The Ballad of Oil, Boon of Renewables (2020)

COVID-19: A Galvanizing ‘Zeitgeist’ for Renewable Energy Portfolios, Or a Massive Hindrance?

Among the innumerable points of polarization that plague our society, the rhetoric surrounding the future of clean energy amidst a crisis of unrivaled proportions has bubbled to the surface. The COVID-2019 virus outbreak, referred to henceforth as ‘COVID’, has been destroying livelihoods, ravaging economies, and questioning the vital undercurrents that ensure the otherwise smooth functionality of our societies. Of these ramifications, which shall stretch into the next half-decade, the role of renewable energy portfolios is of paramount importance. While the International Renewable Energy Agency (IRENA) claim that macro-governmental instruments along the lines of the Paris Agreement and the U.N. 2030 Sustainable Development Goals are the appropriate thresholds to guide nations, a more perplexing junction will be confronted: Will the aftershocks of COVID’s demise make for a boon in the existent positive trajectory for renewable energy projects and portfolios? Or, in the wake of abrasive disaster, will implacable fossil fuels and more traditionally reliant sources return with a vengeance? 

The geopolitical calculus in tackling this question will be imperative. This paper aims to provide a navigable template through which certain energy scenarios can be examined. While certain governmental hindrances are variables that must be taken into account, and the future ahead of us is perhaps more unpredictable than it’s ever been, the COVID pandemic could make for a watershed moment in renewable energy. With thanks to ingrained immunity from macroeconomic forces and unfavorable market volatility plaguing fossil fuels, renewables have the innovative capacity to rise from the tumult of COVID as a cost-efficient, pragmatic, and accessible solution on a global scale. Furthermore, the appeal of investing in renewable technologies may become that much more endearing for venture capitalists and institutional investors, both of whom will be looking to engage in new frontier-projects following COVID’s gradual conclusion.

It was the news heard around the world. As municipal and national governments grappled with the Goliath that was the most deadly pathogen in recorded history since the Spanish influenza 102 years earlier, regulatory bodies failed to preclude what was soon to follow: a market-dive of historic proportions. A geopolitical quarrel between two of the world’s most notoriously omniscient power brokers, Vladimir Putin of Russia & Mohammad Bin Salman of Saudi Arabia, had precipitated events leading up to the price of oil (WTI) per barreldiving 4 $0.00. Compounded by the abrupt halt in net-demand across the globe, the plummeting prices were the simple result of a foolhardy economic conundrum: supply had superseded demand by tenfold. Oil producers were “paying buyers to take the barrels of oil off their hands because storage facilities are full to the brim”, writes Jillian Ambrose of the Guardian. On April 20, 2020, the WTI reading listed oil per barrel sitting at the nadir of rock bottom: $-37.26. In typical fashion, traders who once brazenly yielded oil futures, equity traded funds (ETFs) and bread-and-butter shares in black gold behemoths were in a frenzy. At the time of writing, while the West Texas Intermediate metric has ascended to a still paltry $24, the cataclysmic news surrounding the world’s most precious commodity in a time of exacerbated crisis has many analysts, outlets and academics alike attempting to decipher how, amongst many pillars in our society, energy may be rethought. 

