Supply chain bottlenecks cannot keep renewable energy down

Article Republished By Javier Troconis

New capacity for generating electricity from solar, wind and other renewable energy sources increase to a record level globally in 2021.

This new capacity is set to grow even further during 2022 as governments increasingly take advantage of renewables’ energy security and climate benefits, say the International Energy Agency (IEA).

The IEA in their latest Renewable Energy Market Update said the world added a record 295GW of new renewable power capacity in 2021 despite supply chain challenges, construction delays and high raw material prices.

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Global capacity additions are expected to rise to 320GW. This is the equivalent of an amount that could almost meet the entire electricity demand of Germany. Solar PV is on course to account for 60% of the world’s renewable power growth in 2022, followed by wind and hydropower.

In the EU, yearly additions jumped by almost 30% to 36GW in 2021. This exceeded the bloc’s previous record of 35GW set a decade ago. The additional renewable capacity commissioned for 2022 and 2023 has the potential to significantly reduce the EU’s dependence on Russian gas in the power sector. However, the actual contribution will depend on the success of parallel energy efficiency measures to keep the region’s energy demand in check.

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Dr Fatih Birol, IEA Executive Director said energy market developments in recent months, especially in Europe, prove the essential role of renewables in improving energy security as well as their well-established effectiveness in reducing emissions.

“Cutting red tape, accelerating permitting and providing the right incentives for faster deployment of renewables are some of the most important actions governments can take to address today’s energy security and market challenges, while keeping alive the possibility of reaching our international climate goals,” said Birol.

Regional outlooks for renewable energy capacity

Although smaller in absolute terms, growth is occurring and accelerating in Latin America, the Middle East and North Africa.

In Brazil, the generous net metering incentive for distributed PV applications led to a rush in solar installations and onshore wind additions grew because of supportive economics from bilateral contracting in the free market. A recording-breaking year is expected for 2022 for solar PV expansion, but the incentives will phase down in 2023, so lower capacity addition is expected.

In Africa, renewable capacity additions resumed growth with the commission of previously awarded wind and solar PV projects under South Africa’s REIPPP programme.

Phasing out the generous feed-in tariff (FIT) scheme in Vietnam resulted in a slowdown in the deployment cycle, so the country’s additions halved from 2020 to 2021. This dragged down ASEAN’s annual installations by 40% year on year, but they still remain slightly higher than in 2019.

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In the Middle East and across Africa, the push for solar PV is driving annual capacity additions. Falling system costs, good resource potential, favourable financing conditions and economies of scale make solar PV projects in the Middle East, especially economically attractive. In sub-Saharan Africa, government guarantees or backing from development banks for utility-scale solar PV, wind and hydropower projects is fuelling growth.

Renewables’ growth so far in 2022 is faster than initially expected, driven by strong policy support in China, The EU and Latin America, which is more than compensating for slower than anticipated growth in the US. The US outlook is clouded by uncertainty over new incentives for wind and solar and by trade actions against solar PV imports from China and Southeast Asia.

Policy needs strengthening or the renewable energy growth spurt is over

Current policy settings suggest though that renewable power’s global growth will lose momentum during 2023. In the absence of strong policies, the amount of renewable power capacity added around the world is expected to plateau during 2023. Continued progress in solar will be offset by a 40% decline in hydropower expansion and little change in the wind sector.

While energy markets face a wide range of uncertainty, the strengthened focus by Europe on energy security and affordability is building new momentum behind efforts to accelerate the deployment of energy efficiency solutions and renewable energy technologies.

The outlook for renewables for 2023 and beyond will therefore depend to a large extent on whether new and strong policies are introduced and implemented over the next six months.

Global supply chain used to seem such a good idea

Growth in renewable power capacity would be even faster if it wasn’t for the current supply chain and logistical challenges. Installing solar PV and wind plans are expected to remain more expensive than pre-pandemic levels throughout 2022 and 2023 because of elevated commodity and freight prices. This current trend is reversing a decade of declining costs. However, solar and wind remain competitive because the price of national gas and other fossil fuel alternatives has risen much faster.

New solar PV additions are on course to break new records in 2022 and 2023, probably reaching 200GW next year. Solar growth in India and China is accelerating, driven by strong policy support for large-scale projects, which can now be completed at lower costs than fossil fuel alternatives. Across the EU, rooftop solar installations by households and companies are expected to help consumers save money as electricity bills rise.

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Faster growth in the wind industry is prevented by policy uncertainty and long, complex permitting regulation. Exceptionally high installation rates in 2020 were followed by a 32% plunge in 2021, but additions of new onshore wind capacity are expected to recover slightly between 2022 and 2023.

The huge jump in offshore wind capacity during 2021 was because developers in China rushing to meet a subsidy deadline. But, offshore wind capacity will probably drop around 40% globally this year. Even so, global additions are still on course to be more than 80% higher in 2022 than it was in 2020.

Even with a slower expansion during 2022, China’s additional offshore wind capacity will surpass that of Europe by the end of the year at which point they will have the largest total offshore wind capacity in the world.

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The demand for biofuel recovered in 2021 from pandemic lows to reach more than 155 billion litres, close to the levels of 2019. Demand is expected to rise by 5% in 2022 and 3% in 2023. But, the impact of Russia invading Ukraine has meant a downward revision of 20% of the IEA’s previous forecast for biofuel growth in 2022.

Since biofuels are blended with gasoline and diesel, much of that downward revision is caused by slowing demand for transport. This is depressed by a combination of factors, including growing inflationary pressure, weaker global economic growth and COVID-19 related mobility restrictions in China.

You can read the IEA’s Renewable Energy Market Update – May 2022 online.

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