Coronavirus, a stab in the wound of the Chinese renewable power market?

Coronavirus, a stab in the wound of the Chinese renewable power market?

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With the recent outbreak of the Coronavirus, which originated in Wuhan, China, and spread so rapidly that the World Health Organization (WHO) has declared it a global health emergency, many economists are pessimistic about the status of the international economy for this year.

The Chinese government is now spending billions to keep its country’s economy afloat as the Coronavirus death toll reaches 362 today. With Chinese stocks plunging to the lowest it has been since 2015, it is evident that the impact on the Chinese domestic market is profound, with further developments holding great uncertainty. Will it also hurt the Chinese renewable power market like a stab in the wound?

2020 is expected to be a critical year for the wind power market in China. A couple days before the start of the Chinese Lunar New Year, the MOF together with the NDRC and NEA jointly announced that “from 2020, new incremental offshore wind power projects and solar thermal projects would be excluded from the REDF subsidy managed by the MOF.”  For the existing projects that have obtained permits, if they fail to complete full grid connection by December 31, 2021, they will lose their high FIT rates and subsidy from the central government. While there is hope that some provincial governments will pick up the burden of supporting the offshore wind industry, this general “do it or leave it” message from central authorities has pushed developers to the extreme, accelerating the speed of construction of offshore projects in 2020. Onshore wind developers and solar PV companies are also confronted with a similar tight schedule of construction to secure their subsidy.

The epidemic is now making it significantly harder to achieve this target. In order to prevent the spread of the epidemic, the Chinese government has extended the Spring Festival holiday, and many provinces and regions such as Shanghai, Guangdong, Jiangsu, Fujian and Zhejiang where wind power equipment manufacturing and offshore wind power projects are concentrated have further postponed the return to work to after February 9. A definite date still remains unclear and subject to the evolution of the epidemic. The extra ten-day holiday coming at the height of the "construction rush” is creating significant challenges for OEM, EPC and C&I companies which are failing to deliver in a timely manner. In addition, the outbreak is more severe in the labor export provinces such as Hubei, Hunan and Henan and has hampered the flow of labor. Many upstream equipment manufacturing enterprises will suffer from severe labor shortage in the short term. Some of those who have been planning to expand production capacity to meet the needs of the construction rush will face delays.

Apart from shortage of labor, the traffic barricade will hinder the wind power construction cycle, which involves inter-provincial and inter-city shipping, land transport, marine works, port, offshore construction and installation, etc. For instance, the offshore wind construction cycle is a highly complex procedure demanding seamless coordination and integration of different steps and actors.  Any missing block in the whole cycle will inevitably affect the entire industrial chain and delivery process, and ultimately grid connection of projects.

To prevent the renewable power companies and EPCs from rushing construction despite the anti-spread control, the NEA has issued a notice requiring companies to readjust their construction schedule on January 30. Solar PV companies, most of which are private players, have collectively appealed to the NEA for support on a less stringent deadline for grid connection.

In coming weeks and months we will need to follow the situation closely to see if the central government decides to give a few months of slack to the industry, which would be reasonable and safe in the current context. We will keep our readers posted on any future developments.