Energy system beyond Covid-19

American physicist and Nobel Laureate Steven Chu said, "As the saying goes, the Stone Age did not end because we ran out of stones; we transitioned to better solutions. The same opportunity lies before us with energy efficiency and clean energy".

The world has been undergoing a transition on energy front for many years. However, the striking difference, compared to a couple of decades ago, is that renewable energies now have more than 30 percent share to the global electricity generation mix.

In 2019, the share of renewables in capacity expansion, i.e., newly installed power generation capacity was 72 percent, which is 8 percent higher than the previous year, reported International Renewable Energy Agency (IRENA).

Like Steven Chu, policymakers and global communities have realised the undeniable significance of sustainable energy, thanks to extensive research, political willingness and successful demonstration projects, in our pursuit for development.

The transition to sustainable energy has, further, been influenced by the diabolical impacts of climate change, particularly due to human-induced components.

Despite years of efforts from different countries, the world is on course for more than 3° C global warming against the target of containing the warming within 2° C when the more favourable state would be to keep the mean temperature rise within 1.5 degrees, agreed upon in the Paris Agreement.

Given that the existing energy consumption pattern of global communities is not Paris Climate goal compatible, the emergence of Covid-19 has eventually provided a glimmer of hope, albeit due to natural degrowth phenomenon.

A lot has already been told about how Covid-19 led to economic disruption, coupled with stimulus packages of different countries, might reshape the global energy system. These discussions have at times been hinged on the sharp fall in demand for oil, which can also be attributable to Covid-19.

The fall in demand for energy has two-fold implications from the perspective of the fossil fuel industry – less usage of fossil fuel-based energy and a temporary halt in demand for new fossil fuel-based power generation units.

Notably, every year, old power generating units are being replaced with new and cleaner ones. As Carbon Brief mentioned in an article, Covid-19 has already forced in some cases to revisit the plan for phasing out the old power plants and hinted for their early retirement.

On the other hand, the global demand for oil and coal, according to the projection of International Energy Agency (IEA), could drop by eight and nine percent respectively this year while gas could see even steeper fall in demand.

IEA expected more demand for renewable energy this year and beyond, as in the previous years, but at a slower rate. Renewable energies are exposed to risks too, to a varying degree, like any other industry.

The major challenges that the renewable energies are confronted with are – (i) supply chain disruption, referable to Covid-19 induced lockdown and social distancing measures to contain the virus, that has triggered delays in construction of renewable energy projects around the world, and thereby, affecting commissioning of the projects, (ii) social distancing, travel restriction etc. have a direct impact on the energy demand, including renewable energies, (iii) the social and economic challenges that emerged from Covid-19, may force the governments and private investors to momentarily suspend the new projects.

However, since energy is the prime-mover of an economy and considered as an essential service provision, the activities related to the construction of renewable energy projects have not been abandoned. Rather renewable energy projects are, as claimed by IEA, being affected in the prevailing scenario but will regain its momentum soon.

One advantage that favoured renewable energy is their competitiveness vis-à-vis fossil fuels and its remarkable achievement before the pandemic hit the world. Economies of scale, learning effect and policy instruments have contributed to the price reduction of renewable energy.

Moreover, the coronavirus recovery packages of some countries have been conscientiously designed to promote green recovery, which would eventually support the promotion of renewable energies. Therefore, the share of renewable energies to the global energy mix is undoubtedly going to increase in the coming years.

Contrary to that, the global oil market has been severely hit amid the pandemic. Many argue that the oil market will never be the same in the post-Covid world. While oil may not regain its place, we would not -witness the oil-free world soon either.

Likewise, some countries reportedly have many coal-based power-plants in the pipelines against the global tide for renewable energy and the ambition to achieve the global greenhouse gas mitigation target under the Paris Agreement.

The construction of the coal-based power plants at a time when renewable energy are not only cost-competitive but also capable to deliver a multitude of benefits, i.e., create more jobs, improve air quality and others, is in no way beneficial.

As experts and analysts shed light on the future of coal-based plants, we would rather find these plants as stranded assets soon.

In summary, the oil-free world or significant reduction in usage of all forms of fossil fuels within a few years after Covd-19 is highly unlikely. Of course, the future lies in renewable energy, including storage and electric vehicles, but it is highly improbable that the demand for renewable energy would shoot up significantly within a couple of years.

For instance, many countries would need to enhance their ambitions at a policy level and require gearing up the installation of renewable energy-based systems, which would take years considering the issues of storage and grid stability.

Similarly, they should devise a well-designed exit strategy from coal-based systems. Last but not the least, different countries have variations in the level of capacities, for example, from a technical perspective. 

To conclude, the growth in demand for oil was already declining before the Covid-19 era and this pandemic is likely to push it to even in a worse situation. The factors at play are the combination of lower economic growth and changes in behaviours of people but policy push would be necessary to ensure that the oil market does not rebound.

Notably, Covid-19 has provided us with the opportunity for great introspection concerning the global as well as country level energy systems and conscientiously designing the stepping-stones to maximise the utilisation of renewable energy while avoiding coal and oil, wherever possible, to transition to a better solution.

Shafiqul Alam is a Humboldt Scholar and an environmental economist. He is currently a Senior Advisor in an International Agency.