14 Trends That Drove Change In RE Within 2023: IEA Analysis

The International Energy Agency (IEA) reviews 14 major trends that shaped 2023 and predicts future changes for energy sector in 2024.

1. 2023 Witnessed Change In Renewable Capacity Additions, driven by China’s solar PV market

According to IEA , the global annual renewable capacity addition was expected to increase by almost 50% to nearly 510 gigawatts (GW) in 2023. This is reported to be the fastest growth rate in the past two decades.

It claims, with this, 2023 becomes the 22nd year in a row that renewable capacity additions set a new record. Some states with major increase in renewable capacity were, Europe, the United States and Brazil which hit all-time highs.

It estimates, China remained at the forefront with commission as much solar PV as the entire world did in 2022. Within the energy mix, while wind additions grew by 66% year-on-year, globally, solar PV alone accounted for three-quarters of renewable capacity additions worldwide.

2. Policy Implementation Becomes Key To Achieving the COP28, Tripling Global Renewable Capacity Target By 2030

The IEA report mentioned, “Under existing policies and market conditions, global renewable capacity is forecast to reach 7 300 GW by 2028. This growth trajectory would see global capacity increase to 2.5 times its current level by 2030, falling short of the tripling goal.”

 

For governments to close the gap and to reach over 11 000 GW by 2030 it needs to overcome current challenges that falls under four main categories and differ by country:

1) policy uncertainties and delayed policy responses to the new macroeconomic environment.

2) insufficient investment in grid infrastructure preventing faster expansion of renewables.

3) cumbersome administrative barriers and permitting procedures and social acceptance issues.

4) Insufficient financing in emerging and developing economies. This report’s accelerated case shows that addressing those challenges can lead to almost 21% higher growth of renewables, pushing the world towards being on track to meet the global tripling pledge.

 

3. The Global Power Mix Will Be Transformed By 2028

Evaluating the changes in the global power mix, the report states, “The world is on course to add more renewable capacity in the next five years than has been installed. Since the first commercial renewable energy power plant was built more than 100 years ago, almost 3 700 GW of new renewable capacity comes online over the 2023-2028 period. It’s driven by supportive policies in more than 130 countries. The report finds, the solar PV and wind will account for 95% of global renewable expansion, benefiting from lower generation costs than both fossil and non-fossil fuel alternatives.”

 

It predicts, “In 2024, wind and solar PV together generate more electricity than hydropower. In 2025, renewables surpass coal to become the largest source of electricity generation. Wind and solar PV each surpass nuclear electricity generation in 2025 and 2026 respectively. In 2028, renewable energy sources account for over 42% of global electricity generation, with the share of wind and solar PV doubling to 25%.”

4. China Becomes One Of The Major Renewables Powerhouse

Analyzing the case of China, IEA report finds, ” China accounts for almost 60% of new renewable capacity expected to become operational globally by 2028. Our forecast shows that China is expected to reach its national 2030 target for wind and solar PV installations this year, six years ahead of schedule.”

It adds, “China’s role is critical in reaching the global goal of tripling renewables and at the end of the forecast period, almost half of China’s electricity generation will come from renewable energy sources.”

5. The US, the EU, India and Brazil Remained Bright Spots For Onshore Wind And Solar PV Growth

The report predicts positive growth for solar PV and onshore wind additions through 2028, and it’s expected to more than double. It specifically predicts upwards growth for the United States, the European Union, India and Brazil compared with the last five years.

It accredits the growth to, supportive policy environments, “solar PV and onshore wind are the primary drivers behind this acceleration, in the European Union and Brazil, growth in rooftop solar PV is expected to outpace large-scale plants as residential and commercial consumers seek to reduce their electricity bills amid higher prices.”

“In the United States, the Inflation Reduction Act has acted as a catalyst for accelerated additions despite supply chain issues and trade concerns in the near term. In India, an expedited auction schedule for utility-scale onshore wind and solar PV along with improved financial health of distribution companies is expected to deliver accelerated growth.”

Moreover, it found, “In Middle East and North Africa, although renewable capacity growth picks up in sub-Saharan Africa, the region still underperforms considering its resource potential and electrification needs.”

6. Solar PV Prices Plummet Amid Growing Supply Glut

IEA reports, that in 2023, spot prices for solar PV modules declined by almost 50% year-on year, with manufacturing capacity reaching three times 2021 levels.

It mentioned in its report, “The current manufacturing capacity under construction indicates that the global supply of solar PV will reach 1 100 GW at the end of 2024, with potential output expected to be three times the current forecast for demand. Despite unprecedented PV manufacturing expansion in the United States and India driven by policy support, China is expected to maintain its 80-95% share of global supply chains (depending on the manufacturing segment).”

Although developing domestic PV manufacturing will increase the security of supply and bring economic benefits to local communities, replacing imports with more expensive production in the United States, India and the European Union will increase the cost of overall PV deployment in these markets.

7. Onshore Wind And Solar PV Are Cheaper Than Both New And Existing Fossil Fuel Plants.

In 2023, an estimated 96% of newly installed, utility-scale solar PV and onshore wind capacity had lower generation costs than new coal and natural gas plants.

In addition, three-quarters of new wind and solar PV plants offered cheaper power than existing fossil fuel facilities. It’s expected that carbon capture (CC) 4.0. is estimated to become more cost-competitive during the forecast period. The overall competitiveness of onshore wind and solar PV changes is expected to change slightly by 2028 in Europe, China, India and the United States.

