As the oil price rout continues, the case for investors and governments to shift more capital to the clean energy sector grows stronger, the International Renewable Energy Agency said in an April 20 report.

"With the need for energy decarbonization unchanged, such investments can safeguard against short-sighted decisions and greater accumulation of stranded assets," Francesco La Camera, director-general of the intergovernmental organization, wrote in a forward to the report. Meanwhile, price volatility is undermining the "viability of unconventional oil and gas resources, as well as long-term contracts," he said.

The International Renewable Energy Agency, or IRENA, issued the report the same day that futures prices for West Texas Intermediate crude plummeted into negative territory for the first time ever as markets sapped of demand by the coronavirus pandemic remain awash in oil.

The renewables sector has not been spared from the pandemic's economic fallout, but John Morton, a senior fellow at the Atlantic Council Global Energy Center, said it appears to be in a relatively solid position.

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"[Though] the current economic recession will certainly limit available capital for new renewable energy projects and result in substantial layoffs across the vast majority of economic sectors, including the renewable energy sector, the unpredictability of commodity prices and diminishing returns in hydrocarbon investment may make renewables an increasingly advantageous investment as we emerge from the current crisis," Morton said during a recent webinar.

The European response

Calling on governments to design pandemic rescue and stimulus packages that accelerate decarbonization efforts, IRENA presented a scenario for cutting 70% of energy-related carbon dioxide emissions globally by 2050, primarily through using renewables and energy efficiency and a sharp reduction in fossil fuel consumption.

At a cost of $45 trillion, the approach would deliver cumulative savings of about $62 trillion, the group said.

Despite the potential benefits of investing in clean energy, La Camera expressed concerns that the economic disruptions caused by the pandemic could delay coordinated efforts to combat climate change. "Much will depend on how countries respond in terms of economic stimulus," IRENA said.

So far, efforts to make sustainability a cornerstone of the pandemic recovery seem to be gaining traction in Europe, where business executives called on the European Union to focus its coronavirus response on investments that are in line with the European Green Deal, the EU's flagship policy for fighting climate change.

Elchin Mammadov, a utilities analyst at Bloomberg Intelligence, said governments could create more tailwinds for the renewables sector without having to invest billions of dollars.

"It's not an issue to bring the investors in. The issue is to make sure there's as little red tape as possible," Mammadov said in an interview. "Of course, I think the governments may go beyond that, but they can help the sector without putting much cash in."

Oil majors' long view

In addition to potential policy responses, two of the world's top oil companies recently said they remain committed to cutting carbon emissions despite the market turmoil.

"Even at a time of immediate challenge, it is important to also keep an eye on the long term, as well," said Ben van Beurden, CEO of Royal Dutch Shell PLC, which announced April 16 that it is increasing its decarbonization efforts. "[Abandoning] that focus in the face of urgent short-term need will make long-term challenges all the harder to tackle when COVID-19 is no longer with us."

Patrick Pouyanné, chairman and CEO of France's Total SA, recently said the oil market rout had reinforced the need to pursue low-carbon resources such as renewables and energy storage. Total aims to have 25,000 MW of renewable power capacity by 2025, up from 3,000 MW at the end of 2019.

Still, government responses to the crisis will be key in determining the future path of the energy industry, said Allan Marks, a partner at law firm Milbank LLP who specializes in infrastructure financing.

"In my view, the main drivers of increased investment in renewables are public policy ... and the fact that renewables are increasingly competitive on both cost and reliability grounds," Marks said in an interview. "Given longer-term declines in oil consumption, we will probably see oil majors redirect their capital investment budgets to non-oil energy investments, including especially renewables, reinforcing a pre-virus trend."