‘It’s Like a Snow Day Every Day’: Coronavirus Threatens Commercial Renewables Demand

Restaurants, factories and hotels that have shut their doors and
sent workers home don’t need much electricity. As that reality
sets in, it could take the shine off one of the brightest spots for
the renewables market: corporate demand.

Experts say it’s still too early to draw conclusions about the
coronavirus outbreak’s effect on power demand, let alone the
secondary effect on demand for wind and solar. But renewable energy
companies are already grappling with near-term impacts of this
unprecedented global economic dislocation, and the conversation has
started about the longer-term implications.

While the effect will vary by country, region and the type of
end user, demand from commercial and industrial customers is one
obvious area of concern, said Rafael McDonald, director for gas,
power and energy futures at IHS Markit.

“We’re talking about a recession … at least a U.S. recession
and probably more of a global recession, and we’re expecting that
that’s going to lead to flat-to-negative power demand growth,”
McDonald said Tuesday, speaking on a webinar organized by K&L
Gates.

“Commercial demand is going down as restaurants and stores are
closing, and we think industrial demand is going to be similarly
impacted,” McDonald said. At the same time, “we’re expecting
a rebound on the residential side” as workers stay home.

“How much will the boost in residential demand offset the
decrease in commercial demand? That’s the big thing that we’re
watching,” McDonald said.

Oded Rhone, CEO of Edison Energy, which helps corporations to
source renewable power, said that while it’s a “fluid
situation” on the ground, companies are so far showing no sign of
letting up on their sustainability goals; if anything, they want to
“come out of this crisis better off on the energy side.”

At the same time, “we’re starting to see some slowdowns;
clients are very busy with mission-critical issues,” Rhone said
in a Friday interview.

“Some of our clients are having to deal with a lot of
operational issues, from having to shut down production facilities
to having to deal with all sorts of employment issues. So their
bandwidth to really be on top of these processes at the moment is
substantially reduced. And we’re seeing that — there’s no
doubt.”

The importance of corporate renewables demand

Corporate demand for clean, cheap power has helped to propel the
U.S. wind market for half a decade, and the solar market is rapidly
catching up. Any erosion in that demand, even temporary, would be a
blow to America’s renewables industry, particularly as it looks
to take maximum advantage of fading federal tax credits.

While the trend of corporate demand for renewables has been
less pronounced in Europe, it has gained momentum; Edison Energy,
which is a sister company of utility Southern California Edison,
plans to open an office in Western Europe to help clients there,
Rhone said.

Even in a recession, many of the tailwinds that have fanned the
corporate renewables market would remain intact — cheap wind and
solar power, volatility in the fossil fuel markets, growing calls
for decarbonization from companies’ customers, investors and
employees.

However, one of the most important factors whetting corporate
appetite for renewables — the basic assumption that energy costs
will go on rising — could be called into question if the global
economy tips into recession and wholesale power prices sag.

Corporate creditworthiness — an important factor in sealing
many renewables deals — could take a hit in a recession, Rhone
noted. And if longer-term business outlooks darken, corporations
may reevaluate their energy needs.

Reading the tea leaves

For now, the market is left to pore over the early scraps of
information coming out of grid operators and utilities. In Europe,
parts of which are several weeks ahead of North America in the
pandemic’s trajectory, power demand has taken a significant
hit.

Year-ahead power futures in Germany, an industrial powerhouse,
are reportedly down 25 percent. “Industrial and commercial
customers are consuming noticeably less energy,” Johannes
Teyssen, CEO of German utility E.ON, told investors this week.

In the U.S., PJM, which runs the wholesale power market covering
65 million Americans, said the coronavirus outbreak has thus far
had only a “moderate impact” on power demand. The reduction in
consumption at schools and businesses is being offset to some
degree by people running their computers and turning up thermostats
at home.

“Basically, weekdays are looking more like Sundays,” said
IHS Markit’s McDonald. The message out of PJM is “it’s
looking more like a snow day every day.”

Western U.S. grid operators have seen less of an impact,
although analysts are closely watching the ERCOT market in Texas
for signs of whether the dramatic collapse of oil prices crimps
that industry’s demand for power. A growing number of
oil companies have become buyers
of wind and solar power,
adding to ERCOT’s momentum as the leading market globally for
corporate renewables deals.

At the end of the day, COVID-19’s impact on corporate demand
for renewables will depend on the length of workplace shutdowns and
the severity of the resulting economic contraction. It’s possible
that the crisis may have lingering effects on how and where workers
operate. The renewables industry, congenitally optimistic, remains
focused on the future.

“I think [the market] is going to come back strongly,” Rhone
said. “But I cannot put a timetable on that. And in the short-
and medium-term, I absolutely expect some bumps in the road.”

Source: FS – GreenTech Media
‘It’s Like a Snow Day Every Day’: Coronavirus Threatens Commercial Renewables Demand