In the era of economic globalisation an extended downtime of the Chinese industry, the world’s manufacturing locomotive, can have profound negative effects on global economic growth.

Presently, numerous factories in China remain closed or cannot reach full production capacity as the Chinese government takes measures to control the coronavirus (COVID-19) spread. The initial results of those actions reflect negatively on stock markets around the world. Relative to the developments of the coronavirus outbreak, we can expect increased risk in the economic and technical expectations and forecasts.

But how can a virus be affecting the renewables industry?

Over the past 20 years, China has emerged as one of the world’s major manufacturers for the renewables sector. Critical components of the renewables industry are manufactured in Chinese industrial hubs, either by indigenous or other Asian and Western manufacturers, which chose China as their industrial output base.

The immense and growing production that China-based manufacturers can achieve has been a main driver for sustaining economic growth and for driving technology prices down. In particular, components that the electric-vehicle and solar industries use, including battery elements, solar cells and PV frames. As such, China holds elevated weight in the industry’s supply chain.

The affected supply chain also doesn’t seem to be geographically restricted to within the Chinese border. Chinese industries have been systematically securing access to raw materials by using a foreign direct investment approach (FDI). Chinese companies downstream cobalt and nickel from their mining operations in other countries (e.g. African countries such as Congo) to be imported and used in battery production. Associated risks and possible travel restrictions posed to Chinese workers and managerial staff active in those mining operations, further feeds market uncertainty. Already some of the largest Chinese cobalt mining companies have seen their stock prices plunging during the past weeks.

Both these factors will negatively impact the diversification of the supply chain. As a result, the manufacturers are exposed to risk due to stock shortages, which could result in temporary production halts. Any extended downtimes in the production lines can result in the customer base becoming vulnerable to price fluctuations. From the customer perspective this introduced uncertainty can lead to a further demand decrease, eventually impacting sales.

Prices for energy storage solutions can increase in extreme events.

Lithium-ion battery pack prices have fallen by approximately 85% in the past 10 years, and this decreasing trend is anticipated to continue and accelerate in the coming decade. With China so dominant in lithium battery manufacturing (accounting for over 60% of the total global manufacturing capacity), what risk does the coronavirus pose?

The answer is the risk is significant. To put it into context, the capacity in the US, the 2 nd largest manufacturer, is six times smaller than China’s, and while the trajectory shows it is catching up to its Eastern rival, it couldn’t meet any supply chain gap.

Furthermore, relationships are already set and established, with Chinese suppliers chosen by US, European and Japanese storage and EV manufacturers. Even big brands like Tesla, who have been using Panasonic battery cells to satisfy demand have confirmed that CATL, the Chinese battery manufacturer, and LG Chem will be supplying additional battery volumes for the Shanghai Gigafactory to cover demand.

The coronavirus can lead to price increases for end-users.

Supply shortages, if they occur, will likely slow the decreasing price trends. Any increased downtime of the Chinese manufacturing hubs can even halt or reverse those trends. In the case of extreme downtime events, resulting shortages could even drive prices upwards. It is troubling that the most successful business models for renewables often rely on the impressive and continued reduction in prices over the years as European customers demand it. Failure in containing the new coronavirus can act as a hurdle in the ongoing energy transition.

Dimitrios Pappas is an analyst at consultancy Delta-EE specialising in energy storage and grid flexibility.