Impacts of COVID-19 on the renewable energy support scheme
25 March 2020
With a lot of uncertainty around the impacts of Covid-19 on global supply chains and renewable project delivery we are starting to see the effects in the Irish Energy market, notably the announcement that prequalification for the Renewable Energy Support Scheme in Ireland will be extended.
The global energy sector has already felt the impacts of the coronavirus with consumption levels declining and global markets plummeting, especially in the wake of the oil price disputes between the Organisation of the Petroleum Exporting Countries (OPEC) and Russia.
When Covid-19 was first identified in China, it caused an economic slowdown leading to a significant decrease in demand. This led to fears of over-supply for fuel and oil products, and a fall in prices. OPEC wanted to cut production to impede the price drop, however Russia would not agree, and OPEC decided to increase production until Russia relented. Talks continued while markets closed on Friday 6 March and when they reopened on Monday 9 March, many companies lost millions. As the economic impacts of Covid-19 are spreading globally, oil prices are continuing to fall, with Brent Crude oil prices reaching a 17-year low last week. This has reverberated into the carbon market, with the price of EUA’s falling more than 30% to a 16-month low of just over €15/t. As things progress, the energy sector will need to simultaneously contend with low oil-prices and supressed demand, whilst managing debt obligations, business continuity and the safety of their workforce.
The energy industry is likely to continue to feel the effects of this drop in oil and gas prices and the ongoing impact of COVID-19 for a prolonged recovery period.
It is not just uncertain times for the gas and coal industry, with a number of issues facing the renewable industry also. The renewable sector in Ireland relies on European and global supply chains for raw materials and components and the first logistical delays in the supply chain can be observed already. The slowdown of China’s manufacturing output and restrictions on travel is apparent, and over the last week a number of European plants involved in wind and solar manufacturing have reduced production or entirely closed after a number of employees tested positive for Covid-19. This will inevitably lead to weak links in the renewable supply chain as vendors and suppliers face operational or financial strain. Any further delays may start driving up costs in the short term.
WindEurope CEO Giles Dickson stated recently “With COVID-19 we are likely to see delays in the development of new wind farm projects which could cause developers to miss the deployment deadlines in countries’ auction systems and face financial penalties. Governments should be flexible on how they apply their rules. And if ongoing auctions are undersubscribed because developers can’t bid in time, governments should award what they can and auction the non-awarded volumes at a later stage”.
How and when things will return to normal depends on rapidly evolving variables, from geopolitics to the global containment of COVID-19. We are already seeing material and component production ramping back up in China. Early indications suggests that COVID-19 will have moderate effects on international supply chains for the renewable industry. However, with the outbreak of COVID-19 still at a relatively early stage in Europe, is it too soon to judge its impact on production and revenues in the sector?
Noting WindEurope’s comments on potential impacts on renewables auctions, Ireland has joined Germany and Great Britain in their decision to extend their auction schedule. Although we have only seen an extension to the prequalification deadline so far, EirGrid have indicated that auction timelines will shift as a result, with dates to be updated and notified to participants in due course. Given the four-week extension for the prequalification window, we’d estimate an auction is now likely to be held in July or August rather than June.
Given the time it has taken to get to this stage in RESS, some may be frustrated with the delay. With the unprecedented nature of the COVID-19 crisis in mind a delay of this nature seems sensible and certainly some participants will be very glad to see this announcement, with results of our recent twitter poll showing almost two thirds of participants in favour of a delay.