The EU Needs More Than $1 Trillion for Plan to Ditch Russian Oil and Gas

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Yves here. The $1 trillion estimate for ending EU dependence on Russian energy, which admittedly is to be spent over a period of years, nevertheless indicates that if the EU goes full steam ahead, it’s not going to have a lot left over for things like maintaining social safety nets, let alone also militarizing. Of course they may be expecting the US to pay for that. But even the New York Times editorial board has said there are limits to how much Ukraine can expect from us.

And that’s before getting to the question of operational capacity.   Who exactly is driving this bus? And how many EU member states have a  good track record with large scale infrastructure project. I understand France has a good contracting regime. Is its performance typical?

By Rystad Energy, an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products. Originally published at OilPrice

  • The EU’s ambitious plan to reduce its dependency on Russian fossil fuels is going to require at least €1 trillion in investment.
  • In order to achieve the goals they have set out, the EU will require wartime levels of investment, construction, and production.
  • The EU is already working to speed up the permitting process to ensure that new solar and wind projects can be brought online in time.

The European Union’s REPowerEU seeks to reduce the European Union’s dependency on Russian fossil fuels and accelerate the transition away from carbon-intensive energy sources. The European Commission’s cost estimate, however, may fall short as Rystad Energy analysis suggests the plan will require at least €1 trillion in investment to meet the core objective of increasing renewable generation from 40% to 45% of total energy supply by 2030. Additional investment will be required to meet targets, including grid and battery storage developments to ensure a stable supply of energy as the whole European power system will need to be restructured.

While the plan defines different angles to tackle the current crisis, the most detailed section outlines the roadmap for solar PV. The strategy aims to bring 320 gigawatts (GW) of solar PV online by 2025 and almost 600 GW by 2030, aiming to displace 9 billion cubic meters (Bcm) of gas demand. Europe currently has around 189 GW of installed solar PV capacity, meaning 131 GW need to be installed by the middle of the decade, or an equivalent of 44 GW per year. This would mean almost doubling the installation rate, which was 24 GW in 2021 and is expected to be 29 GW this year. To reach the targeted 600 GW by 2030, around 56 GW of new solar PV capacity would need to be installed during the following five years.

Assuming an average cost for solar PV of €1.1 million per megawatt (MW) of installed capacity, installing 411 GW between now and 2030 would represent an investment of €452 billion. Reaching 45% renewable energy supply by 2030 additionally requires significant investments in wind capacity – for which the plan does not have a lot of detail. Rystad Energy’s estimates suggest another 450-490 GW of wind capacity would need to be installed by 2030 to reach the target of 45% renewable energy supply, requiring an additional €820 billion in investments.

Such a transition will require huge investments but thus far the European Commission has been unclear about the total amounts allocated to achieve its goals. Recent announcements and communications mention that €225 billion is already available in loans and that an additional investment of €300 billion could be needed by 2030. Regardless of the total amount being assigned to new renewable energy developments, the figures seem to fall considerably below the required additional investment needed in power transmission, storage, gas infrastructure, and hydrogen production. Furthermore, such a large demand for new capacity will put additional pressure on the supply chain for solar panel and wind turbine manufacturing and could lead to a further increase in costs for these technologies.

“The ambition of the REPowerEU plan is huge. Power companies and energy markets will be looking for details on investments and infrastructure. While the targets are achievable, it will require wartime-like planning, levels of investment, construction, and production to meet goals by 2030,” says Carlos Torres Diaz, head of power research at Rystad Energy.

Targets Breakdown

The EU has identified six key areas to reach REPowerEU targets:

  • Smart investment
  • Tackle slow and complex permitting for major renewable projects
  • Saving energy
    • Increase binding energy efficiency targets from 9% to 13%
    • Cut gas and oil demand by 5% through behavioral changes
  • Diversifying fossil fuels supplies
    • Develop a joint purchasing mechanism to negotiate gas purchases
    • Develop major hydrogen corridors in the Mediterranean and the North Sea
  • Accelerating the rollout of renewable energy
    • Increase the target for renewables from 40% to 45% of total energy supply by 2030
    • Double solar PV capacity by 2025 and reach 600 GW of installed capacity by 2030
    • Double the rate of heat pump deployment
    • Eliminate red tape for renewable energy project permitting
    • Produce 10 million tonnes of renewable hydrogen and import an additional 10 million tonnes by 2030
  • Reducing fossil fuel consumption in industry and transport
    • Reduce natural gas consumption from the industrial sector by an additional 35 Bcm by 2030 by using renewable hydrogen, biogas, and biomethane

