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In the battle for market share, analysts see downturn boosting renewable energy

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In the battle for market share, analysts see downturn boosting renewable energy

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Renewable energy plants like this solar farm in Massachusetts could grab more market share as the economic downturn caused by the coronavirus pandemic threatens fossil fuel generators.
Source: AP Photo

As the U.S. economy slumps under the weight of the coronavirus pandemic, falling electricity demand is increasing financial pressure on fossil fuel plants and creating an opportunity for renewable energy resources to grab a bigger share of the market, according to analysts at S&P Global Market Intelligence.

Declining costs for wind and solar farms have made clean energy competitive with traditional resources like coal and natural gas in much of the world. Now, the drop in demand in U.S. wholesale electricity markets is primarily threatening fossil fuel generators, and it is likely that low-cost renewable energy will "retain its position even if demand overall shrinks," said Steve Piper, director of energy research at S&P Global Market Intelligence, during a May 15 webinar.

"The pandemic could put another nail in the coffin for coal demand from the utility sector," said Alex Cook, a senior energy research analyst at S&P Global Market Intelligence. "It could also put gas-fired units at risk and reduce gas demand, particularly in markets that have a high level of gas generation in their fuel mix, like New York and New England."

While coal and natural gas face growing risks, the safe-haven status of renewables has been reinforced during the health and economic crisis, investors say, since wind and solar plants often sell electricity under fixed-price, long-term contracts that help to shield their revenue from immediate economic disruptions.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

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Still booming

"So we have confidence that these [power purchase agreements] will be honored by all our customers," said Michel Letellier, president and CEO of Canada's Innergex Renewable Energy Inc., on a May 13 earnings call. Meanwhile, Letellier said, investor interest in new renewable energy assets in the U.S. remains high and could accelerate due to the closure of inefficient or uneconomic fossil fuel units.

"With the price of oil and gas continuing to drop and even reaching negative territory, renewable energy sources are still booming," said JP Roehm, president and CEO of construction firm Infrastructure and Energy Alternatives Inc., on a May 8 earnings call. "We see no shortage of capital investment from our customers and the folks that invest in our projects on a go-forward basis even in a COVID environment."

Still, the renewables sector carries its own risks.

Investors are likely to be more selective, particularly in dealing with smaller project developers, and the pool of companies willing to buy electricity from wind and solar farms will probably shrink in the economic downturn, said Adam Wilson, a senior energy research analyst at S&P Global Market Intelligence.

Douglas Stuver, CFO of Avangrid Inc., warned investors April 29 of some potential merchant risk for renewable energy assets. In Europe, the economic downturn is expected to be a setback for the development of renewable energy plants without aid from government subsidies.

And the reduction in demand for electricity means that utilities may be able to meet some state clean energy requirements without having to build new renewable energy plants. Even apart from those state mandates, though, major utilities in recent years have pledged to slash their emissions by mid-century, providing additional momentum for the renewables sector.

"[Our] belief is that renewable generation is still going to be a key driver in the industry, and that's primarily due to the fact that so many utilities have made these announcements in the past," said Tod Cooper, COO of transmission and distribution at construction firm MYR Group Inc. "We know what their plans are going forward."