Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Renewables costs and financing, US interconnection issues,
hydrogen, and more
The following provides a brief overview of selected reports in
the Global Power and Renewables service from January 2022. To learn
more about IHS Markit's Global Power and Renewables Service and the
reports featured in this post, click
here.
January reports explored issues related to renewables costs,
financing, and interconnection in addition to low-carbon hydrogen
and transport decarbonization as growth opportunities for power and
renewables as well as key questions facing Asian power markets in
2022.
Renewables costs, financing, and US interconnection
While recent pandemic-related supply chain disruptions have put
pressure on renewable costs in many markets and access to low-cost
financing remains a key challenge in Asia Pacific, decarbonization
goals and new routes to market continue to drive renewables
growth.
In North America, according to the IHS Markit Data "North
America Solar PV Capital Cost and LCOE Outlook, January 2022",
supply chain constraints and shipping delays are expected to raise
the levelized cost of electricity (LCOE) for solar photovoltaic
(PV) in the near term, up to 10% in 2021-23, after which costs
decline in the mid-2020s, driven by incremental technology
improvements and scale, and reach new lows by the early 2030s
despite the step down in the federal tax credit. According to the
IHS Markit Data "North America Wind Capital Cost and LCOE
Outlook, January 2022", onshore wind capital costs are also
expected to increase 5% in 2022, owing to pandemic-related
disruptions, although recent extensions of the production tax
credit qualification window have mitigated significant impact on
LCOE—with the looming tax credit phaseout likely to have a
greater impact than the temporary capital cost increase. Meanwhile,
offshore wind LCOE will continue to decline, driven mainly by
reductions in capital costs and rising capacity factors, but costs
will remain high.
In Asia Pacific, while 110 GW of solar PV and wind was added in
2020 alone—accounting for over half of the total installed
capacity in the world—most Asian markets are expected to fall
short of the US$125 billion of annual investment required to meet
government renewables targets during 2021-25, with access to
low-cost financing remaining one of the key challenges and new
sources of finance needed to fill the gap. According to the IHS
Markit Insight "The changing landscape of renewable energy
financing in Asia Pacific", only mainland China is expected to
meet the government's ambitions. In Vietnam, green loans are
emerging as a new debt instrument for renewable projects, with the
issuance of green loans in the country growing to US$1.7 billion
since 2017. India also has significant potential to multiply
renewables investment but needs to address policy, offtaker, and
currency risks. Meanwhile, in Japan, South Korea, and Taiwan, the
current offshore financing landscape signals a potential decrease
in the perceived risk of capital providers in the near future,
although the local industry's limited experience and localization
requirements in South Korea and Taiwan may impede the sector's
growth.
At the same time, according to the IHS Markit Insight "Green
day-ahead market: A growing market segment for renewable capacity
in India", since the October 2021 launch of India's green
day-ahead market (GDAM)—a new market segment for trading
day-ahead contracts for renewable generation—326 GWh of
renewable energy has been traded, representing roughly 1.4% of
total renewable energy generation and about 1.5% of the total
short-term market. While prices continue to be divergent between
the GDAM, the day-ahead market, and renewable energy certificates,
liquidity in the GDAM is expected to increase, paving the way for
implementation of other structural changes in the Indian power
market.
Meanwhile in Europe, to date, the development of new wind and
solar technologies has been mostly fueled by dedicated government
support schemes. In recent years, however, a growing share of
projects have been developed on a "market" basis without any direct
government help, driven by declining generation costs and rising
(or expectations of rising) spot prices, raising questions over
whether subsidies remain necessary. The IHS Markit Insight "Can
wholesale power markets alone deliver the 2030 renewable
objectives?" finds that market forces alone, however, are
unlikely to be sufficient to reach Europe's 2030 renewable
objectives, with growing cannibalization and decreasing gas prices
pushing the wholesale value of renewables below their LCOE and
leading to a growing "missing money" gap for renewables despite
decreasing costs.
According to IHS Markit Insight "Prospects of heightened
competition in Europe's renewable market", in the coming years
renewable developers in Europe will increasingly compete for the
right sites and for materials and equipment to build assets while
consumers will compete for supply as demand for green power
increases, also spurred by green hydrogen targets. Local opposition
will remain an important barrier while power purchase agreements
(PPAs) will continue to grow despite transactional barriers,
offering a second route to market, as corporate appetite for green
power deepens. Indeed, according to the IHS Markit Scheduled Update
"European corporate PPA market tracker: Record activity in
fourth quarter 2021", 22.1 TWh was subscribed under a
corporate PPA contract in Europe during 2021, representing a 50%
volume increase year over year.
Swelling US interconnection queues increase costs
As renewables development continues to grow, interconnection
queues and transmission infrastructure will need to keep pace to
connect those resources, which tend to be farther away from load
centers, to the grid.
In many independent system operators across the United States,
interconnection queues and study cycles are growing rapidly,
leading to process delays and rising interconnection costs.
