“The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity.”
– John F. Kennedy
Just when renewable generation appeared ready to take-off, the
coronavirus hit. COVID-19 — the official name of the disease as announced by
the World Health Organization on February 11, 2020 — already is disrupting
global supply chains, U.S. markets, and daily activities. As the human health
impact of the pandemic and society’s response reverberate through the economy, the
question is starting to be asked, “How will the renewables sector be impacted?”
Although COVID-19 can strengthen the call for resiliency and distributed renewable
generation, there are at least five ways that the disease could ruin renewables
in the near-term. Pay attention to the symptoms and take action to hunker down
now in order to recover after the virus is contained.
A Feverish Investment Pace
Renewables have been hot – representing more than a majority
of new generation capacity coming online in 2019. The 2020 Annual Energy
Outlook – published by the U.S. Energy Information Administration — projects that
renewable energy would surpass the amount of coal-fired generation by the
mid-2020s. Federal tax credits and state policies have fueled the acceleration
of anticipated renewables through 2030 and beyond. This pace of renewable
development may not be sustainable.
Policy Coughs and Congestion
Federal initiatives supporting fossil fuel generation,
federal regulatory decisions siding with centralized markets versus competitive
procurements, and delays in offshore wind approvals by the Bureau of Ocean Energy
Management have challenged the rise of renewables. Rumors of a long overdue
energy policy act in Congress could have settled the matter. At this point,
however, COVID-19 is stuck in government’s gullet and sucking the air out of all
policy initiatives other than those addressing the pandemic. As the nation and
multiple states enter into crisis management, it will be difficult for energy
and environmental policy to receive any attention in the near-term unless it is
related to the coronavirus.
Tightening Supply Chains
As the disease expands exponentially, secondary and tertiary
impacts on global supply chains are growing. General Electric confirmed that
its GE Renewable Energy unit supply chain anticipates a negative impact of
between $200 and $300 million on operating profit in the first quarter.
Delivery delays could further push project operation dates beyond tax credit
deadlines. The government can relieve some of the pain through a tax relief
plan that extends tax credits, but direct intervention is required at a time
when focus is elsewhere.
In the meantime, domestic fossil fuel prices are falling and
the relative price of renewables is rising. Global declines in demand for oil
coupled with a collapse of production quotas has dropped prices to levels not
seen for twenty years, and they could fall even further. Natural gas prices,
already below $2 per mmBtu for the past three months, are also gasping for
breath. History has shown that if prices for fossil fuels stay this low, demand
for renewables also falls.
Ongoing Aches and Pains
As the stock market continues its free-fall, a recession
appears to be inevitable, which could adversely impact renewables. Protecting
the environment traditionally has been considered a “luxury good” in economic
parlance. As income rises, investment in protecting the environment becomes a
greater proportion of overall spending. Although the call for renewables
prevailed during recent market corrections, demand for clean energy
traditionally declines with the economy.
Shuttered commercial and industrial load, as well as en
masse quarantine measures, already are decreasing carbon emissions from
automobiles, aircraft, and retailers. China experienced an estimated 25 percent
decline in carbon emissions during the first quarter when the coronavirus hit.
Adaption of work patterns also could have long-term implications, changing the
way business is done, decreasing the nation’s carbon intensity through virtual
offices, less commuting, and lower consumer expenditure. Renewables may have to
wait for the economy to recover.
Despite the challenges discussed above, the pandemic ultimately
could help renewables. As interest rates fall, renewable generation becomes
more competitive. As oil prices fall, wells may be shut in, decreasing the
supply of natural gas into the market, potentially raising natural gas and
electricity prices. The perceived need to prepare for the next pandemic with
self-sufficient, sustainable homes or microgrids could increase distribution-level
demand for renewable resources. As global supply chains recover, they may become
more robust, lowering the cost of delivered renewable generation equipment.
That said, an antidote is still more than one year away. Now
is the time to be safe. Although symptoms could be mild, pay attention if you have
a fever, cough, congestion, trouble breathing, sore throat, or aches. Failure
to respond quickly could have devastating consequences. Have faith and know
that this too shall pass.