Even Pandemic Can't Stop Shift to Renewable Energy

So if you're a business, the last thing you want to see is the prices of your competitor start to plummet. But in the energy industry, it's not quite that simple. For example, earlier this year, the prices of oil, natural gas, and other fossil fuels dropped to near record lows, and actually, for one very brief, very strange moment, actually went negative. You think that would be catastrophic for renewable energy companies.

After all, power plants look at these prices pretty closely when they're deciding whether to build a new wind turbine or just expand an existing natural gas plan. But in reality, the decision making calculus here is way more complicated than that, and over the longer term, clean power sources like wind and solar are just continuing to get cheaper, more efficient, more cost effective, and more widely adopted across the globe.

That's according to Albert Chung, the head of Global analysis at Bloomberg New Energy Finance, a division here at Bloomberg that does research into all facists of the energy industry. Chunk spoke to us from his home in London, England, and he says there's no denying that the pandemic and its massive economic fallout have hurt the renewable energy industry, just like they have hurt nearly every other industry. But he says, so far it's actually holding pretty strong. All

things considered, Wind and sul have been pretty resilient. Actually, I think there's a kind of a spectrum from severe pain from COVID like aviation, tourism, hospitality, all the way to kind of quite rampant gain like technology companies and home delivery businesses. Its are somewhere in between. There've been impacts that there have been some job losses, but thankfully it's not been a blood bath. So if you look at what's happened in the oil sector, for example, you

know unprecedent the turmoil, severe cuts capex reductions. Production is down, renewable production is actually up this year. The wind still blows, the stun still shines, even in a pandemic, and we've got more renewable capacity installed globally than ever before. So when you look at the installed base of wind solar farms, they're performing, they're reliable in most parts of the world.

The power that we're drawing from the grid is actually cleaner now than it's ever been before, and the networks are able to absorb that without sacrificing reliability so far. So I think we should actually pause and be glad about that. But it sounds like there has been a really a pretty significant drop in demand. I mean, I guess across all energy sectors because they're just less economic activity, so there's less demand for energy. Can the clean energy

sector adapt to this? So there has been a bit of a hit in terms of the pace of the new build of wind solar plants. That there is going to be a reduction this year. We've reduced our forecast for new build on the wind side by twelve percent, on the solar side by nineteen percent for this year. But just to be really clear, both of those figures are for new additions of wind and solar. So actual renewable production is up and the world is adding more.

We're just adding a bit less than that we expected that we would be ICEE. So it's just it's it's accel's accelerating, but just accelerating at a much lower pace than it has in the past. Yeah, that's right. And a lot of that is down to just the friction of doing business during the pandemic. You know, in some countries, construction was stopped in some countries, there are factories that make solar modules that had to shut down for a

couple of months. Physical distancing measures made it harder to get work done, so on and so forth. So some of those reductions I mean, and I would say a large chunk of it. They're not sort of fundamental changes in the market, but they are a kind of product of friction and shutdowns that have kind of caused a bit of a bit of delay in the pipeline. I see. So that's interesting. So there has been a hit. It sounds like, I mean a double digit hit in the

rate of you know, new builds. But it sounds like this is more this you don't think this will have really significant long term consequences. I guess it depends on how you define long term. Yeah, yeah, I guess when we talk to our clients, they kind of understand the short term, the immediate hit, the construction delays, et cetera.

That's now pretty well understood. I think looking forward, you know, over the let's say that the next kind of six to eighteen to twenty four months, let's say that's call that whatever you want to call that median term maybe. I think some of the more important questions that will sort of underpin the sector are around you know, to what extent. Aren't governments around the world going to continue auctioning for more renewables capacity, so we've seen those growing

every year for a while. Now is that going to continue? Is power demand going to bounce back quickly? We've seen double digit reductions in power demand, as you sort of alluded to earlier, and our power price is going to Look what shape is that recovery going to take? That's becoming more and more important because we're seeing more and more renewable products being built purely based on power prices,

so called the merchant projects. They're completely unsubsidized, particularly in southern Europe place like Spain and Portugal, and so the economics of those plants are strongly linked to the underlying performance of the economies as they emerge from lockdown, because that drives power demand. So what you're saying there is that's it's just that the price of wind and solar has gotten so cheap that it can actually compete with these other, you know, sources of energy without any assistance

from the government in there. So it's it's competing on its own. Yeah, no question at all. I mean, we do a study every six months, we do global review of the levelized cost of electricity around the world, so that all in costs of new build power generation. Our latest report at the end of April found that wind and solar are now the cheapest source of power in countries that account for eighty five percent of the world's power demand. Vast majority of where power is generated, wind

