Power and renewables

Will the coronavirus pandemic impact the global wind industry?

Coronavirus pandemic impact wind industry

Contact us:

Peter Brun

Peter Brun

Segment Leader Offshore Wind

As we celebrate Global Wind Day 2020 in very different circumstances to previous years, it is topical to ask: will the current economic downturn, caused by the coronavirus pandemic, impact the outlook for the wind industry?

It is a relevant question to ask right now, particularly as some in the industry will be concerned that this global crisis could slow down or even jeopardize the expected, and much needed, energy transition. As the energy sector in all societies is closely linked to the activities in their respective national economies, it is only fair to expect that the supply and demand of power – at least in the short-term – will be impacted. A positive side effect of slower economic growth using the current power mix means that less CO2 emissions will be generated. However, a recession could set back or wipe out many new green energy investments, such as wind power or other renewable energy and clean technology solutions. So how should we assess the current situation – how serious is it?

Using DNV GL’s power price forecasts, it’s not surprising that our European Market model shows negative impacts to the power prices in 2020 and 2021. We forecast lower wholesale electricity prices between minus 3% and 4% in 2020 and 2021 respectively, if the recession is a so-called V-shaped recovery (fast). However, if the economic rebound takes longer – a U-shaped recovery (gradually improving over some years) – then the power price-impacts will retract to around minus 6%. Baseload prices will be greatly impacted within the range of minus 21% and 15% in the next two years if we see a V-shaped recovery, and minus 29% and 36% if we see a U-shaped recovery over the next two years. Looking at the forecasted reductions in CO2 emission, we forecast ranges of minus 16% and minus 14% respectively for a V-shaped recovery. If we see a U-shaped recovery, then we forecast minus 22% and minus 23% which could be seen as good news for the environment and our (short-term) climate change challenge.

However, the reductions in power prices could be less positive for the industry. Securing “decent” power prices are an important means to set a business case with any investor in power generation projects. The good news is that short-term price breaks are not necessarily changing the economics for investments in green technologies with a lifetime of 30-35 years.

Each year, DNV GL publishes its Energy Transition Outlook (ETO) and the next release will take place in September. From our preliminary model, it is clear that the global macro-economic downturn is certainly significant – and will be identifiable in the short-term in terms of CO2 emissions, power prices and wholesale electricity demand in different markets – as I’ve just explained. Nonetheless, it is important to distinguish the difference between short-term and long-term effects.

The long-term trend which we have forecasted in the ETO reveals a major shift from fossil fuels towards renewable energy generation, particularly wind and solar, over the next 30 years, In September, our ETO 2020 results will reveal the gap between the pre and post coronavirus predictions as well as the forecast to 2050.

However, the main mega-trends from recent ETO reports focuses on producing less CO2 emissions and using greener and more energy efficient technologies. These will not have changed, despite of the short-term CO2 reductions we’ve seen because of COVID-19. The reasons for this are many. But the main factor is that renewables and clean technologies are becoming more cost efficient and cheaper year on year. Therefore, it would be bad economics not to invest and instead buy less sustainable and polluting technologies.

Although we’ve seen significant cost reductions within offshore wind, I still meet people who regard the technology as expensive and immature. But this is fast changing and we are now in the middle of an investment revolution, where even traditional oil companies are eager to secure their position in this new energy venture. Offshore wind is en-route to becoming the backbone of our future electrified societies. A big driver for offshore wind is the significant cost reductions the technology has achieved in recent years, nearly halving between 2015 to 2018, and innovations in next generation technology. The recent announcement from Siemens-Gamesa about the release of their new 14 MW offshore turbine prototype is a good illustration of the fast technology development in this area. We will likely see lots more offshore wind in markets with good wind conditions and closeness to load-centers in the coming years. You can be assured of that! In fact, in our ETO, we forecast that 30% of all global electricity production will come from wind energy by 2050, with 12% from offshore wind and 18% from onshore wind. Offshore wind’s contribution will reach about 40% of total wind production by mid-century.

Offshore wind is also likely to be used when exploiting clean fuel resources, like hydrogen, which can be used for shipping, heavy industry and air-transportation. This development has just kicked off in Northwest Europe where several governments have already taken bold and strategic moves to secure leadership amongst this next generation technology. With the electricity produced cheaply by multi-mega-sized offshore wind farms, it is very exciting to see how it can potentially solve some of the challenges to make heavy transportation cleaner and more sustainable. The pace in the technology race has clearly taken off – and will not slow down just because of a short recession.

It’s also worth mentioning that many planned industrial scale offshore wind farms in the USA, Europe and Asia – which have taken between 8-10 years to properly plan – are already well in motion and even a short-term recession doesn’t seem to be slowing down their installation or development. In this industry, it’s the longer perspectives, lead times and trends which are important to observe.

So back to the question: will the current economic downturn impact the wind industry globally? I’d say probably not for the reasons highlighted above which secures momentum and upward growth. There are of course some uncertainties about the supporting regulations for the energy transition in some markets more than others. But regulators and governments can and should help accelerate the clean energy transition in order to secure a fair share of the many green jobs associated with this clean energy revolution. The transition – like all transitions – is sensitive to long-term policy and consumer signals. These signals are partly the responsibility of our politicians and regulators to secure, just like they have done with wide ongoing action and intervention in our societies relating to COVID-19.

Game changers which can positively impact the wind industry over the coming months and years include new tax credits in the USA, green stimulus packages in Europe and elsewhere – and a clever gradual increase to the CO2 price/tax. With a mix of these modern incentives and regulations, the question is only: how fast do we want this transition to happen? If you ask the climate experts and the increasing consensus in many nations, we should not pause but rather speed up this needed change, which could be done in an envelope of smart green stimulus. This would also help secure the rebound of our economies after the COVID-19 recession. Let’s turn this crisis into a big opportunity for us all and accelerate the energy transition!

Contact us:

Peter Brun

Peter Brun

Segment Leader Offshore Wind