Speaker 1: With fossil fuels at record low prices, wind and solar
Speaker 1: companies should just go ahead and declare bankruptcy right now,
Speaker 1: right well, not so fast. On today's parts per billion,
Speaker 1: we look at the new landscape for renewable energy and
Speaker 1: find that it's not actually as bad as you might think. Hello,
Speaker 1: and welcome back yet again to Parts per billion, the
Speaker 1: Environmental podcast from Bloomberg Law. I'm your host, David Schultz.
Speaker 1: So if you're a business, the last thing you want
Speaker 1: to see is the prices of your competitor start to plummet.
Speaker 1: But in the energy industry, it's not quite that simple.
Speaker 1: For example, earlier this year, the prices of oil, natural gas,
Speaker 1: and other fossil fuels dropped to near record lows, and actually,
Speaker 1: for one very brief, very strange moment, actually went negative.
Speaker 1: You think that would be catastrophic for renewable energy companies.
Speaker 1: After all, power plants look at these prices pretty closely
Speaker 1: when they're deciding whether to build a new wind turbine
Speaker 1: or just expand an existing natural gas plan. But in reality,
Speaker 1: the decision making calculus here is way more complicated than that,
Speaker 1: and over the longer term, clean power sources like wind
Speaker 1: and solar are just continuing to get cheaper, more efficient,
Speaker 1: more cost effective, and more widely adopted across the globe.
Speaker 1: That's according to Albert Chung, the head of Global analysis
Speaker 1: at Bloomberg New Energy Finance, a division here at Bloomberg
Speaker 1: that does research into all facists of the energy industry.
Speaker 1: Chunk spoke to us from his home in London, England,
Speaker 1: and he says there's no denying that the pandemic and
Speaker 1: its massive economic fallout have hurt the renewable energy industry,
Speaker 1: just like they have hurt nearly every other industry. But
Speaker 1: he says, so far it's actually holding pretty strong. All
Speaker 1: things considered, Wind and sul have been pretty resilient. Actually,
Speaker 1: I think there's a kind of a spectrum from severe
Speaker 1: pain from COVID like aviation, tourism, hospitality, all the way
Speaker 1: to kind of quite rampant gain like technology companies and
Speaker 1: home delivery businesses. Its are somewhere in between. There've been
Speaker 1: impacts that there have been some job losses, but thankfully
Speaker 1: it's not been a blood bath. So if you look
Speaker 1: at what's happened in the oil sector, for example, you
Speaker 1: know unprecedent the turmoil, severe cuts capex reductions. Production is down,
Speaker 1: renewable production is actually up this year. The wind still blows,
Speaker 1: the stun still shines, even in a pandemic, and we've
Speaker 1: got more renewable capacity installed globally than ever before. So
Speaker 1: when you look at the installed base of wind solar farms,
Speaker 1: they're performing, they're reliable in most parts of the world.
Speaker 1: The power that we're drawing from the grid is actually
Speaker 1: cleaner now than it's ever been before, and the networks
Speaker 1: are able to absorb that without sacrificing reliability so far.
Speaker 1: So I think we should actually pause and be glad
Speaker 1: about that. But it sounds like there has been a
Speaker 1: really a pretty significant drop in demand. I mean, I
Speaker 1: guess across all energy sectors because they're just less economic activity,
Speaker 1: so there's less demand for energy. Can the clean energy
Speaker 1: sector adapt to this? So there has been a bit
Speaker 1: of a hit in terms of the pace of the
Speaker 1: new build of wind solar plants. That there is going
Speaker 1: to be a reduction this year. We've reduced our forecast
Speaker 1: for new build on the wind side by twelve percent,
Speaker 1: on the solar side by nineteen percent for this year.
Speaker 1: But just to be really clear, both of those figures
Speaker 1: are for new additions of wind and solar. So actual
Speaker 1: renewable production is up and the world is adding more.
