Transforming crisis into opportunity: The energy sector’s response to COVID-19

Energy infrastructure could offer a way forward for policymakers struggling to halt further economic decline and to create jobs while combating the COVID-19 pandemic and recession. Private sector capital combined with aggressive public policy, climate goals, and the government funding made available by states and utilities to support clean energy development offer a once-in-a-lifetime opportunity to reinvent the U.S. economy in an environmentally sustainable manner. 

Upon reviewing electric utility capital investment plans, infrastructure projects for maintaining and increasing reliability and resiliency as well as providing a safe work environment remain a primary goal. However, with government support, the energy sector also assists with economic recovery and reinventing the economy. Government intervention in energy markets has a long history; virtually all clean energy policies and actions by states had some support of the federal government along the way. Government support in the form of research, development, and demonstration (RD&D) funding – as well as fiscal and tax policy helping companies traverse the “valley of death” for innovations and product and technology commercialization – has been pivotal in supporting U.S. exceptionalism in energy breakthroughs. 

Government support has had a significant impact on economic development and reinvention: the federal leadership and support for building U.S. railway systems for moving goods and services and people across the continent; construction of the interstate highway system; and development of a world class industrial manufacturing base in the U.S. following World War II. All were made possible because of government leadership and intervention. The impacts on physical infrastructure, the economy, societal well-being, the environment, and jobs have been profound and transformative. 

The role of government in market development for clean energy, including renewable energy, energy efficiency, and distributed energy resources is well documented, particularly as it relates to government support of these technologies to support job growth, tackle the world’s climate challenge, and decarbonize the economy.

The energy sector’s remarkable immediate response 

The Partnership for New York City and the Chicagoland Chamber of Commerce both have released reports emphasizing the important role that government and the private sector play in revitalizing local economies and the urban way of post-pandemic life. The reports document the impact of the pandemic on local economies and identity strategies for recovery and reinvention, calling for greater cooperation and partnership between the public and private sectors. 

As reported by the Partnership for New York City, the NY metro region’s energy sector continued to provide electricity, steam, natural gas, heating oil, vehicle fuels, and related energy services reliably to meet demands during the pandemic (from stay-at-home order initiation through this writing). Electric and natural gas utility pandemic response plans were executed without incident, moving on-premise workers to remote facilities and homes, including call centers staffs. Field crews paused work requiring personal interactions with customers and construction work requiring close personal contact with other contractors and personnel to comply with social distancing guidelines while continuing to address critical infrastructure needs outfitted with necessary personal protective equipment. 

Beginning in April and continuing through mid-May, electricity sales in the metro region fell 16%, vehicle fuel sales were down 33%, aviation fuel was down 75%, and natural gas in the region was down 4%. Meanwhile, oil used for heating generally remained stable. Revenues for electric utilities, power generators, and vehicle fuel distributors fell over the same period, negatively impacting cash flows. Though more than 38,000 jobs were lost due to the pandemic in the region’s clean energy sector, overall so remained steady. The trends witnessed in the metro region during the pause were replicated in other regions of the country as COVID-19 continued its spread across the country.   

The energy sector’s response to the pandemic highlights the readiness of the sector and its workforce to continue providing reliable service across all fuels and end-uses. Quick implementation of existing electric and gas utility pandemic response plans and transitioning from office work to remote work in less than a week’s times was remarkable. The energy sector is now focused on refining pandemic response and emergency preparedness plans to future proof their service areas against similar events and severe weather. 

The energy sector also has access to capital markets to expedite planned capital investments to reinvent the way energy is generated, supplied, and used by prioritizing and targeting available federal and statewide programs and funding. If further federal stimulus funding is made available for capital infrastructure projects, it can expedite the path to a cleaner, more distributed energy system. The opportunity exists to rapidly scale clean energy programs targeted toward decarbonization and sustainable living environments after the pandemic pause is stabilized. 

Opportunities for innovation and reinvention of this magnitude and scale are rare, and necessity is the mother of invention. Public-private partnerships with a dedicated purpose, clear vision with well-articulated goals, and the weight and support of the public sector can reinvent the economy and our way of life for the better, for decades to come. 

