IEA (2022), Renewables 2022, IEA, Paris https://www.iea.org/reports/renewables-2022, Licence: CC BY 4.0
The global energy crisis is pushing the accelerator on renewable energy expansion
Global renewable capacity is expected to increase by almost 2 400 GW (almost 75%) between 2022 and 2027 in the IEA main-case forecast, equal to the entire installed power capacity of the People’s Republic of China (hereafter “China”). Renewables growth is propelled by more ambitious expansion policies in key markets, partly in response to the current energy crisis. This 85% acceleration on the last five years’ expansion rate results primarily from two factors. First, high fossil fuel and electricity prices resulting from the global energy crisis have made renewable power technologies much more economically attractive, and second, Russia’s invasion of Ukraine has caused fossil fuel importers, especially in Europe, to increasingly value the energy security benefits of renewable energy.
This year’s forecast has been revised upwards by almost 30% from last year’s despite energy market turbulence, mainly because China, Europe, the United States and India are implementing existing policies, regulatory and market reforms and new policies more quickly than expected to combat the energy crisis. China’s 14th Five-Year Plan and market reforms, the REPowerEU plan and the US Inflation Reduction Act (IRA) are the foremost policy changes since our last forecast of December 2021.
The forecast for most advanced economies is based on these countries’ ambitious targets and policy incentives, but implementation challenges remain, especially related to permitting and grid infrastructure expansion. In emerging economies, policy and regulatory uncertainties, in addition to implementation challenges, continue to be key barriers to faster renewable energy expansion. Finally, in developing countries, weak grid infrastructure and a lack of access to affordable financing hamper faster commissioning of multiple projects in our main-case forecast. Should countries address those challenges over the next 12-24 months, renewable capacity expansion under the accelerated case is demonstrated to be almost 25% higher than in the main case, producing nearly 2 950 GW in total additions globally.
Globally, the pace of renewable capacity expansion over the forecast period in the main case needs to increase 60% to be in line with the IEA Net Zero by 2050 Scenario. In the accelerated case, however, growth in the next five years (under policies that address challenges and faster implementation of countries’ existing plans) narrows the gap for renewable electricity growth needed to achieve net zero emissions by 2050.
Overall, China on its own is forecast to install almost half of new global renewable power capacity over 2022-2027, as growth accelerates in the next five years despite the phaseout of wind and solar PV subsidies. Ambitious renewable energy targets in the 14th Five-Year Plan, market reforms and strong provincial government support provide long-term revenue certainty for renewables. The main-case forecast thus expects China to reach its 2030 wind and solar PV capacity targets in 2025. However, the early achievement of 2030 targets leaves the accelerated case’s upside potential relatively limited.
The European Union, the second-largest growth market after China, has had stable renewable capacity expansion in the past five years compared with 2010-2015, but its pace of expansion is expected to more than double during 2022-2027. While several EU member countries had already introduced ambitious targets and policies to accelerate renewable energy deployment before Russia’s invasion of Ukraine, since then the European Union has proposed even more aggressive goals under the REPowerEU package to eliminate Russian fossil fuel imports by 2027. Our forecast thus expects that EU and country-level policies implemented since the beginning of the war will accelerate renewable electricity deployment.
For the EU electricity sector, expanding wind and solar PV power generation remains one of the most effective ways to reduce natural gas consumption. Steep electricity prices resulting from record-high natural gas prices continue to improve the competitiveness of utility-scale renewables with fossil fuel-based alternatives. In fact, from December 2021 to October 2022, average contract prices for long-term wind and solar PV projects were 77% below wholesale market prices. In addition, uptake of distributed solar PV applications is expanding because they can help industrial and residential customers reduce their electricity bills, which have risen significantly since the beginning of 2022.
While these drivers indicate faster expansion in the main case, forecast upside potential is still high and depends on countries resolving pre-existing deployment challenges by simplifying permitting procedures, upgrading and expanding transmission and distribution networks, and providing long-term visibility over policy support for both utility-scale and distributed projects. In fact, accelerated-case modelling shows that the European Union could install over 30% more renewable energy capacity, the largest absolute upside potential of all key countries and regions.
In the United States, renewable energy expansion almost doubles from the last five years in our main case. The IRA passed in August 2022 extended tax credits for renewables until 2032, providing unprecedented long-term visibility for wind and solar PV projects. In India, new installations are set to double over our forecast period, led by solar PV and driven by competitive auctions implemented to achieve the government’s ambitious target of 500 GW of renewable power by 2030.
In Brazil, forecast growth is based on the booming distributed PV market and the considerable pipeline of utility-scale wind and solar projects contracted through bilateral power purchase agreements outside the government-led auction scheme. Renewable energy expansion also accelerates in the Middle East and North Africa (MENA), sub-Saharan Africa, Association of Southeast Asian Nations (ASEAN) and other regions, owing mostly to policy incentives that take advantage of the cost-competitiveness of hydro, solar PV and onshore wind power.
Renewable capacity additions reach new record highs through 2027, led by solar PV and wind
Annual additions are expected to ramp up in 2022, ranging from 350 GW in the main case to 400 GW in the accelerated case, with solar PV and wind accounting for almost 90% of all new renewable energy installations. Achieving the higher level of additions this year will mostly depend on the pace of commissioning for utility-scale and distributed PV projects in China and the European Union.
