← All news

The impact of the Russian invasion on Europe’s renewable energy transition and green certificate markets

Friday, 04 March 2022

The Russian invasion to the Ukraine sent European gas and power prices sky-high amid all European markets. Meanwhile member states hastily adjust their strategies to build out renewable energy sources in order to strengthen the bloc’s energy independence from Russia. While we see a short-term bearish impact for renewable power GOs as a result of likely increased hydro production the prospects for green certificate prices in the mid- to long-term are more balanced. Higher expected certificate supply is likely outweighed by an increase in more conscious consumer choices for renewable energy. For biomethane we see a growth path painted by policy makers that will likely be met by the desire to buy green and locally produced gas.

Russian invasion sends European gas prices through the roof

The Russian invasion to Ukraine has significantly impacted the EU gas market as uncertainty has increased due to sanctions and likely gas supply disruptions, pushing the EU natural gas price to hit all-time highs. Even though for the moment flows from Russia remain stable, there is a high likelihood that Russia will use the tight European gas market as a point of pressure towards the West to counter EU sanctions. The military conflict has the potential to damage gas pipeline structures and decrease the flow of Russian gas via Ukraine to the EU.

The EU sanctions against Russia and Belarus target on the central bank, financial institutions through suspension from the SWIFT global payment system, Russian oligarchs and aviation.

The sanctions could result in a shortage of gas supply in Europe, particularly from Belarus while Russia will continue to export natural gas. Intense or protracted skirmishes could damage the Ukraine’s gas pipelines, leading to a supply disruption. Gas experts are also concerned that there will be no addition of LNG supply from the US in the short-term due to constraints in production capacity.

Demand for gas in Europe is estimated at 527 bcm by the end of this year; IEA projections have this demand decreasing only slightly (around 20 bcm) by 2030 under an Announced Pledges Scenario. At present, Europe heavily relies on the import of natural gas, as the continent can produce less than 15% of its gas demand. With around 40% of imports, Russia is the biggest gas supplier to Europe.

Biomethane could help to stabilise gas prices and contribute to security of gas supply in the long-run

Studies from the European Commission and Gas for Climate have revealed that production of biomethane could increase from 3.3 bcm in 2020 to reach at least 35 bcm by 2030, if rapid scale up of biomethane production and supportive policies are enacted. This is also referred to in the forthcoming communication of the Commission on the high energy price situation, expected mid-March. This amount accounts for approximately 10% of the EU forecasted gas demand by 2030. EBA believes this green gas could contribute to 30-40% of the gas demand in the EU if current trends continue. The Commission in the leaked document invites the Council of European Energy Regulators (CEED) and the Agency for the Cooperation of Energy Regulators (ACER) as well as the European Network of Transmission System Operators for Gas (ENTSOG) to work together on guidance to facilitate the connection of biomethane plants to the gas network.

The EBA anticipates the biomethane price to remain lower than that of natural gas in both the short and long term. As the technology is developed and commercially viable, biomethane has the potential to play a larger role in the European strategy to become more independent from external gas supplies in the short- to mid-term. Other renewable gases such as green hydrogen will need time to scale up and production costs are still 2-4 times more expensive than biomethane. In addition, since biomethane is identical to natural gas, it can be transported through the existing gas networks without extra costs for infrastructure expansion or upgrading.

European power prices increase as a result of higher gas

Compared to direct impact the war has on gas markets, the impact on electricity markets is predominantly through a higher gas price causing European electricity prices to increase via the merit order.

In the short term, spot as well as baseload future prices until 2023 have increased by more than 30% in most European countries since the start of the Russian invasion on 24 February 2022. For instance, base load power prices for April for major markets in Europe are given below.

In the short-term increased hydro production puts bearish pressure on power GOs

The effect of the ongoing war in Ukraine on the green certificates market is indirect; conflicts affect energy supply, which influences renewable energy production which in turn effects the supply side of the green attribute certificates.

The higher European power prices incentivise hydropower producers with reservoirs to maximise their revenues by increasing their generation in the short-term. This results in an increase in availability of hydro guarantees of origin (GO). Therefore, adding supply to the benchmark GO product adds bearish price pressure to the wider GO market. Additionally, the increased volatility in power and gas markets as a reaction to the Russian invasion might shift liquidity away from green certificates to the physical power and gas markets in the short term.

Renewable ambitions in Europe increase – bearish long-term risk for power GOs?

The European Commission is about to release its follow-up communication to the prevailing high-price situation in Europe, expected mid-March. A leaked version highlights the rollout of renewable and low-carbon gases (see above for biomethane). Further it re-iterates that the Commission will accelerate the work on certification, in order to ensure the adoption of the delegated acts on low carbon and renewable hydrogen as soon as there is an agreement on the Renewable Energy Directive review as well as the hydrogen and gas package, currently pending with the Parliament and Council.

Meanwhile, member states have started all kinds of political announcements and initiatives. Germany has planned to speed up the passage of the Renewable Energy Sources Act (EEG) which would be a major boost to solar and wind power in Germany. Leaked drafts from the economy and climate ministry show that the country plans to either phase fossil fuels completely out of the country’s power mix by 2035 or at least target a 100% share of renewables of demand by that year.

In a sea of stock market losses after Russia’s invasion of Ukraine, The European Renewable Energy Index surged as much as 9.3% on Thursday, the biggest jump since the pandemic lows of March 2020, posing a stark contrast to the wider European market’s collapse. As a result, we expect a further increase of renewable supply which would create pressure on the power GO prices in the long term.

Increased renewable supply might go hand-in-hand with higher corporate demand

That said, events that boosted renewable ambitions in the past did not necessarily result in bearish price pressure for renewable GOs. In the aftermath of the 2011 Fukushima disaster GO prices increased five-fold from 2010 to 2011 although these gains were not sustainable, and prices dropped again afterwards.

The Fukushima accident was thought to have significantly raised the profile of green power, in lieu of nuclear generation, as well as displacing fossil fuels. Fukushima significantly influenced the German government's decision to phase-out nuclear energy with consumers also supporting this sentiment in their demand for GOs. Similarly, the crisis can boost the profile of renewables and thereby increasing the demand for GOs among corporates and households looking to contributing to European energy security while also contributing to mitigating climate change.

Also, while sanctions can essentially mandate sourcing gas from outside of Russia, this diversification can also occur voluntarily; several energy majors announced at the beginning of March that they were exiting Russia, as part of their commitment to sound Environmental, Social and Corporate Governance (ESG) principles.

Market impact


  • Bearish for renewable power GOs as a result of expected increased hydro production.
  • Neutral to slightly bullish for biomethane certificates in a means to clearly state the geographical origin of the gas consumed

Mid- to long-term:

  • Neutral to potentially bullish for renewable power GOs as higher expected supply by accelerated RES generation is outweighed by increased corporate demand
  • Bullish for biomethane certificates as the awareness of geographical and ethical gas will grow, fostered by the aim of the European Commission to boost biomethane production tenfold until 2030