The end-to-end news coverage of the coronavirus emergency is producing a secondary wave of commentary and analysis on whether the global pandemic will derail the transition to fossil to renewable energy. The verdict so far: It depends.
Supply chains broken by COVID-19 pose an immediate and ongoing threat to the global health of renewables, while distraction and panic increase the risk of decisions from policy-makers that undermine clean energy investment. Meanwhile, wild cards like Donald Trump, elusive consumer confidence, and the sucker punch delivered to oil prices last week by the Russia-Saudi contretemps are helping neither situation.
But there is hope. Some commentators see renewables not only weathering the COVID-19 storm, but actually thriving—provided, that is, that policy-makers and investors do not retrench into the fossil status quo.
Broken supply chains have been, and remain, an unavoidable fallout from the novel coronavirus outbreak, with JWN Energy reporting that “raw material and labour shortages across China’s solar supply chain” are “threatening to blunt an expected recovery in China’s solar market.” The current slump was sparked two years ago, after the Chinese government began to withdraw subsidies from the solar industry.
And at least a modest downturn in solar prospects could be global, with Bloomberg New Energy Finance (BNEF) lowering its forecast ranges from 121 to 152 gigawatts to 108 to 143 GW, reports the Institute for Energy Economics and Financial Analysis (IEEFA). If actual demand hits “the low end of the revised range,” IEEFA says, “2020 could mark the first time in several decades when annual demand falls below that of the previous year.”
China is beginning to ramp up capacity, however, a recovery that recently allowed builders of a 300-MW solar farm in Wisconsin to rescind a declaration of force majeure, reports the Wisconsin Star Tribune. “Factory shutdowns and other coronavirus developments in China were interrupting the delivery of equipment” for the project, requiring a schedule adjustment and a request to trigger the force majeure clause, which would have released the builders from the obligations of their contract. Now, the development firm expects “no delays or cost effects”.
Still, COVID-19 interruptions in the solar panel supply chain between the U.S. and China persist, notes the Tribune, with the developer of another 300-MW project in Wisconsin also declaring force majeure in late February—a declaration it has not yet lifted.
More broadly, observers fear the necessary focus on the coronavirus could lead policy-makers to take their eyes off the climate crisis, just when they were beginning to see the threat clearly. COVID-19 has “stoked fears of a global economic recession and helped to ignite one of the sharpest oil price collapses in the last 30 years,” writes the Guardian, creating an “economic contagion” that may stall clean energy investment and infrastructure projects that are “needed to avert a climate catastrophe by the end of the decade”.
The fall of global oil demand during the pandemic may keep total emissions stable, but cheering that news would be dangerously premature. “There is nothing to celebrate in a likely decline in emissions driven by economic crisis, because in the absence of the right policies and structural measures, this decline will not be sustainable,” Fatih Birol, executive director of the International Energy Agency, told The Guardian. Noting that “major economies around the world are preparing stimulus packages” to help their societies and citizens weather the coronavirus storm, Birol heralded “an important window of opportunity,” in which a “well-designed stimulus package could offer economic benefits and facilitate a turnover of energy capital”.
Birol urged global governments both to “invest in energy efficiency measures, which…would prove a lucrative investment in the longer-term,” and to “use the downturn in global oil prices to phase out or scrap fossil fuels subsidies.” Those subsidies, in turn, could be put toward health care while the coronavirus is at the top of the priority list.
“If the right policies are put in place, there are opportunities to make the best of this situation,” Birol declared.
In the Bloomberg Green e-newsletter, writer Akshat Rathi was cautiously optimistic that policy-makers will seize on such opportunities—if they believe rock-bottom oil prices are here to stay “for months or even years”. Reacting to that belief by pushing green energy projects forward could help create a little lemonade from the distinctly sour lemons of the viral pandemic, he said.
Even now, investors fearful of stranded assets are bailing on fossils. “It doesn’t make sense to reduce your investment in renewables if the oil price crashes,” said Mark Lewis, head of sustainability at BNP Paribas Asset Management. “It’s more logical to reduce your investment in oil.”
Case in point is news that “the oil price crash has led to Danish offshore wind developer Ørsted overtaking Norwegian oil major Equinor as the most valuable energy company in the Nordics,” according to Reuters. The collapse in oil value that immediately followed last week’s news of a price war between Russia and Saudi Arabia produced “the biggest one-day percentage drop since January 17, 1991, at the outset of the first Gulf War,” Reuters reports. “Shares in Equinor slid nearly 18%…as crude prices plunged 25%.” Other news reports had the drop at 31%.
