Econostrum | Economic News in the Mediterranean

Energy transition facing a world crisis

on Friday, July 17th 2020 à 16:07 | Read 530 times

Energy transition facing a world crisis

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 A recent report from the International Energy Agency (IEA) has set alarm bells ringing. Published at the end of May, the document states “The Covid-19 pandemic is having a widespread and sometimes dramatic effect on investment in the energy sector. Covid-19 is a huge blow for the energy system, but the response also provides an opportunity to orient the energy sector in a more resilient, safe and sustainable direction.”
Published each year, the World Energy Investment Report doesn’t just provide the results for 2019. It also takes into account the first five months of 2020.
The IEA estimates that the economic recession will result in an 11% drop in investment in technologies linked to renewable energy, energy efficiency and electricity storage. To maintain the commitments made to combat global warming, the IEA says that, on the contrary, this needs to double. Grids, vital for renewable energy, are also feeling the pressure, with investment down by 9%.
In the only optimistic note environment-wise, confinement led to a crash in oil prices, which in turn produced an unprecedented fall in investment in fossil fuel extraction, for example -50% for oil and shale gas in both the US and Algeria.

Coal-fired power station

Energy transition facing a world crisis
In the electricity sector, demand fell by more than 20% during confinement but, according to the Agency, “renewable energies’ share in electricity supply increased, since their production is not affected by demand.” Final investment decisions (FIDs) for new industrial-scale wind and solar projects slowed during the first quarter of 2020, returning to 2017 levels. The crisis has brought a new reduction in electricity grid spending of 9% worldwide, spending which had already decreased by 7% in 2019.

In 2020, “global CO2 emissions are expected to fall 8%, or 2.6 Gt, against levels of ten years ago” says the IEA. “Such a year-on-year fall would be the greatest on record, six times more than that caused by the 2008 world financial crisis.”

But the IEA also notes a doubling in new coal-fired power station numbers. “Although coal-based investments are dropping in many regions around the world, twice as many permissions were given for new power plants globally during the first quarter of 2020 (mainly in China) than in 2019, and the construction project pipeline is very long.”
Given these developments, the IEA expects CO2 emissions to take off again as early as 2021 if countries let the market have its way and if economic recovery plans fail to make energy transition a priority.
The future looks complicated. As the IEA warns, “Government revenue linked to energy –in particular in the main oil and gas exporting countries- have been severely impacted, with repercussions on the availability of funds for the state-owned energy sector companies.”

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