After The Crisis
Coronavirus Should
Recharge the Push for Zero-Carbon Energy
Recharge the Push for Zero-Carbon Energy
Developing countries that will drive energy demand and still
rely on fossil fuels have the most to gain from making the switch.
rely on fossil fuels have the most to gain from making the switch.
By Nathaniel Bullard
April 29, 2020, 11:00 AM GMT+1
Nathaniel Bullard is Bloomberg NEF's Chief Content Officer.
He writes weekly for Bloomberg Green on energy, transport, technology, climate
and finance.
He writes weekly for Bloomberg Green on energy, transport, technology, climate
and finance.
As the coronavirus
pandemic continues, Bloomberg Opinion will be running a series of features by
our columnists that consider the long-term consequences of the crisis. This column
is part of a package on how to navigate turmoil in energy markets. For more,
see Liam Denning on how to build a more sustainable U.S. energy system and
Meghan O’Sullivan on the strategic challenges the U.S. faces from plunging oil
prices.
pandemic continues, Bloomberg Opinion will be running a series of features by
our columnists that consider the long-term consequences of the crisis. This column
is part of a package on how to navigate turmoil in energy markets. For more,
see Liam Denning on how to build a more sustainable U.S. energy system and
Meghan O’Sullivan on the strategic challenges the U.S. faces from plunging oil
prices.
A dozen years ago, New Energy Finance founder and CEO
Michael Liebreich asked a room full of California electricity sector executives
and regulators what their strategy would be when a grid flooded with solar
power pushed their power prices below zero. Replies ranged from “that’s
ridiculous” to “that will never happen” to “what are you talking about?”
Michael Liebreich asked a room full of California electricity sector executives
and regulators what their strategy would be when a grid flooded with solar
power pushed their power prices below zero. Replies ranged from “that’s
ridiculous” to “that will never happen” to “what are you talking about?”
Now it’s the sort of thing that happens frequently. The wild
churning of oil markets over the last few weeks, pushing U.S. oil futures and
physical oil markets into negative territory, has brought memories of that
conversation back into sharp relief.
churning of oil markets over the last few weeks, pushing U.S. oil futures and
physical oil markets into negative territory, has brought memories of that
conversation back into sharp relief.
The market gyrations from the impact of the coronavirus (and
an earlier oil price war) ought to unsettle any energy watchers. Even ardent
believers in the inevitability of a zero-carbon world recognize that the
pandemic could strain renewable energy markets, depressing investments by
legacy energy companies in renewables, sandbagging purchases of carbon
allowances, and reducing corporate commitments to clean energy more broadly. In
these topsy-turvy times, executives could be forgiven for seeing
“sustainability” as more about keeping a business going than examining its
electricity mix.
an earlier oil price war) ought to unsettle any energy watchers. Even ardent
believers in the inevitability of a zero-carbon world recognize that the
pandemic could strain renewable energy markets, depressing investments by
legacy energy companies in renewables, sandbagging purchases of carbon
allowances, and reducing corporate commitments to clean energy more broadly. In
these topsy-turvy times, executives could be forgiven for seeing
“sustainability” as more about keeping a business going than examining its
electricity mix.
That’s especially true in the developing world, where fossil
fuel-fired power still accounts for most of the asset base and power
generation. Since these countries will also account for most of the energy
demand growth through 2050, their choices will have a decisive impact on global
health and wealth, from climate change to the quality of our air and water. But
how should places that are just entering the contemporary energy economy plan
for tomorrow when today is unprecedented?
fuel-fired power still accounts for most of the asset base and power
generation. Since these countries will also account for most of the energy
demand growth through 2050, their choices will have a decisive impact on global
health and wealth, from climate change to the quality of our air and water. But
how should places that are just entering the contemporary energy economy plan
for tomorrow when today is unprecedented?
I have some suggestions, and they begin with some numbers.
