As the world responds to the unprecedented global health crisis, the economic shocks in the field of renewable energy are turbulent, threatening its development process.
Over the past two decades, renewable technologies such as wind and solar photovoltaics have experienced phenomenal growth, creating new global industries and helping to avoid large amounts of greenhouse gas emissions. If the world is to achieve its climate goals and other long-term sustainable energy goals, it will be crucial to deploy renewable energy faster. But without government action, the crisis caused by the coronavirus (COVID-19) may greatly undermine its momentum.
How the situation affects renewable energy will depend on two key areas: the duration of confinement in different countries and the duration of social isolation measures, and the scope and timing of economic stimulus plans to deal with economic recession.
Cost reductions and strong policy support have made renewable energy increasingly attractive and competitive in many economies, but they are now facing three main challenges of the coronavirus crisis: interruption of the supply chain may cause delays in project completion; The risk of benefiting from government incentives that expire at the end of this year; investment may be reduced due to pressures from public and private budgets and uncertainty about future power demand.
In the near future, the government will be more important than ever to meet these challenges and determine the speed of deployment of renewable energy. An economic stimulus plan aimed at getting the global economy back on track will be particularly important. In designing these packages, the government should keep in mind the structural benefits that renewable energy can bring in economic development and job creation, while also reducing emissions and promoting technological innovation.
The IEA predicts that in October 2019, a few months before the emergence of the corona virus pandemic, 2020 will be a record year for new renewable energy generation. The global installation of solar photovoltaic and wind energy will exceed the 2018 level by more than 20%. Renewable policies in China, the European Union, the United States and India are expected to drive this rapid expansion.
However, in several key markets severely affected by the coronavirus crisis, the main incentives for investing in renewable energy projects will expire at the end of 2020. In China and the United States, developers must connect wind and solar photovoltaic projects in the following ways: To be eligible for expired incentives at the end of December. In the European Union, 2020 is a milestone year for member states to achieve binding renewable energy targets. In India, the financing and deployment of renewable energy projects need to be accelerated this year in order to achieve the country ’s ambitious policy goals by the March 2022 deadline.
This will be an outstanding year for renewable energy
Solar panels produced by Chinese factories account for about 70% of the world’s total. Another 10% to 15% come from Chinese companies operating in Southeast Asia. In February, China’s solar photovoltaic production facilities were suspended or cut due to coronavirus-related blockades in several major provinces. At the same time, most factories in Southeast Asia, India and the United States are still operating. Despite delays in shipments, China’s solar photovoltaic supply chain is now increasing production, and most factories slowly resume production by taking necessary health precautions.
On the other hand, compared with solar photovoltaic power generation, the wind energy supply chain is much more interconnected globally. Europe is the main manufacturing center for wind turbines. In February, the European factory was initially plagued by a supply interruption from China. Due to strict restrictions, manufacturing plants in Italy and Spain have been closed since mid-March. In addition, India ’s recent blockade requires that most non-essential manufacturing facilities, including manufacturers of wind turbines and solar photovoltaic modules, must be closed until mid-April. In the United States, there have been multiple projects affected by “force majeure” notifications issued by suppliers, warning developers of possible delivery delays. Uncertainty about the timing and impact of potential lock-in measures in other countries may further delay the completion of many projects around the world.
Some renewable technologies are more vulnerable than others
The impact of the pandemic has also slowed the construction of renewable projects. In many European countries, the blockade measures imposed by India and some US states require non-essential workers to stay at home. This will further affect developers who need to complete utility-scale renewable energy projects by the end of 2020 to meet contractual obligations under the policy plan. In China, all wind energy projects need to be put into use before the end of 2020 in order to receive feed-in tariffs. In the United States, wind energy developers are in a similar situation because they need to ensure that the project is put into operation by 2020 to enjoy the production tax credit. Any delays in parts or construction will expose the company to the risk of missing these deadlines, which will bring important financial incentives.
Large developers with ample cash positions may be able to cope with these construction delays or additional costs in the short to medium term. However, for small project developers with less disposable cash, the situation is still more uncertain. For them, the delay may require restructuring of existing debt. Ensuring that there are sufficient opportunities to obtain low-cost debt and other financing mechanisms is essential to ensure that developers maintain their operations now and in the long term.