A chance for clean energy development to expand 

Similar to the manner in which the pandemic and economic pause caused energy sales and revenues to decline, the near-global shelter-at-home directives by governments and subsequent economic pause are expected to result in a 13% decline in newly installed renewable energy capacity from 2019 to 2020, adding just 167 gigawatts (GW) of capacity. The bulk of delayed utility-scale projects are expected to come online in 2021, but installations of rooftop solar PV for businesses and households might continue to be lower without strong government support. Likewise, spending on energy efficiency in 2020 is expected to be 10-15% lower than in 2019 (Figure 1). 

According to the International Energy Association (IEA), governments have an unprecedented opportunity to accelerate clean energy development by investing in renewables as part of any economic stimulus package designed to reinvigorate their economies. Cost of renewable energy technologies continues to fall worldwide and offers a unique possibility to reinvent economies and put global carbon emissions into structural decline.

IEA reports that public and private spending on low-carbon energy RD&D worldwide increased to $25 billion in 2019, driven by the U.S., Europe, and China. Low-carbon technologies are attracting a rising share of total public energy RD&D, too. Corporate RD&D spending rose 3% to $90 billion in 2019, with an estimated 60% devoted to developing low-carbon technologies. Likewise, $4 billion in venture capital was invested in early-stage disruptive technologies with storage and hydrogen experiencing notable increases. 

With record levels of investment in 2019 for most clean energy technologies except for storage, an economic pause and slowdown in 2020, and aggressive clean energy and climate goals, 2021 and beyond can be years of innovation and transformation in the energy sector.

Globally, nearly 2.9 GW of storage capacity was added to electricity systems in 2019, a 30% reduction from 2018. This is because storage technology remains a maturing technology and is heavily dependent on public support. After years of steady growth, IEA forecasts a moderate increase in renewable energy in 2021 in the aftermath of the pandemic (Figure 2).

A bright spot in renewable and distributed energy is that utilities and developers are appearing to prefer co-locating hybrid clean energy technologies, coupling storage with photovoltaics and wind for greater grid flexibility. Hybrid systems – despite costing more upfront – offer greater flexibility and provide more consistent power over longer periods of time when needed, commanding higher prices for services when rendered. Storage goals in the U.S. across multiple states, including Virginia, Nevada, California, and New York among others, are estimating close to 20 GW of storage systems in place by 2030. 

Observing trends in RD&D funding, IEA reports that funding is not aligned with ambitious international climate and sustainable energy goals. Most experts agree that more support for RD&D is needed in order to meet energy, climate, and sustainability goals. Innovation and product and technology commercialization involves a wide range of participants, including among completing technologies. Figure 3 highlights the RD&D investment in 2019 by technology type.

Federal and state energy efficiency programs initiated in the late 1970s and continuing through today have transformed how energy is used in buildings through technological innovations. The energy efficiency and demand response industry, while mature, still requires government and utility funding to reach customers and markets currently underserved by providers. 

Government-supported RD&D replenishes the innovation pipeline, ensuring a stream of new ideas. Given the serendipitous nature of innovation, not all ideas will make it to the mass market. Still, it’s important to ensure that the pipeline doesn’t dry up. IEA reports that nine countries doubled their clean energy RD&D and demonstration spending between 2009 and 2011, compared with between 2006 and 2008, adding over $6 billion per year to their aggregate spending over the three-year period from 2009. 

Perhaps the best example of how RD&D leads to greater economic activity is approach taken during the 2008-09 crisis, when the 2009 U.S. American Recovery and Reinvestment Act (ARRA) was enacted, allocating $7.5 billion to energy RD&D. To illustrate this impact, ARRA made a notable contribution to the development of lithium-ion battery technology. With new battery designs funded through ARRA, the cost of electric vehicle batteries fell by 70% and the number of electric cars sold in the U.S. rose from 1,500 in 2008 to 114,000 in 2015.

