COVID-19 AND THE ENERGY SECTOR: EFFECTS AND IMPLICATIONS

By Wanter Uja, Law Clerk

COVID-19, which had not previously been identified in humans, recorded its first outbreak in December 2019 when authorities identified it as the cause for acute respiratory syndrome in Wuhan China. COVID-19, which was declared a pandemic by the World Health Organization, is affecting more than the health and safety of the world; it is also putting a severe strain on commerce and industry- including that of the energy sector. For example, due to less demand, the energy sector might experience new coal retirements as fossil fuel generators are running less. The emergence and unprecedented nature of this pandemic has created uncertainties and raised a lot of questions, including how it has affected pollution levels, electricity production, energy efficiency and transition to clean energy. This blogpost gives an overview of some salient issues in the energy sector, brought on by COVID-19.

In the US, utilities are doing their part in supporting customers through this pandemic. Acknowledging that the pandemic has not only affected the health and safety of its customers but also caused significant economic impacts, many power companies like Xcel Energy have decided not to disconnect electricity from its residential customers who are having a hard time paying their bills. In Oregon, Pacific Power has also stated it will temporarily suspend disconnections and late fees for non-payment of bills when due. However, these charges are not going away; these utilities will simply defer their costs for future ratemaking treatment. The question of the financial viability of energy companies after the pandemic, especially renewable energy facilities, is one that cannot be ignored. Research shows that as at March 31^st 2020, solar installers in the US saw up to 30%cancellation or booking postponement. Whether it is because of social distancing, since installation requires face to face contact with customers, or financial uncertainty, it is troubling for renewable energy projects.

According to analysts, COVID-19 has further plagued the energy sector by causing supply chain disruptions. Projects have been stalled indefinitely because major equipment like transformers, batteries and solar modules originate from China. Even though china seems to be past this pandemic and is opening back up, existing tariffs on Chinese solar panels for example will likely contribute to more disruptions. In addition, because there are no viable alternatives, these delays could particularly be difficult for wind developers because it means they could be ineligible for the full value of their production tax credits. One question flowing from the above is, why the supplier base in the US not more diversified? Sad as it is, COVID-19 should be the dark horse that both drives regulatory change and forces the electricity sector to reduce its over dependence on China and create a new supply chain model going forward.

Lastly but by no means the least, the pandemic has caused utilities within the US to halt all retrofit programs and non-essential services, threatening over 2 million jobs and billions in capital created by the energy sector, according the American Council for an Energy-Efficient Economy. Businesses are shut down, oil prices are dropping daily and delayed construction of renewable energy projects due to both social distancing and global supply chain disruptions, raises the question of which will be more cost-competitive after the pandemic, fossil fuel or renewable energy. Regardless of the fact that clean energy jobs currently outnumbers those of fossil fuel, it is estimated that about half a million of these jobs will be lost by the end of the second quarter, as energy efficiency, renewable energy generators and clean fuel  companies have been hit he most by this pandemic. Clean energy appears not to be a priority to this Administration and the current Congress, since it was not included in the $2.2-trillion relief package signed by the President just last month. Shouldn’t the government be doing more to save as many jobs as possible and provide the much-needed support to the industry? The funding of clean energy that supports renewable energy growth, investment and other similar initiatives, as was done in the Obama era under the American Recovery and Reinvestment Act, is a possible direction in which governmental efforts should be channeled.

Although this is in no way a sustainable, effective or welcome means of reducing emissions permanently, COVID-19 has contributed greatly to the reduction of greenhouse gas emissions. With travel restrictions, and mandatory shutdown/stay at home orders in many parts of the globe, pollution levels have plummeted a great deal. New York, the state most hit by the pandemic in the US, has experienced a 50 percent  reduction in carbon monoxide from cars, while an estimated reduction of carbon emissions was seen in China of 25 percentin just four weeks. The curve will eventually flatten, the economy will open back up, things will return to normal and just like that there will be a surge in greenhouse gas emissions. The question is how to achieve sustainable goals for clean energy moving forward, as experts have determined that the pandemic won’t reverse the current high levels of carbon emissions or help the world meet its climate targets. This is made clearer by the EPA’s current pandemic policy, which essentially gives power plant operators an “open license to pollute” if their  environmental violations are tethered to the pandemic.

COVID-19 was unexpected, and most of the world was unprepared for anything of this magnitude. In the unlikely event of a future occurrence such as this, how will the energy sector survive? What are the lessons? What are the necessary next steps? These and many more questions must be answered. One thing is undeniable, governments must work hard to support the continued growth and development of clean energy including backing industry efforts to permanently cut emission levels, if there is to be any hope of first maintaining then lowering current pollution levels, reaching the world climate goals, and minimizing additional severe harm to health and the economy. 

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