Cost reductions and pressure to meet climate targets provide favourable environment for clean energy producers, despite fall in overall energy demand.
Global economic growth has dropped this year because of Covid-19 and the energy sector has been among the hardest-hit, with oil prices at one point turning negative as demand slumped.
However, one part of the energy industry has defied the downturn – and is set to post record growth this year and next. Cost reductions and sustained policy support are set to drive strong growth in renewable energy.
This will see total wind and solar PV capacity exceed natural gas in 2023 and coal in 2024, with offshore wind being one of the fastest-growing markets as its costs plummet. By 2025, renewables will have usurped coal to become the biggest source of electricity generation globally.
The renewable energy sector feared that its momentum would be stopped in its tracks by the pandemic, but that has not happened, according to the International Energy Agency. Its new Renewables 2020 report says that almost 200GW of new clean power capacity will be installed in 2020, almost 90% of all new power capacity around the world.
Renewable electricity generation will increase by 7% globally in 2020, underpinned by the record new capacity additions, the Agency says. This growth comes despite a 5% annual drop in global energy demand, the largest since the Second World War.
“In 2025, renewables are set to become the largest source of electricity generation worldwide, ending coal’s five decades as the top power provider,” said the IEA’s executive director Fatih Birol. “By that time, renewables are expected to supply one-third of the world’s electricity – and their total capacity will be twice the size of the entire power capacity of China today.”
This expansion was driven by wind, solar and hydro-electric power, and was in part boosted by developers rushing to take advantage of expiring incentives in both China and the US. Next year’s growth – expected to be almost 10%, the highest rate since 2015 – is set to be led by India and the European Union as projects in the pipeline before the pandemic are completed and commissioned. India’s renewable energy sector is set to double in 2021.
“Renewable power is defying the difficulties caused by the pandemic, showing robust growth while other fuels struggle,” said Dr Birol. “The resilience and positive prospects of the sector are clearly reflected by continued strong appetite from investors – and the future looks even brighter with new capacity additions on course to set fresh records this year and next.”
Global growth in renewable capacity in the first 10 months of 2020 is already 15% higher than the same period last year, despite the pandemic, and growth is set to continue. These strong fundamentals have lifted share prices in the sector despite the pandemic, with solar stocks in October more than double their value at the end of 2019.
For growth to continue, policymakers will need to create a welcoming environment for investment in the sector, says the IEA, which has traditionally taken a very conservative view on renewable energy growth. A number of markets need to act, but sentiment in the sector has been helped by new net zero commitments from three of Asia’s biggest emitters – China, Japan and South Korea – and the election of Joe Biden as US president. Mr Biden made tackling climate change one of his key campaign platforms and he has pledged to rejoin the Paris Climate Agreement on his first day in office.
Even Russian president Vladimir Putin has ordered his government to work towards meeting the aims of the Paris Agreement. This will put pressure on other laggards such as Australia, the world’s biggest coal exporter, to introduce more climate-friendly policies too. But measures such as these could help the solar and wind markets to grow by another quarter in 2022.
“Renewables are resilient to the Covid crisis but not to policy uncertainties,” said Dr Birol. “Governments can tackle these issues to help bring about a sustainable recovery and accelerate clean energy transitions. In the United States, for instance, if the proposed clean electricity policies of the next US administration are implemented, they could lead to a much more rapid deployment of solar PV and wind, contributing to a faster decarbonisation of the power sector.”
Under favourable policy conditions, such as effective support for rooftop solar, PV annual additions could reach a record level of 150GW by 2022, an increase of almost 40% in just three years, the IEA says.
But while renewables in the power sector are going from strength to strength, the Covid crisis has hit electric vehicles and renewable heat hard. The decline in economic activity and consequent fall in oil prices has cut biofuel use, while the slowdown has limited the expansion of the EV market and the demand for bioenergy in industry. That means that overall growth of renewable energy in 2020 is set to be just 1%, although this compares favourably to the 5% drop in overall energy demand.
Top of Form
Bottom of Form