Speaker 1: We're just adding a bit less than that we expected
Speaker 1: that we would be ICEE. So it's just it's it's
Speaker 1: accel's accelerating, but just accelerating at a much lower pace
Speaker 1: than it has in the past. Yeah, that's right. And
Speaker 1: a lot of that is down to just the friction
Speaker 1: of doing business during the pandemic. You know, in some countries,
Speaker 1: construction was stopped in some countries, there are factories that
Speaker 1: make solar modules that had to shut down for a
Speaker 1: couple of months. Physical distancing measures made it harder to
Speaker 1: get work done, so on and so forth. So some
Speaker 1: of those reductions I mean, and I would say a
Speaker 1: large chunk of it. They're not sort of fundamental changes
Speaker 1: in the market, but they are a kind of product
Speaker 1: of friction and shutdowns that have kind of caused a
Speaker 1: bit of a bit of delay in the pipeline. I see.
Speaker 1: So that's interesting. So there has been a hit. It
Speaker 1: sounds like, I mean a double digit hit in the
Speaker 1: rate of you know, new builds. But it sounds like
Speaker 1: this is more this you don't think this will have
Speaker 1: really significant long term consequences. I guess it depends on
Speaker 1: how you define long term. Yeah, yeah, I guess when
Speaker 1: we talk to our clients, they kind of understand the
Speaker 1: short term, the immediate hit, the construction delays, et cetera.
Speaker 1: That's now pretty well understood. I think looking forward, you know,
Speaker 1: over the let's say that the next kind of six
Speaker 1: to eighteen to twenty four months, let's say that's call
Speaker 1: that whatever you want to call that median term maybe.
Speaker 1: I think some of the more important questions that will
Speaker 1: sort of underpin the sector are around you know, to
Speaker 1: what extent. Aren't governments around the world going to continue
Speaker 1: auctioning for more renewables capacity, so we've seen those growing
Speaker 1: every year for a while. Now is that going to continue?
Speaker 1: Is power demand going to bounce back quickly? We've seen
Speaker 1: double digit reductions in power demand, as you sort of
Speaker 1: alluded to earlier, and our power price is going to
Speaker 1: Look what shape is that recovery going to take? That's
Speaker 1: becoming more and more important because we're seeing more and
Speaker 1: more renewable products being built purely based on power prices,
Speaker 1: so called the merchant projects. They're completely unsubsidized, particularly in
Speaker 1: southern Europe place like Spain and Portugal, and so the
Speaker 1: economics of those plants are strongly linked to the underlying
Speaker 1: performance of the economies as they emerge from lockdown, because
Speaker 1: that drives power demand. So what you're saying there is
Speaker 1: that's it's just that the price of wind and solar
Speaker 1: has gotten so cheap that it can actually compete with
Speaker 1: these other, you know, sources of energy without any assistance
Speaker 1: from the government in there. So it's it's competing on
Speaker 1: its own. Yeah, no question at all. I mean, we
Speaker 1: do a study every six months, we do global review
Speaker 1: of the levelized cost of electricity around the world, so
Speaker 1: that all in costs of new build power generation. Our
Speaker 1: latest report at the end of April found that wind
Speaker 1: and solar are now the cheapest source of power in
Speaker 1: countries that account for eighty five percent of the world's
Speaker 1: power demand. Vast majority of where power is generated, wind
Speaker 1: and solar are now the cheapest options. And that's even true.
Speaker 1: I mean, just give one sort of anecdotal example, we
Speaker 1: find that in the windy parts of the US, I'm
Speaker 1: sure wind power can now out compete existing combined cycle
Speaker 1: gas plants that have already been built running on two
Speaker 1: dollar gas. Gas has maybe a little bit below two
Speaker 1: dollars right now, But that's just an example of a
Speaker 1: pretty important tipping point that renewables are out competing just
Speaker 1: the running cost of gas, even forgetting the need to
Speaker 1: build the plant just out of curiosity. But what are
Speaker 1: the windy parts of the US, Oh, the Midwest, the
Speaker 1: Texas Panhandle, parts of the Southwest. It makes sense, all
Speaker 1: the parts that have to deal with tornadoes and stuff. Yeah, yeah,
Speaker 1: that's probably that's probably a good way to think about it.
