Coronavirus asks questions of renewables as well as oil

With global supply chains now in a state of flux, the role of China as the leading global manufacturing hub for renewable energy could also be under threat

  
A 3D printed oil pump jack is seen in front of displayed stock graph and "COVID-19" words in this illustration picture, April 14, 2020.

A 3D printed oil pump jack is seen in front of displayed stock graph and "COVID-19" words in this illustration picture, April 14, 2020.

REUTERS/Dado Ruvic/Illustration

Renewable energy projects and investments used to be very elastic to oil prices movement. However that is no longer the case. In fact, even when oil prices tumble, demand for renewable energy only keeps growing. For instance, before the coronavirus pandemic, energy from solar power became very competitive even when oil prices were in the doldrums.

There was a clear recognition that use of the best form of energy and its associated technologies depends on more than just price.

Over recent years, renewable investments have become more resilient to movements in oil prices.

Technology has become ever more sophisticated and renewables increasingly rely on plain market forces to find success.

Unless they collapse much further, low oil and gas prices are unlikely to delay or kill renewable projects.

However, the coronavirus pandemic has created the biggest commodity demand shock that the world has faced since the global financial crisis in 2008.

It therefore follows that even the increasingly resilient renewables sector will be impacted as the world will build fewer wind turbines and solar plants.

Indeed the International Energy Agency (IEA) forecasts that addition of renewable electricity capacity will decline by 13 percent in 2020 compared with 2019, the first downward trend since 2000. This reflects both possible delays in construction activity due to supply chain disruptions, lockdown measures and social?distancing guidelines, as well as emerging financing challenges, the IEA said.

While the coronavirus has impacted global hydrocarbon demand, the renewables industry is also being hit by production shutdowns in solar panels factories across China, the largest solar panel producer in the world and the main supplier of solar panel components to other producers such as India and the US.

Now the renewables sector is trying to quantify the impact of the disruptions, including the slowdown in construction activity across wind and solar projects.

Due to an already tight supply of key components such as turbine blades and bearings before the COVID-19 outbreak, first-quarter production delays have already reduced annual output of those components by about 10 percent.

The second quarter may be even more severe.

Regardless of whether Chinese solar panel producers have already resumed operations, it is still questionable that they are yet back to the same level of pre-pandemic efficiency.

With global supply chains now in a state of flux, the role of China as the leading global manufacturing hub for renewable energy could also be under threat.

• Faisal Faeq is an energy and oil marketing adviser.

He was formerly with OPEC and Saudi Aramco.

Twitter: @faisalfaeq

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