In it’s report on the impacts of the COVID-19 virus, Wood Mackenzie highlights the massive impact of the pandemic on the global power and renewables industry.
Countries around the world are struggling to handle the effects of COVID-19 on its citizens and industries. Over half the world’s population is under lockdown, dropping the demand for power as the risk of a global recession grows.
The shutdowns and lockdowns resulting from the virus have impacted technology value chains to varying levels of exposure to supply side constraints and potential scale of demand erosion. A ‘return to normal’ will be shaped by the success of quarantines and design of recovery policies.
COVID-19 is expected to result in a 4.9 GW decline in 2020 wind additions compared to the firm’s previous outlook, with India presenting additional downside risk. India’s shutdown threatens domestic installation, as well as the potential to slow other markets as a key global supply hub. However, some positive additions elsewhere bring Wood Mac’s 2020 installation forecast to 73GW.
The downside risk in the offshore wind industry is minimal as China restarts, according to Wood Mackenzie. US projects are still too immature and Europe was already set for slowdown in installations and contracting.
Concerning solar power, India’s shutdown represents a major risk to global demand and the potential for a restart pushes project construction into monsoon season, opening the additional potential for delays. As well, procurement from national auctions, utility RFPs and C&I contracting are all expected to slow in the first half of 2020 as governments and businesses address the COVID-19 crisis.
According to Wood Mackenzie, the best case scenario for the residential solar market is a 16 per cent decline from last year, with further downside risking a year-on-year drop of 34 per cent.
The pandemic could result in a drop in this year’s energy storage installations by 20 per cent compared to Wood Mac’s 2020 base case, with the risk stemming largely from project execution delays. 2020 is still expected to be positive growth over 2019 in both scenarios and return to pre-coronavirus impact levels in 2021. Like solar, distributed storage risk is more acute.
Concerning microgrid development, COVID-19 presents both limited upside and downside. Wood Mac says development is largely more reflective of policy than disaster reactions and the current situation doesn’t present the repeated power supply challenges of other disasters.
Electric vehicle sales are forecast to drop by 57 per cent year-on-year for 2020, mostly due to shutdowns and economic challenges. In driving demand, purchase price, charging infrastructure and model availability are still concerns for buyers and trump low oil prices.
If COVID-19 drives the globe’s current economic standstill into a prolonged recession, Wood Mac says regional power markets’ primary risks are the depth and duration of plummeting demand.
Lockdowns in Europe are causing shifts in power demand, market balance and price. In Italy, for example, power demand has fallen by 27 per cent from the same period in 2019. Power prices have stabilized but as shutdowns continue, the impact of wind and solar generation will have a significant impact on net load and prices.
In North America, the global glut of LNG is expected to keep natural gas prices low even as LNG exports decline. The further impact for coal to gas switch is muted by the already low gas prices having left little additional switching capacity. Renewables policy was discussed but ultimately not included in the phase 3 recovery plan passed last week.
Quarantine measures in Latin America are causing a fall in power demand. New auctions in key markets are expected to be delayed as demand falls and resource-driven economies fall under intense strain. Already contracted projects, both renewables and gas, are likely to face financing challenges as currencies decline.
China’s return to normal could be slowed in April as a result of the global quarantine response that is lowering demand for manufactured goods and creating challenges to import specialized parts from North America and Europe. The success of lockdowns now in Southeast Asia and India will determine the speed at which these markets return to growth after the expected immediate demand collapse.
Wood Mac says that a global recession is quickly becoming the base case assumption as the scope and scale of quarantines expand. However, the firm adds the impacts on the trajectory of the energy transition remain nascent.