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2020 August 26

COVID 19 – Impacts and future outlook for bioenergy sector

The COVID19 pandemic has had a significant impact around the world. Within a span of a few months, more than 10 million people have been infected with the virus with more than 500 000 deaths recorded globally. The rapid spread of the virus has led governments around the world to impose strict measures to contain the spread including national or regional lockdowns, restrictions on international travel, and social distancing measures.

The impact of the subsequent measures had an impact on the economy as well. The world is facing the worst recession since the Great Depression with forecasts estimating a global economic growth of – 4.9% in the year 2020 compared to a growth of 2.9 % in 2019. The downturn in economy has led to millions unemployed around the world with USA alone reporting more than 40 million Americans filing for unemployment. 

The lockdown also had a major impact on the energy sector overall as energy demand around the world has decreased by 18 – 25%. Industrial production ground to a halt in major economies and restrictions on movement of people led to one of the greatest drop in transport fuel demand in recent history. Global CO2 emissions are expected to decline by 8%, recording the largest year on year drop in human history reaching levels last seen in 2010. 

Bioenergy is the largest renewable energy source globally. In 2017, biofuels and waste had a share of 9.5% among all energy sources in the world which is more than 2/3rd of all energy supply from renewable energy sources. Bioenergy is a versatile energy source with a multitude of feedstock, production pathways and end uses. Most of the biomass for energy comes from the forestry sector (>85%) where residues from harvesting and processing 

COVID 19 and Bioenergy

The pandemic had a significant impact on the bioenergy sector. World Bioenergy Association (WBA) undertook a survey ‘COVID19 and impact on the global bioenergy sector’ in May 2020 where bioenergy stakeholders were invited to respond on the impacts of the pandemic on investments, revenues, production and employment in the sector. Majority of the respondents were producers of bioenergy equipment (boilers, pellet mills etc.), processed solid biomass (pellets, wood chips etc.), energy (electricity and heat), liquid bioethanol, biodiesel and biogas. 

In general, 52% of the respondents indicated a moderate to significant impact of the pandemic on bioenergy businesses out of which 12% indicated a severe impact. In terms of production, more than 40% indicated that they expect a strong impact in the production of equipment and/or biofuels. With regard to finances, 44% of the respondents indicated that they had or will have a large decrease in revenues or challenging situation with managing cash flow for their companies. Some respondents indicated that payments from clients are also on hold as some cite force majeure in their contracts while concerns arose on the challenge of leveraging development capital for future projects. 

In terms of investments expected in the bioenergy sector, more than 38% of the respondents indicated a reduction or even termination of new investments in the sector mainly due to the uncertainty that has led to a delay in decision making on new investments. Finally, the pandemic had significantly less impact on employment as 22% of the respondents indicated that there won’t be any layoffs or even possibility to recruit for new positions.

In general, the sector hardest hit is the liquid biofuels sector. Low oil prices are making biofuels hard to compete with conventional fossil fuels. Although some of the producers have shown flexibility with production diverted to essential commodities (e.g. hand sanitizers), the significant drop in demand for transport fuels around the world are causing hardships for biofuel producers leading to plant closures and reduced production volumesvii.  

On the other hand, solid biomass sector has shown resilience. Most of the producers of solid biofuels (e.g. wood pellets) have continued with no significant change in production as there were no significant restrictions. For e.g., the producers of industrial pellets benefit from long term offtake agreements with buyersviii. A key challenge for the sector has been the procurement of feedstock as most of the industry depends on forestry harvesting and processing residues which have been impacted due to national/regional restrictionsix. Producers of electricity and heat from biomass and biogas also have shown resilience and continued production due to the benefit of bioenergy in providing on demand and dispatchable renewable energy to end consumers.  

WBA Message – COVID Recovery 

Governments around the world have a unique opportunity to make major changes in the way energy is produced and consumed. Private sector is expecting political decisions to steer towards a clean and green economy in the short and long term. The WBA proposes 5 key themes as a message to policy makers around the world. 

  1. Bioenergy as an essential service: In the current times of crisis, bioenergy has provided much needed, on demand and clean energy for use in all end use sectors of electricity, heating and transport fuels. It is imperative that policy makers recognize the crucial role of bioenergy and ensure that bioenergy supply chains are prioritized and categorized as essential services – not just in times of crisis, but as a general rule moving ahead. 
  2. A Bioenergy Future: Even though the effect of the pandemic has reduced in certain countries (e.g. EU), others are showing no signs yet of slowing down (e.g. USA, India). These are uncertain times and the role of governments is more important than ever in assuring investors and the wider bioenergy community of their support to bioenergy and renewable energy technologies in helping reduce emissions, reduce the use of fossil fuels, create jobs and develop local economies. Countries have to announce targets in line with Paris Agreement (e.g. Carbon neutrality by 2050 or earlier) and ensure that the renewables are the future.  
  3. Dis-incentivize Fossil Fuel Development: The current energy and climate situation provides a perfect opportunity for policy makers to take steps to dis incentivize fossil fuels development and provide a level playing field for bioenergy and renewable energy technologies to compete. The current low oil prices are a perfect window for reducing or removing fossil fuel subsidies in a phased manner and implementing a price on carbon. Moreover, countries should develop national fossil exit strategies with transparent, ambitious and verifiable targets of phasing out fossil fuels in all end use sectors. 
  4. Build Back Better with Bioenergy: Nations around the world are developing and implementing recovery packages of billions of USD of support for communities and companies to recover from the pandemic. It is important for such recovery packages to be sustainable and have bioenergy as one of the key pillars. 
  5. Time for Ambition and Action: The year 2020 was supposed to be the year of ambition when national governments announce increased contributions in line with Paris Agreement. Moreover, the broad public support for change (e.g. Fridays for Future) show that the civil society is joining the research community in pushing governments for more ambition and action. Now is the time for governments to ensure that climate action is not delayed and announce ambitious, stable and long-term policies for bioenergy as well as support implementation.

Note: This article was originally published by Renewable Energy Institute, Japan: Link