The momentum-building global expansion of wind and solar power plant could be stymied for at least year as government restrictions on movement impact construction timeframes and foreign exchanges market contract around the world, according to new forecast by Rystad Energy.
The Norwegian analyst group calculates growth in newly commissioned renewables projects will now be “wiped out” for 2020 and cut by a further 10% next year, reversing its pre-Covid-19 expectation of some 140GW of PV and 75GW of wind capacity being added this year.
“Renewable energy projects expecting to achieve financial close or break ground globally will not avoid taking a hit from Covid-19’s effect on the economy,” said Rystad Energy, in its latest research note.
“Movements in the foreign exchange market [could] cause companies to pause contracting key components, which are typically procured in US dollars, [with] renewable projects in Australia, Brazil, Mexico and South Africa especially impacted, as projects in the procurement phase face capital cost increases of up to 36% due to the rapid depreciation of local currencies in these countries.”
After a year in which solar and wind had seen 126GW and 71GW of new plant commissioned, respectively, Rystad Energy had been forecasting year-on-year increases in capacity additions of 15% and 6% in these two renewables markets.
The impact of the coronavirus pandemic could be felt “even more” from 2021, said Rystad Energy’s product manager for renewables, Gero Farruggio, as fewer financial investment decisions are taken due to capital expenditure reductions.
“The foreign exchange impact will decimate the 2021 outlook for solar installations and the outlook from 2022 and beyond for wind installations, as orders for new equipment will halt from currency-hit emerging countries, which would otherwise account for much of this growth,” he said.
Rystad said that while “the full extent of the impact of Covid-19 on the renewable energy market is just beginning to reveal itself”, it noted that “global shipments have more-or-less arrived as expected, as Chinese panel and turbine suppliers returned to work relatively quickly, and production stabilised”, with projects under construction or in the procurement phase “particularly exposed” when Covid-19 first struck.
“We expect macro-economic knock on effects will reach into 2021 and beyond, with companies pausing on procuring PV projects which would have been commissioned in and after 2021,” said Farruggio.
“Countries most impacted in this sector will be from emerging markets in Asia, the Middle East, India and Latin America, where the bulk of solar growth had previously been expected.”
He added that China and the US would likely be “least impacted” by currency market fluctuations, with Rystad Energy expecting “the number of solar installations in these countries to remain fairly stable” though there would be “some slowdown effect”.