Abstract Renewable electricity capacity additions broke another record in 2021 and biofuels demand almost recovered to pre-Covid levels, despite the continuation of logistical challenges and increasing prices. However, the Russian Federation’s (hereafter, “Russia”) invasion of Ukraine is sending shock waves through energy and agriculture markets, resulting in an unprecedented global energy crisis. In many countries, governments are trying to shelter consumers from higher energy prices, reduce dependence on Russian supplies and are proposing policies to accelerate the transition to clean energy technologies.
Acknowledgements This study was prepared by the Renewable Energy Division in the Directorate of Energy Markets and Security. It was designed and directed by Heymi Bahar, Senior Analyst. The lead authors of the report were Heymi Bahar (electricity) and Jeremy Moorhouse (biofuels). The report benefited from analysis and input from multiple colleagues: Yasmina Abdelilah, Piotr Bojek, François Briens, Trevor Criswell, Kazuhiro Kurumi, Kartik Veerakumar and Grecia Rodríguez Jiménez (also responsible for data management). Paolo Frankl, Head of the Renewable Energy Division, provided strategic guidance and input to this work and contributed to relevant messaging. Valuable comments and feedback were provided by Keisuke Sadamori, Director of Energy Markets and Security Directorate. Thanks go to the IEA Communication and Digitalisation Office (CDO) for their help in producing the report and website materials, particularly to Jad Mouawad, Head of CDO, and to Jon Custer, Astrid Dumond, Merve Erdil, Jethro Mullen, Isabelle Nonain-Semelin, Julie Puech, Robert Stone, Gregory Viscusi and Therese Walsh.
Renewable electricity A brief look back at 2021 Another record year of growth but with new boom and bust deployment cycles Despite the persistent pandemic-induced supply chain challenges, construction delays, and record-level raw material and commodity prices, renewable capacity additions in 2021 increased 6% and broke another record, reaching almost 295 GW. This growth is slightly higher than the forecast last year in the IEA’s Renewables 2021. Globally, the 17% decline in annual wind capacity additions in 2021 was offset by an increase in solar PV and growth in hydropower installations. The expansion of bioenergy, concentrated solar power (CSP) and geothermal was stable in 2021 compared with 2020. In terms of speed of growth, renewable capacity’s year-on-year increase last year was slower, following an exceptional jump in 2020 when Chinese developers rushed to connect projects before the phase out of subsidies, especially for onshore wind.
China largely maintained its market share of deployment in 2021, accounting for 46% of worldwide renewable capacity additions. However, new Chinese capacity declined 2% year-on-year, with onshore wind and utility-scale solar PV installations 55% and 22% lower, respectively, than the record boom cycle levels in 2020 when developers rushed to complete projects before the subsidy expiration deadline. On the other hand, offshore wind, residential solar PV and bioenergy annual additions broke new records thanks to the availability of subsidies through 2021. For instance, offshore wind new installations increased almost six-fold in 2021 compared with 2020 In addition, the commissioning of multiple units at the Chinese Baihetan hydropower plant contributed to the global acceleration of hydropower expansions. Outside of China, the European Union was the second largest market in terms of increased capacity, with the region surpassing for the first time the all-time-record in 2011. Solar PV alone accounted for the majority of the European Union’s expansion last year due to project acceleration in Spain, France, Poland and Germany, which was driven by a combination of government-led auctions and distributed solar PV incentives. In the United States, lower production tax credit (PTC) rates led to onshore wind additions declining by one-quarter. Solar PV expansion continued to increase thanks to the investment tax credits (ITC) available until 2023-2024 providing a relatively stable policy environment, even as supply chain and logistical challenges hampered much faster growth.
