Coronavirus pandemic risk rings alarm bells in wind

The global coronavirus epidemic continues to worsen.

It has now spread to 40,000 people in 28 countries, mostly China, with over 900 deaths, and has been called a global emergency. It isn’t a pandemic, but it will be if we see sustained community outbreaks in multiple parts of the world, according to World Health Organisation.

But however we define it, the virus is already having an impact on the wind industry and on the global economy. The WHO and World Bank warned last September that a major pandemic could wipe 5% off global GDP, which is the equivalent of $3trn – and that now seems to be a very real concern.

Tight manufacturer deadlines

So far, the main impact in wind in China has been on manufacturers.

Chinese wind turbine makers have warned that measures to control the outbreak could hit them hard, and a large number of factories in China in multiple industries are shut as the Lunar New Year holiday has been extended as the government seeks to control the outbreak.

But continued delays will harm developers and investors in the country too. China is ending feed-in tariffs for onshore wind farms that are connected to the grid from 1st January 2020 onwards. This means companies are racing to meet tight deadlines to connect projects to the grid, and their business models will suffer if they can’t.

It is also worth noting that we have seen plenty of concerns about whether Chinese leaders are being accurate with their numbers.

Some sources have put the number of people infected so far at over 75,000, and a group of researchers in Hong Kong is warning that it could eventually infect 150,000 people a day. Scary stuff indeed.

Global travel restrictions

Outside China, the main restriction for wind companies has been on corporate travel, with Vestas and Ørsted among the major players who have gone public on their use of travel restrictions to protect employees. Such restrictions are also likely to hit productivity in the sector more broadly.

One concern for the sector is about rare earth materials used in direct drive turbines, with 90% of the sector’s supply coming from China.

For example, giant offshore wind turbine manufacturers including MHI Vestas and Siemens Gamesa are among those who use neodymium in the generators for their machines, according to a note from Renewables Consulting Group in 2018. Ninety percent of neodymium used in the wind industry comes from China and, if it is restricted, that could cause problems.

And then there are broader obstacles to business planning if executive from Europe can’t access projects they are working on in exciting emerging markets, such as the offshore wind farms in Japanese or Taiwanese waters; or onshore projects in nations in southeast Asia including Vietnam.

We often celebrate wind’s global credentials but we must remember on how much this relies on executives' ability to travel freely.

China has warned about the risk of countries overreacting in their response. But the impact that coronavirus could have on the economy should not be underestimated. A major decline in economic growth would also harm the energy use of companies in a wide range of industries, which could curtail demand for wind energy this year.

Impact on other sectors

We aren't there yet, but we must be alive to the risks. A pandemic in one of the epicentres of global trade can only be negative for business.

We have already seen the impact of coronavirus on the oil and gas industries as the epidemic has curtailed demand and driven down prices.

We have also seen how the solar sector, with its reliance on China as a global production hub, could be affected with warnings about disruptions to supply and price spikes. This could hit developers of solar projects around the world, and particularly in the fast-growing North American market.

And coronavirus could cause a recession in China that then kickstarts a global recession. The wind industry hasn’t been hit as hard yet as either fossil fuels or solar, but we cannot deny the risks if the situation continues to worsen.

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