IEA (2022), Renewable Energy Market Update - May 2022, IEA, Paris https://www.iea.org/reports/renewable-energy-market-update-may-2022
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.
India’s renewable energy growth recovered in 2021 following a record slowdown in 2020 due to project delays related to Covid-19 challenges. With the commissioning of already auctioned utility-scale projects and the acceleration of the distributed PV market due to policy improvements, India’s renewable capacity additions in 2021 more than doubled compared to 2020. In Brazil, generous net metering incentives for distributed PV application led to a rush in installations while onshore wind additions accelerated because of supportive economics from bilateral contracting in the free market. In Africa, renewable capacity additions resumed growth with the commissioning of previously awarded wind and solar PV projects in South Africa. The phase out of the generous feed-in tariff (FIT) scheme in Viet Nam resulted in a bust in the deployment cycle, with the country’s additions halving from 2020 to 2021. As a result, ASEAN’s annual installations declined 40% year-on-year, although still slightly higher than in 2019.
Renewable capacity is expected to increase over 8% in 2022 compared with last year, pushing through the 300 GW mark for the first time. Solar PV is forecast to account for 60% of the increase in global renewable capacity this year with the commissioning of 190 GW, a 25% gain from last year. Utility-scale projects account for almost two-thirds of overall PV expansion in 2022, mostly driven by a strong policy environment in China and the European Union driving faster deployment.
Following a 32% year-on-year decline in 2021, new global onshore wind installations are expected to slightly recover and reach almost 80 GW. Offshore wind growth worldwide is expected to decline 40% in 2022 following the exceptional four-fold jump last year in China due to the national subsidy phase-out deadline. Despite this decline, 2022 global offshore wind capacity additions will still double compared to 2020, thanks to the continuation of provincial incentives in China and the expansion in the European Union. As a result, China is expected to have the largest cumulative installed offshore wind capacity globally and surpass the European Union and United Kingdom combined by the end of this year.
Unless new and stronger policies are implemented in 2023, global renewable capacity additions are expected to remain stable compared with 2022. While solar PV is forecast to break another record in 2023, reaching almost 200 GW, and with the expansion of wind and bioenergy remaining stable, 40% lower hydropower additions due to a reduced project pipeline in China stymies capacity growth in the global renewable energy market.
Prices for many raw materials and freight costs have been on an increasing trend since the beginning of 2021. By March 2022, the price of PV-grade polysilicon more than quadrupled, steel increased by 50%, copper rose by 70%, aluminium doubled and freight costs rose almost five-fold. The reversal of the long-term trend of decreasing costs is reflected in the higher prices of wind turbines and PV modules as manufacturers pass through increased equipment costs. Compared with 2020, we estimate that the overall investment costs of new utility-scale PV and onshore wind plants are from 15% to 25% higher in 2022. Surging freight costs are the biggest contributor to overall price increases for onshore wind. For solar PV, the impact is more evenly divided among elevated prices for freight, polysilicon and metals.
High prices for oil, natural gas and coal also contribute to rising production costs of manufactured materials for renewable electricity technologies since fossil fuels are used in both industrial processes and power generation.
While significant in absolute terms, the increase in renewables costs have not hampered their competitiveness because prices of fossil fuels and electricity have risen at a much faster pace since the last quarter of 2021. Globally, power prices are breaking historic records in many parts of the world, especially where natural gas is the marginal technology setting the final hourly or daily price in many wholesale electricity markets. This is especially prevalent in European Union countries, where wholesale power prices in Germany, France, Italy and Spain have increased more than six-fold on average compared with mean values from 2016 to 2020.
Historically, long-term contract prices from solar PV and wind auctions have been higher than wholesale prices in many large European Union markets. However, even the highest-priced onshore wind and utility scale contracts signed over the last five years are half of the average wholesale prices seen today in the European Union. For newly contracted projects, despite cost increases, onshore wind and solar PV ventures are offering long-term contracts significantly lower than wholesale price averages over the last six months. For instance, prices for utility-scale solar PV and onshore wind projects increased 15-25% in the recent Spanish auction held in December 2021, to USD 37/MWh and USD 35/MWh, respectively. Today, these results are one-tenth of average Spanish wholesale electricity prices over the last 14 months.
