Renewable energy installations soared in 2020, defying the pandemic-induced downturn that hit just about all other energy industries.
But solar and wind are expected to continue to grow at an explosive rate, a trend that is to become the “new normal,” according to a new report from the International Energy Agency (IEA).
A huge year for solar and wind
Renewable energy installations grew by 45 percent in 2020 to 280 gigawatts (GW), the largest annual increase in over two decades. The expansion was all the more impressive due to the unprecedented shock to financial and energy markets from the global pandemic.
The IEA said that “exceptionally high” new capacity additions will become the “new normal.” In 2021 and 2022, renewables will capture 90 percent of all new power plant additions worldwide.
Notably, the agency said that it expects to world to add 270 GW of new renewables this year, and another 280 GW next year – an upward revision of 25 percent compared to a previous forecast.
“Wind and solar power are giving us more reasons to be optimistic about our climate goals as they break record after record,” said IEA executive director Fatih Birol.
In 2020, wind added 114 GW around the world, growth that was 90 percent higher than the year before.
Solar PV is expected to add 162 GW annually in 2022, roughly 50 percent higher than the pre-pandemic pace set in 2019.
Even if China’s renewables sector decelerates a bit, the rest of the world picks up the pace.
The IEA said that China, which helped drive rapid growth in renewables, will tap on the brakes somewhat. Developers had rushed to take advantage of subsidy phaseouts, helping to add to the recent capacity additions. But even if China’s renewables sector decelerates a bit, the rest of the world picks up the pace, according to the IEA.
The U.S. also saw developers rush to take advantage of expiring tax credits (which were ultimately extended). A much more important policy signal going forward will likely come from the proposed infrastructure package currently under debate in the U.S. Congress.
Policy support, cost declines
The ongoing progress from renewable energy poses threats to fossil fuels. Wind and solar are now the cheapest form of electricity in most of the world today. Costs are expected to continue to decline, so the economic contest between fossil fuels and renewables is essentially over. Now the only question that remains is how face the transition will be.
Coal has suffered a rapid decline in the U.S. and Europe for much of the past decade, a trend that will no doubt continue, if not accelerate.
But a reckoning could be coming for natural gas sooner than most people think. “In some mature markets in Europe, North America and parts of Asia, natural gas is facing existential questions, particularly following announcements of net zero targets,” the authors of the IEA’s World Energy Outlook told Reuters.
Coal plants will continue “to retire in waves.”
The European Union is implementing policies to cut emissions by 55 percent by 2030 from a 1990 baseline. Carbon prices on the emissions trading system have soared above 50 euros per ton, a record high and nearly double the prices from six months ago. Coal plants will continue “to retire in waves,” with 45 GW of retirements scheduled through 2025, Bank of America Merrill Lynch said in a note to clients. That will result in 16 EU nations becoming coal-free by the middle of the decade.
“[T]he ramp up of renewables (wind and solar) should make up for any coal generation vacancies in the stack with nearly 500 GW of wind and solar expected over the next decade,” Bank of America wrote.
But the investment bank said coal was not alone. “Coal generation is the low hanging fruit, but natural gas is not immune with demand impacts increasing later this decade.” The bank sees renewables contributing to an 8 percent decline in gas consumption in Europe by 2030.
Seeing the writing on the wall, some European utilities are changing their investment decisions today. According to Reuters, roughly 30 billion euros’ worth of natural gas projects have been cancelled or delayed.
Policy will also continue to tighten. The European Investment Bank will exclude gas and coal financing. “To put it mildly, gas is over…Without the end to the use of unabated fossil fuels, we will not be able to reach the climate targets,” the president of the EIB president said in January.
A similar story is unfolding in the U.S., where renewables continue to grow, coal plants are shuttering, and gas maintains a strong grip but is no longer growing like it has been in years past. Non-hydro renewables’ share of the U.S. electricity market is set to rise to 12 percent this summer, a 10 percent increase from last year. Coal is expected to see a short-term rebound at gas’ expense, a dynamic that is possible in the U.S. due to a lack of carbon pricing compared to Europe. But in the long run, coal is expected to continue to decline rapidly, and gas’ future faces hurdles from cheap renewables.
Wind installations were up 40 percent in the first three months of the year, compared to the same period in 2020, according to new data from the American Clean Power Association (ACP). Wind added 2,500 megawatts and solar added 1,200 megawatts – the strongest first quarter on record.
“These numbers add up to one word: momentum. We are already exceeding the pace from the strongest previous year ever for clean power,” said Heather Zichal, ACP CEO. “This trend will only grow when more closely aligned with smart policy in Washington.”