That plunge, while triggered by the price war, comes alongside “volatile crude prices” and “a global shift away from heavily polluting fossil fuels,” Reuters adds. Ørsted, the former colossal fossil previously known as Dong Energy, “has seen its shares gain more than 40% over the past year, while shares in Equinor have fallen by around the same margin.” The wind company “has been rebranding itself as a ‘renewable major’ after it sold its oil and gas business in 2017, courting investors interested in green investments, which have seen a boost thanks to policies to protect the environment.”
The rebranding has worked. “All investors look at Ørsted and say: Here we buy into the future, and when they look at the oil companies, including Equinor, they buy into the past,” said Jacob Pedersen, head of equity research at Sydbank.
And there are grounds for optimism that policy-makers looking to stimulate post-pandemic recovery will know better than to double down on fossils, Rathi writes. Past experience has shown governments that “a time of low fuel prices is a good moment to turn off fossil fuel subsidies or increase fossil fuel consumption taxes,” he writes, adding that such moves “can help avoid the sorts of protests that France, Iran, and Ecuador saw when energy price increases were proposed.”
As proof, Rathi points to India, which “cut annual fossil fuel subsidies from US$29 billion to $8 billion” when oil briefly fell below $30 per barrel in 2014, and “even raised taxes on consumption.”
Digging down into the geopolitics of oil, David Livingston, senior analyst for the political risk consultancy Eurasia Group, summarized the “high-stakes game of chicken” that played out on March 9 in Vienna, when Russia and Saudi Arabia met to ostensibly rein in supply and stabilize oil prices. Explaining the event for Greentech Media on its weekly podcast, Political Climate, Livingston said Russia came to the meeting in a “truculent” mood, and refused to cut supply. The Saudis (followed by the United Arab Emirates) responded by “opening the spigots” to a “record of 13 million barrels per day,” even going so far as to release further oil stores. Russia followed suit, creating a “massive oversupply” and an oil price to match.
Asked to comment on rumours that Trump is considering support measures for the myriad small American oil and gas operators who are “feeling the pinch” of low prices, Livingston speculated that the White House might pressure the majors to acquire those failing assets—adding that, whatever happens, he hoped such a decision would be shaped by the national interest, rather than by industry lobbying. Bloomberg reports, meanwhile, that one of America’s largest rooftop-solar companies, Houston-based Sunnova Energy International Inc., has indicated it would “back the oil industry’s bid for federal aid amid the worst price rout in a generation, as long as it’s part of a package that restores the U.S. solar industry’s federal tax credit to last year’s level.”
Commenting on the “trillion-dollar question” of how renewables will respond to low oil prices, Livingston said biofuels and “everything associated with EVs” will suffer, as these are “most competitive in a world of high oil prices.” The comment echoed another recent report that “shock waves from the oil price crash have hammered Asia’s biofuels industry, upending optimism over its future.” Bloomberg writes that biofuels that blend diesel with palm oil “need to be attractively priced compared with fossil fuels to encourage consumption, and that often requires subsidies,” but the price crash “has suddenly made palm oil’s competitive position dramatically worse.”
But in one very important way, there’s hope that this price war—unlike its predecessors—will not drive an increase in fuel consumption.
In the recent past, the climate effects of such a price war may likely have been exacerbated by consumers who, typically, would be prompted by cheap oil to buy SUVs and other high-consuming items. Today, consumer confidence “may actually be down,” said Livingston, so the wave of new vehicle purchases may not materialize. The collapsing shale industry could also lead to a drop in natural gas supply, and a consequent spike in price, which would be good news for the renewable power sector.
What remains very much uncertain, he said, is what the larger U.S. fossils will do if small-scale shale companies go bankrupt. The deciding factor, he stressed, will be the perception of how long low oil prices will last. If the majors believe that oil will rebound quickly, they will likely invest in shale. If they believe they’re stuck in a “lower for longer scenario,” their analysis will “augur well for [their] investment in clean technology.”
Finally, Big Oil’s fear of debt could lead to a third possibility, added Livingston: major fossil producers may “hunker down” and invest only in offshoots of their existing business model, such as carbon capture and storage.
