Coronavirus accelerates global shift to cheaper, more sustainable renewable energy
To paraphrase a famous “anchorman,” that de-escalated quickly.
The fossil fuel economy, which motored happily through one century, is quickly running out of steam. Gas, once considered a viable option to bridge the transition from “dirty” fossil fuels — such as coal and oil — to renewable energy, is now more likely to serve as the end of the fossil fuel era rather than the beginning of the renewable energy age.
Originally hailed as a boon both for U.S. exporters and Asian economies, liquefied natural gas (LNG) prices have hit a 10-year low. Texas energy companies have found it’s cheaper to burn $750 million worth of gas than to try selling it. Also, the company that pioneered gas fracking, Chesapeake Energy Corp., filed for bankruptcy protection earlier this week.
Neither the oil nor gas industry’s woes are new. But the coronavirus pandemic, which is expected to shave roughly $8 trillion from the U.S. economy over the next decade, has thrown the troubles of the energy industry into high relief, forcing companies and investors to face reality and turn toward renewables. Evidence that renewable energy and storage sectors reached a milestone was clear this May: a record-low solar tariff of $13.50 per megawatt-hour (MWh) was awarded in Abu Dhabi, which is 13 percent below the previous global record; the New Mexico Public Regulation Commission approved 100 megawatts of solar generation and 50 megawatts of dispatchable battery storage for $30 per MWh; California awarded seven projects totaling 770MW of battery storage; two mega-renewable hydrogen projects worth a total of $5 billion were reported in China; and more.
Through the middle of June, U.S. wind turbines, solar panels and dams had produced more electricity than coal on 90 separate days, demolishing the previous year’s record.
Momentum for renewables continued through June, when utilities in Arizona, Colorado and Florida announced plans to close coal-fired plants and replace them with renewable sources, without using any gas-fired plants as a “bridge” fuel.
While a recovery from the worst economic downturn since the Great Depression is to be encouraged, it is unlikely that energy demand will return to pre-pandemic levels for years. Slumping demand means low prices for fossil fuels, and low prices make it challenging for producers to generate profits from mining coal or drilling oil and gas wells.
Renewables also are more likely to benefit from federal policy, even with an ardent coal supporter in the White House. Should Congress enact more stimulus legislation in 2021, it’s possible that measures may be similar to the 2009 economic stimulus package that included $90 billion in clean energy investments and tax incentives.
Even without federal assistance, investors are likely to continue pouring money into renewable projects around the globe, which are now widely seen as low-risk investments promising stable returns — in sharp contrast to the volatility and uncertainty that plagues the oil and gas sector. Additionally, many investors, increasingly worried about the risk of climate change, are looking to shift their funds into sustainable projects and industries and move away from the fossil fuels.
While there are many good reasons for the energy transition to occur sooner rather than later — climate change mitigation, pollution control and stranded asset risk avoidance, to name a few — the bottom line is that a transition to a renewable-powered world is likely to be accelerated by the bottom line. The pandemic that is ravaging the planet’s public health and economies is not the cause of the fossil fuel sector’s woes; it’s merely exposed the weaknesses of a continued reliance on obsolete oil, gas and coal.
Dennis Wamsted is an editor and analyst at the Institute for Energy Economics and Financial Analysis (IEEFA).
The Hill has removed its comment section, as there are many other forums for readers to participate in the conversation. We invite you to join the discussion on Facebook and Twitter.