“It might seem an odd time for a renewable-energy uptick, given the economic slowdown and a historic crash in oil prices”, writes Russell Gold, with almost comical gravitas. In a reversal of conventional fiduciary wisdom for the better, Gold proceeds to elucidate that, during the pandemic, renewable energy investments have been perceived as not only innovative and optimistic, but, dare we say it, safe. “Wind and solar farms have contracts to sell their electrical output to utilities with good credit ratings….making their returns stable and relatively low risk”, deduces Gold, as fund managers pulled emergency levers to exit oil markets before the slump rendered their returns invalid. However, 6 or so years ago, renewables were gingerly met with caution and endeavors within the sector were considered prone to a litany of risks. The Economist Intelligence Unit’s “Managing the Risk In Renewable Energy” delivered a mixed outlook: In 2010, investments in global renewable projects outpaced those within fossil fuels, but along with that came several more risks: weather, policy/regulatory management, infrastructure, failures in public sector enthusiasm, and issues with uniform scalability were amongst the most prominent responses derived from polling (Watts, p.6). Yet,   renewable energy potentialities have attracted glowing praise as the sole positive in this pandemic: “Renewable energy has...been the most resilient to COVID-19 lockdown measures,” says the International Energy Agency. “Evidence abounds of renewable energy gains at the expense of fossil fuels”, exclaims Max Hall of  PV Magazine. “The share of renewable energy in the EU and UK has risen to 43%”, writes Dave Keating of Forbes. The praise continues across hundreds of publications -- renewable energy methods encircle the global news cycle with the demeanor of confidence, capability, and ferocity. While there are several complex economic, policy-based, price-oriented, and governmental rationales to aid in answering this question, this paper shall magnify some of the few fundamental tectonic shifts as to why this is happening and what shall encourage or deter the growth of renewable sources.

Renewables’ multi-pronged manifestations render it both too varied and too specified a project to be vulnerable to market swings as a commodity. Commodities that are fungible, or tradeable, conventionally fall into one of four categories: Metals, Livestock and meat, agricultural goods, and energy. Yet, as precedent has it, the ‘energy’ component of this school is rooted in orthodox sources: heating oil, crude oil, and natural gas due to their established, normally stable role in futures contracts: preemptive agreements to buy a certain amount at a future time (Louidis, “Commodities Trading: An Overview”). All these assets and goods are compatible as bonds, stocks, and a miscellany of other instruments entrenched in the financial vernacular. However, renewables aren’t as susceptible to external factors that cripple financial markets as there is no uniform, industry-standard stock exchange for them. Granted, traders can diffuse their energistic passions on purchasing shares in listed-renewable energy companies. They can’t however, trade renewable energy power types: no such mechanism exists to trade “wind”, or “solar” futures besides novel Equity Traded Funds that have only emerged in the past year. Renewable Energy Certificates, or RECs, have emerged as the preferred exchange method for units of electricity. If an investor purchases a REC, they are essentially buying one Mega-Watt of power that flows through a grid -- if that goes unused or is never expended, the investor receives it back in the shape of a credit (Chen, “Renewable Energy Certificate”). As crude oil commodity charts widened their borders to fit in a below-zilch reading, industry insiders forecasted that renewable businesses, immune from any kind of industry-tied rate or geopolitical squabble, would “continue growing in 2020 as oil, gas and coal companies struggle financially or seek bankruptcy protection” (Penn, “Oil Companies Are Collapsing, Wind and Solar Growing”). As factories, airlines, automakers, and technology manufacturers shut shop and Wall Street buckles to its knees, oil and gas companies long vilified by environmentalist activist groups may now be forced to dramatically transform their operational objectives. 

