Renewables are again set to break global records in 2022, with 320 GW of new capacity forecast to come online and new solar projects in China and Europe driving growth.
The expansion comes despite rising costs and bottlenecks across the global supply chain, the International Energy Agency (IEA) said in its latest Renewable Energy Market Update.
The 320 GW of capacity additions is 8% higher than 2021 additions of 295 GW and is equivalent to the European Union’s total electricity generation from natural gas, and indeed to Germany’s total power demand.
The IEA forecast in its report that solar would account for 60% of green growth in 2022, followed by wind and hydropower.
However, growth could flatten and remain constant in 2023, as the IEA expects hydro growth to fall and wind expansion to remain steady.
Strong policy support from governments in China, the European Union and Latin America have caused the rapid growth so far in 2022, which the IEA said was much faster than initially anticipated.
The largest growth is in China, the EU & Latin America, which have compensating for slower than anticipated growth in the US.
The US outlook is clouded by uncertainty over new incentives for wind and solar and by trade actions against solar PV imports from China and Southeast Asia.
Meanwhile, in the EU growth is expected to beat the 2021 total of 36 GW. The IEA welcomed this as new capacity commissioned for 2022 and 2023 has the potential to significantly reduce the EU’s dependence on Russian gas in the power sector.
However, the actual contribution will depend on the success of parallel energy efficiency measures to keep the region’s energy demand in check.
“Cutting red tape, accelerating permitting and providing the right incentives for faster deployment of renewables are some of the most important actions governments can take to address today’s energy security and market challenges, while keeping alive the possibility of reaching our international climate goals,” said IEA Executive Director Fatih Birol.
Forecast new additions will rise by 8% to 320 GW in 2021, compared with 6% growth in 2021 to 295 GW. Moreover, growth will have effectively doubled in three years from about 150 GW in 2019 to 320 GW in 2022.
Crucially, 2021 additions of 295 GW were higher than the IEA’s year-ago forecast of 288.9 GW, demonstrating that green growth in 2021 had been higher than expected.
Region by region
China accounted for 46% of worldwide renewable capacity additions, demonstrating just how much the renewables industry is dependent on China. Indeed, Chinese capacity additions actually fell by 2% year on year, with onshore wind and utility-scale solar PV installations 55% and 22% lower than the record boom cycle levels in 2020.
On the other hand, offshore wind, residential solar PV and bioenergy annual additions broke new records thanks to the availability of subsidies throughout 2021. For instance, offshore wind new installations increased almost six-fold in 2021 compared to 2020.
This slower growth in China cancelled out faster growth in the Europe and Latin America and flat growth in the US, effectively pulling down global growth rates.
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.
Latin American additions reached 18.8 GW, up from 9.6 GW in 2020.
In Africa, renewable capacity additions resumed growth with the commissioning of previously awarded wind and solar PV projects in South Africa. Across Africa and the Middle East, additions reached 7.4 GW in 2021, up from 3.8 GW in 2022 but down from 8.5 GW in 2019.
2022 and beyond
Looking ahead, solar PV and wind costs are anticipated to remain higher in 2022 and 2023 than pre-pandemic levels owing to elevated commodity and freight prices.
However, their competitiveness will actually improve due to much sharper increases in natural gas and coal prices.
Solar PV is forecast to account for 60% of the increase in global renewable capacity in 2022, with the commissioning of 190 GW, a 25% gain on 2021.
Utility-scale projects will account for almost two-thirds of overall PV expansion in 2022, mostly driven by a strong policy environment in China and the European Union pushing for faster deployment.
In the wind sector, the picture is more complex, with onshore and offshore showing contrasting dynamics.
Following a 32% y/y decline in 2021, new global onshore wind installations are expected to slightly recover and reach almost 80 GW. Offshore wind growth worldwide is predicted to decline 40% in 2022 following the exceptional four-fold jump last year in China due to the national subsidy phase-out deadline. Despite this decline, 2022 global offshore wind capacity additions will still double compared to 2020, thanks to the continuation of provincial incentives in China and the expansion in the European Union. As a result, China is expected to have the largest cumulative installed offshore wind capacity globally and surpass the EU and UK combined by the end of this year.
In the Middle East and Africa, the push for solar PV drives annual capacity additions. Falling system costs, good resource potential, favourable financing conditions and economies of scale make solar PV projects in the Middle East economically attractive. In sub-Saharan Africa, government guarantees or backing from development banks for utility-scale solar PV, wind and hydropower projects are fuelling growth.
Yet the main worry is that total growth is expected to plateau in 2023 unless new policies are implemented rapidly, because solar PV expansion cannot fully compensate for lower hydropower and steady y/y wind additions.
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.
It is too early to assess the potential impact on forecasts for 2022 and 2023 of the Russian invasion of Ukraine. The report said that the implementation any new policies by government to boost renewables in response to the war has been too slow.
The report did say that the war in Ukrainian had reduced the IEA’s forecast for biofuel demand. Increasing feedstock prices pushed the IEA to revise downwards by 20% its biofuel demand growth forecasts, which now stand at 5% in 2022 and 3% in 2023.
Put simply, Russia’s invasion of Ukraine is putting upward pressure on an already high-price environment for biofuel feedstocks, in particular vegetable oils.
The IEA estimated that 100-200 TWh of European Union natural gas-based electricity is provided by Russia. On the other hand, growth in renewable electricity generation is forecast at 180 TWh from 2021-2023, almost equal to the highest value of Russia dependent gas-fired generation.
This means that with current deployment trends, wind and solar PV expansion in the EU has the potential to reduce the dependence on Russian gas use in electricity significantly.
However, this is not enough to reduce reliance on Russian gas, and Europe will also need to invest in energy-efficiency measures to keep demand in check and to continue phase-out or phase-down policies for coal and nuclear energy in several EU member states.
While the report is positive for continued growth, there was a strong cost warning, which could threaten to hold back green growth and will require careful government policies to maintain momentum.
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 had more than quadrupled, steel increased by 50%, copper had risen by 70%, aluminium doubled and freight costs climbed 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.
On the other hand, the rising costs of fossil fuels and electricity have increased at a much faster pace since the last quarter of 2021, meaning that renewables can maintain competitiveness despite rising costs.
Even the highest-priced onshore wind and utility scale contracts signed over the last five years are half of the average wholesale prices seen today in the European Union. For newly contracted projects, despite cost increases, onshore wind and solar PV ventures are offering long-term contracts significantly lower than wholesale price averages over the last six months.