is a production of Rystad Energy, produced by Elliot Busby and Beat Oak. Check out the show notes for further analysis on the topics discussed in today's episode and find us on social media — we're Rystad Energy on all your major platforms. While you're there, leave us a review, hit that subscribe button, and give us a like. You can also keep up to date with us on our website. 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