China and other emerging markets already represent a big share of global clean
energy investment. The scale of this market — more than a third of a trillion
dollars invested in each of the past five years — makes clear that clean energy
is hardly a niche thing, nor is it only in rich countries.
China and other emerging markets already represent a big share of global clean
energy investment. The scale of this market — more than a third of a trillion
dollars invested in each of the past five years — makes clear that clean energy
is hardly a niche thing, nor is it only in rich countries.
It's Not Just China
Clean energy investment by year
Sources: Climatescope, BloombergNEF
The reason for these big numbers is cost: Clean energy is often the lowest-cost
option for new power generation in any country, regardless of its per
capita income, its level of development or its renewable resources. In India,
for instance, the cheapest two unsubsidized options for new power generation
are wind and solar.
option for new power generation in any country, regardless of its per
capita income, its level of development or its renewable resources. In India,
for instance, the cheapest two unsubsidized options for new power generation
are wind and solar.
Of course, a global pandemic could set back any sort of
long-term infrastructure and technology planning, energy included. Those
realities just make it all the more important to think in a structured way
about what the energy future could look like in low-income and
developing countries.
long-term infrastructure and technology planning, energy included. Those
realities just make it all the more important to think in a structured way
about what the energy future could look like in low-income and
developing countries.
Let’s start with what I think of as the three V’s: Vector, Variance and Value.
Vectors create a
sense of direction that can make predictions easier. And thus far, clean
energy technologies have established a pretty clear direction: Their cost has
gone down, even as their efficiency has gone up. This is attributable to some
key characteristics. First, these technologies are modular and high volume.
They’re distributed: That is, they are deployed many times over per year, in
many locations. And as a result, they benefit from manufacturing economies of
scale and constant improvements.
sense of direction that can make predictions easier. And thus far, clean
energy technologies have established a pretty clear direction: Their cost has
gone down, even as their efficiency has gone up. This is attributable to some
key characteristics. First, these technologies are modular and high volume.
They’re distributed: That is, they are deployed many times over per year, in
many locations. And as a result, they benefit from manufacturing economies of
scale and constant improvements.
Consider that only 385 coal-fired power plants are now
under construction. But this year, tens of thousands of wind turbines will
be assembled and installed, as well as hundreds of millions of solar PV
modules. All of that production and iteration means refinement — improved
efficiency, lower cost, greater reliability — as manufacturers and installers
get better at what they do.
under construction. But this year, tens of thousands of wind turbines will
be assembled and installed, as well as hundreds of millions of solar PV
modules. All of that production and iteration means refinement — improved
efficiency, lower cost, greater reliability — as manufacturers and installers
get better at what they do.
These improvements are reliable enough that investors can
plan on them continuing, too. An example is the spot price for multicrystalline
silicon photovoltaic modules. Notwithstanding some minor variations, the
direction of travel is unmistakable.
plan on them continuing, too. An example is the spot price for multicrystalline
silicon photovoltaic modules. Notwithstanding some minor variations, the
direction of travel is unmistakable.
Down by 90 Percent
Spot price for multicrystalline silicon PV module
Source: BloombergNEF
The second V to consider is variance. If high-volume distributed clean power technologies
consistently decrease in cost and increase in efficiency, the inverse is true
of fossil fuels. Prices vary based on supply and demand — wildly, in the case
of the last few weeks — while the energy content of fuels is fixed by their
molecular composition.
consistently decrease in cost and increase in efficiency, the inverse is true
of fossil fuels. Prices vary based on supply and demand — wildly, in the case
of the last few weeks — while the energy content of fuels is fixed by their
molecular composition.
