IEA (2020), Renewables 2020, IEA, Paris https://www.iea.org/reports/renewables-2020, Licence: CC BY 4.0
Renewable power markets are more resilient than previously thought
The IEA main case scenario forecasts that the increase in net renewable electricity capacity additions will be almost 4% higher in 2020 than in 2019. This means the world is expected to install over 198 GW of renewable capacity this year, breaking another record and accounting for almost 90% of the increase in total power capacity. Higher additions of wind (+8%) and hydropower (+43%) are expected in 2020, while solar PV growth remains stable. More utility-scale PV plants will be installed, while growth in distributed PV systems decreases almost 8% as individuals and companies reprioritise investments in light of the economic crisis.
Supply chain disruptions and construction delays slowed the progress of renewable energy projects in the first six months of 2020. However, construction activity did not halt in many countries even during full/partial lockdowns, manufacturing activity has ramped up quickly, and logistical challenges have been mostly resolved with the easing of cross-border restrictions since mid-May. Monthly capacity additions through September have exceeded previous expectations, pointing to a faster recovery in Europe, the United States and China. As a result, the forecast for 2020 has been revised upwards by over 18% from our previous update in May.
Depending on ongoing uncertainties created by the Covid‑19 crisis, renewable capacity additions could reach almost 234 GW according to the accelerated case. China presents the largest forecast uncertainty, as most of its wind and PV projects usually become operational in December, and developers are rushing to make up for delays due to Covid‑19, and complete projects before subsidies are phased out at the end of the year. Historically, similar policy-related rushes have led to combined wind and PV additions of 10 GW to almost 25 GW in the month of December. In the United States as well, the highest levels of wind and PV deployments usually happen in the last quarter of the year. For the rest of the world, however, realisation of the accelerated case depends mostly on faster commissioning of utility-scale wind, solar and hydropower projects, and stronger uptake of distributed PV installations.
Renewable capacity additions rebound to break another record in 2021
Renewables will achieve record expansion in 2021, with almost 218 GW becoming operational – a 10% increase from 2020. The rebound is driven by two factors: first, the commissioning of delayed projects in markets where construction and supply chains were disrupted. Immediate government measures in key markets (the United States, India and several countries in Europe) have enabled developers to complete projects several months after policy or auction deadlines, shifting the forecast for some capacity from 2020 to 2021. Second, growth has been continuous in some markets where the pre-pandemic project pipeline was robust as a result of economic attractiveness and uninterrupted policy support.
India is the largest contributor to the renewables rebound in 2021, with the country’s annual additions doubling from 2020. A large number of auctioned wind and PV projects are expected to become operational following delays due not only to Covid‑19 but also to contract negotiation and land acquisition challenges. In the European Union, capacity additions jump in 2021, mainly as previously auctioned utility-scale PV and wind projects in France and Germany become operational. In the Middle East and North Africa (MENA) region, renewable capacity additions recover in 2021, led by the commissioning of major IPP projects awarded in competitive auctions in the United Arab Emirates, Qatar and Oman. A similar increase will happen in Latin America as Brazil’s delayed wind projects from previous auctions become operational.
The resilience of renewables will be retested in 2022
The expiration of incentives and consequent policy uncertainties in key markets, combined with upcoming financing challenges and limited stimulus targeting renewable electricity, will lead to a small decline in capacity additions in 2022 relative to 2021. In China, onshore wind and PV subsidies expire this year, while offshore wind support ends in 2021. The policy framework covering 2021-25 will be announced at the end of next year, while financing challenges remain for unsubsidised projects.
In the United States, the onshore wind production tax credit expires at the end of 2020, which will hamper wind capacity growth. In Latin America, delayed auctions in Chile, Brazil and Argentina, and policy uncertainty concerning electricity market reforms in Mexico, remain key variables for 2022.
In Asia and Oceania, federal policy uncertainty and grid connection delays in Australia, and the precarious financial health of Indian distribution companies (DISCOMs), prevent renewable additions from further accelerating in 2022. Conversely, renewable capacity additions in Europe, the Middle East and Africa are forecast to continue expanding in 2022. Prior to the Covid‑19 crisis, all EU countries had submitted plans to achieve a 32% share of renewables in energy by 2030. In July 2020, the European Union agreed on a EUR 750 billion (USD 840 billion) recovery fund, with at least 30% dedicated to climate change adaptation and mitigation. This financial stimulus is expected to raise the liquidity of renewable energy projects already planned under member country policies in the short-term. Capacity additions in the Middle East and Africa in 2022 double from 2019 because competitive auctions for utility-scale PV make the technology more economically attractive to meet growing electricity demand.
Total installed wind and PV capacity surpasses coal by 2024
The Covid‑19 crisis has introduced additional challenges for renewable energy, such as constraints on financing availability, the reprioritisation of government budgets, and electricity demand uncertainty. At the same time, however, the fundamentals of renewable energy expansion have not changed. Cost reductions and sustained policy support are expected to drive strong growth beyond 2022.
Average annual solar PV capacity additions during 2023‑25 are expected to range from 130 GW in the main case to 165 GW in the accelerated case, accounting for almost 60% of total renewable energy expansion. In the next five years, the generation costs of utility-scale solar PV are expected to decline another 36%, making PV the least costly way to add new electricity capacity in most countries. Despite the cost of onshore wind improving 15% from 2020 to 2025, faster expansion is constrained by non-economic barriers such as permitting difficulties and social acceptance in the main case. Meanwhile, annual offshore wind additions during 2023-25 are forecast to be double the 2020 level.
In the main case, total wind and solar capacity doubles, expanding 1 123 GW between 2020 and 2025. With this growth, wind and PV achieve two important milestones during the forecast period: their total installed capacity surpasses that of natural gas in 2023 and that of coal in 2024. Overall, renewables account for 95% of the increase in total power capacity through 2025.
Renewables will become the largest source of electricity generation to surpass coal in 2025
With global electricity demand expected to contract this year, the share of renewables in electricity generation is forecast to increase a record 2.3 percentage points from 2019, to reach 27% in 2020. Electricity generation from renewables will expand almost 50% in the next five years to almost 9 745 TWh – equivalent to the combined demand of China and the European Union. By 2025, the share of renewables in total electricity generation is expected to be 33%, surpassing the coal-fired generation.
Hydropower remains the largest source of renewable electricity generation, but its share will drop below 50% for the first time in 2024. Combined wind and solar PV generation almost doubles to slightly above 4 000 TWh over the forecast period.
Renewables are expected to meet 99% of the global electricity demand increase during 2020‑25. In the European Union and the United Kingdom, the increase in renewables-based generation is expected to be more than nine times the rise in electricity demand, and close to three times the increase in US demand. In most advanced economies, renewables replace coal generation as aging fleets retire. In China and India, renewables are forecast to cover almost 65% of demand growth, while in ASEAN countries, fossil fuels dominate generation increases, preventing a rise in the renewables share.