How the coronavirus crisis is driving a global wind market downgrade
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The coronavirus crisis will cause global wind additions in 2020 to decline by 4.9GW when compared to our previous projections. Due to other market changes since our Q4 2019 update, total forecast wind additions for 2020 is now expected to be 73GW.
The impact of the coronavirus is top of mind for the global wind industry and embodies a crisis unlike anything the market has ever seen. The state of the pandemic is evolving on an hourly basis, resulting in a highly reactionary environment. Industry stakeholders are continually adapting business operations to balance worker safety with the needs of their clients, all while complying with dynamic government containment measures.
The potential impact on global installations remains most significant in China and the US, where wind-focused policy deadlines were expected to deliver record volumes.
European Tier I wind energy markets, such as Spain, France and Italy, could be hit even harder on a percentage basis due to more aggressive lockdown measures inhibiting worker mobility. Production in those countries is also starting to suffer with factory closures mounting this week due to coronavirus infections. The domino effect for other markets may be limited, especially considering the rapid recovery envisioned for China’s wind energy supply chain and limited impact of the pandemic in India and Latin America to date.
Turbine OEMs have been executing detailed audits of their current supply chain for more than a month, with a core focus on Tier II/III sub-supplier ability to support their strategic component suppliers.
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The wind energy supply chain is truly global in nature, with a higher level of diversification than solar, and thus the impact of China’s coronavirus shutdown on Western markets has been managed by leveraging established supply lines from India, Brazil, Mexico and other major production hubs.
Both production and construction in the China market are recovering rapidly with local governments now encouraging local facilities to return to work as the outbreak is believed to be under control. This last point is critical.
Though supply disruptions are emerging in Western Europe, China’s supply of critical components such as wind turbine blades to the US outweighs that of Spain by two to one.
Risks remain, particularly in Europe, where factory closures will likely result in turbine installation delays, both domestically and possibly for the US.
Spanish wind turbine blade plants from LM Wind Power and Siemens Gamesa are shutting down production. Although the stated downtime is measured in weeks, it may take months if the rate of infections in Spain continues to rise.
US EPC firms have reported that their supply chains remain intact for both civil and electrical construction items, though the supply of yet-to-be-delivered, high-voltage equipment is being closely monitored due to limited supply options. At this point in time, no formal notices of delays have been issued. The outlook in the US thus remains optimistic for construction operations.
In the EMEA, border closures are proving to be more challenging, especially for markets such as Norway that have aggressive build schedules in 2020. Norwegian officials have already rung the alarm bell due to an inability for foreign project teams to enter the country.
In markets with well-established EPC infrastructure, such as France and Germany, the impact is not as severe. This same issue is being flagged for concern in African nations, though the build volumes in most countries are so small as to allow for time to get projects completed before the end of the year if coronavirus containment measures are successful.
The long-term power market impact of the coronavirus will be muted if Western countries can contain the virus in a similar timeframe to China and South Korea. However, the bigger concern for wind demand lies in the potential delay or cancellation of new auctions and tenders.
South Africa was expected to launch its next round of auctions in Q2 2020. That schedule seems unlikely with several developers reporting their planned feasibility studies are on hold due to travel restrictions. Similarly, planned auctions in Poland and Ukraine for H1 2020 are unlikely to proceed as previously thought because governments are consumed with tackling the pandemic. Chile is also expected to delay its next auction.
With the situation evolving so rapidly, what should the industry expect in the coming weeks?
India has managed to avoid critical issues associated with the coronavirus thus far due to extremely aggressive containment measures taken at the onset of the global outbreak. However, if infections take hold in the world’s second-most-populous nation, it could have far-reaching consequences.
Most notably, India has been used as the primary alternative to Chinese wind energy component production and an interruption in supply could restrict installations both domestically and abroad in Western markets.
Australia has a substantial pipeline of projects tracking for completion in 2020-2021, most with 3.6-4.2MW rated turbines imported from Europe. Supply disruptions from lockdowns in Spain and Germany could jeopardise build schedules, even as developers and EPCs work on-site controls to limit the potential spread of the virus at worksites.
In Mexico, critical blade facilities operated by TPI and supporting US installations could be brought to a standstill if US/Mexico border closures are extended.
In the US, there has been discussion over an extension of tax credits for the renewable energy industry as part of a stimulus package. Similarly, China is considering relief on its upcoming feed-in-tariff deadline.
In general, any near-term extensions are not likely to be additive in terms of our existing forecast covering the 2020-2021 time period but rather will enable the shifting of installations from 2020 into 2021 without penalties that could otherwise jeopardise scheduled 2020 installs.
In the months to come, there may be a more concerted effort to weave renewables policies into more sweeping omnibus bills aimed at providing fiscal stimulus in the countries hit hardest by the pandemic.
Global wind power market outlook and coronavirus update: Q1 2020
Wood Mackenzie's Q1 2020 Global wind power market outlook and coronavirus update presents an analysis of global and regional wind power installation forecasts through 2029. The update includes a detailed market forecast update for more than 60 key and emerging markets for wind power from 2020 to 2029. The forecast data includes a split of expected onshore and offshore development.
The coronavirus update, an addendum to the report, explains changes related to COVID-19.
Complete the form on this page to get access to the report brochure, which includes:
- Table of contents
- List of figures
- Sample chart
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To purchase the full Q1 2020 market outlook report, click here. To view the coronavirus update insight, click here. The coronavirus insight is available for free with a purchase of the market outlook report.
This report is also available as part of Wood Mackenzie's Global Wind Service.