Top 10 factors powering renewables growth
The IEA's Renewable Energy Market Update 2021 reiterates that the sector's time has come: it was the only energy source for which demand increased in 2020 despite the pandemic, while consumption of all other fuels declined.
In exploring recent market and policy developments, the Renewable Energy Market Update forecasts new global renewable power capacity additions for 2021 and 2022 and provides updated biofuel production forecasts for these years, as the sector suffered significant losses with declining transport demand during the pandemic.
Here are the 10 key factors which are driving the sector's strong growth.
10: PV-Grade glass prices surge 50%
In the second half of 2020, PV-grade glass prices surged 50%, mainly due to growing demand for bifacial modules and delays to the modernisation of high-cost production lines. Steel and copper prices also rose 40% from September 2020 to March 2021, boosted by rapid economic recovery in China and other emerging economies. In addition, relatively higher oil prices and the global economy’s recovery from the pandemic tripled global freight costs, raising the price of Chinese modules exported around the world.
09: Larger projects dominate solar PV market
The share of utility-scale applications in annual PV additions is forecast to increase from over 55% in 2020 to almost 70% in 2022. Although the share of distributed projects in overall PV deployment increased from 25% in 2016 to nearly 45% in 2018 owing to China’s attractive support scheme, this trend was reversed in 2019 when the Chinese government reduced its generous FITs for commercial and industrial PV projects. Nevertheless, sustained support doubled the deployment of residential applications from 2019 to 2020. Outside China, expanding competitive corporate PPA markets in United States and Europe have made larger utility-scale projects more economically attractive.
08: Corporate procurement expands as wind and PV costs decline
Corporate power procurement also had another record-breaking year in 2020, with a 25% year-on-year increase credited to declining costs. While the United States remains the world’s largest corporate PPA market, activity in Europe almost tripled with Spain signing large contracts with multiple PV developers and Sweden contracting considerable wind projects. In the Asia-Pacific region, new developments are emerging in Korea, India and some provinces in China when allowed. In Latin America, Brazil continues to be the largest corporate PPA market with an increasing number of projects relying on long-term contracts outside the government’s auction scheme.
07: Record competitive auctions volumes
Despite declining electricity demand and wholesale power price drops due to the impacts of pandemic, governments around the world auctioned a record amount of renewable energy capacity, awarding almost 75GW of onshore wind, offshore wind, solar PV and bioenergy last year – 20% more than in 2019. Auctions held in 2020 (and 2019) remain the main basis of the IEA's forecast for 2021 and 2022, in addition to FIT and net-metering policies for smaller applications. India and China together auctioned almost 55 GW of wind and PV capacity at average contract prices of US$60/MWh for wind and US$47/MWh for PV.
06: Forecasts additions 25% higher than last year
The pipeline of solar PV and wind plant projects accepting provincial electricity prices without additional subsidies has increased since last year, resulting in a more optimistic forecast. In the United States, the extension of tax credits is expected to lead to faster short-term onshore wind growth, while Brazil’s generous net metering scheme results in a distributed PV market boom, supporting upward revisions to the Latin America forecast. In the ASEAN region, Vietnam’s policy changes will reduce capacity additions significantly, but growth is not expected to collapse fully thanks to the increasing cost-competitiveness of solar PV. In India, contracted PV auction volumes in 2020 exceeded our predictions, raising forecast expectations.
05: Latin America expansion resumes after delays
In Latin America, projects delayed from 2020 will become operational in Brazil, Mexico and Chile, while increasingly attractive distributed PV costs drive rapid development thanks to Brazil’s generous net-metering policy. A growing corporate PPA market and bilateral contracts outside of auction schemes also support deployment in the region. In the ASEAN region, rapid solar PV expansion in Vietnam boosted the region’s capacity additions to a record 13 GW in 2020–60% higher than in 2019. However, the phasing out of FITs in Vietnam and relatively sluggish renewable energy growth in Indonesia and Thailand leads to a two-thirds decline in ASEAN expansion in 2021 and 2022 relative to 2020.
04: India is back on track
The Covid-19 impact on renewable energy deployment has affected India more than any other country: pandemic-induced construction delays and grid connection challenges caused India’s capacity additions to decline by almost 50% from 2019 to 2020. Although new records for renewable capacity expansion are expected to be set in 2021 and 2022 as delayed projects from previous competitive auctions are commissioned, the current surge in Covid‑19 cases has created short-term forecast uncertainty. While the financial health of distribution companies (DISCOMs) remains the primary challenge to renewable energy deployment in India, the recently proposed reform of US$40 billion to improve DISCOM operations and finances would offer a more positive outlook.
03: US tax credits boost onshore wind
In December 2020, the US government extended production and investment tax credits by one more year for onshore wind and solar PV. These changes will mostly affect the onshore wind sector in 2021 and 2022, as the extensions make new projects starting construction in 2021 eligible for a USD 18/MWh tax credit. As a result, we have revised our onshore wind forecast upwards by 25% for this year and 2022. For solar PV, the investment tax credit (ITC) has little effect on our short-term forecast, as the December extension covers only projects starting construction in 2022 and 2023. Still, declining costs, a recovering distributed PV sector and growing interest in corporate PPAs offer hope for more extensive solar PV expansion.
02: Europe accelerates into second place
In Europe, annual capacity additions are forecast to increase 11% to 44GW in 2021 and 49GW in 2022. With this expansion, this year the region will break the record for annual additions for the first time since 2011 and become the second-largest market after China. Germany will continue to deliver the largest renewable capacity additions on the continent, followed by France, the Netherlands, Spain, the United Kingdom and Turkey. This strong growth results from multiple countries extending their policies to meet the EU 2030 climate target, and by corporate power purchase agreement (PPA) markets booming in several key countries.
01: Policy deadlines propelled global capacity
Policy deadlines in China, the United States and Vietnam spurred an unprecedented boom in renewable capacity additions in 2020. China alone was responsible for over 80% of the increase in annual installations from 2019-2020, as onshore wind and solar PV projects contracted under China’s former FIT scheme, and those awarded in previous central or provincial competitive auctions, had to be connected to the grid by the end of 2020. In the US, wind power developers rushed to complete their projects before expiration of the production tax credit (PTC), although it was extended for another year, in December 2020. In Vietnam, phaseout of the FIT for solar PV projects led to an unprecedented rush in commercial and residential installations.