This is an optimal segue into the next focal question to embrace: will the behemoths of fossil fuel pursue their renewable energy goals with the gusto and zeal of panic or progress? Prior to COVID, some of the most formidable giants of oil had, in an effort to appease stakeholders and repudiate themselves of the spectres of environmental disaster still lingering, announced accelerated initiatives within renewable energies. Shell, Total, BP, Duke Energy & NextEra are but a smattering of the organizations that have sharply increased their wind and solar project proclivities -- Shell is at the leader of this effort, committing $2 billion towards this sector (Powers et.al.,“Oil And Gas Giants Recommit to Renewables Amid COVID-19”) . Chevron has specialized high-tech efforts geared towards carbon-capture storage output, which has been widely hailed as a public-perception messiah for the oil industry’s smudged reputation. Patrick Pouyanné, president of France’s champion of oil Total, dismissed any rumors of their “new energies” division being expelled to the dustbin of sell-offs. In fact, the latest figures exhort further speculation: The $2 billion Total initially allocated towards renewables shall not only stay intact, but in the wake of the oil exodus account for up to “13% of the company’s capital spending”  (Ball, “Why the coronavirus crisis could make Big Oil greener”). One particular company underwent a significant rebrand and consequently overhauled their entire financial persona as a consequence: The Danish state energy company, Danish Oil and Natural Gas (DONG), was no minor player in the oil ecosystem -- despite its eponymous purpose, it had managed to form an extensive schism between its oil investments and its wholesome interests in solar and wind projects. Through a spell of arid profits and extensive roadblocks in terms of divestment, the company has since prevailed to reinvent itself as a wind-power force: Ørsted. While powered by a robust, democratically-governed nation that champions the exigency for cleaner, more sustainable sources, Ørsted has gleefully reported bulging profits of $1.79 billion and $1.95 billion in 2017 and 2018 respectively, with minimal-to-none involvement in orthodox fossil fuel extraction activities. Furthermore, plans to offload its liquified natural gas business through a series of alliances were meant to proceed in 2020, and still may (Farmer, “How Ørsted’s Energy Transition Led The Way”). In a mirrored sequence of events, Norway’s Statoil - powered principally by the largest sovereign wealth fund in the world -- decided to presciently switch gears and delink from all partnerships with companies that it believed to be failing a kind of corporate social responsibility stress test. The reformed Equinor  -- another exercise in devaluing oil nomenclature  -- has set its sights to partake in the gold rush of wind farming off the British isles. The examples go on, and the precedent as firmly been set. In a conjectural light, these activities must continue: oil companies, be they national vanguards of diversified-shareholder corporations, have no choice but to expand their auxiliary renewable operations or risk being cast as dinosaurs who placed all their eggs in the fossil basket. As the mere perception of energy perpetually changes in light of COVID, a self-incising phenomenon has occurred: in a manner similar to corporations all propounding altruistic C.S.R. initiatives and others following suit, oil companies -- in promoting renewable activity -- are casting their rivals as being rapacious and destructive; two adjectives that ultimately come back to haunt them. If Shell, hypothetically, was to launch a $5 billion photovoltaic-solar fund, then in contrast its rivals look slothful and negligent, thus inviting criticism towards the ‘oil industry’ as a whole, which then tarnishes any existing oil business of -- that’s right -- Shell’s.  That is, unless a shaking-up of naming magnitude occurs: BP, in retaliation against a barrage of abhorrent press, re-branded itself to “Beyond Petroleum”, spending $200 million on reframing its public image (Landman, “BP’s ‘Beyond Petroleum’ Campaign Losing its Sheen) in 2001, only to spearhead the most disastrous oil spill in modern history along the Gulf of Mexico 10 years later. Steve Hanley of CleanTechnica argues a different rationale for oil companies engaging in the green frontier, and one that can act as a remedy for some of the macroeconomic issues plaguing society today: employment. According to Hanley, a simple theorem can be followed. The International Renewable Energy Agency forecasts that, at best, renewable energy sectors can aggregate to form “tens of millions of jobs worldwide...with return on investment between 300 and 800% over time”. While these estimates seem pollyanna, a rapid burst in employment vacancies within an ethically-sound sector may not only seem appealing as unemployment rates rise historically, but it also casts itself as an opportunity to reshape the awareness and popularity surrounding renewable projects. The emergence of a robust energy sector in times of flailing oil may not crown wind, solar or hydropower as the new standard, but at the very least a formidable competitor to black gold as long-overdue interest renews. 

