Although the coronavirus crisis has slowed down clean energy investments and installations, renewable energy and green technologies have the chance to emerge as the winners in the post-COVID-19 world.
Undoubtedly, the global health crisis has impacted every corner of the energy industry, including renewables.
Yet, renewable energy has so far been the energy source most resilient to lockdown measures. Demand for renewables is set to grow this year—and this will be the only energy source to grow in 2020 compared to 2019, in contrast to all fossil fuels and nuclear, according to a recent report from the International Energy Agency (IEA). While the agency predicts that renewable power capacity installations globally will return to pre-virus levels as early as in 2021, the jury is still out on when (and if) global oil demand will return to its ‘normal’ consumption level of around 100 million barrels per day (bpd).
Some analysts argue that we may have already hit peak oil demand, considering that the pandemic might result in lasting changes in consumer behavior and lifestyles, such as the opportunity to work from home indefinitely. Even the bosses of BP and Shell do not rule out the notion that the world may have already seen peak oil demand.
Throw in the growing investor pressure on the oil industry to start addressing climate change and Big Oil’s pledges for net-zero emissions, and here we have another driver of clean energy technology development and installation.
In 2019, renewables dwarfed conventional generation sources in terms of both capacity additions and investment, a new report from Frankfurt School of Finance & Management, UN Environment Program (UNEP), and BNEF showed. As much as 78 percent of net gigawatts of generating capacity added globally in 2019 was renewable energy, with investment in renewables – excluding large hydropower – more than three times the investment in new fossil fuel-powered plants.
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As per the IEA, the pandemic “is hurting – but not halting – global growth in renewable power capacity.”
Supportive government policies will be crucial for renewables growth to quickly recover to pre-crisis levels. And early indications from major economies, especially in Europe, are that the so-called green recovery will be the pillar of the policies for economic recovery.
Two of the biggest European economies—Germany and France—called for an acceleration of the green and digital transitions in May. The European Commission (EC) pledged US$630 billion (560 billion euro) to support investments and reforms, including to back the green and digital transitions and the resilience of national economies. In the UK, which is leaving the EU, more than 200 companies and business associations called on the UK Government to deliver a clean, inclusive, and resilient recovery plan. Oil supermajors BP and Shell are among the signatories of the letter to the UK government.
While the push for greener economies has been gaining traction, oil companies and their stocks have been suffering in recent years from volatile oil prices and the investor push for accountability for global warming.
The S&P Global Clean Energy Index has gained nearly 45 percent in the two years through June 2020, while the S&P Global Oil Index has seen its performance at a negative 29 percent, and the S&P 500 Energy Index was at a negative 35 percent, says Frank Holmes, CEO and CIO at investment advisor U.S. Global Investors, which manages no-load mutual funds.
According to a recent report published by Imperial College Business School in partnership with the IEA, returns of renewable energy stocks have been significantly higher than returns on fossil fuel stocks.
The report showed that “publically-traded renewable power portfolios have posted significantly higher returns for investors and lower volatility over fossil fuels during the past ten years and during the COVID-19 crisis,” Imperial College London said in a statement.
While the energy sector, including renewables, is set for investment and installation setbacks in the short term, uncertainty in the oil and gas industry looks to be much higher than in renewables. The longer-term prospects and economic rationale for renewable energy remain strong as costs continue to decline, while the specter of peak demand will continue to loom over the oil industry.
“Although in the short term, governments may delay scheduling new renewable capacity auctions and turn to existing natural gas plants to meet new demand, in the medium and long term the economic case of wind and solar remains strong thanks to expected continuing cost reductions and to the long-term price predictability over project lifetimes,” the IEA said in its latest renewables market update in May.
By Tsvetana Paraskova for Oilprice.com
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But this is the same situation as oil. China’s oil demand is already back to 2019 levels as judged by its soaring crude oil imports. Furthermore, global oil demand led by China is projected to be only 3 million barrels a day (mbd) less than 2019 levels and is projected to be back to pre-COVID-19 levels in early 2021. So the claim that renewables will emerge the winners from the pandemic is both typical IEA hype and wishful thinking.
There will be no peak oil demand throughout the 21st century and probably far beyond. Even the IEA which has previously been hyping about how close peak oil is, now accepts that peak oil is years away.
There was no ambiguity whatsoever when the CEOs of ExxonMobil and Shell the world’s two biggest supermajors recently made their positions on peak oil demand very clear. Darren Woods the chief executive of ExxonMobil declared that “the long-term fundamentals that drive our business have not changed." This was echoed by Shell’s CEO Ben Van Beurden who said that it is entirely legitimate to invest in oil and gas because the world demands it". "We have no choice."
Moreover, the global oil and gas industry is set to see its total annual revenues plunge by a whopping $1 trillion this year from $2.47 trillion in 2019 to $1.47 trillion this year. The projection for 2021 is $1.79 trillion. This means that the industry will have to focus all its diminishing resources on the core business that sustains it, namely oil and gas not renewables. There you have it.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London