Lux Research: COVID-19 Recovery a “White Swan” for Energy Transition

The coronavirus pandemic’s impact and plans for recovery will continue to be at the center of every government decision in the short term, including the energy transition. 

Despite the dramatic consequences COVID-19 is having on the global economy, Lux Research predicts that the energy transition will be accelerated by several years.

According to the research firm, trillions of dollars are expected to flow through economic relief packages into the deployment of low- and zero-carbon infrastructure, as well as research and development into the technologies that enable it.

“The aftermath of COVID-19 will shake the economic fabric of the energy sector,” said Yuan-Sheng Yu, senior analyst at Lux, in a recently released report.

“We witnessed many historical firsts, such as oil futures trading in the negatives, US renewable energy in the electricity mix surpassing coal, and the largest year-over-year drop in global CO2 emissions.”

According to the analyst, while the sudden effects may be a flash in the pan as the world returns to normalcy, 2020 is providing a preview of the challenges the industry will face in the next decade. In fact, for Lux, COVID-19 has exposed the industry’s vulnerabilities to dramatic changes in demand.

“While the situation will return to business as usual within the year, the pandemic provided a preview of the future of the global energy landscape — notably reduced oil and gas demand, and greater supply of solar and wind energy on the grid —  a new norm the industry was clearly not prepared for.”

Calling it a “white swan” event, the firm notes that the coronavirus will force companies to learn how to be more resilient, while countries planning their post-COVID recoveries will capitalize on the opportunity and accelerate the energy transition.

“The pandemic highlighted the risks of disruptions to our current energy infrastructure and supply chain,” said Lux in the report. “In response, we will see aggressive diversification of business portfolios to avoid the risk of underutilized and, eventually, stranded assets in order to capitalize on opportunities provided by increasing renewable energies.”

Lux predicts that in the medium term, by 2025, the consequences of COVID-19 will include accelerated investment in energy storage and more resilient power-generation projects.

Grejtak said long-duration energy storage investments and project developments in the first half of 2020, like those made by Highview Power, Form Energy and AES Distributed Energy, are just the beginning of the added urgency of companies preparing for the energy transition.

“This has been a preview of what is expected 10 years from now as wind and solar become larger fractions of generation capacity and utilities invest heavily in energy storage to manage overgeneration,” Grejtak added in the Lux report.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.