This is equivalent to pushing back the Asia Pacific renewables construction pipeline by nearly two years, according to research and consultancy firm Wood Mackenzie.
“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," Wood Mackenzie research director Alex Whitworth said.
He added the coming months will be crucial to determine if the region is moving towards a rapid recovery or extended recession future. “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.”
A 2-3 month power demand disruption with strong recovery would lead to 380 Terawatt hour (TWh) of power demand lost in Asia Pacific this year. However, if the coronavirus is not brought under control and markets go into major recession, approximately 1,000 TWh of demand could be lost by 2023. This is equivalent to about two years of growth in the region.
Prior to the virus outbreak, global investors had been active in Asia Pacific renewables projects, offering developers 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.
“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* 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 (LCOE) in renewables,” Whitworth said.
Another factor determining the competitiveness of renewables is the comparison of the LCOE of renewables vis-a-vis fossil fuels. While generation costs of new solar and wind plants across the 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.
