Coronavirus 'jeopardises 2020 Chinese installations'

Production delays caused by the coronavirus (COVID-19) outbreak could halve wind turbine installations in China in 2020 if the epidemic continues to impact the supply chain into the middle of the year, according to global energy consultancy Wood Mackenzie.

According to the World Health Organisation, 98.9% of Coronavirus cases have been recorded in China (pic credit: UN News/Jing Zhang)
According to the World Health Organisation, 98.9% of Coronavirus cases have been recorded in China (pic credit: UN News/Jing Zhang)

The outbreak has brought wind turbine production “to a standstill” in recent weeks due to quarantines and travel restrictions, the consultancy stated.

It had forecast 28GW of additions in China in 2020, but if the outbreak is not contained, production capacity will continue to be limited, hindering construction, and jeopardising up to 50% of these installations.

However, if the disease is contained and production returns to normal levels by the end of March — Wood Mackenzie’s ‘best-case scenario’ — then the damage could be limited to around 10%.

The World Health Organisation (WHO) advised that it is impossible to predict the spread of coronavirus as it is a “new virus with many unknowns and represents an evolving public health emergency”. However, it added that it expects more cases to be reported in other countries.

Vestas, Siemens Gamesa and Ørsted were among wind power companies affected by the outbreak. 

The world's largest turbine manufacturer, Vestas had halted manufacturing for Chinese New Year (25 January), but restarted production on 15 February and now plans to gradually ramp-up production as conditions allow. The company has also banned all non-essential travel to China within the organisation.

Siemens Gamesa, meanwhile, has started to develop India as a global export hub to reduce its dependency on China. It has two blade factories in Andhra Pradesh and Gujarat, and a nacelle factory  operations and maintenance centre in Tamil Nau, but does not plan to open any new plants in India.

The manufacturer had extended Chinese New Year holidays at its blades and nacelles factories in Lingang and Tianjin respectively, but has since reopened both plants. Its spokeswoman advised that it is too early to tell whether the coronavirus will contribute to a global slowdown of logistics and components supply.

It also put in place two travel bans on 24 January: a total ban on travel to and from mainland China, Hong Kong and Macau and on non-business critical travel to all of Asia Pacific. It is also observing an internal travel ban in China, put in place by Chinese authorities on the same date.

An Ørsted spokesman advised that the company’s business had so far been unaffected by the coronavirus, but the developer is closely monitoring the situation.

Supply chains

Wind turbine component production is limited in Hubei province, in which Wuhan, the city at the centre of the outbreak, is located.

But quarantine and travel restrictions have exacerbated an already tight supply chain for key components such as blades and main bearings. First-quarter delays in production have already reduced annual output of such components by about 10%, Wood Mackenzie warned.

“Components without pre-existing bottlenecks, such as generators and converters, should be able to recover from Q1 delays if the outbreak is brought under control in the next few months,” senior consultant Xiaoyang Li added.

Wood Mackenzie expects coronavirus to have little impact on wind turbine installations in non-Chinese markets, due to the limited number of reported cases and “extreme containment measures” taken to limit the spread of the virus.

It believes the direct impact of COVID-19 will be minimal on other Asia-Pacific markets, with wind power sectors relying more on other low-cost regions such as India, Vietnam and southern Europe. 

However, it believes the greatest concern for markets outside of China is in the United States - where developers are already rushing to begin projects by the end of the year to remain eligible for expiring government subsidies.

Renewable energy underwriter GCube told Windpower Monthly operators would be unlikely to successfully claim insurance payouts for problems indirectly caused by the coronavirus.

This because project-protection policies typically bought by renewables operators tend to cover damaged assets rather than loss of revenue due to project delays, CEO Fraser McLachlan explained.

Insurance packages that would cover delays are not cheap, and so tend to be bought by companies in sectors more acutely exposed to the risk of contagious diseases, such as the restaurant and leisure industries, he explained.

But despite renewable energy firms’ increased interest in these packages, their costs will have increased - most likely to prohibitively high rates - after the well-publicised outbreak and spread of the coronavirus, McLachlan added.

GCube does offer packages protecting against operators not meeting the deadline to claim US tax credits as a result of business interruption, the underwriter advised. However, these policies only cover losses as a result of not meeting the deadline, rather than any loss of unexpected delays.

According to the WHO’s last update, published on 18 February, 73,332 COVID-19 cases have been confirmed in laboratories worldwide, of which 72,528 (98.9%) are in China. There have been 1,873 reported deaths to-date, of which only three (0.16%) were recorded outside of China.

This story is being updated.

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