Renewable energy medium term market report 2015

1. © OECD/IEA 2015© OECD/IEA 2015 Medium-Term Renewable Energy Market Report 2015: Renewables poised to lead world power market growth Dr. Paolo Frankl Renewable Energy Division International Energy Agency

2. © OECD/IEA 2015 Profound changes underway in energy markets  Signs of decoupling of energy-related CO2 emissions and global economic growth  Fossil-fuel prices at multi-year lows; emerging market economic growth slowing; uncertainty over monetary policy and interest rates in US  But overarching policy drivers for renewable electricity – energy diversification, local pollution and decarbonisation – remain robust  Renewables are key to the unprecedented pledges ahead of COP 21  Renewables to become first source for electricity in the longer term, but addressing policy uncertainty in the next five years is crucial

3. © OECD/IEA 2015 IEA strategy to raise climate ambition Peak in emissions (Bridge Scenario) Global energy-related GHG emissions 20 25 30 35 40 2000 2014 2020 2025 2030 GtCO2-eq Bridge Scenario INDC Scenario Energy efficiency 49% Reducing inefficient coal Renewables investment Upstream methane reductions Fossil-fuel subsidy reform 17% 15% 10% Savings by measure, 2030 9% Five measures – shown in a “Bridge Scenario” – achieve a peak in emissions around 2020, using only proven technologies & without harming economic growth

4. © OECD/IEA 2015 The share of renewables in net additions to power capacity continues to rise with non-hydro sources reaching nearly half of the total Renewables are becoming the largest source of new power generation capacity World net additions to power capacity Analysis from the IEA Medium-Term Renewable Energy Market Report 2015 and the New Policies Scenario of the World Energy Outlook 2015. 0 200 400 600 800 1 000 1 200 1 400 1 600 2008-2014 2014-20 GW Fossil fuels Nuclear Hydropower Non-hydro renewables

5. © OECD/IEA 2015 Share of non-hydropower in renewable electricity generation is expected to increase significantly, but an acceleration is needed to meet climate change objectives Strong momentum for renewable generation growth Renewable generation by technology, main case forecast and scenario analysis 0 2 000 4 000 6 000 8 000 10 000 12 000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 Generation(TWh) Hydropower Bioenergy Onshore wind Offshore wind Solar PV Geothermal STE Ocean Scenario analysis 2DS targets (IEA ETP 2015) ForecastHistorical 34% 18% 22% Share of renewables in total generation 26%

6. © OECD/IEA 2015 Renewables generation costs will decrease further High levels of incentives are no longer necessary for solar PV and onshore wind, but their economic attractiveness still depends on the regulatory framework and market design Historical and forecast global weighted average generation costs for new plants 0 50 100 150 200 250 300 350 400 2010 2015 2020 2010 2015 2020 2010 2015 2020 Onshore wind Solar PV - utility scale Offshore wind USD2014/MWh

7. © OECD/IEA 2015 Evidence of lower costs on the horizon A combination of price competition, long-term contracts, good resources and financial de- risking measures is creating deployment opportunities in newer markets and at lower costs Recent announced long-term contract prices for new renewable power Utility-scale solar PVOnshore wind Chile USD 85-89/MWh Brazil USD 81/MWh United States USD 65-70/MWh India USD 88-116/MWh United Arab Emirates USD 58/MWh South Africa USD 65/MWh United States USD 47/MWh Brazil USD 49/MWh South Africa USD 51/MWh Australia USD 69/MWh Turkey USD 73/MWh China USD 80–91/MWh Germany USD 67-100/MWh Egypt USD 41-50/MWh Jordan USD 61-77/MWh Uruguay USD 90/MWh Germany USD 96 /MWh Canada USD 66/MWh This map is without prejudice to the status or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area

8. © OECD/IEA 2015 As the OECD slows, non-OECD countries account for two-thirds of renewable growth, driven by fast-growing power demand, diversification needs and local pollution concerns Growth shifting to emerging markets and developing countries Shares of net additional renewable power capacity, 2014-20 EU 13% USA 9% Japan 5% Rest OECD 8% China 38% India 9% Brazil 5% Rest non-OECD 13%

9. © OECD/IEA 2015 Europe transitioning to slower renewable growth profile OECD Europe annual net additions to renewable capacity  Weak power demand growth, overcapacity, incentive reductions in a number of markets  Uncertainties over policy frameworks (e.g. EU, UK) and integration of high levels of VRE  Still, offshore wind deployment triples by 2020 and decarbonisation drivers remain robust 0 5 10 15 20 25 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 AnnualAdditions(GW) Bioenergy PV Onshore Wind Offshore wind

10. © OECD/IEA 2015 Forecast progress towards indicative 2020 targets varies by market 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% Austria Belgium Bulgaria CzechRep. Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta TheNetherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden UK Forecast%of2020NREAP Comparison of MTRMR total renewable electricity forecast with NREAPs in 2020

11. © OECD/IEA 2015 VRE share of total annual electricity output Source: IEA estimates derived in part from IEA Medium-Term Renewable Energy Market Report 2015. European countries to reach high shares of variable renewables Share of variable electricity generation in 2014 and 2020

12. © OECD/IEA 2015 Mixed policy signals in EU countries France: New law with ambitious targets and improvement in administrative procedures Germany: RE policy in transition, uncertainty over the new auction structure for onshore wind Spain: Retroactive policies for renewables and new taxes for distributed solar PV UK: Uncertainty over the future policy framework for renewables with plans to cut support Italy: ?