Speaker 1: You mentioned that, you know, wind and solar can compete
Speaker 1: with two dollars natural gas natural gases, as you mentioned below,
Speaker 1: two dollars. We talked about this actually on an earlier
Speaker 1: episode of the podcast, which is that oil and gas
Speaker 1: prices are unbelievably low right now. Is that a problem
Speaker 1: for wind and solar? Are they going to be able
Speaker 1: to compete with you know, fossil fuels that are at
Speaker 1: record low prices. So this is a super interesting dynamic
Speaker 1: right now, clearly with you know, oil and gas extremely
Speaker 1: extremely cheap. So what I would say to that is,
Speaker 1: you know, we're still finding that renewables all around the
Speaker 1: world are cost competitive, particularly if you're looking at new
Speaker 1: build if you've got if you've got to meat to
Speaker 1: power demand, and you're going to choose a resource, if
Speaker 1: you just need more killer hours to be generated, in
Speaker 1: most of the world, you're gonna end up choosing wind
Speaker 1: or solo. Now that's not to say you wouldn't build
Speaker 1: gas or coal. Clearly, if you need dispatchable power, or
Speaker 1: if you're in certain places where those resources are particularly cheap,
Speaker 1: then then those are still being built. But by and large,
Speaker 1: you know, we've reached that tipping point where renewables is
Speaker 1: going to take over. So what's happening with gas is
Speaker 1: really interesting because there's this instinct that says, oh, gas
Speaker 1: is cheap, so will That's what I thought. That's initially,
Speaker 1: I mean, that's to be honest, the was the genesis
Speaker 1: of this podcast episode is that I saw that I
Speaker 1: saw that the price got so low, and I was like, oh,
Speaker 1: renewables just simply can't compete. But maybe I should talk
Speaker 1: to an expert, you know. Yeah, So it's super interesting.
Speaker 1: So what's really happened is you've got the sort of
Speaker 1: dual impact of power demand suddenly dropping and gas prices
Speaker 1: being really cheap, but renewables are the cheapest thing in
Speaker 1: the stack. So renewables will always generate, so they'll always
Speaker 1: out compete in a given hour on a given day,
Speaker 1: they'll always outcompete anything else that there is. So instead,
Speaker 1: what's happening is cheap gas and renewables together are pushing
Speaker 1: coal out of the market even more quickly than what's
Speaker 1: already happening. So here in Great Britain where I live,
Speaker 1: we've just gone two months without burning any coal at all.
Speaker 1: I think you probably saw that, and that's never happened
Speaker 1: since the nineteenth century. The similar things happening in the US,
Speaker 1: and so I think what we'll see, particularly in Europe
Speaker 1: and also in the US is low gas prices, low
Speaker 1: power demand, and the continuing resilience of renewables, and all
Speaker 1: of that is actually going to accelerate the transition away
Speaker 1: from coal, rather than slowing the growth of clean energy.
Speaker 1: So things are looking pretty good for the renewable energy
Speaker 1: industry in the long term. But what about in the
Speaker 1: short term? Also, will renewable energy be strong enough to
Speaker 1: do what many say it has to do save the
Speaker 1: world from climate change. We'll get to that in just
Speaker 1: a second. Stay with us. We are back and we're
Speaker 1: talking with Albert Chung, the head of Global analysis at
Speaker 1: Bloomberg New Energy Finance. So despite a relatively rosy long
Speaker 1: term outlook, the pandemic is of course causing some pretty
Speaker 1: acute short term shocks for renewable energy. For example, most
Speaker 1: of the parts that make up solar panels and wind
Speaker 1: turbines are produced in China, where the novel coronavirus originated.
