The twin economic shocks triggered by low oil prices and COVID-19 containment measures will have a disruptive impact on renewable energy in 2020 and 2021. Further down the line, however, it will galvanise sector growth, as investors increasingly seek to diversify away from risky portfolios. Prospects will improve further if governments maintain their commitments to sustainable energy and improve their investment climates.  


Renewable energy, like virtually all other industries, is impacted by the twin shock to the global economy unfolding in 2020.

A high level of uncertainty regarding the length of pandemic containment measures and severity of the deepening economic recession increases the margin of error in economic forecasts, yet implications for growth, liquidity, borrowing costs, government spending and politics are already being felt across the globe.

The pandemic and subsequent near-halt of business activity has plunged global GDP growth into recession territory. Fitch Ratings has halved its 2020 global growth forecast from 2.5% expected in December 2019 to 1.3% in March 2020 – equivalent to a loss of $850bn in global GDP.[1] 

In March Goldman Sachs forecast that Brent oil would average $20 per barrel in Q2 2020, with downside risks, before recovering to $30-40 per barrel in Q3 and Q4, but this is far from certain as no one knows when, and to what degree, COVID-19 containment measures will be lifted.[2]In April OPEC++ agreed to cut oil production, but this will not be enough to raise oil prices as long as demand continues to be curtailed.  

The reduction in energy demand, including electricity demand, during this crisis places the renewables industry in uncharted territory. However, some key implications for the industry are becoming clear, and these can be separated into: the immediate and short-term impact of COVID-19 containment measures, and the mid- to long-term implications of an uncertain economic recovery following the pandemic and anticipated volatility in the energy markets.


Immediate disruption to projects will continue

Until containment measures are loosened, which may happen in Q3 or Q4 of 2020, the renewable energy industry will be negatively impacted by supply chain and labour disruption.

With one-third of the global population still in lockdown, work on existing projects is restricted and the commissioning of new projects postponed. [3]China’s manufacturers, which supply more than 60% of the world’s solar photovoltaic panels, according to the International Energy Agency, are the path to a fast recovery, with industries ramping up production by 75%-85%.[4]However, exports will continue to be disrupted because the rest of the world lags behind in the stages of outbreak and this will also slow implementation work.


Short-term slowdown in renewables inevitable

Abundant and cheap energy supplies and lower demand will slow the global growth of both distributed and utility-scale renewables into 2021.

The price of natural gas, the dominant fuel in power generation, has traced the collapse of oil prices, lowering electricity costs. The gas market, oversupplied before the twin shock, may be put under further pressure if there is a market-share war over Europe between the two major producers, Russia and the US. This would further drive down prices.

Lower electricity costs will have the biggest impact on decentralised renewables generation and energy efficiency measures, as incentives for consumers to invest in alternative energy and make energy savings will diminish.

Roll out of utility-scale renewables will almost certainly slow in the Middle East as petroleum-producing states, facing a sustained period of low oil revenues, reassess their spending priorities for a post-pandemic world. Renewable energy projects may fall out of some government agendas all together in 2021 and health care take more of a priority. Countries dependent on remittances and aid from the Gulf countries will be the slowest to recover from the crisis.


Pockets of potential for decentralised systems

There will still be potential for growth in distributed generation in residential sectors in the Middle East, where the single-buyer model and subsidised tariffs are common. 

With the exception of the UAE and Bahrain, the residential sector is the region’s highest consumer of electricity. A surge in household consumption caused by whole populations in lockdown underscores the importance of energy efficiency measures and decentralised renewable energy – but increased take-up will only happen if the necessary incentives and financing mechanisms are in place.

Low fuel prices should encourage the elimination of subsidies. Yet, these are easier to plan than implement in periods of low economic growth.


Investors more risk averse

Attracting private sector investment takes a central role in the short-term prospects of renewables, but that has its own challenges as well. Risk aversion among investors grows in recessions, limiting the availability of equity.

It remains unclear what the impact on financial institutions will be post-crisis, yet with the global liquidity crunches, the borrowing ability is reduced and the cost of debt is amplified, also negatively impacting utility-scale renewable energy projects and independent power-producers.

However, opportunities could still be present in system flexibility and energy storage; the drop in electricity demand has created challenges for grid operators to manage and regulate the frequencies in order to avert blackouts. This could result in improvements to system balancing, flexible sources and energy storage – which Middle Eastern economies in particular lag behind in.


Green energy rebound likely in 2022

The oil price war is once again highlighting the volatility of the oil market and the unreliability of the industry from the point of view of both investors and governments. In the medium and long term, this will galvanise investments in energy diversification and transition worldwide.

For investors, the losses in returns on oil and gas investments during the 2020 crisis is likely to lead them to seek out more sustainable long-term investments, and renewable energy presents tremendous opportunities in this, in the Middle East and around the world.

For governments in the region, this crisis is a stress-test for their commitments to a sustainable future. Lagging behind on 2020 renewable energy goals, many have committed to more aggressive targets for 2030, including some interim 2023-25 targets.

In the worst-case scenario, the low-oil-price environment will see governments slack on their goals. JP Morgan analysts estimate the current investments in the oil and gas industry will meet demand in 2021 but peak in 2022, so we could see a price recovery in that year.[5]This, coupled with the global commitment to decarbonisation and reduced availability of financing for petroleum investments, will make alternative energy more attractive.  

Governments should double down on efforts to attract private sector and foreign direct investment back to the sector by developing the necessary legal and regulatory frameworks. Regardless, the medium and long-term prospects underscore the fact that the renewable energy industry is here to stay – and grow.


Jessica Obeid is an independent energy consultant and academy associate at Chatham House, where she previously served as a resident fellow in the Energy, Environment and Resources Department. She previously worked as chief energy engineer at the UN Development Programme in Beirut. Jessica holds a master’s degree in Political Sciences and a bachelor’s degree in Electrical Engineering. She is a senior advisor at Castlereagh Associates.


[1] Fitch Ratings, 19 March 2020, Fitch Ratings: Coronavirus Crisis Is Crushing Global GDP Growth,

[2] Goldman Sachs, 17 March 2020, An inevitable fall to cash costs.

[3] Business Insider, March 2020, A third of the global population is on lockdown,

[4] BBC, 4 September 2018, How China’s giant solar farms are transforming world energy,

[5] JP Morgan, 03 March 2020, Global Energy Analyzer: Supercycle on the horizon.