Tracking Progress: Renewable power
Renewable power capacity additions continued to reach new record highs in 2016, driven by cost reductions and policies aimed at enhancing energy security and sustainability and improving air quality. According to the IEA Medium-Term Renewable Energy Market Report 2016, onshore wind and solar PV are expected to drive the majority of renewable capacity growth over the next five years. They are also the only two technologies on track to reach 2DS targets. Accelerated action is needed to address both policy- and technology-specific challenges for renewables to be firmly on track with the 2DS target.
In 2016, global renewable electricity generation grew by an estimated 6% and represented around 24% of global power output. Hydropower remained the largest source of renewable power, accounting for around 70%, followed by wind (16%), bioenergy (9%) and solar PV (5%). In 2015, net additions to grid-connected renewable electricity capacity reached a record high at 153 GW, 15% higher than in 2014. For the first time, renewables accounted for more than half of new additions to power capacity and overtook coal in terms of world cumulative installed capacity.
In 2016, solar PV annual additions surpassed that of wind, breaking another record, with 70 GW to 75 GW coming on line, almost 50% higher growth versus 2015. Annual grid-connected solar PV capacity in China more than doubled in 2016 versus 2015, with 34.5 GW becoming operational. Developers rushed to connect their projects before feed-in tariffs (FiTs) were reduced as planned in August 2016. In the United States, solar PV annual additions doubled, with over 14 GW coming on line in 2016, followed by Japan (8.5 GW). The European Union’s annual solar PV market contracted by about 15% to 6 GW in 2016 as growth slowed in the United Kingdom. India’s annual solar PV additions doubled, with 4 GW added to the grid last year.
In 2016, onshore wind capacity grew by 50 GW to 55 GW, about 15% less versus 2015. This decline was mainly due to China, which connected 19 GW of new onshore wind capacity, significantly less than 32 GW in 2015, when developers rushed to complete their projects to benefit from higher FiTs. However, despite slower capacity growth, China curtailed around 50 terawatt hours (TWh) of wind power last year, with average nationwide curtailment rate increasing from 15% in 2015 to around 17% in 2016. The European Union added over 11 GW, led by Germany and France, followed by the United States (8.2 GW), India (3.6 GW) and Brazil (2.5 GW). In 2016, global offshore wind new additions are estimated to have declined versus 2015 by a third, with annual grid-connected capacity decreasing by about half in Europe as a result of a lull in the United Kingdom and Germany project pipelines.
Hydropower additions are estimated to have decreased for the third consecutive year since 2013, with fewer projects becoming operational in China (12.5 GW). Brazil added almost 5 GW of new capacity. In 2016, CSP capacity grew by almost 0.3 GW, driven almost entirely by Africa. Phase 1 of Morocco’s NOOR Ouarzazate Plant, a 160 MW parabolic trough plant with three hours of storage, came on line, while South Africa commissioned two plants.
Over the last year, renewable policies for utility-scale projects continued to shift from government-set tariffs to competitive tenders with long-term power purchase agreements. By 2016, almost 70 countries had employed auction/tender schemes to determine support levels, compared with fewer than 20 in 2010. While the first adopters were primarily emerging economies (Brazil and South Africa), this trend has now spread to mature renewable markets (the European Union and Japan). Tender schemes have become a preferred policy option, because they combine competitive pricing with volume control and can support a cost-effective deployment of renewables. As a result, record low prices were announced over the last year in markets as diverse as Latin America, Europe, North America, Asia and North Africa.
In Chile and the United Arab Emirates, solar PV developers signed contracts for projects at below USD 30/MWh, a global record low. In Mexico’s energy auctions, winning bids ranged from USD 30/MWh to USD 55/MWh for both solar PV and onshore wind. In India, solar PV contract prices decreased on average by more than a third to USD 55/MWh in 2016 versus 2015/14. For offshore wind, record low contracts were signed in the Netherlands (USD 55/MWh to USD 73/MWh) and Denmark (USD 65/kWh) for a near-shore project, excluding grid connection costs. These contract price announcements reflect a subset of projects that are expected to be commissioned over 2017-20 and should not be directly compared to average generation costs that indicate higher values. Still, they signal a clear acceleration in cost reductions, increasing the affordability and improving the attractiveness of renewables among policy makers and investors.
