The worldwide shock caused by the pandemic has changed the global energy markets and is influencing decision-making for future investment in the sector. Reduced earnings due to low demand has prompted firms to cut spending, particularly in the oil industry where prices have collapsed.
The curtailment of mobility and aviation, which represents 60% of global oil demand, dented the oil industry. IEA estimates the global oil demand to drop by 9mb/d on average, returning oil consumption to 2012 levels. The oil will be followed by coal and gas which will likely witness a fall of 8% and 2% respectively. Not just oil but electricity was also affected due to a crash in demand in commercial and industrial sectors, largely in countries where full lockdown was in place.
These demand reductions have increased the share of renewables in electricity supply as their output is unaffected by demand. “In the electricity data available till April, I saw that coal production has gone down but renewables have increased by 10%, simply because it requires less manpower,” said Chandra Bhushan, India’s leading environment and climate expert during an interview with The Blue Circle. The output from renewables is expected to increase for the entire year due to low operating costs and access to multiple power systems. This could mean an overtake of coal-fired generation by low-carbon sources globally. IEA estimates a fall in CO2 levels by 8% of the levels ten years ago.
Fall in Energy Investment
The energy investment is likely to fall by one-fifth in 2020. This will be the largest fall in global energy investment on record. This is a grim situation for the oil and gas sector which are likely to see a reduction by one-third. This is ironic to the estimates put forth in January that predicted an increase of 2%, highest uptick since 2014.
The two largest components of worldwide consumer spending are oil and electricity. The share of oil in the total consumer spending was 50% as compared with 38% of electricity last year. However, spending on oil could plummet and this would mean a historic shift if electricity becomes the largest element of consumer spending on energy. The overall share of global energy spending that goes to clean energy technologies would jump towards 40% in 2020.
Regarding the power sector, IEA said that spending is on course to decrease by 10% in 2020, with worrying signals for the development of more secure and sustainable power systems.
China remains the largest market for investment and will be a major player in determining the future of investment after the pandemic as they reopened industrial activity before any other country. Developing countries that are dependent on fuel will be directly impacted due to the falling prices of crude oil as the revenue is directly received by owners and people who influence future investments.
Opportunity to Boost Clean Energy
A report by the UN Environment Programme shows that the cost of installing renewable energy has decreased, meaning future investments will deliver far more capacity. The cost of electricity is falling for wind and solar due to improvements in technology, economies of scale and competitive auctions. The cost of electricity from new plants last year was 83% lower than a decade ago. An inclusion of funds by the government for clean energy in stimulus packages could act as an insurance policy for future pandemics.
Clues to Choose the Road Ahead
Renewable energy has been the prime source of new energy generation in the last decade. Nearly 78% of the net new GigaWatt of generating capacity added globally in 2019 was in wind, solar, biomass and waste, geothermal and small hydro. The renewable investment was more than thrice as compared with new fossil fuel plants.
Oil giants such as Shell and BP have announced net-zero ambitions by 2050. They have started investing in renewables and developing hydrogen. The recent announcement of the Northern Lights Carbon Capture and Storage investments provide further indications of their future direction.
Due to the lockdown, most cities of the world breathed clean air after decades. People will prefer to continue inhaling pollution-free air post the lockdown. This could drive further support for de-carbonisation. As firms shifted to the work-from-home regime, domestic energy bills increased significantly. Those bills are for the residents to pay. It will incite greater awareness towards reducing the costs of energy and bring consumer interest in renewables.
The world required the emission levels to go down but certainly, not in this manner. If we are to achieve lasting reductions in emission levels, we need a rapid shift towards clean energy through high investment in the sector.
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