Global Renewables Capacity To Almost Double Over Next Decade

BMI View: Falling costs for renewable energy coupled with the increased deployment of competitive capacity procurement schemes will promote growth in the global renewables sector. We forecast total global non-hydropower renewables capacity to almost double between 2016 and 2026.

Key Takeaways:

  • We forecast total non-hydropower renewables capacity to expand by an annual average of 7.9% between 2016 and 2026 - meaning that the sector will almost double in size over this timeframe and comprise of more than 1,700GW of installed capacity by the end of our forecast period. By 2026, the wind sector will make up 48% of the total renewables capacity mix, solar power 42%, geothermal almost 1% and biomass almost 9%. The biomass and geothermal sectors will, however, contribute more than 3% and 20% to the total global non-hydro renewables generation, respectively by 2026 - highlighting the higher capacity factors of these technologies relative to wind and solar power. In comparison, wind generation will make up 51% of the total, and solar only 26%.

  • The North America and Western Europe region will generate the most electricity sourced from non-hydropower renewables in 2026 compared with any other region - making up 44% of the global total. That said, this is a reduction of the 52% share registered over 2016, and is indicative of slowing growth in a series of mature renewables markets in this region. Conversely the Asia region will increase its share in the global renewables generation mix from 35% in 2016 to 42% in 2026 - driven in particular by rapid growth in China and India. We forecast the two countries to make up 80% of renewables generation in the region in 2026.

  • China will outpace all other markets in terms of non-hydropower renewables capacity growth - adding almost 300GW between 2016 and 2026 - more than double the capacity additions of the second fastest expanding market, the US. We forecast China to comprise more than a quarter of total global renewables power generation in 2026. That said, we only forecast the renewables segment to make up about 11% of total Chinese power generation by that year - illustrating the continued importance of the conventional power sector in the country.

  • We forecast the non-hydropower renewables sector to make up 11.3% of total global power generation by 2026, up from 8% over 2016. North America and Western Europe will register the highest renewable energy share out of any other regions in 2026, with 18% of the North America's electricity generation sourced from renewables and 27% in Western Europe. In Asia, this share will total 10%, whilst the Middle East and Northern Africa (MENA) region will have the lowest penetration of renewables in its power mix, at 1.4% of total power generation. This will be due to the abundance of hydrocarbon feedstock in the region, which limits power mix diversification efforts.

Three intertwined growth drivers inform our upbeat outlook for the global renewables sector over the coming decade. Amid a backdrop of (1) falling costs, we expect (II) competition between companies to unlock new renewables markets, with (III) competitive capacity procurement schemes facilitating the investment.

  • Falling Costs To Make Renewables More Attractive To New Markets

Geographically Diverse Growth Outperformers
Global - Heat Map Of Non-Hydropower Renewables Capacity Additions By Country Between 2016e & 2026f, MW
*Grey colour means no new capacity, or outside of coverage. e/f = BMI estimate/forecast. Source: BMI

Global Renewables Capacity To Almost Double Over Next Decade

BMI View: Falling costs for renewable energy coupled with the increased deployment of competitive capacity procurement schemes will promote growth in the global renewables sector. We forecast total global non-hydropower renewables capacity to almost double between 2016 and 2026.

Geographically Diverse Growth Outperformers
Global - Heat Map Of Non-Hydropower Renewables Capacity Additions By Country Between 2016e & 2026f, MW
*Grey colour means no new capacity, or outside of coverage. e/f = BMI estimate/forecast. Source: BMI

Key Takeaways:

  • We forecast total non-hydropower renewables capacity to expand by an annual average of 7.9% between 2016 and 2026 - meaning that the sector will almost double in size over this timeframe and comprise of more than 1,700GW of installed capacity by the end of our forecast period. By 2026, the wind sector will make up 48% of the total renewables capacity mix, solar power 42%, geothermal almost 1% and biomass almost 9%. The biomass and geothermal sectors will, however, contribute more than 3% and 20% to the total global non-hydro renewables generation, respectively by 2026 - highlighting the higher capacity factors of these technologies relative to wind and solar power. In comparison, wind generation will make up 51% of the total, and solar only 26%.

  • The North America and Western Europe region will generate the most electricity sourced from non-hydropower renewables in 2026 compared with any other region - making up 44% of the global total. That said, this is a reduction of the 52% share registered over 2016, and is indicative of slowing growth in a series of mature renewables markets in this region. Conversely the Asia region will increase its share in the global renewables generation mix from 35% in 2016 to 42% in 2026 - driven in particular by rapid growth in China and India. We forecast the two countries to make up 80% of renewables generation in the region in 2026.

  • China will outpace all other markets in terms of non-hydropower renewables capacity growth - adding almost 300GW between 2016 and 2026 - more than double the capacity additions of the second fastest expanding market, the US. We forecast China to comprise more than a quarter of total global renewables power generation in 2026. That said, we only forecast the renewables segment to make up about 11% of total Chinese power generation by that year - illustrating the continued importance of the conventional power sector in the country.

  • We forecast the non-hydropower renewables sector to make up 11.3% of total global power generation by 2026, up from 8% over 2016. North America and Western Europe will register the highest renewable energy share out of any other regions in 2026, with 18% of the North America's electricity generation sourced from renewables and 27% in Western Europe. In Asia, this share will total 10%, whilst the Middle East and Northern Africa (MENA) region will have the lowest penetration of renewables in its power mix, at 1.4% of total power generation. This will be due to the abundance of hydrocarbon feedstock in the region, which limits power mix diversification efforts.

China To Dominate Global Renewables Sector
Non-Hydropower Renewables Top 10 By Installed Capacity, 2026f, MW
f = BMI forecast. Source: EIA, IRENA, BMI.

