War-time gas supply cuts drive renewables gains

From the newsletter

Egypt is implementing power rationing due to fuel supply cuts from Israel, a direct consequence of the ongoing Iran-Israel conflict. Over the last decade, the country's push for renewables adoption has gained momentum as it seeks to reduce its dependence on volatile fossil fuels. This week, the reason why became clear to everyone with power socket.

• Supply cuts in global markets have consistently posed a challenge for countries reliant on fossil fuels. Past conflicts, like the Russia-Ukraine war, disrupted supplies, hiked prices and forced some utilities to hike tariffs and ration power.

• Egypt relies on fossil fuels for 89% of its electricity generation. To enhance its grid security, Egypt plans to grow its renewables share to 42% by 2030. New conflicts make that even more urgent.

More details

• Crude oil prices reached $75 per barrel on Wednesday, $10 higher than a week before the conflict and its highest level since January, as the Iran-Israel conflict entered its sixth day, continuing to fuel fears of supply disruptions. Egypt, which relies on Israel for gas supply, is already reeling from the impact.

• For a short-term plan, it's implementing electricity-rationing measures across the country by reducing lighting in public spaces and enforcing closing hours for commercial establishments. Residential buildings are to remain exempt. It is also cutting gas supply to certain industrial sectors like fertiliser production and increasing fuel oil consumption at power plants to the maximum available.

• This current situation isn't an isolated event, and similar occurrences have happened before. But how long it will last remains unknown. Recent speculation about potential US involvement in Israel's attack has arisen after President Trump met with his national security team. Experts warn this could lead to wider regional escalation. 

• Despite the conflict, Iran's crude-exporting infrastructure has largely been unaffected, with most of the impact limited to shipping disruptions. The broader oil market has also remained relatively stable, supported by increased global supply from OPEC+ countries and record-high production levels in the US.

• But Egypt's continued increase in electricity consumption, especially in summer to support cooling needs, means the country cannot survive with supply cuts. For the past few years, it has struggled to meet demand during summer. It has instead shifted its long-term plans to renewables, mainly solar and wind, which now have an installed capacity of more than 5,000 MW. 

• Wars' impact on fossil fuel supplies creates a ripple effect across global markets. For African countries, this is particularly critical as they rely on fossil fuels for roughly 70% of their electricity needs. Since most of these countries depend on imports, such conflicts directly threaten their energy security and will inevitably lead to higher electricity grid prices.

Our take

• The war could potentially see the US involved, which could escalate the conflict across the region and severely worsen global supply disruptions. If it spreads, oil prices could dramatically increase.

• This could strengthen the case for renewables, which has drastic price drop over the last decade. As geopolitical instability makes fossil fuels more volatile and expensive, the cost-effectiveness and energy security that renewables offer become even more appealing and urgent. 

• African countries urgently need to reduce their reliance on imported fossil fuels. The continent has abundant, untapped renewable energy resources. The long-term objective should be to transition towards renewable energy solutions for cost savings and energy security.