The coronavirus crisis gripping the global economy has forced clean energy analyst BloombergNEF (BNEF) to downgrade its expectations for the solar, battery and electric vehicle (EV) markets, in one of the first signals that the escalating pandemic could undermine urgent efforts to combat climate change.
The influential analyst firm released fresh projections looking at the likely effects of COVID-19, officially declared a global pandemic by the World Health Organization last week, on markets for renewable electricity, EVs, heating, cooling and the circular economy.
With the impacts of the virus worsening around the world and governments deploying increasingly desperate measures to curb its advance, the analyst said it had cut its forecast for global solar demand in 2020 by 16 percent, noting that the sector is heavily reliant on demand in China where strict limits on movement and commercial activity are being put in place to try to halt the virus spreading further.
As a result, while BNEF previously had expected solar demand to reach around 121-152 gigawatts in 2020, it has downgraded its forecast to between 108-143 GW, which it said would mark the first annual fall in solar capacity additions in at least three decades.
The global wind sector could fare somewhat better, however, thanks to tighter delivery and build schedules, and specialized equipment often being rented for a more limited time, BNEF said. Nevertheless, it warned there was still considerable downside risk on its original 2020 forecasts for wind capacity deployment, which had estimated new onshore and offshore installations could reach 75.4 GW this year.
Moreover, the analyst expects COVID-19 headwinds to hit both the global car market as well as the burgeoning battery market, together spelling a potentially bumpy year of growth for EVs.
An optimistic estimate of COVID-19’s impact on battery demand would see BNEF’s original forecasts for growth downgraded by 4 percent in 2020, thanks in part once again to interruptions to supply chains in Asia and a drop in demand as policymakers and businesses turn their attention to short term stimulus measures rather than longer-term clean infrastructure deployment.
In addition, the global car market is set to be hit particularly hard by coronavirus impacts, particularly in China, which “will have ramifications for electric vehicles and battery demand,” the update added.
BNEF explained that while the pressure on the supply of key components and equipment for renewables and clean technologies in China was likely to ease as the country restarts its factories, it was more concerned about demand being affected “as policymakers divert attention away from clean energy to more pressing concerns.”
Overall, the coronavirus crisis and resulting economic impacts, particularly on China, highlighted “the need for diversified supply chains and strengthened the case for localized manufacturing in Asia, Europe and the U.S., especially for batteries.”
With the crisis having already had ramifications for the global oil market, contributing to a price war between Saudi Arabia and Russia, there remains uncertainty over the scale of the knock-on impact on clean energy markets.
Some observers have suggested a reduction in industrial activity and air travel could lead to a short-term reduction in emissions, while there are hopes that a sudden focus on remote working could serve to embed habits that help to curb emissions in the long term. Campaigners are also likely to call for any economic stimulus package to be focused on driving climate action and building out low-carbon infrastructure.
But BNEF’s analysis will give rise to concerns the near-inevitable economic slowdown resulting from the coronavirus crisis could deal a sizeable blow to global attempts to roll out clean energy sources and wean the world off its reliance on fossil fuels. Meanwhile, concerns remain that it could fuel further political nationalism and authoritarianism as well as carbon-intensive stimulus packages in some countries.
BNEF said it would continue to monitor the impact of the virus on clean energy markets going forward, in addition to tracking the effects on power, gas, oil and carbon markets.
The report comes as the International Energy Agency (IEA) provided a similar update, warning the crisis likely will hit clean energy investment.
“There is nothing to celebrate in a likely decline in emissions driven by economic crisis because in the absence of the right policies and structural measures this decline will not be sustainable,” warned IEA executive director Fatih Birol, adding that governments should “not allow today’s crisis to compromise the clean energy transition.”
He argued stimulus packages should focus on clean energy deployment, with the agency noting that energy efficiency investments, in particular, could deliver both a short-term boost to the construction industry and long-term economic and emissions gains. “We have an important window of opportunity,” Birol said. “Major economies around the world are preparing stimulus packages. A well-designed stimulus package could offer economic benefits and facilitate a turnover of energy capital, which have huge benefits for the clean energy transition.”
The agency is also advising governments to use the slump in oil prices to curb fossil fuel subsidies.
However, concerns are growing that faced with falling tax receipts and the need to stimulate their economies, some governments will opt to cut fuel taxes and invest in high-carbon infrastructure.
“These challenging market conditions will be a clear test for government commitments,” Birol said. “But the good news is that compared to economic stimulus packages of the past we have much cheaper renewable technologies, have made major progress in electric vehicles, and there is a supportive financial community for the clean energy transition. If the right policies are put in place, there are opportunities to make the best of this situation.”