Is the renewables glass half-full or half-empty? That’s the central question that appears to run through the International Energy Agency (IEA’s) new comprehensive market report on the state of renewable energy in the world. The answer is complex. Renewables have made “tremendous progress”, notes the IEA, but growth “falls short of global climate change objectives”. Karel Beckman reports.
The IEA’s new Medium-Term Renewable Energy Market Report (the executive summary can be downloaded here) is something of a mixed bag. Yes, says the IEA, there has been substantial growth in renewables in some sectors and regions. But growth is also seen to be slowing. And it is not enough to meet climate targets.
Renewable energy, then, appears to be at a cross-roads. That’s why it is crucial at this stage, notes the IEA, that policymakers don’t fall down on the job. “The solutions to future development rest in policymakers’ hands”, said Maria van der Hoeven, IEA’s Executive Director, at the launch of the report on Thursday. “Policy risk”, she added, “is the main barrier to investment.”
This does not necessarily mean that governments should uncritically pour money into renewables. On the contrary, the stimulation of renewable energy requires above all a “stable market context”, said Van der Hoeven.
The report notes that every market has its own unique featurs and requirements. There are “dynamic markets” with strong demand growth, in which renewables are complementary (and increasingly competitive) to existing forms of power generation, and there are stagnant markets with overcapacity in which renewables can only grow by pushing out alternatives. These all require different forms of support.
Overall, renewables have made “tremendous progress”, said Paolo Frankl, Head of Renewable Energy Division of the IEA at the same presentation. They now account for 22% of global power generation, the same as natural gas. Coal has a share double that amount, nuclear only about half.
Last year, global renewable electricity generation grew 5% by 240 TWh to reach 5070 TWh.
In particular solar PV capacity surged, rising 39 GW to 137 GW, led by China and Japan, which have both adopted attractive feed-in tariffs. The IEA expects solar PV production to triple between now and 2020. However, solar enthusiasts may be disappointed to hear that their glass still barely contains a few drops. Solar PV installations produced 131 TWh of electricity in 2013, which was just 0.56% of global electricity production. Drops in the ocean.
Even by 2020, when renewable energy production is projected to be 7313 TWh, or 26% of global power production, the lion’s share of this will come from hydropower (4669 TWh), wind (1409 TWh) and bioenergy (615 TWh), with solar contributing just 482 TWh. On the bright side this means of course that the growth potential for solar power is still phenomenal.
Global renewable power capacity is expected to grow from 1690 GW in 2013 to 2555 GW in 2020, an increase of 50%.
This is due to two trends: deployment is spreading out geographically. And renewable technologies are becoming increasingly competitive on a cost basis in a number of countries and circumstances.
The report recounts some success stories. It sees “steady expansion of hydropower, onshore wind and bioenergy capacity in Brazil, supported by the government’s long-term auction scheme.” Onshore wind continues to outbid new-build natural gas plants in auctions over the last year in Brazil.
In India, a “diverse set of targets and financial incentives supports the growth of hydropower, onshore wind, solar, PV and bioenergy.” In South Africa, “with good wind resource and long-term power purchase agreements (PPAs), onshore wind is preferred against new gas and coal power plants to meet growing demand.”
Another interesting case is Chile, where “high wholesale electricity prices and good irradiation levels have opened a new merchant solar PV market. There, the world’s first merchant utility-scale solar PV plant was interconnected and another was financed over the past year; both projects are to sell electricity to the wholesale market without a PPA (power purchase agreement).”
In Africa, non-OECD Europe and Eurasia, and the Middle East,”growth remains more nascent”, says the IEA. Saudi Arabia “has announced aggressive long-term targets backed by auctions. However, non-economic barriers, needed grid upgrades, and high costs and reduced availability of financing may represent persistent risks and constraints in many non-OECD areas.”
China, notes the report, “remains the anchor of renewable capacity deployment, accounting for almost 40% of global expansion … Strong generation needs, pollution reduction goals and a favourable policy environment with ambitious targets support China’s deployment. There, renewables should account for nearly 45% of incremental power generation over the medium term, ahead of coal. In addition to hydropower and onshore wind, whose significant deployment should continue, solar PV, whose costs have fallen rapidly, has become a strategic pillar of the energy system.”
In the more mature markets of the OECD (EU and North America), “after several years of rapidly increasing growth, renewables are transitioning to a slower but stable annual capacity expansion”, says the IEA. “Renewable generation is expected to account for near 80% of new power generation from 2013-20.” The report notes that while this is “a significant share, there is limited upside potential to growth given overall sluggish demand and policy risks in key markets.”
