- The coronavirus outbreak currently gripping China first began during the traditional Lunar New Year period – the country’s most important holiday.
- The disease, labeled Covid-19 by the World Health Organization, is still claiming lives, but it also has far-reaching economic implications.
- Given that China is the manufacturing hub of the global solar industry, there are real reasons to believe that the contagion of s.
The economic impact of Covid-19 has been far-reaching – and the data tells the story. Statistics from six major China power groups show that average daily power generation dropped by around 40% in February. China’s Ministry of Transport reported that passenger numbers up to Feb. 10 – which encompasses almost all of the holiday season – plunged by 82% from the previous year. The transportation of goods also fell. The China Express Association reported that delivery volumes declined by 95% year on year throughout the holiday season.
Figures from several important national pillar industries also reveal serious disruption. In February, transactions in the real estate market decreased by 90% compared with 2019. Car sales declined by 21.5% year on year in January, with this figure estimated to reach -40% in February.
Similar impacts have been registered in China’s PV industry, with the entire industry suffering from several key problems. The central government officially extended the one-week spring festival holiday from Jan. 24-30 by an additional 10 days, followed by similar extensions from many local governments for another week, to ensure that quarantine periods were sufficient to stop the spread of the coronavirus.
With mounting pressure on government and health officials – and also a growing need to allay fears among the general population – some local governments have issued stricter review procedures, making it even more difficult for people to return to work.
Additional to the restriction of movement, manufacturing workers who traveled home for the holiday period have found it very hard and even impossible to return to their places of work – which for many people are in other cities or provinces. This has been particularly pronounced in Hubei itself, but also in nearby provinces such as Zhejiang and Jiangsu – home to many PV companies.
Even when workers do succeed in returning to work, they face cumbersome quarantine procedures – usually 14 days – and local government requirements to ensure that they pose no risk of infection.
China’s logistics industry, as indicated by the data, has been significantly impacted. In some areas the transportation of freight has been interrupted due to road closures. Though many PV production plants could continue running for some time, thanks to materials held in reserve, it is expected that these supplies won’t last long. Without ongoing supply of raw materials and components, many factories will be forced to shutter production in the near future.
Many people in China have made the decision to resign from their jobs in other cities and stay home for now – causing labor force shortages in many factories and lower production. On Chinese PV industry websites and the ubiquitous WeChat app, there are more and more job advertisements – especially for operators of production lines.
International business has also been stymied. The travel bans imposed on China by a growing list of countries has led to the cancelation of many normal business trips. These include international business visits, negotiations, deals, and marketing activities – but also visits from headquarters in China to overseas subsidiaries.
According to China’s Ministry of Foreign Affairs, 70 foreign governments have formally applied entrance restrictions or compulsory quarantine requirements on arrivals from China – including major PV markets such as the United States, Australia, and Vietnam, among others. Many other nations have raised visa restrictions on Chinese travelers.
The Wuxi New Energy Chamber of Commerce estimates that the participation rate of Chinese PV companies in the 30-odd solar conferences scheduled in the next three months will decline dramatically. This will seriously impact the operations of Chinese manufacturers, for which these marketing activities are important.
While there are some common obstacles across industries and PV companies, the impacts will not be uniform across all players, depending on their position in the supply chain.
There are varying reports as to the impact on polysilicon production. Some argue output suffered less from the outbreak due to its continuous production. But given transportation challenges, prices are rising.
The output of multicrystalline wafer producers is currently very low because most of the factories stopped production for the spring holiday and could not rapidly restart. For mono wafers, leading companies continued production throughout the holiday period and kept operating at high output levels.
Cell production has suffered more than the wafer production segment. Many cell companies, including mainstream brands, shut down for the holidays and could not quickly restart. Considering labor shortages, production levels will remain low for several weeks. Prices for both mono and multi cells are expected to rise as inventories are emptied.
A similar situation has occurred in module production. Most module makers closed for the holidays and needed time to resume production. The only positive thing is that the first quarter is usually the low season for module shipments.
Chinese regulators are expected to postpone their original project installation deadlines to allow time for module manufacturers to ramp up production. But as inventory levels continue to fall and strict container quarantine procedures are implemented, overseas orders may very well be delayed – likely resulting in contractual disputes.
While often ignored, the challenge of securing module components – such as module frames, seals, junction boxes, and connectors – may become crucial. Many makers of these components are located in Jiangsu and Zhejiang provinces, where serious epidemic precautions and very strict countermeasures are in place. As a result, production volumes of these components is reported to be low and difficult to ramp up quickly.
Even more seriously, some small-sized module component suppliers might permanently shut down or file for bankruptcy due to long shutdown periods and resultant cash flow issues. Shipments of their components to module manufacturers outside of China will likely be greatly influenced, too.
On Jan. 31, China’s National Energy Administration (NEA) issued an urgent notification stating that a rush to complete PV projects should be avoided, warning that anti-epidemic measures must be the core focus for now. State Grid itself has suspended all power projects currently under construction. The China Photovoltaic Industry Association (CPIA) has also called for a delay of connection timelines during the holiday, and has already lowered its initial 2020 installation forecast by 5-10 GW to 30-35 GW.
And due to the sharp decline of electricity power consumption, China’s curtailment of solar PV is expected to increase. Reduced maintenance efficiency will also negatively impact the performance of solar farms, reducing income and driving up costs.
The impact of coronavirus already appears to be much bigger than that of SARS in 2003, but the actual economic threat does depend on how long the epidemic lasts. “If activity is restored by the end of February, the impact is likely to be short term. However, if restrictions remain in place longer, then the impact on supply in China will be significant, choking the country’s output,” Wood Mackenzie said in its latest analysis
Author: Vincent Shaw
This article was originally published in pv magazine and is republished with permission.