13. © OECD/IEA 2015 Federal tax incentive uncertainty drives irregular US renewable growth US annual net additions to renewable capacity 0 2 4 6 8 10 12 14 16 18 20 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Annualadditions(GW) Hydropower Bioenergy Onshore wind Offshore wind Solar PV Geothermal STE Ocean After China and Europe, the US is the third largest market for new renewable generation, but federal and state-level policy uncertainties create volatile deployment pattern Impact of federal tax incentive policy uncertainty Forecast

14. © OECD/IEA 2015 Renewables can power Africa’s economic growth With huge resources, improving cost-effectiveness and policy momentum, renewables account for almost two-thirds of demand growth in Sub-Saharan Africa Sub-Saharan Africa power demand growth versus supply sources 0 20 40 60 80 100 120 2008-14 2014-20 TWh Other renewables Hydropower Fossil fuels 0 20 40 60 80 100 120 2008-14 2014-20 TWh Power demand growth

15. © OECD/IEA 2015 More renewables for less money Wind and solar PV comprise two thirds, or USD 900 billion, of new investment needs to 2020 and capacity increases are being made at lower cost than in the past Renewable power capacity – net additions versus new investment USD 2014GW 0 200 400 600 800 1 000 1 200 1 400 1 600 Capacity growth Capacity growth New investment New investment 2008-14 2014-20 2008-14 2014-20 GW/USD2014billion Ocean Geothermal STE Solar PV Offshore wind Onshore wind Bioenergy Hydropower

16. © OECD/IEA 2015 Can renewables get back on track to meet climate change goals? With policy enhancements renewables can be back on track to meet long-term climate change goals World renewable power capacity growth, main versus accelerated case 0 20 40 60 80 100 120 140 160 180 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 GW United States Japan EU-28 Other OECD India China Brazil Other non-OECD Historical Forecast 0 20 40 60 80 100 120 140 160 180 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 GW United States Japan EU-28 Other OECD India China Brazil Other non-OECD Main case Historical Accelerated case

17. © OECD/IEA 2015 Persistent challenges slow growth in heat and transport Historical and forecast share of renewables in electricity, heat and transport sectors 2005-20 Growth of renewable electricity generation is increasing, while renewable heat and transport are falling behind. 0% 5% 10% 15% 20% 25% 30% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Shareofrenewablesinsectordemand Renewable electricity Renewable heat Biofuels in road transport Forecast

18. © OECD/IEA 2015 Early signs of commercialisation in the advanced biofuels sector Commissioned commercial scale advanced biofuel plants Advanced biofuels – needed for long-term decarbonisation of the transport sector – are starting to scale up, but development requires further policy support.

19. © OECD/IEA 2015 A decisive moment for the future of renewables  Increasingly affordable renewables are set to dominate the growing power systems of the world  The impact of the lower oil price environment on global deployment of renewables is limited – in particular for the power sector  While variability of renewables is a challenge energy systems can learn to adapt to, variability of policies poses a far greater risk  Accelerated growth of renewables to meet energy security, local pollution and climate protection goals is feasible  Developing countries can now leapfrog to development based on affordable clean power by addressing persistent barriers; improving financing conditions; clear and predictable policies and good governance

20. © OECD/IEA 2015 IEA work on renewables  The MTRM 2015 can be purchased at: www.iea.org/bookshop/  Renewables analysis a crucial part of IEA long-term scenario analysis: e.g. World Energy Outlook, Energy Technology Perspectives, Tracking Clean Energy Progress  IEA renewables website: http://www.iea.org/topics/renewables/  Renewable Policies and Measures Database: http://www.iea.org/topics/renewables/renewablesiea/policiesmeasuresdatabasepams/

21. © OECD/IEA 2015 Reserve Slides

22. © OECD/IEA 2015 Onshore wind leads growth as deployment spreads Onshore wind annual additions (GW) 2014-20 OECD Americas Non-OECD Americas OECD Europe Non-OECD Europe and Eurasia Africa Middle East Asia China OECD Asia Oceania 0 7.5 15 2914 2017 2020 0 4 8 2014 2017 2020 0 0.75 1.5 2014 2017 2020 0 0.75 1.5 2014 2017 2020 0 0.15 0.3 2014 2017 2020 0 5 10 2014 2017 2020 16 18 20 2014 2017 2020 0 10 20 2014 2017 2020 0 0.75 1.5 2014 2017 2020

