IEEJ：May 2020 © IEEJ 2020
Special Bulletin
A Japanese Perspective on the International Energy Landscape (482)

May 28, 2020

COVID-19 Pandemic and Renewable Energy
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanThe COVID-19 pandemic has drastically changed the global energy situation. The pandemic
has evaporated energy demand by plunging the world economy into the worst depression since theGreat Depression and forcing lockdowns including powerful travel and outing restrictions. As a result,the energy market has seen an unprecedented level of oversupply that has caused price crashes. A
symbolic development is a crude oil price crash that has unusually included the front-month West
Texas Intermediate futures price’s plunge into negative territory. The pandemic has thus brought about
the most dramatic and attention-attracting changes in and impacts on the international energy market
and international energy commodities traded on the market. However, the pandemic has exerted othergreat or deep impacts on the overall energy market. This report discusses such impacts on renewableenergy from multiple viewpoints.
Among the impacts of the pandemic on renewable energy, those on supply chains of therenewable energy attracted attention first. The pandemic began with the new coronavirus outbreak in
China’s Wuhan. In response, China combined strict lockdowns and severe restrictions on businesses,
travel and outing mainly in Wuhan and other infection-expanding areas throughout the country. As aresult, huge impacts on the Chinese economy emerged early this year. Chinese gross domestic productin the first quarter of this year posted the first negative growth in its recent history. A key relevantpoint regarding this report is that China has become the center of international supply chains related
to renewable energy such as solar photovoltaics and wind power.
The recession seriously affected China’s solar PV and wind power generation equipment
industry, exerting huge negative impacts on production and supply of such equipment. Given that
China has been the center of global supply chains for such equipment, a decline in supply of such
equipment and relevant confusions exerted negative effects on renewable energy industries andmarkets not only in China but also in the rest of the world. Although an electricity demand drop amid
the economic contraction came as a demand-side problem for renewable energy as described later, thesupply-side problem attracted greater attention in the initial phase. As China gradually reopened
businesses in consideration of the decelerating expansion of coronavirus infections, however, its
renewable energy-related industry began to restore its operation, with the supply chain problem
calming down.
Next, renewable energy attracted great attention regarding the pandemic apparently by being
positioned as an economic reconstruction means. As economic reconstruction has become a very
important challenge due to the pandemic’s huge impacts on the economy, initiatives to position theexpansion of renewable energy and other eco-friendly energy sources and relevant technologies as thepillar of economic reconstruction in a post-corona world have emerged particularly in Europe. Since
before the pandemic, Europe has led the world in enhancing decarbonization, with the European1

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Commission coming up with a policy of achieving “net zero” greenhouse gas emissions in 2050.
Before the coronavirus disaster became the biggest topic influencing the global energy situation, theEurope-led decarbonization initiative had been the most attention-attracting issue for energy
stakeholders in the world. However, the pandemic’s huge economic impacts have turned the situation
around. While decarbonization has remained a key topic or challenge, responses to the serious present
crisis have naturally become a top priority for the world including Europe.
In such circumstances, however, Europe has paid attention to investment in and promotionof renewable energy and other energy-related advanced technologies expected to contribute todecarbonization as a means of economic reconstruction and restoration from the pandemic-induceddepression. The European Commission had pursued the European Green Deal concept positioning
decarbonization as a key part of Europe’s long-term growth strategy and is now attempting toincorporate the concept into the reconstruction and restoration from the coronavirus disaster. The
economic reconstruction from the disaster in Europe is expected by some people to include not only
the acceleration of renewable energy expansion but also other energy-related measures such as thepromotion of hydrogen, energy efficiency and clean mobility.
As noted above, renewable energy had been viewed as a key point of decarbonization before
being positioned as a pillar for economic reconstruction. If the improvement of energy self-sufficiency
is given greater priority in a post-corona world, a new drive may appear for promoting renewableenergy. This means that renewable energy may be promoted for economic growth (or reconstruction),environmental conservation and energy security. In this respect, we must pay attention to future
developments in Europe leading the renewable energy promotion. If the Democratic Party wins theU.S. presidential election in November, we may have to pay attention to relevant policy developmentsin the United States as well.
Behind the moves to accelerate renewable energy promotion is the presence of strong
arguments for the acceleration. As electricity and other energy demand has plunged on the current
economic depression, no optimism can be warranted on renewable energy and relevant investment.
GHG emissions in 2020 are expected to decline substantially because of the sharp fall in fossil fueland other energy demand. If a normal economic growth path is restored with no dramatic change
arising in energy consumption and utilization patterns, GHG emissions may recover an upward trend.
The current severe economic and energy market conditions do not support investment indecarbonization including renewable energy expansion. Therefore, a sense of crisis about the current
conditions may be prompting some people to exploit the current difficulty for arguing for promoting
renewable energy by linking renewable energy expansion to economic reconstruction.
However, it should be noted that the situation is not so simple and not necessarily favorable
for promoting renewable energy. The electricity demand plunge under the pandemic works todiscourage investment in solar PV, wind and other renewable energy power generation. Particularly,
sluggish wholesale electricity prices amid the electricity demand plunge in many countries may beaffecting the profitability of renewable energy investment. If renewable energy faces competition fromfossil fuels, plunges in fossil fuel prices may also discourage investment in renewable energy powergeneration. The economic efficiency and competitiveness of renewable energy power generation
featuring capital costs’ high share of total costs may be affected by capital and financing costs under
future economic conditions. These various factors may be combined with uncertainties about the fateof the pandemic and major countries’ relevant policies to exert great influence on future renewable
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energy expansion. I would like to pay attention to future relevant developments.

Contact: report@tky.ieej.or.jp
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