IEA Sees Unique Opportunity For Clean Energy During Covid-19 Crisis

In the midst of a pandemic that’s shaken energy markets to the core and threatens to send the global economy into a depression, renewable energy is holding steady. In the apt words of the world’s premiere advisory body and data source for energy, renewables remain ‘resilient.’  The International Energy Agency (IEA), in its Global Energy Review 2020, provides a snapshot of energy demand for all major fuels this year, as well as CO2 emissions. The flagship report, released late last month, follows the ‘Global Energy and CO2 Status Reports’ of 2017 and 2018. It shows a steep decline in energy usage worldwide through mid-April, with a fall in demand for all energy sources except renewables, specifically wind, solar and hydroelectric power. 

The IEA asserts that renewable energy projects will be more solid financially than others post-crisis. And, while renewables should emerge in the best financial position in the energy sector, the IEA also says that demand for oil, gas and coal – and their associated carbon emissions – should revive quickly with renewed economic growth. Its assumption is based on the historical precedent of the energy rebound after the last major economic crisis in 2008. 

But the agency also sees the resiliency of renewables in the midst of the crisis as an important indicator of an energy landscape that’s fundamentally changing. In the words of Fatih Birol, the IEA Executive Director: “It is still too early to determine the longer-term impacts, but the energy industry that emerges from this crisis will be significantly different from the one that came before.”

The IEA sees a unique opportunity now to push the energy sector more toward low carbon sources. The new report urges governments to do this through their stimulus programs by focusing investment on renewables and related technologies that enhance grid system flexibility to accommodate rising shares of variable renewable energy. 

Related: Oil Spikes Despite Pandemic Uncertainty
The full report, Global Energy Review 2020 (IEA, Paris) may be downloaded from the IEA website. https://www.iea.org/reports/global-energy-review-2020

Seeing a shift 

The report projects that energy demand will fall by 6% worldwide during 2020. It’s a decline seven times greater than that which occurred in the wake of the last economic crisis in 2009. There will be sharp reductions in demand for oil and gas, while demand for coal will see its largest decline in more than seventy years. Global CO2 emissions are expected to decline by 8%, or almost 2.6 gigatonnes (Gt), to levels of 10 years ago.

Electricity demand is anticipated to decline 5% during 2020. It has seen drops of more than 20% during the ‘lockdowns’ in several countries so far this year. In these cases, the increase in residential use has been more than offset by decreases in the commercial and industrial sectors. However, the IEA shows that demand for electricity from wind and solar PV has remained steady. Indeed, large parts of Europe and the US now have record-high shares of variable renewables in electricity supply, as measured on an hourly basis during lockdowns. 

Shares of power worldwide from wind and solar PV reached 9% of electricity generation in the first quarter, up from 8% last year. And renewables are the only energy sources expected to rise this year. The IEA report estimates that total use of renewable energy will rise by about 1% worldwide in 2020, while renewable electricity generation will rise by nearly 5% with the expansion of solar, wind and hydropower. It should be noted, however, that this anticipated growth is lower than what the agency had forecast for renewables before the current crisis.

Key factors inherent in electricity production from renewables help to explain their relative strength in the face of lower overall electricity demand. Output from renewable sources is to a large extent unaffected by demand, as renewable power is generally dispatched before that of other sources due to its low operating cost and in some cases regulations that give it priority. Its priority dispatch and preferential access to power systems has been complemented by the recent and ongoing growth of installed capacity of wind and solar power. Related: LNG Price War Could Send Natural Gas Into Negative Territory

The IEA report states that the current crisis is actually accelerating a shift that has been underway. It is a shift toward a preponderance of renewable energy in the power mix. While coal and natural gas still provide close to 60% of the world’s electricity, their share is shrinking. As the report notes, low carbon sources including hydropower surpassed coal as the leading source of electricity last year, for the first time in 50 years. They should again surpass coal and provide 40% of the power mix this year. This will occur even as demand for nuclear power is anticipated to fall substantially this year.  

Accelerating the shift

Another key indicator of the ongoing shift is noted by the IEA’s Fatih Birol in a recent commentary. He points out that, according to IEA data, the world economy expanded by almost 3% in 2019 while its energy-related carbon emissions actually stopped increasing, largely thanks to a decline in emissions from the electricity sector in advanced economies. This shows that transitions to clean energy are indeed occurring. 

As he writes, “Let me be clear, economic growth coupled with decarbonisation is not only realistic, it has already been happening.” 

In its Global Energy Review 2020, the IEA does not speculate that now will be a moment for a major advance in renewables, as conventional fuels are likely to revive quickly with a reviving economy. But the agency calls for seizing an opportunity to enhance a shift already happening. Birol states the basic fact, supported by IEA analysis, that governments directly and indirectly drive more than 70% of global energy investments. Thus, with their big stimulus programs, they can greatly shape energy’s future. 

Birol calls for ‘once-in-a-generation’ stimulus plans that support economic recovery while putting greenhouse gas emissions into ‘structural decline.’ To do this, the recovery packages should support transition to renewables with ‘dynamic’ technologies such as battery storage and hydrogen. In a recent interview with Reuters, Birol singled out lithium ion batteries and electrolysis (to produce hydrogen from water) as two key technologies that need critical public sector support in order to advance quickly. 

The agency’s annual World Energy Outlook report, to be published in June, will provide more specifics on programs and technologies needed for an energy transition. 

By Alan Mammoser for Oilprice.com

More Top Reads From Oilprice.com: