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Renewable energies could power post-COVID-19 economic recovery

May 5, 2020 PV infoLink


Big Oil goes greener
Oil and gas companies have taken a severe knock as oil prices collapsed amid price war and COVID-19. This has forced oil and gas sectors to reassess energy return on investment. In the face of crisis, oil industry players may shift toward low-carbon energy sources in pursuit of lower investment risk and stable returns in the long term. 

The U.K.-based oil giant BP, for example, posted on April 28 a significant fall of 67% in the first-quarter earnings results, compared with the net income in the corresponding period in 2019. The firm’s debt rose to US$51.4 billion in the first quarter and its debt-to-capital ratio jumped to 36%.

The COVID-19 pandemic, however, could be a driver behind the energy transition. According to CNBC, BP’s CEO Bernard Looney said that he was “even more” committed to the firm’s goal of becoming a net-zero company by 2050 in this time of coronavirus crisis. 

Looney further stated that Lightsource BP, BP’s joint venture that aims at advancing the solar energy business worldwide, will continue to attract investment, because of its risk profile and resilience. 

BP’s capital expenditure for low-carbon investments will remain unchanged at US$500 million for 2020. Earlier this year, the oil firm has set an ambitious target to achieve carbon neutral by 2050.

Minor impacts

The oil price crash has relatively small impacts on renewable energy. Reasons behind are that oil is the main source of energy for transportation. The renewables sector, on the other hand, mainly provides power supplies, and is thereby subject to wholesale electricity variability. 

While oil accounts for less than 1% of power generation in the U.S., Canada and Europe, and around 5% globally, renewable sources are mostly used for energy generation.

Despite uncertainty over whether low oil prices will slow the energy transition, PV InfoLink projects that the oil crash will not cause much impact on renewables. Since transition to greener and low carbon energy will go a long way, oil price volatility will not likely hamper the long-term planning of governments around the globe.

A silver lining

Shocks waves sent by COVID-19 to the global stock market and oil prices have prompted a fresh surge in demand for hedging strategies from investors. Amid the crisis, renewables’ resilient performance may attract interest from investors.

In the first three months of 2020, inflows into global sustainable exchange trade funds (ETFs) alone totaled US$14.8 billion, more than three times the figure in the first quarter of 2019.

While the stock market ran into stiff headwinds, ETFs following environmental, social and governance (ESG) guidelines appeared unscratched. As of April, S&P 500 ended the first quarter down by 23.5%, while iShares ESG MSCI USA Leaders ETF SUSL lost 18.9%. In the same quarter, 59% of U.S. ESG ETFs beat the S&P 500 Index, while 60% of European ESG ETFs outperformed the MSCI Europe Index.  

Since the coronavirus outbreak started, only 8% of the U.S. ESG ETFs saw outflows, against almost a quarter of all ETFs, according to MarketWatch. This indicates that the renewable energy sector has been performing better than the general market during the pandemic.

BlackRock, the world’s largest asset management corporation, projects that assets invested in sustainable index funds will rise to as high as US$1.2 trillion over the next decade. 

At the beginning of the year, BlackRock has unveiled its new strategy to make sustainability as the firm’s standard for investing in its annual letter to clients. In a separate letter to CEOs, the firm’s chief executive Larry Fink said: “Climate change has become a defining factor in companies’ long-term prospects.” 

Green Energy Won't Slip on Cheap Oil - WSJ
Lower oil prices but more renewables: What’s going on? - McKinsey
BP’s net profit slides 67% in the first quarter following a historic fall in oil prices - CNBC
BP boss Looney hails 'resilient' renewable energy as oil price turns negative - RECHARGE
ESG ETFs Appear Unscathed by the Coronavirus Carnage - Yahoo finance
Opinion: Coronavirus will realign investors’ priorities toward a new normal of sustainability - MarketWatch
iShares combines factor investing expertise with sustainability in new ESG factor ETF suite - etfexpress


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