In just a matter of weeks, the COVID-19 pandemic has altered everything from social interactions to global supply chains. Stay-at-home orders are pervasive, while automakers retool to manufacture life-saving ventilators.
While electric utilities and the service they provide will remain essential throughout the pandemic response, the near-term impact on renewable and grid edge technologies is less certain.
The following are some of the renewable and grid edge trends that we are monitoring as the industry responds to these challenging times:
- Decline in carbon emissions: Hitting pause on the global economy will result in a significant decrease in carbon emissions in 2020. However, these declines are likely short-lived due to pent up travel demand. Without structural changes, carbon emissions quickly rebound following an economic shock (see chart)
Challenges to renewable energy project finance: A big question for the renewable energy projects will be the availability of tax equity financing. Large tax equity players have noted minimal impact at these early stages, but it is unclear how this may change if economic conditions worsen. During the Great Recession, the U.S. Treasury offered cash grants in lieu of tax credits through the Section 1603 program. This may be one of the items considered in a “phase four” legislation from Congress.- Delays in renewable energy construction: Electric utilities are universally considered an essential service. They must continue to operate and provide service during extended stay-at-home directives. However, it remains unclear how jurisdictions will treat renewable energy projects under construction. Social-distancing requirements and permitting delays could result in construction delays for renewable projects under development. With a significant portion of the renewable energy supply chain based in Asia, supply chain disruptions may also trigger delays. Any construction delays could, in turn, impact eligibility for renewable energy tax credits.
- Potential loss of public policy momentum: Numerous states have increased renewable energy portfolio standards or adopted 100% clean energy standards in recent years. Legislative efforts to further expand clean energy may stall as state legislators adjourn, suspend, or postpone sessions due to the coronavirus. Upon their return, lawmakers will need to address cratered budgets and prioritize public health and economic responses.
- Scrutiny of rate case proceedings: A number of jurisdictions have frozen previously approved rate increases. This may result in restrictions on grid edge investments, such as “make ready” investments for electric vehicles. The scale and timing of these investments may receive closer scrutiny as public utility commissions consider how to mitigate economic impacts on customers. Utilities may need to consider cost recovery strategies and messaging to commissions as they pursue grid edge investments post-crisis.
- Decline in consumer demand: An economic downturn will dampen consumer spending. In this environment, consumers may be less willing or able to make large investments, thereby impacting residential solar and storage markets. An overall decline in automotive sales is expected, and consumers may also be less willing to pay a premium for electric vehicles.
The current environment will challenge the renewable and grid edge industries in the near-term. However, companies developing solid projects or offering innovative solutions are likely to succeed over time.
The long-term outlook for renewable and grid edge technologies remains bright. The challenges of COVID-19 will eventually pass. And when they do, renewable and grid edge technologies will remain well-positioned for continued growth.
About ScottMadden
ScottMadden is a general management consultancy established to provide high-quality, objective advice and support to help our clients solve their most difficult problems. Their deep experience helps Energy providers gain the critical edge in strategy development, organizational design, and operations improvement across transmission and distribution, grid edge, generation, energy markets, rates and regulation, enterprise sustainability, and corporate services. Learn more about solving other challenges related to COVID-19 at https://www.scottmadden.com/
