Defying Covid-19 and earlier projections, renewables see record growth in 2020

Renewables seem more resilient to the pandemic’s economic fallout than previously thought, with the sector seeing record new capacity additions, and green power set to be the largest source of electricity by 2025.

Renewables, IEA report
A wind energy farm. Investor appetite for renewables has remained strong despite looming economic uncertainties. Image: Shutterstock

Renewables will see steady growth around the world this year and next, defying earlier forecasts in marked contrast with the steep declines triggered by the Covid-19 crisis in the oil, gas and coal sectors, according to a new report by the International Energy Agency (IEA).

The analysis, released on Tuesday (10 November), projects green power capacity additions to rise to a record level of nearly 200 gigawatts (GW) in 2020, a global increase of 7 per cent, largely led by wind energy, hydropower and solar photovoltaic in China and the United States.

While energy demand is set to drop 5 per cent worldwide, long-term contracts, priority access to power grids and ongoing installations continue to drive strong growth, representing almost 90 per cent of this year’s total global power capacity expansion, shows the report.

It revises upwards the intergovernmental group’s previous projection published in its market update in May by 18 per cent amid a surge in development and manufacturing activities as nations ease lockdown restrictions that disrupted supply chains and project timelines earlier this year.

The IEA anticipates even bigger growth in 2021, with India poised to become the largest contributor to what is on track to be a record global expansion of nearly 10 per cent as the nation doubles its annual capacity additions relative to this year.

Driving this renewables upswing is sustained policy support, with governments in key markets—the United States, India, and some European countries—allowing developers to complete projects several months after policy or auction deadlines that originally fell at the end of 2020.

The analysis indicates investor appetite for green power remains strong despite economic uncertainties, with auctioned clean energy capacity in the first 10 months of this year 15 per cent higher than for the same period in 2019.

Meanwhile, the shares of publicly listed renewables equipment makers and project developers have been outperforming most major stock market indices and the overall energy sector in 2020, with shares of solar firms more than doubling in value from December last year.

IEA executive director Dr Fatih Birol said renewable power was braving “the difficulties caused by the pandemic”, showing “robust growth” while other fuels “struggle”.

“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,” he said.

Renewables to lead global power sector

Renewables’ resilience to the pandemic’s economic impacts stems from the fact that the fundamentals of the global renewables revolution have not changed, states the report.

Cost reductions and policy support are expected to spur growth in the coming years, with solar and onshore wind already the most cost-effective ways of adding new electricity capacity in most nations today, and solar declared the cheapest source of electricity in history in the IEA’s recent energy outlook amid a price drop of 82 per cent over the past decade alone. This challenges existing fossil fuel plants where abundant green resources and cheap financing are available.

Tim Buckley, director of energy finance studies, Australasia at the Institute for Energy Economics and Financial Analysis (IEEFA), said renewable technology improvements have lowered prices dramatically, driving down capital costs, while interest rates are at multi-decade lows, facilitating debt financing of clean energy facilities.

“The tipping point has been breached—new renewables are now decidedly cheaper than new thermal power—in enough different markets from Portugal, Arizona and India to Australia and the United Arab Emirates, and most recently in Myanmar,” he told Eco-Business.

“The fossil fuel spin of ‘our products are dirty, sure, but the poor people of the world need us as the low cost solution’ is now clearly proven to be nothing more than hollow spin,” he said.

The energy demand destruction of the pandemic has also highlighted another stranded asset risk facing thermal power plants, with coal power stations, for instance, not viable at low utilisation rates, Buckley noted.

Global financial markets have realised renewables are a safer bet than fossil fuels, whose wild price fluctuations indicated significant commodity risk even before the outbreak. “2020 has seen global capital markets stampede—the capital flight has expanded way beyond thermal coal to all fossil fuels,” he said.

Sara Ahmed, an IEEFA energy analyst, said: “The transition is being driven by renewable energy technology that disrupts incumbent industries and business models. Investor appetite grows despite Covid-19 because (financiers) are looking for profitable projects with yield opportunities.”

Overall, renewables are expected to make up 95 per cent of the net increase in global power capacity through to 2025, with total installed wind and solar photovoltaic capacity on course to surpass natural gas in 2023 and coal in 2024, according to the IEA.

“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 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.”

Want more renewables? Make policies robust

Renewables’ resilience notwithstanding, looming regulatory uncertainties are forecast to hurt the sector, with the expiry of incentives in key markets threatening to hold back clean energy deployment in 2022, the IEA predicts.

Onshore wind could see additions decline 15 per cent globally as subsidies for the industry end in China this year, and the production tax credits for onshore wind developers in the United States run out in 2021.

With adequate government backing and robust frameworks, however, global solar and wind additions could each rise by a further 25 per cent in 2022, pushing green power deployment to a record 271 GW, with China alone accounting for 30 per cent of the increase, states the report.

In particular, stimulus plans designed to prop up economies battered by the pandemic have the potential to boost the sector. But, currently, the majority of the US$470 billion in energy-related recovery packages announced by individual countries is primarily aimed at providing short-term economic relief, with only an estimated US$108 billion committed to cleaner energy.

Experts expect recently announced net-zero emissions targets in the European Union, Japan, South Korea and China as well as Joe Biden’s victory over Donald Trump in the United States presidential election to further accelerate renewables deployment, green technology innovation, and the global capital flight away from planet-heating fossil fuels.

“When all the major economies of the world have committed to net-zero targets, it’s game over for financial markets. Run for the door, before the stampede,” said Buckley.

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