COVID-19 Could Cost Asia Pacific 150 GW Wind & Solar

COVID-19 Led Economic Recession Extending Beyond 2020 Could Jeopardize Up To 150 GW Wind & Solar Power Projects Across Asia Pacific, Fears Wood Mackenzie
07:40 AM (Beijing Time) - 23. April 2020

A slowdown in the Asia Pacific renewables market due to pandemic led recession is not a good sign for global renewables. Wood Mackenzie says the extent of the coronavirus impact on Asia Pacific markets is key to the future growth of renewables sector. (Photo Credit: Electricity of Vietnam)

Key Takeaways

  • Wood Mackenzie sees up to 150 GW of solar and wind power capacity in Asia Pacific to suffer if COVID-19 led economic recession extends beyond 2020
  • This much capacity could either face delays or be cancelled altogether between 2020 and 2024
  • Government stimulus package is required to fuel the renewables sector here in these times if wind and solar are to compete with lower priced fossil fuels
  • Governments could also take actions to control energy markets and prices which would impact profits and cashflow of power assets

No one can say for sure till when the coronavirus pandemic will continue to keep humanity on tenterhooks but its negative impact on many businesses is likely to remain for a long time to come. And if the COVID-19 led recession extends beyond 2020, Wood Mackenzie Power & Renewables fears up to 150 GW of wind and solar power projects across the Asia Pacific (APAC) could be delayed or cancelled over the next 5 years, from 2020 to 2024.

Power demand disruption for 2 to 3 months with strong recovery would lead to 380 TWh of power demand lost in APAC in 2020; but if the pandemic continues to wreak havoc leading markets to go into major recession, Wood Mackenzie expects close to 1,000 TWh of demand could be lost by 2023.

If the coronavirus worsens and turns into a severe financial crisis, it could make funding for renewables hard to come by which would directly impact the competitiveness of renewables.

The scenario won’t place renewables favorably vis-à-vis fossil fuels either since prices for the latter during a recession will be lower and renewables in most of APAC region are likely to become competitive with coal-fired power plants beyond 2025.

Wood Mackenzie Research Director Alex Whitworth believes a recession scenario spurred by COVID-19 would push back the region’s renewables construction pipeline by nearly 2 years and this won’t be good as he argues the extent of the coronavirus impact on Asia Pacific markets is key to the future growth of renewables sector since between 2015 to 2019, APAC accounted for over 3 quarters of global power demand growth ‘while leading the world in wind and solar capacity installations’.

“In our base case outlook, the impact on wind and solar installations in 2020 can be offset by stronger growth and support policies in 2021. But if the situation worsens, renewables projects in Developing Asia (India, Vietnam, the Philippines, Thailand, Indonesia and Malaysia) could be heavily impacted by increased financing costs, as well as forex risk due to high capex share of costs,” said Whitworth. “A 10% increase in weighted average cost of capital could lead to an 8% increase in levelised cost of electricity (LCOE) in renewables.”

Even though Whitworth emphasizes this is the time when the renewables sector needs government support in terms of extending timelines for withdrawing support and the timing of energy transition plans, something that Vietnam has done for wind power or China is thinking of extending subsidies beyond the 2020 planned cut-off, but he acknowledges the fact that pressing economic situation is expected to overwhelm governments. This could make it difficult for them to support the renewables sector with stimulus measures.

“There will be limited support for investment in the power sector because of overcapacity caused by demand slowdown. Governments could also take actions to control energy markets and prices which would impact profits and cashflow of power assets,” explained Whitworth.

The coming few months will be crucial, according to Wood Mackenzie, to see if the APC region is moving towards a rapid recovery or extended recession future. Till then the key indicators to watch out for include, apart from government stimulus package, power demand growth, credit terms for renewables projects, as well as cost competition between renewables and fossil fuels.

In October 2018, Wood Mackenzie said it expects the Asia Pacific region to exhibit PV demand for 355 GW solar between 2018 and 2022. In early April, Wood Mackenzie said that due to COVID-19 it expects 2020 solar PV deployment estimates in 2020 at 106.4 GW, bringing it down from previous expectation of 129.5 GW. For 2021 it also estimates lower new PV installations of 123.6 GW as compared to its prior guidance of 127.2 GW. (see Wood Mackenzie Lowers 2020 PV Forecast)

Anu Bhambhani

Anu Bhambhani is the Senior News Editor of TaiyangNews

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Anu Bhambhani