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A record volume of renewable energy is expected to come online in 2021, with 290 gigawatts of new capacity. That surpasses 2020’s record, when renewables accounted for all of the new electricity capacity installed worldwide.
Renewables have grown quickly in recent years, but are now entering a faster phase of growth, and could supplant fossil fuels as the largest source of electricity supply overall as soon as 2026. Nevertheless, the pace of growth is not fast enough to hit climate targets.
Solar and wind dominate new growth
Renewable energy is already the cheapest form of new power generation in most places in the world, and as a result solar and wind are capturing an overwhelming share of the electricity sector’s growth. When utilities want to build new electricity generation and are faced with a choice of what kind of power plant to build, at this point the decision is an easy one. Last year renewables accounted for all of the net growth as coal, natural gas and nuclear power shrank.
The surge in energy prices in 2021 will magnify this divergence. Combined with a steady ratcheting up of climate policies, the clean energy transition is poised to accelerate, according to a new report from the International Energy Agency.
“This year’s record renewable electricity additions of 290 gigawatts are yet another sign that a new global energy economy is emerging,” said IEA Executive Director Fatih Birol. “The high commodity and energy prices we are seeing today pose new challenges for the renewable industry, but elevated fossil fuel prices also make renewables even more competitive.”
The agency says that between 2020 and 2026, renewables will grow by another 60 percent to over 4,800 gigawatts, which is roughly the size of the capacity of all fossil fuel and nuclear power plants combined. Over the next five years, renewables will capture 95 percent of the growth in the electricity sector.
The U.S. is on track to install over 200 GW of new capacity, which is a 35 percent upward revision from the IEA’s previous forecast. The reasons for the faster outlook can be attributed to falling costs, strong corporate demand for clean energy, an extension of key federal tax credits at the end of last year, and the emergence of a nascent offshore wind industry. The U.S., nevertheless, remains behind Europe and China.
But this is not just a story about rich countries deploying renewables while developing countries rely on coal and gas-fired power generation. Renewables are favored nearly everywhere. The IEA says that China will account for the largest capacity, while India will take the top spot in terms of the speed of growth, with renewables doubling over the next five years.
“The growth of renewables in India is outstanding, supporting the government’s newly announced goal of reaching 500 GW of renewable power capacity by 2030 and highlighting India’s broader potential to accelerate its clean energy transition,” Birol said. “China continues to demonstrate its clean energy strengths, with the expansion of renewables suggesting the country could well achieve a peak in its CO2 emissions well before 2030.”
The outlook is not entirely rosy for renewables. The global increase in commodity prices and the uptick in inflation have not spared solar and wind. Costs are edging up as the prices of inputs such as steel and aluminum rise, although those increasing costs are also hitting the oil and gas industry.
Not going fast enough
Despite the explosive growth and the promising outlook, the displacement of fossil fuels by clean energy is not unfolding fast enough. Relative to the current trajectory, the IEA said that the pace of growth for renewables would need to double if the world is to get on a net-zero pathway by mid-century.
The U.S. has the chance to push renewable energy into a higher gear with the Build Back Better Act, which has $550 billion in funding for solar, wind, electric vehicles and other energy and climate programs.
There are several main barriers to faster growth, the report said, and cost isn’t the main problem. In advanced economies, the complexity of permitting new projects and connecting them to the electric grid is a major hurdle. Meanwhile, in emerging economies, “stop-and-go policies, the lack of grid availability and risks concerning off-takers’ financial health are hurting investor confidence,” the agency wrote.
If governments addressed these issues, the growth of renewables between now and 2026 could be one-quarter larger.
At the same time, the rapid growth of renewables is only part of the equation. The U.S., like much of the world, still has no plan on how to unwind fossil fuel supply. The growth of renewables to some extent has pushed out coal and gas, but in many cases solar and wind installations are added into the energy mix, rather than swapped in for dirty energy that is taken offline.
Nevertheless, the IEA’s report strikes a hopeful tone. In effect, the competition between fossil fuels and clean energy is already decided – renewables own the future on superior economics, before even accounting for the climate benefits of carbon-free power. The only question is how fast the transition will be.