That being said, these favorable outlooks rely on some minor certainty -- and certainty is a relic of a time gone by. The COVID pandemic could also significantly dent the otherwise proliferating progress of wind and solar. The most pressing priority of governments around the world is to service their people, and these services are manifested in the deliverance of emergency stimulus packages. These unforeseen measures are formulated at the top executive level and are dependent, unfortunately, on partisan interests. The Center for American Progress estimates that Trump’s hardboil stance against the expansion of green-programs has already cost the sector 600,000 jobs. The ongoing plenitude of trouble brought about by COVID will in all likelihood cause further damage to pending or planned renewable projects, as the Trump, Jinping, and or Putin administrations will utilize the pandemic as rationale to prop up the “traditional” pillars of society. While the aforementioned paragraph celebrated the influx of jobs that could pour into a growing sector, that very estimate is contingent on that strength existing. Trump’s predecessor, Barack Obama, had overseen “explosive growth in electricity production from 2008 to 2016”, but since then progress and rejoicing of the sector has slowed under an administration that has a penchant for fossil fuel causes (Hardin et.al., “The Impact of Coronavirus on the Renewable Energy Industry”). The incumbent president’s perspective of renewables has much left to be desired, and a potential failure for Congress to steadily ensure a renewable rise in employment, infrastructure permits, and legislative green-lights on a national level would be a disastrous occurrence. Unlike a quintessential big-government healthcare, socially-oriented measure, encouraging both sides of the political aisle to get behind green energy reaps a reward that all can support: employment vacancies and steady financial returns that aren’t as capricious as those of oil’s. Furthermore, looking beyond the U.S. does not bode well for budding, more nascent renewable agents. India, Brazil, and Greece to name a few are at risk of having their renewable ambitions flounder with thanks to COVID. PowerTechnology.com and S&P Global have concluded that projects in “early-to-mid stage development are expected to be the most impacted by the pandemic”. The Asian subcontinent is anticipated to scrap or postpone 3 G.W. (GigaWatts) worth of solar and wind projects that were meant to be linchpins of the Modi administration. Brazil and Greece have put “energy auctions”; wherein contractors aim to be concessionaires for Public-Private Partnership style opportunities for buy-in, on indefinite hold -- private sector partners are sheltering their cash reserves in times when the virus’ effect is asynchronous around different countries and regions. The same source also describes mounting geopolitical concern: market share of energy giants from China operating in Europe may sharply increase “if European manufacturers do not resume production in the near future” (“COVID-19 Impact on Renewable Energy Projects To Be High Due To Import Dependency”). China additionally produces 70% of solar panels worldwide; as the epicenter of the virus only clambering out of its suffocation now, matters will take a while to truly convalesce. Finally, ground-up infrastructural development in all areas of the world will be impacted hard as absent labor-forces, installation companies, and maintenance staff remain in indefinite hiatus. Climate Home News reported that photovoltaic installation processes, which “require workers to be physically close together to install panels”, will see their progress be curtailed sharply, though with the caveat that wind turbines and hydropower dams can be assembled with “workers typically further apart” (Doyle, “Renewable Energies Under Threat in 2020”). If these threats and considerations can be placated, whether in domestic political arenas  or through economic collaboration required between countries, then boosted investor confidence can smoothly power clean-energy resilience. 

The malleable, amoebic nature of our distorted world is undergoing a transformative epoch. Economists, academics, students and politicians will harken back to the day when the price of crude oil plummeted below $0 -- a sensation that will enshrine itself in the evergreen registers of history. Yet, what proximate chapter shall ensue in these textbooks? Will it be one in which the world order as we know it, having undergone an agonizing, core-rattling period, becomes consanguine in its effort to lead humanity into a green future? Or will this renewable energy catalyst merely be seen as a flickering, ephemeral missed opportunity? Renewable energy sources, coasting off a period of unrivalled growth, will face a multitude of challenges in employment, infrastructure, maintenance, pricing, as well as the largest task of all: fighting to establish itself as a continued, mandated top priority at the end of this crisis. Yet, given oil’s modern credence as a volatile commodity and the hopeful realignment of oil giants’ energy priorities in the wake of the crisis, a new page may turn. Renewable energies’ immunity to commodity swings, growing investor confidence, and burgeoning global optimism in times of despair may cast green solutions as a phoenix rising from the ashes. COVID’s relentless, pervasive war will march on; a seething, invisible force that could, amongst other lessons in solidarity, emotion, and the human experience, act as a didactic force in allowing us to rethink what we do and how we breathe. If we learn nothing from this crisis, and refuse to use it as a clean slate from which to propel more sustainable and clean solutions, then we will have succumbed to a plague far worse than COVID: ignorance.