Although the need to expand renewable energy is growing due to the aftermath of the Middle East war, an analysis said related investment could instead contract.
Korea Institute for Industrial Economics & Trade (KIET) stated accordingly in a report on the 12th titled "Will the Middle East war accelerate the renewable energy transition?"
According to the report, the surge in energy prices and rising interest rates caused by the war are placing a burden on renewable energy investment.
As oil supply instability has grown, major countries around the world are pushing the expansion of renewable energy deployment as an alternative. United Nations Secretary-General Antonio Guterres also emphasized the need to transition away from fossil fuels, saying, "Solar and wind cannot be weaponized."
The institute saw that, contrary to this trend, a shift to renewable energy will not be easy. Inflation from soaring energy prices and interest rate hikes raise the expense of raising capital, which could affect renewable energy projects with heavy upfront investment burdens.
According to Wood Mackenzie, when interest rates rise by 2 percentage points, gas power generation expense increases 11%, while renewable power generation expense rises 20%. Axios also analyzed that the expense of building renewable facilities and operating heavy equipment for mineral projects has increased 35% compared with before the war transfer.
There are also signs that dependence on fossil fuels is expanding again. After Iran blockaded the Strait of Hormuz, India increased imports of Russian crude, and Asian and European coal futures for power generation rose 13.2% and 14.2%, respectively. Korea also lifted the cap on coal-fired power generation.
Accordingly, the report emphasized that policy responses are needed for the renewable energy transition. It said investment stability should be enhanced through contracts for difference and long-term fixed-price contracts, and that infrastructure such as power grids should be expanded preemptively.
In addition, it recommended strengthening energy efficiency standards for buildings and the industrial institutional sector, expanding investment in public transit, pursuing electrification policies such as the spread of electric vehicles and heat pumps, and reducing energy security risks through resource diplomacy for mineral sourcing and diversification of supply chains.
The report also added, "Even during the renewable energy transition, it is necessary to maintain the stability of fossil fuel supply."