Coronavirus ‘accelerating closure’ of ageing fossil-fuelled power plants
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This year will see the largest ever drop globally in both investment and consumer spending on energy as the coronavirus pandemic hits every major sector, according to the International Energy Agency (IEA). The crisis is accelerating the shutdown of older fossil-fuelled power plants and refineries, with the agency saying it could provide an opportunity to push the global energy sector onto a “more resilient, secure and sustainable path”.
Its analysis looks ahead to the coming year and estimates the impact of this year’s economic turmoil on energy investment, which was expected to grow by around 2% prior to Covid-19. It is now expected to drop by 20%, or almost $400bn.
Meanwhile, as demand and prices collapse, consumer spending on oil is expected to drop by more than $1tn, prompting a “historic switch” as spending on electricity exceeds oil for the first time. The “baseline expectation” for 2020 is a global recession resulting from widespread lockdowns, according to the IEA. Last month, the agency estimated this will also lead to CO2 emissions dropping by 8% this year in the largest decline ever recorded.
Based on the latest investment data and project information, announcements from companies and governments, interviews with industry figures and its own analysis, the IEA concludes such a recession will see energy investment drop by a fifth.
These estimates are based on assumptions about the duration of lockdowns and coronavirus recovery trajectories. The IEA notes that “almost all” investment activity has been disrupted by these measures, as a result of restrictions to the movement of people, goods and equipment.
However, the largest impacts are the result of declines in revenues due to falling demand and prices, with the clearest example coming from the oil sector. Analysis of daily data until mid-April suggests countries in full lockdown have seen energy demand drop by a quarter.
As a result, the agency also estimates that these factors, combined with a rise in cases of people not paying their energy bills, will see revenues going to both governments and industry fall by over $1tn this year.
Crisis ‘accelerating’ shift from low-efficiency technologies
Every year energy infrastructure is retired and replaced with new equipment. Typically, the replacement technologies will be cleaner and more efficient, although this is not always the case.
The coronavirus crisis is expected to have an impact on this rate of turnover and, indeed, it is already contributing to the retirement of some older power plants and facilities, as the chart below illustrates.
The economic downturn and “surfeit of productive capacity in some areas” as overall demand plummets is already “accelerating” the closure and idling or inefficient technologies, including refineries and some coal-fired power plants.
However, the IEA warns that equally governments might respond to the pandemic by underinvesting in new technologies and remaining reliant on inefficient, older technology. The agency estimates efficiency investment could drop by 10-15% as spending is cut back.
The report warns that policymakers should keep these elements in mind and “combine economic recovery with energy and climate goals”. Dr Fatih Birol, executive director of the IEA, said in a statement that while the pandemic has brought lower emissions it has been “for all the wrong reasons”:
“The response of policymakers – and the extent to which energy and sustainability concerns are integrated into their recovery strategies – will be critical.”
