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19 March 2020

Coronavirus stimulus packages should include climate conditions

The coronavirus will send shockwaves that could transform the entire energy system. While many fear that the disruption of supply chains and availability of finance will stunt the momentum of the energy transition, the lessons-learned from the pandemic could lead to several opportunities that could shift a global mentality towards green energy.

The key barrier to this momentum progressing, or even growing, will be how successful fossil-fuel addicts are in pushing coal, oil or gas, as the solution to reverse the economic downturn as a result of the virus.

The Czech Republic’s prime minister was not shy this week in maintaining his country’s desire to continue business-as-usual with fossil fuels, campaigning for the EU to abandon its $1 trillion Green New Deal, which would legally enforce net-zero emissions in the bloc by 2050, to focus solely on fighting the spread of the coronavirus. We would expect there to be similar arguments pushed by other coal-heavy countries like Hungary, Poland and possibly Germany, as friction around the responses to the virus increases.

Regardless of what happens beyond the virus, they’ll need to be an injection of cash, and borrowing conditions will be favorable. If governments adopt the tactic of earmarking these funds for cheaper renewables projects, rather than fossil fuels, the blip that the green transition experiences through the coronavirus may only be very short-term. With airlines campaigning for state-bailouts to avoid bankruptcy amid flight cancellations, there is a chance to attach conditions to any finance that they also tackle climate change. IEA CEO Fatih Birol has urged that Coronavirus economic stimulus packages should build-in large scale spending on clean technologies, claiming that they “offer an excellent opportunity to ensure that the essential task of building a secure and sustainable energy future doesn’t get lost amid the flurry of immediate priorities.”

The immediate impact of coronavirus and its economic slowdown sees business shrinking, from stock prices to production output. A silver lining in this regard is that carbon emissions have fallen too, with estimates that China is currently operating with a 25% reduction in CO2 output. But when business starts to return to normal, so will emissions – but coronavirus may significantly impact the momentum of the energy transition in several areas.

The availability of power is something that currently does not appear to be a massive issue, with no significant power outages reported as a result of the virus. The availability of assets is expected to remain fairly consistent through the outbreak, with additional safety measures put in place to guarantee the continuation of operation, and minimize the requirement of physical maintenance through using ‘digital energy solutions,’ which can be easily managed through a country-wide lockdown. However, French grid operator RTE has stated that nuclear availability could stay as much as 3.6 GW below average, with output reduced due to reported staff shortages in plants operated by EDF from last week.

In countries like France, where nuclear power provides 70.6% of electricity, a heavy dependence on a single and high-maintenance power source makes the country’s supply extremely vulnerable through such crises – which may trigger an accelerated Europewide move to diversify generation mixes, post Covid-19. This may however see some countries increase their nuclear capacity, with further confidence in a synchronous source of power at a time of nationwide panic.

With heavy production requirements, the primary impacts faced by the wind sector are in component production and project construction. This week both Siemens Gamesa and LM were forced to close factories in Spain after workers tested positive for the virus, and Vestas workers downed tools in a protest around ‘inadequate measures’ taken to prevent the spread of the virus. Despite this, the majority of OEM production facilities in regions like Denmark have maintained normal production levels, with non-critical staff working from home for Siemens Gamesa, Vestas and MHI Vestas.

In reference to the pandemic, Wind Europe CEO Giles Dickson said “With Covid-19 we are likely to see delays in the development of new wind farm projects, which could cause developers to miss the deployment deadlines in auction systems and face financial penalties.” We imagine that governments will be fairly sympathetic here – with many offering significant financial aid to businesses impacted by the pandemic.

As the first affected, China this week announced that in light of the delays caused by the pandemic, the deadlines for existing solar and wind projects to be connected to the grid would be extended by a month. One of the largest effects here could be those missing the deadline for the US’ production tax credit, which is set to end this year and is unlikely to benefit from yet-another extension through the Trump Administration.

