The WoodMac Weekly Global Energy Round Up

Wood Mackenzie, the global research and analysis form, has come out with the first of its planned weekly roundups of the impact of the Coronavirus pandemic across the world, especially on global energy markets. With a focus on renewables, EV’s and energy storage, the round up will seek to bring you a snapshot of the global situation, as it plays out over the next few week. Here is the round up for the week ending April 6, 2020.

Solar and storage expected to see ~20% coronavirus impact compared to base case, while onshore and offshore wind impact is more muted in near-term. Customer driven DG solar, storage and EV purchases face outsized impact as a result of economic shock.

Technology value chains have varying levels of exposure to supply side constraints and demand erosion.

Wind: The coronavirus is expected to result in a 4.9 GW decline in 2020 wind additions compared to our previous outlook and we highlight India as presenting additional downside risk.

Factory shutdowns and slowdowns continue across many markets – notably key facilities in India, Spain, Turkey and Mexico – but orders remain robust in Q1 with Siemens Gamesa announcing new orders last week.

Offshore Wind: Downside risk is minimal as China restarts, US projects are still too immature and Europe was already set for slowdown in installations and contracting. Emerging offshore markets and earlier stage projects could face delays in financial close as a result of economic instability and currency risks.

Solar: 2020 solar installations have been revised down by 18% from pre-coronavirus levels from 129.5 GW to 106.4 GW. 2021 will recover to be 3% below pre-coronavirus expected levels. While the utility-scale impact will largely see timelines shift, residential and C&I installations will struggle as customers come under significant economic pressure.

Module prices in Europe and the US are starting to decline as demand impacts materialise, with the US seeing its first price decline in the first week of April.

Storage: Coronavirus could lower 2020 installations by 20% compared to our 2020 base case, with the risk stemming largely from project execution delays. The year is still expected to see positive growth over 2019 in both scenarios and return to pre-coronavirus impact levels in 2021. Like solar, the distributed storage risk is more acute.

Grid Edge – Microgrids: Coronavirus presents both limited upside and downside to microgrid development. Our previous analysis shows that 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 Vehicles: EV sales are expected to drop 43% year-on-year for 2020. China and Europe are expected to recover to 2019 levels by the end of the year, while the US continues to struggle and recent reduction in CAFE goals could negatively impact the EV market.

Over half the world’s population is now under lockdown as demand for power drops and risk of global recession grows. A ‘return to normal’ will be shaped by success of quarantines and design of recovery policies.

Regional power markets’ primary risks centre the depth and duration of demand destruction should economic standstill become a prolonged recession.

Europe: The relative economics of Europe’s gas and coal generators have continued to shift towards gas, albeit by a small amount in the past week – clean sparks are now some 10-14 EUR/MWh more attractive than low-efficiency dark spreads (in markets paying ETS prices alone). But low power prices mean that  this change is still insufficient to see positive margins for gas-fired CCGTs in Germany or France.

Italy has continued to lose power demand but at a decreased rate between weeks (-2.8% ). However, the market was a massive 26% down on 2019 (-1.45 TWh).

Several markets saw periods of higher wind speed during Week 14, with corresponding low power prices and some negative price hours – in Germany and France for the second weekend in a row and also Great Britain.

North America: Our latest short-term outlook (STO) anticipates a recession through the rest of the year, with Q2 representing the most significant decline. Texas is expected to see summer peak 4.6GW below pre-crisis levels, with significant price erosion in the scarcity driven summer months.

Latin America: Quarantine measures are showing similar declines 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. Switching away from oil to gas in Central America and the Caribbean is likely to slow in response to the oil price declines.

Asia: India and Malaysia are seeing large power demand declines as a part of lockdowns, while Japan and Singapore are instituting more restrictions but not full lockdown that is disrupting construction and trade in the region even as China continues to make progress. Global recession is quickly becoming the base case assumption as the scope and scale of quarantines continue to expand but the impacts on the trajectory of the Energy Transition remain nascent.

Economic response: The World Bank and IEA have suggested economic policy be consistent with Paris goals but policies remain focused on economic ‘triage’.

Emissions policies: Most responses have focused direct consumer and business support. In the US, the EPA has announced some deferred compliance, while in Canada some carbon policy measures have been postponed. Meanwhile in China, high-voltage transmission has been included as part of ‘new-era infrastructure’. Carbon emissions will decline in 2020 as a result of economic shutdowns, but arguments of climate policy acceleration or deceleration as part of the economic response are forming on both sides.