Reducing Red Tape

REPowerEU acknowledged the need to address the bottlenecks in the permitting process. Currently, a wind energy permit could take up to nine years. To address this issue, the Commission put forward a new legislative proposal on renewables permitting based on three things:

  1. It will declare that renewables are presumed to be in “overriding public interest”. That would ensure renewable energy projects are prioritized, especially in the current scenario and until climate neutrality is reached.
  2. The proposal also urges nations to create so-called, “go-to” areas. These areas are to be set following an environment assessment (declaring that renewables projects are not a direct threat to the environment). Projects in these areas would need to be permitted within one year.
  3. The Commission also plans to keep existing permitting deadlines (i.e., two years) for the normal new projects and one year for repowered projects.

Speeding up the permitting process is crucial for the European Union to be able to meet its ambitious targets.

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  1. PlutoniumKun

    I always find articles like this (especially when it comes from the fossil fuel industry as this one does) frustrating in that it throws out lots of huge numbers without giving genuine net costs. A trillion sounds a huge number (obviously, it is), but the real question is the overall net cost over and above the costs of doing nothing. Europe has a huge legacy of 3, 4 and 5 decade old thermal power plants and associated infrastructure that need replacing anyway, so even a ‘treading water’ option would cost hundreds of billions. For 2-3 decades now Europe has been avoiding making big decisions on energy by allowing cheap to build (but hugely expensive to operate) CCGT gas stations take up the load. This was never sustainable – even in a world without climate change and wars, North Sea and Russian natural gas is a finite resource which has probably already peaked in terms of production and LNG has a floor on costs that ensures it would always be an expensive option. The original plan (going back to the 1990’s) was that gas would fill the gap until the new generation of nuke plants (the EPR) could take up the slack. But the EPR has been a disaster and there is no obvious alternative.

    In most European grids, there is plenty of spare capacity for more solar and wind (which are by far the cheapest sources of new energy at the moment) without requiring storage. Already planned interconnectors will allow better load balancing over time. It is the last 30% or so of power generation that will be very expensive and problematic for replacing natural gas.

    The biggest problem right now is probably opacity in costing. We will see dozens of articles posted like this over the next year or so, which are essentially pleas by multiple interest groups for favorable status for government support. Why invest in a solar or wind farm, when you can hang on for a year or so until things are more desperate and you can extract a bigger subsidy? In Ireland we had 2GW of solar capacity all ready to go for several years, but the hold up wasn’t cost, it was the industry waiting for a moment like this to try to panic the government into granting them more favorable connection terms (and they succeeded). Delaying investment can be very profitable for private energy companies.

    1. TheoriesAndGames

      Thanks for the context! I skipped the article after reading the intro, hoping to find that you had commented. Please know your insights are appreciated.

  2. Ignacio

    Though everything is now framed in the context of Ukraine and geopolitical tensions we shouldn’t forget this is all about trying to replace fossil fuels regardless its origin. I prefer to set aside Russia, Russia, Russia! and these are long term developments and it would be quite possibly a mistake to turn the fight against climate change into a fight against energy-mighty Russia. In this later framework you can do lots of tactical mistakes. It is possible to think that the renewed push for renewable energy is a ‘positive’ of the conflict but if you think twice…

