Rystad: Global Downturn Hits Renewables

Facing a global demand shock from the coronavirus outbreak, the oil and gas industry is preparing for a deep and sustained hit to its bottom line. According to energy consultancy Rystad, the booming wind and solar power infrastructure industry will also take a hit this year, but for a different reason - the effects of rapidly changing foreign exchange rates. 

Rystad predicts that forecast growth in newly-commissioned solar and wind projects will be wiped out for 2020 and cut by an additional 10 percent next year. The high-value components for these projects are usually purchased in U.S. dollars, and in the current economic crisis, the dollar is rapidly gaining against most foreign currencies. 

A costlier dollar makes it harder for infrastructure developers in Australia, Brazil, Mexico, South Africa and many other countries to buy dollar-denominated solar panels and wind turbines. For some nations, the capital cost of a project could rise by as much as a third relative to what it would have cost in 2019, solely due to exchange rate effects. Utility-scale wind is most at risk, Rystad said, as more wind development capex is procured in dollars.

Next year, the damage will likely be compounded by capital expenditure reductions and a smaller number of final investment decisions, Rystad predicted. 

“The foreign exchange impact will decimate the 2021 outlook for solar installations and the outlook from 2022 and beyond for wind installations, as orders for new equipment will halt from currency-hit emerging countries, which would otherwise account for much of this growth," said Rystad Energy’s product manager for renewables, Gero Farruggio.

European, Chinese and American developments would be least affected by the exchange effects, Rystad noted.