Sunset over city landscape

17 Mar 2022

The light beyond the darkest hour

Harold Hutchinson | Head of UK Research at Investec

In his latest blog, Harold reflects on the future of energy after recent geopolitical developments. Even in the darkest hour, he tells us it is important to imagine the dawn.


Recent events in Ukraine cast a dark shadow, a reminder of the horrors of tipping points in geopolitics and the fragility of life. Resonances to Britain’s darkest hour seem hard to ignore. I have steered away from writing recently. Sometimes, silence speaks louder than words.

Many have now become experts in European politics, moving on swiftly from pandemics and exponential functions. The word ‘expert’ is derived from the Latin expertus, roughly translated as ‘known through trusted experience’. Such wisdom is valuable but accumulated slowly over time. Too often, today’s experts are neither experienced, nor trustworthy. Their claims mislead, obscuring truth – not revealing it.

As an alternative future to what we might have expected even a short time ago unfolds in Europe, I will express one tentative view where I have some experience – the energy sector. It is understood that events in Ukraine have implications for energy systems. But what are they?

The overarching risk we now face is to forget how little we know when looking a generation ahead, for example to 2050, a common date in terms of climate and energy commentary. History retells this story, time after time.

The initial response to the oil shocks of the 1970s assumed a future of greater energy efficiency and nuclear power. As the former Soviet Union unwound in the late 1980s, many considered Japan would emerge as the new superpower. Few predicted the resurgence of China in the 1990s, with its implications for global economic growth and coal in the energy mix. At the start of the new millennium, practically no one foresaw the extent of the decline in costs that we have seen in renewables, including wind and solar. Life has a habit of outwitting us.

“With energy issues once again surging up the political agenda, the biggest risk we face is to foreclose future possibilities based on immediate reactions to current events.”

With energy issues once again surging up the political agenda, the biggest risk we face is to foreclose future possibilities based on immediate reactions to current events. The fact is we will need to be pragmatic for the immediate future, making difficult compromises within the energy trilemma (affordable, clean and reliable supplies). But more importantly, we need to think carefully about the potential future of energy, with due respect for the uncertainties we face.

The underlying reason for our predicament is monopoly profit funding its deadlier cousin, untrammelled political power. Its recent manifestation implies Western gas consumers paying exorbitant rent to the Kremlin. Alas, there is a negative multiplier effect that has led to the deaths of innocent children and migration of vulnerable people across Europe.

However, before we get too virtuous, let us remember it is our consumption that sustains this cash flow cycle. We need to stop pedalling for a moment. A goal of most grown-ups is to ensure a viable earth system for our descendants. Instead, we continue to close our options through unsustainable consumption choices. Climate barometers and biodiversity dashboards imply we should expand investment in the options for our children, not the opposite.

As well as a reassessment of our individual consumption decisions, that means renewed R&D vigour in our university and corporate sectors, underpinned by private and public support for innovation. The energy world is full of surprises – that much we know from the past. We can learn from this.

The economic and societal value of all the elements of a decarbonised energy system, including full digitalisation, mechanical and chemical recycling, green hydrogen, and evolving renewable technologies such as tidal power, have gone up in recent weeks. So too, from an energy security standpoint, has the diversification advantage of well distributed systems and micro grids. Beyond that, our inventiveness will surely develop answers to our energy challenges that we cannot even imagine today.

The horrendous images from Ukraine and loss of life on all sides remind us of the dangers of allowing any system, political or otherwise, to deteriorate beyond a negative tipping point. There are deep lessons in this for our political representatives. In energy, we also need to steer clear of environmental disasters.

The good news is that we still have one great weapon to break monopoly interests – our intellectual capital accumulated through experience. The ability to innovate is our greatest strength right now. Even in the darkest hour, it is important to imagine the dawn.

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Disclaimer: The blog does not aim to give investment advice, but is designed to afford relevant longer-term context to investors, encouraging a broad perspective where uncertainty is high and a spirit of learning is important. The views expressed are those of the author, not those of Investec.