IEEJ: October 2015, All Rights Reserved.

Keisuke Sadamori
Director of Energy Markets and Security, IEA© OECD/IEA 2015

The 88th IEEJ Energy Seminar, 5th October 2015

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IEEJ: October 2015, All Rights Reserved.

Profound changes underway in energymarkets
 Signs of decoupling of energy-related CO2 emissions and global

economic growth Oil prices have fallen precipitously, raising questions over thecompetitiveness of renewables
 But 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
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IEEJ: October 2015, All Rights Reserved.

Renewables are becoming the largest
source of new power generation capacity
World net additions to power capacity
1 600

1 400
1 200
1 000

GW

800
600
400
2000
2008-2014
Fossil fuels

2014-20
NuclearHydropower

Analysis from the IEA Medium-Term
Renewable Energy Market Report2015 and the New Policies Scenarioof the World Energy Outlook 2015.

Non-hydro renewables

The share of renewables in net additions to power capacity continues to rise with non-hydro3sources reaching nearly half of the total© OECD/IEA 2015

IEEJ: October 2015, All Rights Reserved.

Growth shifting to emerging markets anddeveloping countries
Shares of net additional renewable capacity, 2014-20

Brazil5%

Rest non-OECD
13%

EU13%
USA9%

India
9%

Japan
5%
Rest OECD
8%

China
38%

As the OECD slows, non-OECD countries account for two-thirds of renewable growth, driven by4
fast-growing power demand, diversification needs and local pollution concerns© OECD/IEA 2015

IEEJ: October 2015, All Rights Reserved.

More renewables for less money
Global indicative generation costs for new plants
160
1401202010 = 100

10080
60
40
20020102015
Onshore wind

2020

2010

2015
Solar PV - utility scale

2020

2010

2015

2020

Offshore windHigh levels of incentives are no longer necessary for solar PV and onshore wind, but theireconomic attractiveness still depends on the regulatory framework and market design

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IEEJ: October 2015, All Rights Reserved.

Evidence of lower costs on the horizon
Recent announced long-term contract prices for new renewable power
Onshore wind

Germany
USD 67-100/MWh

Utility-scale solar PV

Germany
USD 96 /MWh

CanadaUSD 66/MWh

TurkeyUSD 73/MWh

United States
USD 47/MWh

China
USD 80–91/MWh

United States
USD 65-70/MWh

India
USD 88-116/MWh

JordanUSD 61-77/MWh

Brazil
USD 81/MWh
Brazil
USD 49/MWh
Chile
USD 85-89/MWh

United Arab Emirates
USD 58/MWh

Uruguay
USD 90/MWh

South Africa
USD 51/MWh

South Africa
USD 65/MWh

Egypt
USD 41-50/MWh

Australia
USD 69/MWhThis 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

A combination of price competition, long-term contracts, good resources and financial derisking measures is creating deployment opportunities in newer markets and at lower costs 6© OECD/IEA 2015

IEEJ: October 2015, All Rights Reserved.

Renewables can power Africa’s
economic growth
Sub-Saharan Africa power demand growth versus supply sources
120100TWh806040
200

2008-142014-20Power demand growthWith huge resources, improving cost-effectiveness and policy momentum, renewables accountfor almost two-thirds of demand growth in Sub-Saharan Africa
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Renewables can power Africa’s
economic growth
Sub-Saharan Africa power demand growth versus supply sources
120100

TWh80
60
40
200

2008-14
Other renewables

2014-20
Hydropower

Fossil fuelsWith huge resources, improving cost-effectiveness and policy momentum, renewables accountfor almost two-thirds of demand growth in Sub-Saharan Africa
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Renewable growth can be accelerated
back on track to meet climate goals
World renewable power capacity growth, main versus accelerated case180

Historical

160

Forecast

140
120
GW

100
80
60
40
200
2006

2007

United States

2008
Japan

2009

2010

EU-28

2011

2012

Other OECD

2013

2014

India

2015
China

2016

2017
Brazil

2018

2019

2020

Other non-OECD

Renewable energy can be brought back rising annual installation growth, through enhanced
domestic policies, e.g. grid integration of variable renewables
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Renewable growth can be accelerated
back on track to meet climate goals
World renewable power capacity growth, main versus accelerated case180

