Solar Asset Management Edition - North America
As the devastating consequences of COVID-19 pandemic continue to unfold in front of our eyes, it has become apparent that this disease outbreak is much more than a global health crisis. By now, we can all see how COVID-19 has had a significant impact on the social, economic and political structures of our interconnected global world, creating the biggest humanitarian crisis since the end of WW2.
The International Monetary Fund (IMF) is already expecting a 3% decline in the global economy in 2020, which is worse than the financial crisis we experienced in 2008 and 2009. That, of course, will also have a significant impact on the solar industry. Most importantly, the COVID-19 outbreak will have tangible effects across the value chain, which according to Wood Mackenzie, will result in an 18% reduction in the global annual solar installations compared to the forecasts before the pandemic. If we look more closely at the different segments of solar project developments, we can see that the rate at which the residential, non-residential and utility-scale solar installations decrease differ significantly. For example, Wood Mackenzie projects that the earlier forecasted solar project developments in the residential, non-residential, and utility-scale segments will fall by up to 40%, 52%, and 19% respectively in the US, but the numbers are expected to be similar in other parts of the world, too.
Interruptions and Cancellations
One of the reasons that could explain these differences is that the economic pressure will hit the customers of residential and non-residential installations severely, which in turn will probably lead to a large number of project cancellations in 2020. Furthermore, residential installations are also necessarily slowing down in countries that are on lockdown. On the other hand, the decrease in utility-scale projects that could come online this year is more related to the interruptions of the supply chain, and as so, most of these projects will only be postponed rather than canceled.
So while the smaller solar projects and the global economy are experiencing sharp downturns in 2020, the utility-scale solar projects are in a relatively good position. Being able to complete utility-scale projects without huge amounts of delays, while keeping on operating and maintaining the already connected ones are an enormous success of the solar industry in these extraordinary times. In order to be able to perform these tasks, the industry requires a more or less continuous supply of equipment as well as ongoing M&A and O&M activities. In the following paragraphs, based on the experiences of experts presented at SAMA20-Live, we explore how each of these sectors has been impacted by the spread of COVID-19.
In reference to the already mentioned supply chain interruptions, project developers have seen a limited availability of PV panels. The insufficient supply of panels was especially prominent during the full lockdown in China, the world’s largest panel supplier. However, since the reopening of the Chinese economy, the initial pressure on the module market has started to lessen in recent weeks. The shipping of specialized parts such as trackers or motors were also reported as slightly problematic. On the other hand, the general electrical items like fuses, conductors and connectors have been delivered on time. In general, solar developers in the US find that the delivery of equipment to the ports has not been as challenging as getting it to the project site from the ports. This is also contributing to the fact that at some of the large projects, the replacement of the damaged panels is more challenging than it should be under normal circumstances.
Regarding the M&A activities, the current state of affairs indicates that the interest in auctions has remained fairly strong. There is still a high demand for high-quality projects but at the same time, we expect a loss of appetite for the more exotic projects. In general, there has been lots of activity in the M&A space, where the good projects are still having similar trading values than before the emergence of the COVID-19 outbreak.
How to deal with Social Distancing?
In the O&M sector, there were no immediate issues experienced regarding the feasibility of operational or maintenance activities. This is predominantly due to the nature of the work that can be done in an isolated manner in rural areas with low technician densities per project site. In other words, at a utility-scale project, it is possible to have a crew of even 100 technicians on site and spread them out over the area of the project in a way that they can perform their tasks while adhering to social distancing protocols. Obviously, being able to perform at least the critical O&M activities at any power generating facility is essential, and therefore, seeing no issues from O&M technician shortages or labor stoppages for social distancing at the solar PV plants is a reassuring sign.
However, in severely infected areas, some additional safety precautions have been taken, and as such, prioritization of the required responses to issues across the portfolio became necessary.
This means that in some of the areas, only the most pressing problems have been treated without delays. Some of the highest priorities include the major event that causes significant production losses or any electrical hazard issue that could lead to serious fire incidents. Other O&M activities such as scheduled maintenance, vegetation management or filter cleanings may not be done on a regular basis. In general, although some level of ongoing maintenance is inevitable even at utility-scale projects, it is very likely that the running of these projects will be assured regardless of the future development of COVID-19.
Nevertheless, the consequences of the pandemic have highlighted some of the practices that will most likely be improved or completely changed in order to create a solar industry that runs more efficiently than ever before. One of these changes, the remote monitoring of solar parks, has been on the horizon for years but COVID-19 has re-confirmed the urgent need for its application. Aerial thermography, for example, could become a widely used practice that has the potential to catch a number of possible issues at the solar parks without the need of having someone on site. In addition, companies that utilize remote monitoring on all of their sites could become more strategic in dealing with issues across their portfolio.
Designing the 'New Normal'
Another possible legacy of the disease outbreak, which could have a positive impact not only on the solar industry but all the other business activities, is that in the future, we might see more and more deals closing, using video conferencing software instead of the old school way of physical contacts. With this new way of doing business, we could significantly decrease the travel needs of involved parties, and thus, free up an enormous amount of unproductive time and energy. In the solar industry, this would mean that next to its pivotal role in accelerating the renewable energy transition and mitigating climate change, it could also contribute to the achievement of sustainable development goals 8 and 9 by promoting sustainable economic growth, productive employment, and sustainable industrialization and also by fostering innovation. After all, in spite of the dreadful consequences of COVID-19 on human health and the global economy, which has already taken more than 200,000 lives and tens of millions of jobs worldwide, humanity has once again all the power to come out stronger from this devastating crisis. Going forward and once we overcome the crisis, we will have to decide how we want to get back to “normal”. Do we want to continue business as usual, or it is time to create an even more resilient and efficient solar industry and lay down the foundation stones for a more sustainable world?