Renewable Energy
Market Update
Outlook for 2023 and 2024

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Renewable Energy Market Update June 2023

Abstract
The key areas examined by the report include the latest data and analysis on
renewable power capacity additions in 2022 – globally and for major markets – aswell as forecasts for 2023 and 2024.
The update will look at key topics for renewables this year and next, including how
the energy crisis will affect their deployment in the EU, their impact on energy
affordability, and the latest trends in the United States, China and India. It will also
explore the implications of developments affecting major technologies like solar,
wind and biofuels – including market dynamics, financing, energy security
priorities, manufacturing and power system integration.
The report provides the IEA’s latest assessment of the state of play in renewables
markets since the publication of our Renewables 2022 report in December.

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In exploring the most recent market and policy developments as of April 2022, ourRenewable Energy Market Update forecasts new global renewable power
capacity additions and biofuel demand for 2023 and 2024. It also discusses key
uncertainties and policy-related implications that may affect projections for 2024
and beyond.

Renewable Energy Market Update June 2023

Acknowledgements, contributors
and credits
This study was prepared by the Renewable Energy Division in the Directorate ofEnergy Markets and Security. It was designed and directed by Heymi Bahar,
Senior Analyst.
The report benefited from analysis, drafting and input from multiple colleagues.
The lead authors of the report were, Yasmina Abdelilah, Heymi Bahar, Trevor
Criswell, Piotr Bojek, François Briens, Jeremy Moorhouse and Laura Mari
Martinez, who was also responsible for data management. The report also
benefited from analysis and drafting from Kazuhiro Kurumi and Kartik
Veerakumar.
Paolo Frankl, Head of the Renewable Energy Division, provided strategic
guidance and input to this work. Valuable comments, feedback and guidance were
provided by other senior management and numerous other colleagues within the
IEA, in particular, Keisuke Sadamori.

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The authors would also like to thank Kristine Douaud for skilfully editing themanuscript and the IEA Communication and Digital Office, in particular Poeli
Bojorquez, Jon Custer, Astrid Dumond, Jad Mouawad, Barbara Moure, Jethro
Mullen, Isabelle Nonain-Semelin, Julie Puech, Robert Stone, Clara Vallois, Lucile
Wall and Therese Walsh for their assistance. In addition, Ivo Letra from the Officeof Management and Administration supported data management.

Renewable Energy Market Update June 2023

Table of contents
Executive summary ................................................................................................................ 8
Introduction ........................................................................................................................... 13
Did all renewable electricity technologies break deployment records in 2022? ............. 16
Solar PV was the only technology to break a record for annual capacity additions ................ 16
Wind power capacity additions decreased the past two consecutive years ............................ 17

Will renewable electricity capacity additions continue to break new records in 2023 and2024? ..................................................................................................................................... 18
2023: Solar PV dominates growth, and onshore wind additions rebound to break the 2020
record ....................................................................................................................................... 18
2024: Another record year for global capacity additions, led by solar PV ............................... 19

How will the energy crisis affect EU renewable energy deployment in 2023 and 2024? 21
Rapid distributed solar PV growth is the main reason for the upwards forecast revision ........ 21
Permitting challenges and limited participation in competitive auctions prevent faster growth ofutility-scale wind and solar PV ................................................................................................. 23

How are European countries addressing permitting challenges to accelerate renewableenergy development?........................................................................................................... 24
Permitting has finally become a key policy focus in Europe .................................................... 24

How much less money is the European Union spending on expensive electricity thanks
to additional renewable energy capacity? .......................................................................... 28
Reduced Russian natural gas supplies and multi-year lows in hydro and nuclear output led toan unparalleled increase in the EU wholesale electricity spot price ........................................ 29
New PV and wind capacity is expected to provide savings of EUR 100 billion since thebeginning of the energy crisis .................................................................................................. 30

Will hydropower in Europe recover in 2023 following a severe drought last year? ....... 32
To what extent can renewable energy use displace gas consumption in EU buildings in
2023 and 2024? ..................................................................................................................... 34
Will China’s role in global renewable energy deployment decline in 2023 and 2024? ... 37
China’s contribution to global renewable capacity additions is expected to increase in 2023
and 2024 thanks to distributed solar PV and wind ................................................................... 37
China’s increasing solar PV and wind manufacturing capabilities will maintain a strong
domestic demand ..................................................................................................................... 38

Will the US inflation Reduction Act impact wind and PV deployment in the short term?
................................................................................................................................................ 40
Trade and supply chain concerns led to lower capacity additions in 2022, but wind and PV
expansion will accelerate this year........................................................................................... 40

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The Inflation Reduction Act’s impact on renewable energy technology deployment will become
evident in 2025 ......................................................................................................................... 41

