by Chris Wedding
If you only considered headlines like the ones below, you would think that COVID has obliterated the solar, wind, and related clean energy industries.
- Covid-19 Lockdown Could Kill 500k Cleantech Jobs (Forbes)
- Wind Energy Group Says $43 Billion at Risk from COVID-19 (Power)
- Tesla to Reduce On-Site Staff at Nevada Gigafactory by 75% (TechCrunch)
- Electric Vehicle Sales Set to Crash in 2020 Amid Coronavirus and Oil Price Shocks (Greentech Media)
However, the truth is a little more complicated.
As we know, “if it bleeds, it leads.” Bad news is eye candy.
In contrast, consider these six data points below.
1. COVID will, indeed, have a negative impact on solar, wind, batteries, and electric vehicles in the short term.
The slowdown in solar and wind project installations is based on the following factors.
Power buyers (e.g., utilities, corporations) are wary of signing new contracts, given their COVID-induced financial conditions and uncertainty regarding current and future power demand.
Many institutional investors are not looking to make new investments in the very near term because they are focused primarily on the financial health of their existing portfolio of projects and companies.
An increasing number of family offices and high net worth investors are less likely to invest now for two reasons:
- Their net worth has decreased due largely to public markets exposure;
- They are tempted to keep dry powder available in order to invest in distressed assets instead.
Moreover, social distancing has slowed project development and deployment activities, such as the following:
- Supply chains
Finally, when it comes to households, more consumers today lack the purchasing power they had pre-COVID. As of early April, 1 in 4 households has either lost their jobs or seen a pay cut (CNBC).
Accordingly, there is less willingness to make investments that are optional (e.g., rooftop solar, home batteries), or that have higher upfront costs but lower life cycle costs (e.g., electric vehicles.
2. $10 trillion of investments in solar, wind, and batteries are projected by 2050.
Before you skim over this one, note that this projection comes from Bloomberg NEF (New Energy Finance), not from an environmental nonprofit.
Their estimates assume a 3x growth in global power demand over the next 30 years.
To meet that demand with $13 trillion of new power investments, they project wind, solar, and batteries to attract $5.3 trillion, $4.2 trillion, and $840 billion, respectively.
3. The future of transportation will be less oil-dependent.
I knew that the growth of electric vehicles (EVs) was here to stay when I saw credit rating agency Fitch predict a potential “investor death spiral” in oil markets due to the mainstreaming of EVs.
Bloomberg NEF projects that EVs could be 57% of all new passenger vehicle sales and 30% of the entire global fleet by 2040.
Moreover, global market intelligence firm IHS estimates that by 2025, consumers will have over 300 EV models from which to choose.
4. Many of the world’s biggest investors are redefining their investment thesis to place stronger emphasis on climate change and sustainability.
As examples, consider the following:
In a letter to CEOs a few months ago, BlackRock, the world’s largest asset manager, with over $7 trillion, now stated that:
“As a fiduciary, our responsibility is to help clients navigate this transition. Our investment conviction is that sustainability- and climate-integrated portfolios can provide better-risk-adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.”
Warren Buffett recently lamented his $10 billion investment in Occidental Petroleum, “If you’re an [Occidental] shareholder or any shareholder in any oil-producing company, you join me in having made a mistake.” In parallel, Berkshire Hathaway companies are heavily invested in
wind and solar infrastructure, including the largest solar project in the U.S. being planned just outside of Las Vegas.
This relates to the broader trend of ESG (Environment, Social, Governance) investing, which exceeds $30 trillion and could grow to $50 trillion.
Similarly, investments in mutual funds and ETFs with a sustainability focus saw a 4x growth between 2018 to 2019, according to Morningstar.
Lastly, on top of their prior investments, Goldman Sachs recently committed $750 billion to sustainable finance-related projects over the next ten years.
5. The transition away from conventional energy is happening today, not in some distant future.
As an example in the U.S., the Energy Information Administration (EIA) estimated in January of this year that 76% of all new power capacity added to the grid will come from solar and wind power, with natural gas at just 22%.
Furthermore, in early May, the EIA revised its projections to note that while U.S. electricity demand is likely to shrink 5% due to COVID, coal power production should drop 25%, with natural gas remaining flat, and renewable energy production growing by 11%.
In fact, on May 28, the EIA noted that renewable energy consumption has now surpassed coal consumption in the U.S.
For a bigger picture, consider that approximately $2.6 trillion has been invested globally in renewable energy over the last decade (excluding hydropower), according to Bloomberg NEF, the Frankfurt School of Finance & Management, and the United Nations.
As these trends indicate, renewable energy is no longer a tiny niche reserved for environmentalists.
6. The renewable energy sector creates about 3x the number of jobs per dollar invested, as compared to the conventional energy sector.
With the potential for 47 million jobs lost in the U.S. due to COVID, according to U.S. government estimates, we need government stimulus and private capital to generate as many jobs as possible.
It is also worth noting that the estimates of job creation in renewable energy are based on a new report from the University of Oxford which examined 700+ fiscal stimulus policies and surveyed 231 economists, central bankers, and finance ministry officials from over 50 countries.
As the research above illustrates, COVID will have a near-term negative impact on clean energy.
However, it is likely that this will only be a temporary “blip” on the global transition towards advanced energy solutions that make more financial sense, while also contributing to climate change solutions.
This is not about tree hugging, or partisanship. It’s about preparing for a future global economy that looks different than the last century did.
Chris Wedding is an investment banker with Carolina Financial Securities, Managing Director at IronOakEnergy Capital, Founder of Entrepreneurs for Impact (CEO roundtables for climate change executives), and faculty member at Duke University and UNC Chapel Hill.