Will Covid-19 accelerate the renewable energy transition in emerging markets?

With new data showing that global carbon emissions are rebounding more quickly than expected after coronavirus lockdowns are eased, questions are being asked about the prospects for renewable energy projects in emerging markets. 

Just as the pandemic has had an considerable impact on the global economy, travel restrictions and the suspension of industrial activities have led to an unprecedented drop in global emissions.

According to data from the Helsinki-based Integrated Carbon Observation System (ICOS), by the first week of April daily carbon emissions had fallen by 17% against mean 2019 levels, with some countries experiencing a 26% fall in CO2 output.

The fall was the sharpest on record, with global emissions dipping back to 2006 levels. This was a far greater drop in both absolute and percentage terms than was seen at other comparable moments in history, such as the Arab oil embargo of 1973, the collapse of the Soviet Union or the 2008 Global Financial Crisis.

However, as lockdown measures have been eased and economic activity has resumed, emissions have also increased.

ICOS statistics found that by June 10, emissions had rebounded to a level just 4.7% below pre-lockdown levels, with the recovery taking place more quickly than many had expected.

Global energy investment takes a hit

This development has led many to conclude that austerity alone will not be enough to adequately reduce emissions while facilitating economic growth, and that environmentally friendly solutions will be necessary to ensure future sustainable development.

“From a policy perspective, every government should try to promote green energy more aggressively. Covid-19 has cleared a path for green energy by changing lifestyles,” Bundit Sapianchai, president and CEO of Thai renewable energy company BCPG, told OBG.

The call for more green investment was bolstered by the release of a report from the Paris-based International Energy Agency (IEA) in June, which found that global investment in energy was set to fall by 20% – some $400bn – this year.

The agency said that the bulk of losses will be borne by the oil and gas industry. A separate report by the IEA noted that, although newly installed renewable power capacity was expected to decline by 13% this year, the green energy sector was proving to be disproportionately resilient to the impacts of the pandemic.

This resilience, combined with the falling cost of renewable energy generation, has led many to predict a significant increase in green investment moving forward.

“From an investment perspective, in March 2020 share prices of companies across the energy industry fell by more than 50% from their pre-Covid-19 prices. There is a strong consensus that green energy is the future emerging segment for the industry,” Sapianchai told OBG. “This is thus an opportunity for green funds and green investors to buy shares at a cheaper price.”

Indeed, there have been some large investment moves made in cleantech and renewable energy since the outbreak of the pandemic.

Notably, in late June US multinational Amazon announced that it was creating a $2bn venture capital fund to invest in renewable and environmentally sustainable technology.

In country-specific terms, the Philippines approved two wind power projects with a combined capacity of 1.2 GW in late March, while in Vietnam – which has been the leading installer of solar power in ASEAN over the past couple of years – local company BCG launched a 330-MW solar project in the central province of Binh Dinh.

Meanwhile, in Japan, which along with China has traditionally been one of the largest investors in fossil fuel projects in South-east Asia, two of the country’s largest banks – Sumitomo Mitsui Banking Corporation and Mizuho – announced commitments in April to curb their financing of new coal power projects.

Challenges for renewables

While the outlook for renewables is largely positive – and most countries in the world are signatories of the Paris Agreement on climate change, which requires them to reduce their greenhouse gas emissions – there are concerns that some states may prioritise economic growth over environmental concerns as they emerge from the lockdown.

Indeed, some analysts have argued that, despite the rapid drop in global emissions, Covid-19 will actually prove to be damaging to the environment.

This is especially pertinent for emerging markets under significant economic strain, particularly if they can tap domestic hydrocarbon resources. 

In South-east Asia, for example, countries such as Indonesia and Vietnam still have significant coal deposits, viewed in some quarters as a cost-effective option for boosting power generation.

These issues have been compounded by the crash in global oil prices that accompanied the outbreak of the virus. While this has had a negative effect on hydrocarbons companies worldwide, cheaper oil could incentivise the use of fossil fuels for energy during the recovery phase.

Fatih Birol, executive director of the IEA, told international media that although renewables were expected to be more resilient than fossil fuels, the overall drop in investment could hinder a transition towards renewable power. 

“The historic plunge in global energy investment is deeply troubling for many reasons. The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems.”

However, Hatem Al Mosa, CEO of the Sharjah National Oil Corporation, told OBG that any slowdown in the transition should only be temporary.

“It is only a matter of time before green energy will control the market; it has been increasing its supply at a much higher pace than the fossil fuel industry,” he said. “Green energy will capture most of the market within the next two decades.”