While it might be too early to predict how the sustainable energy sector would fare in a post-corona world, it is related to the duration of ongoing lockdowns in different countries. More importantly, it would depend on the scope of policymakers’ packages to revive economies
Over the last two decades, sustainable energy has seen notable growth as a result of urgency to cut down greenhouse gas (GHG) emissions to combat climate change. In the process, new global value chains have been created including industries and experts for sustainable energy, i.e. renewable energy and energy efficient technologies. In fact, policy makers had to compete with fossil fuel industries and their advocates to create the momentum for deployment of renewable energy technologies, such as solar and wind, in a playing field that was not level.
Solar photovoltaic, for instance, was exorbitantly expensive ─ per unit energy production cost was much higher compared to that of coal and other fossil fuels. One thing the governments of some countries are convinced about is that renewable energy is one of the conduits to achieve the climate and energy objectives, and at the same time, aggressive policy measures could help renewable energy leapfrog fossil fuels as a cheaper alternative.
Different policy instruments have incentivised the adoption of renewable energy and also helped spur innovation to take place to reduce cost to be competitive in the market. Coupled with these, the contracting mechanism, including auctions, have made renewable energies way cheaper than fossil fuels in the international market. As a result, around 30% of global electricity is now being generated by renewable energy sources.
Energy efficiency, considered as the first fuel by many, on the other hand, not only does reduce energy consumption but also does so at a cheaper cost when life cycle cost is considered. Like renewable energy, it also provides multifaceted benefits, such as, contribution to GHG mitigation, cleaner environment, job creation etcetera. According to some estimate, investment in coal-based power plants creates about 110 jobs per Terawatt-hour (TWh) of electricity generated, whereas energy efficiency measures could create 380 jobs per TWh electricity saved. However, success of energy efficiency also heavily relies on policy instruments.
Amid the coronavirus (COVID-19) pandemic, both renewable energy and energy efficiency are foreseen to be confronted with several challenges. As businesses are facing disruption globally, value chains of both renewable energy and energy efficiency would be affected, leading to a delay in existing project execution with cost overrun. On the other hand, incentives that have made renewable energy attractive in many economies would perhaps not enjoy the same stimulus as the governments' immediate responses to the COVID-19 crisis would be to get their economies back on track. In that vein, the stimulus packages are expected to be targeted to rejuvenate the ailing sectors that are of prime concern now.
Businesses and entrepreneurs would also likely to be cautious over investment in renewable energy and energy efficient technologies. In the aftermath of the COVID-19 pandemic, the uncertainty over electricity demand, at least for several months, might make the sustainable energy sector a lesser priority for governments.
The global economic shock has been rippled to the fossil fuel industry, resulting in a demand shock for oil and gas. Oil and gas, as a result, have recorded very low prices, putting pressure on renewable energy. In the absence of policy support, in some countries, deployment of renewable energy might be on hold until prices of fossil fuels rebound. Likewise, low price of fossil fuel affects economics of energy efficiency.
Notably, China has a huge share in the global market as a producer of clean energy technologies. But the stringent lockdown to fight COVID-19 has caused massive production disruption during the last couple of months and therefore, the supply chain of clean technologies might already have severely affected.
While it might be too early to predict how the sustainable energy sector would fare in a post-corona world, it is related to the duration of ongoing lockdowns in different countries. More importantly, it would depend on the scope of policymakers' packages to revive economies. However, given the level of risks being posed by climate change, these packages should take into account the multitude of benefits of clean energy transition, i.e., economic development, energy security, job creation, technological innovation, air quality improvement, GHG mitigation and the like.
We have agenda 2030 where echoing the importance of sustainable energy transition, we have agreed to achieve, for instance, renewable energy and energy efficiency goals, under the sustainable development goal-7 (SDG-7), to enhance the share of renewable energy in global energy mix and double the rate of energy efficiency by 2030 compared to the year 2015.
The Paris Agreement on climate change has, furthermore, distributed responsibilities among countries to ensure GHG mitigation to arrest irreversible damage to our earth. Most of the countries have both climate change mitigation and sustainable energy goals as part of Nationally Determined Contributions (NDCs) and national energy policies. However, to attain SDG-7 and international climate goals, as the International Energy Agency (IEA) forecasted, all countries would need to ramp up their efforts to enhance the rate of deployment of renewable energy technologies and energy efficiency measures.
On the other hand, we have global value chains with notable expertise for sustainable energy promotion. Favorable investment climate and appropriate policy mix are what are needed to achieve global sustainable energy and climate goals. As such, we must not give a signal to the markets and fossil fuel industry that due to the coronavirus juggernaut, our interest on sustainable energy is fading way. Rather we should seize the opportunity to rebuild the economies, supported by suitable instruments, focusing on sustainable growth models.
The author is a Senior Advisor in an International Development Agency and former Humboldt scholar at the Ecologic Institute Berlin. He has more than a decade of experience in sustainable energy and climate change.