China’s wind sector has also bounced back fairly rapidly from Coronavirus, after OEM operations ran on reduced output for nearly two months. Vestas announced this week that all four of its factories in Tianjin have resumed full productivity, and now aim to offset the reduced output of other halted facilities across the globe. In the past month, GWEC has reported a similar recovery from all of the major Chinese turbine OEMs (Goldwind, Envision, Mingyang, Shanghai Electric, CSIC Haizhuang, DEC and CRRC) and three foreign turbine OEMs (Vestas, Siemens Gamesa and GE Renewable Energy) operating in the country. With previous estimates indicating that Chinese installations for wind power could suffer as much as 50% in 2020 through the pandemic, the speed of this recovery indicates that the slowdown will not be a significant as previously anticipated – a promising sign for Europe, which is currently facing a similar level of lockdown as experienced in China several weeks ago.

While the countries are in lockdown however, product shipments are being severely affected. The flow of solar panels from China, which accounts for over half of the world’s supply, has essentially stopped, causing significant and uncertain delays to a huge portion of Europe’s solar projects.

Bloomberg New Energy Finance (BNEF) has reduced its expectations for global solar demand from between 121 GW and 152 GW to between 108 GW and 143 GW – which would see the first dip in solar installations in nearly 40 years. Manufacturers of batteries are also facing limited supply of lithium and other materials, with much of the industry based in China – and a similar shortfall in installed capacity is expected.

Unfortunately for the solar and storage sectors, just as China starts shifting back to normal activity – Europe has gone into lockdown, so developers will have faced significantly more disruption than those in the wind sector, where there is a more globally diverse supply chain. We would anticipate that in the aftermath of the pandemic, solar players in Europe will start considering ramping up production capacity in the continent. Wind developers have also been quick to look at diversifying, with Siemens Gamesa eyeing up India for its next turbine manufacturing plants, and Vestas and GE exploring options in Japan, Taiwan and the US.


Production capacity and supply chains will largely recover once lockdowns are eased, but the largest drag on the energy transition could be a damaged global economy, without the means to continue the momentum of renewable deployment. With reduced levels of capital available throughout the economy, investors may struggle to keep up high activity in the renewable sectors as they struggle to raise equity. This is likely to dent the demand for clean energy in replacing fossil fuels, from both the signing of PPAs and available capacity at state-led auctions. With industry events cancelled and postponed, both strategic intelligence and deal-making will be knocked off course, and the rate of recovery could be reliant on an economy-wide recovery.

Renewable companies have not been immune to the economic downturn caused by the pandemic. GE Renewable Energy struck off between $200 million and $300 million in profits across its business in Q1 2019 due to the faltering supply chains as a result of the Coronavirus. Having highlighted the relationship between utility share price growth and share of renewable capacity, high-performing companies like Enel and Iberdrola have seen share prices fall to the point where annual growth has been reduced from 64% to well below 20% in under a month.

But despite the major sell-offs in pretty much all global markets, German asset manager Aream has claimed that there has been an “enormous increase in demand” for stocks and bonds associated with renewable energies. MD Markus Voigt stated that “The obvious advantage is that the renewables do not correlate with other asset classes. They also deliver regular distributions, which is particularly important to compensate for falling share profits.” With renewables preferred as a form of power generation to fossil-fuels, the risk class is also significantly lower than other shares or private equity investments.

Amid the panic post-coronavirus, its likely that some governments will rush to recover economic growth through the ‘tried-and-tested’ method of fossil-fuel capacity. Carbon Tracker highlighted last week that renewables undercut new coal facilities in all global markets already, but this may not stop some country’s with developed coal economies.

With low demand amid the virus, as well as a price conflict between Russia, the US and Saudi Arabia, oil prices could fall below $20 per barrel in the coming weeks, which on the face of it, may make oil an attractive option to recover from the economic downturn. However, it’s important that players recognize that this record price does not signal a certain and virtuous oil market. Rather, it shows an increased volatility in contrast to renewables, which in comparison will have much more stable cash flows, especially when signed through power purchase agreements. Renewables are also far less likely to be monopolized by cartels and are therefore much harder to manipulate through artificial means, providing another level of increased certainty.

On a project level, renewable projects will likely seek more financial insurance and guarantees around ‘force majeure’ incidents, and many will look to market themselves as a cost-saving solution beyond the pandemic, with companies like Sun Run hoping that rooftop solar can be a “countercyclical product” in saving consumers money directly.