and solar are now the cheapest options. And that's even true. I mean, just give one sort of anecdotal example, we find that in the windy parts of the US, I'm sure wind power can now out compete existing combined cycle gas plants that have already been built running on two dollar gas. Gas has maybe a little bit below two dollars right now, But that's just an example of a pretty important tipping point that renewables are out competing just the running cost of gas, even forgetting the need to

build the plant just out of curiosity. But what are the windy parts of the US, Oh, the Midwest, the Texas Panhandle, parts of the Southwest. It makes sense, all the parts that have to deal with tornadoes and stuff. Yeah, yeah, that's probably that's probably a good way to think about it. You mentioned that, you know, wind and solar can compete with two dollars natural gas natural gases, as you mentioned below,

two dollars. We talked about this actually on an earlier episode of the podcast, which is that oil and gas prices are unbelievably low right now. Is that a problem for wind and solar? Are they going to be able to compete with you know, fossil fuels that are at record low prices. So this is a super interesting dynamic right now, clearly with you know, oil and gas extremely

extremely cheap. So what I would say to that is, you know, we're still finding that renewables all around the world are cost competitive, particularly if you're looking at new build if you've got if you've got to meat to power demand, and you're going to choose a resource, if you just need more killer hours to be generated, in most of the world, you're gonna end up choosing wind or solo. Now that's not to say you wouldn't build

gas or coal. Clearly, if you need dispatchable power, or if you're in certain places where those resources are particularly cheap, then then those are still being built. But by and large, you know, we've reached that tipping point where renewables is going to take over. So what's happening with gas is really interesting because there's this instinct that says, oh, gas

is cheap, so will That's what I thought. That's initially, I mean, that's to be honest, the was the genesis of this podcast episode is that I saw that I saw that the price got so low, and I was like, oh, renewables just simply can't compete. But maybe I should talk to an expert, you know. Yeah, So it's super interesting. So what's really happened is you've got the sort of dual impact of power demand suddenly dropping and gas prices being really cheap, but renewables are the cheapest thing in

the stack. So renewables will always generate, so they'll always out compete in a given hour on a given day, they'll always outcompete anything else that there is. So instead, what's happening is cheap gas and renewables together are pushing coal out of the market even more quickly than what's already happening. So here in Great Britain where I live, we've just gone two months without burning any coal at all. I think you probably saw that, and that's never happened

since the nineteenth century. The similar things happening in the US, and so I think what we'll see, particularly in Europe and also in the US is low gas prices, low power demand, and the continuing resilience of renewables, and all of that is actually going to accelerate the transition away from coal, rather than slowing the growth of clean energy. So things are looking pretty good for the renewable energy industry in the long term. But what about in the

short term? Also, will renewable energy be strong enough to do what many say it has to do save the world from climate change. We'll get to that in just a second. Stay with us. We are back and we're talking with Albert Chung, the head of Global analysis at Bloomberg New Energy Finance. So despite a relatively rosy long term outlook, the pandemic is of course causing some pretty

acute short term shocks for renewable energy. For example, most of the parts that make up solar panels and wind turbines are produced in China, where the novel coronavirus originated. And additionally, BNF's research has found that the prices for some of these parts are so low right now that their manufacturers can't even make a profit. However, Albert says, for the renewable energy industry, this kind of supply chain

drama is nothing new. It was really interesting watching the sort of solar industry in the first half of this year because it went from a supply shock to a demand shock very quickly. So the first few months of the year you had only China shutting down that's where all the factories are, and that affected global supply of solar equipment. Now it's the opposite. The factories are up

and running. China's gradually reopening. Although as we record this, you know there are some challenges that we see in in Beijing, but the factories are running, but it's global project construction that's now slowed. So the situations was reversed, and as you rightly say, some manufacturers are going to struggle to make a profit because as an oversupply situation, we've seen some of these manufacturers suspend production. In general, as a general rule, the larger players are the ones

that are going to fare better. They tend to have a lower cost base, so you're going to see on the margin, probably some of the smaller and higher cost producers suspend production. But what I would say is the solar supply chain has seen demand shots before. A couple of years ago, China quite abruptly removed a major subsidy scheme, led to a lot of disruption, similar kinds of price reductions that we're seeing today, But the market returned to

growth pretty quickly after that. And I think that's what we need to understand now in this situation for the coming months. How quickly will the market snap back to growth again either next year or even second half of this year, or will it take longer. And I think that's what will determine what happens with these supply chain companies. Which ones are able to weather the storm. Well, okay, so the last thing I wanted to talk about. Let's sort of take another step back, you know, the renewable

energy sector. I guess the clean power sector is interesting in and of itself, but I think it's interesting to me into a lot of other people because this is this affects climate change in a big way. You know, transitioning to renewable power is one of the biggest ways that you know, climate change can be addressed. Do you see, you know, these shocks that have happened in the last few months as derailing the the transition to clean power and affecting you know, global carbon emissions in a really

significant way. Or do you think that this is you know, the the transition to renewable power is just going to continue on and there's almost nothing can stop it. I hold a pretty optimistic view, and I think it's not that nothing can stop it, but I'm sort of cautiously optimistic.

