IEA predicts strong renewables growth globally, falling costs
The International Energy Agency (IEA) expects renewables to be the largest source of new power capacity additions globally through 2020, thanks to continued reductions in costs for wind and solar energy. IEA’s Renewable Energy Medium-Term Market Report forecasts the global addition of approximately 825,000 megawatts (MW) of renewable energy capacity by 2020, a 42 percent increase from 2013 levels. These additions will help increase the renewable share of generation (including hydropower) to 26 percent, or the equivalent of the total combined electricity consumption in China, India, and Brazil.
Building on historical leadership in renewable energy deployment, the United States and China are expected to account for roughly half – 107 gigawatts (GW) and 305 GW, respectively – of the new renewable power capacity. More importantly, IEA expects countries belonging to the Organization of Economic Cooperation and Development (OECD), including the European Union and the United States, to rely almost exclusively on renewables for power additions going forward, even considering persistently low natural gas prices.
Outside the OECD, developing countries such as Brazil, China, and India will increasing rely on renewables for their power requirements, though fossil fuels will also continue to play a prominent role. For many developing countries, the IEA hints that cheap renewable energy provides tremendous leapfrog opportunity to drive robust economic development. Affordable wind and solar resources in many part of Sub-Sahara Africa can meaningfully increase access to electricity in rural areas, while enhancing grid reliability in cities.
Rapidly falling renewable energy costs are the driving force behind IEA’s strong renewable energy forecast. IEA notes land-based wind power is consistently the cheapest renewable resource around the world. Nowhere is that more true than in the United States, which along with Brazil, Egypt, and South Africa, has the cheapest wind energy in the world. The IEA map below shows recent long-term power purchase agreement contracts for wind and solar power in selected countries, excluding the impact of policy incentives.
Renewable energy costs expected to continue falling
Over the next five years, IEA projects wind generation costs to decrease 10 percent, on average, while solar costs will fall 25 percent. These findings confirm similar estimates from wind energy experts compiled as part of another IEA effort. The recent study published in Nature Energy and led by a team of researchers from Lawrence Berkeley National Laboratory (LBNL) and the National Renewable Energy Laboratory (NREL) surveyed 163 wind industry experts to gather a consensus outlook for wind energy cost reductions and technology improvements. The conclusion: technology improvements and innovations are expected to decrease land-based wind costs 10 percent by 2020 and 24 percent by 2030. The chart below summarizes the cost reductions and key drivers.
Among the key drivers of wind cost decreases, capital cost reductions and wind turbine performance improvements are expected to have the biggest impact. Wind turbine manufacturers are working to deliver larger wind turbines with more durable components at the same or lower cost per megawatt seen in today’s market. Further, these turbines are increasingly placed on top of taller towers – allowing them to access better wind resources – and fitted with larger blades – allowing the turbine to capture more wind and produce more electricity.
Long-term policy signals a must
While IEA’s projections are encouraging, the report also noted there is substantial opportunity for renewable growth to accelerate, provided clearer policy signals and market access reform. IEA analyzed an accelerated case projection that assumed policies to drive the retirement of older, more polluting power plants and market reform in developing countries. Under this case, IEA estimates annual renewable investments could surpass $315 billion by 2020. The report notes that, for the United States, that primarily means full implementation of the EPA’s Clean Power Plan.