Energy Transition in COVID-19 - Part 1
Updated: May 12, 2020
As the world tackles COVID-19 pandemic, one question certainly is being thought about; Is this Pandemic boon or a curse for renewable energy sector and for energy transition efforts? One of the articles on World economic forum mentions that emissions have been sharply reduced in last few months and this would give us picture of a clean energy world. On the other hand, as the COVID-19 plays a major disrupting agent for economic activities around the globe in most of sectors, thus this would mean a lower investments in coming months for renewable energy, delayed projects and as we recover from it slump in the peak.
Renewable energy installations have accelerated globally in recent years. Two countries which have emerged quite impressively from this are China and India. China's growth has been phenomenal, not only in terms of installations but also in terms of major global supplier of components and as a manufacturer. On the other hand, India has set an ambitious target of 175 GW of renewable energy installations by 2022 at Paris climate change summit. The installations in last few years have rapidly increased and the target looking at the end of 2019 even seems achievable or with some claims may even surpass. With two major countries in Asian continent with maximum population and energy demand on rise, this is certainly a good news for energy transition.
COVID-19 pandemic will have lasting impact on the world and various industries. It certainly will change many dynamics. China currently dominates the supply chain for various components in the renewable energy sector, it has the maximum market share. This pandemic gives opportunity to other countries in the region to increase their market share and compete with China. Although China now seems resuming factory production, this is a good time for other industry players to come forward with a strategic plan and future road map. Countries like Malaysia, South Korea and Taiwan have real good opportunities as they tackle this problem. India certainly had taken some steps to encourage manufacturing in last few years, this will be a good way to even boost economy as the pandemic recedes and go full in on manufacturing.
The investments in the renewable sector will certainly be hampered somewhat, but the efforts towards energy transition should keep going. This would be completely up to the governments, policymakers and industry players whether they withdraw efforts or renew them. If we see the trends in Renewable energy from last 20 years, it has been on rise. These figures may slump in the year 2020 but certainly will not fall.
As I quote from one of the articles of IRENA, Energy transitions are already underway in many countries. The transitions have become increasingly affordable because of forward - looking policy frameworks, ongoing innovations and falling technology costs for renewable. Solar Photovoltaic (PV) and wind power have become the cheapest source of electricity in the main markets, with other renewable power sources poised to reach cost parity within a few years. In the power sector, renewable have dominated new capacity additions and increasingly outpaced fossil fuels for the past seven years. Last year alone, renewable accounted for nearly three quarters of capacity additions (Camera, 2020).
There are certainly going to be delays in the development of renewable energy projects, the auctioning of the new projects, the current ones are on halt due to labor disruptions. However given the fact that energy transition has gained a significant traction and renewable industry has become mainstreamed these are just delays and as the pandemic recedes the work shall resume. Thus it becomes more important that a strategic plan is ready in this phase of lock down to take further steps and not let the efforts of all these past years go in vain.
From the point of view of investors they might be looking at innovative business models that in short term these would be ones that saves money and reduces the cost. This was view of one of the investors in the renewable industry I interacted with. Another investor I interacted with mentioned that some of companies are predicting a W shaped recovery graph and currently have the cash to sustain and plan for the future.
Also digitization is something which now everyone will have to become part of rapidly. Serious consideration to Smart grids can be on the rise within next 24 months and also decentralization of the grids would be on of the areas that can be looked into. As district by district and state by state went into lock down and got isolated from each other in India decentralization of the grid plays a vital role. Thus for the demand response management and balancing the supply and demand of the electricity it can be a good solution.
For entrepreneurs and startup in the green space this is a preparing ground time so they will have to save the cash, offer innovative solutions put some things on back burner and come up with alternative business plans.
Whether a boon or curse for climate change, the pandemic is temporary and climate change is permanent so the efforts for energy transition need to be kept going.
The second part talks about renewable energy growth and investments in it. Click here.