The outbreak of COVID-19, which has already infected more than 200 thousand people around the world, has triggered a new economic crisis, which, according to UNDP estimates, could cost the world economy at least 2 trillion US dollars.
How will coronavirus affect one of the most promising global segments of the economy – the renewable energy sector, especially in Ukraine?
Members of the European-Ukrainian Energy Agency, which has been bringing together key “players” in the renewable energy and energy efficiency markets since 2009, as well as investors from Austria, Belgium, the UK, Spain, Norway, the United States, Turkey, Ukraine, Switzerland and other countries, shared their assessments of the situation, forecasts and recommendations for minimizing risks. The material presented is not the official position of the European-Ukrainian Energy Agency, but the personal opinion of the EUEA members.
Tom Hanson, Greenworx: “In the current situation, companies with a high share of borrowed capital can stop new investments and move to the “wait and watch” position. They will try to reduce the share of the debt burden, because, possibly, the demand for energy and other goods will decrease, and incomes will correspondingly decrease. The virus can affect not only the renewable energy sector, but also the banking sector, reducing their ability to finance future renewable energy projects.
Also, an international epidemic will affect the adoption by the government of political decisions that will relate to measures to prevent the spread of the virus, to combat it and its consequences. In this context, delays may affect licensing. There will be long advance payments for land security, higher personnel costs, so this possibly will have a financial impact. In this case, reduction in debt servicing costs could be the economic incentive to minimize losses through any other delays that occur due to coronavirus in the aggregate result.
To minimize losses and risks, it is necessary to minimize the share of borrowed capital in comparison with equity, rationalize fixed costs and focus on the fundamentals of the market. The priority should be to facilitate projects under implementation, and optimize the integration of renewable energy sources into the existing energy system. Ensuring stability and predictability in the current situation can only be achieved through a regular, transparent, factual and honest dialogue between government and business”.
Dmytro Merkulov, Helios Strategia: “The impact of COVID-19 on the renewable energy sector has been felt since the first infections in China, because most of the producers are quarantined, and the implementation of equipment supply contracts has shifted slightly in time. Now, due to the active spread of the virus in European countries, outstanding exhibitions and conferences for the energy sector (for example, Berlin Energy Transition, Solarex Istanbul, Cisolar, Energy Transition Europe - Climate Action in London and many others) have been canceled, which significantly stimulated the development of renewable energy projects. Thus, there is a decline in business activity, followed by a recession in the renewable energy market of Ukraine.
Diversification, asset mobilization, preservation and expansion of competencies – all these universal measures will help market participants make another leap in the development of renewable energy when the pandemic recedes, because the transition to clean energy is not a choice, but a necessity”.
Eren Gumus, Smart Energy: “Stock markets around the world have 20-30% losses everywhere, and travel restrictions are also a big investment challenge. This year will be lost. There will be no more investment until we find the COVID-19 solution or wait until it passes by summer. Now there are problems with the procurement of materials, and in the coming months there will be more of these problems. Our priority should be to maintain health and preserve business and assets so that we can complete our projects that have already begun”.
Dmytro Nechyporenko, member of the Council of the EAEA, Voltage Group: “A crisis is always a failure of a well-functioning system. In Ukraine, coronavirus complicated the already existing key problems that were on the renewable energy market – the uncertainty of the "rules of the game" and the desire to retrospectively review a feed-in tariff. In a pandemic, in addition to disruptions in global supply chains, complications of business contacts, and the creation of a situational shortage of labor, another negative consequence was added – a decrease in global demand for solar energy. So, last week, Bloomberg New Energy Finance lowered its forecast for global solar energy demand for 2020 to a range of 143 GW from 108, which means a drop of 9% compared to previous forecasts.
In a pandemic, timely coordinated decisions for the outside public and staff will be crucial; support, protection and safety of the team; optimization of all expenses; creation of a reserve fund; competent work of lawyers regarding the emergence and use of force majeure. And despite the “pause”, we are currently negotiating the implementation of several renewable projects in foreign markets”.
Oleksandr Gadiak, Craft Partners: “It is likely that the labor market will slowly decline and lose up to 20-30% of qualified specialists. As far as I can tell, the first thing to do is to fulfill all existing obligations and try not to lose current experts and employees”.
Loic Lerminiaux, Guris: “I heard that coronavirus has delayed deliveries from China for a month (for now). This is especially “painful” because of the tight deadlines for completion. Despite the situation in Italy, this can spread to Germany in 2 months, and many items of equipment from Germany will not be delivered on time. Financial markets are getting nervous (the American stock exchange is down 20% in a month, the UK is down 27%), and the hryvnia is already dropping slightly.
Usually, if the US “coughs”, Ukraine has a “high fever”, as investors will regroup into less risky assets and currency. This means that we may face higher interest rates, despite the official policy of low interest rates of large central banks. This means that no one will be able to give good prices at auctions due to the high financial costs.
The renewable energy boom in Ukraine has ended, and the virus has accelerated this, so a very small amount of MW will be built, compared to the number of MW for which preliminary agreements Pre-PPA are concluded. Therefore, if Ukraine applies retrospective changes in the field of renewable energy, it will look very frivolous in comparison with developing countries, where the law is respected in a situation where everyone will compete for the latest investments.
There are two contradictory points regarding renewables: for many months, investors did not dare to implement their projects due to the constant uncertainty of the terms of a feed-in tariff and auctions. Delivery and installation can take more than 12 months, and coronavirus now increases delivery times. Accordingly, there are big risks in the untimely completion of the construction of renewable energy projects. And this further reduces the desire of investors to work in the renewable energy sector in Ukraine”.
Serhiy Makhin, VR Capital: “We are really observing a significant influence of the virus on the usual working conditions, as the offices in London, New York and Kyiv moved to remote work. We are already experiencing some delays in supplies and the problem of access to capital has grown significantly, which threatens the timely completion of our projects this year.
Given the turmoil on global markets and the effective restrictive measures that are now being taken by the Ukrainian authorities to prevent the spread of coronavirus, the new government should devise compensatory mechanisms to complete renewable projects that are already underway”.
Magnus Johansen, Member of the Council of the EAEA, NBT AS: “Our business already faces certain delays with the potential EPC contractor from China, as they survived this crisis 1-2 months ago. General delays, of course, pose an additional risk to investors who build projects with severe restrictions on the duration of a feed-in tariff”.
Dmytro Prinus, Indian Solar: “According to the priority of renewable energy in modern conditions in Ukraine and the world, it is an obligation to reduce CO2 emissions and increase the share of electricity generation from clean sources. Now, there has been a slowdown. But we must continue our mission to increase the share of renewable energy”.
Oleksandra Gumeniuk, director of the EUEA: “Now, due to the virus, when a lot of time periods, unfortunately, will be violated, given the really force majeure circumstances, special attention (both for investors and contractors) should be given to the legal settlement of deferral issues, with taking into account the principles of ethical business conduct for all parties. The priority in business behavior currently should be not only mutual respect, but also mutual understanding. It is necessary to use the saved reserves in order to maintain human capital, because only the strongest teams will be able to conquer with new strength a new peak in the graph of the potential volume of a new market after the crisis.
The Ukrainian energy community has always been active and open to the exchange of news, experience, knowledge, therefore, together, all crisis issues will be resolved”.