IEA Warns That Policy Uncertainty Threatens Momentum Of Renewables

The global expansion of renewable energy will slow over the next five years unless policy uncertainty is diminished, warns the International Energy Agency (IEA).

In its third annual Medium-Term Renewable Energy Market Report, the IEA says power generation from renewable sources such as wind, solar and hydro grew strongly in 2013, reaching almost 22% of global generation, and was on par with electricity from gas, whose generation remained relatively stable.

Global renewable generation is seen rising by 45% and making up nearly 26% of global electricity generation by 2020. However, the report says annual growth in new renewable power is seen slowing and stabilizing after 2014, putting renewables at risk of falling short of the absolute generation levels needed to meet global climate change objectives.

"Renewables are a necessary part of energy security. However, just when they are becoming a cost-competitive option in an increasing number of cases, policy and regulatory uncertainty is rising in some key markets. This stems from concerns about the costs of deploying renewables," explains IEA Executive Director Maria van der Hoeven.

"Governments must distinguish more clearly between the past, present and future, as costs are falling over time," she adds. "Many renewables no longer need high incentive levels. Rather, given their capital-intensive nature, renewables require a market context that assures a reasonable and predictable return for investors. This calls for a serious reflection on market design needed to achieve a more sustainable world energy mix."

The report highlights policy and market risks that threaten to slow deployment momentum. For example, in many non-Organization for Economic Cooperation and Development (OECD) markets including China, constraints include non-economic barriers, an absence of needed grid integration measures, and the cost and availability of financing. In the European Union (EU), meanwhile, the report says uncertainties remain over the precise nature of the post-2020 renewable policy framework and the build-out of a pan-European grid to facilitate the integration of variable renewables.

The annual report also provides a renewable power investment outlook for the first time. Through 2020, the IEA foresees investment in new renewable power capacity averaging over $230 billion annually. That is lower than the approximately $250 billion invested in 2013.

According to the report, the decline is due to expectations that both unit investment costs for some technologies will fall and that global capacity growth will slow. With decreasing costs, competitive opportunities are expanding for some renewables under some country-specific conditions and policy frameworks. For example, in Brazil, with good resources and financing conditions, onshore wind has continued to outbid new-build natural gas plants in auctions. In northern Chile, high wholesale electricity prices and high irradiation levels have opened a new unsubsidized solar market.

The report says the roles of biofuels for transport and renewable heat are also increasing, though at slower rates than renewable electricity. Uncertainty over policy support for biofuels is rising in the EU and the U.S., slowing expectations for production growth and threatening the development of the advanced biofuels industry at a time when the first commercial plants are just coming online.

The annual report also highlights the potential energy security implications of energy use for heat, which accounts for more than half of world final energy consumption and is dominated by fossil fuels. But the contribution of renewables to meet heating and cooling needs remains underdeveloped, with more limited policy frameworks compared with the electricity and transport sectors. The report says that although modern renewable energy sources are expected to grow by almost 25% to 2020, their share in energy use for heat rises to only 9%, up from 8% in 2013.

More information about the IEA report can be found here.

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