As reported in Energy Storage News, transmission grid operators across the country are evaluating the role that solar and storage hybrid systems can play in wholesale electricity markets. Lawrence Berkeley National Laboratory (LBNL) and the Electric Power Research Institute (EPRI), have identified 4.6 GW of utility-scale hybrid resource capacity already online in the U.S., with an additional 14.7 GW in various stages of development. Further, roughly 69 GW of hybrid resources are in the interconnection queues of various Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), including about 4% of all wind projects proposed in the U.S. being paired with batteries. 

An opportunity to reinvent the grid 

Figure 4 depicts an electric grid configuration in transition. It illustrates a more diversified and distributed electric grid. It’s not intended to convey an entire replacement of the existing grid infrastructure but rather the deployment of different types of assets at distributed locations on the grid.

It also highlights different operational characteristics of the grid with two-way communications and power flows compared to today’s grid. It portrays how assets and a shift in consumer behavior can lead to lower net fossil energy use, lower carbon emissions and associated land and water impacts, and similar or improved reliability and resiliency. Observing the investments in clean energy and new information and operations technology and systems by utilities across the country, the electric grid by its very nature is moving in this direction.

For maintaining or improving grid reliability and resiliency, a transition to a more distributed grid would still require limited and strategically located central station and peaking power plants to maintain voltage and for quick ramping capability to speed power restoration following unplanned outages (e.g., severe weather events). 

The two grid configurations, centralized versus distributed, can and will co-exist with the transition tipping more toward decentralization, leading to cleaner and more affordable energy options for consumers as the value proposition continues to improve and customers exercise choice.

Many state regulatory bodies are looking favorably at utility grid modernization and hardening investments, recognizing the value such investments provide for improving system efficiencies and cybersecurity and to customers, providing them with greater choice, lower long-term costs, and improved environmental performance.

Role of government in public-private partnership 

Government can play a considerable role in developing technologies, bringing them to market, and helping revolutionize economic activity. Such changes also can ignite social and cultural change, as seen with government support for railways, highways, and manufacturing. Government’s role in spurring and nurturing innovations and creating markets has been proven over time, and among the most important of these is funding basic research and applied RD&D. 

The Energy Information Administration of the U.S. Department of Energy, as illustrated in Figure 5, shows the mix of electricity generation resources through 2050. The forecast is a current-case scenario, assuming existing trends in both RD&D and public and private funding.

The opportunity exists today to pivot and accelerate investment in RD&D, clean energy and hybrid systems, distributed energy resources, while maintaining and improving electric system reliability. The possibilities are endless to rely on investments in energy infrastructure to recover and reinvent the economic and social and cultural fabric of the country through decarbonizing the economy and addressing the world’s climate challenge similar to the big policy and investment initiatives of the past.

Conclusion 

Within the crisis facing the United States and its citizens lies an opportunity. As the nation heals and rebuilds, public and private sectors have the chance to do so in a way that continues to push forward the goal of clean energy and decarbonization. 

The energy sector has the capacity and access to capital markets to expedite planned capital investment to reinvent the way energy is generated, supplied, and used by prioritizing and targeting available federal and statewide programs and funding. The opportunity exists to rapidly scale clean energy programs targeted toward carbon mitigation and clean energy development. Investing in energy infrastructure and creating economic activity will enable a more rapid transition from an industrial era electricity grid to a 21st Century grid. 

While opportunities for innovation and reinvention of this magnitude and scale are rare, we are seeing governments around the world committing to clean energy, transportation and building electrification, and decarbonization of supply chains. Private companies as well are committing to clean energy goals and decarbonization strategies of their own working toward carbon neutrality or net carbon reduction along their value chain. Public-private partnerships with a dedicated purpose, clear vision with well-articulated goals, and the weight, support and collaboration with the public sector can reinvent the economy and our way of life for decades to come.
 

Note: The authors would like to acknowledge and thank Elliott Schwab, a summer associate from the Michigan Ross School of Business, Nabila Hussain, rising senior at Brooklyn Technical High School, and Efren Montalvo, rising senior at Energy Tech High School for their research contributions to this work.