Yes, the energy transition can emerge out of the pandemic with a new start. Will policy makers listen?

Too small to see unaided, tinier even than a bacterium, SARS-CoV-2 is unleashing waves of change on every aspect of the world – and the energy transition, already under way at varying speeds across the planet, is far from exempt. Here are three major ways our worst pandemic in a century is changing our approach to climate change.

 

By Daniel Whitaker

In response to the Covid-19 pandemic, more than 2 billion people around the world are under some form of restriction with national quarantines, stay-at-home measures and school and business closures. These changes have halted economies and limited business interactions to video conferences and telecommuting. “The coronavirus crisis,” writes International Energy Agency (IEA) Executive Director Fatih Birol in a recent commentary, “reminds us of electricity’s indispensable role in our lives. It’s also providing insights into how that role is set to expand and evolve in the years and decades ahead.”

 

More and more, the energy we use comes in the form of electricity. We are seeing a greater reliance on digital technology and therefore a greater reliance on secure and reliable electricity supplies. With the eventual electrification of sectors like transport, industry and residential, these trends will continue long after the pandemic will be gone. But what about other unexpected trends and affects brought on by Covid-19, like lower global carbon dioxide emissions and lower demand for fossil fuels? With possible stalls in renewable projects and the price of crude oil plummeting, what will happen to energy transitions around the world? Is there any room for optimism? Major players and sources in the industry suggest that the signs for the future are positive, but it all depends on how investors and policy makers respond to the impacts of the pandemic. 

" The coronavirus crisis reminds us of electricity’s indispensable role in our lives. "
Fatih Birol, Executive Director, IEA
1.   Include the energy transition in stimulus packages

“The impact of the coronavirus around the world and the resulting turmoil in global markets are dominating global attention,” writes Fatih Birol. “As governments respond to these interlinked crises, they must not lose sight of a major challenge of our time: clean energy transitions.” Thus, the IEA is calling for clean energy technologies to be at the heart of the economic stimulus packages currently being drawn up by governments around the world.

 

Comprehensive investments in the “development, deployment and integration of clean technologies,” Birol contends, could stimulate economies by creating new jobs or boosting economic activity while at the same time advancing the energy transition. Such technologies include solar and wind power generation, the conversion of renewables into clean hydrogen and e-Fuels, battery storage and carbon capture, utilization and storage (CCUS). “The progress this will achieve in transforming countries’ energy infrastructure won’t be temporary – it can make a lasting difference to our future.”

 

Kadri Simson, EU Commissioner for Energy, who has been videoconferencing with Birol, agrees. In a Twitter post on April 7, she wrote: “Whilst fighting the #coronavirus is currently our key objective, we also need to maintain focus on clean energy transition. @EU_Commission is working on initiatives for our recovery, including #renovationwave & #energyefficiency.” Following Simson, the 27 European Union leaders have already declared that the energy transition will indeed be a major part of their Covid-19 response. 

" Whilst fighting the coronavirus is currently our key objective, we also need to maintain focus on clean energy transition. " 
Kadri Simson, EU Commissioner for Energy
2. Even the playing field for investments in renewables

While stimulus packages are still being drawn up, one possible incentive to make investments in renewables more attractive is to reduce subsidies for oil. With some USD400 billion oil subsidies worldwide and policy makers looking for ways to finance stimulus packages, the option has very much become a real possibility – especially now that demand and prices for fossil fuels have plummeted with the Covid-19 pandemic following hard on the heels of a Russo-Saudi price war. Removing fossil fuel subsidies, says the IEA, or pricing carbon, along with loans and guarantees provided in stimulus packages, “can help reduce many of the risks that have previously deterred private money.”

 

The decline in fossil fuel demand has also led to a historic decline in carbon emissions. But the IEA recognizes in their “Oil Market Report – April 2020” that lower prices could have a range of negative effects on the energy transition as well. The loss in revenue “undermines the ability of the oil industry to develop some of the technologies needed for clean energy transitions around the world.”

 

Subsidies and oil aside, green energy will grow. Last February China fortuitously announced the construction of 2.2 gigawatts of new offshore wind with more to come. And according to The Wall Street Journal, “Wind and solar farms are attracting interest from investors hungry for low-risk, stable-yield opportunities at a time of extraordinary market volatility” (Russel Gold, 2020, “Wind, Solar Farms Are Seen as Havens in Coronavirus Storm,” The Wall Street Journal, March 31). Moreover, the costs for solar and wind power technologies are continuing to fall and newer technologies like Power-to-X or CCUS that will be necessary for the energy transition are now ready to be scaled up.

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3. Create flexible grids with a firm capacity of available electricity

We’re already getting a glimpse of how future electricity markets might look. Due to confinement measures taken around the world, there has been around a 15 percent decline in electricity demand in most advanced economies, with a normal weekday consumption pattern now resembling more that of a typical Sunday profile. This is making the availability of renewables suddenly much higher in markets that already have a large share of renewable installed capacity in their grid, giving them access to larger levels of variable wind and solar power.

 

At the same time, the lockdown spanning most of the planet has underlined how much we all depend on a secure supply of electricity – without it home confinement for many would be unacceptable. “This is an important moment for our understanding of cleaner electricity systems,” says IEA’s Birol, “including some of the operational challenges that policy makers and regulators need to address to ensure electricity security.”

 

With investments in clean energy technology, we may one day move to a hydrogen economy and the electricity we receive from our renewables will no longer be dependent on the weather. Until then, systems need to be flexible enough to shift to other sources of generation in times of little or no sun or wind – and maintain a firm capacity of electricity guaranteed available at any given time. Pairing renewables with low-cost, adjustable gas-fired power plants has been encouraging because they can be quickly ramped up and down. More importantly, in the future, gas burners for turbines will run on synthetic, carbon-neutral fuels like e-hydrogen

A post-pandemic world?

For many in Western countries, lockdown life in some ways represents a postcard from the future. City pollution – banished; a large percentage of work and commutes – digital; the demand for fossil fuels – falling. And while the first and major issue is overcoming the Covid-19 pandemic, many people would probably agree with historian Yuval Harari that “we should ask ourselves not only how to overcome the immediate threat, but also what kind of world we will inhabit once the storm has passed.”

 

Even though relaxation of the lockdown measures will bounce back our usual energy consumption habits, we’re already seeing some governments pledge to create immediate incentives for clean energy technology and people everywhere relying on more electricity and more renewables than ever before. Will these changes in our approach to the energy transitions hold? It really remains to be seen how these genuine yearnings for a better world will survive contact with urges for jobs and economic growth, but they may be a potent new influence on what happens next. There will continue to be a stream of positive as well as negative effects from the pandemic, both during and after – and the energy landscape will be radically changed for quite some time to come. As Dorothy remarks post-tornado in the Wizard of Oz, “Toto, I’ve a feeling we’re not in Kansas anymore.”

Apr 24, 2020

Daniel Whitaker, based in London, is an economist and journalist who has been following the changes in the renewable energy sector for years. His work has appeared in a number of media outlets, including the Financial Times and The Economist.

 

Combined picture credits: IEA, Estnische EU-Ratspräsidentschaft, Siemens