Transition fundamentals sound but some supply chain disruption expected

Asia dominates supply chains for solar and energy storage, but these markets are in the process of rebounding after contractions in February. Moving forward, near-term development activity and local logistics in leading European and North American markets are expected to outweigh lingering supply issues, said Wood Mackenzie.

The wind industry’s supply chains are much closer to market in Europe and North America and will be impacted as production and logistics are curtailed. US projects remain under the added pressure of qualifying for the production tax credit, however restrictions in many US wind regions remain limited compared to Europe at the moment.

Wood Mackenzie said electric vehicles (EV) remain particularly exposed due to a nascent supply chain and being largely a premium consumer purchase. The outsized decline in EV sales in China January and February highlights this impact.

Regional power market risks centre on the depth and duration of demand destruction should economic standstill become a prolonged recession. Gas generators must navigate the uneven impacts of the oil price collapse.

Wood Mackenzie said Italy’s demand shows an 8% decline from the previous week, with similar declines expected as more countries impose restrictions, with industrial demand to be particularly volatile.

European gas generators will bear the brunt of demand loss where, despite low liquefied natural gas (LNG) prices, a carbon price decline bolstering coal and supply swings from variable renewables generation during the relatively productive spring period will be a significant determinant of gas demand.

“China remains a market to watch for its ability to rebound from an aggressive response. Across Asia, low LNG prices challenge both coal and renewables,” said Wood Mackenzie noting that carbon emissions in 2020 will drop as a result of national responses, while the longer-term fundamentals of the energy transition remain in place.