Special Report on Solar PV Global Supply Chains
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Heat is the largest energy end-use, accounting for half of global final energy consumption, significantly more than electricity (20%) and transport (30%). With modern renewables1 meeting only 11% (21.5 exajoules [EJ]) of global heat demand in 2019, fossil fuels continue to dominate heat supplies, which contributed 40% (13.3 gigatonnes [Gt]) of global CO2 emissions in 2019.

About 50% of total heat consumed in 2020 is used for industrial processes, another 47% is consumed in buildings for space and water heating, and, to a lesser extent, cooking; the remainder is used in agriculture, primarily for greenhouse heating. More than one-quarter of global heat consumption takes place in China – two-thirds of which is for industry – while the United States, the European Union, India and the Russian Federation (“Russia”) together account for another 35%.

Global renewable heat consumption by source in selected sectors, 2019

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Share of renewable sources in global heat consumption, 2019

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In industry, bioenergy accounts for the large majority of renewable heat consumption (almost 90% in 2019, including indirect consumption via district heat networks). It is used predominantly in industries that produce biomass waste and residues: food and tobacco, sugar and ethanol (Brazil and India), and especially pulp and paper (mainly in North America, Europe and Brazil). The cement industry is also boosting industrial bioenergy consumption as municipal waste is increasingly used in China and the European Union. Most of the remaining renewable heat consumed in industry is supplied by renewable electricity, used in steel recycling and aluminium production as well as by large-scale heat pumps for low-temperature processes such as drying. However, renewable electricity represents only 1% of current total industrial heat consumption.

Bioenergy also leads renewable heat consumption in buildings, used mainly in wood and pellet stoves and boilers as well as in district heating networks, for which municipal waste and biomass comprise the majority of renewable supply. With around 11% of global electricity generation used by electric heaters, boilers and heat pumps for buildings, renewable electricity is the second-largest renewable energy commodity used for heat in buildings after bioenergy.

The rapid spread of heat pumps over last decade is making ambient heat an increasingly important renewable heat source, although its importance globally is difficult to estimate because data are unavailable for some markets. In the European Union, about 0.5 EJ of ambient heat are transferred to buildings annually by the 13.5 million heat pumps in operation at the end of 2019 (EHPA, 2020; Eurostat, 2019). Finally come solar thermal – used essentially for domestic water heating – and geothermal heat, of which almost 60% is harnessed by ground-source heat pumps (Lund and Toth, 2020).

Covid-19 impact on global heat demand

Total global heat consumption in 2020 is expected to decline 3.1% from 2019 – the largest drop recorded since the IEA began to collect and process harmonised statistics on heat. The curtailment of economic activity due to the pandemic is forecast to impact heat consumption in industry (-4.2%) more than in buildings (-1.8%). For the latter, the lockdown measures and teleworking practices of numerous countries have reduced heat consumption in the commercial subsector, which has been partially offset by a small increase in residential heat consumption, primarily for cooking. In industry, supply chain disruptions in various manufacturing subsectors, followed by a challenging economic recovery in a context of high uncertainty and cash-constrained markets, are curtailing demand for materials from heat-intensive industries, including steel, aluminium, cement and chemicals. 

Y-o-y change in global and renewable heat consumption in industry and buildings, 2014-2020

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China is the only major economy in which heat demand is expected to increase this year with a rapid recovery of industrial production. Outside of China, industrial heat consumption will be 7% lower on average in 2020 than in 2019. In India, a double-digit contraction of steel production strongly affects heat demand while the largest annual drop in industrial heat consumption (-1 EJ) is expected to come from the United States due to a significant decline in chemicals, cement, iron and steel, pulp and paper production (World Steel, 2020).

Y-o-y change in industrial heat consumption in selected regions, 2020

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Index of industrial production in selected regions, 2020

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Renewable heat demand in 2020-22

In industry, the share of renewables in heat consumption globally is expected to remain almost unchanged at 10% in 2020, as the heat demand shock also affects bioenergy-intensive subsectors (for instance pulp and paper). The consumption of other renewables in industry is expected to expand slightly this year, but not enough to counterbalance the overall trend because their share is small in absolute terms and therefore cannot make up for the significant drop in bioenergy use.

