COVID-19 is crippling the energy market, with one big exception: renewables
This was supposed to be another record year for renewables.
Instead, 2020 represents a sudden break in what appeared to be a nearly unstoppable rise in the capacity of renewable energy, the International Energy Agency said Wednesday—with capacity growth expected to drop by 13% compared with the record pace set in 2019. That marks the first drop in renewable capacity growth in over two decades, the agency said.
That drop is due, of course, to the COVID-19 pandemic—which has delayed installation and financing for projects, particularly rooftop-installed solar panels, a powerful source of renewable energy growth. But it also represents policy shifts that were already in place before global lockdowns began, the Paris-based agency said.
That included a halt to subsidies as many of the green technologies have in recent years become cost-efficient enough for governments to allow state-backed price support schemes to simply lapse. This is even true in China—the single biggest renewables market, as well as the manufacturing center for a large proportion of its infrastructure.
Dwindling prices for green tech, however, are proving to be no match for COVID-19. The economics, while steadily improving, “will not be enough to shelter renewables from the impacts of coronavirus, including the economic downturn,” said Fatih Birol, executive director of the IEA, on a call with reporters on Wednesday.
“Therefore the role of governments is more important than ever in terms of the support for renewables,” he noted.
The IEA also pointed to the “resilience” of renewables as a market advantage in an otherwise battered sector. Even as frozen transport and paused industrial activity wallops overall energy demand—oil demand in 2020 is expected to decline by a record 12 million barrels—the renewable energy market is still expected to increase.
Even with a sharp decline in the pace of renewable energy growth, clean energy will still grow by 6% year over year. Renewable energy also represents a larger proportion of the total energy makeup, the IEA said last month.
That’s partly a reflection of the ways in which energy demand has been hit: Electricity grids can rely more easily on low- or no-carbon energy sources, compared with transport, particularly air travel, where there is still no large-scale low-carbon commercial alternative to jet fuel.
However, that resiliency “cannot be taken for granted,” warned Birol.
While the scale of the shift toward renewable energy, and away from fossil fuels, has been rapid in terms of capacity, the world still remains dependent on fossil fuels for energy, and many countries and regions—including the EU—face the challenge of completely decarbonizing energy systems by 2050, even as energy demand itself continues to grow.
Many of the largest renewable projects—for example, hydropower projects—are also constructed over longer time periods, and so less likely to be threatened by the lockdowns, the IEA said, while smaller projects, particularly solar, are most likely to be hit by financing issues and delays. More than half of this year’s growth is still expected to come in the form of solar power, the agency said.
The IEA has, since the beginning of the pandemic, openly urged governments to make a transition to green, low-carbon energy a fundamental part of rebuilding economies as lockdowns ease and the full-scale of the economic devastation becomes clear. That’s not such a straightforward plea anymore. Governments are racking up historic deficits to quickly get their economies back on track. Meanwhile, companies are forgoing big capital investments. Climate experts have routinely expressed concern that climate goals will get short shrift in the fallout of the global recession we’re heading into.
In a recent Fortune poll of CEOs, this sentiment rang out clearly. Chief executives were asked whether they thought “concern about the environment will fall, as a result of more immediate focus on economic problems.” A larger number (42% vs. 35%) agreed with that statement.