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  • Writer's pictureThe Opportuneo Team

Power Grab

Updated: Sep 11, 2020

The pandemic created an economic crisis that is the largest since the Great Depression of the 1930s.

Energy demand fell dramatically

According to the report that was published in June by the International Energy Agency (IEA), world energy demand could fall by 6% in 2020, and electricity demand by 5%. This would amount to a shock around seven times larger than the one that occurred during the 2008-09 financial crisis.

It is clear that electricity demand, depressed by 20% or more during period of full lockdown in several countries, will rebound but there is no doubt that the crisis will have a huge impact on the world energy mix. Oil demand and coal demand are expected to drop by 8% in 2020; natural gas demand is expected to fall by around 4%.

Will there be winners? Clearly, renewable generation is expected to increase because of low operating costs, its preferential access in many power systems around the world, and growth in capacity through the many projects that are about to come online in 2020.

CO2 emissions followed suit but may recover

Very importantly, the other winner is the environment with global CO2 emissions expected to fall by around 2.5 Gigatons (Gt) to just under 31 Gt, around 8% lower than in 2019; and back to their level of 2010.

The problem is that, as this decline is due to reductions in economic activity rather than structural changes in the way the world produces and consumes energy, the global CO2 emissions are very likely to rebound as economies slowly recover. A key issue will be to know the potential impact that behavioural changes will have as we might never come back to the way we used to live, work, travel and commute before the crisis.

Nevertheless, what will we need to avoid that rebound? Probably more than the revising or reaffirming of commitments to clean energy transitions emerging in many OECD countries. It will also require the full success of a 'green scenario' in which public and private investments would result in developing low-carbon technologies for use in energy-intensive domains like housing, transport and industry; and a key condition of success is, for these countries, to recover economically at a level allowing them to finance these investments.

Batteries cannot become the main answer to energy storage issues

Alternate solutions need to be found to complement pumped-storage hydroelectricity that accounts nonetheless, according to the International Hydropower Association, for over 94 per cent of installed global energy storage capacity. If batteries are the natural answer to this issue, the main difficulty comes from their energy density, hardly compatible with massive energy usages.

In that context, the solution envisaged by many is 'Green Hydrogen' - made by using clean electricity from low-carbon energy technologies to electrolyse water - despite a global efficiency that stays around 40%. Hydrogen would be the missing link in the energy transition: low-carbon electricity can be used to produce hydrogen, which can in turn provide energy to sectors otherwise difficult to decarbonise.

The European Commission published on 8 July 2020 their "Hydrogen Strategy for a climate neutral Europe", after having previously highlighted in their Recovery Plan "hydrogen as an investment priority to boost economic growth and resilience, create local jobs and consolidate the EU’s global leadership".

Obviously, the issue for the European Union is to find billions of euros in investment and persuade member states, despite the financial strain cause by the pandemic, to give their backing.

A bigger problem will remain

The fact that the hydrogen strategy validated by the European Union is closely articulated with the Recovery Plan following the Covid-19 pandemic is indeed very good news. It shows that Climate Change remains one of the highest priorities and that an opportunity is brought by the Covid-19 crisis and should be seized to foster the implementation of the energy transition. The environment can benefit from the flow of money that is flooding almost without any limitation in most of the world’s economies.

As demonstrated by a survey published by pollsters Opinium in April, 48 per cent of the public in the UK agree that the government should respond "with the same urgency to climate change as it has with Covid-19", with just 28 per cent saying it shouldn't.

Does it mean that the public is now fully aware of the urgency to reduce CO2 emissions in an effort to tackle climate change?

It means, at least, that they are in line with experts like those at DNV GL - an international accredited registrar and classification society headquartered in Norway – who think that "the energy transition we forecast is still nowhere near fast enough to deliver the Paris ambition of keeping global warming well below 2°C above pre-industrial levels".

In this context, it is extremely positive to see that a country like Poland, the only EU country that has not pledged to be carbon neutral by 2050, is now acknowledging that, as said by deputy Prime Minister Jacek Sasin on 3 September 2020, “the process of closing mines is inevitable, as it is very much related to the EU’s energy and climate policies. This process will last for a few decades and over that period coal mines will be closed”.

It is positive but the energy transition will require a lot more than a phasing out of coal that was largely under way before Covid-19 in the developed countries. It will require more than oil and gas companies having written off $100bn in reserves and write-downs in the past decade. It will require an impetus to invest in green power that will close older emitting plants and economics that will drive a green replacement strategy.

Whatever happens, power grab is under way

The ‘wartime’ economic emergency requires governments to implement ‘whatever it takes’ to overcome the catastrophic effects of the pandemic. “The UK government’s debt exceeding £2tn for the first time and borrowing at its highest ever peacetime level” (Financial Times - 21 August 2020), or “according to the IMF, massive borrowing, along with economic contraction, will push the US debt up by more than 30 percentage points to 140 per cent of gross domestic product” (Financial Times - 25 August 2020), are no longer in question.

One of the key consequences of Covid-19 is that, on the one hand, governments are now spending almost without any limitation to try to encourage their economies to recover; on the other hand, private companies and investors are struggling to get from banks that are more cautious than ever. That is why state interventions are required to recapitalise or refinance them. But it is probably creating a temptation for governments to intervene directly into these companies’ governance and strategy.

As the Wall Street Journal reminded us on 26 April 2020, “History shows that national shocks - the Depression, World War II, the financial crisis - have a way of expanding the role of government in lasting ways. This one is looking like no exception”.

The answer lays in policy choices

It is too early to say whether the enormous Covid-19 economic stimulus packages will be spent wisely and address the issues associated with the energy transition but, once again according to the Wall Street Journal, “coronavirus means the era of big government is back”.

The battle to limit CO2 emissions is not over. It will obviously depend on the policy choices that will be made by governments that are more hands-on now than they were before Covid-19. It will also depend on the ability the economies will have - or not have - to invest at the required levels in their energy systems.

Meanwhile, the UK Government just published its report on Levelised Costs of Energy (LCOE) for investments commissioned in 2025. The most striking is that they estimate these LCOEs to be 50% lower for offshore wind and solar - and 59% lower for onshore wind - compared to what they estimated in 2013. There is no doubt that the renewable case is getting more and more compelling.

The Covid-19 crisis might help; but it might also be an impediment. The jury is out.

At Opportuneo, we would be delighted to discuss the challenges and opportunities of the post-Covid era with you. Please contact us at

Olivier Carret - September 2020

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