Renewables Remain Resilient While COVID-19 Rocks Energy Sector
By: Keefe Borden
Tags: Economics, Energy, Finance, Climate Change, Renewables

Renewables Remain Resilient While COVID-19 Rocks Energy Sector

To meet current decarbonization goals, investments must reach $800 billion annually

Photo by Karsten Würth on Unsplash

International investors have continued to support global renewable energy despite the decline in the broader energy sector caused by the worldwide response to COVID-19, two recent studies have shown.

The first report, issued by the International Energy Agency, affirmed that investor demand for renewables is still robust, in spite of uncertain economic conditions.

The amount of electricity generated from renewable fuels will increase by 7% in 2020, even as electricity from natural gas and other non-renewables is expected to fall, the report predicted. Meanwhile the demand for electrical energy is expected to decline by 5% this year, the IEA said.

“Renewable power is defying the difficulties caused by the pandemic, showing robust growth while other fuels struggle,” stated Dr. Fatih Birol, Executive Director of the IEA. The study, “Renewables 2020,” said the growth in the sector will push the capacity of renewable power to nearly 200 gigawatts this year.

In fact, nearly all of the growth in capacity is driven by renewable energy. Wind, hydropower and solar photovoltaic have led the increase.

Over the first 10 months of the year, China, India and the European Union have seen their supply of renewable capacity fueled by renewable fuels grow by 15% from the same period a year ago.

Meanwhile, shares of publicly listed renewable equipment manufacturers and project developers have outperformed most major stock indexes and the energy sector as a whole. Meanwhile, shares of solar companies worldwide more than doubled in value from December 2019, the IEA reported.

To maintain that growth, however, the IEA said that policymakers will need to renew incentives to invest in and build projects that use renewable fuels. Many of those market incentives are scheduled to expire in 2022, and growth in the sector could stall by then if they are not renewed.

Renewable energy shown as resilient alternative

About three weeks later, a second report, put together by two different policy organizations, covered a broader period but came to a similar conclusion: investments in renewable energy remain resilient despite the stagnation seen in the broader energy sector.

The joint study, entitled “Global Landscape of Renewable Energy Finance 2020,” was developed by the International Renewable Energy Agency and the Climate Policy Initiative.

Despite the ongoing strength of the sector, global investments in renewable energy projects remain less than half the levels needed to fulfill global climate goals, according to a recent joint study developed by the two policy organizations.

The study said that worldwide investments in renewable energy have grown to $322 billion, but must reach $800 billion by 2050 if the world is to achieve global warming goals.

“By placing renewables at the centre of stimulus plans, governments can attract investments, increase investor confidence, strengthen national energy strategies and fulfill climate pledges under the Paris Agreement,” the study concluded.

Although some had feared the global health crisis would make renewables a less attractive alternative, the study noted that the pandemic has actually increased investors’ interest in more sustainable assets, as they “have proven more resilient than conventional assets to the volatility caused by the COVID-19 crisis,” the study said.

The study called for policymakers to place renewable energy sources at the center of economic stimulus plans. The study also found that limited public financing programs lowered risks for other investors, overcame initial barriers and attracted additional private investors.

The study also examined financial commitments to off-grid renewable energy technologies, an emerging sector within the overall renewable sector that could ultimately provide universal access to sustainable energy, particularly for rural areas.

Investors in the renewable energy sector focused their attention on solar photovoltaic and onshore wind power projects between 2013 and 2018.

The private sector remains the main provider of capital for renewable projects, accounting for 86% of investments in the industry between 2013 and 2018.

Of the public sector finance, funding came mainly from development finance institutions.

The study noted that several factors have led to a steady increase in private funds invested: increased economies of scale, manufacturing and technology improvements, and also greater competition among suppliers.