IEA: Distributed Solar PV Could Take the Biggest Hit Due to COVID-19
Date: April 7th 2020
Author: Tanja Srnovršnik
, Energy policy
While in October 2019 the International Energy Agency (IEA) forecast that 2020 would be a record year for renewable electricity additions, the IEA is now warning that the coronavirus pandemic could derail the progress of renewable energy and that distributed solar PV could take the biggest hit. Meanwhile, the Spanish power group Iberdrola, one of the world’s largest investors in clean-energy projects, has pledged that it will ramp up its investments post the coronavirus pandemic, reported GreenTech Media.At the end of last year, the IEA expected that global installations of solar PV and wind would outpace 2018 levels by over 20% in 2020 and that renewable policies in China, the European Union, the United States and India will drive this rapid expansion.
However, “as the world deals with an unprecedented global health crisis, economic shock waves have been rippling through the renewable energy sector, threatening to derail its progress,” wrote Heymi Bahar, senior analyst of renewable energy markets and policy at the IEA, in a commentary published over the weekend.
One issue relates to disruption in the manufacturing of solar panels and wind turbines. While the solar PV supply chain in China - which accounts for the majority of the global supply of solar panels - is now ramping up production again, the wind energy supply chain “is much more globally interconnected compared with solar PV.”
“Europe is a major manufacturing hub for wind turbines, and European factories initially experienced disruptions to the supply of parts coming from China in February. Manufacturing facilities in Italy and Spain have been closed since mid-March due to strict confinement measures. In addition, the recent lockdown in India required most non-essential manufacturing facilities – including wind turbine and solar PV component manufacturers – to close until mid-April. The effects are already being felt in the United States where multiple projects have received ‘force majeure’ notices from suppliers warning developers about possible delivery delays. Uncertainty over the timing and impact of potential lockdown measures in other countries could further delay the completion of many projects worldwide,” warned Bahar.
Slowdown in construction
The impact of the pandemic is also slowing down activity on the construction of renewable projects, as lockdown measures in multiple European countries, India and some US states require non-essential workers to stay at home.
Bahar stressed that while large developers with strong cash positions may be able to handle the construction delays or additional costs that they incur over the short and medium term, “the situation remains more uncertain for small project developers with less cash at their disposal. For them, delays may require the restructuring of existing debts. Ensuring adequate access to low-cost debt and other financing mechanisms will be key to ensuring that developers can maintain operations now and in the long term.”
Renewable projects also “require multiple meetings to take place in person at both the government and community levels.” With multiple government offices and energy agencies shut down around the globe, permitting processes will be delayed unless a coordinated online system that spans multiple authorities is made available,” warned Bahar.
Bahar foresees that distributed solar PV will take the biggest hit. “Last year, an estimated one-fifth of all renewable capacity deployed globally consisted of individuals and small-to-medium-sized enterprises installing solar PV panels on their roofs or business sites. Such decentralised installations – known as distributed solar PV – accounted for over 40% of global solar PV deployment last year.”
Now, however, “the installation of distributed solar PV has stopped in many countries because of lockdown measures preventing access to the buildings. Households and small businesses facing financial shocks and economic uncertainty may postpone or abandon their plans to install solar PV on their properties,” said Bahar.
Generating capacity amounting to 176 GW was added to the renewable energy sector globally in 2019, marginally lower than the (revised) 179 GW added in 2018. However, new renewable power accounted for 72% of all power expansion last year, according to new data released by the International Renewable Energy Agency (IRENA) on Monday. While the expansion of renewables slowed last year, total renewable power growth outpaced fossil fuel growth by a factor of 2.6, continuing the dominance of renewables in power expansion first established in 2012. Solar and wind contributed 90% of total renewable capacity added in 2019, said IRENA.
What can governments do?
“Considering the unprecedented economic impact of the coronavirus crisis, the growth in renewable capacity additions this year may very well slow down for the first time in history. However, governments have the ability to change this trajectory with targeted policies that can enable renewables to grow sustainably in the coming years,” noted Bahar.
Bahar thinks that “as governments continue to work on repairing the economic damage and spurring renewed activity in the week and months ahead, there are a number of actions that can achieve these goals while also helping the deployment of renewable energy.”
Thus, policy makers can extend deadlines for commissioning projects beyond 2020 in order to account for delays due to supply chain disruptions or labour constraints. “This will enable renewable project developers to avoid financial penalties that may weaken their financial situation in a difficult economic context while allowing them to keep previous incentives for which they had qualified,” said Bahar.
Governments can also include specific financing measures and incentives for renewable projects in upcoming stimulus packages. According to Bahar, these should focus “on reducing the risks for capital-intensive utility-scale solar PV and wind projects under dire macroeconomic conditions, especially for small developers.” Bahar added that additional economic incentives such as tax credits, investment grants and specific loan schemes would be necessary to maintain demand for the highly vulnerable distributed solar PV sector and that these incentives can be combined with energy efficiency policies.
Bahar also stressed that “short-term policy actions on renewables should align with new medium- and long-term visions that aim to achieve a rapid peak in greenhouse gas emissions this decade and a steep decline thereafter.”
“Renewables and energy efficiency will play leading roles in advancing clean energy transitions, but they need a continued and coherent long-term policy vision. In that sense, stimulus packages should also channel funds towards new renewable energy technologies that are not fully commercialised but have significant cost reduction potential, such as floating offshore wind farms, marine technologies and low-carbon hydrogen production,” said Bahar.
Iberdrola announces increase in RES investments post-pandemic
Meanwhile, Iberdrola said that its total investments in 2020 will hit EUR 10 billion, up from EUR 8.15 billion last year, as it barrels ahead with its 9 GW portfolio of projects under construction, half of which are due for completion before the end of this year, reported GreenTech Media.
Speaking at the company’s annual general meeting on Thursday (held remotely), Iberdrola’s CEO, Ignacio Galán, stressed that “as soon as possible, we will speed up our investments in order to contribute to economic activity and prevent jobs from being lost.”
“Speeding up investments, once these exceptional circumstances come to an end, is the best - I would venture to say the only - way to get through this situation of crisis and uncertainty. Therefore, in 2020 it is our intention to surpass last year’s investment record and reach EUR 10 billion,” he noted.
This article is available also in Slovene.
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