Accelerated caseHistorical160

140120

GW

100
8060

402002006
United States

2007

2008
Japan

2009
EU-28

2010

2011

Other OECD

2012

2013
India

2014
China

2015

2016

Brazil2017

2018

Other non-OECD

2019

2020

Main caseRenewable energy can be brought back rising annual installation growth, through enhanced
domestic policies, e.g. grid integration of variable renewables

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A decisive moment for the future ofrenewables
 Increasingly affordable renewables are set to dominate the growing

power systems of the world The effect of the lower oil price environment on global renewable growth

is more perception than reality, though biofuels are an exception
 Further policy action is needed for heat and biofuel sectors, in the face ofstructural challenges.
 Yet, wavering policy commitments risk undermining investor confidence

and are dampening growth While variability of renewables is a challenge energy systems can learn toadapt to, variability of policies poses a far greater risk

11

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Global Renewable Technologies

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Renewable electricity expanded at its fastest
rate in 2014, despite sharp fall in oil prices
World net additions to renewable power capacity, historical and forecast (GW)
180

Ocean

160

Geothermal

Annual additions (GW)

140

STE

120100

Solar PV

80

Offshore wind60

Onshore wind

40

Bioenergy

200

Hydropower2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Accelerated case

The global expansion for renewable electricity remains robust and renewable power capacity
rises by 40% over 2014-20. The outlook stems from greater cost-effective deployment of solar
PV and onshore wind. Still annual forecast remains relatively flat, with a dip in 2016/17 13© OECD/IEA 2015

IEEJ: October 2015, All Rights Reserved.

Onshore wind leads global renewable capacity additions,with higher growth forecast versus MTRMR 2014
World net additions to renewable capacity, absolute and percentage growth,
2014-20300
70%Net additions (GW)

250
200

76%

144%129%

16%

MTRMR 2014
MTRMR 2015

13%

150
10043%

500Hydropower

39%

Bioenergy

241% 229%
Onshore wind

Offshore wind

Solar PV

136% 80%

34% 29%STE/CSPGeothermal

The forecast for onshore wind is more optimistic mostly due to China and Brazil. Solar PV is
the second-largest source of capacity growth, with a raised forecast reflecting more optimistic
14
growth prospects across a number of markets.
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Strong global momentum for renewableelectricity generation
World renewable generation and forecast (TWh)
8 000Generation(TWh)

7 000
6 000
5 000

4 000
3 000
2 000
1 00002005 2006 2007
OceanSTE

2008 2009
Geothermal

20102011
Solar PV2012

2013 2014
Offshore wind2015 2016
Onshore wind20172018 2019 2020
Bioenergy
Hydro

In 2020, renewable generation reaches over 7 150 TWh, more than today’s combined
demand of China, India and Brazil
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Generation cost profile for fossil-fuels varies
under fixed prices versus historical volatility
Historical gas prices by region versus price range for LCOE of new CCGT at
USD 60-80/MWh201816USD/MBtu

1412?

10864?

2

US Henry Hub

Europe - UK NBP

Asian LNG price (average contracted import price)

Jan-20Jul-19Jan-19Jul-18Jan-18

Jul-17Jan-17

Jul-16

Jan-16

Jul-15Jan-15

Jul-14Jan-14Jul-13Jan-13

Jul-12

Jan-12

Jul-11

Jan-11

Jul-10Jan-10Jul-09

Jan-09Jul-08Jan-08

Jul-07

Jan-07

Jul-06

Jan-06

Jul-05Jan-050

Gas prices atwhich newCCGT today
has LCOE at
USD 6080/MWh(Benchmarkfor recent
wind costs)

Asian LNG (spot)

Note: LCOE for CCGT is calculated using a ~65% capacity factor and 7% discount rate. No carbon pricing is included in LCOEs.

More robust competitiveness assessments would account for value of electricity generated
when and where, and fossil fuel and carbon price volatility
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The heating sector offers particular challenges
for policy makers

Share in total energy use for heat

Share of renewable energy in total FEH in different world regions, 2013
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Geothermal

SolarthermalOECD OECD Asia OECD
Americas Oceania EuropeChina

IndiaBrazilAfrica

Non-OECD Non-OECD Non-OECD Middle EastAmericas Asia (excl. Europe and(excl.
India)
EurasiaBrazil)

Modernbioenergy

There are no targets and support policies for renewables hearting and cooling in Japan,
while the strongest policy drivers today have been adopted in OECD Europe as a result of theEU’s mandatory 2020 targets for renewable energy

