As the novel coronavirus tightens its grip across the world, it is almost impossible for businesses to asses the economic implications of the outbreak. Renewable energy companies are struggling with numerous logistical challenges and supply chain disruptions that threaten current and future projects. While leaders across the globe are racing to find ways to contain the spread of the virus, its damage to the economy might be unprecedented in the weeks to come.
India has been in lockdown since the 22nd of March 2020 with only essential services including healthcare, food, and critical infrastructure being exempted. This has placed a huge strain on the solar energy sector since India imports most of its solar power modules from the global supply chain leader in the sector, China. Nine out of the top ten solar cell makers in the world are Chinese firms and approximately 63% of modules required by solar power projects in the country as well as associated hardware such as inverters and trackers are supplied by China.
With the closure of borders, the country faces immense problems since production units are shut down in many cities. This crisis will bring about a ripple effect that will be felt for a long time. Bloomberg New Energy Finance (BNEF) recently lowered its 2020 global solar demand forecast to 108-143 GW, a 9% drop compared to its previous estimate, in light of the current scenario. This would mean that 2020 is the first slow year for global solar installations since the 1980s.
Although the future looks bleak, one positive development is that China has reopened its factories and has restarted operations, which can ease the pressure on supply, albeit only partially. However, we also have to consider the fact that not only supply but demand as well, will be affected. At the moment, policy-makers have pressing concerns that a COVID-19 economic slowdown could dent the demand for renewable energy and reduce the amount of finance available. They also fear that the postponement of industry conferences and auctions and the shortage of workforce could knock projects off their timelines.
Indian Solar Market Impact
Since the solar industry in India relies heavily on imports from China, it will be considerably impacted. India imports nearly 80% of its solar cells and modules from China and does not have the commercial production capacity for ingots, wafers, and polysilicon, which are essential components needed to manufacture solar cells.
As per current estimates, about 4 GW of solar power capacity at various stages of development is likely to be impacted due to the outbreak. This may have a significant impact on the revenue of developers and manufacturers leading to an increase in tariffs of upcoming solar power bids. A positive step that the Ministry of New and Renewable Energy (MNRE) took, was to declare that developers who are facing delays due to supply lines from China will be given extra time for the commissioning of projects. Developers can declare force majeure, a clause that frees them from contractual obligations due to unforeseeable events, but which can only prevent delays up to 90 days. Project developers, therefore, are still looking for additional financial support from the government to deal with working capital costs and interest payments due to the delay. The fact that payments from DISCOMs are likely to be significantly delayed has led to even more stress among developers. But with regard to this, MNRE has already clarified that all DISCOMs must make timely payments.
So for now, the government should remove the safeguard duties on imports from other countries and also incentivise developers to source from Indian manufacturers. This strategy will be critical in ensuring an alternative supply chain to China in the long run for domestic OEMs (Original Equipment Manufacturers). This could lead to Indian solar OEMs strengthening their manufacturing operations. It is clear from this crisis that the government must push developers into building a strong and competitive domestic solar manufacturing industry.