China accounts for the majority of upward forecast revisions for 2022 and 2023 since our last report, despite the phase out of incentives for all renewables last year. The expansion is due to multiple government and market factors. First, the generation costs of solar PV and onshore wind are lower than coal benchmark prices in the majority of provinces. Second, the government announced 450 GW of additional large-scale onshore wind and solar PV megaprojects in the Xinjiang and Inner Mongolia provinces, known as “mega-hubs”, with 100 GW starting development at the beginning of 2022. Third, China’s Ministry of Finance confirmed the payment of outstanding renewable energy subsidies worth USD 60 billion to be paid through 2022, improving the balance sheet of developers and unlocking additional funds for new projects. Fourth, in the absence of national subsidies, provincial governments are still providing tax incentives and low-cost financing to renewable energy projects.
In the European Union, solar PV accounts for the majority of upward revisions, with faster policy implementation driving growth in Germany, the Netherlands, Poland, Italy and France. However, the European Union’s onshore wind growth was revised down due to ongoing permitting challenges slowing deployment in Germany, Poland and Italy. Brazil’s generous net metering scheme results in a distributed PV market boom, supporting upward revisions to the Latin America forecast. In India, delayed projects in 2021 leads to higher growth in 2022, with increased distributed solar PV capacity supporting the overall upward revisions.
Among large renewable energy markets, the forecast is revised down in the United States due to uncertainty over new incentives for both wind and solar PV. Multiple policy proposals, including long-term tax incentive extensions, have yet to be approved by the House of Representatives and Senate.
New trade policies on solar PV have also increased challenges for developers in the United States. In June 2021, the government banned imports from several polysilicon producers located in Xinjiang, China following the indication from the US Customs and Border Protection agency that these companies use forced labour in their manufacturing. In addition, at the end of March 2022, the US Department of Commerce launched a new investigation to assess whether solar cells produced in Southeast Asia are made with parts manufactured in China that are subject to an import tariff imposed in 2018. Since the introduction of tariffs in 2018, Southeast Asian countries such as Viet Nam, Malaysia, and Indonesia replaced imports from China, supplying over 80% of the country’s cell and module imports. The new investigation and the possibility of additional tariffs compounding procurement challenges in the short term, reducing the availability of solar PV modules. As a result, we have lowered our forecast for solar PV by 17% in 2022 and 9% in 2023.
Japan’s renewable capacity additions in 2022-2023 are also revised down from last year, mainly due to lower FIT approval for solar PV. The new feed-in premium (FIP) scheme just started in April 2022. This could lead to additional capacity growth for solar PV and onshore wind in the longer term, but forecast uncertainty remains in the short term.
China accounts for 45% of global renewable capacity additions in 2022-2023, with the commissioning of over 140 GW on average per year driven mostly by large-scale solar PV deployment. The expansion trend in China is fully in-line with the government’s 1 200 GW wind and solar PV target by 2030. Annual additions are expected to remain slightly higher compared with 2020-2021, when the country saw multiple deployment rushes due to incentive phase-out schedules for onshore wind and utility-scale PV in 2020, and offshore wind and residential PV in 2021.
In the European Union, rapid implementation of previously announced ambitious policy targets and already awarded auctions, combined with continuous incentives for distributed solar PV, drive the expansion. In response to the Russian invasion of Ukraine, many European Union countries announced plans to accelerate renewables deployment aimed at reducing their dependence on Russian natural gas imports. Germany, the Netherlands and Portugal either increased their renewable energy ambitions or moved their initial targets to an earlier date. We expect that the impact of these new policies will be limited by 2023, especially for large-scale projects that require development timelines of more than 18 months. However, our forecast sees some upside on distributed PV as residential and commercial installations enable consumers to reduce their electricity bills through self-consumption.
In India, new records for renewable capacity expansion are expected to be set in 2022 and 2023 as delayed projects from previous competitive auctions are commissioned, especially for solar PV. Nonetheless, the financial health of distribution companies (DISCOMs) remains the primary challenge to renewable energy deployment in India, with potential project cancellations and protracted contract renegotiations.
In the United States, annual capacity additions are expected to slow over 2022 and 2023. Wind and solar PV sectors face two key challenges to achieve faster growth in the short term. First, the lack of long-term visibility on future incentive schemes has reduced the project pipeline for onshore wind developments and the PTCs phased down from the initial rate of USD 19/MWh for projects beginning construction in in 2016 to USD 10/MWh for construction starting in 2019, reducing economic attractiveness. While subsequent extensions of the PTC in 2020 and 2021 have been at higher rates, those years fall outside of our forecast period given development timelines. Second, potential solar PV trade measures against Southeast Asian countries, in addition to China, are reducing the availability of solar modules in the short term and leading to higher prices, which were already inflated due to elevated commodity prices. Current production of modules in the United States can only meet less than 20% of last year’s annual demand and there are limited manufacturers outside of Viet Nam, Indonesia, Cambodia, Malaysia and China that can provide PV products to the US market.
