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How Likely Is Coronavirus To Change Our Long-Term Transition To Renewable Energy?

The renewable energy industry, which until recently was projected to enjoy rapid growth, has run into stiff headwinds as a result of three era-defining events: the COVID-19 pandemic, the resulting global financial contraction, and a collapse in oil prices. These are interrelated, mutually reinforcing events.

Clean energy has momentum

Countervailing factors will partly offset this decline, at least in wealthy countries. Many renewable plants are being installed for reasons other than demand growth, such as clean power targets in state laws and regulations, and are already under contract or construction.

Government policies and public pressure are also forcing utilities to retire coal-fired power plants. Since 2010, 102,000 megawatts of coal generating capacity have been retired—nearly one-third of the total US coal fleet—and at least 17,000 megawatts more are expected to retire by 2025. Most of this will likely be replaced by wind, solar, and hydropower.

Despite the current crisis, there is long-term pressure from many directions to add carbon-free energy. Fifty US utilities have already committed to carbon reduction goals, including 21 companies that pledge to become carbon free by 2050.

Voluntary green energy purchases by US companies increased by almost 50 percent in the last year, to 9,300 megawatts—almost one percent of all US power capacity. And residential customers are choosing to buy more renewable energy through options such as community solar programs.

Defaulting to dirty fuels?

Since early 2019, crude oil prices have collapsed, declining almost 64 percent. Normally, demand would solve the problem in a way, because you would have lower prices that act like a tax cut and it would be a stimulus. But not in this case because of the freezing up of economic activity.”

This oil price collapse has also reduced US natural gas prices by about one-third from levels one year ago. Like electricity and oil, natural gas use rises and falls with economic activity; it is somewhat less sensitive to economic trends than the highly reactive oil sector, and more sensitive than comparatively stable electricity use.

Ordinarily, cheaper natural gas—which is widely used for generating electricity—would stimulate electricity demand by reducing the price of power, thus increasing economic growth. But in this unusual era, the effects of lower oil and gas prices on renewables will be somewhat murky and complex, and will probably differ substantially by market and region.

For some new plants in places where policies do not effectively mandate renewable energy, continued or even new use of oil and gas generation will look cheaper. For example, replacing dirty diesel generation with solar power plus some form of energy storage will not look nearly as attractive now as it did a year ago.

This is especially worrisome in emerging nations, where the overwhelming imperative is to expand electricity supply as cheaply as possible. These economies are always short on capital and highly sensitive to energy costs. If they opt for cheap fossil fuels instead of renewables, it will be bad for air quality and climate policy.

The fact that central banks are promoting ultra-low or even negative interest rates to respond to the economic crisis could mitigate this risk by making renewables, which have high capital costs, cheaper to install. The key is avoiding a wholesale shift to new fossil fuel generation.

Economic Viability of Renewables is Unaffected

Although fossil fuel prices have drastically come down in the prevailing price war between Saudi Arabia and Russia, such low prices will not sustain their economies forever and when they rise that will mean more American fracking which will mean more money for America and more money for renewables as already mentioned (Russia and Saudi Arabia don’t want America to be energy independent – it’s a vicious game). Renewable energy, on the other hand, is an infinite resource, and is already more economically viable than fossil fuels in some cases. This equation for some states is not going to change just because of a temporary global crisis.

Large businesses have made commitments to decarbonization, not because they are willing to pay a premium to reduce their environmental impact, but because it made a compelling economic case and promises greater savings on their enormous energy bills. While some of the current renewable projects will slow down because of supply chain disruptions, the long-term economic benefits from clean energy are not going to be affected. Some companies are already making it clear, even in the midst of the ongoing crisis.

General Motors, for example, announced just last month that it is advancing its 100% renewable energy goals for its business operations worldwide by 10 years to 2040 instead of the original commitment of 2050. The company believes that Covid-19 does not have a long-term correlation with the global transition to renewables.