Speaker 1: And additionally, BNF's research has found that the prices for
Speaker 1: some of these parts are so low right now that
Speaker 1: their manufacturers can't even make a profit. However, Albert says,
Speaker 1: for the renewable energy industry, this kind of supply chain
Speaker 1: drama is nothing new. It was really interesting watching the
Speaker 1: sort of solar industry in the first half of this
Speaker 1: year because it went from a supply shock to a
Speaker 1: demand shock very quickly. So the first few months of
Speaker 1: the year you had only China shutting down that's where
Speaker 1: all the factories are, and that affected global supply of
Speaker 1: solar equipment. Now it's the opposite. The factories are up
Speaker 1: and running. China's gradually reopening. Although as we record this,
Speaker 1: you know there are some challenges that we see in
Speaker 1: in Beijing, but the factories are running, but it's global
Speaker 1: project construction that's now slowed. So the situations was reversed,
Speaker 1: and as you rightly say, some manufacturers are going to
Speaker 1: struggle to make a profit because as an oversupply situation,
Speaker 1: we've seen some of these manufacturers suspend production. In general,
Speaker 1: as a general rule, the larger players are the ones
Speaker 1: that are going to fare better. They tend to have
Speaker 1: a lower cost base, so you're going to see on
Speaker 1: the margin, probably some of the smaller and higher cost
Speaker 1: producers suspend production. But what I would say is the
Speaker 1: solar supply chain has seen demand shots before. A couple
Speaker 1: of years ago, China quite abruptly removed a major subsidy scheme,
Speaker 1: led to a lot of disruption, similar kinds of price
Speaker 1: reductions that we're seeing today, But the market returned to
Speaker 1: growth pretty quickly after that. And I think that's what
Speaker 1: we need to understand now in this situation for the
Speaker 1: coming months. How quickly will the market snap back to
Speaker 1: growth again either next year or even second half of
Speaker 1: this year, or will it take longer. And I think
Speaker 1: that's what will determine what happens with these supply chain companies.
Speaker 1: Which ones are able to weather the storm. Well, okay,
Speaker 1: so the last thing I wanted to talk about. Let's
Speaker 1: sort of take another step back, you know, the renewable
Speaker 1: energy sector. I guess the clean power sector is interesting
Speaker 1: in and of itself, but I think it's interesting to
Speaker 1: me into a lot of other people because this is
Speaker 1: this affects climate change in a big way. You know,
Speaker 1: transitioning to renewable power is one of the biggest ways
Speaker 1: that you know, climate change can be addressed. Do you see,
Speaker 1: you know, these shocks that have happened in the last
Speaker 1: few months as derailing the the transition to clean power
Speaker 1: and affecting you know, global carbon emissions in a really
Speaker 1: significant way. Or do you think that this is you know,
Speaker 1: the the transition to renewable power is just going to
Speaker 1: continue on and there's almost nothing can stop it. I
Speaker 1: hold a pretty optimistic view, and I think it's not
Speaker 1: that nothing can stop it, but I'm sort of cautiously optimistic.
Speaker 1: So I think what you said is right, is that
Speaker 1: building out a clean power system globally is going to
Speaker 1: be the backburn upon which you know, the rest of
Speaker 1: the energy system, the rest of the economy will be
Speaker 1: decarbonized because you have a clean power system, you can
Speaker 1: electrify more of the economy cars, buses, buildings, and you
Speaker 1: can start to produce clean hydrogen off the back of it, etc.
Speaker 1: So I think it really is foundational to achieving the
Speaker 1: climate goals that we want to achieve. I'm not seeing
Speaker 1: much sign of governments suddenly reducing their commitments to clean
Speaker 1: power because of the pandemic, and I think a big
Speaker 1: reason for that is, as we've talked about before, it's cheap,
Speaker 1: but clean power is cheap, so it's not a sacrifice
Speaker 1: anymore to choose that as an option. So I think
Speaker 1: the real question we need to get at is are
Speaker 1: we going to move fast enough to meet those climate goals.
Speaker 1: So I just want to highlight a report we put
Speaker 1: out recently with the UN and the Frankfurt School. It's
Speaker 1: called Global Trends in Renewable Energy Investment. It's a report
Speaker 1: we've been doing for a decade or so, and this
Speaker 1: year we wanted to take a look at the decade ahead,
Speaker 1: which will be a critical decade for climate action for
Speaker 1: all sorts of reasons. And we found that countries and
Speaker 1: companies have already committed to adding more than eight hundred
Speaker 1: watts of renewables by twenty thirty. That's about a trillion
Speaker 1: dollars of investment over ten years. And that sounds like
Speaker 1: a lot, but it's actually a fraction of what we
Speaker 1: need to do just to stay on track for the
Speaker 1: for the Paris Climate goals for this decade, just to
Speaker 1: stay on track for ten years. And in fact, there
Speaker 1: are estimates out there, you know, various bodies out there
Speaker 1: saying that that that one trillion is what we need
Speaker 1: to be spending every year to get to the Paris goals.
