As in nearly every other sector of the economy, cleantech and climate tech companies have taken a huge hit as the pandemic slowed economic activity to a crawl. Many have slashed budgets, laid off workers and scrapped pre-pandemic plans. The short-term outlook for cleantech is fairly grim, but sprinkled with signs of hope that some sectors of the industry will be able to ride out the downturn, and even benefit from it. Some two months into the pandemic, here are some major near-term impacts:
Renewable energy: the construction slowdown is stalling projects (and everything else)
Wind, solar and battery arrays start out as construction projects, and like other construction activities, have dropped off as a result of COVID-19. Residential solar installers have been hit hardest, as profound economic uncertainty and concerns about home visits from installers are leading homeowners to put off or cancel planned rooftop installations. Despite some adaptations to the sales and installation processes (see Sunrun’s “contact-free installation”), companies in the residential sector have laid off staff and tempered or withdrawn rosy projections for installations and revenues in 2020. On the bright side, it has helped residential solar companies make the shift towards online sales, which will lower customer acquisition costs in the long-term.
Across the broader solar industry, the impacts are similarly intense. The Solar Energy Industries Association (SEIA) estimated that the pandemic could cause job losses for half of the industry’s 250,000-member workforce. Pandemic-triggered supply chain disruptions have put a major drag on utility scale projects, with Wood Mackenzie predicting that 5 gigawatts (GW) of projects could be delayed; the U.S. Energy Information Association (EIA) projects that utility scale solar growth will be 10% lower in 2020 than previously thought, due to the pandemic.
With the severe curtailment of renewables projects in March and April behind us, renewables projects are showing some signs of bouncing back, albeit very slowly. In California and a few other states, for example, solar and energy storage installers have been deemed “essential workers,” allowing them to go to work while others are required to stay home. It appears installers and project owners have weathered the worst impacts of the pandemic, but that ripple effects may continue to hinder the sector’s activity through the end of the year.
Steady Generation and Returns Enticing Investors
As plummeting demand for gasoline and other impacts of the pandemic decimate fossil fuel industries and make their investors cringe, the reliable and predictable returns offered by renewable energy assets look even more attractive to investors. Renewable energy investments offer safe harbor in a sea of volatility. In early April, Ivan Penn of the New York Times detailed this contrast, painting a picture of a short-term slowdown for renewables en route to steady long-term growth with solid results for investors. “In difficult economic times like these,” Penn explained, paraphrasing a source, “private equity investors are eager to seize on businesses that can quickly scale up and start earning money.”
Yieldcos, holding companies that, in the cleantech space, capitalize on the steady production, predictable returns and tax advantages offered by renewable energy projects, have seen strong performance during the last two months. Jason Deign reported in Greentech Media that “In some cases, U.S. yieldco stock prices in February 2020 were the highest seen since the market’s heyday in the summer of 2015.”
It also helps that electricity from renewable sources has become more attractive to power utilities than coal-based electricity during the pandemic, due to lower operating costs. Recent projections from the EIA show that electricity generation from renewables will be larger than generation from coal for the first time ever.
The pandemic has brought the ever-growing cost advantage of renewables into sharp focus, and investors are taking notice. It is fair to expect that investors will remember this lesson and support continued growth in the renewables sector.
A premium on building energy savings and grid flexibility
On a more practical level, the overall decline in energy demand and near-elimination of working in offices has radically altered how building owners, especially in the commercial sector, manage their assets. A crucial consideration under this new paradigm is energy use.
The energy team at Axios, using data from energy analytics firm Innowatts, reported on some interesting changes in energy use during the first weeks of COVID-related lockdowns in the US. Underutilized properties like car dealerships and gyms can gobble up lots of operating budget if their energy is being used inefficiently, and as a result, technology companies that can offer data, insights and even remote operation of energy-intensive building systems are seeing a surge in interest. As one industry observer told the real estate outlet Globe St., energy efficiency investments are a “business no-brainer” right now.
Some of those same technology companies are also poised to play a crucial role in adjusting electricity grids for what will be a truly unprecedented high-usage season this summer. With millions of people working from home and using air conditioners during the hottest days of the year, power demand is almost certain to shift away from commercial centers and toward residential and suburban areas. The size and impact of these shifts remain to be seen, but as analysts at Wood Mackenzie predict, flexibility will be supremely important during 2020’s pandemic summer. And with spiking demand in residential areas, demand response (DR) will be a powerful way to deliver that much-needed flexibility. Antenna Group client Logical Buildings modeled significant and reliable demand response-based flexibility with the rollout of a DR program in Westchester County, NY that delivers DR from residential and commercial power users in a community that will undoubtedly see a huge upswing in working-from-home as compared to last summer.
For technology companies tracking and managing buildings’ energy use at the grid edge, the pandemic has underscored the value of their services and opened up new possibilities for how they can be used. Over the next few months, this heightened interest from utilities and grid operators could very well translate into scores of new customers and more involvement in load shifting and keeping the grid balanced.
The short-term outlook: pain and promise
The COVID-19 pandemic and related lockdowns have slammed the brakes on many sectors of the cleantech industry. Investment and construction delays, revenue cuts and job losses will continue to cause pain and force many cleantech companies to make difficult choices through the rest of the year. At the same time, the pandemic-ravaged economy has cast a spotlight on, and even enhanced, the economic, societal and environmental benefits of clean technologies. As those trends continue, expect new doors to open to cleantech companies and new business to come from unexpected places during the second half of 2020. After that, there is good reason to believe that the long-term prospects may be brighter than ever.