Global solar PV capacity additions are expected to reach nearly 107 GW in 2020 in the main case, representing stable growth from 2019 (this forecast has been revised up by 18% from the market report update published in May). IEA monthly deployment data indicate that construction activity for utility-scale projects slowed from March through April, but rapidly regained speed in mid-May. Deployment of distributed PV applications remains sluggish in large markets such as China and the United States, although activity in most European markets, Australia and Brazil has not been hampered significantly. Still, the share of distributed applications in total PV deployment is expected to decline to 37% this year, the lowest since 2017.
In 2020, utility-scale additions will increase nearly 3% owing to record additions in the United States. China is expected to construct over 33% more PV capacity than in 2019, as developers rush to complete projects before the phaseout of subsidies. Additions in India decline for the second straight year as DISCOMs’ financial health challenges persist and Covid‑19 measures inhibit construction activity. Global distributed PV additions are forecast to be 8% lower in 2020 than in 2019 as the current economic uncertainty shifts the financial priorities of both individuals and small/medium-sized enterprises in some countries. Fewer distributed PV additions in key markets such as the United States, the European Union, India and Japan mark the global trend. Conversely, generous policy incentives drive a residential market boom in China and spur commercial market activity in Brazil despite the pandemic. In the accelerated case, global solar PV additions could be more than 120 GW in 2020, 16% higher than in the main case. China and the United States account for the largest portion of extra accelerated-case capacity because developers in both countries usually commission projects in the last quarter of the year, due to policy schedules. China’s historical last-quarter deployment (which ranges from 7 GW to 15 GW) does, however, introduce a major portion of 2020 PV forecast uncertainty. Another record for global solar PV additions is anticipated for 2021, with nearly 117 GW installed – a nearly 10% rise from 2020. The increase results from a strong rebound in utility-scale plants outside of China, where the phaseout of subsidies curbs PV expansion. Utility-scale project development rebounds in India and key EU markets (France and Germany) to meet auction-commissioning deadlines. With Chinese developers shifting investments from distributed to larger utility-scale projects as subsidies end, distributed PV growth does not fully return to the 2019 level. In 2022, global PV additions continue to expand to almost 120 GW. Although there is uncertainty concerning the new post-subsidy support scheme in China, PV deployment will gain speed in Europe and the United States thanks to increasing competitiveness and continuous policy support.
In the accelerated case, annual additions could reach over 142 GW in 2021 and 149 GW in 2022 with:
- A smooth policy transition to ensure investor confidence in China.
- Faster distributed PV recovery in the United States and Europe.
- Rapid implementation of auctions and grid connections in India and Latin America.
- Timely commissioning of auctioned capacities in the Middle East and Africa.
- Elimination of policy uncertainties and administrative challenges in ASEAN countries.
Global annual solar PV additions are expected to accelerate during 2023‑25, owing to faster recovery of distributed PV applications as the global economy improves. Outside of government support schemes, market drivers such as corporate PPAs and bilateral contracts are forecast to support PV expansion globally. Potential in the ASEAN region remains largely untapped due to administrative and regulatory challenges, while the lack of policy certainty and infrastructure is hampering regional growth. Global PV expansion after 2022 is expected to accelerate even more quickly, owing to continuous policy support and cost reductions. The distributed PV segment resumes growth during 2023-25 as global economic recovery supports faster adoption of commercial and residential systems. The higher potential for total PV in the accelerated case compared with the main case is significant, with the possibility of annual capacity additions averaging almost 165 GW during 2023‑25.
PV developers rush to meet subsidy deadlines in 2020
Solar PV capacity additions are expected to increase 33% in 2020 from 2019. China’s PV growth slowed in 2018 and 2019 because the government temporarily froze PV subsidy allocations and announced the transition to competitive auctions in 2018. Growth resumed this year, however, with the commissioning of projects awarded in the country’s competitive auctions held in July 2019 and June 2020 – before all PV subsidies are phased out at the end of 2020 (except for residential applications). Overall, the policy transition to auctions has reduced the appetite for commercial PV applications, which accounted for almost half of PV growth in 2018. Conversely, the popularity of residential PV installations is booming thanks to continuous financial support through the end of 2021.
China’s PV auction in July 2020 showed clear shift to larger utility-scale projects while prices declined 18% on average
In its second auction in July 2020, China awarded almost 26 GW of solar PV projects – more than in the first one – as the average contract price drop of 18% spurred greater contracted capacity even though the subsidy budget had been cut by half.Two key trends that have emerged from the auction will shape China’s future solar PV market. First, commercial solar PV developers showed limited interest in the auction because the investment priorities of small and medium-sized enterprises have shifted with the Covid‑19 crisis. Second, the competitive process has pushed developers to focus on larger projects in order to benefit from economies of scale and achieve lower bids.In the 2019 auction, projects with a capacity of 1-5 MW accounted for a significant majority of awarded capacity, while the average project size was almost three times higher in the 2020 auction. Projects with winning bids are forecast to come online in 2020 and 2021 while residential solar PV additions are expected to range from 9 GW to 10 GW, almost double the 2019 level, as developers rush to benefit from the generous FiT scheme that will end in 2021.
