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Coronavirus’ effect on the renewable energy sector

On 11 March 2020, the World Health Organisation officially classed Covid-19 (coronavirus) as a pandemic and energy companies are feeling the strain

On 11 March 2020, the World Health Organisation officially classed Covid-19 (coronavirus) as a pandemic and energy companies are feeling the strain.

Both renewable power projects and conventional energy operations have felt the constriction of global supply chains, which are currently being limited in a global effort to fight and contain the spread of the virus.

Many manufacturers of wind turbines and their critical components are based in Asia, such as Goldwind in China, as well as producers of photovoltaic panels and batteries (particularly lithium). 

Market reticence about bringing in products from affected areas has seen significant constriction in the importation of these materials and parts - the price of batteries has dropped by 60%, owing to the industry’s concentration in Asia.

Restricting the global supply chain

The virus may, in fact, be having a deleterious effect on the progress of renewables as a whole. Industry leader GE Renewable Energy reportedly confirmed that Covid-19 has struck off US$200mn to $300mn in profits across its business in Q1.

CEO Jérôme Pécresse was optimistic that the company could recover, although he conceded that the issue could firmly be called a ‘global issue’. “As of today, we are on track to our quarterly forecasts. We continue the positive recovery of our supply chain in China.” 

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Meanwhile, solar projects in the US are being slowed to a crawl, with some considering cancellation as the only viable economic stance in the wake of such unforeseeable circumstances. 

“I think you’re going to see a lot of force majeure claims under the coronavirus, up and down the supply chain,” said Sheldon Kimber, CEO and co-founder of Intersect Power.

Taking steps to mitigate the issue

With the end of the virus presently far out of sight, energy companies will need to take decisive measures to ensure they are able to meet targets and continue operations as close to ‘normal’ as possible. 

Legal analytics publication JD Supra recommends the following actions:

  • Maintain communications with critical suppliers and strategically plan contingencies.

  • Comb through purchase and supply contracts to determine when ‘force majeure’ rights apply.

  • Always bear in mind the specific restrictions of the jurisdiction you are operating in.

  • Keep close tabs on customer demands.

  • Be willing to reallocate quantities of scarce materials.

  • Take out corporate insurance policies.