COVID-19 disrupts demand-supply of renewable equipment
The COVID-19 pandemic has altered market dynamics for renewables, impacting all stakeholders along the value chain. Demand-supply disruptions are at large and there will be a decrease in global investments in clean energy, risking the initiatives undertaken to mitigate long-term climate change, according to GlobalData.
On the supply side, the emergence of the pandemic in China had supply chain ramifications, as the country is home to prominent renewable equipment manufacturers. For instance, in the case of solar module manufacturing, China bears significant control over the entire PV module fabrication chain, with manufacturers in other countries such as Malaysia, Vietnam, and South Korea, reliant on raw materials supplied by China.
With plants in China halting operations at the end of January, the market experienced material and equipment shortages, contributing to shipment delays and a rise in costs. Similarly, on the demand side, solar developers are facing prospects of delayed deliveries, penalties and rising costs that consequently impacted their profit margins and credibility. The disruption in supply placed projects in the development pipeline under risk.
Somik Das, Senior Power Analyst at GlobalData, said: “Countries across the world are witnessing a rising number of infected cases and have therefore implemented lockdown measures and social confinement. This has disrupted both demand and supply of renewable components.
“Although China has slowly resumed operations that may resolve supply-side issues, the global economic slowdown is likely to dent the demand for renewable equipment. The emerging trends on the demand side are expected to bring uncertainty to the project financing market, impact development timelines, and stunt market growth.
“Due to plant closures and shortage of components, equipment prices are on the rise. Smaller developers with awarded projects will find it difficult to remain solvent in the current macroeconomic conditions and larger developers could use large upfront capital to move towards protecting their balance sheets and improving their revenue streams rather than opt for new investments in renewables.
“Similarly to the US and the UK, governments across the world are likely to provide recovery packages. Without immediate policy support and with the existing market risks, new capacity additions are likely to slow down for at least the next few months.”