The 2020 crash is tougher to navigate than 2008

Every financial crisis is different. It was a credit crunch and the US sub-prime crash that sparked the 2008 meltdown.

But at least we could meet in person to discuss the latest headlines and find a route through together. At least the real economy was still intact. Those with money could go out to spend and help to stimulate activity.

Things are radically different in today’s Covid-19 crisis in three ways.

First, we have a financial crisis that will curtail investment, but we also have paralysis in the real economy as governments shut non-essential shops and services. In 2008, one goal was to stop the panic to unfreeze the economy. But, this time, that doesn’t apply. The pandemic could outlast the panic.

Second, we face extra obstacles to navigate this crisis. The restrictions on face-to-face contact will delay construction of non-essential infrastructure projects, which is usually a mainstay to keep the economy moving during a downturn, and is forcing companies to rely on video calls. Better than not talking, but it still slows down economic activity.

And third, the 2008 meltdown didn’t affect the whole world. There was still investment into emerging markets, which helped maintain investment. Covid-19 has laid bare the challenges of running global supply chains.

In short, this isn’t just a financial crisis. It’s a financial crisis combined with a health disaster, where large numbers of newly unemployed need help just to survive, and which is terrible for companies that rely on face-to-face contact.

Where does wind fit?

We are positive about the long-term prospects for wind. The momentum for moving to low-carbon energy sources is strong, and will remain after countries have got this crisis under control. The sharp drop in pollution in locked-down countries may even increase the pressure from residents to reduce emissions.

This should mean the long-term prospects for wind investment remain strong.

However, the short-term upheaval could be huge.

Wood Mackenzie reported this week that Covid-19 would result in a 4.9GW fall in global wind installations in 2020 compared to previous forecasts, leaving the figure at 73GW. That is a result of the impacts of the pandemic on worker mobility, factory openings, policy and permits.

This echoes a warning from the American Wind Energy Association, which said that 25GW of US wind projects representing investment of $43bn are at risk. That was before the $2trn stimulus package was agreed on Wednesday.

In Europe, we saw a series of factory closures in Spain last week as Covid-19 cases continued to rise, by big names LM Wind Power, Siemens Gamesa and Vestas – although the Vestas closure was temporary. The Spanish Wind Energy Association (AEE) said the delays to construction would be temporary but not reduce overall activity.

Market upheaval will delay wind investments elsewhere in Europe. The UK and Germany are among those delaying their tenders. But overall, Europe has been resilient so far, with 96% of its manufacturing sites still operational according to WindEurope. But these plants could be hit if lockdowns get stricter.

Companies will also need to navigate this with the slimmer profit margins they have received in recent years as the result of moves to competitive auctions.

The apparently positive story now is China, where workers are getting back to work – including in wind – as the government says it has the pandemic under control. This would be good for manufacturers that rely on parts from China, but it relies on us believing a government that covered up the pandemic in the first place.

If China has the pandemic under control, then it is a sign that other countries will be able to get back to a type of normality soon too. If it doesn’t, then we would expect to see further outbreaks cause disruption to the supply chain. Next time, Western companies will be less able to turn to rival producers in countries such as India and Mexico that have their own lockdowns.

Finally, we don't expect investors in the wind sector to get through this alone. Political support for green energy will be key, and countries must see it as key to their Covid-19 recovery plans.

NEWS IN BRIEF

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COVID-19: MERCURY STOPS 222MW BUILD

New Zealand utility Mercury NZ has stopped construction on its 222MW Turitea onshore wind farm due to the Covid-19 pandemic. Read more

NORWAY DELAYS €2BN SUBSEA LINK DECISION

The Norwegian government has postponed a decision on whether to allow Swedish utility Vattenfall and its partners to develop the €2bn NorthConnect subsea power cable between Norway and Scotland. Read more

CROWN ESTATE RE-WORKS LEASING ROUND

The Crown Estate has reworked the timetable for its round four offshore leasing round. The 'invitation to tender' phase is set to open on 30th March, and the submission period has been extended by three weeks. Read more

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