Solar Stalls as Coronavirus Leads to Declines in China's Energy Demand

Of the global greenhouse gas (GHG) emissions over the last 5 years, one-fourth are attributed to China. The country’s reliance on coal-fired power generation only increased in 2019.

As a signatory to the United Nations Framework Convention on Climate Change, China must submit anofficial inventoryof its carbon emissions. From 2004 to 2014, China’s estimated GHG emissions increased by 53.5%. Fossil fueled generation and steel production in China is likely to intensify the amount of carbon emissions in 2020. However, according to the Centre for Research on Energy and Clean Air in Finland, China’s carbon emissions dropped by about 100 million metric tonnes in mid-February as energy demand nosedived in the country. In mid-February, the estimated average power generation from coal plants was at its lowest compared to the last 4 years. The figure below highlights the decline in output from coal plants.

Daily Coal Consumption at Six Major Power Firms

(Source: Carbon Brief)

The coronavirus outbreak has created a state of industrial lockdown and travel restrictions in China. While China continues to battle this epidemic, output across its industries is expected to decline by up to 40% over the next few months. The solar energy sector may soon witness bottlenecks across its supply chain (including manufacturing and logistics) considering a large proportion of global OEMs are from China. The price of solar glass is likely to be most impacted and increase by 7%-8% unless the outbreak is contained by June 2020. If the industrial lockdown and extended holiday continue, in several weeks this disruption is likely to creep into other regions that rely on China for sourcing and imports of solar modules. 

Longer periods of supply shortages are likely to have a spiraling effect on PV module price increases as other regions will need to ramp up capacity to meet the shortfall. While this is a temporary market risk, a lot will hinge on the time it takes to bring the country back into operation. The Chinese Photovoltaic Industry Association has urged the government to postpone connection deadlines for large-scale solar projects since delays in project completion will affect the subsidies received. While there has been no formal announcement, there is speculation that the government could introduce new stimulus policies to help the solar industry recover beyond the second half of 2020. 

The impact of the Chinese solar slowdown may not reach the other global markets, but it is likely to create hurdles for developers that extensively rely on sourcing from China that have not hedged their risks enough. The short-term effects of this crisis are low depending on when the outbreak is contained. However, higher longer-term effects should not be ruled out in terms of increased module prices and supply chain pressures extending to the end of 2020.