Renewable energy is not a new topic; however, many things have changed since global warming became a major concern. The gradual switch to alternative sources of renewable energy is based on many valid reasons of which the most widely spread idea is to fight climate change. Also, the strategic argument about energy security and independence becomes more prominent. With energy consumption rising, we explore the case for investing in renewable energy. 

Our modern society consumes more and more energy, making it highly energy-dependent. Developed countries have a significantly higher energy consumption per capita than developing countries. In other words, when economies grow, the electricity consumption increases. Chart 1, shows ‘energy use (kg of oil equivalent), as oil has been a major source of energy. This is a fact for obvious reasons: oil is rather easily available, it can be stored, transported and transformed to oil derivatives. Charts 2 illustrates the relationship between GDP and energy consumption: the richer the country, the higher the energy spend.

In the recent past, the European continent witnessed a massive surge in energy prices. Indeed, a sharp increase in energy costs have a substantial negative impact on economic growth. Today, energy prices have come down given the economic slowdown, particularly in China. Also, Europe has become much less energy-dependent on Russia as oil and gas are being shipped from the US and other regions combined with increased energy supply from renewable sources.

However, the risk of future energy price spikes remains. Whilst energy prices have come down, prices have not returned to previous levels. This fact alone has an enormous impact on Europe’s competitive position versus the rest of the world. On the other hand, the United States benefits from higher energy prices. They have full energy independence and are a net exporter thanks to their shale gas. Since the US became a net oil exporter in 2011, US and EU GDP growth have decoupled as shown in chart 3. One may point out that the US has two other factors that could have stimulated this phenomenal growth which is the monetary and fiscal stimulus.

Today, the United States has a huge fiscal deficit and debt burden. Yet, the same case applies to the European Union as well. So, I would like to take out this common denominator from the analysis and focus on the energy security which is the major difference.

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