Industrial heat demand is expected to recover during 2021‑22 and even exceed the 2019 level, resulting in a global increase in non-renewable heat consumption – despite expansion of bioenergy-intensive subsectors in India, higher bioenergy consumption in China, and greater renewable electricity and heat pump use, especially in China, the European Union and the United States.

In buildings, while heat demand falls somewhat, expanding solar thermal, geothermal and – most of all – heat pump and renewable electricity contributions raise renewable heat consumption slightly, allowing renewables – excluding ambient heat – to meet 11.5% of global demand in 2020 (an increase of 0.5 percentage points from 2019), despite bioenergy consumption remaining unchanged. Furthermore, this share is expected to rise slowly to 12.3% during 2021‑22, owing primarily to the continued expansion of renewable electricity use for heat, then to the progression of solar thermal and bioenergy consumption, and finally to the wider utilisation of geothermal energy through both ground-source heat pumps and district heating.

Annual global change in renewable heat consumption by source, 2020-2022

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The heat demand shock translates into a temporary 4% drop in global industrial bioenergy consumption in 2020, since less commercial, industrial and construction activity has implied lower demand for a variety of products manufactured in bioenergy-intensive subsectors (e.g. printer paper, cement and lumber). The United States is expected to record the largest drop in industrial bioenergy consumption this year, followed by Brazil and the European Union.

At the global scale, assuming industrial activity rebounds during 2021-22, bioenergy consumption is projected to exceed the 2019 level as early as 2022 due to continued growth in India, China and, to a lesser extent, Canada. Higher municipal waste use in the cement subsector is expected to play a key role in China, while expanding sugar and ethanol production is the main driver in India. 

Y-o-y change in industrial bioenergy consumption, 2020-2022

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Industrial bioenergy consumption, 2019-2022

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The trends are different for other renewable sources and technologies, for which the largest applications are in the buildings sector, or for which demand has not been affected to the same extent.

Even with global electricity demand for heat falling in the industry and buildings sectors in proportion with heat demand, heat-related renewable electricity consumption rises in both sectors in 2020 owing to higher shares of renewables in electricity generation. This results not only from renewable capacity additions in the power sector, but also from lower operating costs and priority access to the grid in many markets leading to greater shares of renewables in electricity generation when demand decreases. In 2020, the United States, China and the European Union together comprise three-quarters of the annual increase in renewable electricity used for heat, of which the buildings sector accounts for more than 85%. Overall, heat uses continue to claim 16% of global renewable electricity generation.

Annual increase in renewable electricity consumption for heat, 2020

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Global changes in factors contributing to renewable electricity consumption for heat, 2020

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Heat-related renewable electricity consumption is projected to continue trending upward in 2021 and 2022. While rebounding industrial heat consumption (+5% globally during 2021-22) and greater reliance on electricity for heat (especially for industrial use in China) will have a noticeable effect, expanding shares of renewables in electricity generation is expected to remain the strongest factor globally.

Despite lockdowns disrupting new installations in many countries during the first half of the year, global solar thermal consumption – more than 90% of which is for domestic water heating – is expected to increase more than 4% in 2020, similar to the year before. Despite shrinking of its domestic market, China continues to lead this expansion, followed distantly by the United States, the European Union and countries in the Middle East. Positive developments have recently been observed in key European markets: in Germany, for instance, the number of collectors sold from January to July 2020 was 14% higher than during the same period last year, thanks to improved financial support for clean heating projects under the Market Incentive Programme (Solarthermalworld 2020).

