The impact of COVID on clean energy goals

Renew­ables such as wind and solar pho­to­voltaics, or PV, now pro­vide almost three tenths of glob­al elec­tric­i­ty. The industry’s spec­tac­u­lar growth ovder the past two decades has been sup­port­ed by glob­al sup­ply chains that have helped to dri­ve down costs. But the coro­n­avirus pan­dem­ic threw an almighty span­ner in the works, with bor­der clo­sures, lock­down restric­tions and com­po­nent delays slow­ing the progress of many clean ener­gy projects.

“These ven­tures sub­se­quent­ly ran the risk of increased con­struc­tion costs, as project devel­op­ers tried to source parts from else­where,” says Somik Das, senior pow­er ana­lyst at Glob­al­Da­ta.

Quar­an­tine mea­sures also reduced the work­force on some con­struc­tion sites, he adds, and con­trac­tors reliant on inter­na­tion­al labour were fur­ther impact­ed by trav­el restric­tions.

As such, it’s per­haps no sur­prise that the Inter­na­tion­al Ener­gy Agency (IEA) fore­casts the amount of renew­able pow­er capac­i­ty added in 2020 will be down 13 per cent on 2019. How­ev­er, the IEA also pre­dicts that renew­able pow­er addi­tions will rebound next year to the lev­el reached in 2019. This sug­gests that COVID-19’s impact on the clean ener­gy tran­si­tion is short term rather than long term.

“Nation­wide lock­downs forced fac­to­ries to tem­porar­i­ly shut their doors although many restric­tions eased after the first few weeks as these indus­tries were often deemed essen­tial,” says Logan Goldie-Scot, head of clean pow­er research at BloombergNEF. “Less robust parts of the val­ue chain, often when activ­i­ty was con­cen­trat­ed in a sin­gle region, were most affect­ed.”

He cites Ecuador, which sup­plies 90 per cent of the world’s bal­sa wood, a key com­po­nent used in wind tur­bine blades, as an exam­ple. “It had a strict lock­down, but this was lift­ed before last­ing dam­age occurred,” says Goldie-Scot.

COVID can’t slow China’s growing dominance

Chi­na dom­i­nates the glob­al sup­ply of solar PV mod­ules, as well as the raw mate­ri­als for mod­ule assem­bly. Plants halt­ed oper­a­tions at the end of Jan­u­ary, lead­ing to equip­ment and mate­r­i­al short­ages and ship­ping delays.

How­ev­er, pro­duc­tion has now recov­ered, accord­ing to Dr Xiao­jing Sun, senior ana­lyst, solar sys­tems and tech­nolo­gies, at Wood Macken­zie. “Over­all, sup­ply inter­rup­tion was short lived and had lim­it­ed impact on project time­lines around the world,” she says.

Bot­tle­necks for some wind com­po­nents, caused by a surge in demand in annu­al wind instal­la­tions, were exac­er­bat­ed by COVID-19, says Shashi Bar­la, prin­ci­pal ana­lyst for glob­al wind sup­ply chain and tech­nol­o­gy, onshore and off­shore, at Wood Macken­zie.

He adds that per­son­nel move­ment and trav­el restric­tions have, to an extent, impact­ed build­ing projects in a few onshore mar­kets, as well as the avail­abil­i­ty of ser­vice tech­ni­cians for reg­u­lar oper­a­tions and main­te­nance.

Wood Macken­zie has there­fore down­grad­ed its glob­al wind mar­ket out­look for 2020 by 6 gigawatts (GWs). “We antic­i­pate fur­ther cuts to these fore­casts in a few mar­kets like India, though this will be large­ly off­set by upgrades in Chi­na,” says Bar­la.

Renewable energy resilient through the crisis

In many respects, both the wind and solar indus­try have proved remark­ably resilient dur­ing the COVID-19 cri­sis. Gov­ern­ments around the world under­stand the impor­tance of con­tin­u­ing with projects that will sup­port the glob­al tran­si­tion to renew­able ener­gy, says Rob Marsh, a part­ner at inter­na­tion­al law firm Nor­ton Rose Ful­bright and co-chair of the firm’s renew­able ener­gy prac­tice.

