Forecast growth in newly commissioned solar and wind projects will now be “wiped out” for 2020 and cut by a further 10% next year as a result of the coronavirus’ impact on the global economy, according to analysis by Rystad Energy.
The independent energy research company said a surge in the US dollar and falls in other currencies across the globe will cause companies to pause contracting key components, which are typically procured in the former currency.
Renewable projects in Australia, Brazil, Mexico and South Africa will be especially impacted, as projects in the procurement phase could face capital cost increases of up to 36% due to the rapid depreciation of local currencies, Rystad said.
The company said that before the coronavirus pandemic it expected 140GW of new solar and 75GW of wind additions in 2020, a year-on-year increase of 15% and 6% respectively.
“This eradication of this growth is due to government restrictions on movement that will impact construction timeframes, bringing this year’s commissioned projects on par with 2019,” it said.
Last year, about 126GW of solar and 71GW of wind capacity were commissioned, Rystad said.
However, the effect of the virus will be felt even more from 2021, when a reduced amount of financial investment decisions due to capital expenditure reductions, and the strengthening of the US dollar, will reduce commissioned projects by at least 20GW, or 10% versus this year, the company said.
Rystad Energy product manager for renewables Gero Farruggio said: “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.”
Rystad said that currently global shipments of turbine components have more-or-less arrived as expected, as Chinese panel and turbine suppliers returned to work relatively quickly, and production stabilised.
Panel prices have ultimately remained steady in recent weeks, it said.
But as companies typically procure key project components in US dollars despite reaping revenue in local currency, unfavourable exchange rates will result in soaring equipment prices.
Wind is most at risk, as the percentage of wind development capex procured in US dollars is 25% higher than that of solar, Rystad said.
Farruggio said: “We expect macro-economic knock on effects will reach into 2021 and beyond, with companies pausing on procuring solar PV projects which would have been commissioned in and after 2021.
“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.”
The analysts said that China and the US will be least impacted by exchange fluctuations, and the number of solar installations in those countries will remain fairly stable.
“Nevertheless, they will undoubtably feel some slowdown affect, casting doubt on China’s ability to increase its solar capacity by 40GW as initially forecasted,” Rystad said.
In Europe, over 20GW of solar capacity was expected pre-crisis, but all of the euro’s gains on the US dollar from the beginning of the year have now been lost.
Foreign exchange issues for projects in Europe are less of an immediate concern but could take the forefront if the euro falls further, the research said.
In Latin America, Mexico and Brazil have the greatest capacity of utility solar PV projects under construction.
However, both countries are experiencing steep currency declines versus the US dollar and procurement is expected to come to a complete halt on most – if not all – projects yet to be committed.
Projects hoping to be commissioned in 2021 will be significantly slowed or even indefinitely delayed, Rystad added.
Procurement in India is not expected to be impacted as much as in other regions facing depreciation, it said.
Rystad has previously estimated the country would see 5.8GW of utility solar projects starting up in 2020, increasing by 9.9GW in 2021, and 1.7GW of wind start up in 2020 and 5.1GW in 2021.
It said: “The country is more self-sufficient in terms of turbine production than for solar PV panels, and therefore we feel India’s expected wind additions are more likely to reach the forecasted levels.”
In Australia, where the local dollar has hit a 17-year low, developers already appear to have cooled on orders that were otherwise imminent, Rystad said.
“Much of the 2GW utility PV solar expected to start in 2020 in the country is already built and in the commissioning phase and work will continue on these projects, but the key determiner of success will be the process of grid connection,” the researchers said.
“On the other hand, projects seeking financial close and currently procuring will surely stop, reducing the likelihood that the country will achieve its goal of 1.8GW of utility solar PV capacity coming online in 2021.”
It added that given the longer lead times for wind energy, the 4.5GW of wind turbine capacity that is committed is still expected to come online between 2020 and 2021.
However, 1.5GW worth of approved projects scheduled for 2022 are at risk of delay.
Rystad said it is now unlikely that Australia will see a standalone wind farm reaching financial close in 2020.