How will wind fare if Covid-19 kickstarts a global recession?

Investors in the wind industry have so far reacted confidently to the spread of the coronavirus strain Covid-19. But how long will this confidence last?

We looked at the potential impact of the outbreak on companies in the wind sector a few weeks ago when it was still mostly contained to China.

Even last week the Chinese Wind Energy Association said the potential impact would be “moderate”, and added that production was returning to normal.

But the situation is getting worse.

The World Health Organisation said last week that public health officials were now in “uncharted territory” as they sought to curb Covid-19's spread. Nearly 100,000 cases have been confirmed in 73 countries, including serious clusters in Iran, Italy and South Korea; and we are seeing events cancelled or at risk of delay, from the Tokyo Olympics to numerous conferences.

This shows that a worldwide pandemic with a mortality rate of 2%-5% is a serious threat, which compares to a mortality rate of 0.1% for seasonal flu. Most sufferers would only experience mild symptoms, but it worth taking seriously. Investors certainly are, as this could yet spark a global recession.

Stock market jitters

Stock markets around the world last week saw their largest weekly falls since the financial crisis of 2008.

Over $5trn was wiped off the value of stocks globally due to investor panic about the potential impact of Covid-19 on businesses, including the falls in industrial activity, consumer spending, and travel for both work and holidays.

The Organisation for Economic Co-operation & Development has also this week warned that the disease is the greatest threat to the global economic since 2008, and could have predicted global growth to 1.5% if Chinese-style outbreaks are repeated elsewhere.

It hasn't all been doom and gloom. The markets have rebounded this week as central banks said they would step in to support the global economy if Covid-19 disruption worsens.

But there is definitely panic out there. The viral photos of Australian shoppers hoarding toilet roll shows us that much! It doesn't feel like it would take much for another sell-off to start, possibly leading to a prolonged bear market. We won't take this week's bounce for granted.

This uncertainty could present opportunities for the wind industry.

Wind developers have benefited from the historic low interest rates that have been in place since the financial crash of 2008. This is because investors have prioritised investments in stable cash-generating infrastructure assets such as wind farms. Therefore, if there is a continuation of these policies as a result of Covid-19 panic, that should reinforce the attractiveness of wind.

It could also encourage utilities to step up their move to renewables. Research from Rystad Energy has estimated that lower demand for oil and gas in 2020 could lead to a $30bn drop in oil and gas investments. This might make wind and solar look like a more attractive long-term options for utilities looking to make the green energy transition.

Finally, we have seen that share prices among wind turbine makers, including Vestas, Siemens Gamesa and Nordex, have held up well in the last couple of weeks despite broader market turmoil. We are well aware that manufacturers face challenges caused by slimmer profit margins, and these haven't gone away. But we must also remember the long-term attractions of wind companies to investors as more countries embrace renewable energy.

Covid-19 is here and it'll grow, but the panic will eventually subside. It may take a month. It may take a year or more. But however long that takes, the need to invest in fixing the world's energy challenges remains.

Through recession and pandemic, that would endure.

NEWS IN BRIEF

ØRSTED PICKS SGRE FOR 1.1GW GERMAN DUO

Ørsted has picked Siemens Gamesa as preferred supplier for its 900MW Borkum Riffgrund 3 and 242MW Gode Wind 3 offshore wind projects in the German North Sea. Read more

REPSOL BUYS 860MW SPANISH COMPLEX

Repsol has bought an 860MW complex of 26 wind farms from Forestalia in Aragon in northern Spain, where Repsol is also developing its 335MW Delta wind farm. Repsol is naming the new acquisition Delta 2. Read more

UK REVERSES FOUR-YEAR ONSHORE WIND BAN

The UK government has reversed its four-year ban on allowing onshore wind and solar projects to compete for financial support. The UK's next Contracts for Difference auction round is due to open in 2021. The government is also looking to open the next CfD auction to floating wind projects. Read more

JOHN LAING DITCHES WIND AND SOLAR

John Laing has withdrawn from wind and solar because it said standalone generation projects were too risky for the returns on offer, and is set to sell its existing portfolio of wind and solar assets. Read more

MHI VESTAS WINS 139MW JAPANESE ORDER

MHI Vestas has secured its first order in Japan at the 139MW Akita and Noshiro offshore wind farms. Installation is due to start in 2022. Read more

TAALERI CLOSES €275M SOLARWIND II FUND

Taaleri has reached the €275m second close of its SolarWind II fund, which is its fifth renewable energy fund. The European Bank for Reconstruction & Development is among the investors in this close. Read more

LM TO CLOSE TWO PLANTS AND REPLACES CEO

LM Wind Power is planning to close two production facilities in Denmark with the potential loss of 200 jobs. This comes after the replacement last month of Duncan Berry as CEO. He is succeeded by Olivier Fontan. Read more

SHELL-LED TRIO PLANS 4GW HYDROGEN PROJECT

Shell, Gasunie and Groningen Seaports have revealed plans for a giant green hydrogen project, called NortH2, that they are planning to pair with up to 4GW of wind capacity in the North Sea. Read more

POLAT SHAREHOLDERS PICK BARCLAYS FOR SALE

Shareholders in Polat Enerji have reportedly picked Barclays to advise them on a sale of the firm, which owns wind farms totalling 509MW. Polat is owned by PSP Investments, EDF Energies Nouvelles and Batiyel Enerji. Read more

RWE GROWS US PORTFOLIO TO OVER 4GW

RWE has commissioned its 151MW Peyton Creek wind farm in Texas. The project is made up of 48 Nordex turbines and grows RWE's portfolio in the US to over 4GW. Read more