The geopolitics of renewable energy

The fact that the US, Australia and other countries have to send warships to the Persian Gulf to protect oil tankers from Iranian interference is yet another reminder that the Middle East is such a powder keg not just because of the rise of radical Islam but because of its vast oil and gas reserves. With the rise of the internal combustion engine in the 20th century, regions and countries that own substantial oil reserves have become strategic targets both in war and peace. One of the biggest problems for the Nazis during the Second World War – and the reason why they marched on Stalingrad and the oil fields in the Caucasus behind it – was that within the German occupied territories there were few oil fields. Coal, the fuel of the past, was abundant in the Ruhr area and in occupied France, but oil was only available in Romania.

Just like the geostrategic importance of different regions shifted as the world shifted from coal to oil, so too will the importance of different regions change as the world shifts from oil to renewable energy sources like solar and wind energy. Optimists will say that because solar and wind energy are available everywhere and can be based on locally installed plants, there will be less of an incentive to fight wars over these forms of energy but I am not so sure.

In a great report, the International Renewable Energy Agency (IRENA) analyzed the geopolitical opportunities and threats from a switch from oil to renewable energy. In this report you will find the world map of average wind speeds below that shows that wind energy is most efficiently exploited in the northern hemisphere and in countries like the US, Canada, the UK and Norway, all of which are allies. Thus, there is little threat to geopolitical stability in this area, though you never know about those Canadians…

Similarly, China can build massive wind power plants in the foothills of the Himalaya while Argentina and Chile as well as Somalia could be emerging markets that benefit from increasing investments in wind energy.

World wind potential

Source: Vaisala, IRENA (2019). 

But the situation looks vastly different for solar energy where the industrial countries in the Northern hemisphere have a distinct disadvantage. The best areas for large scale solar energy production are, as one might imagine, in the deserts of Africa, the Arabian Peninsula, as well as the Gobi Desert in China, and the Australian Outback (see map below). 

And in the Atacama Desert of Chile and Peru. The fact that Chile, Argentina and Peru appear as high efficiency producers of wind and solar energy also means that their “value” as targets of geopolitical influence will likely rise in the decades to come. Given the notorious instability of Argentina and Peru it seems to me that these two countries may become the targets of a battle for influence between the US, the European and China. As always, this battle will initially be fought with money and foreign direct investments, but we should not forget that the US considers Latin America its backyard and if China becomes too influential in technologies that the US considers vital, it will be only a matter of time when military force will be used. 

World solar power potential

Source: Vaisala, IRENA (2019).

Such an escalation can be prevented if the West can support Argentina, Chile and Peru economically today and help them build stable democracies, but if I look at the current discussion about Argentina’s economic and political situation I am not hopeful that this will happen. Most investors I talk to think that Argentina is a hopeless basket case and we should just ignore them. I agree with the first part of that sentiment, but I think if we want to avoid armed conflicts about energy like the ones we experienced in the last seven decades then it is worthwhile to help implement structural reforms in Argentina and Peru and prevent Chile from any destabilizing tendencies that might be there.

On the flip side, there are many countries that heavily rely on income from oil and gas exports. As the world shifts towards renewable energy sources, this source of income will likely diminish. Countries with a large part of their GDP generated by the export of fossil fuels will have to find alternative sources of income in order to prevent a severe depression and civil unrest. In the case of Saudi Arabia, Qatar or Kuwait, solar power may be the answer but what are countries in the Caucasus or in Sub-Saharan Africa like Gabon, Angola or Congo supposed to do? They don’t have enough bare land to exploit solar energy and wind energy isn’t going to be too efficient there either. Furthermore, these are poor countries where a decline in GDP can quickly lead to civil unrest. These countries are at risk of becoming the failed states of tomorrow if they don’t develop and diversify their economies now.

Dependence on fossil fuel exports and resilience against transition to renewable energy

Source: IMF, IRENA (2019).

Finally, the requirement for the installation of renewable energy infrastructure will determine geopolitical relationships. This is influenced by the whole value chain of the required technology. We already know that electric cars rely heavily on Cobalt and rare earth metals. Today, the vast majority of all Cobalt mined on Earth stems from the Democratic Republic of Conga (DRC), with Russia and Cuba in distant second and third place. In fact, the DRC currently produces 90,000 tons of Cobalt per year, more than twice as much as the next nine countries put together. Similarly, China dominates the global production of rare earth metals and can corner the market anytime it likes.

Similarly, many Latin American countries have large reserves of copper, zinc, manganese, and silver, all of which are important inputs to the production of solar and wind power plants, which means that their mineral wealth might become the target of geostrategic competition in the future.

Finally, the electricity generated by solar and wind power plants in all corners of the world needs to be transported from the power plant to the end consumer. This requires a massive network of transmission cables that effectively links all corners of the world. And guess which country has recognized the geopolitical advantage of such a massive power network? You’re right, China. 

China’s largest state-owned company State Grid has launched the Global Energy Interconnection Development and Cooperation Organization (GEIDCO), which aims to build a global network of undersea power cables to transport green energy across the globe. Once again, China is thinking far ahead in terms of economic development and geostrategic competition.