PERSPECTIVE3-5 min to read

Covid-19 poses temporary setback to the energy transition

The Covid-19 crisis and oil price plunge may slow consumer appetite for the energy transition but this effect will be short-lived.



Mark Lacey
Head of Thematic Equities

Like almost all sectors globally, the spread of Covid-19 and ensuing lockdowns have taken their toll on activity in the energy transition sector.

2020 was expected to be a record year for wind and solar power installations. That is now unlikely given the difficulties in moving the necessary component parts around the world. Some projects are still ongoing, but many others will be delayed.

The good news from the point of view of the energy transition is that such projects will simply slip into next year with activity expected to recover strongly in 2021.


Where we are cautious, and might not see such a quick recovery, is in the consumer-facing aspects of the energy transition.

Recent economic data from the US and in Europe continues to show significant job losses. Clearly, such a difficult employment backdrop will have an impact on consumer spending, especially discretionary spending.

There are two parts of the energy transition that we think will be particularly affected: electric vehicles and rooftop solar. This is different to structural spending, as buying an electric car or installing solar panels on the roof are discretionary spending decisions that are unlikely to be top priorities for households given the difficult jobs picture.

Energy transition commands policy support

However, while household budgets may be tighter, the underlying demand for action on climate change is still there. That demand comes both from the public and from policymakers. Many countries, with Europe leading the way, are due to phase out cars with internal combustion engines in the coming years.

What’s more, the bigger targets still remain in place. While the Covid-19 crisis has understandably taken the spotlight, the climate crisis hasn’t disappeared. Countries around the world remain committed to limiting warming from pre-industrial levels to 2 degrees or less, as per the 2015 Paris Accord.   

Although there has been little concrete action so far, we note calls for economic stimulus in the wake of Covid-19 to focus on energy transition measures. Europe, for example, had already proposed its Green New Deal before Covid-19 spread across the continent. Calls for recovery measures to be designed to help build a climate neutral economy are gaining momentum, with a think tank in Germany proposing a €100 billion package.

Cheaper oil has limited impact on energy transition

The falling oil price has been a feature of recent volatile markets. We would stress that oil prices have less crossover to the energy transition than one might expect.

Around 65% of all oil consumed is in transportation. Again, falling petrol prices could be another short-term factor limiting consumer appetite for electric cars, and this may particularly be the case in the US where people are accustomed to driving long distances.

However, we see it as having less impact elsewhere, especially in Europe where a significant part of the petrol price is tax and where the internal combustion engine phase-out is a much bigger part of the decision-making process.


It’s also notable that even the major oil companies are responding to the oil crisis by protecting their investments in the energy transition space, while cutting aggressively their conventional energy capital expenditure.

The falling oil price saw Royal Dutch Shell recently cut its dividend for the first time since the Second World War. That was to ensure that it can still make the investments it has planned in the green energy space.     

Business continues to support energy transition

As well as public demand and policy support, the third pillar supporting the energy transition is the cost competitiveness of clean power. Demand for electricity has obviously fallen during the lockdowns but looks set to rebound as economies reopen. Clean energy will remain a high and growing percentage of demand as it has become cost competitive with conventional fuels.

Even in the midst of the Covid-19 crisis, businesses are still investing in renewable energy and technologies. For example the utility firm Southern California Edison is ordering a huge storage portfolio to replace gas plants and enhance the reliability of its grid. 


The combination of cost-competitiveness, policy support and public demand are the three factors driving the energy transition. All three remain in place, despite the temporary impact we are likely to see in terms of household spending as a result of Covid-19.

The energy transition covers a broad range of areas, not only clean power generation and supply, or electric vehicles, but also storage, transmission and electrical equipment. The long-term structural investment opportunity remains very much intact.   

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


Mark Lacey
Head of Thematic Equities


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