As the North Sea oil and gas industry faces the prospect of a grim downturn amid the plunge in commodity prices triggered by the coronavirus experts have warned the consequences for the emerging renewables industry could also be devastating.
The analysis puts the onus on governments to help ensure that investment in renewables is maximised while ensuring taxpayers are not left to pick up an unfair share of the bill.
The International Energy Agency has predicted that investment will fall by 20 per cent or $400bn this year, with the Covid-19 pandemic set to trigger the largest drop in global energy spending in history.
The Paris-based watchdog reckons total investment in oil and gas developments will plunge by around a third, or $250bn, in response to the impact of the coronavirus and related lockdowns.
But it also warned: “Power sector spending is on course to decrease by 10% in 2020, with worrying signals for the development of more secure and sustainable power systems.”
The IEA’s analysis will stoke fears the renewables sector could be one of the biggest casualties of the cuts in spending that are expected to be made by oil and gas firms, including international giants and state-owned players.
The IEA said: “The number of new renewable power installations worldwide is set to fall this year as a result of the unprecedented Covid-19 crisis, marking the first annual decline in 20 years.”
It reckons governments will have a crucial role to play in any recovery by making investment in renewables a key part of stimulus packages designed to reinvigorate their economies.
Against that backdrop Scottish Hydroelectric owner SSE made an interesting contribution last week by publishing what it billed as a Greenprint for the development of a cleaner, resilient economy.
If the UK Government is to achieve its ambition for the country to become a net-zero nation by 2050 in terms of carbon emissions SSE reckons ministers must encourage investment in key areas.These include the development of a net zero power generation system and related transmission networks, the decarbonisation of industrial activity, the shift to electric vehicles and green buildings.
SSE insists private sector players are ready to invest billions in support of the net zero drive with the right encouragement.
Its recommendations include some that are likely to win support from campaigners who might be sceptical about the motives of private sector players.
These include using market mechanisms such as carbon pricing to effectively compel firms to invest in power generation facilities that would produce lower emissions than some existing alternatives and in related carbon reduction technology.
The company highlights the potential to create ‘green jobs’ by supporting investment in the ‘green buildings’ that will be needed. This will include shifting to low carbon alternatives to gas boilers. “With such an ageing building stock, domestic and non-domestic retrofits are needed which are inherently challenging, disruptive and costly,” said SSE.
Perhaps the Government could find ways to kick-start activity that would create work for the many skilled oil and gas industry workers who may face redundancy.
It must avoid repeating the mistakes made with the plan to get smart meters fitted in all UK homes. While this has been running behind target private sector participants have made fortunes.
But some of SSE’s recommendations may set alarm bells ringing.
It wants the regulator to give the all clear to “shovel-ready” plans to invest in transmission networks that were developed before the turmoil caused by the coronavirus. Ofgem must ask if the rates of return it may have once been prepared to allow companies to achieve on such investments are still appropriate.
The interest shown by London-based renewables investors in existing Scottish windfarms recently reflects the fact they expect to be able to generate attractive long term returns in the sector. Few industries will offer investors such attractive prospects amid the fallout from the coronavirus.
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