Renewable Energy Market Update June 2023

Will India’s renewable energy deployment boom in 2023 and 2024? .............................. 42
Higher prices, lower auction volumes and trade policies weigh on short-term PV deployment.................................................................................................................................................. 42
Large-scale PV manufacturing is emerging, but it creates short-term demand and supply
mismatches .............................................................................................................................. 43

Are competitive renewable energy auctions increasingly undersubscribed? ................ 45
The energy crisis has negatively affected participation in European auctions ........................ 45

Will market forces now drive the expansion of wind and solar PV plants, or is policy
still key? ................................................................................................................................ 48
Economic attractiveness and consumer demand drive PPA growth in the United States....... 49
Competitive auctions drive European growth in 2023-2024, but the pace will depend on policy
responses to volatile wholesale prices and rising costs .......................................................... 50

Is the renewable energy industry’s financial health improving?...................................... 53
Multiple challenges have tested the financial health of renewable energy companies since2019 ......................................................................................................................................... 53
A bright future for the financial health of the renewable energy industry is on the horizon, but it
requires governments and the industry to tackle multiple challenges ..................................... 55

Will solar PV and wind costs finally begin to fall again in 2023 and 2024? ..................... 57
Do higher shares of wind and solar PV generation always imply more curtailment? .... 60
The importance of grid infrastructure ....................................................................................... 61
Policy and system planning...................................................................................................... 62
Market design and operation.................................................................................................... 62

How are higher shares of wind and solar PV challenging power systems? ................... 64
Will global solar PV and wind technology manufacturing capacity be adequate to meet
Net Zero demand in 2030? ................................................................................................... 66
With PV manufacturing capacity to more than double by 2024, the industry is rushingheadlong into a supply glut ...................................................................................................... 66
Announced new PV manufacturing in India, the United States and Europe reaches 30 GW forpolysilicon and 100 GW for module assembly, with signs of diversification emerging ............ 66
China leads sluggish growth in wind equipment manufacturing as Western equipment
suppliers struggle financially .................................................................................................... 68

Where were governments able to rely on biofuels to secure energy supplies during the2022 energy crisis? .............................................................................................................. 70
Some markets increased biofuel production to mitigate high prices and address supply
concerns… ............................................................................................................................... 71… but overall biofuel demand growth declined by 40% during the energy crisis .................... 71

Will energy security concerns drive biofuel growth in 2023-2024? ................................. 73
Emerging markets to lead growth in 2023-2024 ...................................................................... 73
Renewable diesel growth remains strong in advanced economies, but overall biofuel demand
expansion will not accelerate by 2024 ..................................................................................... 74

Will we see lower biofuel prices in 2023-2024?.................................................................. 77
Advanced biofuel imports drive down biodiesel costs in Europe ............................................. 78

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Renewable diesel growth supports higher vegetable oil prices in the United States .............. 78

Renewable Energy Market Update June 2023

High Brazilian sugar and soybean production supports domestic and international demand
increases .................................................................................................................................. 79

What are governments and companies doing to avoid a supply crunch, and is it
enough? ................................................................................................................................ 81
The feedstock supply crunch ................................................................................................... 81
Government policies and market reactions are encouraging the largest-ever expansion in new
biofuel technologies ................................................................................................................. 82
More efforts are needed to expand feedstock supplies ........................................................... 83

General annex ....................................................................................................................... 84
Abbreviations and acronyms .................................................................................................... 84

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Units of measure ...................................................................................................................... 85

Renewable Energy Market Update June 2023

Executive summary
Led by solar PV, renewable power growth is surging –driven by the global energy crisis and policy momentum
Global renewable capacity additions are set to soar by 107 gigawatts (GW),
the largest absolute increase ever, to more than 440 GW in 2023. This isequivalent of more than the entire installed power capacity of Germany and Spain
combined. This unprecedented growth is being driven by expanding policy
support, growing energy security concerns and improving competitiveness against
fossil fuel alternatives. These factors are outweighing rising interest rates, higher
investment costs and persistent supply chain challenges.
Solar PV capacity, including both large utility-scale and small distributed
systems, accounts for two-thirds of this year’s projected increase in global
renewable capacity. In response to higher electricity prices caused by the global
energy crisis, policy makers in many countries, particularly in Europe, haveactively sought alternatives to imported fossil fuels that can improve energy
security. This shifting focus created a favourable environment for solar PV,
especially for residential and commercial systems that can be rapidly installed tomeet growing demand for renewable energy. These smaller distributed PV
applications are on track to account for half of this year’s overall deployment ofsolar PV – larger than the total deployment of onshore wind over the same period.
Following two consecutive years of decline, onshore wind capacity
additions are on course to rebound by 70% in 2023 to 107 GW, an all-time
record amount. This is mainly due to the commissioning of delayed projects in
China following last year’s Covid-19 restrictions. Faster expansion is also
expected in Europe and the United States as a result of supply chain challenges
pushing project commissioning from 2022 into 2023. On the other hand, offshore
wind growth is not expected to match the record expansion it achieved two years
ago due to the low volume of projects under construction outside of China.

