IEA (2023), Renewable Energy Market Update - June 2023, IEA, Paris https://www.iea.org/reports/renewable-energy-market-update-june-2023, License: CC BY 4.0
Global renewable capacity additions are set to soar by 107 gigawatts (GW), the largest absolute increase ever, to more than 440 GW in 2023. This is equivalent of more than the entire installed power capacity of Germany and Spain combined. This unprecedented growth is being driven by expanding policy support, growing energy security concerns and improving competitiveness against fossil fuel alternatives. These factors are outweighing rising interest rates, higher investment costs and persistent supply chain challenges.
Solar PV capacity, including both large utility-scale and small distributed systems, accounts for two-thirds of this year’s projected increase in global renewable capacity. In response to higher electricity prices caused by the global energy crisis, policy makers in many countries, particularly in Europe, have actively sought alternatives to imported fossil fuels that can improve energy security. This shifting focus created a favourable environment for solar PV, especially for residential and commercial systems that can be rapidly installed to meet growing demand for renewable energy. These smaller distributed PV applications are on track to account for half of this year’s overall deployment of solar PV – larger than the total deployment of onshore wind over the same period.
Following two consecutive years of decline, onshore wind capacity additions are on course to rebound by 70% in 2023 to 107 GW, an all-time record amount. This is mainly due to the commissioning of delayed projects in China following last year’s Covid-19 restrictions. Faster expansion is also expected in Europe and the United States as a result of supply chain challenges pushing project commissioning from 2022 into 2023. On the other hand, offshore wind growth is not expected to match the record expansion it achieved two years ago due to the low volume of projects under construction outside of China.
Solar PV additions will continue to increase in 2024 while challenges remain for wind expansion. Declining module prices, greater uptake of distributed solar PV systems and a policy push for large-scale deployment are driving higher annual solar additions in all major markets – including China, the European Union, the United States and India. In contrast, without rapid policy implementation, global onshore wind additions in 2024 are expected to fall by around 5% from 2023 levels. While China’s wind energy additions will continue to increase in 2024, they are set to be more than offset by undersubscription of auctions and pending permitting delays in Europe. The situation in Europe is expected to improve once new legislation is implemented. Overall, cumulative world renewable capacity is forecast to reach over 4 500 GW at the end of 2024, equal to the total power capacity of China and the United States combined.
Global renewable capacity additions could reach 550 GW in 2024 in our accelerated case, almost 20% higher than in the main forecast. This is mainly due to a more rapid deployment of residential and commercial PV installations, assuming a faster implementation of recent policies and incentives. The upside for utility- scale onshore wind and solar PV projects mostly depends on the pace of permitting, construction and timely grid connection of projects under development.
The crisis triggered by Russia’s invasion of Ukraine has accelerated renewable energy deployment in the European Union, driving the bloc to urgently reduce its dependence on Russian natural gas imports. Policy actions in many European countries has led us to revise our forecast for renewable capacity additions in the EU in 2023 and 2024 upwards by 40% compared with before the war. Rapid growth in distributed solar PV is the main reason for the more positive outlook, accounting for almost three-quarters of the EU forecast revisions. This is driven by high electricity prices that make solar PV more financially attractive and by increasing policy support in key EU markets, especially in Germany, Italy and the Netherlands.
European countries introduced more policy and regulatory changes to ease permitting in the last 18 months than over the entire previous decade. While permitting has become a key policy focus in Europe to accelerate the deployment of large-scale wind and solar PV and early benefits are starting to be visible, the proposed policy changes are expected to have limited impact on the deployment of renewables in 2023 and 2024 compared with other drivers, such as installations of small-scale residential and commercial solar PV.
EU electricity consumers are set to save an estimated EUR 100 billion during the 2021-2023 period thanks to newly installed solar PV and wind capacity. Accelerating renewable energy deployment in Europe since 2021 has mitigated the economic impact of the energy crisis. Low-cost wind and solar PV are on course to displace an estimated 230 terawatt-hours (TWh) of expensive fossil fuel generation over the 2021-2023 period, helping to reduce wholesale electricity prices in all European markets. Without these capacity additions, the average wholesale price of electricity in the EU in 2022 would have been 8% higher, hurting consumers, businesses and government budgets.
Renewables could help Europe displace more natural gas for heating buildings next winter. Last year was the second warmest winter on record in Europe, which helped the EU use less gas for heating buildings. Projected growth of renewable energy such as clean electricity, bioenergy boilers, heat pumps, and solar thermal and geothermal technologies could displace almost 8 bcm of EU buildings-related gas consumption annually in 2023 and more than 17 bcm in 2024. This would represent a significant contribution to cover increasing gas demand, should harsher winters and hotter summers occur over the course of 2023-2024.
China’s contribution to global renewable capacity additions is expected to increase in 2023 and 2024, consolidating its position as the undisputed leader in global deployment. In 2022, China accounted for almost half of all new renewable power capacity worldwide. By 2024, the country’s share is set to have expanded to a record 55% of global annual renewable capacity deployment. By 2024, China will deliver almost 70% of all new offshore wind projects globally, as well as over 60% of onshore wind and 50% of solar PV projects.