That variance might be nice if you’re an energy trader, but
it’s hard to manage if you’re making 20-year to 40-year decisions about
building fossil fuel-fired power generation. Planners can’t predict that the price
of any given fuel will stay in the range that they use when approving
plants, and that bankers use in their financing assumptions. Over just the past
three years, for instance, seaborne coal in Asia has been cheaper on an energy
basis than both gas and oil…and it’s also been more expensive than both of
them. Planners can lock in long-term prices at fixed rates, but they can’t do
so forever; once a plant is built, converting it to another fuel is quite hard
or impossible. The only constant to expect from any new fossil fuel-fired
power generators is variation.
it’s hard to manage if you’re making 20-year to 40-year decisions about
building fossil fuel-fired power generation. Planners can’t predict that the price
of any given fuel will stay in the range that they use when approving
plants, and that bankers use in their financing assumptions. Over just the past
three years, for instance, seaborne coal in Asia has been cheaper on an energy
basis than both gas and oil…and it’s also been more expensive than both of
them. Planners can lock in long-term prices at fixed rates, but they can’t do
so forever; once a plant is built, converting it to another fuel is quite hard
or impossible. The only constant to expect from any new fossil fuel-fired
power generators is variation.
Dropping, Plunging, Converging
Prices of oil, liquefied natural gas, and coal in energy-equivalent terms
Source: Dan Murtaugh, Bloomberg
There’s another more immediate variance to take into
account: interest rates. As my colleague John Authers recently noted, research
from the Federal Reserve Bank of San Francisco found that lower real interest
rates follow pandemics (whereas higher real interest rates follow wars). Pandemics see lower real interest rates for a fairly logical, if depressing,
reason: lower economic activity, and no shortage of capital in need of
replacement.
account: interest rates. As my colleague John Authers recently noted, research
from the Federal Reserve Bank of San Francisco found that lower real interest
rates follow pandemics (whereas higher real interest rates follow wars). Pandemics see lower real interest rates for a fairly logical, if depressing,
reason: lower economic activity, and no shortage of capital in need of
replacement.
These lower interest rates can work to clean energy’s
advantage. Power generation assets that rely only on the elements or the
earth’s heat as energetic inputs do not require fuel. As a result, they have
far lower operating expenses than fossil fuel-fired power generation.
Essentially, clean energy assets require investors to carry decades worth of
variable operational expenditure forward into one, fixed capital expenditure.
It requires more money up front, to swap
operating expenses for capital expenses, but that becomes easier the lower
interest rates fall.
advantage. Power generation assets that rely only on the elements or the
earth’s heat as energetic inputs do not require fuel. As a result, they have
far lower operating expenses than fossil fuel-fired power generation.
Essentially, clean energy assets require investors to carry decades worth of
variable operational expenditure forward into one, fixed capital expenditure.
It requires more money up front, to swap
operating expenses for capital expenses, but that becomes easier the lower
interest rates fall.
The final V? Value,
as in “value added.” In this case,
value added has a lot of connotations, from the technical and energy-specific
to the financial and the environmental, and they all matter.
as in “value added.” In this case,
value added has a lot of connotations, from the technical and energy-specific
to the financial and the environmental, and they all matter.
In technical terms, clean energy can help lower-income or
developing world energy systems by providing electrons to consumers faster than
building large central station power plants. They deploy in a distributed,
scalable fashion — from a solar panel charging a lantern to a power plant
energizing a city. They are resilient: A system of smaller clean power
generators can better resist the hurricanes, for instance, that devastated
Puerto Rico’s decrepit, mostly oil-powered central grid.
developing world energy systems by providing electrons to consumers faster than
building large central station power plants. They deploy in a distributed,
scalable fashion — from a solar panel charging a lantern to a power plant
energizing a city. They are resilient: A system of smaller clean power
generators can better resist the hurricanes, for instance, that devastated
Puerto Rico’s decrepit, mostly oil-powered central grid.
Financially, clean energy can reduce energy spending. Lower
exposure to variable fuel prices is valuable too. So, too, are jobs created.
The relatively high number of workers needed to install and service
distributed solar energy is a feature, not a bug, in this instance — and it provides
jobs while also providing energy savings.
exposure to variable fuel prices is valuable too. So, too, are jobs created.
