Analysts have yet to agree on the possible impact that the crisis generated by the COVID-19 will have on clean energies. It could be either a boost or a significant setback.
The impact of this outbreak on the economy is evident. From China to the United States, Europe, and the Middle East, Asia and Latin America, market losses are spreading faster than the disease.
Crude prices fell early this week due to the anticipation of a price war between Russia and Saudi Arabia. Prices dropped even further after U.S. President Donald Trump suspended travel between Europe and the American nation.
Brent slipped by over 30%, standing at barely $31.20 per barrel this week. The international crude reference has decreased by 10% since the beginning of the year.
— UN Climate Change (@UNFCCC) March 14, 2020
Impact on clean energies
Low oil prices will test companies’ resolutions for an energy transition.
Some analysts expect that the companies’ commitment to decarbonization and renewable energies will remain intact. Others are less optimistic.
The dispute between Russia and Saudi Arabia has resulted in a flood of cheap oil and gas to the global markets, just as the COVID-19 pandemic is suffocating the demand.
This situation comes at a time in which major European oil companies, including Shell, Total, Repsol, and BP are seriously embarking on a road toward emissions reduction, the diversification of their business, electric mobility, and other energy services.
Oil companies have been very slow to direct their business towards cleaner energy sources
Whether the current storm in the market will further decelerate this transition or, on the contrary, accelerate it, remains to be seen.
Cost reductions in renewables & digital tech advances are opening huge opportunities for energy transitions, with wind & solar PV providing almost all the electricity generation growth to 2040 in our Sustainable Development Scenario.
— IEA (@IEA) March 14, 2020
Cheap crude competition
The collapse of global crude prices caused due to the pandemic could be bad news for the transition to clean energies in the short term.
The oil price drop could drive more people to use personal vehicles and planes instead of public transportation, and encourage bigger and fuel-hungrier models, such as sports cars.
For people and companies, a cheaper crude barrel also means cheaper heating oil, a deceleration of energy savings, and could delay the schemes to move towards a more “eco-friendly” electricity.
However, cheaper crude could also make companies distance themselves from expensive fossil fuel exploitation sites.
Such is the case of shale oil in North America. This crude has an expensive extraction process and is not profitable at less than $50 per barrel.
Clean energy security
On the other hand, reliance on fossil fuels makes countries be more exposed to the economic clash of a global crisis.
This has been evidenced by the outbreak of the coronavirus.
This week, the coronavirus COVID-19 was confirmed as a pandemic, and Saudi Arabia announced plans to increase oil production at a moment in which demand has dropped.
The double hit sparked a 10% fall of the Dow Jones Industrial Average, the biggest drop since 1987.
This situation prompted banks to issue more forecasts of a recession.
In this context, the pandemic could encourage governments to resort to clean energies to help reduce the risks in the face of the crisis.
Many companies, especially investment funds, are also taking the high “carbon risk” into account.
Therefore, the world’s largest investment management corporation, Blackrock, Inc., opted to shed its carbon investments.
Nonetheless, the halt of global trade because of the pandemic is also hindering clean energies. Globalization has made companies in this sector highly dependent on imported assets.
— BlackRock (@blackrock) March 10, 2020
China, the country where the outbreak originally began, is one of the main suppliers for the PV and wind power sectors. This situation is affecting the construction of wind and solar facilities.
It is, however, a temporary obstacle, as these projects could be resumed after the crisis has passed.
All of these factors, added to the COVID-19 pandemic that has paralyzed the economies of several countries, has reduced air traffic and global crude demand will have a significant impact on the transition to clean energies.
For more information, check Energía16