Finally, renewable energy projects require multiple meetings at the government and community levels. The various stages of project development, including obtaining permits and acquiring land, require a lot of human interaction. With the closure of multiple government agencies and energy agencies around the world, unless a coordinated online system across multiple authorities is provided, the approval process will be delayed. At the same time, society’s acceptance of renewable energy projects has always been a major challenge worldwide. Interaction with the local community before and during the development of renewable energy projects is essential for getting the power plant up and running on time. Current social alienation measures make it more difficult for developers to reach these key elements. These delays, including administrative and social delays,
Crisis may disrupt the deployment of renewable energy
Large utility companies and independent power companies are not the only entities investing in renewable energy. Last year, it was estimated that one-fifth of all renewable energy capacity deployed globally is for individuals and small and medium-sized enterprises that install solar photovoltaic panels on rooftops or commercial premises. Last year, this decentralized installation (ie distributed solar PV) accounted for more than 40% of global solar PV deployments.
As costs have fallen, the installation of distributed solar photovoltaic power generation has provided reasonable returns in many countries, but now there is a risk to its investment. At present, the installation of distributed solar photovoltaics has been stopped in many countries due to locking measures that prevent the entry of buildings. Households and small businesses facing financial shocks and economic uncertainty may delay or abandon plans to install solar photovoltaic power generation on their houses.
Distributed solar photovoltaic may suffer the biggest impact
Renewable energy is the basic element of today’s global economy, providing power for nearly 30% of the world’s electricity consumption. They reduce carbon dioxide (CO2) emissions and air pollution, and improve energy security. The renewable energy industry is an important global employer and an important source of new investment and innovation in the clean energy transition. In more and more countries, the cost of hydropower, wind power and solar photovoltaic power generation is now comparable to or lower than that of new fossil fuel alternatives.
Given the unprecedented economic impact of the coronavirus crisis, this year’s growth in renewable energy generation is likely to slow for the first time in history. However, the government has the ability to change this trajectory through targeted policies to enable sustainable growth of renewable energy in the coming years.
At present, policy makers naturally focus on coping with the huge public health challenges caused by the coronavirus pandemic, and take the necessary measures to prevent a widespread financial crisis. They also intervened in an attempt to urgently resolve the rapid spread of economic difficulties affecting families and businesses. As the government continues to work to repair economic losses and encourage new activities in the coming week and months, many actions can be taken to achieve these goals, while also helping to deploy renewable energy.
First, policymakers can extend the deadline for commissioning projects beyond 2020 to resolve delays caused by supply chain disruptions or labor restrictions. This will enable developers of renewable energy projects to avoid fines that could weaken their financial situation in difficult economic situations, while allowing them to retain incentives that were previously eligible.
Second, the government can include specific financing and incentive measures for renewable projects in the upcoming stimulus plan. These should focus on reducing the risks of capital-intensive utility-scale solar photovoltaic and wind energy projects under severe macroeconomic conditions, especially for small developers. This will require continuing and expanding existing policy measures, which have shown that they can accelerate cost-effective deployment. In order to maintain the demand for the highly vulnerable distributed solar photovoltaic industry, other economic incentives are needed, such as tax credits, investment grants and specific loan programs. These incentives can be combined with energy efficiency policies.
Third, short-term policy actions for renewable energy should be consistent with the new medium- and long-term vision, with a view to achieving a rapid peak in greenhouse gas emissions within this decade and a sharp decline thereafter. Renewable energy and energy efficiency will play a leading role in advancing the clean energy transition, but they need a long-term and coherent long-term policy vision. In this sense, the stimulus plan should also use funds for new renewable energy technologies that have not yet been fully commercialized but have significant cost reduction potential, such as offshore floating wind farms, marine technology and low-carbon production.
The stimulus program also provides countries with a unique opportunity to prepare for the future world power infrastructure, which will require a strong power grid and greater flexibility to accommodate the increase in the share of variable renewable energy sources such as wind and solar photovoltaics .
The coronavirus pandemic poses a major threat to the timely deployment of renewable energy and its important contribution to the clean energy transition. However, governments can make these technologies emerging from the crisis with new momentum and play an important role in the global economic recovery.
What can policymakers do to promote sustainable growth of renewable energy?