Renewable power is forecast to grow by 36% over 2015-21, making it the fastest-growing source of electricity generation globally. Generation is expected to exceed 7 650 TWh by 2021, but needs to accelerate further and expand by an additional 26% over 2021-25 for renewables to be firmly on track to reach the 2DS target of 10 300 TWh.
Solar PV and onshore wind are the only two renewable power technologies that are on track to reach their 2DS targets by 2025. Electricity generation is forecast to triple for solar PV and double for onshore wind over five years, driven by strong policy support and further cost reduction expectations. This growth is driven by China, with higher targets announced under China’s 13th Five-Year Plan (FYP), and the United States with the multi-year extension of federal tax credits combined with continued supportive policy environment at the state level. India’s solar PV growth is also expected to accelerate driven by auctions; however, challenges concerning grid integration and the financial health of utilities hamper a faster growth towards the country’s ambitious renewable targets. In Europe, the growth of both solar PV and onshore wind is expected to slow as incentive reductions, policy uncertainties at the country and EU level, and overcapacity remain challenges.
Offshore wind’s progress towards the 2DS targets has improved as countries in the European Union are fully on track to reach their 2DS generation targets driven by technology improvements and faster-than-expected cost reductions and grid connection improvements. In addition, the deployment is forecast to accelerate in China with improving economic attractiveness. Hydropower also needs improvement to reach its 2DS generation target. Overall, hydropower new capacity additions are expected to slow over 2015-21 compared with the previous six years owing to the large influence of China’s slowdown in large-scale project development due to increasing environmental and social concerns. However, large hydropower growth is forecast to be robust in emerging markets in Southeast Asia, Latin America and sub-Saharan Africa for large scale projects, though environmental concerns and the availability of financing remain challenging.
Other renewable technologies are not on track to reach their 2DS targets. For CSP, the growth is seen mostly coming from emerging economies, especially South Africa, China and Morocco, where the largest plants with longer storage hours are expected to come on line. However, investment costs remain high, and further deployment needs a better remuneration of storage capacity. For bioenergy, despite a more optimistic outlook in Asia, with increasing co firing and waste generation, most generation costs remain higher than conventional alternatives. For geothermal, pre-development risks remain high overall, and drilling costs have been increasing over the last decade. Ocean technology holds a great potential but requires faster cost reductions.
In 2016, prospects for renewable electricity were more optimistic over the medium term, driven by policy improvements in key markets, cost reductions mainly for wind and solar technologies, and efforts to improve air quality. However, renewables are still at risk of falling short of longer-term 2DS power generation targets, with only solar PV and onshore wind being on track.
Accelerated growth of renewable electricity generation requires policy improvements focusing on three main challenges to deployment. First, policy makers should implement stable, predictable and sustainable policy frameworks, giving greater revenue certainty to renewables, and reducing policy uncertainties. Second, policies should address infrastructure challenges and market design issues to improve grid integration of renewables. Third, countries should develop policy mechanisms that reduce the cost of financing and lower off-taker risks, especially in developing countries and emerging economies.
In addition, some policies could also address technology-specific challenges. These policies could include: better remuneration of the market value of storage for CSP and pumped-storage technologies, ensuring timely grid connection and continued implementation of policies that spur competition to achieve further cost reductions for offshore wind, improved policies tackling pre development risks for geothermal energy, and facilitating larger demonstration projects for ocean technologies. Other needed actions would involve developing the means to reflect the wider complementary policy drivers for sustainable bioenergy such as rural development, waste management and dispatchability, especially in competitive renewable energy auction framework.
Published: 16 May 2017Download Full Report