India’s renewable energy growth recovered in 2021 following a record slowdown in 2020 due to project delays related to Covid-19 challenges. With the commissioning of already auctioned utility-scale projects and the acceleration of the distributed PV market due to policy improvements, India’s renewable capacity additions in 2021 more than doubled compared to 2020. In Brazil, generous net metering incentives for distributed PV application led to a rush in installations while onshore wind additions accelerated because of supportive economics from bilateral contracting in the free market. In Africa, renewable capacity additions resumed growth with the commissioning of previously awarded wind and solar PV projects in South Africa. The phase out of the generous feed-in tariff (FIT) scheme in Viet Nam resulted in a bust in the deployment cycle, with the country’s additions halving from 2020 to 2021. As a result, ASEAN’s annual installations declined 40% year-on-year, although still slightly higher than in 2019.
Renewable capacity additions will break another record in 2022 led by solar PV Renewable capacity is expected to increase over 8% in 2022 compared with last year, pushing through the 300 GW mark for the first time. Solar PV is forecast to account for 60% of the increase in global renewable capacity this year with the commissioning of 190 GW, a 25% gain from last year. Utility-scale projects account for almost two-thirds of overall PV expansion in 2022, mostly driven by a strong policy environment in China and the European Union driving faster deployment.
Unless new and stronger policies are implemented in 2023, global renewable capacity additions are expected to remain stable compared with 2022. While solar PV is forecast to break another record in 2023, reaching almost 200 GW, and with the expansion of wind and bioenergy remaining stable, 40% lower hydropower additions due to a reduced project pipeline in China stymies capacity growth in the global renewable energy market.
Higher solar PV and wind costs are here to stay in 2022 and 2023 but they do not challenge competitiveness Prices for many raw materials and freight costs have been on an increasing trend since the beginning of 2021. By March 2022, the price of PV-grade polysilicon more than quadrupled, steel increased by 50%, copper rose by 70%, aluminium doubled and freight costs rose almost five-fold. The reversal of the long-term trend of decreasing costs is reflected in the higher prices of wind turbines and PV modules as manufacturers pass through increased equipment costs. Compared with 2020, we estimate that the overall investment costs of new utility-scale PV and onshore wind plants are from 15% to 25% higher in 2022. Surging freight costs are the biggest contributor to overall price increases for onshore wind. For solar PV, the impact is more evenly divided among elevated prices for freight, polysilicon and metals.
High prices for oil, natural gas and coal also contribute to rising production costs of manufactured materials for renewable electricity technologies since fossil fuels are used in both industrial processes and power generation. While significant in absolute terms, the increase in renewables costs have not hampered their competitiveness because prices of fossil fuels and electricity have risen at a much faster pace since the last quarter of 2021. Globally, power prices are breaking historic records in many parts of the world, especially where natural gas is the marginal technology setting the final hourly or daily price in many wholesale electricity markets. This is especially prevalent in European Union countries, where wholesale power prices in Germany, France, Italy and Spain have increased more than six-fold on average compared with mean values from 2016 to 2020.
Forecast additions for 2022 and 2023 have been revised upwards by 8% from last year led by China and the EU China accounts for the majority of upward forecast revisions for 2022 and 2023 since our last report, despite the phase out of incentives for all renewables last year. The expansion is due to multiple government and market factors. First, the generation costs of solar PV and onshore wind are lower than coal benchmark prices in the majority of provinces. Second, the government announced 450 GW of additional large-scale onshore wind and solar PV megaprojects in the Xinjiang and Inner Mongolia provinces, known as “mega-hubs”, with 100 GW starting development at the beginning of 2022. Third, China’s Ministry of Finance confirmed the payment of outstanding renewable energy subsidies worth USD 60 billion to be paid through 2022, improving the balance sheet of developers and unlocking additional funds for new projects. Fourth, in the absence of national subsidies, provincial governments are still providing tax incentives and low-cost financing to renewable energy projects.
