Covid-19's impact on the energy sector

By Ms Mechthild Wörsdörfer, Director of Sustainability, Technology and Outlooks - International Energy Agency, (pictured)
Summer 2020

Ms Mechthild Wörsdörfer, Director of Sustainability, Technology and Outlooks - International Energy AgencyThe coronavirus (Covid-19) has created the biggest global crisis in generations, sending shock waves through health systems, economies, and societies around the world. Faced with an unprecedented situation, governments are focused on bringing the disease under control and reviving their economies.

The energy sector is also severely affected by this crisis, which has slowed transport, trade and economic activity across the globe. The IEA's analysis, published in our Global Energy Review 2020, shows that global energy demand declined by 3.8% in the first quarter of 2020 and that months-long restrictions on economic activity could lead to a drop in energy demand by 6% by the end of the year. This is the largest drop in 70 years and seven times greater than the 2009 financial crisis. The story is similar for global CO2 emissions projections as we expect a decline of nearly 8% in 2020, where Europe might see the lowest levels since the late 1950s.

Global energy investments are also severely affected by the crisis. As shown by our World Energy Investment report released end May, a fall in businesses' capital spending of US$400 billion – one fifth of 2019 levels – could be expected in 2020. Investment activities have been disrupted by lockdowns but also by a sharp fall in revenues, especially for the oil and gas sector. Europe’s estimated decline is around -17%, with investments in electricity grids, wind and efficiency holding up better than distributed solar PV and oil and gas, which see steep falls.

To avoid a big rebound, we need sustainable recovery plans based on smart energy policies. In this context, the EU's Covid-19 recovery package and Multiannual Financial Framework (MFF) will be important as well as continued commitment from the EU to the European Green Deal - as a growth strategy and to ensure a just transition towards a climate neutral Europe by 2050.

Near-term opportunities for jobs and cutting emissions
In March, the IEA's Executive Director Dr. Fatih Birol was the first leader of an international organisation to make a call to governments to put clean energy at the heart of economic recovery. Numerous IEA events have been held since to examine Covid-19 implications across the energy sector, including Ministerial Roundtables on clean energy in economic recovery, mobilising investment in sustainable and resilient electricity systems, impacts on Africa's energy sector as well as our annual Global Conference on Energy Efficiency. These events will culminate in the IEA's Clean Energy Transitions Summit on 9 July 2020, which will gather a grand coalition of leaders representing the global energy community to explore pathways to a sustainable recovery, on the way to COP26.

As a basis for this discussion, we will release the World Energy Outlook Sustainable Recovery report this June. The report will provide input on how governments most effectively can use economic recovery to boost jobs while advancing clean energy and innovation. Two promising areas could be highlighted herein, namely, energy efficiency and renewables, both providing millions of jobs today and where we see a huge economic and sustainable impact.

For energy efficiency actions such as grants, rebates, tax incentives and auctions could stimulate demand and cost-effectiveness. Governments should however build upon pre-existing structures and support programmes that can mobilise stakeholders quickly. Renewables were the only energy source that experienced a growth during the first months of this year but we expect an overall decline in demand this year compared to 2019. So, to maintain renewable’s progress and keeping jobs, governments should focus on re-confirming if not increasing their renewable ambitions, bringing greater clarity to the uncertainties that the industry is facing.

The role of clean energy technologies for reaching long-term energy objectives
Energy efficiency and renewables like wind and solar PV – the cornerstones of clean energy transitions – are good places to start. However, more will be required to put the world on track to meet long-term energy and climate goals. IEA analysis has repeatedly shown that a broad portfolio of clean energy technologies and innovation will be needed to decarbonise all parts of the economy.

Batteries and hydrogen-producing electrolysers stand out as two important technologies. Both industries have the potential to create many more jobs across their entire supply chains. The technologies will also be important to reduce emissions in sectors such as shipping, aviation, long-haul trucks, the iron and steel sectors or chemical industries. The outlook for these technologies is more promising today than a few years ago which is why these technologies deserve a special place in any economic stimulus package today.

The IEA's tracking report on clean energy technologies (TCEP) shows the world's progress on key technologies and sectors for reaching longterm policy objectives. Still many of the key technologies are not on track. Considering the wind and solar PV took decades to develop, governments' policy and RD&D support to key technologies such as CCUS, hydrogen and batteries will be crucial. The IEA will publish the Energy Technology Perspectives Special report on Clean Energy Technology Innovation on 2 July 2020, which will discuss these and other attributes of technologies that are particularly suitable for fast clean energy transitions, in sectors that are more diffi cult to decarbonise, the full report Energy Technology Perspectives 2020 – will be released in September 2020.

The EU as a great opportunity to take the lead on sustainable recovery
How governments can best deal with the implications of the pandemic is still evolving but the clean energy transitions should be at the centre of economic recovery plans. Moving forward, the IEA sees a crucial role for all governments in Europe and beyond in tackling this crisis and the recovery to come out of it by focussing on these key areas of clean energy technologies. The European Green Deal provides the EU with a very clear and unifying strategy for economic growth and a pathway to carbon-neutrality. The strong backing of the 'European Green Deal' from the leaders of the EU Member States and the European Commission will be crucial if the EU wants to be the fi rst climate-neutral continent as expressed by President von der Leyen in her Agenda for Europe.