Three intertwined growth drivers inform our upbeat outlook for the global renewables sector over the coming decade. Amid a backdrop of (1) falling costs, we expect (II) competition between companies to unlock new renewables markets, with (III) competitive capacity procurement schemes facilitating the investment.

  • Falling Costs To Make Renewables More Attractive To New Markets

Falling costs will be a key driver of growth in the global non-hydropower renewables sector over our 10-year forecast period through to 2026. As the sector has matured - with equipment manufacturing gaining scale and technology improving its efficiency - renewable energy has become accessible in a series of new markets where costs previously have been considered too high. We believe this will unlock new growth markets globally - and highlight that according to our forecast, a total of 94 markets will have installed 50MW or more renewables capacity by 2020. In comparison, 43 markets had 50MW or more installed renewables capacity in year 2000 and 74 markets in 2010.

Wind And Solar Power Becoming Increasingly Competitive
EMEA - Levelised Cost Of Electricity By Type, USD/MWh
Source: BNEF, BMI Research

The cost reductions registered in a series of core markets have been key to increasing the attractiveness of the renewables sectors in other markets. We expect these new markets to look to replicate such successes - highlighted in the table below - by adopting similar incentive mechanisms and capacity procurement schemes. This will in turn increase the renewables sector's geographic footprint over the coming decade. For example, a number of markets in the Sub-Saharan African (SSA) region is looking to replicate Zambia's 'Scaling Solar' capacity tendering programme, while we believe a country like Egypt will look to replicate the successes registered in Morocco's renewables capacity tenders.

Wide Variety Of Markets Registering Cost-Competitive Renewables
Country Status Date
Source: BMI
Solar Power Chile Solarpack's winning bid in Chile's electricity auction totalled USD29.1/MWh Aug-2016
Zambia The first round of Zambia's scaling solar initiative registered a bid at USD60.2/MWh May-2016
UAE Abu Dhabi awarded 1,177MW in its Sweihan tender for a price as low as USD24.2/MWh Mar-2017
Turkey Turkey awarded its 1GW Karapinar solar farm for USD69.9/MWh - a substantial cost deflation from the existing feed-in-tariff (FiT) for solar power which stands at USD133/MWh. Mar-2017
India India registered a bid of INR2.44/kWh (USD30/MWh) for its Rajastan tender May-2017
Spain Spain's second renewables auction in 2017 saw solar project developers' win 3,909MW by bidding the floor of the auction at EUR43/MWh. Jul-2017
Onshore Wind Morocco The average bid for wind power at Morocco's 850MW wind tender was USD30/MWh Jan-2016
Germany Germany's second onshore wind auction registered an average bid of EUR42.8/MWh Aug-2017
Turkey The winning bid in Turkey's 1GW onshore wind tender was USD34.8/MWh - compared to the wind power FiT of USD73/MWh Aug-2017
Offshore Wind Denmark The 600MW Krieger's Flak will be developed for EUR49.5/MWh Nov-2016
Netherlands A consortium led By Royal Dutch Shell will develop the Borssele III and IV wind areas for EUR54.5/MWh Dec-2016
Germany EnBW won 900MW by offering to supply power without any subsidy support in Germany's second offshore wind auction Apr-2017
  • Companies: Increased Competition To Unlock Riskier Markets

A plethora of companies, both conventional power players and non-traditional actors, are looking to diversify into the renewables sector. Reasons for this include gaining access to regulated assets and adapting to increasing environmental awareness among governments and shareholders. This will in turn stimulate increasing competition in the renewables sector over the coming years. This means that competition pushes prices down in established markets and companies that struggle to compete with heavy-weights in these markets move to riskier markets to find business opportunities.

We believe this dynamic will unlock a series of new renewables markets over the coming decades, as countries with an emerging renewables industry, or looking to establish one, will be in a better position to attract investment. For example, we highlight that Egypt has signed a series of solar power purchase agreements (PPAs) over recent months - despite having made sweeping changes to the country's FiT scheme in 2016 that posed a substantial obstacle to developers ( see 'Policy Alterations To Weigh On Solar Expansion', November 6 2016). This is indicative of a greater appetite for risk for many developers, making frontier markets more appealing investment destinations.

Steady Expansion For Global Renewables
Global - Total Capacity (LHS) And y-o-y % Generation Growth (RHS)
f = BMI forecast. Source: EIA, BMI.
  • Governments: Competitive Capacity Procurement To Enable Sustainable Growth

Governments will continue to utilise competitive procurement mechanisms in order to regulate growth and tap into cost reductions. By making bidding competitive, they can ensure that the cost of projects is as low as possible. Competitive procurement also gives governments the tool to decide how much capacity they will allocate for development - meaning they can ensure that intermittent wind and solar power supplies can be feasibly integrated to the grid. By regulating growth, governments can also mitigate the risk that the cost of subsidy schemes overstretch fiscal budgets. This means that emerging renewables markets can avoid the predicament of an economically unsustainable renewables boom - such as those induced by lucrative feed-in-tariffs in certain markets in Europe which in certain cases led to retroactive subsidy cuts.

Auctions To Support Sustainable Growth Trajectory
Germany - Wind & Solar Capacity, MW
e/f = BMI estimate/forecast. Source: EIA, Eurostat, BMI

The implementation of competitive auction mechanisms will initially slow growth in renewables capacity deployment in core markets - such as Germany and the UK - but more crucially, it will make growth more economically sustainable in these markets over the longer term. In emerging markets, this means the renewables expansion can be sustainable from the get-go, meaning that renewables sector can be an economically viable option for power sector expansion. This will in turn expand the geographic base for capacity growth substantially, bolstering sector growth globally and cementing our upbeat renewables outlook for the coming decade.

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