The Tesla Inc. Gigafactory stands in this aerial photograph taken in Shanghai, China, on Monday, ... [+]
Despite some vaguely re-assuring words to the contrary from some senior members of the U.S. government, the Centers for Disease Control and Prevention’s warnings yesterday demonstrate that the global spread of the coronavirus will likely continue. China has been able to slow the growth of the epidemic, but at the cost of various extreme measures, varying by level across the country.
We can expect, therefore, that disruptions to global supply chains are likely to continue at some unknown level. And if so, these are clearly going to impact the U.S. renewables industry.
Just from what little public information is available, there’s already been some impact. Last month, Tesla estimated that the outbreak had led to a week-and-a-half delay in production of Shanghai-built Model 3s. And then more recently in their 10-K filing they included “health epidemics” as a continued risk factor with even more uncertainty around it.
Tesla has exposure to this disruptive event through their assembly plants and battery production “gigafactory” in China, but they’re not alone.
As of 2018, China was the location for over 60% of the world’s production of lithium ion battery cells. The anticipated significant growth in the U.S. energy storage market is in large part built upon the ready availability of lithium ion batteries, and an expectation of their continued rapid fall in prices. We could very well see these prices temporarily rise in the U.S., however, as available domestic stockpiles could dry up if shipments from China are disrupted. This could impact everything from electric vehicles to microgrids to standalone battery projects.
China has also dominated solar cell and panel production. Eight of the world’s top ten solar panel manufacturers are Chinese. Ironically, several of them have recently opened up panel manufacturing in the U.S. in reaction to the Trump Administration’s trade tariffs, giving some insulation at the panel production level from pandemic-related disruption. But even these U.S. based facilities are largely dependent upon PV cells that are still made in China.
Wind generator production based in China has, at last report, resumed. But even still, further disruption is of course possible, depending upon how the growth of the disease continues from here, and especially depending upon how the Chinese authorities react to any further outbreaks.
Overall, there’s at least the potential for significant supply chain impacts for the U.S. renewables industry. And the above examples really only include China-specific impacts. As the PV cell example shows, these supply chains are actually global in nature, dependent in many cases upon more global trade than just with China. Furthermore, we haven’t even contemplated yet what impacts could result from more disruptive outbreaks and counter-measures here in the U.S.
So this potential pandemic suddenly throws a great deal of uncertainty into the U.S. renewables industry. Will supply chains be further disrupted? Will project development activities be curtailed at some point, and for how long? Will this impact the willingness of homeowners to take meetings with rooftop solar salespeople? From components supplies to manufacturing operations to field operations, there’s just a lot of unknowns right now. I was once an investor in a very local service company that did house-calls as a key part of their business, and they saw significant losses one year simply because Boston, MA suffered from a higher-than-usual winter snowfall amount. It impacted their ability to visit customers and to do residential installations. Operational disruptions, even if temporary, can really matter in these markets.
And so it’s probably a smart time for renewables entrepreneurs and developers to do some stockpiling while they can, to just plan for the possibility of some disruptions in 2020. To watch cash carefully and put in place contingency plans for even U.S.-based operations. We’re far from this being a catastrophic event for the industry, and with luck we won’t get to that point at all. But it’s now time to at least begin planning for the potential for some supply chain and operational disruption.
