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IHS Markit estimates that there will be 290 gigawatts (GW) of
net power capacity added in 2020, globally, 5% more than in 2019.
Grid-connected solar and wind net additions are projected to
account for about 65% of the total, while coal and gas combined
account for only 25%.
Figure 1: Net additions by technology, 2017-2020.
Figure 2: Renewable net additions, by region, 2017-19 versus
2020.
As renewable penetration increases, it pushes wholesale prices
down in organized power markets, paving the way for financing
challenges for all generation technologies. Simultaneously,
emerging markets are achieving low renewable auction prices with
cost declines but face implementation challenges owing to
infrastructure and regulatory constraints.
Consequently, additions in 2020 and the extent to which
government and corporate ambitions are realized will depend on
seven trends that stem from three interconnected drivers - policy,
technological advancements, and new business strategies and revenue
streams - and the wildcard event of COVID-19.
Changing subsidies: Most markets have already
shifted from feed-in-tariffs (FiTs), in pursuit of market-driven
pricing through renewable auctions. Key markets such as China,
Japan, and Vietnam will however sustain solar and wind FiTs or FiT
caps into 2021. At the same time, seasoned-auction markets are
going a step further by complementing technology-specific auctions
with neutral and mixed- technology auctions. However, as direct
support mechanisms see reductions, renewable quotas and green
certificate programs continue to be launched or extended in growth
markets.
Market reforms: Markets such as Brazil, Japan,
Vietnam, India, and Belgium will continue to revise recently
designed wholesale power markets or market designs to attract
investment in the power sector and establish mechanisms to address
the need for capacity and balancing services. These markets' focus
on capacity and ancillary services is partly driven by lessons
learned in more established markets, which are undergoing their own
changes to market design (e.g. Germany, France, and PJM).
Renewable cost improvements: Renewable costs
will continue to decline in 2020 and convergence across markets and
technologies will accelerate. As a result, IHS Markit expects
renewables' levelized cost of energy to be within the range of
marginal fossil fuel costs in an increasing number of markets.
Emerging technologies: Bifacial solar panels
are entering the mainstream for PV, the battery storage industry
continues to grow rapidly, and floating offshore wind is taking
off. As a result, solar, wind, and battery technologies continue to
build scale and accelerate cost and performance improvements in
2020.
New market players: Over 200 companies have
formally committed to RE100, a global corporate initiative to cover
electricity usage with 100% renewables before 2050. Of the 211
members, over 50 joined in 2019, marking a record year.
Corporate-driven renewable procurement matched target enthusiasm by
more than doubling its activity in 2018 and hitting a record year
in 2019. We expect corporate activities to continue and to see
movement in retail competition in markets such as India, South
Africa, and China, in 2020.
Utility adaptation strategies: Revenues
streams for power generators are evolving as governments move
toward competitive bids, renewable price cannibalization increases,
and merchant power markets come under pressure as renewables
penetration increases. As a result, utilities are adapting their
business strategies to compete in this new environment and are
aiming to capture new revenue streams generated by new
stakeholders.
COVID-19 shock: The year 2020 will be
remembered by the ripple effects of the coronavirus (COVID-19). IHS
Markit expects the virus to decelerate power demand growth around
the world, leading to intensified competition among generation
technologies - coal, gas, nuclear, and renewables. For example, the
load growth of the world's largest power market, China, is
projected to decrease to 3.1% in 2020 from the previous outlook of
4.1%. In terms of generation, coal will carry the brunt of the
decline in China, but renewable capacity additions will be impacted
as well. Globally, we expect to see a ripple effect of COVID-19 in
markets near and far as demand shocks and fuel price reverberations
impact competition in power generation.
Power market data is derived using regional power models in
combination with a global energy model.
To download the full report or to learn more about our
power and renewables analysis,
visit our website.
Posted 11 March 2020 by Anna Shpitsberg, Research and Analysis Director, IHS Markit and
