Why the coronavirus pandemic is just a hiccup for solar investment
Andrew Knight, VP of Analytics at Invictus Capital
As the Coronavirus pandemic spreads throughout the world, it is hard to tell how deep, lasting or widespread the economic fallout is going to be. Already global markets have seen some of their worst years in decades. The spread of COVID-19 has already unsettled supply chains, caused the closure of international borders, locked down metropolitan cities around the globe, shook stock markets, and solidified fears of a long-lasting global recession.
This virus, however, isn't the world's first, nor is it likely to be the last and the markets have reacted accordingly every time. Research by Goldman Sachs has found that although stocks drop at the start of such an outbreak, the market tends to rebound by almost 10 percent on average just six months after the announcement of an outbreak. Though it is still too early to tell what the full financial impact of the coronavirus will be, all savvy investors are thinking about what the ideal portfolio will be once this is over, and solar should be near the top of their list.
Without a doubt solar will likely see a serious drop-off under the pandemic. Bloomberg Green reporting that Rystad Energy is expecting 2020 global wind and solar growth to be wiped out, and Wood Mackenzie projecting a 31 percent decrease in behind-the-meter battery storage. Tougher times are surely ahead for the renewable industry, but that doesn't mean investors in for the long haul should necessarily abandon ship.
Despite the gloomy forecast, years and years of growth show promise. Over the past decade, there's been a significant increase in interest and investment in renewable energy. Investors see it as an opportunity to reduce greenhouse gas emissions, improve air quality and human health, provide access to electricity in emerging economies, but also as an economic opportunity. Global Trends in Renewable Energy Investment 2019 indicates that billions of dollars were invested in 2018, far more than was spent in fossil fuel generation. BloombergNEF’s Jenny Chase predicted that 2020’s solar market will grow globally by 14 percent. Meanwhile, Allied Market Research demonstrates that, by 2026, the global market-value of solar energy will more than quadruple to $223.3 billion from 2018.
Coronavirus, coupled with a Saudi-led oil price war, has thus far caused a rapid decline in the price of both oil and gas, leaving investors wondering how these prices will affect investments in renewable energy. The unprecedented decline in the price of oil has resulted in many of these energy companies unable to operate with profitable margins. Oil and gas companies around the world will be forced to close operations should these low oil prices be sustained for a longer period of time. As a response, many energy companies are looking to diversify away from reliance on oil and gas and into renewable energies. While countries seek to be more energy-independent, in addition to the fact that solar's become more cost efficient, we should see an exponential growth in renewables over the coming years, post-coronavirus.
Before the pandemic kicked in, governments and people across the globe already started the transition to renewables in the fight for climate change. In the United States, the state of Virginia just passed a requirement that all local utilities must provide 100 percent renewable energy by 2045. There are several other reasons to be bullish on renewable energy, especially solar energy in the coming months and years.
A solar installation generates electricity for decades, but the investment to build it comes almost all upfront, making low financing rates an important value driver. Rates worldwide have plummeted in an effort to spur global demand, and thus financing for solar projects will be cheaper than ever. Solar entities, therefore, should see demand for solar power plants rise as the cost of implementing these large scale projects declines.
During tough economic times, people will look for risk averse ways to add to their monthly savings and lower their overall expenditures. SunExchange, for example, allows both investors and energy consumers to do just that. In emerging economies where the cost of electricity supplied by the state can be extremely high, solar has the ability to drastically reduce costs.
In years past, solar energy could not compete with non-renewable energy resources in terms of cost of production. But that’s rapidly changed, with the cost of producing solar energy dropping by 76 percent between 2009 and 2017, according to IMF estimates. That means renewables have become as competitive as non-renewables. A 2016 breakthrough set a newer precedent, when an energy contractor bid $0.029 per kWh (kilowatt-hour) on a Dubai energy contract, and from there forward solar has continued to pick up steam.
The average price range of generating solar alternatives is $89.2-$157.5/MWh, according to Lazard’s 2017 analysis of levelized energy prices. Generating conventional energy, (i.e. coal, IGCC, reciprocating diesel, gas peaking, reciprocating natural gas, and excluding nuclear) on the other hand, ranged from $103.2-$174.8/MWh.
As recently as July 2019, Energy Sage placed the cost of fossil fuels production at $0.03-0.05 per MWh (megawatt hour), while solar was estimated to cost about the same. However, if technologies like transition inverters and algorithm-based programs can help boost grid efficiency, and their use becomes more mainstream, the cost to produce solar energy should drop.
Despite a rocky period under the pandemic, the history of these kinds of technologies and the dire for change will tell all. The renewable energy sector continues to offer cost-saving opportunities to customers and will continue to grow as it competes with traditional energy sources, which will ultimately fall by the wayside in the wake of growing demand for renewables.
