WoodMac’s Weekly Roundup: Covid-19 Impact on Power, RE Industry Globally

One of the leading research and consultancy group, Wood Mackenzie (WoodMac) has provided its weekly analysis on the impact of coronavirus on the power and renewable energy industry globally.

As per the report preliminary findings, solar and storage are expected to see ~20 percent coronavirus impact as compared to the base case. Whereas onshore wind impact is more muted in near-term, but cascading supply chain and construction risk present further downside risk. Also, customer-driven DG solar, storage and EV purchases faced 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. Further risks exist in Asia, as travel restrictions and mitigation efforts impact Japan, Australia, Vietnam and others.

Factory shutdowns and impacts continue to roll through, as Siemens-Gamesa announced furloughs at US blade and nacelle facilities. An extended shutdown in India could impact US operations as the market is a key supply hub. Restarting facilities in key markets, such as Spain, may be slowed by the implementation of new operation programs that could limit capacity.

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 percent from pre-coronavirus levels from 129.5 GW to 106.4 GW. In the absence of prolonged recession or profound changes to financing and utility procurement, 2021 will recover to be 3 percent below pre-coronavirus expected levels. While the utility-scale impact will primarily see timelines shift, residential and C&I installations will struggle as customers come under significant economic pressure even past the lockdown.

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 percent compared to our 2020 base case, with the risk stemming largely from project execution delays. Positive growth over 2019 is expected in both scenarios, as well as a return to pre-coronavirus impact levels in 2021. Like solar, distributed storage risk is more acute.

Grid Edge – Microgrids: Coronavirus mitigation measures are a test for grid edge technologies supporting improved diagnostics and remote operations, and could catalyse further investments. Long utility sales cycle times are expected to mitigate the negative impacts of coronavirus on investment plans.

Electric Vehicles: EV sales are expected to drop 43 percent year-on-year for 2020. China and the EU are expected to recover to 2019 levels. In China, 32 of VW’s 33 facilities and all 2,000 dealerships are back online as operations resume. In the US, the auto union (UAW) is reporting 19 deaths over more than a dozen facilities.

Over half the world’s population is now under lockdown, as demand for power drops and the risk of global recession grows. A ‘return to normal’ will be shaped by the 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 ongoing lockdowns have seen power demand remain weak across all major markets and the four-day Easter weekend demand was the lowest for at least five years. Several markets have experienced material increases in renewables supply so far in 2020 and this, in combination with low demand, has put coal and gas generation in decline. In turn, renewables generation has had a more frequent influence on prices. In Germany, for instance, high daytime solar production over the weekend resulted in very low prices. Despite this, increases in power prices this week sees positive margins for gas-fired CCGTs in Germany, Italy and Spain.

North America: Our latest short-term outlook (STO) anticipates a recession through the rest of the year, with Q2 representing the most significant decline.

Latin America: The Mexican state-owned utility announced US$8 billion in mitigation response funding. In Brazil, MP 950/2020 was passed on April 8th and provides 100 percent discounts up to 220 kWh/month for end users. In Argentina, industrial demand has fallen 50 percent as mitigation measures have taken hold.

Asia: Uncertainty is growing in Asia as weekly cases outside of China hits a new record. Japan, an early success story, India and Indonesia experienced the most growth in cases. China and Vietnam are discussing Feed-in Tariff (FiT) extensions as part of a policy response. South Korea is looking at new policy mechanisms.

Global recession is quickly becoming the base case assumption, as the scope and scale of quarantines continue to expand. However, the impact on the trajectory of the energy transition remains nascent.

Emissions impact: The near-term impacts is expected to be a 5-15 percent reduction in 2020 carbon emissions.

Acceleration or deceleration: Looking across 5 factors driving the energy transition – government policy, investor pressure, societal pressure, economic competitiveness and technological advancement – we think government policy response will be most critical in shaping the lasting impact of coronavirus on the energy transition.