In recent years the Asian Pacific nations were making up over 75 per cent of power demand growth around the world and was the leading region for installations of wind and solar technologies.
However, 150 gigawatts of new renewable projects which were planned for the Asia Pacific countries may now be delayed or even cancelled over the coming 5 years if the recession caused by the novel coronavirus extends beyond 2020, according to Wood Mackenzie, an energy research company. This would make the quick transition to renewable energy from fossil fuels even less likely in the region.
The generations costs of wind and solar power have fallen drastically in the last 5 years. With solar prices dropping by 54 per cent and wind by 29 per cent however in a recession period fossil fuel prices would likely fall meaning that renewables would only become competitive by 2025 according to Wood Mackenzie.
If this does happen, government support is essential within the Asia Pacific countries. Many key governments, including China, have greatly supported renewable power by providing subsidies and policies that encourage investment into the sector. The effects of this are already being shown with the current boom in renewables.
However, as the boom in renewables started accelerating governments started reducing or completely taking away subsidies from the projects. Meaning that renewable projects were then greatly affected by market forces. With the added impact of the coronavirus governments should reconsider their decisions to withdraws subsidies as now more than ever the renewable projects will need them.
Wood Mackenzie’s report assumed that Covid-19 would be controlled over the next few months with a slow and gradual recovery following its control. This assumption was based off the slow recoveries that are already starting to occur in China and Korea. However, if countries come out of lockdown to early then the effects will potentially be even worse as a second wave outbreak could cause a much longer-term economic affect. Potentially leading to an extended recession period occurring.
An extended recession period would make it harder for governments to priorities funding into renewable projects with stimulus measures as they would have priorities elsewhere. This would be a big hit to the renewable energy industry in countries if this happened.
A collapse in the costs of oil and gas will almost definitely undermine the support for renewable energy in nearly all countries. Governments will have less power to provide direct support to renewable energy all whilst the supply chain is disrupted for the industry as well. This will undoubtedly slow the transition from polluting fossil fuels to clean renewable energy in many countries.
Already there have been renewable projects that have been disrupted by the virus, in India and China. However, a longer recession period would see many more developing nations effected as they have less capacity and financial support of their own due to their reliance on foreign investments.
It is expected that investment will continue into renewable power however potentially at a slower rate as there would be less incentives to invest large sums of money into it right now given the current climate. The addition of many low or even negative interest rates within certain markets would make it an attractive prospect to borrow money for new projects.
The main problem however will be that during a weak economic environment many developing nations will find it easier and cheaper to use fossil fuels as they will provide the cheapest power available. This will only delay the transition to greener renewable energy unless governments take action to ensure a green transition is made.