According to the IHS Markit Insight "Interconnection woes
across the Mid-Continent", the cost of interconnecting new
generation in the Midcontinent Independent System Operator (MISO)
and Southwest Power Pool (SPP) regions can vary extensively, in
some cases increasing project capital costs to the point of
economic infeasibility. While some wind and solar projects have
interconnection costs greater than $1,000/kW, most projects that
complete the queue process have interconnection costs less than
$100/kW—still a significant cost that can increase a project's
capital cost by upward of 10%. By contrast, interconnection costs
for natural gas-fired projects are much lower since they are less
affected by geographic location and have more flexibility on where
to interconnect.
Hydrogen and transport decarbonization
As countries transition away from using carbon-intensive energy
resources, low-carbon hydrogen is also expected to become an
important energy source for difficult-to-electrify industries. In
many of the largest markets, demand for low-carbon hydrogen is
likely to exceed the local production capability, creating a market
for low-carbon hydrogen imports and boosting renewable
development.
According to the IHS Markit Insight "Canadian exports of
low-carbon hydrogen could drive a new wave of renewable
development", Canada is well positioned to be a competitive
global supplier of low-carbon hydrogen. By 2050, nearly 100 TWh per
year of additional low-carbon energy could be needed to support the
annual production of 2.2 million metric tons (MMt) of green
hydrogen exports, increasing baseline electricity demand in Canada
by 16%, and spurring the development of 21 GW of onshore wind and 2
GW of offshore wind—representing 40% of Canada's total
installed capacity of wind resources in 2050.
Latin America also aims to become a global supply hub for
hydrogen and associated clean fuels, with Chile, Brazil, Argentina,
and Colombia developing ambitious policy road maps for a future
low-carbon hydrogen industry and gaining investor interest in
response. The IHS Markit Insight "Latin America aims to be a
global powerhouse for low-carbon hydrogen: Policy and industry
developments in the region" explores policy and industry
developments in the region, discussing the countries' challenges
and opportunities to develop a hydrogen economy.
Transportation decarbonization is also becoming a major
component of government policies striving to achieve mid-century
net-zero carbon goals and represents a substantial growth
opportunity for the power sector. According to the IHS Markit
Strategic Report "Decarbonizing road transportation: A growth
market for the US power industry", increases in battery
electric vehicle (BEV) charging load and hydrogen electrolysis
power demand (to make hydrogen for fuel cell electric vehicles)
account for 70% of total US power demand growth between now and
2050. Under a Fast Transition case— which assumes US power
sector and economywide carbon net neutrality by 2040 and 2050
respectively—the impact is even greater, with BEV charging load
and electrolysis demand combining to provide 95% of power demand
growth through 2050.
Big questions facing Asian power markets in 2022
As 2022 begins, IHS Markit is looking at key questions and
anticipated trends in power and renewable markets this year.
According to the IHS Markit Insight "A review of 2021 and the
five big questions facing Southeast Asia's power markets in
2022", big questions facing Southeast Asia's power market in
2022 include post-pandemic power demand rebound, the energy
transition and prospects for renewables, cross-border power
transactions, and the role of international players in the
region.
According to the IHS Markit Insight "Ten big questions for
China's gas and power markets in 2022", key issues for China's
power markets in 2022 also include post-COVID-19 economic growth,
in addition to the potential for fuel supply disruptions and power
rationing, China's national emissions trading scheme (which
commenced in July 2021), price liberalization efforts and power
spot market reform progress, the new "game rules" for renewable
newbuilds in the post-grid parity era, and energy storage. The IHS
Markit Insight "Five big questions facing OECD Asia's power
market in 2022" explores key questions that will shape the
discussions around power markets in Australia, Japan, and South
Korea in 2022, including policies and implementation plans toward
carbon neutrality, coal power generation, corporate PPAs and
renewable energy growth, offshore wind, and new technologies such
as hydrogen and carbon capture, utilization, and storage.
Stay tuned for additional key regional power market issues and
an upcoming report summarizing anticipated trends in 2022 for
global power and renewable markets.
Our new Clean Energy Technology report examines the levelized cost of CO2 avoided (LCCA) for #CCUS projects in key… https://t.co/VXwETPMJ6N
May 18
{"items" : [
{"name":"share","enabled":true,"desc":"<strong>Share</strong>","mobdesc":"Share","options":[ {"name":"facebook","url":"https://www.facebook.com/sharer.php?u=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fglobal-power-and-renewables-research-highlights-february-2022.html","enabled":true},{"name":"twitter","url":"https://twitter.com/intent/tweet?url=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fglobal-power-and-renewables-research-highlights-february-2022.html&text=Global+Power+and+Renewables+Research+Highlights%2c+February+2022+%7c+IHS+Markit+","enabled":true},{"name":"linkedin","url":"https://www.linkedin.com/sharing/share-offsite/?url=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fglobal-power-and-renewables-research-highlights-february-2022.html","enabled":true},{"name":"email","url":"?subject=Global Power and Renewables Research Highlights, February 2022 | IHS Markit &body=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fglobal-power-and-renewables-research-highlights-february-2022.html","enabled":true},{"name":"whatsapp","url":"https://api.whatsapp.com/send?text=Global+Power+and+Renewables+Research+Highlights%2c+February+2022+%7c+IHS+Markit+ http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fglobal-power-and-renewables-research-highlights-february-2022.html","enabled":true}]}, {"name":"rtt","enabled":true,"mobdesc":"Top"}
]}