After subsidies are phased out in 2020/21 and the 13th Five-Year Plan on Renewables expires, capacity additions in 2022 are expected to decline due to uncertainties over the new policy scheme and targets in the upcoming 14th Five-Year Plan. An emerging development schedule shows plans for a pipeline of “grid parity” projects under 20-year contracts at administratively set provincial power prices. Although the government approved 29 GW of these projects in July 2020, many are expected to be cancelled or postponed due to increasing financing challenges caused by the Covid‑19 crisis and a lack of penalties for non-completion.Beyond 2022, growth in annual additions is projected to resume, averaging 40‑50 GW through 2025. In the absence of subsidies, continuous PV cost declines will remain the key driver for expansion. The large difference between the main and accelerated cases reflects uncertainty over the new policy scheme after the phaseout of subsidies.Although implementation of state-level renewable portfolio standards began this year, the current design provides only limited incentives for solar PV projects, especially rooftop distributed PV. The smooth interaction between newly introduced provincial spot electricity and green certificate markets, along with the implementation of the RPS scheme, will be key for faster solar PV project expansion.Unprecedented US solar PV expansion of almost 17 GW is forecast for 2020, the highest annual increase to date. Growth is mostly in utility-scale projects, with 3.9 GW more additions than in 2019, which will more than offset the decline forecast for the distributed segment.Numerous utility-scale projects were already under development at the beginning of 2020, and construction has continued relatively unaffected by shelter-in-place orders because many states deem construction an essential service. While some developers have reported delays or pauses in construction, newly installed capacity increased 30% from the first to the second quarter of 2020. Growth is expected to remain strong in the second half of the year, as remaining social-distancing measures are assumed to have very little effect on the considerable 13.6 GW under construction.
Covid‑19 disruptions cause a significant slowdown in 2020 PV deployment but a strong rebound is expected in 2021 and 2022
India’s solar PV capacity additions are forecast to be one-third lower in 2020 than in 2019. In the first half of 2020, new PV capacity installations were 70% below average first-half growth of the previous three years. This drop resulted from a combination of Covid‑19-related supply chain disruptions and construction slow-downs, as well as increased macroeconomic risks.Consequently, compared with our previous update in May, this forecast anticipates 19% fewer additions in 2020. A rebound in PV deployment is expected for 2021 and 2022, with capacity additions exceeding the 2019 level as delayed and new projects become operational.
The Covid‑19 crisis has compromised distribution companies’ (DISCOMs’) financial viability. The financial instability of many DISCOMs leads to delayed payments to generators, decreasing the profitability of existing projects and raising the level of risk perceived by potential developers and financial institutions.According to the Ministry of Power’s annual financial performance ratings, one-third of electricity sales in 2018 came from DISCOMs rated below B+ on a six-grade scale ranging from C to A+. New PV installations in networks managed by utilities with low grades will likely face greater obstacles than those overseen by healthier DISCOMs. In addition, distressed DISCOMs view the development of rooftop PV as an additional challenge, as higher self-consumption reduces revenues from their most profitable commercial customers.Policies to improve DISCOMs’ financial health through the UDAY scheme introduced in 2015 have been only partially successful, and overdue payments to generators began increasing again in 2018. In fact, from January to June 2020, total overdue payments owed by DISCOMs rose 28% for all electricity generators and 10% for renewable electricity plants.In May 2020, India’s government announced an extensive loan programme to reduce overdue amounts owed to generators. Although it is expected to provide important relief to renewable energy developers, a structural solution is needed to ensure the sustainability of DISCOMs to achieve faster PV growth.
Japan’s solar PV market is expected to contract slightly (by 9%) in 2020 compared with 2019. Capacity additions are mostly driven by different commissioning deadlines for FiT-approved PV projects in each of the segments, while the impact of the Covid‑19 crisis on solar PV construction activity has been minimal.
Utility-scale installations are most affected by commissioning deadlines because many FiT-approved projects need to be commissioned in 2020 and 2021 to maintain the previously agreed prices and support periods, resulting in strong growth in these years. Fewer FiT-based projects in 2022, however, is expected to reduce utility-scale PV additions, with only a minimal contribution from auctions. Auction-based capacity is low relative to new FiT approvals, with previous auction rounds undersubscribed. For commercial solar PV, a rush to complete FiT-approved projects by 2022 due to commissioning deadlines, and additional investment subsidies for PV and storage as part of Covid‑19 stimulus are expected to boost growth over 2020-22. Japanese PV additions are expected to contract starting in 2022, mainly due to phaseout of the generous FiT scheme for large-scale projects and undersubscribed capacity in previous auctions. The government has approved introduction of a FIP scheme for large solar PV projects. The new policy aims to reduce financial burden, encouraging PV plants to participate in electricity markets to facilitate their system integration and providing a stable long-term revenue stream for developers. However, details regarding the maximum size of eligible projects, ceiling price and the competitive selection process have not yet been decided and remain a forecast uncertainty beyond 2022. Smaller commercial installations will continue to be eligible for FiT-based remuneration, but they are likely to face stricter rules such as a self-consumption requirement of at least 30%. Solar PV growth during 2023-25 could be one-fourth higher in the accelerated case, with more attractive FIP remuneration and further cost declines, unlocking of the potential of other revenue streams such as PPAs, and continuation of the FiT scheme for medium-sized commercial installations. Solar PV capacity additions in the ASEAN region are forecast to reach 2.8 GW in 2020, 57% lower than last year when developers in Viet Nam rushed to complete projects before the announced FiT phase-out. In other ASEAN countries, PV development remains slow in 2020 due to limited policy support. From 2021 onwards, however, a decrease in new installations in Viet Nam following its FiT phase-out should be mostly offset by faster growth in other ASEAN countries. Utility-scale projects account for the majority of new additions in the region due to limited support for distributed applications. However, the share of commercial and residential installations in total investments is likely to increase over 2023-25 thanks to an improved regulatory environment and rising economic attractiveness.
