Oil Price Instability and the Growth of Renewables​

By BK​

What do you need to know this week?

Oil prices rose sharply in January due to a supply shortage and rising political tensions. This is the largest monthly gain since February 2021.

The market is on alert over recent events in Eastern Europe. The head of NATO recently declared that Europe will need to diversify its energy supplies as the UK warned it was “highly likely” that Russia, the continent’s largest natural gas supplier, was looking to invade Ukraine.

In addition, tensions have risen in the Middle East after the United Arab Emirates (‘UAE’) announced that it had intercepted a ballistic missile as the country hosted Israeli President Isaac Herzog.

Why is this important for your interviews?

While political tensions threaten to destabilise oil and gas prices, it seems that investors have found their new target: the renewable energy industry. On Monday, NextEnergy Capital announced that it had raised a record-breaking $896 million (or £666 million) for its NextPower III ESG fund. The fund plans to install solar infrastructure capable of reducing 2 million tonnes of carbon dioxide emissions annually, an equivalent to providing clean energy for over 1.3 million homes per year.

This move demonstrates the enormous investor interest in investments that aim to fix environmental, social and governance (ESG)-related challenges such as climate change. This development follows the COP26 climate talks in Glasgow last November, where many countries agreed to focus their efforts on minimising the effects of global warming by decarbonising their economies and hastening the adoption of renewable energy sources.

How is this topic relevant to law firms?

Law firms with a strong practice in project finance and industry specialism in energy and infrastructure, such as Bird & Bird and Norton Rose Fulbright, may be well positioned to secure lucrative deals in the long run.

There are two reasons behind this growth of renewable energy projects. From a geopolitical perspective, a fear of climate change and an overreliance on a few sources of energy that are susceptible to being cut off will prompt governments to ramp up their investment in renewable energy projects. Meanwhile, from an economic perspective, both governments and private investors are more likely to execute their ESG-investment plans as advancements in technology drives down the costs of materials required to build, for example, solar panels.

Law firms may also be called to work with investors, governments and regulators to address the challenges of decarbonisation as a matter of policy. For instance, several top UK law firms sent delegations to attend and take part in various events in the COP26. Clients will increasingly need their law firms’ expertise to design innovative legal structures to support their future asset development and financing plans.