23. © OECD/IEA 2015 Generation cost profile of alternatives vary with fossil fuel prices Note: LCOE for CCGT is calculated using a ~65% capacity factor and 7% discount rate. No carbon pricing is included in LCOEs. Historical natural gas prices by region vs price range for LCOE of new CCGT at USD 60-80/MWh  More robust competitiveness assessments would account for:  Value of electricity generated – when and where  Flexibility needs from high shares of variable renewable generation  Fossil fuel and carbon price volatility, hedging costs  System Transformation and Market Design Reform 0 2 4 6 8 10 12 14 16 18 20 gen-05 lug-05 gen-06 lug-06 gen-07 lug-07 gen-08 lug-08 gen-09 lug-09 gen-10 lug-10 gen-11 lug-11 gen-12 lug-12 gen-13 lug-13 gen-14 lug-14 gen-15 lug-15 gen-16 lug-16 gen-17 lug-17 gen-18 lug-18 gen-19 lug-19 gen-20 USD/MBtu US Henry Hub Europe - UK NBP Asian LNG price (average contracted import price) Asian LNG (spot) Gas prices at which new CCGT today has LCOE at USD 60-80/MWh ? ?

24. © OECD/IEA 2015 Market and regulatory risks can increase weighted average cost of capital and undermine competitiveness of PV and wind power Dubai Central AfricaX 2X Impact of cost of capital (WACC) on the levelised generation cost of solar PV (for equivalent resource and investment cost) Reducing financing costs key to more cost- effective deployment

25. © OECD/IEA 2015 China to be market leader in both wind and solar PV by 2020 0 50 100 150 200 250 2014 2020 2020 accelerated GW Cumulative grid-connected wind capacity Onshoe wind Offshore wind Solar PV 0 50 100 150 200 250 2014 2020 2020 accelerated Cumulative grid-connected solar capacity China’s cumulative wind capacity to more than double while solar PV to quadruple in 2020 but further growth is possible if higher targets are set

26. © OECD/IEA 2015 Grid and system integration main constraint to Japan PV deployment Japan annual solar PV capacity additions, historical and forecast 0 2 4 6 8 10 12 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 GW Power diversification needs and generous incentives support Japan’s PV growth, but greater progress is needed in variable renewable integration and power sector reform

27. © OECD/IEA 2015 Improving cost effectiveness supports stronger renewable growth in India India weighted average PPA bid prices in PV auctions, state and JNNSM  Ambitious target of 100 GW solar PV by 2022, but MTRMR sees < 30 GW by 2020  Auctions for utility-scale PV reducing costs, though they remain higher than coal  Clear and credible implementation of supporting regulations needed to reduce offtaker risks, promote net metering and reduce administrative barriers  Significant grid expansion, strengthening and management needed 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 07-2010 03-2011 11-2011 07-2012 03-2013 12-2013 08-2014 04-2015 12-2015 USD/kWh Telangana Punjab Karnatka Madhya Pradesh Uttar Pradesh Andhra Pradesh Rajasthan Tamil Nadu JNNSM JNNSM 500 MW

28. © OECD/IEA 2015 Renewables are powering Latin America’s economic growth Excellent resources have underpinned hydropower’s strong role. Now, with policy momentum, attractive economics and diversification needs, other renewable sources grow more rapidly Latin America power demand growth versus new renewable generation 0 50 100 150 200 250 300 350 2002-08 2008-14 2014-20 TWh Hydropower Other renewables Fossil fuels and nuclear

29. © OECD/IEA 2015 More widespread policy support required in the renewable heat sector Consumption of modern renewable energy for heat 2008-20 Challenges persist to increasing the contribution of renewables and decarbonising the heat sector, however established renewable heat policies have proved successful. 0 2 4 6 8 10 12 14 16 18 20 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 EJ Geothermal Solar thermal Modern bioenergy

30. © OECD/IEA 2014 3) Increase flexibility of other power system components Grids Generation Storage Demand Side 1) Foster System-friendly RE Three pillars of system transformation 2) Better market design & operation

31. © OECD/IEA 2014 Importance of grids 4 000 km4 000 km 4 000 km Continental Dimension BRAZIL EUROPE  Interconnected continental-scale balancing areas smoothen out variability and allow to exploit seasonal complementarities

32. © OECD/IEA 2014 * Compound annual average growth rate 2012-20 , slow <2%, dynamic ≥2%; region average used where country data unavailable This map is without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Transformation depends on context © OECD/IEA 2014 32 Stable Power Systems • Little general investment need short term Dynamic Power Systems • Large general investment need short term Slow demand growth* Dynamic demand growth* Maximise the contribution from existing flexible assets Decommission or mothball inflexible polluting surplus capacity to foster system transformation Implement holistic, long-term transformation from onset Use proper long-term planning instruments to capture VRE’s contribution at system level

33. © OECD/IEA 2015 For further insights and analysis  The Medium-Term Renewable Energy Market Report 2015 can be purchased at: www.iea.org/bookshop/  Thank you for your attention!

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