Is the COVID-19 pandemic bad for the growth of solar?

Based in Stanford, California, Terra2 Inc. launched in November 2019 mainly as an urgent response to the United Nation’s declaration for the world to decarbonize immediately to address climate change within this decade. Founded by a young team of recent Harvard graduates backed by the vast energy experience of its advisory board, Terra2 is currently developing its platform that will re-imagine green investing and build a new clean future for our shared world.

We all know that solar panels won’t catch the virus, but the hardworking people working in the solar industry can. Due to travel restrictions, quarantines and the many major disruptions to ordinary life caused by the ongoing pandemic, our entire economy has been stalled and the financial markets are showing incredibly high volatility — and the solar industry is not isolated from the market downturn. However, it can be recession resistant. Let’s see how.

Electricity is a basic need of modern society and our demand for it has consistently risen and will continue to rise over time.

Based on data from IEA (2019) [Electricity Final Consumption, World 1990–2017], International Energy Agency, www.iea.org/statistics, All rights reserved.

Fundamentally, solar farms are in the business of producing and selling electricity. Once a solar farm is constructed and operational, there is relatively negligible marginal cost associated with generating electricity — since sunlight is free. The sales of electricity drive the economics of a solar farm and all of society is its customer. From our iPhones to the lights in our corporate offices, we are entirely dependent on electricity in our everyday lives. From homeowners to businesses, we all depend on and ultimately pay for our electricity. So while we may use slightly less of it during a pandemic or recession, we still cannot go without it.

As an example of how electricity is an inelastic good, imagine this: this summer, homeowners may use their air conditioners less to save on electricity bills and some businesses may still be closed due to the pandemic. However, giving up electricity is usually the last thing going through a consumer’s or business’s mind. Think about it — if you are on a tight budget during a recession, would you rather give up paying your electricity bill or forgo the car maintenance visit? Give up paying your electricity bill or look for other cost reductions for your business? Electricity bill or a night out at a nice restaurant? For most of us anyway, the answer is simple — electricity is just as important to us as food and water. Solar farms sell an essential product that society will always need in large amounts everyday, recession or not. That’s why we like to call it recession resistant.

However, for new solar projects currently in development, things will likely get a bit tough for a while. China is the world’s leading solar panel manufacturer by far and they were the first to be affected by the ongoing pandemic. It would be no surprise that the global supply chain for panels would temporarily be crippled, raising the price of modules as inventory levels dwindle. Furthermore, disruptions to supply chain logistics are probably no joke right now. This is true until people go back to work and the economic engine shifts back into high gear. So, we may see a temporary slowing of new construction and a short-term increase in planned projects cancellations. But once the threats of this pandemic subsides and the world gains the confidence to go back to their normal lives, the secular solar expansion will quickly get back on track. A future recovery can further be accelerated under an ambitious fiscal policy stimulus package such as a New Green Deal or an expansion of the existing solar investment tax credit. However, until this pandemic subsides, new project development and construction will remain at an elevated risk and will see a temporary contraction against previous growth forecasts.