The Blog - Wind energy market analysis

Posted 23/08/2019

Richard Heap

   

What would a recession mean for wind?

Financial indicators are pointing towards a recession. But what does this mean for wind? And will talk about the financial crisis detract from the environmental crisis? Richard Heap gives his view on how this might play out.


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(Pic source: Pexels)

There’s a global recession coming. That is the unequivocal message coming from all corners of our internet news this week – and the atmosphere of fear is palpable.

This week, we’ve heard about how the ongoing trade war between China and the US could throw the US into recession. We’ve heard about the stuttering exports that are putting Germany on the edge of a recession.

And we’ve had to get reacquainted with ‘inverted yield curves’, which is when short-term government bonds start paying higher interest rates than long-term bonds, pointing to short-term financial turmoil.

None of these guarantees there'll be a global recession this year, and it’s easy to throw around sentences like ‘a global recession is coming’. It’s one forecast that has to come true as long as you wait long enough. But it shows that there are economic indicators out there that we must take seriously, so buckle up!

Prospects for wind

For us, there are two main points to take from these various stories.

The first is that we are confident for the wind industry. We recognise that wind is still a relatively new industry and has, in anything like its current form, only been through one global recession before. That’s the global meltdown of 2008 that those of us who were in it won’t easily forget.

However, we are positive about the prospects for wind.

It’s true to say that wind is a manufacturing-based sector, and we have seen turbine makers come under plenty of pressure in recent years to overhaul their businesses in the light of changing economics. That has been painful for many, and the human cost shouldn't be understated, but it does mean that many businesses are approaching any recession leaner than they would have.

And a global recession won’t change the fact that countries and companies are committing to source their electricity from renewables.

We have talked about these shifts for the last few years in relation to the UK and Brexit, but it’s true globally too. We expect the adoption of renewable energy to only go one way, and the looming recession is likely to encourage firms to further break their historic ties with fossil fuels.

We may even see more countries looking at wind and other renewables as a way to help boost their economies. Infrastructure investment tends to remain stable through economic crashes as governments look to support capital expenditure. Perhaps we’ll see the low cost of wind power encouraging more governments to support it.

Likewise, investors need to keep finding sectors in which they can invest their clients’ money through these downturns. We expect large renewables projects – such as offshore wind – to remain attractive because of those drivers.

And a recession doesn’t change the fact that the costs of wind power are the lowest they have ever been, or the widespread support that the sector enjoys. It doesn’t change the fact that there are homeowners, tenants and business owners that have to keep the lights on. A recession would curtail growth in energy demand, but wind now has to take market share from fossil fuels. Firms can’t simply rely on demand growth.

On that basis, wind should prove to be resilient even when a global recession does hit. Let’s take solace in that.

Environmental crisis

However, there is another big takeaway from this week that is less positive, and that is the depressing reminder of how a looming financial crisis can dominate news in a far more scary and sustained way than the current environmental crisis can.

We’ve also been reading this week about Icelandic glaciers and the impact of the climate crisis on mental health, but this has been overshadowed by the talk of ‘inverted yield curves’. That will be an intriguing aspect of any recession. We expect the economy to dominate the news, but we cannot forget about the climate breakdown that affects all of our lives. Talk about the former cannot distract us from the latter. Indeed, we cannot ignore how the two are related.

In 2008, sustainability was sidelined by many firms as a luxury while they focused on navigating the crash. This time, that isn’t an option – and perhaps a recession will be the environmental kick that some companies need.

That could be a ray of light in dark times.

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What's your view? Is this realistic? Are we being too bullish on the prospects for wind in tough economic times? We'd love to hear your view.
 

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