New trade policies on solar PV have also increased challenges for developers in the United States. In June 2021, the government banned imports from several polysilicon producers located in Xinjiang, China following the indication from the US Customs and Border Protection agency that these companies use forced labour in their manufacturing. In addition, at the end of March 2022, the US Department of Commerce launched a new investigation to assess whether solar cells produced in Southeast Asia are made with parts manufactured in China that are subject to an import tariff imposed in 2018. Since the introduction of tariffs in 2018, Southeast Asian countries such as Viet Nam, Malaysia, and Indonesia replaced imports from China, supplying over 80% of the country’s cell and module imports. The new investigation and the possibility of additional tariffs compounding procurement challenges in the short term, reducing the availability of solar PV modules. As a result, we have lowered our forecast for solar PV by 17% in 2022 and 9% in 2023. Japan’s renewable capacity additions in 2022-2023 are also revised down from last year, mainly due to lower FIT approval for solar PV. The new feed-in premium (FIP) scheme just started in April 2022. This could lead to additional capacity growth for solar PV and onshore wind in the longer term, but forecast uncertainty remains in the short term.
Faster implementation of policies expedite deployment in the European Union and India, while China maintains lead China accounts for 45% of global renewable capacity additions in 2022-2023, with the commissioning of over 140 GW on average per year driven mostly by largescale solar PV deployment. The expansion trend in China is fully in-line with the government’s 1 200 GW wind and solar PV target by 2030. Annual additions are expected to remain slightly higher compared with 2020-2021, when the country saw multiple deployment rushes due to incentive phase-out schedules for onshore wind and utility-scale PV in 2020, and offshore wind and residential PV in 2021.
In the European Union, rapid implementation of previously announced ambitious policy targets and already awarded auctions, combined with continuous incentives for distributed solar PV, drive the expansion. In response to the Russian invasion of Ukraine, many European Union countries announced plans to accelerate renewables deployment aimed at reducing their dependence on Russian natural gas imports. Germany, the Netherlands and Portugal either increased their renewable energy ambitions or moved their initial targets to an earlier date. We expect that the impact of these new policies will be limited by 2023, especially for large-scale projects that require development timelines of more than 18 months. However, our forecast sees some upside on distributed PV as residential and commercial installations enable consumers to reduce their electricity bills through self-consumption.
In India, new records for renewable capacity expansion are expected to be set in 2022 and 2023 as delayed projects from previous competitive auctions are commissioned, especially for solar PV. Nonetheless, the financial health of distribution companies (DISCOMs) remains the primary challenge to renewable energy deployment in India, with potential project cancellations and protracted contract renegotiations. In the United States, annual capacity additions are expected to slow over 2022 and 2023 Wind and solar PV sectors face two key challenges to achieve faster growth in the short term. First, the lack of long-term visibility on future incentive schemes has reduced the project pipeline for onshore wind developments and the PTCs phased down from the initial rate of USD 19/MWh for projects beginning construction in in 2016 to USD 10/MWh for construction starting in 2019, reducing economic attractiveness. While subsequent extensions of the PTC in 2020 and 2021 have been at higher rates, those years fall outside of our forecast period given development timelines. Second, potential solar PV trade measures against Southeast Asian countries, in addition to China, are reducing the availability of solar modules in the short term and leading to higher prices, which were already inflated due to elevated commodity prices. Current production of modules in the United States can only meet less than 20% of last year’s annual demand and there are limited manufacturers outside of Viet Nam, Indonesia, Cambodia, Malaysia and China that can provide PV products to the US market.
The global energy crisis has introduced more forecast uncertainties and is testing the resilience of renewable electricity The Russian invasion of Ukraine has added new urgency to accelerate clean energy transitions in order to reduce the dependency of imported fossil fuels from Russia, with deployment of more renewables now a strategic imperative for many countries, especially in the European Union. Indeed, since Renewables 2021 was published last December, the global energy crisis has moved the goal posts for the deployment of solar, wind and other renewable energy sources, and we have updated our forecasts in this new report in response. Many European Union countries have announced plans to advance development of renewables, with wind and solar PV holding the greatest potential to reduce the European Union’s power sector dependence on Russia by 2023.
