Potential for ‘major recession’ could cut regional power demand by 1000TWh by 2023 says Wood Mackenzie

Up to 150GW of wind and solar projects across the Asia Pacific could be delayed or cancelled over the next five years if a coronavirus-led recession extends beyond 2020, according to latest Wood Mackenzie analysis.

Wood Mackenzie predicted a two- to three-month power demand disruption with strong recovery would lead to 380 terawatt-hour of power demand lost in the region this year.

“If the coronavirus is not brought under control and markets go into major recession, approximately 1000TWh of demand could be lost by 2023,” said Wood Mackenzie, equivalent to about two years of growth in the region.

Wood Mackenzie research director Alex Whitworth said: “The extent of the coronavirus impact on Asia Pacific markets is key to the future growth of the renewables sector.

“Over the last five years (2015-2019), the Asia Pacific region accounted for over three quarters of global power demand growth, while leading the world in wind and solar capacity installations.

“The coming months will be crucial to determine if the region is moving towards a rapid recovery or extended recession future.”

Wood Mackenzie said “key indicators” to monitor include power demand growth, credit terms for renewables projects, cost competition between renewables and fossil fuels and government support, including stimulus for renewables markets.

Whitworth said: “In our base case outlook, the impact on wind and solar installations in 2020 can be offset by stronger growth and support policies in 2021.

“But if the situation worsens, renewables projects in developing Asia (India, Vietnam, the Philippines, Thailand, Indonesia and Malaysia) could be heavily impacted by increased financing costs, as well as forex risk due to high capex share of costs.

“A 10% increase in weighted average cost of capital could lead to an 8% increase in levelised cost of electricity in renewables.”

Another factor determining the competitiveness of renewables is the comparison of the LCoE of renewables with fossil fuels.

While generation costs of new solar and wind plants across Asia Pacific have fallen by 54% and 29% respectively in the last five years, Whitworth said that in a recession scenario with lower fossil fuel prices, renewables would only become competitive with coal-fired power plants in most of the Asia Pacific beyond 2025.

He said: “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.

“But as the scale of renewables investments grow, governments have begun to lower or cancel subsidies and expose renewables projects to market forces. Given the potential impact of the coronavirus outbreak, governments may need to rethink the timelines for withdrawing support, and the timing of energy transition plans.”

By April 2020, in response to the coronavirus, some governments have been willing to extend subsidies for delayed wind and solar projects.

Vietnam’s Ministry of Industry and Trade proposed a two-year extension of FiTs for wind to 2023, while China is discussing extending subsidies beyond the 2020 planned cut-off. However, these policies are likely to affect the existing project pipeline rather than new projects.

Whitworth said: “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.

Source : Renews.biz