Uddrag fra DWS:
Europe’s dependency on Russian natural gas and Vladimir Putin’s blockade of Ukrainian grain exports from the Black Sea are only part one of the continent’s energy and food crisis. Now a new threat has emerged, namely the spread of drought. In Spain and southern France, temperatures surpassed 43ºC last month, levels more commonly seen in July or August.[1] In Italy, levels of the River Po have fallen to 70 year lows due to poor rainfall in the western Alps.[2] Recent thunderstorms over Northern Italy provided little temporary relief.[3]
Northern Italy represents almost 50% of European rice production.[4] Apart from Risotto prices in supermarkets, low reservoir and rivers levels also threaten electricity generation. Italian hydropower production is already 40% lower in the first five months of 2022 compared to a year earlier.[5] That mainly reflects scarce water being diverted for irrigation in agriculture. In nuclear, power generation is reliant on river levels remaining high enough for cooling purposes.
The share of electricity production from hydropower and nuclear by country (2021)
Sources: Our world in data, DWS Investment GmbH as of 6/28/22
All this has potential big implications for policymakers and investors. At first glance, our chart might seem to highlight the country specific risks where hydro- or nuclear power plants account for the bulk of electricity generation. For longer-term investors, the lessons are very different. European power markets are largely, though still not fully, integrated. Problems in one country inevitably feed through to wholesale prices in the rest of the continent.[9]
Instead, the chart is intended to highlight the need to diversify supplies on a European scale and to further energy market integration by investing in interconnected capacities between countries.[10] Even in our age of climate changes, low precipitation in one region typically coincides with wind, rain or sunshine elsewhere. A good mix of geographically spread renewable sources has the potential to even the resulting swings in electricity generation.
That is only helpful, though, if electricity grids can transport cheap renewable energy to where it is needed. The latest crisis will likely provide extra impetus to long-running efforts by the European Union (EU) to ensure precisely that.[10] With that in mind, we believe investors should keep a cool head and remain vigilant for potential bargains amid this summer’s heat waves. One day, it will rain again.