Speaker 1: So that, I think is the real question. It's not
Speaker 1: kind of are we going to pull back? But it's
Speaker 1: can we really take the opportunity now and push forward
Speaker 1: in this decade which we all agree is critical. I see.
Speaker 1: So I was wondering your whole, our whole conversation. You've
Speaker 1: been very, very optimistic, and I was waiting for the
Speaker 1: pessimism to come in, and there it is. So it
Speaker 1: sounds like the issue is not so much will the
Speaker 1: world adapt to clean energy, because it sounds like you know,
Speaker 1: and I think, you know, you can't predict the future,
Speaker 1: of course, but it sounds like that all signs are
Speaker 1: pointing to clean energy and renewable energy becoming pretty dominant.
Speaker 1: But it's a matter of speed, it's a matter of when.
Speaker 1: And it sounds like, you know, right now things are
Speaker 1: moving too slow and the obviously the pandemic has slowed
Speaker 1: it down a little bit more, maybe not significantly more,
Speaker 1: but it's going to happen slower now. Yeah, I think
Speaker 1: the good news is and sorry, you know, maybe you're
Speaker 1: looking for me to be more pessimistic. Actually I no, no, hey, look,
Speaker 1: I mean, you know, optimism is fine. I suppose. Yeah,
Speaker 1: I think that the reductions that we're seeing right now
Speaker 1: are operational reductions, they're sort of procedural reductions, and coming
Speaker 1: out of the pandemic. As we look out we take
Speaker 1: a slight longer term view over kind of five ten years,
Speaker 1: there's clearly an opportunity as governments look to really stimulate
Speaker 1: their economies to use clean power or clean energy investment
Speaker 1: as a vehicle for creating jobs, for stimulating investment and
Speaker 1: contributing to climate action as well. Certainly what we're seeing
Speaker 1: in Europe, the EU is putting forward quite an ambitious
Speaker 1: proposal where a quarter of all of its stimulus money
Speaker 1: will go towards green areas, including renewables, building efficiency, hydrogen, etc.
Speaker 1: I mean, you can say Europe's always the most aggressive,
Speaker 1: but I do think other regions will follow will follow
Speaker 1: suit COVID nineteen. The pandemic, it has raised our awareness
Speaker 1: about managing systemic risk. Global pandemic is something experts have
Speaker 1: warned about for some time. And also, you know, it's
Speaker 1: about public health, It's about the health impact of air pollution.
Speaker 1: All of these issues link kind of directly or indirectly
Speaker 1: to climate change and the energy transition. So I think
Speaker 1: my own personal view is I think the world has
Speaker 1: an opportunity to learn from this pandemic and invest in
Speaker 1: a future energy system that's resilient to climate risk, that
Speaker 1: creates jobs, economic growth, and also serves the greater good
Speaker 1: in terms of you know, those issues around public health
Speaker 1: and well being as well. That was Albert Chunk, head
Speaker 1: of Global analysis at Bloomberg New Energy Finance, speaking from
Speaker 1: his home in London. If you want more environmental news,
Speaker 1: check out our website news dot Bloomberg environment dot com.
Speaker 1: That website, once again is news dot Bloomberg environment dot com.
Speaker 1: Today's episode of Pars Rebellion was produced by myself along
Speaker 1: with Josh Block and Marissa Horne. Pars Rebillion was created
Speaker 1: by Jessica Coombs and Rachel Daegel. The music for today's
Speaker 1: episode is a Message by Jazar and Upstate by Henning Schmidts.
Speaker 1: They were used under a Creative Commons license. Thanks everyone
Speaker 1: for listening. Hey there, I'm Kyle triggsda Politics editor for
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