The International Energy Agency (IEA) today released its third annual Medium-Term Renewable Energy Market Report.
The expansion of renewable energy will slow over the next five years unless policy uncertainty is diminished, the International Energy Agency (IEA) said today in its third annual Medium-Term Renewable Energy Market Report.
According to the report, power generation from renewable sources such as wind, solar and hydro grew strongly in 2013, reaching almost 22% of global generation, and was on par with electricity from gas, whose generation remained relatively stable. Global renewable generation is seen rising by 45% and making up nearly 26% of global electricity generation by 2020. Yet annual growth in new renewable power is seen slowing and stabilising after 2014, putting renewables at risk of falling short of the absolute generation levels needed to meet global climate change objectives.
Non-OECD markets, spurred by diversification needs in many countries and increasing air quality concerns in China, in particular, comprise almost 70% of the growth. Renewables are seen as the largest new source of non-OECD generation through 2020. Yet they meet only 35% of fast-growing electricity needs there, illustrating the still-large role of fossil fuels and the potential for further renewable growth. Renewables account for 80% of new power generation in the OECD, but with more limited upside due to sluggish demand and growing policy risks in key markets.
“Renewables are a necessary part of energy security. However, just when they are becoming a cost-competitive option in an increasing number of cases, policy and regulatory uncertainty is rising in some key markets. This stems from concerns about the costs of deploying renewables,” said IEA Executive Director Maria van der Hoeven.
“Governments must distinguish more clearly between the past, present and future, as costs are falling over time,” she added. “Many renewables no longer need high incentive levels. Rather, given their capital-intensive nature, renewables require a market context that assures a reasonable and predictable return for investors. This calls for a serious reflection on market design needed to achieve a more sustainable world energy mix.”
The report noted that policy and market risks threaten to slow deployment momentum. For example, in many non-OECD markets including China, constraints include non-economic barriers, an absence of needed grid integration measures, and the cost and availability of financing. In the European Union (EU), uncertainties remain over the precise nature of the post-2020 renewable policy framework and the build-out of a pan-European grid to facilitate the integration of variable renewables.
For the first time, the annual report provides a renewable power investment outlook. Through 2020, investment in new renewable power capacity is seen averaging over USD 230 billion annually. That is lower than the around USD 250 billion invested in 2013. The decline is due to expectations that both unit investment costs for some technologies will fall and that global capacity growth will slow. With decreasing costs, competitive opportunities are expanding for some renewables under some country-specific conditions and policy frameworks. For example, in Brazil, with good resources and financing conditions, onshore wind has continued to outbid new-build natural gas plants in auctions. In northern Chile, high wholesale electricity prices and high irradiation levels have opened a new unsubsidised solar market.
The roles of biofuels for transport and renewable heat are also increasing, though at slower rates than renewable electricity. Uncertainty over policy support for biofuels is rising in the EU and the United States, slowing expectations for production growth and threatening the development of the advanced biofuels industry at a time when the first commercial plants are just coming online.
The annual report highlights the potential energy security implications of energy use for heat, which accounts for more than half of world final energy consumption and is dominated by fossil fuels. But the contribution of renewables to meet heating and cooling needs remains underdeveloped, with more limited policy frameworks compared with the electricity and transport sectors. Although modern renewable energy sources are expected to grow by almost 25% to 2020, their share in energy use for heat rises to only 9%, up from 8% in 2013.
The Medium-Term Renewable Energy Market Report is part of a series of annual reports the IEA devotes to each of the main primary energy sources: oil, gas, coal, renewable energy and – as of last year – energy efficiency.
The Medium-Term Renewable Energy Market Report 2014 is on sale at the IEA bookshop. Accredited journalists who would like more information or who wish to receive a complimentary copy should contact email@example.com.
To download Executive Director Maria van der Hoeven’s presentation at the launch of the report, please click here.
To download a fact sheet related to the report, please click here
Here are a the main points:
- In 2013, global renewable electricity generation rose by five per cent year on year to comprise almost 22 per cent of total generation – on a par with gas, but half that of coal.
- Around 39GW of solar was added over 2013, led by China and Japan, while the 34GW of onshore wind capacity added was the lowest level of new deployment since 2008. Solar thermal electricity additions were equivalent to the record level achieved in 2012, and offshore wind was deployed at its highest level to date.
- Global investment in new renewable power capacity was around $250bn, down slightly versus 2012 and lower than the near $280bn recorded in 2011. Despite overall higher global capacity additions of 123GW, declining unit investment costs in solar PV and onshore wind put downward pressure on investment levels.
- In 2014, investment is expected to reach just under $250bn as total renewable capacity additions remain at around 125GW. However, annual investment is expected to drop slightly over the next few years as global capacity growth slows and costs fall.
- Renewable electricity generation is projected to grow worldwide by almost 45 per cent to 2020, by which time it will make up 26 per cent of global electricity generation.
- Growth is expected to be driven by increased geographic spread for the industry and by falling costs for clean technologies.
- Hydropower, including pumped storage, represents about 37 per cent of that growth, with onshore wind making up 31 per cent.
- Under a baseline scenario, the OECD is expected to account for 30 per cent of new renewable generation globally over 2013-2020. But despite huge growth in non-OECD markets, renewables are expected to meet only 35 per cent of electricity needs in these countries, compared to 80 per cent in OECD countries.
- Many non-OECD countries, such as those in the Middle East, remain in an early take-off phase, with deployment likely to accelerate to high levels only over the long run.
- This scenario envisages renewable capacity growing from 1,690GW in 2013 to 2,555 GW in 2020, with China accounting for almost 40 per cent global expansion and over 55 per cent of non-OECD growth. Domestically, renewables in China should account for nearly 45 per cent of incremental power generation to 2020, ahead of coal.
- Globally, solar PV is expected to triple to 400GW by 2020 and onshore wind is predicted to grow to 600GW, while annual investment should average above $230bn.
- Under an enhanced scenario with supportive policies, renewable capacity could be 125-205GW higher in 2020 than the baseline case, reaching a cumulative 2,680GW to 2,760GW. Solar PV could reach 465-515GW in 2020, while onshore wind could climb to 635-655 GW.
- Global renewable energy use for heat, including traditional biomass, is predicted to grow one per cent per year to 49.7 EJ in 2020, of which 17.9 EJ would be from modern renewable energy sources – representing a three per cent annual growth in the market from 2013. Modern renewable energy use for heat in the buildings sector is expected to rise more than five per cent a year to 2020, with slower growth in the industry sector.
- Despite the growing competitiveness of renewable technologies, renewable power is increasingly at risk of not being deployed at the level thought necessary to meet the global 2C climate change objective.
- Solar PV is the only tech expected to beat the 2C scenario level, due to falling costs and expansion in non-OECD countries. The IEA finds “notable shortfalls” may occur in bioenergy for power, onshore wind and hydropower.
- Increased policy risks, particularly in developed markets, clouds the development picture, raising concerns over how fast renewables can scale up to meet long-term deployment objectives.
- More established markets like the US, Japan, and some EU countries, face challenges to maintain regulatory frameworks that offer reasonable returns while shifting towards lower incentive levels.
- Around $9tr would be needed by 2035 to meet the 2C objective. This needs stable, long-term policy frameworks and markets that price the value that renewable investments can bring to energy systems and increase power system flexibility to deal with higher levels of variable renewables.