Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
With countries going into lockdowns one by one, electricity
demand around the world has been dropping. Power generation
requirement has gone down with it, but how are different generation
resources responding to the decline in load?
Last time the world's power systems witnessed significant demand
weakness was during the financial crisis a decade ago. Ten years
on, one major difference in power supply is the role of renewables.
Wind, solar and other renewable technologies only accounted for 5%
of the world's power generation capacity in 2009; that figure has
increased to 18% by 2019. In some large renewable markets such as
China, Europe and the United States, renewables share is even
higher.
Figure 1: Share of renewables in global power installed
capacity has risen rapidly
How didrenewables and conventional
power sources perform during the lockdowns?
Our power research teams based in 12 different countries
compared generation data during their respective lockdown periods,
to the coinciding period in 2019. Though only a few months may be
compared at this stage, three themes emerged when assessing the
results of five key markets in Asia, Europe, and North America:
<span/>Coal-fired
generation is down. In most markets, there was less
coal-fired generation this year than last year. The year-on-year
decline ranges from a 9% drop in China during January and February
to a 20% drop in India in March and the first half of April.
Solar is up. Every market analyzed showed an
increase in solar PV generation in 2020 compared with the same
period in 2019. For example, solar PV generation was 12% higher in
Italy and 45% in PJM in the United States in March and the first
half of April.
<span/>Gas is
outcompeting coal. In markets with
sizeable coal and gas fleets where the two fuels compete for the
residual load, gas-fired power generally emerged stronger. For
example, gas plants produced 26% more power in India during March
and the first half of April and 12% more power in South Korea
during January and February.
Figure 2: Year-on-year change in power generation volumes
during COVID-19 lockdowns (2019-20)
What drives the differences in power generation among
the different technologies?
The local nature of power markets means that there are numerous
factors - some global and some local - leading to the seemingly
common outcomes across geographies. In addition to weather and its
impact on demand and renewable output:
Size matters. The growth in the installed
capacity of a technology can impact how much power is produced by
the technology. This is the case for solar PV in most of the
markets mentioned above, as many saw double-digit growth in solar
capacity over the past year.
Competitive variable cost. In liberalized
wholesale power markets, generation resources with lower variable
costs get dispatched first. As renewables have near-zero variable
cost, they are dispatched ahead of other technologies, while for
thermal resources, the key metric determining competitiveness is
fuel cost (as well as carbon price where applicable). With the
global gas market in oversupply and oil prices dropping, gas prices
in most markets - either freely traded or oil-indexed - have
decreased significantly, making gas more competitive against coal
in power generation.
Local policies. Government restrictions and/or
incentives for different types of power generation technologies can
impact the first two drivers above. For example:
China's renewable generation is gaining ground partly because
of their non-dispatchability and preferential status in the
system.
Federal tax credits have incentivized solar PV and wind
investment in the United States.
South Korea's anti-smog policies are putting limits on
coal-fired generation, which in turn boosts natural gas.
The impact described above - lower demand and lower prices in
many markets - during COVID-19 will likely outlast the pandemic
itself. The compilation of supply chain and permitting delays with
depressed power prices in many markets, will place pressure on
merchant projects, including renewables. As a result, generating
technologies may have a harder time getting financed, potentially
delaying new projects that had planned to come online this year and
next year.
IHS Markit experts are available for consultation on the
industries and subjects they specialize in. Meetings are virtual
and can be tailored to focus on your areas of inquiry. Book in a
consultation with Xizhou Zhou.
Xizhou Zhou is a Vice President and Global Managing
Director of power and renewables at IHS Markit.
Posted 01 May 2020
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