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Focus on Japan18© OECD/IEA 2015

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In OECD Asia Oceania, despite strong annualgrowth in the near term, the additions will slow
OECD Asia Oceania historical and forecasted capacity additions, generationand investment
14300

1083062041022013 2014 2015 2016 2017 2018 2019 2020
Hydropower
Geothermal

Bioenergy
STE0Generation(TWh)40

USD 2014 billion

Annual additions (GW)

120350

50250

200
150
1005002013
Onshore wind
Ocean

2014

2015 2016 2017
Offshore windInvestment

20182019 2020
Solar PV

Renewable additions are expected to slow over the medium term, with uncertainties overprogress in integrating higher levels of variable renewables in Japan and reduced
expectations in Australia, where electricity demand is expected to stagnate.

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Drivers and Challenges in Japan Drivers
 Strong policy environment backed by generous FITs and needfor new generation
 Potential for increased system flexibility in the electricity
sector through planned reforms
 Challenges
 Integration of variable renewables in certain regions andmaintaining a dynamic approach to support scheme
adjustments
 Implementation of new electricity sector reforms and newstrategic plan
20
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Over 2014-20, solar PV expands by 36 GW,
but deployment pattern may be volatile
Japan annual net additions to renewable capacity and new investment
12.0

Ocean

Annual additions (GW)

10.0

STE
Geothermal

8.0

Solar PV

6.0

Offshore wind
4.0

Onshore wind

2.0

0.0

Bioenergy

Hydropower
2013

2014

2015

2016

2017

2018

2019

2020

While the solar PV cumulative capacity reaches 60 GW in 2020, the pattern may be volatile,
with high levels in 2015 followed by a shrinking market, due to assumed grid constraints.
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Japan’s solar PV approaching benchmark
pricesJapan estimated solar PV LCOE ranges versus FIT and end-user price levels

USD 2014/MWh600

Solar PV above 10 kW (commercial and utility scale)

Solar PV below 10 kW (residential scale)

600

500

500

400

400

300

300

200

200

100

10000
2012

Feed-in tariff

2013

2014

Average household power price (ex tax)

2015

2012

2013
2014
Average industry power price (ex tax)

2015

Solar PV residential and commercial LCOEs are seen falling to near current household andindustry retail prices, potentially creating incentives for deployment under self-consumption
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However, Japan’s solar PV costs still remainhigh compared with international standards

USD 2014/kW

Historical and forecasted typical solar PV investment costs, beginning year
8 000
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0

Utility ground-mounted

8 000
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0

Forecast2010 2012 2014 2016 2018 2020
Australia

China

Commercial rooftop
Forecast2010 2012 2014 2016 2018 2020

GermanyIndia

Japan

8 000
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0

Residential rooftop
Forecast

2010

2012

United States

2014

2016

2018

2020

Global reference

Japan’s utility-scale solar PV investment costs remain notably higher the general investment
cost range in the world (USD 1 000-2 000/kW), in part due to constricted land availability andgrid connection and permitting challenges
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Onshore Wind Investment costs in Japanremains highest
Typical onshore wind total investment costs per kW in selected countries (2010-20)
3 500
3 000

USD 2014/kW

2 500

2 000
1 500
1 00050002010 2015 2020 2010 2015 2020 2010 2015 2020 2010 2015 2020 2010 2015 2020 2010 2015 2020 2010 2015 2020 2010 2015 2020

China

India

United States

TurkeyBrazilSouth Africa

GermanyJapan

Difficult topography, costly turbines adapted to special meteorological conditions, highconstruction costs and lack of grid availability combined with expensive and long predevelopment process are the main factors behind these high investment costs.

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Priorities for Renewables in Japan Objective should remain to foster a well-balanced

portfolio of renewable energy technologies
 Proceed in the power system reforms Strengthen interconnections and enlarge balancing areas
 Allow for fair and equal grid access conditions
 Policies on Solar PV should be adapted to reduce unit

costs as much as possible and rapidly align withinternational benchmarks prices
 For development of renewable heating and coolingpolicy, need to obtain reliable data on production,utilisation and costs

25© OECD/IEA 2015

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For further insights and analysis…
 The Medium-Term

Renewable Energy Market
Report 2015 was launched on
2nd October and can bepurchased online at:
http://www.iea.org/
 Thank you for your attention!
Contact:report@tky.ieej.or.jp

26© OECD/IEA 2015