While smaller in absolute terms, significant growth occurs and accelerates in other world regions, notably Latin America, the Middle East and North Africa. In Brazil, we expect renewable capacity additions to break another record in 2022 due to the generous net metering scheme supporting distributed solar PV expansion. However, net metering incentives begin to phase down in 2023, resulting in slightly lower capacity additions in 2023.
The varying commissioning deadlines of competitive auctions and bilateral contracts in ASEAN can lead to fluctuating utility-scale wind and PV capacity expansion. Viet Nam’s policy boom and bust cycles have led to significantly lower capacity additions compared with 2020. Following the solar PV boom in 2020 and onshore wind in 2021, Viet Nam’s renewable capacity additions are forecast to decline from 17 GW over 2020-2021 to just 6 GW for 2022-2023.
In the Middle East and Africa, the push for solar PV drives annual capacity additions. Falling system costs, good resource potential, favourable financing conditions and economies of scale make solar PV projects in the Middle East economically attractive. In sub-Saharan Africa, government guarantees or backing from development banks for utility-scale solar PV, wind and hydropower projects are fuelling growth.
Russia supplies around 45% of the European Union’s gas imports for industry, homes and electricity generation. For electricity generation, natural gas accounts for around 16% of the group’s total power demand. Over the last decade, natural gas-fuelled electricity generation annually ranged from 340 TWh to 600 TWh, depending on the price environment, wind and solar PV penetration, and winter demand.
Considering country-level supply dependencies, we estimate that between 100 TWh to 200 TWh of European Union natural gas-based electricity is provided by Russia. On the other hand, our forecasts indicate incremental growth of renewable electricity generation up to 180 TWh from 2021-2023, almost equal to the highest value of Russia dependent gas-fired generation. With current deployment trends, wind and solar PV expansion in the European Union has the potential to reduce the dependence on Russian gas use in electricity significantly. However, the contribution of variable renewables will also depend on policies on energy efficiency measures keeping demand in check and the phase-out or phase-down policies for coal and nuclear energy in several member states.
European Union countries have varying levels of dependency on Russia for their natural gas supply. Among member states, Germany and Italy have the highest dependency on Russia in terms of absolute electricity generation. However, the potential for renewables to reduce dependency in Germany is significantly higher than in Italy based on our wind and solar expectations by 2023 – unless new and stronger policies are introduced and the pace of implementation picks up. France and the Netherlands’ dependency on Russia gas is relatively low, enabling a higher potential for renewables to displace natural gas. Conversely, in Austria, Hungary and Greece renewables expansion remains limited to reduce the countries’ dependency on Russia.
The Russian invasion of Ukraine has added new urgency to accelerate clean energy transitions in order to reduce the dependency of imported fossil fuels from Russia, with deployment of more renewables now a strategic imperative for many countries, especially in the European Union. Indeed, since Renewables 2021 was published last December, the global energy crisis has moved the goal posts for the deployment of solar, wind and other renewable energy sources, and we have updated our forecasts in this new report in response. Many European Union countries have announced plans to advance development of renewables, with wind and solar PV holding the greatest potential to reduce the European Union’s power sector dependence on Russia by 2023.
The high fossil fuel price environment has improved the cost competitiveness of renewable electricity technologies against coal and natural gas-fuelled power plants. Meanwhile, residential and commercial solar PV applications are helping consumers reduce their electricity bills. However, despite their potential, an acceleration in new renewables capacity is highly dependent upon a stable policy environment providing long-term revenue certainty and faster permitting.
In our forecast, government-led competitive wind and solar PV auctions in 2019 and 2020 remain a key driver for renewables expansion through 2023. Auction volumes slightly declined in 2021 due to lower awarded capacity in China and India while they increased in the European Union and Latin America.
However, geopolitical and macroeconomic challenges increase uncertainties over renewable electricity forecasts beyond 2023. Higher wind and solar PV investment costs due to elevated commodity prices in the wake of Russia’s invasion and permitting delays resulted in the lowest first-quarter auction volumes globally in 2022 since 2016. In addition, volatility in electricity markets due to sharply higher gas prices has complicated contract negotiations for corporate power purchase agreements (PPA), especially in the European Union, while rising interest rates are compounding challenges for renewable developers.
While some of these difficulties will likely remain in the coming months and into next year, causing looming market uncertainties, the new focus on energy security – in particular 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.