In the United States, capacity additions will rebound this year after a difficult 2022. The US markets for wind and solar PV contracted last year due to restrictive trade measures and supply chain constraints, but annual additions for both technologies are set to increase by around 40% in 2023, with solar PV setting a new record. The current forecast is underpinned by existing tax incentives, while the Inflation Reduction Act will show its full effect after 2024, providing unprecedented certainty for renewable energy projects until 2032.
India’s renewable capacity additions are expected to increase again in 2023 and 2024, owing to faster onshore wind, hydropower and distributed solar PV deployment. However, utility-scale solar PV projects, India’s largest renewable electricity growth segment, are expected to slow briefly this year due to supply chain challenges, lower auction volumes and trade policies. While large-scale PV manufacturing is emerging in India, import tariffs are causing short-term demand and supply mismatches.
Electricity generation costs from new onshore wind and solar PV plants are projected to decline by 2024 but will likely remain 10-15% above their pre-Covid levels in most markets outside China. Regardless, solar PV and onshore wind remain the lowest cost options for new electricity generation in most countries. Future power contracts for the end of 2023 and into 2024 in the European Union, the United States, Japan, Australia and India indicate wholesale power prices two to three times above 2020 averages. Today, wind and solar PV plants can provide electricity at prices 30-50% lower than those of future power contracts in most key markets, increasing renewables’ attractiveness for investors.
Policy uncertainties and volatile prices left one-sixth of renewable energy auction volumes unallocated in 2022. Competitive renewable energy auctions resulted in the awarding of a record-breaking 100 GW of capacity. However, 20 GW remained unallocated, the highest ever level with Europe accounting for two-thirds of it. Government auction designs need to take into account recent inflation, interest rate rises and turbulence in commodity prices – and to envisage dynamic indexation methods to attract investments.
Market-driven procurement is expected to contribute to approximately one-fifth of solar PV and wind capacity expansion in 2023 and 2024, driven by corporate power purchase agreements. The United States leads expansion in corporate power purchasing agreements, followed by Brazil, Australia, Spain and Sweden. These agreements are motivated by the economic attractiveness of renewables, by the opportunity to hedge against rising and volatile power prices, and by sustainability goals.
The financial health of renewable energy value chains is critical for the industry’s sustainable growth. Despite challenges from volatile commodity prices, higher interest rates, supply chain constraints and trade measures, the renewable energy industry has shown financial resilience overall. However, there is significant variation across sectors and countries. The solar PV manufacturing sector has a positive outlook with increasing capacity additions, but potential supply gluts and declining prices may reduce company profit margins. Western wind manufacturers face challenges from high commodity prices, as well as permitting and auction designs that do not reflect changing financing environments. While the energy crisis has also hurt the profitability of some specific electricity utilities, these companies overall are maintaining their role as large investors in renewables.
Global manufacturing capacity of solar PV is projected to reach nearly 1 000 GW in 2024, sufficient to meet annual demand in the IEA’s Net Zero Emissions by 2050 Scenario. In contrast, wind equipment manufacturing is expanding more slowly and may struggle to keep up with demand growth through 2030. While China will continue to dominate global manufacturing capacity for solar PV, announcements of solar PV manufacturing projects in the United States and India have doubled since December, indicating that supply chains are diversifying in the medium term.
The rapid expansion of wind and solar PV needs to be accompanied by policies and market rules supporting grid infrastructure and flexibility investments. An increasing amount of electricity generation from wind and solar PV is being curtailed in many markets, particularly where grid infrastructure and system planning lag behind deployment of these variable renewables. However, curtailed generation remains relatively low, ranging from 1.5% to 4% in most large renewable energy markets. Multiple countries in Europe – including Spain, Germany and Ireland – will see their annual share of wind and solar PV reach over 40% by 2024, which will require effective grid management to hold back rising curtailment rates.
Biofuels avoided the consumption of 2 million barrels of oil equivalent per day (mboe/d) in 2022, equivalent to 4% of global transport sector oil demand. Argentina, India and Indonesia all accelerated biofuel use in 2022. However, while biofuels offered energy security benefits, their prices climbed more quickly than those of gasoline and diesel in many countries. To mitigate increases in transport fuel costs, Brazil, Sweden and Finland delayed planned increases to biofuel blending obligations in 2022.
Biofuel prices are set to decline in 2023 and 2024 while remaining well above pre-Ukraine war levels. Biofuel prices have declined in all major markets from their peaks in 2022. In the first four months of 2023, ethanol prices declined 7%‑16% from their 2022 average and biodiesel prices dropped 15%‑28% across different markets. While below 2022 peaks, prices for major biofuel feedstocks such as corn, sugar and vegetable oils are expected to remain above pre-war price levels, keeping biofuel prices at historically high levels through 2024.
Biofuel demand is to expand by 11% by 2024, supported by existing policies targeting energy security objectives. Only Indonesia and Brazil are accelerating deployment by 2024. In advanced economies, new policies are not likely to influence production until after 2024 as high prices, feedstock concerns and technical constraints limit additional growth potential.