    So, where this trillion will be coming from we may ask. IMO, very much as MMT is applied to send funds to Ukraine or increase military budgets (Here using MMT as a simplified concept meaning that when there is Will money is not problem) it could be used to pour unlimited amounts into renewable projects. The post above deals only with power electricity and there is a factor in electricity wholesale markets that is already pouring lots of money from consumers to the energy sector. Since wholesale price is determined by the price of the supplier of last resort, being this usually natural gas-fuelled plants of various types, this results in lots of money being poured to the owners of current wind farms, nuclear plants, hydro plants and solar farms. Lots of money which in most cases goes to installations that where fully amortized long ago or in other cases is speeding the amortization of more recent installations. So, now, investment in solar or wind farms is more profitable than ever was and there are indeed lots and lots of applications in queue for approval waiting first for the necessary grid infrastructure investments to be done.
    An important measure would be to limit the profits that those energy producers can pocket in and oblige them to set the money aside for new investments instead of piling up immense fortunes at the expense of consumers.
    Regarding the necessary investments in hydrogen production and storage I believe this is quite the elephant in the room as industry is by much the larger consumer of power energy (and the cost of this energy is paid in big part by consumers in general with much higher electricity tariffs and taxes) and an important question is whether this push will end making the populace again the payer of last resort which would indeed have a strong negative impact in the rest of the economy. So, regarding this hydrogen infrastructure, that will mainly serve to the industry, will it be paid, again and again, by the populace or will it be devised a different method with more implication of those readily interested on those investments?

    Let me end this with a few interesting links that monitor in more or less real time de development of renewables in the world and energy supply in the EU by origin.

    Global Wind Power Tracker
    Global Solar Power Tracker
    Live EU electricity generation map

  3. Duarte Guerreiro

    Would love to know how this applies to mining projects targeting “renewable” minerals like lithium. I know that a around a quarter of Portugal is under the sights of mining companies with total government cooperation, despite almost unanimous opposition from the local populations, who are being treated like stupid peasants that don’t understand that this is all part of an enlightened green strategy.

  4. IsabelPS

    I have sent this article to a (Portuguese) FB friend whose information I trust a lot (I mean, I trust the way he handles it, therefore I trust his answers). He has a water treatment company and he is in close contact with lots of industries and he is very much aware of their problems with energy prices. He answered:

    “assuming an average cost for solar PV of €1.1 million per megawatt (MW)”
    No, it’s half of that. I stopped reading.

    1. Ignacio

      But the article is right to say that if you accelerate installation above supply levels, costs might start rising. A development that I have been following recently is what is called the “Peninsular exception” for Portugal and Spain regarding wholesale power electricity prices which IMO is quite a sensible policy that reduces the disproportionate impact Natural gas prices were having on Portuguese and Spanish households. Deal about it with the EU was a pain in the neck for both governments that made the proposal united. Sacrosanct wholesale prices shouldn’t be touched or ‘intervened’ by Governments no matter the pain these inflict. They temporarily succeeded but having this perception on sacrosanct markets will not help during energy transitions. The EU is not flexible enough to embark in such a fast transition, IMO, the problem being vested interests and inertias.

      1. IsabelPS

        This friend tried to explain me twice (at my request) why we have this problem, even resorting to eggs to see if I would get it, but nope :-) The whole system seemed to be too stupid to me (which is a sure sign that I didn’t understand anything). Anyway, for him it is obvious that it is exactly vested interests (and the inertia usually comes from revolving doors, but that is my own conclusion).

  5. IsabelPS

    He says he has 4 offers in front of him, one ofvthem for 1MW installed. So he should know.

    1. Yves Smith Post author

      The plural of anecdote is not data. Even more important, one example now does not at all address the issue of what happens when scaling up pressures hit. Your contact seems too close to the day to day to have perspective. Not saying he’s wrong, but saying he can’t assess either way.

  6. David

    As always, the question is “what do you mean by Europe?” If you look at the document referenced, it’s from the Commission, which as usual is full of good ideas that others are going to pay for.
    “REPowerEU is the European Commission’s plan to make Europe independent from Russian fossil fuels well before 2030, in light of Russia’s invasion of Ukraine.”
    A bit further down, they get to the money. Whilst there are loans available (not grants) and €20Bn from existing programmes, it’s clear that new funding will have to come largely from states, or by redirecting existing funds:
    “Member States should add a REPowerEU chapter to their Recovery and Resilience Plans to channel investments to REPowerEU priorities and make the necessary reforms.”
    And the money is coming, in part at least, from:
    “National and EU funding in support of REPowerEU objectives
    National fiscal measures (ie higher taxes)
    Private investment.”
    Which is all very nice, but putting up the taxes of the poor to fund solar panels could be, let’s say, politically challenging.

    1. Ignacio

      I find the report… disgusting. As you can see framed as ‘all against Russia’ gives me the creeps.
      The Commission is at its lowest.

