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Stabilizing at the new normal for renewable newbuild

17 May 2021 Keiron Greenhalgh

Annual worldwide renewable generation capacity additions are set to stabilize around 270-280 GW in 2021 and 2022, data released recently by the International Energy Agency (IEA) show. About 275 GW of renewables were installed in 2020, it said, a 45% increase compared with 2019 and the fastest rate of increase in two decades.

That "new normal," as the intergovernmental organization calls it, far surpasses the IEA's expectations of a year earlier, with Europe and the US compensating for a slowdown in Chinese capacity installations after 2020 saw record newbuild there.

Renewable generation additions are expected to account for 90% of total global power capacity increases in both 2021 and 2022, according to IEA forecasts.

The IEA's overall global renewables additions forecasts for 2021 and 2022 rose more than 25% compared with November 2020 (see graph), according to its Renewable Energy Market Update 2021. The solar photovoltaic (PV) and wind project pipeline's acceptance of Chinese provincial power prices without extra subsidies has increased since 2020, resulting in a more optimistic forecast for that nation, it said.

In addition, the extension of US tax credits is expected to lead to faster short-term American onshore wind growth, and Brazil's net metering scheme will result in a distributed PV market "boom," the agency said.

But governments need to build on this momentum by implementing policies that "encourage greater investment in solar and wind, in the additional grid infrastructure they will require, and in other key renewable technologies such as hydropower, bioenergy and geothermal," it said. "A massive expansion of clean electricity is essential to giving the world a chance of achieving its net-zero goals."

Solar to lead coming growth

Solar PV newbuild is set to increase a further 8% year on year in 2021, the IEA said, largely as a result of lower investment costs and ongoing policy support. The IEA expects solar PV additions to reach 145 GW in 2021 and 162 GW in 2022, for new records and accounting for about 55% of all renewable newbuild in 2021 and 2022.

However, wind additions are expected to decline in 2021-2022 after jumping in 2020, especially in China. Still, 80 GW a year of installations are still expected worldwide, nearly 35% more than in 2019, it said. Global wind capacity additions almost doubled in 2020 to 114 GW.

Auctions held in 2020 and 2019 are the biggest drivers in the IEA's forecasts for 2021 and 2022, it said, although feed-in-tariffs and net-metering policies are also contributing.

"India and China together auctioned almost 55 GW of wind and PV capacity at average contract prices of $60/MWh for wind and $47/MWh for PV," it said. "For the first time, wind and PV hybrid auction volumes were over 6 GW, mainly because India is offering new opportunities for developers."

This helped overcome a rise in solar PV module prices between July 2020 to April 2021 due to supply chain complications and rising commodity prices that erased a 25% price reduction seen between January and June 2020.

The IEA said fires in two PV-grade silicon manufacturing plants in Xinjiang province in July 2020 almost halved China's total silicon output and pushed silicon prices up 60% in September 2020. Manufacturing capacity recovered somewhat, but prices at the end of 2020 were "still significantly higher" than earlier in the year, it said.

Regional expectations

While Chinese renewable generation newbuild is set to decline this year, capacity additions will still be at least 45% higher than the 2017-2019 average in 2021 and 2022 despite the uncertainty, the agency said. Growth could resume apace in 2023 though as a result of policy measures intended to help China get to net-zero emissions by 2060, it added.

European capacity additions are forecast to increase 11% to 44 GW in 2021 and then to 49 GW in 2022, the IEA said, breaking the region's record for additions for the first time since 2011 and making the continent the second-largest market after China. Those additions will be led by Germany and France.

The impact of US government policies under the Biden administration is not yet set in stone, but shows promise, the IEA said.

The American Jobs Plan offers a 10-year tax credit extension that would provide unprecedented opportunities for wind and solar PV developers, spurring much faster expansion. In that bill, as well as the newly proposed Renewable Energy Investment Act, "direct-pay" provision for tax-credit-eligible renewables would be provided, reducing the need for relatively expensive tax equity.

However, the IEA notes, backing for these policy proposals has yet to be approved by Congress and the expected impact is not incorporated in the IEA's forecasts for 2021 and 2022. A full assessment of the impact will be forthcoming in the autumn edition of the report, it said.

The US is already an attractive market though, according to IHS Markit. The IHS Markit Global Renewables Markets Attractiveness Rankings, which tracks attractiveness for investment for non-hydro renewables (offshore wind, onshore wind, and solar PV), made the US the number one spot for the period ending December 2020. The US claimed top spot on account of "sound market fundamentals and the availability of an attractive—though phasing down—support scheme."

Posted 17 May 2021 by Keiron Greenhalgh, Editor, Climate & Sustainability Group, IHS Markit

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