COVID-19 shocks may prompt major energy transitions to gas, wind and solar sector
The article is the second part in series COVID-19: Energy sector dynamics and climate change
The power sector has seen unparalleled disruption due to the outbreak of the novel coronavirus disease (COVID-19). In the backdrop of the nationwide lockdown along with suspension of industrial production and many energy-intensive sectors, the demand for energy has gone down to unprecedented levels.
The Commercial and Industrial (C&I) sector accounts for two-thirds of the energy, according to the International Renewable Energy Agency (IRENA).
This trend will continue for almost the whole of 2020, whereby major economies will have a negative power demand growth as compared to 2019. The International Energy Agency (IEA) expects the global electricity demand to fall five per cent in 2020
The world will witness a major energy transition post-COVID-19. Historically, the energy transitions have been towards easier, more affordable fuel for re-scaling of demands and to meet increased demand, according to Michael Aklin, associate professor, political science, University of Pittsburg. Overall, the transition has been for more and the better.
These were based on technological logic, ie, if an energy source provides more power on a better price, it will take over. The biofuel was replaced by coal as a better and cheaper fuel in the 1900s. Till the 1970s, coal ruled the energy sector. In the late 1970s, world has witnessed many disruptions, which led to a change in the energy trajectories.
These shocks included the oil crisis of 1979, the Three Mile Island incident in 1979 and the Chernobyl tragedy of 1983.
Countries took different approaches. While the United States turned to gas, European countries like Germany and Demark resorted to exploring renewables. COVID-19 induced disruption is one of the major since the global recession of 2009.
According to IEA, the present crisis will lead energy demand to crash down eight times lower than the level of the Great Depression.
The reduced demand has given a serious blow to the coal-based generation. Coal plants are operating at very low Power Load Factors (PLF) and some are completely shut off. The demand for coal could decline by 8 per cent.
IHS Markit, a global information provider, expects the imports of global metallurgical coal to decline around 24 metric ton in 2020. Nuclear power generation fell 3 per cent worldwide in 2020.
With reduced gas prices, gas-fired power for the residual load is emerging as a stronger force, with an overall increase of 4 per cent. Gas plants produced 26 per cent more power in India during March and first half of April 2020.
The share of wind- and solar-based generation increased to 28 per cent in Q1 2020, up from 26 per cent in Q1 2019. The total renewable energy generation increased by 3 per cent in the same period.
The increase has been experienced in almost all markets. The global electricity generation, however, fell by 2.6 per cent for the same period.
Year-on-year change in power generation volumes during COVID-19 lockdowns (2019-20).
Source: IHS Markit Global Power & Renewables service
However, on the flip-side, the solar and wind industries globally faced logistics delay as the supply chains were disturbed during the COVID-19 lockdowns. This, as a consequence, is resulting in delays in new project development and auctions.
The supply of solar panels globally is dependent on exports from China. Different countries have to chart out plans to balance the supply from China with indigenous manufacturing and yet keeping the sector economically viable.
Local policies and market reformation will be the biggest driver of energy transition in the coming times. Sustainable development in the wake of climate change reinforces the case of renewable energy and its cost-competitiveness opens up the door for opportunity.
It is high time that governments give impetus to clean energy in their economic stimulus packages. This will help bring down fossil fuel consumption and pave the path to green recovery.
(The article is the second part in series COVID-19: Energy sector dynamics and climate change)
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