      1. David

        Just imagine trying to sell that politically: “we could continue to buy gas from Russia, but because we hate them we’re going to put your fuel taxes up to fund more renewable energy.” Good luck with that. I suppose they feel that bashing Russia will help to sell their plan: I suspect the opposite will be the case.

      2. Polar Socialist

        I think the lowest point was banning (EU language) Russian media and dropping a ban on providing arms to a war zone. EU became subsidiary of NATO so quickly, strongly and obviously I don’t find anything worth salvaging in it anymore.

        1. Savita

          Polar Socialist
          Enjoy your comments. You said ‘(EU language)’ before referencing Russian media. I took this to mean Russian is an offiicial language of the EU and thus it was really erroneous for them to ban publications in its language. I did a quick check and of the 24 official languages, Russia is not listed. Unless some revisionism has been quickly applied ( it’s happened before) . Interested in your feedback

          Bulgarian, Croatian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Irish, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish and Swedish.

    2. Ignacio

      Now, in a more serious tone. I believe that EU fiscal rules, now suspended on emergency, will indeed be a big drag for the REPowerEU plan and EU rulers should dramatically change their thinking in a Copernican turn if they are really interested on this. This report looks more like something from the marketing department rather than a real plan and shows us where the real interests of the Comission are.

  7. johnf

    Rapidly eliminating the EU’s dependence on Russian fossil fuels is an inspired project until you talk to the engineers who would try to implement it. From what I have read and heard, they have not yet been asked.

  8. BeliTsari

    They don’t have to; nobody takes this facade seriously. Meanwhile, stateside:

    Obviously, EU will simply replicate Biden’s disappearing Green New Deal, with BBB-BS so, they’ll simply subsidize bio-fuel, bail-out decrepit fission reactor owners, green-wash lignite, bio-mass, bio-gas, bitumen-imports, and hydrogen/ range-extended EV highway transport (until BP, Shell, etc. set-up dummy corporations to continue selling Russian gas).

  9. disillusionized

    If this is to be done, it requires investment into nuclear power.
    Which seems absent from this plan.

    1. Susan the other

      Something else that seems absent from this plan (glaringly absent) – as well as all the other “plans”- is any intent to change our lifestyles or to implement greener appliances. Just thinking, if you can do a roof or a wall in solar panels to heat (wastefully) your enormous house, why can’t we use direct solar appliances of all sorts? Heating water sounds like a no-brainer. Nobody ever tackles all our frivolous choices – they seem to be sacrosanct. I think what is really sacrosanct is the circulation of money and profit – it’s the system – naturally I’d say that, but wtf? It’s too bad some clever monkey invented tokens to substitute for good sense. And then somehow convinced us that all our frantic zooming around is a form of convenience. I’d much rather have a short walk to the corner store, and etc.

    2. Grumpy Engineer

      @disillusionized: Another thing absent from this plan are details on energy storage. That’s been my long-standing litmus test for the viability of plans for renewables-dominant energy infrastructure. If a “plan” doesn’t describe the energy storage requirements in considerable detail, it’s incomplete and almost certainly underestimates the costs and roll-out time.

      Of course, you don’t need nearly as much storage if you have lots of nuclear, but proper liberals don’t do nuclear.

      1. Ignacio

        Last Sunday, it has been showed, Spain reached for the first time solar curtailment point: excessive solar production compared with demand. It is the case that demand on Sundays is quite lower compared with other week days but it is possibly true that we are going to see this on many Sundays onwards unless demand from air conditioning creeps up sharply (this can occur we have had a springdian summer in May).

        So it is the need for storage at least at week-time scale is already sorely needed.

        1. Grumpy Engineer

          Aye. And for another example, California has been experiencing curtailment woes for years, and each year it gets worse than before:

          California grid operators curtailed over 1.5 TWh of renewable production in 2021, and they curtailed more than 90% of that value in just the first four months of 2022. This wasted energy from the past 16 months could have been used to eliminate over 1.2 billion pounds of CO2 emissions from gas-fired stations, but alas, it came at the wrong time of day/season and they had nowhere to store it. This will only get worse as more renewable power generation assets are deployed.

