The IEA Heralds an Upcoming Renewable Surge
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The IEA Heralds an Upcoming Renewable Surge

by | published October 25th, 2019

Tomorrow Marina and I fly out to London for a series of important meetings I will have on major energy market developments. I will have more on all of this from the ground next week.

In all, I have five separate sessions scheduled with market makers, large private investors, and policy folks. Initially, I had regarded one – involving major renewable energy projects for North Africa – as being more long-term in its impact.

Well, not so fast.

Earlier this week, the Paris-based International Energy Agency (IEA) issued a report on global renewable energy use for the next five years.

The overall conclusion is inescapable.

A worldwide surge to renewable use is underway.

China Leads the Way

Now, taken in perspective, non-fossil fuels will still trail crude oil, natural gas, and coal as the leading energy sources, but the alternatives are rapidly moving into the mainstream.

The IEA’s Renewables 2019 report (Read it for yourself right here) treats all forms of renewable energy.

And once again, the IEA points out a trend I have been talking about for some time: China continues to lead the world in increased renewable energy capacity.

But the emphasis in the report is on solar.

The report states that the installation of solar PV systems on homes, commercial buildings and industrial facilities is set to take off over the next five years, transforming the way electricity is generated and consumed. These applications – known collectively as distributed PV – are the focus of the report.

The report forecasts that the world’s total renewable-based power capacity will grow by 50% between 2019 and 2024. This increase of 1,200 gigawatts (GW) – equivalent to the current total power capacity in the U.S. – is driven by cost reductions and concerted government policy efforts.

Solar PV accounts for 60% of the rise. The share of renewables in global power generation is set to rise from 26 percent today to 30% in 2024.

And once again, China leads the field.

The Growth of Solar Application is Staggering

The IEA notes that expected growth comes after renewable capacity additions stalled last year for the first time in almost two decades. However, the renewed expansion remains well below what is needed to meet global sustainable energy targets.

The report also highlights the three main challenges that need to be overcome to speed up the deployment of renewables:

  • Policy and regulatory uncertainty,
  • High investment risks, and
  • System integration of wind and solar PV.

Distributed PV accounts for almost half of the growth in the overall solar PV market through 2024. Contrary to conventional wisdom, commercial and industrial applications rather than residential uses dominate, accounting for three out of every four new installations over the next five years.

This is because economies of scale combined with better alignment of PV supply and electricity demand enable more self-consumption and bigger savings on electricity bills in the commercial and industrial sectors.

Nonetheless, residential expansion is certainly not stagnating.

Solar rooftop systems for homes is set to more than double to some 100 million by 2024, with the top markets on a per capita basis that year forecast to be Australia, Belgium, California, the Netherlands, and Austria.

The cost of generating electricity from distributed solar PV systems is already below retail electricity prices in most countries. The IEA forecasts that these costs will decline by a further 15% to 35% by 2024, making the technology more attractive and spurring adoption worldwide.

However, there are some headwinds to contend with.

An Energy Balance is Required

The report warns that essential policy and tariff reforms are needed to ensure that distributed PV’s growth is sustainable. Unmanaged growth could disrupt electricity markets by raising system costs, challenging the grid integration of renewables, and reducing the revenues of network operators.

The IEA observes that by reforming retail tariffs and adapting policies, utilities and governments can attract investment in distributed PV while also securing enough revenues to pay for fixed network assets, and ensuring that the cost burden is allocated fairly among all consumers.

Now, as I have observed many times before in Oil & Energy Investor, this remains all about developing a sustainable balance among energy sources.

That also includes, as IEA head Fatih Birol observes, another balance.

That balance is among the various interests of PV system owners, the broader consuming market, and energy and distribution companies.

The Huge Amount of Potential in this Market

According to the report’s Accelerated Case, improving economics, policy support, and more effective regulation could push distributed PV’s global installed capacity to above 600 GW by 2024, almost double Japan’s total power capacity today.

Yet this accelerated growth is still only 6% of distributed PV’s technical potential based on total available rooftop area.

As in previous years, Renewables 2019 also offers forecasts for all sources of renewable energy.

Renewable heat is set to expand by one-fifth between 2019 and 2024, driven by China, the European Union, India, and the United States. The heat and power sectors become increasingly interconnected as renewable electricity used for heat rises by more than 40%.

But overall, renewable heat potential remains vastly underexploited.

The share of renewables in total heat demand is forecast to remain below 12% in 2024, calling for more ambitious targets and stronger policy support.

Biofuels currently represent some 90% of renewable energy in transport, and their use is set to increase by 25% over the next five years, an important factor when the IMO 2020 standards hit next year.

Growth is dominated by Asia – particularly China – and is driven by energy security and air pollution concerns. Despite the rapid expansion of electric vehicles, renewable electricity only accounts for 10% of renewable energy consumption in transport in 2024. And the share of renewables in total transport fuel demand remains below 5%.

Here as well, the IEA projects that China will be leading the pack (are you seeing a trend here?)

The Accelerated Case sees renewables in transport growing by an additional 20% through 2024 on the assumption of higher quota levels and enhanced policy support that opens new markets in aviation and marine transport.

In all of this, one result is inescapable.

There is quickly developing an investment climate that will provide you with a range of profitable energy moves.

Sincerely,


Kent

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