Energy Security vs Sustainability: Renewables vs Fossil Backups

Master the Moment and Reach Your Peak with Defoes

“Defoes traces how Europe’s rushed return to coal and gas during the crisis has hardened into a quieter policy consensus: renewables, grids and flexibility must become the core of energy security, with fossil plants paid increasingly as residual, tightly regulated backup rather than the system’s default foundation.”

Europe’s energy crisis has hard‑wired security considerations into every discussion about the pace and shape of the green transition. The question is no longer whether renewables can support decarbonisation, but how far they can carry energy security on their own, and what role remains for fossil back‑ups in a system that still relies on imported fuels for more than half of its energy. For investors, the balance between renewables and fossil back‑up capacity now defines a large part of both policy risk and long‑term cash‑flow resilience.

Policy signals increasingly frame fossil dependence as a security liability. The European Commission’s four‑year review of REPowerEU states bluntly that Europe’s dependence on imported fossil fuels is “neither sustainable nor secure”, noting that imported fossil fuels still supplied around 58% of EU primary energy in 2023, a similar proportion to pre‑crisis levels despite drastic cuts in Russian flows. Analytical work by Ember likewise highlights that electrification with “homegrown clean power” is the main structural tool to reduce Europe’s “exceptionally high and risky” dependence on fossil imports, arguing that unblocking electrification could halve fossil‑import dependency by 2040 as the power mix decarbonises. A new brief from IRENA goes further, documenting how the strategic deployment of renewables has already enhanced resilience in countries from Spain and Portugal to others by reducing exposure to global fossil‑price swings.

At the same time, policymakers and system operators recognise that fossil capacity still underpins reliability in a system where variable renewables are gaining share. The Commission and IMF have both stressed that the crisis response must combine demand reduction, supply diversification and accelerated renewables, not an immediate shutdown of gas. Emerging academic work on the 2022 crisis concludes that REPowerEU “sustained rather than transformed” the EU’s low‑carbon transition, illustrating both the potential and limits of accelerating decarbonisation under security stress: renewables deployment picked up, but coal and gas‑fired plants were kept online as back‑up and, in some cases, ramped up temporarily. In parallel, grid operators and think‑tanks point out that until storage, demand‑side flexibility and interconnection are scaled, flexible fossil generation will continue to provide peak and balancing services that renewables cannot yet fully supply alone.

The debate is therefore not about pure substitution, but about sequencing and system design. A Stockholm Environment Institute perspective argues that Europe’s green transition is now explicitly “a matter of energy security”, and that to build resilience, local renewables must be embedded in systems designed for flexibility and demand management rather than simply added on top of legacy fossil infrastructure. SolarPower Europe makes a similar case: renewables thrive in more electrified, flexible systems, and boosting their deployment — alongside storage, demand response and digitalised grids — substantially reduces import dependence while maintaining reliability. IRENA’s security brief sets out a three‑horizon playbook: short‑term deployment of distributed renewables and demand measures, medium‑term acceleration of grid and storage projects, and long‑term integration of electrification and industrial decarbonisation into national planning. Across all horizons, fossil back‑ups remain, but their role shifts from baseload to increasingly residual, price‑responsive capacity.

Security institutions are pushing in the same direction. The IMF’s Europe department has urged EU governments to “stay the course” on the green transition and resist the temptation to meet new shocks with open‑ended fossil‑fuel subsidies, arguing that doing so would undercut both fiscal space and energy security by prolonging import dependence. A recent IMF and Bruegel commentary on “beating the European energy crisis” similarly calls for a “grand bargain” that reduces demand, increases supply from clean sources and keeps energy markets open, rather than locking in new fossil infrastructure. That line of thinking is echoed by UN voices, with senior officials warning that fossil‑fuel dependency is “ripping away national security and sovereignty” and presenting renewables as the route to lower exposure and more stable costs.

For investors, the implications cut across asset classes. On the renewable side, the crisis has strengthened the policy and security case for accelerated deployment of wind, solar and bioenergy, particularly in markets that combine strong resources with good interconnection and clear permitting reforms. Yet these assets are now more tightly bound to system‑integration risk: grid congestion, curtailment and delayed storage investments can undermine expected returns even when offtake is nominally contracted. On the fossil side, flexible gas‑fired plants and some midstream assets remain essential for balancing, but face shortening policy time horizons, tighter emissions constraints and growing stranded‑asset risk as electrification and renewables progress. Crisis‑era interventions — from windfall caps to retail‑price shields — have also demonstrated how quickly governments can step into energy markets when prices spike, adding another layer of regulatory risk to fossil‑linked cash flows.

Defoes’ view is that the renewables‑versus‑fossil‑backups framing obscures the more important question: which combinations of assets, in which markets, align with a system that is simultaneously decarbonising and de‑risking its import dependence. Evidence from Europe’s crisis response suggests that portfolios tilted toward domestic renewables, grids, storage and demand‑side flexibility are moving closer to the policy and security mainstream, while fossil‑backup assets are migrating from “core” to “transitional” holdings whose economics will depend increasingly on capacity payments, system‑service markets and the speed of electrification. For disciplined capital, the task is not to bet on a sudden disappearance of fossil back‑ups, but to price their shrinking, more conditional role in a system where energy security and sustainability are no longer competing objectives, but two names for the same long‑term constraint set.