  10. ArkansasAngie

    MMT is gonna fuel your car and air plane and heat and cool you house and and and. Just bury the costs associated with “clean energy” and it will have the same impact as debt to the MMT’er. As in no impact. As in debt doesn’t matter. We’ll just ratchet up our economy until our green energy is profitable. No problems. The transition will be a breeze. Biden said so.

    1. Yves Smith Post author

      Please don’t blame EU hopium on MMT, particularly since EU nation states are currency users, not issuers.

      Some Green New Deal types have misused MMT to act as if there are no limits on spending for a sovereign currency issuer. That is false. MMT scholars consistently point out the limit is real economy capacity, and when you spend in excess of that, you get inflation. We’ve managed to let fragile supply chains and sanctions blowback generate big time inflation. Spending targeting particular resource constraints (as ironically Russia is engaging in now to accelerate import substitution) could alleviate inflation pressures, but our Federal programs are too pork-driven and regularly outsourced to be any good at that sort of thing.

      1. Susan the other

        “…the limit is real economic capacity.” Making me think that it is as big a mistake to promote free market/free enterprise in order to stimulate the economy (making it bigger in capacity but essentially just as wasteful and useless, etc.) as it is to overspend balancing social needs. And to follow up a bit on that thought, if we actually had a planned economy things could be balanced in a manner that contained both frivolous production and ineffective spending. I’m so sick of watching ads on TV and pop-ups on my computer, I’d really like to see some good direction start to happen. Some British guy just made a comment recently that it is “exhausting to watch American TV.” I know exactly what he means.

  11. The Rev Kev

    Am I the first to point out the obvious flaw here in this? The plan itself is bold, extensive and even revolutionary even if it is a bit short on practical details. But think about this, the very same people who turned a peaceful, prosperous and comfortable Union into one who in a few months will suffer from critical shortages in food, high energy prices, rationing and an influx of mass immigration are the very same ones that will be charged with executing this plan. How do you think that this will go? Would anybody be surprised to learn in a few years time that the biggest energy company that arises will have as it’s corporate address a post office box in Luxembourg? And that the three biggest shareholders will be U. von der Leyen, J. B. Fontelles and J. Stoltenberg? China might offer to invest in this project but by then the EU will already staging a total sanctioning of China so that will leave the tender embrace of Wall Street..

  12. Solarjay

    Solar info:
    Here in the US we just sent enough money to Ukraine to install 2 years of solar panels. Last year the US installed roughly 23GW total, at about $1 per watt for utility scale.
    This would be almost 50% of the total amount of solar installed in the US. Which was 100GW at the end of 2021.

    This year is on track to be maybe 15GW of installed solar, why? Because of new potential tariffs. The costs if implemented is unknown and could be back charged from 2021. This unknown is causing an extreme drop in solar projects and from the solar manufacturing companies because they are the ones on the hook to pay. they are just not selling to the US because of the uncertainty.
    Remember this is the Biden administration.
    As to why there isn’t more solar made here I think it’s simple ROI. In my solar news yesterday, Canadian Solar ( Chinese company but great name) made in 2021 about 24GW of cells/panels, with a profit of about $100 million or about $.04 per watt, with wholesale cost about $.25 or 16%. Seems good to me, but it’s not enough to get investment to build manufacturing and supply chains in this country anyway. And probably true as this year profits are looking like $36 million or 5%? Not good.

    Here is the podcast about the new potential ( likely) tariffs. It also goes over the history of the other existing tariffs starting with Obama and Trump and Biden.
    Very informative and understandable to everyone.

    1. Ignacio

      Thank you for that. War against Russia mixed with commercial war against China. I think these developments combined clearly show how the West leadership is engaged on shooting in their own feet and one arm. One by preventing imports from one of the most important oil producers, then preventing cheap imports to feed the alternatives, and third and more important not implementing proper industrial policies that would replace those imports. The ‘East’ must be laughing much more than the presenter and interviewee in the podcast. The clear answer is on the podcast: the tariff by itself does not help to promote domestic production of solar panels.

