Countries are on lockdown, and national borders sealed. Factories lie dormant, and offices empty. In the wake of the epidemic, the world has ground to a near halt, throwing markets into turmoil.
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The renewable energy sector—tied into global value chains and reliant on investors as well as workers to build facilities and keep them up and running—is not spared from the fallout of the outbreak.
As the pandemic drags on, maintaining the momentum solar and wind energy have enjoyed in recent years seems like an impossible task. Too far-reaching are the crisis’ knock-on effects, throwing policymakers and industry players into a tailspin.
That there might not be enough equipment to build solar and wind farms following widespread factory shutdowns was the industry’s earliest concern. After all, China—where Covid-19 emerged, and its impacts were felt first—is the world’s top producer of solar panels, wind turbines and batteries for electric vehicles.
Supply chain bottlenecks are likely to persist. Even as Chinese factories rumble back into production, other manufacturing hubs that industry players have started sourcing from, such as Malaysia, India and Thailand, are now facing lockdown measures.
But fast becoming the biggest challenge for the sector is the blow dealt to the world economy—the heaviest since the financial crisis over a decade ago. Not only is the economic downturn hurting power demand, but also the availability of finance, threatening to put a brake on investment in renewable energy.
Where border closures, mandatory work-from-home orders and other containment measures restrict travel, workforce shortages could derail project timelines and make it difficult for companies to maintain existing solar and wind farms.
Such developments paint a bleak outlook for renewables. Bloomberg New Energy Finance recently lowered its 2020 global solar demand forecast to a range of 108 to 143 gigawatts (GW)—a drop of 9 per cent at the low end compared to previous estimates. Meanwhile, energy consultancy Wood Mackenzie has cut its forecast for global wind installations this year by 4.9 GW, or 6.5 per cent.
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The combination of the coronavirus and volatile market conditions will distract the attention of policymakers, business leaders and investors away from clean energy transitions.
Dr Fatih Birol, executive director, International Energy Agency
“The crisis is bad for the global economy,” Peter Kiernan, energy lead analyst at The Economist Intelligence Unit (EIU), told Eco-Business.
“People’s daily lives are under lockdown, industrial output is being shut down, power demand is declining and for the first half of this year, a lot of countries will likely see negative economic growth. Renewables are not immune to that,” he said.
Energy markets reeling
Renewables are not the only energy market affected. With airlines grounded, roads emptied, and fewer goods being shipped across the globe, oil markets have been hit the hardest, and an ongoing Saudi-Russian price war has only exacerbated the oil price plunge.
Following the failure of the Organization of the Petroleum Exporting Countries (OPEC) to strike a deal with its allies about oil production cuts in response to crashing demand, oil prices fell by 24 per cent earlier this month—the largest one-day decline in three decades.
In a statement published last week, Francesco La Camera, director-general at the International Renewable Energy Agency (IRENA), said oil market volatility was unlikely to have a significant impact on renewable energy plans and investments in the near term.
“Oil plays a negligible role in power generation and therefore does not compete with renewables in this respect,” he said, adding that data from a previous oil price crash in 2014 showed no evidence of a link between the two, and that renewables investment had in fact reached new heights while oil majors had struggled.
But crashing oil prices may reduce the impetus for energy efficiency, warned the International Energy Agency’s (IEA) executive director Dr Fatih Birol in a commentary.
He said without government measures, cheaper energy could lead consumers to use it less efficiently, reducing the appeal of buying more efficient cars or retrofitting homes and offices to cut consumption.
With oil prices at their lowest in decades, fossil fuel giants looking to shrink their climate footprint may also fail to generate enough cash to allocate budget for renewables investments, putting decarbonisation strategies on the back burner. However, their impact on growth will be small, as oil and gas companies only account for a tiny proportion of global investment in clean energy.
IRENA’s La Camera warned that falling oil prices may in the long run impact the speed of electric vehicle adoption. A case in point is Tesla, which in response to the outbreak announced plans to close two plants making electric vehicles.
But EIU’s Kiernan told Eco-Business that as global growth slows down, the crisis will likely hit all vehicle sales, not just electric cars, while the virus won’t see automakers and countries abolish plans to phase out internal combustion engines.
Even if the crisis drags on much longer, high fuel taxes from Europe to Singapore could ensure that slumping oil markets won’t see pump prices fall enough to boost petrol and diesel cars much over battery-powered vehicles.
Can renewables keep the wind in their sails?
Despite the strain on healthcare and the looming threat of a global recession, nations can ensure the transition to clean power doesn’t come to a standstill as they claw their way out of the crisis, experts said.
Stimulus packages concocted to cushion the pandemic’s impacts present the biggest opportunity to keep boosting renewables. Kiernan said as governments draft these plans, they should prioritise clean energy deployment, providing incentives and guarantees that reduce investment risks.
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Governments are preparing trillions in stimulus packages to save economic growth and employment to combat Covid-19. This is a golden opportunity to allocate some of it towards renewables and zero carbon energy supply so that the world can reap benefits when the tide turns.
Prakash Sharma, head of markets and transitions, Asia Pacific, Wood Mackenzie
Prakash Sharma, head of markets and transitions for Asia Pacific at Wood Mackenzie, said: “Governments are preparing trillions in stimulus packages to save economic growth and employment to combat Covid-19. This is a golden opportunity to allocate some of it towards renewables and zero carbon energy supply so that the world can reap benefits when the tide turns.”
Extending deadlines of existing support schemes where project timelines are affected by the outbreak could be another way to help the sector through these difficult times, said Kiernan.
Projects that lose vital policy support face commercial risks. In the United States, wind and solar projects that fail to go into operation this year will lose access to critical tax benefits. Investors in Vietnam are set to withdraw from projects that risk missing the looming cut-off date of the feed-in-tariff scheme partly due to delays caused by disrupted supply chains.
There may also be a silver lining to crashing oil prices. Up until now, lower returns from solar and wind projects compared to oil and gas investments have deterred many firms from doing business in the clean energy sector. But at today’s oil prices, this has changed.
Birol of the IEA said the oil price plunge should encourage governments to redirect subsidies from now unviable oil resources to green power, while hard-hit oil-reliant nations could even be spurred to diversify their economies.
IRENA’s La Camera said: “Oil price volatility may undermine the viability of unconventional oil and gas resources as well long-term contracts, providing a window of opportunity to reduce or redirect fossil fuel subsidies towards clean energy, while minimising the potential of social disruption.”
As governments battle the epidemic, there is a risk that renewables move down the political agenda. Birol warned: “The combination of the coronavirus and volatile market conditions will distract the attention of policymakers, business leaders and investors away from clean energy transitions.”
Already, countries like Poland and Czechia are citing the coronavirus as a reason for easing up on policies to cut climate emissions, while clean energy auctions are being delayed from Chile to South Africa. China has pushed back its solar auction from May to June.
The IEA expects the pandemic will cause emissions to decline this year, but they could rise again once the economy rebounds. The world may have slowed down, but climate change won’t wait, warned Birol. “We should not allow today’s crisis to compromise our efforts to tackle the world’s inescapable challenge,” he said.
