At its April peak, more than half of the world’s population lived under full or partial stay-at-home orders to halt the spread of the novel coronavirus. This weeks-long, wide-scale cessation of economic activity has led to unprecedented declines in GDP, jobs, energy consumption and carbon emissions. And, as COVID-19 continues to claim human lives, it’s also slowing the clean energy transition. That’s why government support of clean-energy projects is crucial until private investment can ramp up again. We need that support to come in the form of policies that encourage investments in clean energy projects, as detailed in our brief, Restoring the Economy with Climate Solutions: Recommendations to Congress.
Factory closures, supply chain disruptions and social distancing requirements have increased unemployment and disrupted hundreds of clean energy projects. In April, 447,000 clean energy workers filed unemployment claims, bringing the total to nearly 600,000 clean energy jobs lost since the beginning of the pandemic. Energy efficiency jobs have been hit particularly hard because of social distancing requirements. Additionally, production at solar panel, wind turbine, and electric vehicle (EV) manufacturing facilities has been fully or partially shuttered for weeks. Tesla has delayed introduction of its electric semi-truck, and nuclear power plant construction in Georgia has been slowed as well.
Clean Energy Unemployment Claims
||March Claims (adj.)
|Grid & storage
Source: E2, 2020
The slumping economy also means governments generally will have lower tax revenues, which often translates to less support for state and local projects. Also, the downturn has diminished the financial health of medium and small companies that might provide significant investments for new clean energy projects.
Wind and solar will continue to decline in cost, but their increasing competitiveness will not necessarily protect them from economic pain. Government support is extremely important in these dire economic circumstances. Absent that, the share of renewables could decline in the short term.
On a positive note, the world will still add 167 GW of renewable capacity this year. This marks a 13 percent reduction from last year and still represents a 6 percent increase in global renewable power capacity.
There is also encouraging news regarding industrial clean energy procurement from larger companies. A survey from the U.S. Renewable Energy Buyers Association shows that 70 percent of corporate purchasers are not planning any changes as a result of the pandemic, 24 percent are slowing down, and 6 percent are actually accelerating goals and strategies.
No one knows exactly what shape the economic recovery will take or how future challenges like a potential second coronavirus wave in the fall would impact activity. At this stage, many think a sharp, swift or “V-shaped” recovery is unlikely. Conventional wisdom is that the recovery will resemble a Nike swoosh. The sharp decline is followed by a much slower period of growth. U.S. Federal Reserve bank Chairman Jerome Powell expects that the U.S. economy will see positive growth in the second half of 2020, but it will likely take some time (perhaps more than a year) before we return to the economic level we saw at the beginning of 2020.
In the short term, the most important factor will be government support, until enough private investment capital is available. Federal investment and production tax credits have not only helped mature wind, solar, geothermal, and other innovative technologies, but spawned further advancement in those technologies. A mix of federal tax credits have helped drive the $356 billion invested in U.S. renewable capacity since 2010, and the U.S. solar and wind industries led the way by providing more than 350,000 direct jobs in 2018-19.
Most of the existing tax credits, however, are scheduled to phase out by the end of 2022. In our policy brief, Restoring the Economy with Climate Solutions: Recommendations to Congress, we urge lawmakers to extend the phase-down period for existing tax credits two years, until 2024, so these projects can continue to qualify. Geothermal energy should also qualify for the full credit, instead of the current lower investment tax credit. These projects may also need bridge financing, which will be critical to allow projects to continue if there are further disruptions.
We also believe eligible technologies should be allowed to receive cash payments in lieu of tax credits, so Congress should therefore reinstate the 1603 Program, providing for those payments. Congress should also both extend and raise the existing tax credit for combined heat and power (CHP) and should clarify that waste heat-to-power is a qualifying technology.
Finally, Congress should expand the list of technologies eligible for the existing investment tax credit to include energy storage, offshore wind, and nuclear power. Prior to the pandemic, utility-scale battery storage capacity was projected to more than double by 2023. Similarly, offshore wind was poised to experience significant growth. Nuclear power supplies more than half the country’s zero-carbon electricity, while contributing significantly to jobs and the local tax bases, particularly in rural communities. Nuclear should qualify for an ITC for refueling costs and other capital expenditures. This should coincide with a timely review of license renewals for nuclear plants, extending their operating lifetimes. These technologies should also qualify for in lieu cash payments under the 1603 program, and Congress should ensure that regulated utilities are eligible.
The energy sector has taken an exceptional hit from the COVID-19 pandemic, and full recovery is some time away. Like many other things, clean energy projects need continued government support until investment capital is restored. We’ve seen in the past that tax credits have benefitted key industries, like wind and solar, and helped those technologies mature and develop. By extending renewable tax credits and expanding them to new technologies, we can bring more clean energy online to prevent emissions from surging and avoid the worst effects of climate change.