Global solar thermal consumption is projected to accelerate during 2021-22 (+8% annually) with the key markets of China, the United States, the European Union and the Middle East together responsible for more than 70% of the growth. In these large markets, however, limited policy attention and increasing policymaker interest in electrification of heat end-uses mean that small-scale solar water heating systems face competition not only from heat pumps but also from rooftop PV systems (IEA SHC, 2020).

In developing countries, the technological simplicity and limited maintenance of standalone systems remain an important asset. Policy support, in the form of regulations (Greece, Denmark, South Africa) or economic incentives (Cyprus),2 sometimes linked to social housing programmes (Namibia, Brazil), will remain a determining factor for future solar thermal markets.

Growth in solar thermal heat consumption in selected regions, 2020-2022

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After increasing twofold over the last seven years, global geothermal heat consumption has risen very little in 2020. Growth is forecast to resume in 2021 and 2022, albeit still at half the pace of the last ten years. China, the United States and the European Union together are expected to be responsible for more than 80% of the increase in 2021-22, primarily benefitting the buildings sector.

Renewable heat prospects towards 2025

Global renewable heat consumption is projected to be 20% higher in 2025 than in 2019, with a stronger increase in the buildings sector (+24%) than in industry (+15%). Despite this rise, renewables are expected to represent only 12% of global heat consumption by 2025, as the latter is expected to recover simultaneously, driven by industrial activity. Without a significant change in non-renewable heat consumption, total heat-related C02 emissions in 2025 are expected to be only 2% lower than in 2019.

Global increase in renewable energy consumption by source and sector, 2020-2025

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Renewable energy consumption by source, 2015-2025

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In industry, bioenergy makes the largest contribution to increased renewable heat uptake, with consumption in 2025 expected to exceed the 2019 level by over 10% (1.0 EJ). In addition to the progressive recovery of US and Brazilian consumption, India and China lead this growth and are together responsible for over half of the additional industrial bioenergy consumption in 2025 compared with 2019.

Owing to the electrification of process heat and increasing shares of renewables in electricity generation, industrial consumption of renewable electricity is projected to increase more than 40% (0.5 EJ) globally over the next five years, with China accounting for one-third of this growth and the European Union, India and the United States together for another third. Industrial heat pump applications are expected to continue expanding thanks to recent technological advancements making them suitable for a variety of low-temperature (<200°C) processes (IEA HPT TCP, 2019).

Contribution of different factors to changes in renewable electricity consumption in selected regions, 2021-2025

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Despite a threefold increase expected by 2025, solar heat for industrial processes remains a niche market, with just under 40 PJ of additional consumption projected. Half of this growth is expected to be in India and the United States, with most applications in the food and textile sectors.

Solar thermal applications for agriculture (for instance for greenhouse heating and aquaculture) are also expected to be developed, especially in Mexico, the Middle East, the United States and China, but are forecast to represent only 30 PJ by 2025.

In the buildings sector, further deployment of electric heat pumps and boilers is expected to allow for a 1.3‑EJ (+26%) increase in heat-related renewable electricity consumption during 2021-25. Two-thirds of this growth will be in the European Union, China and the United States, with the EU share being the largest. The amount of heat delivered by aerothermal heat pumps is projected to increase at an average annual rate of 5% globally and 15% in the European Union during 2021‑25.

Direct bioenergy use in buildings rises by just over 10% during 2021-25, accounting for one-quarter of the sector’s increase in renewable heat consumption. More than half of this expansion is forecast to take place in Africa and India, owing to the deployment of improved biomass cook stoves, while one-quarter of growth comes from new installations of wood and pellet stoves and boilers the European Union.

Solar thermal heat consumption in the buildings sector is forecast to rise 40% (+0.6 EJ) in 2021-25, similar to bioenergy in absolute growth. China leads expansion over the outlook period, followed by the United States, the European Union (with half of these additions attributed to France, Italy and Germany) and the Middle East. Benefitting from substantial irradiation potential, solar thermal consumption by buildings in the Middle East is expected to more than quadruple during 2021-25.