  13. Solarjay

    Solar part 2
    Q cells is building a 1.4 GW per year plant in the US. Cost of 171$ million.
    It’s really an assembly plant with maybe some cell work but they are not actually taking raw silicon and making cells or glass etc.
    That’s $.12 per watt.
    If the US wants to make say 50GW per year at that price it’s only $6 billion. Add in actual mining and cell manufacturing, say another $6 billion and anther $6 billion for glass manufacturing. Could be off on those numbers but it’s probably in the ball park.
    For 1/3 of what we just sent to Ukraine we could be manufacturing self sufficient in solar panels at double what we installed last year.
    But you know it’s way to expensive, meanwhile $18 billion is a rounding error for the pentagon.

  14. John Steinbach

    The big problem with this analysis relates to the issue of opportunity cost. To accomplish even a fraction of the proposed transition to “renewable energy” will require a enormous upfront cost in energy and human and natural resources. Meanwhile to costs of such resources has, and most likely will continue to skyrocket. Meanwhile, people will continue to need food, shelter, transportation, etc. This implies a massive short-term increase in energy and resource usage during a time of extreme limits.

    Russia, Russia, Russia aside, decisions about energy usage in the age of limits should have made and begun to be implemented decades ago. Radical conservation and simplified lifestyle, especially in the industrialized North, was and is the only rational path forward.

  15. Dave in Austin

    Desperation breeds nonsense; nonsense breeds magical thinking; magical thinking breeds “plans” and “reports”.

    The plan as described: “The European Commission’s cost estimate, however, may fall short as Rystad Energy analysis suggests the plan will require at least €1 trillion in investment to meet the core objective of increasing renewable generation from 40% to 45% of total energy supply by 2030.”

    So the “core objective” of getting 1/12 of the way to a renewable energy future in eight years will cost one trillion Euros. That doesn’t exactly sound like a plan to me.

    The goal is actually worth pursuing and Europe has some real advantages.

    First, Europe has good quality engineers, scientists and manufacturing. A big investment in scientific research and automated manufacturing dealing with solar and wind energy and the systems to produce it makes sense. The WTO complains? Tell them to deal with China first. The future is either free trade or mercantilism, but not mercantilism for China and free trade for the rest of us.

    Second, there are a lot of low-hanging fruit in the energy conservation areas- but only if things like heat pumps, very efficient transmission systems and district heating and cooling systems based on water reservoirs heated and cooled by renewable are designed and manufactured in Europe by Europeans. But that all takes time to turn ideas into prototypes and them products. Plus a real plan, real unity and real money. To quote from Ben Franklin “We can either hang together or hang separately”.

    Third, like the US, the EU has local opportunities for renewable. It has a coast filled with wind (the Shetlands and the Orkney Islands may be the Saudi Arabia of wind) and southern regions that are dry, sunny and not really valuable for agriculture any more (big chunks of Spain and southern Italy come to mind). Both wind and solar in Europe will require long distance transport of energy. And serious research on energy storage, both battery technology and water splitting.

    Maybe the only good news to come out of the Ukraine fiasco and the decision that Russia is no longer to be treated as part of Europe, is that the enormous cost of even this relatively minor disruption in energy patterns has now focused the minds of the European futurist, hand-waving class on the problem. And that bit of theater will focus the minds of the European voters… on something

  16. Tom Bradford

    For me the most alarming aspect of the article was the emphasis on ‘war-time’ approach, and the abandonment of the usual checks and balances on the justifications for ‘development’. To misquote Joni Mitchell “They paved Paradise to put up a solar farm,” – ‘they’ being private power companies claiming war-time expediency and ‘public interest’ to seize private land where it’s most profitable and convenient to them.

    I grew up in East Anglia not long after WW2 and had parents who had lived through it. From them I heard of RAF and USAF bomber bases almost literally appearing overnight, hundreds of acres of woodland, hedgerows and top-quality farmland flattened and destroyed. Generations-old family farms ceasing to exist, whole villages erased to make way for the concrete runways, thousand-year-old churches bulldozed because their spires were a danger to aircraft landing and taking off – and all on the unappealable say-so of a civil servant at a desk in London exercising ‘war-time emergency powers.” I grew up in that desecrated landscape without realising what had been lost.

    And now they’re saying the WW2 bombing campaign had very little effect in the war effort.

    Panic is never a good basis for decision-making.

  17. George Phillies

    GDP of EU 15 trillion per year. Over 8 years, 120 trillion.

    1 trillion is not 1% of this. Of course, to the solar and wind might be added LNG processing facilities.

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