8. The New Macroeconomic Environment Presents Further Challenges That Policy Makers Need To Address

In 2023, new renewable energy capacity financed in advanced economies was exposed to higher base interest rates than in China and the global average for the first time. Since 2022, central bank base interest rates have increased from below 1% to almost 5%. Emerging and developing economies, renewables developers have been exposed to higher interest rates since 2021 which impact government and industry.

Some key trends are, First, inflation has increased equipment costs for onshore and offshore wind and partly for solar PV (excluding module costs). Second, higher interest rates are increasing the financing costs of capital-intensive variable renewable technologies. Third, policy has been relatively slow to adjust to the new macroeconomic environment due in part to expectations that cost reductions would continue together with permitting challenges. 

9. The Forecast For Wind Capacity Additions Is Less Optimistic Outside China, Especially For Offshore

The wind industry, especially in Europe and North America is facing challenges due to a combination of ongoing supply chain disruptions, higher costs and long permitting timelines.

As a result of these challenges, the forecast for onshore wind outside of China has been revised downwards due to slowdown in project development than expected. Offshore wind has been hit hardest by the new macroeconomic environment, and for 2028, it’s estimates are revised down by 15% outside China. The challenges affect offshore wind, with investment costs today more than 20% higher than only a few years ago.

In 2023, developers have cancelled or postponed 15 GW of offshore wind projects in the United States and the United Kingdom. For some developers, pricing for previously awarded capacity does not reflect the increased costs facing project development today, which reduces project bankability.

10. Faster Deployment Of Variable Renewables (VRE) Increases Integration And Infrastructure Challenges

The share of solar PV and wind in global electricity generation is forecast to double to 25% in 2028. In the European Union, annual variable renewables penetration in 2028 is expected to reach more than 50% in seven countries. Denmark is expected to have around 90% of wind and solar PV in its electricity system by that time.

The EU interconnections that help to integrate solar PV and wind generation, grid bottlenecks will pose significant challenges and lead to increased curtailment. Many countries as grid expansion cannot keep pace with accelerated installation of variable renewables.

11. Current Hydrogen Plans And Implementation Don’t Match Renewable power capacity.

The hydrogen-based fuel production is forecast to grow by 45 GW between 2023 and 2028, representing only an estimated 7% of announced project capacity for the period. Whereas, China, Saudi Arabia and the United States account for more than 75% of renewable capacity for hydrogen production by 2028.

Moreover, the progress in planned projects has been slow. The forecast has been revised down our forecasts for all regions except China. This is due to slowdown in the planned projects, due to lack of offtakes in the final investment decisions which resulted in higher production costs. The development of an international hydrogen market is a key uncertainty affecting the forecast, particularly for markets that have limited domestic demand for hydrogen.

12. Biofuel deployment is accelerating and diversifying more into renewable diesel and Bioject Fuel

Among emerging economies, Brazil, dominate global biofuel expansion, which is set to grow 30% faster than over the last five years. Emerging economies are forecast to drive 70% of global biofuel demand growth over the forecast period. Brazil alone accounts for 40% of biofuel expansion to 2028.

They are mostly used in the road transport sector remain the primary source of new supply, accounting for nearly 90% of the expansion. Whereas, in Electric vehicles (EVs) biofuels are proving to be a powerful complementary combination for reducing oil demand.

Globally, biofuels and renewable electricity used in EVs are forecast to offset 4 million barrels of oil-equivalent per day by 2028, which is more than 7% of forecast oil demand for transport. Biofuels remain the dominant pathway for avoiding oil demand in the diesel and jet fuel segments. EVs outpace biofuels in the gasoline segment, especially in the United States, Europe and China.

13. Aligning biofuels with a net zero pathway requires a huge increase in the pace of deployment.

This report’s main case forecast is not in line with the near tripling of biofuels demand by 2030 seen in the IEA’s Net Zero Emissions by 2050 (NZE) Scenario.

Aviation Sector – The NZE Scenario would require 8% of fuel supply coming from bio-jet fuel by 2030, while existing policies in this forecast will only bring bio-jet fuel’s share to 1% by 2028. An accelerated case, biofuel supply growth is nearly triple that of the main case, closing the gap with the NZE Scenario by nearly 40%.

Nearly half of this additional growth, almost 30 billion liters, is driven by strengthened policies in existing markets such as the United States, Europe and India. Another 20 billion liters comes mainly from biodiesel in India and ethanol in Indonesia. Bio-jet fuel offers a third growth avenue, expanding to cover nearly 3.5% of global aviation fuels, up from 1% in the main case. Fuels made from waste and residues also grow four times faster in the accelerated case.

14. Renewable Heat Accelerates Amid High Energy Prices And Policy Momentum – But Not Enough To Curb Emissions

Modern renewable heat consumption expands by 40% globally during the outlook period, rising from 13% to 17% of total heat consumption. These developments come from increased adoption of heat pumps in non-energy-intensive industries – and the deployment of electric heat pumps and boilers in buildings, increasingly powered by renewable electricity.

China, the European Union and the United States lead these trends, owing to supportive policy environments; updated targets in the European Union and China; strong financial incentives in many markets; the adoption of renewable heat obligations; and fossil fuel bans in the buildings sector.

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