In the EU, notes the report, “uncertainties remain over the precise nature of the post-2020 renewable policy framework and the build-out of a pan-European grid to facilitate the integration of variable renewables. In Japan, there is considerable uncertainty over the future evolution of the FIT scheme and grid integration issues pertaining to solar PV. In the United States, announced federal regulations on existing power plant emissions should help support renewables going forward, but questions persist over the durability of renewable tax incentives, and heated debates are occurring in a number of states over renewable portfolio standards and rulesfor promoting distributed generation.”
In many OECD countries the rapid deployment of renewables “requires scaling down of part of the existing energy system, which is putting incumbent utilities under severe pressure”.
Investment in renewable power capacity amounted to an impressive $250 billion last year. Still, that was slightly lower than in 2012 while in 2011 investment came to $280 billion. Part of the reason for the slow-down in investment is actually positive: it has to do with a decline in investment costs in solar PV and onshore wind. Over the medium term, the investment outlook is stable but does not show much growth. The IEA expects it to level off at $230 billion per year until 2020.
On cost-competitiveness the news tends to be positive as well. The IEA notes that “whereas renewables remain generally more expensive than conventional electricity-generating technologies, this gap is expected to further narrow over the medium term.”
The figure below shows weighted average annual renewable investment costs for 2010-2020.
What is striking here are the low projected costs of solar PV, and especially for utility-scale solar PV. Utilities might perhaps take courage from this. China is absolutely in the lead when it comes to low costs for solar power.
Frankl in his presenation noted that what the IEA calls “socket parity” is emerging as a real driver for distributed PV. Socket parity for solar-PV is within reach in many countries, including the UK, France, Germany, the Netherlands and Italy. The report notes that this is a strong motivation for consumers to buy PV systems. It does increase network costs for other consumers – an issue that will become increasingly urgent in the coming years, says the IEA.
But despite the steadily declining investment costs of renewables, “policy remains vital” to their competitiveness, notes the report.
Of course it is all very well to talk about renewables in the electricity sector, but electricity production makes up no more than 20% of global primary energy use. Heat, as Maria van der Hoeven emphasized during the press conference , is much more important, as it accounts for over half of final energy consumption.
Unfortunately, progress in the heat sector is much slower than in electricity. Renewables (excluding traditional biomass) currently account for just 8% of global heat use. This is only slightly more than was the case in 2007, so virtually no progress has been made here. This is particularly worrisome as the heat sector, with three-quarters of heat production coming from fossil fuels, contributes to fully one-third of global greenhouse gas emissions.
Why have countries achieved so little in this area? According to Van der Hoeven, policymakers do not pay enough attention to it, probably because the heat sector is very heterogenous and therefore difficult to catch in energy policies. Van der Hoeven noted that only a small number of countries have centralised heat production. One of the few countries that has successfully tackled the heat sector, she said, is Denmark.
Interestingly, according to Frankl, in the heating sector, China is again playing a hugely stimulating role. The country has ambitious targets for biogas and is a clear world leader in solar thermal water heaters, which are expected to triple in number up to 2020. Chinese solar water heaters are also very cost-competitive compared to foreign alternatives, Frankl added.
In the transport sector, the news is arguably even worse for supporters of renewable energy. Transport, which accounts for over 20% of primary energy use in the world, is even more dependent on fossil fuels than the heating sector. The production of biofuels is projected to grow only slowly, from roughly 120 billion litres today to 140 billion in 2020. By that time biofuels would account for only 3.5% of global road transport fuel demand. Today this is about 3.1%.
The reason for this slow growth is that production and consumption in the US, the EU and Brazil is “shifting gears”, says the IEA. “In the United States, the design shortcomings of previous biofuel mandates have become manifest, leading to policy reviews that have introduced uncertainty in the market. In Brazil, the ethanol industry’s economic situation is worsening, partly due to inflation-targeted gasoline price regulations that undermine ethanol economics. In the EU, ongoing controversy about the sustainability of biofuels has led to a proposed cap on conventional biofuel use that is leaving the industry in limbo until a final decision on the proposal is taken.”
The IEA is particularly concerned that even support for advanced biofuels (which do not use food crops as feedstock) appears to be on the wane. “There is a great deal of advanced biofuels potential. At the same time we see a lack of long-term policy support. For the sake of sustainability we need widespread implementation of advanced biofuels”, said Maria van der Hoeven.
This fuel tank too is not nearly half full.