In Viet Nam, PV capacity additions are expected to decline 65% to1.9 GW in 2020 due to phase-out of the generous FiT in June 2019. Although a government decision to extend the commissioning deadline for previously approved projects to the end of 2020 will keep annual additions relatively strong, workforce shortages and supply chain disruptions due to the Covid‑19 crisis – combined with grid connection challenges – could delay the completion of many approved projects to 2021. In addition, transition from the FiT to an auction scheme is expected to further slow annual growth in 2022. Distributed PV deployment should accelerate during the forecast period, stimulated by decreasing costs and new business models, including on-site private PPAs and roof-space renting introduced in 2020.PV additions of just over 3.5 GW are expected in 2020 – over 30% less than in 2019. This decline results mostly from 50% lower utility-scale PV additions, as delays in grid connection approvals and new operational requirements have lowered project outputs, making the business case for multiple PV projects less attractive and reducing investor confidence.In addition, Australia has already met its 2020 Renewable Energy Target, resulting in an oversupply of generation certificates, which reduces revenues and undermines the business case for new developments. Consequently, utility-scale additions are expected to shrink further in 2021 and 2022.
Moderate gains in utility-scale and distributed PV installations will begin in 2023 as both the small- and large-scale certificate programmes continue through 2030, and as improving grid conditions from planned new investments help reduce connection and curtailment challenges. However, with the projected generation target of the LRET programme having been met already, PV projects will have to rely on merchant installations, corporate PPAs or state-level incentives, such as the New South Wales Renewable Energy Zones.
Off-grid solar PV capacity has expanded with government-led rural electrification programmes and the help of development agencies and private firms, while the Covid‑19 crisis has called attention to the urgent need for solutions and capital
Utility-scale solar PV project development in Ethiopia, Kenya, Nigeria and Tanzania requires bilateral agreements with the governments and state-owned utilities through tenders, FiTs or PPAs. However, off-taker risks and administrative challenges have delayed financial close for many projects since 2016. In Ethiopia, land rights issues deter development, and some PV projects have been delayed by up to one year. The latest tenders in 2019 sought to alleviate this risk, with the government providing the land for installations as part of the tender (IJ Global, 2019). Even with the improved tender process, however, current projects are forecast to connect slowly, with just over 170 MW of utility-scale PV added from 2021 to 2022 and only 360 MW added during 2023-25. Further growth is dependent upon timely project implementation and additional tenders. Land rights issues also pose a challenge in Kenya. Even after the signature of PPAs under the FiT scheme, local governments need to approve project development, which increases project risk. Despite developers having announced a large number of projects in Kenya, the long timelines from actual tendering to commissioning means that the country is forecast to only add 120 MW of utility-scale PV from 2021 to 2022 and 280 MW from 2023 to 2025. While the Energy Act of 2019 reaffirmed the FiT policy, uncertainty over its implementation persists.In Nigeria, PPA renegotiations have hindered previously awarded PV projects, raising project risks significantly (PV Magazine, 2019). In addition, financing challenges in Nigeria’s electricity sector hamper the necessary grid expansion required to connect large-scale renewable projects. Given its solar PV potential, sub-Saharan Africa’s renewable capacity expansion could be twice as high, as demonstrated in the accelerated case. This would, however, require countries to implement policies addressing off-taker and land acquisition risks. Timely implementation of announced auctions and faster grid expansion are also needed. Half of the people living in sub-Saharan Africa do not have access to electricity, so off-grid solar PV is expected to improve electricity access throughout the region. The forecast expects over 1 GW of new off-grid PV capacity to come online in the next five years, representing 20% of all PV additions in the region. Capacity expansion is in the form of mini-grids and solar home systems. Prior to the pandemic, government funding and development agency grants financed numerous state-sponsored RFPs for mini-grid solutions to bring power to under-served populations and create critical infrastructure. In addition, decreasing PV system costs have enabled individual consumers to acquire solar home systems to power their homes.The Covid‑19 crisis has served to heightened interest in developing mini-grids, as relief packages have emphasised investing in renewable energy systems and programmes to power health and sanitation infrastructure and to support off-grid electrification for under-served populations.