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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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The Solar Sector Is Suffering From Coronavirus Contagion

While analysts and international agencies are already assessing the fallout from the coronavirus outbreak on global oil demand, the damage to the energy industry is extending well beyond oil. Promising fast-growing green energy technologies and sectors are also suffering because the outbreak is disrupting China’s industrial activity and manufacturing of crucial components for the solar, wind, and battery storage industries.  

Much like China’s oil demand slump impacts the global market, the Chinese slowdown in manufacturing of renewable energy components has a ripple effect throughout the global supply chain of major renewable energy industries.  

The current situation highlights China’s increased importance in the global energy markets over the past two decades since the SARS outbreak – from oil to battery storage, all energy sectors suffer when Chinese manufacturing and demand hits the brakes.

In the solar industry, factory shutdowns and production disruptions across China have delayed exports of solar panels and other components, disrupting the supply chain of the solar power industries and affecting solar projects in Asia and Australia. The disruption of the solar supply chain could become costly for as much as US$2.24 billion worth of solar projects across India, which relies on China for 80 percent of the solar modules it uses, CRISIL Ratings, an S&P Global company, said earlier this week. A total of 3 gigawatts (GW) of solar project across India risk incurring time and cost overruns, including penalties for missing commercial operation timelines, CRISIL noted.

“If the production interruption in mainland China lasts longer than one month, factories in south-east Asia and the US will start to see supply shortages that will reduce their production output,” Xiaojing Sun, an Wood Mackenzie senior analyst in the energy transition research team, said last week, as carried by Renews. Related: Why The World’s Top Oil Traders Are Going Green

The coronavirus has not spared the wind power industry either.

Outbreak-related production disruptions will lower China’s wind power installations by between 10 percent and 50 percent this year, depending on how soon the outbreak is contained and production returns to normal, WoodMac says, noting that its pre-virus outlook had estimated 28 GW capacity installations.

Outside China, the market with the greatest exposure—and therefore highest risk—is the United States, according to WoodMac. The U.S. wind industry sources components from China and is in a rush to have wind projects installed by the end of 2020 to keep federal subsidies.

“6 GW of installations targeting 2020 Commercial Operation Day were identified as at-risk before the outbreak, requiring Internal Revenue Service exemptions to maintain access to 100% value of the Production Tax Credit (PTC). This number is now likely to grow,” WoodMac said, as carried by Recharge.

Last but not least, the coronavirus outbreak is putting the brakes on China’s battery cell manufacturing, with the disruption already affecting production and the supply chain.

WoodMac expects China’s battery cell output to contract by 10 percent, or 26 GWh, this year, and further delays and production disruptions are possible if factory slowdowns and travel restrictions remain in place for longer. The expected 26 GWh of lost production accounts for 7 percent the world’s global production capacity, according to WoodMac.   Related: The New ‘Must-Have’ For Energy Hedge Funds

The lower Chinese battery production will not only impact the global electric vehicle (EV) and energy storage markets, but it could also challenge “the conventional narrative that EVs and grid storage projects will benefit from steady battery price declines,” Greentech Media, a Wood Mackenzie Business, reported last week.  

Depending on how soon China manages to contain the outbreak and have the manufacturing industry return to pre-coronavirus activity, the global wind, solar, and battery storage industries could be impacted for just a few weeks to a few months to well into the middle of this year.

But regardless of the extent of the impact, China’s manufacturing and energy demand have grown so much over the past decade or two that any major Chinese disruption sends shockwaves through the global energy markets.  

By Tsvetana Paraskova for Oilprice.com       

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