Annual renewable capacity additions are forecast to increase continuously over the forecast period, reaching a record 460 GW in 2027 in the main case, 60% higher than last year’s growth. At the end of the forecast period, solar PV and wind provide the vast majority of global renewable capacity additions in 2027, accounting for nearly 95% as technology-specific challenges and limited policy support hamper faster expansion of hydropower, bioenergy, geothermal, CSP and ocean technologies.
Onshore wind additions also increase in our main-case forecast, from 74 GW in 2021 to 109 GW in 2027. This is just slightly above the record growth achieved in 2020, which was propelled by developers in China rushing to complete projects before subsidies were suspended. Onshore wind additions are climbing most quickly in countries that have stable policy frameworks providing long-term revenue certainty, policies that address permitting challenges and plans for timely grid expansion. However, just a small number of countries, including China, Germany and Spain, have so far made improvements in all three areas.
Similar to solar PV, high commodity and freight prices have led wind turbine manufacturing costs to surge in 2022 to 25-30% above the 2020 level, except in China. Achieving accelerated-case annual onshore wind additions of 145 GW in 2027 will therefore require the resolution of permitting, policy uncertainty and grid expansion concerns worldwide.
In 2022, annual offshore wind capacity additions are forecast to decline more than 30% compared with 2021 because China’s record expansion of last year will halve now that developers are no longer rushing to beat subsidy phaseouts. Still, global annual offshore wind installations are expected to increase 50% to over 30 GW in 2027, propelled by policy support in the European Union, the United States and China. Taking long lead times and existing auctions and leasing schedules into consideration, further upside potential is possible but limited. Accordingly, offshore wind capacity growth is 20% higher in the accelerated case, with China claiming the majority.
Global competitive auction capacity is expected to break another record in 2022 as a result of Chinese and EU policies
Competitive auctions remain the main driver of forecast growth, with increasing contributions from corporate PPAs, bilateral contracts and merchant activity. From January to September 2022, 77 GW of new renewable auction capacity was awarded globally, mostly in solar PV and wind. This is a 70% increase from the same period in 2021, with China and Europe accounting for three-quarters of total awarded capacity.
In China, provincial auctions have replaced national tenders and feed-in tariffs, both of which were phased out in 2020 for solar PV and onshore wind and in 2021 for offshore wind. Nine provinces held auctions in Q4 2021, while an additional 13 held auctions in Q3 of 2022. In Europe, auction volumes in the first three quarters were 60% higher than in the same period in 2021 owing to a record 11 GW of renewable capacity being awarded in the United Kingdom. Excluding the United Kingdom, auction volumes in Europe have remained stable in 2022 because France, Germany and Italy have awarded similar levels of capacity as last year. Poland and Türkiye, which awarded a combined 3.5 GW of renewable capacity last year, have not yet held auctions in the first three quarters of 2022.
Outside of China and Europe, the world awarded 26% less renewable capacity during the first three quarters of 2022. In the Asia Pacific region, India awarded 37% less capacity this year than in 2021. Similarly, auctioned volumes in Latin America were 60% lower in the first three quarters, as moderate power demand from distribution companies reduced auction volumes in Brazil, and Chile’s tender did not allocate as much capacity as expected.
In the Middle East and North Africa, in September 2022 Saudi Arabia launched a 3.3‑GW tender for wind and solar projects that has not yet been closed, but it would increase auctioned volumes in the region by more than half if announced capacity is fully allocated by the end of 2022.
Dispatchable renewables make up just 10% of forecast growth despite growing wind and PV integration challenges
Higher investment costs than for wind and solar PV, a lack of policy support and inadequate recognition of the flexibility value of hydropower, bioenergy, CSP, geothermal and ocean technologies are preventing faster uptake of dispatchable renewable power generation.
For hydropower, annual additions peaked in 2013 with the commissioning of almost 45 GW, but deployment over the forecast period is volatile, ranging from 17 GW to 33 GW according to the commissioning deadlines of large reservoir projects in China, India and Türkiye. These three large markets form the basis of our main-case forecast of 141 GW over 2022-2027, which is slightly lower than deployment achieved in the last five years. Because environmental permitting and construction times are long, the upside potential for hydropower remains limited, with only an additional 40 GW deemed possible in the accelerated case.
For bioenergy, over 60% of global capacity expansion is in China thanks to its ongoing policy support at the provincial level for waste-to-energy projects. Outside of China, Türkiye promotes bioenergy growth through feed-in tariffs and Brazil has implemented auctions.
Despite geothermal energy’s great resource potential, growth is hampered by a lack of policies to address pre-development and resource exploration risks, with anticipated expansion of less than 6 GW over 2022-2027 concentrated in Africa and Southeast Asia. For CSP, relatively high investment costs and limited support to develop storage capabilities result in an increase of almost 5 GW during the forecast period.
Solar PV claims the most installed power capacity worldwide by 2027, surpassing coal, natural gas and hydropower
Cumulative PV capacity almost triples to over 2 350 GW by 2027 in the main case, surpassing hydropower in 2024, natural gas in 2026 and coal in 2027 to become the largest installed electricity capacity worldwide. Hydropower is falling to third place in terms of installed renewable capacity due to the rapid expansion of wind.
Overall renewable electricity generation is expected to increase almost 60% to reach over 12 400 TWh, with hydropower remaining the primary source of renewable electricity generation throughout the forecast period even though its capacity expands less than that of wind and solar PV. The main-case forecast expects renewables to become the primary energy source for electricity generation globally in the next three years, overtaking coal. Renewables account for almost 40% of global electricity output in 2027, making up for declining shares of coal, natural gas and nuclear.