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Wood Mackenzie, Industry Associations Report Coronavirus Impact on Energy Transition

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Robert Dillon's picture
Executive Director Energy Choice Coalition

Robert Dillon is a public policy advisor focused on competitive market design, energy security, natural resource management, and environmental matters. He was the Republican communications...

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With over half of the world’s population and most of the United States under lockdown because of the COVID-19 pandemic, energy demand has dropped to levels not seen in decades. It has all happened so quickly that reliable analyses of the impact on the energy sector have been changing rapidly. Even now, no one knows what will unfold the next few weeks let alone months or years. But early estimates are coming in, and they are troubling. 

One of the most trusted authorities on the energy sector is Wood Mackenzie. This consultancy firm that began in the 1970s by developing expertise in upstream oil and gas has broadened its focus to deliver the same level of detailed insight for every interconnected sector of the energy, chemicals, metals, and mining industries it now serves around the world.

Energy Transition Temporarily Stalled 

WoodMac, as the firm is also known, warns that the ongoing transition to a clean energy economy will be disrupted in the short term and could be entirely reshaped by the pandemic over the long term. There will be many new challenges that the Energy Choice Coalition and our industries must adjust to—but perhaps also new opportunities.

“The rules of the game have now changed. In response to the collapse in oil prices and the impact of the COVID-19 pandemic, nearly all of the oil majors have announced deep cost-cutting measures that will likely limit large-scale industry investments in the energy transition,” the firm’s parent company, Verisk Analytics, reported recently.

“However, the one chink of light we see is that there will be room for greater investments in renewables as oil majors seek more stable returns in the long term,” they said. “Climate priorities may take a backseat for some time in a cash-constrained, post-COVID world, but the energy transition will still move forward. It’s how the industry adapts to new realities that will shape the pace this happens.”

All Clean-Energy Sectors Suffering, But Consumer-Driven Markets Hardest Hit 

Let’s review the short-term outlook from WoodMac first. The firm warns that both dwindling demand and supply-side constraints like factory shutdowns and slowdowns will have a wide-ranging impact. They suggest solar power and energy storage will be hard hit, with the installation of both expected to be nearly 20% lower than their previous projections. Still, the real damage is the consumer-driven sectors such as rooftop solar and electric vehicles, which will be much harder hit as consumers’ household budgets absorb the economic shock.

WoodMac is revising pre-coronavirus solar installation from 129.5 GW to 106.4 GW, with only an expected 3% recovery in 2021. “While the utility-scale impact will largely see timelines shift, residential and C&I installations will struggle as customers come under significant economic pressure,” they wrote. This is hurting employment in the industry—a recent survey by the Solar Energy Industries Association indicates that as much as 40% of the members have been considering staff reductions representing 17% of their workforce.

The coronavirus is expected to result in a 4.9 GW decline in 2020 wind power additions, but offshore wind will likely not be affected as “U.S. projects are still too immature,” anyway. The American Wind Energy Association projects even more projects are at risk in 2020 and beyond, amounting to 25GW of wind power, $35 billion in investment, and 35,000 jobs.

Meanwhile, coronavirus could also lower 2020 energy storage installations by 20% as compared to their 2020 base case, due mostly to project execution delays. But they believe that, like solar, distributed storage risk is more acute and the industry will rebound. A coronavirus survey by the Energy Storage Association revealed that 62% of industry stakeholders report project delays.

One of their most disturbing, if not exactly surprising, projections is a 43% decline in the sales of electric vehicles year-on-year. The industry had been gaining serious momentum, but consumers will now be more reluctant, and the industry also has some severe supply-chain issues related to the virus.

“With a global recession now looming, EV sales will take a major hit. Consumers may be more averse to the risk of adopting new technologies. Many will postpone car purchases altogether,” they wrote

But they also added that moving “towards developing localised supply chains would reduce the risk of supply chain disruptions and currency fluctuations, create shorter lead times and reduce carbon footprints.” Even this industry has some opportunities as they are reassessing their business.

But no energy sector has been as hard hit as oil and gas thanks to oversupply from Russia and Saudi Arabia. Even cleaner-burning natural gas is reeling.

 “The coronavirus pandemic is a black swan event hitting global gas and LNG markets at the worst possible time. While the collapse of LNG prices towards U.S. production breakevens was foreseeable, the rest of 2020 could not be more unpredictable,” claimed WoodMac analyst Murray Douglas.

Let’s Focus on Consumers

What does all this mean to the Energy Choice Coalition? The deck has been reshuffled, or more precisely, scattered across the floor. 

But our core principles remain the same: competitive markets produce the most effective results in the economy, spurring innovation, driving down consumer costs, and providing consumers a broader variety of services. As new technologies accelerate changes in the way we generate, manage, and use electricity, consumers should be in the driver’s seat.

And as consumers are struggling, electric choice will be more important than ever. Congress has many opportunities before it to continue reshaping our energy supply and our electric grid, particularly with at least another stimulus package upcoming that is said to be focused on infrastructure and, hopefully, energy. Our leaders must be consumer-focused throughout this challenging time.

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