Renewable energy represented 72 percent of all new power generation in 2019 and is estimated to grow another 50 percent by 2024.¹

Many of the estimates made for its growth, however, were made prior to the onset of the COVID-19 pandemic and the collapse in oil prices. Worries are building that with cheaper oil and a sustained disruption in global supply chains, renewable energy may lose momentum.

Obstacles Ahead 

Morgan Stanley has projected sharp declines in U.S. solar photovoltaic installations in the second (-48 percent), third (-28 percent) and fourth quarters (-17 percent) of 2020.² It’s easy to see why the momentum may slow:

• There are near-term pressures due to supply chain problems. For instance, China’s shutdown and gradual reopening has substantially slowed production of solar panels, delaying projects from India to Australia.
• Cheap gasoline may discourage transitioning to electric cars, which still face cost and driving range issues.
• A general economic slowdown means less energy demands, which dampens incentives to invest in new projects.
• As it becomes less cost competitive vis-à-vis cheaper oil, there may be an overall slowing or even reversal in converting to renewable sources or investing in renewable production projects.
• Big Oil has been a major investor , but given their loss of revenues, capital investment in alternative energy projects may get scaled back.

Reasons For Pushing Forward

There are several key reasons to believe that low oil prices and a global economic contraction won’t materially impact the long-term trend toward a post-carbon economy, including:

• Government funding and the regulatory environment remain highly supportive of renewable energy solutions.
• Coal plants continue to close, mostly due to its non-competitive price and high social and political cost. These plants will be predominantly replaced by renewable energy.
• Energy producers (e.g., utilities) and energy consumers (e.g., large businesses) remain committed to renewable energy, irrespective of the price of oil.
• Low oil prices may actually ramp up Big Oil’s investment in alternative energy since capital investments in oil at these depressed prices are unprofitable.

Finally, we may find that renewable energy gets a further boost as the federal government looks to pass a carbon tax while oil prices are low to encourage the socially beneficial to transition and pay for the COVID-19 bills that will come due.

Sources:

1. https://www.oilandgas360.com/cheap-oil-a-pandemic-no-big-deal-for-renewable-energy-experts-say/
2. https://theconversation.com/covid-19-will-slow-the-global-shift-to-renewable-energy-but-cant-stop-it-133499

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