The Woodmac Weekly Update on Renewable Energy Worldwide

In the third of its weekly updates for the global renewables industry, Wood Mackenzie, the global research firm has shared its report for the week ending April 20.

Solar and storage expected to see ~20% coronavirus impact compared to base case. Onshore wind impact is more muted in near-term, but cascading supply chain and construction risk present further downside risk. 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: Rolling containment measures have depleted the supply chain’s ability to shift capacity to maintain output, reducing 2020 global production capacity by 15-20%.

  • Blades represent a particularly challenged sourcing component, as both key manufacturing and raw materials markets are currently under restrictions.
  • Production capacity at re-opened plants may have trouble reaching pre-crisis levels as a result of social distancing and protective equipment requirement.

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 17% from pre-coronavirus levels from 130.5 GW to 108.0 GW. In the absence of prolonged recession or profound changes to financing and utility procurement, 2021 will recover to be 3% 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% 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, the distributed storage risk is more acute.

Grid Edge: 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% 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 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: Year-to-date power demand is down between 5 and 10% across major markets in Europe but early signs of an up-turn are seen in Spain following an easing of lockdown restrictions.

  • The relative economics of gas and coal generators hold firm in favour of gas in Europe – clean sparks remain some 10 to 14 EUR/MWh more attractive than low efficiency dark spreads and 4 to 9 EUR/MWh ahead of even the most efficient hard coal burners.
  • Forward prices rose last week in reaction to EDF’s announcement that output from the French nuclear fleet will fall to 300 TWh in 2020, down from 380 TWh in 2019 – lower nuclear output will impact the volume of power France exports to its neighbours, offering potential relief to thermal generators. Safe working practices (impacting maintenance activities), low demand and a desire to reserve reactor fuel for winter 2020/21 running will impact the fleet.
  • Several markets continue to run thermal generation in periods of high renewable supply suggesting the thermal fleet is lacking the flexibility to respond or is experiencing other must-run restrictions – hydro remains a key provider of flexibility.

North America: 2020-2022 three-year average power prices decline 3-12% from pre-coronavirus outlook and remain heavily impacted depending on shape and speed of demand recovery. In some regions, the price impact could be 25-33% below the pre-coronavirus expectations in the 2020-2022 period.

Latin America: Upcoming auctions remain at risk, with Ecuador joining a growing list of regional delays. Currency volatility is likely to challenge projects with existing contracts ability to move forward. Broadly, as demand weakens, tourist-heavy regions, like Mexico’s Yucatan, are experiencing outsized impacts.

Asia: Renewable generation in China is increasing as demand recovers but still remains lower than the previous year. Outside of China, case counts in Asia continue to grow in many markets. In India, the lockdown was extended another two weeks and government data showed a significant drop in demand and prices.

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 Impact: We expect the fall to be more than 2% from 2019 level. Governments and central banks to consider all policy tools in the rulebook to support economic growth and employment. In addition to public health, clean energy could be a key part of recovery policies.

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