New ground-source heat pump installations in China, the United States and Europe are expected to spur the majority of geothermal heat development, with consumption projected to increase by one-third globally, amounting to 0.9 EJ by 2025. Although the buildings sector is expected to be responsible for more than 90% of this consumption, geothermal heat still meets less than 1% of the sector’s total heat demand. Deep geothermal heat is also expected to receive growing interest from oil companies, for which it offers opportunities to diversify their activities while building on their drilling expertise.

Finally, limited renewable district heating and cooling (DHC) development is anticipated, with global consumption expected to be only 8% higher in 2025 than in 2019. The large majority of DHC expansion is expected to take place in China and Russia, which combined represent 70% of total district heat consumption but less than one-fifth of renewable district supplies. Yet, of these two countries, only China is projected to contribute significantly to an increase in renewable district supplies by 2025, thanks to greater use of municipal waste and biomass. Korea and Japan are forecast to account for most of the remaining growth in renewable DHC over 2020‑25.

Change in renewable district heat consumption in selected regions, 2020-2025

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District heat consumption in selected countries and regions, 2015-2015

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Renewable heat in stimulus packages

Despite heat accounting for a large share of final energy consumption, it has so far received limited policy attention globally compared with other end-use sectors. The number of countries with national targets for renewable heat is less than one-third those with targets for renewable electricity – and fewer than half of the countries that have a renewable heat goal currently have nationwide regulatory heat policies in force (REN21, 2020).

At the end of 2019, more than half of global heat consumption was not subject to any regulation, and more than one-quarter was not covered by national financial incentives or regulatory policies. These numbers have remained stable over the past three years.

However, given contextual specificities and the local nature of heat supply, an increasing number of policy initiatives are being developed at the subnational level, with cities and local governments using their regulatory and purchasing authority to encourage the use of renewables through municipal mandates for buildings or through their management of urban district networks (REN21, 2019; 2020).

Notable recent policy updates pre-Covid‑19 include the European Union’s indicative target of a 1.3‑percentage-point annual increase in the share of renewables in heating and cooling for 2020‑30, introduced in the 2019 revision of the Renewable Energy Directive (RED II). Also in 2019, a number of jurisdictions, including the countries of Austria, Norway and the United Kingdom, as well as the cities of Vienna (Austria), Berkeley (California) and Montreal (Canada), also committed to ban the use of certain fossil fuels in some categories of buildings (REN21, 2020). France, Germany and Lithuania also reinforced financial incentives for more efficient and renewable heating systems.

More recently, the critical economic situation created by the pandemic has led to a wave of government policy responses. Among them, various measures announced as part of economic recovery and stimulus plans are expected to benefit renewable heat directly or indirectly. Most fall under the category of energy efficiency measures, the largest recipient of clean energy stimulus packages. Some measures consist of extending or boosting existing policies (e.g. New Zealand’s Warmer Kiwi Homes programme and France’s MaPrimeRénov scheme), while others implement new support schemes (e.g. Finland’s grants to phase out oil-based heating in residential and municipal buildings).

Some of these stimulus measures consist of new or additional financial support in the form of grants or tax credits for electric and renewable heat technologies such as heat pumps3 in Denmark, France, Italy, New Zealand and the United Kingdom, renewable district heating in Denmark and the United Kingdom, or wood and pellet burners in New Zealand.

Other policies do not explicitly target renewable heat but support building insulation retrofits (e.g. France, Germany, Italy, Sweden, Denmark, Korea and the United Kingdom), which can create new opportunities for renewable heat technologies. For example, by lowering heat demand, well-insulated buildings make it possible to downsize heat pumps and operate them at lower output temperature, hence more efficiently. This reduces both the upfront and operating costs of heat pumps, improving their economic case and making them more cost-competitive with fossil fuel-based technologies.

Energy efficiency requirements for buildings can also spur the replacement of fossil fuel heating systems with heat pumps or other renewable technologies, depending on their design. For example, the EU Renovation Wave Strategy, which was published in October 2020 and aims to double renovation rates during 2020‑30 through multiple integrated areas of intervention, may be an effective driver for renewable heat integration in buildings (EC, 2020).