However, geopolitical and macroeconomic challenges increase uncertainties over renewable electricity forecasts beyond 2023. Higher wind and solar PV investment costs due to elevated commodity prices in the wake of Russia’s invasion and permitting delays resulted in the lowest first-quarter auction volumes globally in 2022 since 2016. In addition, volatility in electricity markets due to sharply higher gas prices has complicated contract negotiations for corporate power purchase agreements (PPA), especially in the European Union, while rising interest rates are compounding challenges for renewable developers.
2022 and 2023 forecast summary High prices slow biofuels demand growth Russia’s invasion of Ukraine is sending shocks through energy and agriculture markets, worsening already high prices. As a result, biofuel demand growth is now forecast to slow by 20% in 2022, equivalent to 2 200 million litres, compared with our previous forecast of a higher increase of 11 000 million litres. Weaker demand growth for transportation fuels largely underpins our downward revision. As of 4 April 2022, the IEA expects global oil demand growth will be 1.2% lower this year compared to our January forecast. The downward revision is due to a combination of Covid-related mobility restrictions in China and weaker GDP growth. Since biofuels are blended with gasoline and diesel, slower growth in transportation demand directly impacts biofuel demand, with declines deepest in important biofuel markets such as Europe, the United States and Brazil.
Brazil accounts for the majority of the decline in global biofuel demand growth. Demand has been revised lower across all transport fuels from pre-invasion January estimates, with gasoline now -0.2% and diesel at -0.7% in 2022 versus 2021 levels. Lower transport fuel use slows 2022 Brazilian biofuel demand growth by 40% compared to January projections. In the United States, we have revised down our 2022 biofuels growth by 15% from January’s forecast. In 2022, gasoline and diesel demand are expected to be 1.5% and 2% respectively, lower than forecasted in January of this year, which in turn drives down ethanol, biodiesel and renewable diesel blending. It is unclear how rapidly changing market dynamics will influence the US Environmental Protection Agency’s (EPA) decision on renewable volume obligations (RVO) set to be released in June. The EPA shared proposed requirements earlier this year, but since then transport fuel demand has declined and biofuel prices have increased, which may influence the EPA’s final recommendation On the upside, the US government expanded the right to blend 15% ethanol during summer months to help lower gasoline bills. However, only 2% of fuelling stations provide 15% blending and so we expect this policy change will only slightly increase ethanol demand in 2022.
Oil prices, GDP growth and demand In the wake of Russia’s invasion of Ukraine, prices for international benchmark Brent crude rose to highs of almost USD 140 bbl/d and ranged from USD 100-120 bbl/d from March through April. In addition to high oil prices, the economic fallout from the escalated Covid crisis in China is undermining the outlook for the global economy. As a result, GDP growth assumptions have been lowered to 3.4% in April compared to 4.3% in January. Higher oil prices and weaker GDP growth have combined to curb transportation demand globally, especially in key biofuel markets like the United States, Europe and Brazil. If the higher price and lower economic environment persist, already modest growth in transport demand may weaken further, which in turn would reduce our current biofuel demand estimates. These downward pressures may partially be countered by an increase in demand for biofuels stemming from its lower prices relative to other fuels such as ethanol in the United States and Brazil.
Feedstocks and biofuel prices
Biofuel and feedstock prices continue to climb as well. Biofuels are primarily made from corn, sugar, vegetable oils and used cooking oil, which are all near or at alltime highs. However, some feedstocks are more affected than others. For instance, vegetable oils rose across the board and prices as of April 2022, are up 65-164% since 2019, which in turn has fuelled higher prices for biodiesel and renewable diesel. Corn prices are also up, putting upward pressure on ethanol prices. On the other hand, sugar, used primarily in Brazil and India, is less impacted. According to the USDA, a number of factors are propelling global agricultural commodity prices to near-record levels, including the potential loss of exports from Ukraine, increased global demand, weather-related supply disruptions, lofty energy prices, increased fertilizer costs and countries imposing export restrictions on certain food crops which exacerbate the impacts on markets. For example, Indonesia’s decision in April to temporarily ban some components of palm oil put further upward pressure on biodiesel feedstocks.