System integration becomes increasingly important
Wind and solar together will represent more than 80% of global renewable capacity growth in the next five years. By 2022, Denmark is expected to be the world leader, with 70% of its electricity generation coming from variable renewables.
In some European countries (Ireland, Germany and the United Kingdom), the share of wind and solar in total generation will exceed 25%. In China, India and Brazil, the share of variable generation is expected to double to over 10% in just five years. These trends have important implications going forward. Without a simultaneous increase in system flexibility (grid reinforcement and interconnections, storage, demand-side response and other flexible supply), variable renewables are more exposed to the risk of losing system value at increasing shares of market penetration since wholesale prices are depressed precisely when wind and solar production exceeds demand.
Market and policy frameworks need to evolve in order to cope simultaneously with multiple objectives, including providing long-term price signals to attract investment, ensuring efficient short-term electricity dispatching, pricing negative externalities and unlocking sufficient levels of flexibility as well as fostering a portfolio of dispatchable renewable technologies, including hydropower, bioenergy, geothermal and CSP.
Renewable generation closes the gap with coal
By 2022, global renewables electricity generation is expected to grow by over one-third to over 8 000 terrawatts per hour, equal to the total power consumption of China, India and Germany combined. As a result, the share of renewables in power generation will reach 30% in 2022, up from 24% in 2016.
In the next five years, growth in renewable generation will be twice as large as that of gas and coal combined. While coal remains the largest source of electricity generation in 2022, renewables halve their gap with coal, down to 17% in 2022. Despite slower capacity growth, hydropower will remain the largest source of renewable electricity generation in our forecast, followed by wind, solar PV and bioenergy.
Renewable policies are spurring more competition
Renewable policies in many countries are moving from government-set tariffs to competitive auctions with long-term power purchase agreements (PPAs) for utility-scale projects. Increased competition has allowed reducing remuneration levels for solar PV and wind projects by 30-40% in just two years in some key countries such as India, Germany and Turkey.
This competitive price discovery mechanism through tenders has squeezed costs along the entire value chain, thus becoming a more cost-effective policy option for governments. Auctions can also allow a better control of deployment, total incentives, and system integration aspects. Almost half of renewable electricity capacity expansion over 2017-22 is expected to be driven by competitive auctions with PPAs, compared to just over 20% in 2016.
Auction prices continue to fall
Announced auction prices for wind and solar have continued to fall although average generation costs of new-built projects remain higher. Over the period 2017-22 global average generation costs are estimated to further decline by a quarter for utility-scale solar PV; by almost 15% for onshore wind; and by a third for offshore wind.
Still, these average costs for solar PV remain relatively high because of high FITs in China and Japan as well as relatively elevated investment costs in the United States. Meanwhile, announced auction prices indicate much steeper possible cost reductions, ranging from $30-45/MWh for solar PV (India, Mexico, United Arab Emirates, Argentina) to $35-50/MWh for onshore wind (India, Morocco, Egypt, Turkey, Chile).
Auctions are also proving effective in rapidly reducing costs of offshore wind and CSP. While auction announcements (in terms of both volumes and prices) need to be verified over time, they suggest that expanding competitive pricing could result in even lower average costs in coming years.
Renewable transport and heat
Surging EVs to complement biofuels in renewable transport
The share of renewables in road transport is expected to increase only marginally, from over 4% in 2016 to 4.5% in 2022. Despite strongly rising sales, the share of EVs remains limited, and biofuels are still expected to represent over 90% of total renewable energy consumption in road transport by 2022. Biofuels production is expected to grow by over 16% during over the forecast period.
Asia leads this growth due to the rising demand for transport fuel, the availability of feedstocks, and supportive government policies. Brazil makes a key contribution as a result of its efforts to increase sustainable biofuels consumption in line with its national target for 2030. In the United States, ethanol and biodiesel production also expands as a result of supportive policy frameworks. Modest growth is expected in the European Union given that the policy landscape after 2020 is not expected to encourage industry investment.
Advanced biofuels (such as cellulosic ethanol) have made important progress in recent years but are not yet competitive with petroleum products. Production is expected to almost quadruple from a low base, which is still just over 1% of total biofuels production.
With a more favourable market and policy landscape, biofuel production could be 13% higher. For the first time, Renewables 2017 looks at an accelerated case forecast for biofuels that assumes additional investment in new production capacity in Brazil; scaling up fuel distribution infrastructure in the United States; and roll-out of a blending programme in India. Still, in this accelerated case, the share of biofuels in road transport fuel demand would only reach 5% by 2022.
The share of EVs in renewable transport remains limited
Renewables account for 30% of electricity consumption of EVs by 2022, up from 26% today. Globally, electricity consumed by EVs – including cars, two- and-three wheelers, and buses – is expected to double by 2022 but will still account for less than 1% of total electricity generation.
This trend is mostly driven by the rapid growth of two- and three-wheelers in China but also results from electric cars in European markets with high shares of renewable generation. The United States represents over one-fifth of global electricity consumption in cars, but the estimated consumption of renewable electricity is expected to be smaller than in China and Europe as a result of the lower share of renewables in the electricity mix.
Renewable heat grows by a quarter
Heat used for water and space heating in buildings and for industrial processes represents almost 40% of global energy-related CO2 emissions; therefore, decarbonising heat remains an important challenge. The share of renewables in heat consumption increases slowly, from 9% in 2015 to almost 11% in 2022.
The building sector is expected to lead the growth in renewable heat consumption, with the fastest growth in this sector seen in China, the European Union and North America. In industry, China and India see a significant growth in renewable heat consumption.
In terms of sources, bioenergy will lead renewable heat consumption growth over the outlook period, followed by renewable electricity for heat. Global solar thermal energy consumption is also expected to increase by over a third, although growth is forecast to be slower than in previous years.
China alone provides over a third of overall renewable heat growth over the outlook period, driven by strengthened targets for solar thermal, bioenergy and geothermal as well as by increasing concerns over air pollution in cities. The European Union is the second-largest growth market as a result of the binding targets of the Renewable Energy Directive, and it remains the global leader in terms of absolute renewable heat consumption.
Credits: Renewables 2017, IEA
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