In the long term, other measures could pave the way to further renewable heat uptake in hard-to-abate industrial subsectors. This is the case for support given to renewable or “green” hydrogen projects in countries such as Australia, France, Germany and Korea. It also applies to material efficiency measures, such as steel recycling in the United Kingdom, which can engender heat savings and encourage greater shares of (renewable) electricity in the steelmaking process.

Although they may not directly spur renewable heat uptake, other policies support heat decarbonisation by reducing the demand for non-renewable heat and carbon-intensive products. For example, Finland’s promotion of wood construction could reduce demand for cement.

Although most stimulus measures consist of economic incentives such as grants, tax credits and loan schemes, a variety of non-economic challenges to renewable heat uptake will persist, including consumer inertia and lack of awareness, and split incentives in the buildings sector (IEA, IRENA and REN21, forthcoming). With low fossil fuel prices currently making renewables less cost-competitive, regulatory policies may also be instrumental to scale up the use of renewables for heat.

Recovery measures that encourage renewable heat uptake (directly and indirectly)

Country/region

Support

Australia

  • Funding for renewable hydrogen
  • Tasmania’s renewable hydrogen action plan

Canada (British Columbia)

  • Low-interest loans to replace fossil fuel-based heating with efficient electric heat pumps

Denmark

  • Funding for social housing energy renovations, including replacing oil-fired heating systems with renewable district heating and electric heat pumps
  • Proposed support for green gases for use in hard-to-decarbonise industries
  • Grants for electrification and energy efficiency in industry

Finland

  • Grants in 2020 to phase out oil-based heating in residential and municipal buildings

France

  • Investment support to convert to low-carbon industrial technologies (including electrification of heat, biomass, and solar thermal)
  • Compensation for additional cost of low-carbon heat sources compared with fossil fuels in industry
  • Extended and increased support for energy retrofits to residential private buildings and social housing, and refurbishment of public buildings, including replacement of oil and gas heating systems (“MaPrimRénov” and “Coup de pouce” for comprehensive retrofits)

  • Funding for a national hydrogen strategy
  • Financial support for repair centres, recycling and waste-to-energy facilities

Germany

  • Increased funding for building renovation programme
  • National hydrogen strategy

Italy

  • 110% Superbonus tax deduction scheme for energy efficiency retrofits and heating and cooling system renovations (including heat pump installations)

Korea

  • Funding to decarbonise state-run facilities
  • Additional support for green hydrogen technologies

New Zealand

  • Expansion of the Warmer Kiwi Homes programme for low-income households, with subsides for insulation and heating retrofits

Portugal

  • Support programme for sustainable buildings, including for heat pump installations

Sweden

  • Funding for energy renovation of apartment buildings

United Kingdom

  • Green Home Grant, Public Sector Decarbonisation Scheme, and Social Housing Decarbonisation Fund for energy efficiency and low-carbon heat upgrades in the buildings sector
  • Clean Growth Fund for innovation projects, including for renewable heating
  • Support for material efficiency (through the use of innovative materials) in heavy industry, with initial projects including steel recycling
  • Funding for innovative energy projects, including heat networks through the Low Carbon Infrastructure Transition Programme (LCITP)
Notes and references
  1. In this report, “modern renewable energy” excludes the traditional uses of biomass. “Modern renewable heat” covers direct and indirect (i.e. through district heating) final consumption of bioenergy, solar thermal and geothermal energy, as well as renewable electricity for heat based on an estimate of the amount of electricity used for heat production and on the share of renewables in electricity generation. For the sake of simplicity, “modern renewables” is referred to as “renewables” in the remainder of this report.

  2. Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

    Note by all the European Union Member States of the OECD and the European Union: The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

  3. In the European Union, ambient thermal energy extracted from a heat pump source is credited as renewable energy, provided the heat pump meets a minimum seasonal performance factor value.