Impact of COVID-19 on renewable power generation market

The spread of COVID-19 (coronavirus) has led to mass production downtimes and supply chain problems in several industries, particularly in China, where the virus originated. However, major disruptions occur as other national authorities take action to contain or hamper the spread of the virus.

The spread of COVID-19 (coronavirus) has led to mass production downtimes and supply chain problems in several industries, particularly in China, where the virus originated. However, major disruptions occur as other national authorities take action to contain or hamper the spread of the virus.

The impact on the electricity and renewable sectors is likely to be significant, especially as the virus spreads worldwide. The projects which are under construction, postponements in the delivery of key components that are either on the move or simply not being manufactured because the manufacturing facilities are closed will hamper construction programs and increase construction costs as the parties attempt to procure parts elsewhere. Renewable energy projects are particularly vulnerable as China is a major manufacturer of photovoltaic solar modules and turbines. Contractors who rely on international workers are also affected as travel restrictions or quarantine measures are imposed and lead to local labor shortages.
For projects that are commissioned, power generators may be required to shut down or work at reduce capacity if their plant workers are subjected to quarantine measures and cannot be on site. At the same time, there may be a significant drop in demand in the affected areas because the energy consumption of the main users (e.g. production facilities) is reduced, which leads to cash flow problems.

Risks for early-stage projects
Projects which are in the procurement phase are predominantly vulnerable to the effects of COVID-19, which is likely to increase prices and affect the profitability of the operating utility companies due to supply shortages. In addition, the ability of the parties to participate in a tender process may be compromised, especially if contractors cannot get to the site to properly assess the risks of a competitive bid.
The market is also witnessing projects being pressured to use more expensive shipments from markets like the US or Europe to avoid delays in using Chinese suppliers. The COVID 19 outbreak has already slowed down Chinese production of solar modules and materials and delayed projects in countries like India and Australia. Production disruptions in China could lead to a significant decline in renewable energy sources by a year or two.
However, since the coronavirus pandemic is gaining ground in more global markets, this argument will become less relevant. If agreements have not yet been signed, the parties can try to provide a special protocol for dealing with COVID-19 under their agreement. For debt-financed projects, lenders are likely to be cautious about tying up funds unless the effects of COVID-19 can be properly quantified, assessed, and mitigated.

Delays in construction
If further disruption is expected, this will lead to delays in construction and the parties risk delay in important milestone dates. This can result in project developers being penalized or, in some cases, losing tariffs, tax incentives, or other sources of income. In the field of renewable energies in the USA, developers of renewable energies can lose important tax credits due to delays in construction, for example (see our Corona Virus briefing: Effects on US wind and solar projects).
The parties can try to transfer liability for economic losses to the contractors. Whether claims are successful depends on the terms of the agreement, including any rules for late claims for damages and any applicable exclusion clauses. Project developers also need to consider the impact of delays in their funding agreements, particularly whether they are failures or restrict usage.

Something Positive
Regardless of the challenges mentioned above, the pandemic could ultimately help renewable energies. With falling interest rates, renewable energy generation becomes more competitive. If oil prices further decrease, wells can be closed, reducing the supply of natural gas to the market and possibly increasing electricity and natural gas prices.
The perceived need to prepare for the next pandemic with sustainable houses, self-sufficient, or micro-networks could increase the demand for renewable resources at the distribution level. As supply chains recover globally, they may become more robust and reduce the cost of delivered renewable energy generation facilities.

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