The relatively high number of workers needed to install and service
distributed solar energy is a feature, not a bug, in this instance — and it provides
jobs while also providing energy savings.
In environmental terms, clean energy adds clear value.
Carbon dioxide emissions are very low or nonexistent. The impacts from fuel
extraction are minimal. The quality of local air and water is improved.
Carbon dioxide emissions are very low or nonexistent. The impacts from fuel
extraction are minimal. The quality of local air and water is improved.
Of course, the impact of Covid-19 is shaping not just
investor sentiment, but confidence in the future. Both factors make it hard to
plan, but plan we must. Here are three recommendations for policy makers to
keep in mind:
investor sentiment, but confidence in the future. Both factors make it hard to
plan, but plan we must. Here are three recommendations for policy makers to
keep in mind:
Acquire good data: It seems simple but it isn’t. Energy
ministers, government bureaucrats, politicians and other decision-makers often
operate with technology cost assumptions that are years out of date. Get the
latest price data for renewable technologies; get the latest and most transparent
cost of energy generation analysis; ask yourself what will happen if trends
continue (or if they don’t).
ministers, government bureaucrats, politicians and other decision-makers often
operate with technology cost assumptions that are years out of date. Get the
latest price data for renewable technologies; get the latest and most transparent
cost of energy generation analysis; ask yourself what will happen if trends
continue (or if they don’t).
Be a good investment:
Energy assets are fixed in location, long in duration and creatures of capital
markets. Clean energy may be cloaked in virtue, but it’s naïve to think that
such investments should be exempt from the normal governance, process of
policy-making and financial constraints of any country that pursues them.
BloombergNEF’s annual Climatescope analyzes 167 country-level indicators, from
policy and capital markets to technical standards, that enable robust clean
energy investment. They point to what makes investors happy, and what will
attract the patient, engaged capital best suited to long-term assets.
Energy assets are fixed in location, long in duration and creatures of capital
markets. Clean energy may be cloaked in virtue, but it’s naïve to think that
such investments should be exempt from the normal governance, process of
policy-making and financial constraints of any country that pursues them.
BloombergNEF’s annual Climatescope analyzes 167 country-level indicators, from
policy and capital markets to technical standards, that enable robust clean
energy investment. They point to what makes investors happy, and what will
attract the patient, engaged capital best suited to long-term assets.
Put more people to
work: Renewable energy can be much more of a jobs engine than fossil
fuel-fired power generation. Last year, the U.S. solar industry employed more
than 248,000 people; coal- and gas-fired power together employed 202,000.
Solar, in particular, is a significant employer during construction. And these
jobs aren’t just for men, either. Worldwide, the number of jobs in renewable
energy generation rose from 7.3 million in 2012 to almost 11 million in 2018.
Its end product — low-cost, zero-carbon energy — also puts people to work.
work: Renewable energy can be much more of a jobs engine than fossil
fuel-fired power generation. Last year, the U.S. solar industry employed more
than 248,000 people; coal- and gas-fired power together employed 202,000.
Solar, in particular, is a significant employer during construction. And these
jobs aren’t just for men, either. Worldwide, the number of jobs in renewable
energy generation rose from 7.3 million in 2012 to almost 11 million in 2018.
Its end product — low-cost, zero-carbon energy — also puts people to work.
Today’s energy market turbulence just makes the long-term
advantages of zero-carbon power generation even more clear, especially for
developing countries intent on supplying more power to their people.
Electricity for everyone has been achieved before; it can be done again – only
cleaner this time.
advantages of zero-carbon power generation even more clear, especially for
developing countries intent on supplying more power to their people.
Electricity for everyone has been achieved before; it can be done again – only
cleaner this time.
This column does not necessarily reflect the opinion of the
editorial board or Bloomberg LP and its owners.
editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Nathaniel Bullard at nbullard@bloomberg.net
To contact the editor responsible for this story:
James Gibney at jgibney5@bloomberg.net
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