Renewable energy market update

Outlook for 2020 and 2021
Solar PV farm

2020 and 2021 forecast overview

Electricity markets

The IEA forecasts that additions of renewable electricity capacity will decline by 13% in 2020 compared with 2019, the first downward trend since 2000. This is a 20% downward revision compared to our previous forecast in which 2020 was due to be a record year for renewable power. The update reflects both possible delays in construction activity due to supply chain disruptions, lockdown measures and social‑distancing guidelines, and emerging financing challenges. The outlook also takes into account ongoing policy uncertainty and market developments such as the most recent auctions and newly financed projects before the Covid-19 outbreak.

However, the majority of these delayed projects are expected to come online in 2021 and lead to a rebound in capacity additions. As a result, 2021 is forecast to almost reach the level of renewable capacity additions of 2019. Despite the rebound, the combined growth in 2020 and 2021 is almost 10% lower compared to the previous IEA forecast.

Renewable electricity capacity additions, 2007-2021, updated IEA forecast

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The United States and the People’s Republic of China (hereafter, “China”) are both expected to see an increase in capacity additions in 2020 and 2021 compared with last year. The phase-out of subsidies in China and the expiry of tax credits in the United States (in 2020 and 2021, respectively) are resulting in project development rushes. However, both governments are expected to provide some flexibility, allowing projects to be commissioned in 2021 without losing their incentives. As a result, the forecast expects that some wind and solar PV will be rescheduled and commissioned in 2021.

Construction delays are expected to have an immediate impact on European utility-scale projects, as certain countries in Europe introduced some of the strictest lockdown measures in the world. However, capacity additions are expected to rebound in 2021. Covid-19 exacerbates existing policy uncertainty and permitting challenges in Germany and France, while the large pipeline of projects outside the auction scheme in Spain may see commissioning delays. Distributed PV, which has been the backbone of recent growth in large European PV markets, is expected to slow. Compared to 2019 levels, it is not expected to fully recover in 2021 as small investors reprioritise investment decisions.

In India, Covid-19 is exacerbating existing challenges concerning the financial health of distribution companies, which play a critical role in the deployment of both utility-scale and distributed PV. In addition, India’s strict lockdown measures are expected to result in delays to wind and PV projects, and thus to slower growth in installations in 2020 compared with 2019.

The economic downturn is also expected to increase existing financing and project development challenges for developing countries in Africa, Latin America and Eurasia, pushing some planned projects beyond 2021 and resulting in downward forecast revisions in all three regions.

The IEA forecast expects 167 GW of renewable capacity to become operational in 2020. Solar PV accounts for half of this renewables expansion, but its additions decline from 110 GW in 2019 to over 90 GW in 2020. New PV installations are expected to see a partial rebound in 2021, owing to utility-scale projects that return to 2019 addition levels, while distributed PV is hit more severely and does not fully recover. Onshore wind installations are also affected by commissioning delays, although they are mostly compensated for in 2021 as the majority of projects in the pipeline are already financed and under construction. However, forecast uncertainty remains for projects that were planning to achieve financial close in 2020 and become operational next year. The commissioning of two mega hydropower projects in China in 2021 supports the overall rebound of renewables.

Renewable electricity net capacity additions growth by technology, 2020 and 2021

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Overall, the updated forecast revises down combined capacity growth in 2020 and 2021 by almost 10%. The drivers behind this revision vary by technology and country (details in the technology sections). The distributed PV forecast is revised downwards by the largest proportion, almost 36%, mainly in Europe, China and the United States. The forecast for utility-scale PV remains mostly unchanged except in the United States, where larger pipelines of utility-scale projects prior to Covid-19 underpin more optimistic growth. For wind, the European Union, China and India are mainly responsible for the downward forecast revision in 2020 and 2021. Forecast revisions for hydropower, bioenergy and other renewables are not directly connected to Covid-19. The forecast for hydropower integrates new project commissioning dates, based on recent construction activity since our previous forecast.

Transport biofuel markets

The Covid-19 crisis has radically changed the global context for biofuels. The widespread application of containment measures and stalling of economic activity has strongly reduced transport fuel demand. Global gasoline demand is forecast to fall by 9% in 2020 and diesel demand by around 6%.

This, in turn, limits biofuel consumption resulting from mandate policies that require a set percentage of biofuels to be blended with fossil transport fuels. We anticipate total transport biofuel production to contract by 13% in 2020, with ethanol output contracting by 15% and a 6% reduction anticipated for biodiesel and hydrotreated vegetable oil (HVO) output.

Annual change in biofuel production, 2018-2020

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Some of the impacts from the Covid-19 pandemic are likely to be temporary. Biofuel production will follow gasoline and diesel demand upward as governments ease confinement measures, allowing mobility and economic activity to resume. If a rebound in transport fuel demand occurs in 2021, biofuel production could return to 2019 levels. However, this would still be 5% lower than the output anticipated in our forecast for 2021 prior to the Covid-19 crisis.  

While disruption to construction activity on new biofuel production facilities may delay commissioning by a matter of months, this additional capacity should eventually come online. 

Disruption to key biofuel support mechanisms may occur this year, as reduced mobility affects the intended functioning of policies. The US Renewable Fuel Standard (RFS) sets annual volume requirements for renewable fuel consumption based on projected fuel demand, as opposed to the majority of policies, which are based on achieving a given biofuel share.

Actual fuel demand in 2020 will clearly be less than projected due to the Covid‑19 crisis. Therefore, it is likely that the specific biofuel volumes required by the RFS in 2020 will be far in excess of the levels that can be consumed according to technical limits on the percentage of biofuel blending. Brazil’s newly introduced flagship RenovaBio programme may need to adjust its CO2 emissions reduction targets for the year, which could have consequences for the value of associated CBIO certificates.

In addition, 2020 is the milestone year in which EU member states need to demonstrate compliance with the Renewable Energy Directive’s 10% renewable energy share in transport. Given the disruption to transport fuel demand and biofuel production, the shares that member states would have achieved under normal circumstances could well be different due to the impact of Covid-19. This may raise implications for compliance with the target.

Renewable heat markets

Beyond the direct impacts on heat consumption, the Covid-19 crisis further compromises the already slow growth of renewables in heat supply. First, delays in renewable district heating projects and in the manufacturing, sale and installation of renewable heating equipment may not be fully recovered in the second half of the year. Second, current low oil and gas prices are affecting the cost-competitiveness of renewable heat fuels and technologies. Given the uncertain future financial situation of many companies and households, many planned investments in switching from fossil fuel heating to renewable or electric solutions are likely to be postponed or cancelled in the absence of stronger policies.

Without government intervention, the crisis could have a long-lasting effect on the construction sector, slowing down modernisation of the buildings stock and the rate of retrofits, which play a crucial role in energy efficiency improvements and deployment of renewable heat technologies. At the same time, building renovation in several countries is being considered for inclusion in economic stimulus packages due to the early opportunity it offers for creating jobs and triggering economic recovery. This represents an important opportunity to integrate renewable heat technologies in the building sector, which could consequently lead to higher‑than‑anticipated deployment.