Renewable Energy Market Update

Renewable energy has great potential to reduce prices and dependence on fossil fuels in short and long term. Although costs for new solar PV and wind installations have increased, reversing a decade-long cost reduction trend, natural gas, oil and coal prices have risen much faster, therefore actually further improving the competitiveness of renewable electricity. However, how rapidly renewables can substitute fossil fuels hinges on several uncertainties and will depend on many factors. Will renewable electricity sources defy this global energy crisis and continue to expand quickly despite emerging political and macroeconomic challenges? At the same time, growth in biofuels demand faces significant headwinds from both lower transport demand growth and high biofuel prices. Will demand growth resume at historical rates?

In exploring the most recent market and policy developments as of April 2022, our Renewable Energy Market Update forecasts new global renewable power capacity additions and biofuel demand for 2022 and 2023. It also discusses key uncertainties and policy-related implications that may affect projections for 2023 and beyond.

Acknowledgements

This study was prepared by the Renewable Energy Division in the Directorate of Energy Markets and Security. It was designed and directed by Heymi Bahar, Senior Analyst.

The lead authors of the report were Heymi Bahar (electricity) and Jeremy Moorhouse (biofuels). The report benefited from analysis and input from multiple colleagues: Yasmina Abdelilah, Piotr Bojek, François Briens, Trevor Criswell, Kazuhiro Kurumi, Kartik Veerakumar and Grecia Rodríguez Jiménez (also responsible for data management).

Paolo Frankl, Head of the Renewable Energy Division, provided strategic guidance and input to this work and contributed to relevant messaging. Valuable comments and feedback were provided by Keisuke Sadamori, Director of Energy Markets and Security Directorate.

Thanks go to the IEA Communication and Digitalisation Office (CDO) for their help in producing the report and website materials, particularly to Jad Mouawad, Head of CDO, and to Jon Custer, Astrid Dumond, Merve Erdil, Jethro Mullen, Isabelle Nonain-Semelin, Julie Puech, Robert Stone, Gregory Viscusi and Therese Walsh.

Diane Munro carried editorial responsibility.

Highlights

• The current global energy crisis has added new urgency to accelerate clean energy transitions and, once again, highlighted the key role of renewable energy. For renewable electricity, pre-crisis policies lead to faster growth in our updated forecast. Notably, wind and solar PV have the potential to reduce the European Union’s power sector dependence on Russian Federation (hereafter, “Russia”) natural gas by 2023.
• At the same time, it is too early to assess the potential impact on our 2022 and 2023 forecast of newly announced targets following the Russian invasion of Ukraine, in the absence of rapid policy implementation.
• Annual renewable capacity additions broke a new record in 2021, increasing 6% to almost 295 GW, despite the continuation of pandemic-driven supply chain challenges, construction delays and record-level commodity prices for raw materials.
• Solar PV and wind costs are expected to remain higher in 2022 and 2023 than pre-pandemic levels due to elevated commodity and freight prices. However, their competitiveness actually improves, due to much sharper increases in natural gas and coal prices.
• Renewable capacity is expected to further increase over 8% in 2022, reaching almost 320 GW. However, unless new policies are implemented rapidly, growth remains stable in 2023 because solar PV expansion cannot fully compensate for lower hydropower and steady year-on-year wind additions.
• Globally, forecast additions for 2022 and 2023 have been revised upwards by 8% from December last year, thanks to strong policy support in the People’s Republic of China (hereafter, “China”), the European Union and Latin America, and despite downward forecast revisions in the United States.
• Biofuel demand recovered in 2021 from Covid-19 lows, to near 2019 levels, and we expect growth to expand year-on-year by 5% in 2022 and by 3% in 2023. On the other hand, increasing feedstock prices and policy reaction from multiple countries slows growth in the short term, leading to a 20% downward revision of our previous biofuel demand growth forecast. Russia’s invasion of Ukraine is also putting upward pressure on an already high-price environment for biofuel feedstocks, in particular vegetable oils.
• While looming market uncertainties increase challenges, the new focus on energy security — especially in the European Union — is also triggering an unprecedented policy momentum towards accelerating energy efficiency and renewables. Ultimately, the forecast of renewable markets for 2023 and beyond will depend on whether new and stronger policies will be introduced and implemented in the next six months.

Renewable electricity

A brief look back at 2021

Another record year of growth but with new boom and bust deployment cycles

Despite the persistent pandemic-induced supply chain challenges, construction delays, and record-level raw material and commodity prices, renewable capacity additions in 2021 increased 6% and broke another record, reaching almost 295 GW. This growth is slightly higher than the forecast last year in the IEA’s Renewables 2021. Globally, the 17% decline in annual wind capacity additions in 2021 was offset by an increase in solar PV and growth in hydropower installations. The expansion of bioenergy, concentrated solar power (CSP) and geothermal was stable in 2021 compared with 2020. In terms of speed of growth, renewable capacity’s year-on-year increase last year was slower, following an exceptional jump in 2020 when Chinese developers rushed to connect projects before the phase out of subsidies, especially for onshore wind.

China largely maintained its market share of deployment in 2021, accounting for 46% of worldwide renewable capacity additions. However, new Chinese capacity declined 2% year-on-year, with onshore wind and utility-scale solar PV installations 55% and 22% lower, respectively, than the record boom cycle levels in 2020 when developers rushed to complete projects before the subsidy expiration deadline. On the other hand, offshore wind, residential solar PV and bioenergy annual additions broke new records thanks to the availability of subsidies through 2021. For instance, offshore wind new installations increased almost six-fold in 2021 compared with 2020. In addition, the commissioning of multiple units at the Chinese Baihetan hydropower plant contributed to the global acceleration of hydropower expansions.

Outside of China, the European Union was the second largest market in terms of increased capacity, with the region surpassing for the first time the all-time-record in 2011. Solar PV alone accounted for the majority of the European Union’s expansion last year due to project acceleration in Spain, France, Poland and Germany, which was driven by a combination of government-led auctions and distributed solar PV incentives. In the United States, lower production tax credit (PTC) rates led to onshore wind additions declining by one-quarter. Solar PV expansion continued to increase thanks to the investment tax credits (ITC) available until 2023-2024 providing a relatively stable policy environment, even as supply chain and logistical challenges hampered much faster growth.

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