“With­in the realms of safe­ty, most juris­dic­tions have gone as far as they pos­si­bly can to enable con­struc­tion to con­tin­ue and for sup­ply chains to remain open and viable on an indi­vid­ual project basis,” he says. “So if you look across the mar­ket as a whole, the impact cer­tain­ly has not been as marked as per­haps it has in oth­er parts of the econ­o­my.”

It’s a reas­sur­ing assess­ment, but could gov­ern­ment stim­u­lus pack­ages designed to shore up strug­gling economies in the wake of COVID-19 lead to fur­ther dis­rup­tion of glob­al sup­ply chains? It wouldn’t be sur­pris­ing if some coun­tries were to attempt to reshore some clean ener­gy man­u­fac­tur­ing process­es, but the results could be a mixed bag.

In Jan­u­ary 2018, for exam­ple, the Trump admin­is­tra­tion intro­duced tar­iffs on US imports of solar cells and mod­ules in an appar­ent effort to accel­er­ate reshoring. US mod­ule man­u­fac­tur­ing capac­i­ty rose as a result, but solar cell capac­i­ty didn’t.

“It [the tar­iff] pro­vides a 2.5GW tar­iff-free quo­ta for solar cells, which is not enough to meet all the new­ly built domes­tic mod­ule manufacturing’s demand,” says Wood Mackenzie’s Sun. “As a result, the mod­ule fac­to­ries in the Unit­ed States may have to pay tar­iffs to buy inputs into their mod­ules, which dri­ve up the domes­tic prod­ucts’ prices.”

How tariffs could hamstring clean energy

A report by the Solar Ener­gy Indus­tries Asso­ci­a­tion claims the tar­iffs will cost the Unit­ed States $19 bil­lion in invest­ment and result in the loss of 62,000 jobs by 2021. In oth­er words, tar­iffs are a blunt instru­ment that can have unfore­seen effects on the domes­tic clean ener­gy sec­tor.

Goldie-Scot at BloombergNEF believes it will ulti­mate­ly be impos­si­ble and inef­fi­cient to untan­gle glob­al sup­ply chains ful­ly. But this still leaves room to reshore a lot of man­u­fac­tur­ing, par­tic­u­lar­ly where there are log­i­cal sup­ply chain ben­e­fits.

“Man­u­fac­tur­ing bat­ter­ies near to demand for elec­tric vehi­cles is log­i­cal as trans­port­ing mil­lions of cells around the world is imprac­ti­cal and cost­ly,” he says. Where­as: “Reshoring PV mod­ule man­u­fac­tur­ing by con­trast would make less sense and would dis­tract from broad­er efforts to tack­le cli­mate change.”

Accord­ing to GlobalData’s Das, many organ­i­sa­tions are con­sid­er­ing a hybrid frame­work for the sup­ply chain, where­by a pro­por­tion of pro­duc­tion and sup­pli­ers oper­ate abroad, while some pro­duc­tion and ven­dors are appor­tioned to the home coun­try. “Dur­ing a cri­sis, this com­bi­na­tion pro­vides the flex­i­bil­i­ty to main­tain a bal­ance in pro­duc­tion depend­ing on cus­tomer needs,” he says.

In fact, Marsh of Nor­ton Rose Ful­bright believes reshoring some of the sup­ply chain and man­u­fac­tur­ing process­es for renew­ables could ulti­mate­ly be a pos­i­tive devel­op­ment. “These reshoring strate­gies are being deliv­ered to fur­ther enable and boost the renew­ables econ­o­my in the rel­e­vant juris­dic­tions,” he says. “It would be quite a per­verse out­come if that actu­al­ly slowed down or increased the cost of deploy­ment.”