So I think what you said is right, is that building out a clean power system globally is going to be the backburn upon which you know, the rest of the energy system, the rest of the economy will be decarbonized because you have a clean power system, you can electrify more of the economy cars, buses, buildings, and you can start to produce clean hydrogen off the back of it, etc. So I think it really is foundational to achieving the

climate goals that we want to achieve. I'm not seeing much sign of governments suddenly reducing their commitments to clean power because of the pandemic, and I think a big reason for that is, as we've talked about before, it's cheap, but clean power is cheap, so it's not a sacrifice anymore to choose that as an option. So I think the real question we need to get at is are we going to move fast enough to meet those climate goals. So I just want to highlight a report we put

out recently with the UN and the Frankfurt School. It's called Global Trends in Renewable Energy Investment. It's a report we've been doing for a decade or so, and this year we wanted to take a look at the decade ahead, which will be a critical decade for climate action for all sorts of reasons. And we found that countries and companies have already committed to adding more than eight hundred watts of renewables by twenty thirty. That's about a trillion

dollars of investment over ten years. And that sounds like a lot, but it's actually a fraction of what we need to do just to stay on track for the for the Paris Climate goals for this decade, just to stay on track for ten years. And in fact, there are estimates out there, you know, various bodies out there saying that that that one trillion is what we need to be spending every year to get to the Paris goals. So that, I think is the real question. It's not

kind of are we going to pull back? But it's can we really take the opportunity now and push forward in this decade which we all agree is critical. I see. So I was wondering your whole, our whole conversation. You've been very, very optimistic, and I was waiting for the

pessimism to come in, and there it is. So it sounds like the issue is not so much will the world adapt to clean energy, because it sounds like you know, and I think, you know, you can't predict the future, of course, but it sounds like that all signs are pointing to clean energy and renewable energy becoming pretty dominant. But it's a matter of speed, it's a matter of when.

And it sounds like, you know, right now things are moving too slow and the obviously the pandemic has slowed it down a little bit more, maybe not significantly more, but it's going to happen slower now. Yeah, I think the good news is and sorry, you know, maybe you're looking for me to be more pessimistic. Actually I no, no, hey, look,

I mean, you know, optimism is fine. I suppose. Yeah, I think that the reductions that we're seeing right now are operational reductions, they're sort of procedural reductions, and coming out of the pandemic. As we look out we take a slight longer term view over kind of five ten years, there's clearly an opportunity as governments look to really stimulate their economies to use clean power or clean energy investment as a vehicle for creating jobs, for stimulating investment and

contributing to climate action as well. Certainly what we're seeing in Europe, the EU is putting forward quite an ambitious proposal where a quarter of all of its stimulus money will go towards green areas, including renewables, building efficiency, hydrogen, etc. I mean, you can say Europe's always the most aggressive, but I do think other regions will follow will follow suit COVID nineteen. The pandemic, it has raised our awareness

about managing systemic risk. Global pandemic is something experts have warned about for some time. And also, you know, it's about public health, It's about the health impact of air pollution. All of these issues link kind of directly or indirectly

to climate change and the energy transition. So I think my own personal view is I think the world has an opportunity to learn from this pandemic and invest in a future energy system that's resilient to climate risk, that creates jobs, economic growth, and also serves the greater good in terms of you know, those issues around public health and well being as well. That was Albert Chunk, head of Global analysis at Bloomberg New Energy Finance, speaking from

his home in London. If you want more environmental news, check out our website news dot Bloomberg environment dot com. That website, once again is news dot Bloomberg environment dot com. Today's episode of Pars Rebellion was produced by myself along with Josh Block and Marissa Horne. Pars Rebillion was created by Jessica Coombs and Rachel Daegel. The music for today's episode is a Message by Jazar and Upstate by Henning Schmidts. They were used under a Creative Commons license. Thanks everyone

for listening. Hey there, I'm Kyle triggsda Politics editor for Bloomberg Government, and I'm Greg Giroux, Senior Elections reporter for Bloomberg Government. Check out our podcast, down Ballot Counts. Each week, Greg and I will be breaking down all of those down ballot elections that make up the fight for the US Congress. Listen and subscribe to Downballot Counts from Bloomberg Government wherever you get your podcasts.