China

China

Post-virus recession 'threatens' Asia-Pacific renewables growth

Up to 150GW of wind and solar capacity across Asia-Pacific (APAC) could be delayed or cancelled over the next five years if a post-Covid-19 recession continues into 2021, according to new research.

The Covid-19 pandemic has disrupted supply chains, manufacturing operations, project execution and reduced power demand(pic credit: World Health Organisation)
The Covid-19 pandemic has disrupted supply chains, manufacturing operations, project execution and reduced power demand(pic credit: World Health Organisation)

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Wood Mackenzie suggested a strong recovery following a two- to three-month disruption of power demand would lead to 380TWh of power demand lost in APAC this year.

However, the analysts warned that if the coronavirus pandemic is not brought under control and markets go into a major recession, approximately 1,000TWh of power demand could be lost by 2023.

This could lead to the loss of two years worth of renewables construction due to unrealised projects, it added.

Research director Alex Whitworth explained for the renewables sector to recover, there would need to be a return of power demand at pre-virus levels, favourable credit terms for renewables projects, renewables’ cost-competitiveness with fossil fuels, and government support including stimulus for renewables markets.

Credit terms

Prior to the outbreak of the virus, global investors had been willing to offer renewable energy developers in Asia-Pacific access to cash at competitive rates of interest.

However, if the coronavirus outbreak evolves into a financial crisis, funding may be harder to secure, leading to reduced competitiveness of renewables, Wood Mackenzie warned.

Increased financing and Capex costs could be especially demanding in 'developing' economies such as India, Vietnam, the Philippines, Thailand, Indonesia, and Malaysia, it added.

If local currencies weaken, Capex costs will likely increase, as hardware costs are typically priced in foreign currencies and account for the bulk of the expenditure.

And a 10% increase in the weighted average cost of capital could lead to an 8% increase in levelised cost of electricity for renewables, Wood Mackenzie suggested, making renewables projects less competitive.

Cost-competitiveness

Even though wind generation costs in APAC have fallen by an average of 29% in the last five years, in a recession with lower fossil-fuel prices, renewables would only be competitive with coal-fired power plants in most of APAC beyond 2025

“This is where government support is important. China and other key governments have strongly supported renewables with subsidies and preferential dispatch policies leading to massive growth in installation projects over the last five years," Whitworth said. 

Stimulus packages

However, governments may defer support for clean energy to deal with “more pressing economic issues”, he added.

“In an extended recession scenario, we expect governments to become overwhelmed with more pressing economic priorities, making it difficult to support the renewables sector with stimulus measures,” Whitworth said.

Nevertheless, some governments have shown willingness to extend subsidies for delayed wind and solar projects

For example, Vietnam’s ministry of industry and trade proposed a two-year extension of feed-in tariffs for wind to 2023, while China is discussing extending subsidies beyond the planned 2020 cut-off.

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