The coronavirus will accelerate transformation of the global energy

In 2020, the global energy consumption will decrease by about 6 per cent, and more than 3 million energy industry workers have already lost or will lose their jobs. At the same time new investments are needed to ensure that there are no energy shortages in the future.
The coronavirus will accelerate transformation of the global energy

A drop in energy consumption as large as in 2020 was not recorded in the world since 1945, when needs associated with the mobility of troops rapidly decreased after the end of the Second World War. But a moment later the global primary energy consumption increased almost continuously, which is a good illustration of the decades of post-war economic growth.

After the first oil shock in 1973, the growth of energy consumption in the world slowed down only for a little more than a year. As a result of the second Middle East oil shock after the 1979 revolution in Iran, the global economy fell into a crisis and in 1981, the global energy consumption decreased for the first time since the mid-1950s, but only by less than 1 per cent. The global primary energy consumption also decreased by less than 1 per cent in 2009, due to the slowdown in economic development after the outbreak of the global financial crisis.

Concerns about employment, benefits for the air quality

This year’s decline in the consumption of primary energy will be much deeper. The International Energy Agency estimates in its Sustainable Recovery, World Energy Outlook Special Report that due to the outbreak of the pandemic and the restrictions on the production and transport, which were introduced in order to stop the spread of the coronavirus, global energy consumption will decrease by as much as 6 per cent in the whole year. This decline will affect coal and oil energy production the most (in both cases the consumption is expected to decrease by 8 per cent). The drop will be less severe in the case of natural gas (decrease of 4 per cent) and nuclear power (decrease of 2.5 per cent in the whole year). Electricity consumption will decrease by 5 per cent. The gaps in this balance will be filled by this year’s 5 per cent increase in the consumption of energy from renewable sources — mainly wind and solar energy.

Such a sudden drop in energy production could not leave employment in the sector unaffected. In 2019, some 40 million people were directly employed in the global energy industry, including 20 million in the extraction, transport and distribution of fossil fuels, 17 million in the generation of energy and its transmission, and the remaining 3 million in the production, transport and distribution of biofuels. The IEA estimates that as a consequence of the coronavirus 15 per cent of these jobs are at risk, and 3 million people will likely lose their jobs. In the global coal mining sector alone the jobs of 0.7 million miners are at risk.

On a positive note — the result of decreased energy consumption is the sharp decrease in air pollution, especially in cities. Several months of subdued road traffic will reduce the global carbon dioxide emissions by 8 per cent this year compared with 2019. A similar reduction will also occur in the case of the even more harmful nitrogen dioxide. The IEA report provides the example of Milan, where two weeks after the introduction of the lockdown the emissions of nitrogen compounds decreased by 17 per cent. In India, this decline reached as much as 66 per cent, according to local observations.

Fossil fuels will be affected the most

Crises effectively eliminate the weakest links, and in the case of energy production these are the traditional sources — fossil fuels. The costs of producing energy from fossil fuels are constantly rising, while the energy from renewable sources — primarily solar and wind energy — is steadily getting cheaper. Over the last decade, that is, since the previous global economic crisis, we have seen a technical revolution which also has had far-reaching economic consequences.

According to the calculations of the IEA, the cost of acquiring energy from offshore wind farms has decreased by 30 per cent over the last 10 years, the cost of energy from onshore wind turbines has decreased by about 40 per cent, while the cost of solar energy has decreased by as much as 80 per cent. In a report Renewable Power Generation Costs in 2019 published in June, the International Renewable Energy Agency (IRENA) provided slightly different figures, but the overall picture is the same. Between 2010 and 2019 the cost of acquiring 1 kWh of electricity from onshore wind turbines decreased from 8.6 to 5.3 cents (according to the 2019 value of the USD). In the case of offshore wind farms, this cost fell from 16.1 to 11.5 cents during that same time, and in the case of photovoltaic cells the cost decreased from 37.8 to just 6.8 cents, or by as much as 82 per cent.

If we also take into account the increasing social awareness of the need to protect the environment, and in particular to reduce air pollution, as well as the need for the maximum preservation of the earth’s resources for the future generations — then it becomes clear that the production of energy from fossil fuels has no future. The drop in emissions of toxic compounds remaining after the combustion of fuels, which was clearly experienced during the pandemic, further increases this awareness. This primarily applies to coal, but the prospects for gas and oil are not much better.

Investments are necessary

The pandemic has caused a sharp drop in demand for energy, but societies and economies are already coming out of the lockdowns which lasted several months, and in the future energy needs will increase again. In order to meet them, we already need to pursue new investments (which have declined by about a half in the meantime), but they should be primarily focused on the renewable energy. Such a reorientation is already taking place. A decade ago, the recovery from the global economic crisis was accompanied by investments mainly in the traditional energy sector. In 2019, up to 80 per cent of all investments in the global energy sector concerned renewable energy sources. After the pandemic, this share will probably increase even further.

The IEA report suggests that the expected investments should strive to reconcile the interests of energy generation and environmental protection, but in light of the risk to employment they should also lead to the creation of new jobs. In this case as well, the use of renewable energy sources may turn out to be a more favorable option than maintaining jobs in the traditional energy industry based on fossil fuels.

Hydro and nuclear power create the fewest jobs in relation to the volume of energy production (this concerns the period of operation of such power plants). The wind power also doesn’t create many new jobs – only 1 new job per USD1m in investment at the production stage and 0.5 new FTE at the stage of installation of wind turbines. The situation is different in the rapidly developing sector of photovoltaics, which creates the most jobs among the renewable energy sources. The amount of USD1m spent on the photovoltaic cells contributes to the creation of 6 jobs in their production and equipment and 3 further jobs in construction and assembly. Then there are also the new jobs associated with the servicing and maintenance of photovoltaic devices.

New jobs could also be created by investments enhancing the efficiency of existing energy equipment (for example, the transmission and distribution networks), and more broadly — the efficiency of all energy-consuming equipment in industry, construction, transport, and agriculture. The experts from the IEA recognize the special role of central and local governments in incentives for businesses and societies to pursue such solutions. This should be done through the provision of co-financing for the implementation of projects, as well as through the regulatory policy — economic incentives on the one hand, and technical requirements and administrative orders on the other.

The coronavirus pandemic caused a sharp drop in the global energy demand. However, this will not bring relief to many existing energy producers, because the energy industry will change, and renewable energy sources will become its new foundation. Those who are aware of this strategic shift — including the largest Polish fuel and energy companies — are already investing in the development of areas, which are seemingly competing with their core business. This is a very prudent strategy, however, because in ten or twenty years the energy industry may no longer need fossil fuels at all.


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