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Solar PV additions will continue to increase in 2024 while challenges remain
for wind expansion. Declining module prices, greater uptake of distributed solar
PV systems and a policy push for large-scale deployment are driving higher
annual solar additions in all major markets – including China, the European Union,
the United States and India. In contrast, without rapid policy implementation,
global onshore wind additions in 2024 are expected to fall by around 5% from2023 levels. While China’s wind energy additions will continue to increase in 2024,
they are set to be more than offset by undersubscription of auctions and pending
permitting delays in Europe. The situation in Europe is expected to improve onceRenewable Energy Market Update June 2023

new legislation is implemented. Overall, cumulative world renewable capacity is
forecast to reach over 4 500 GW at the end of 2024, equal to the total power
capacity of China and the United States combined.
Global renewable capacity additions could reach 550 GW in 2024 in our
accelerated case, almost 20% higher than in the main forecast. This is mainly
due to a more rapid deployment of residential and commercial PV installations,assuming a faster implementation of recent policies and incentives. The upside
for utility- scale onshore wind and solar PV projects mostly depends on the paceof permitting, construction and timely grid connection of projects underdevelopment.

Renewables are at the forefront of Europe’s response to
the energy crisis
The crisis triggered by Russia’s invasion of Ukraine has accelerated
renewable energy deployment in the European Union, driving the bloc tourgently reduce its dependence on Russian natural gas imports. Policy actions inmany European countries has led us to revise our forecast for renewable capacity
additions in the EU in 2023 and 2024 upwards by 40% compared with before thewar. Rapid growth in distributed solar PV is the main reason for the more positive
outlook, accounting for almost three-quarters of the EU forecast revisions. This isdriven by high electricity prices that make solar PV more financially attractive andby increasing policy support in key EU markets, especially in Germany, Italy and
the Netherlands.
European countries introduced more policy and regulatory changes to easepermitting in the last 18 months than over the entire previous decade. Whilepermitting has become a key policy focus in Europe to accelerate the deploymentof large-scale wind and solar PV and early benefits are starting to be visible, theproposed policy changes are expected to have limited impact on the deploymentof renewables in 2023 and 2024 compared with other drivers, such as installationsof small-scale residential and commercial solar PV.

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EU electricity consumers are set to save an estimated EUR 100 billion during
the 2021-2023 period thanks to newly installed solar PV and wind capacity.
Accelerating renewable energy deployment in Europe since 2021 has mitigatedthe economic impact of the energy crisis. Low-cost wind and solar PV are on
course to displace an estimated 230 terawatt-hours (TWh) of expensive fossil fuelgeneration over the 2021-2023 period, helping to reduce wholesale electricity
prices in all European markets. Without these capacity additions, the averagewholesale price of electricity in the EU in 2022 would have been 8% higher, hurting
consumers, businesses and government budgets.

Renewable Energy Market Update June 2023

Renewables could help Europe displace more natural gas for heatingbuildings next winter. Last year was the second warmest winter on record in
Europe, which helped the EU use less gas for heating buildings. Projected growthof renewable energy such as clean electricity, bioenergy boilers, heat pumps, andsolar thermal and geothermal technologies could displace almost 8 bcm of EU
buildings-related gas consumption annually in 2023 and more than 17 bcm in
2024. This would represent a significant contribution to cover increasing gas
demand, should harsher winters and hotter summers occur over the course of2023-2024.

China is poised to outpace the rest of the world in
renewable capacity installations in 2023 and 2024
China’s contribution to global renewable capacity additions is expected toincrease in 2023 and 2024, consolidating its position as the undisputed
leader in global deployment. In 2022, China accounted for almost half of all newrenewable power capacity worldwide. By 2024, the country’s share is set to have
expanded to a record 55% of global annual renewable capacity deployment. By
2024, China will deliver almost 70% of all new offshore wind projects globally, as
well as over 60% of onshore wind and 50% of solar PV projects.
In the United States, capacity additions will rebound this year after a difficult2022. The US markets for wind and solar PV contracted last year due to restrictive
trade measures and supply chain constraints, but annual additions for bothtechnologies are set to increase by around 40% in 2023, with solar PV setting a
new record. The current forecast is underpinned by existing tax incentives, while
the Inflation Reduction Act will show its full effect after 2024, providing
unprecedented certainty for renewable energy projects until 2032.
India’s renewable capacity additions are expected to increase again in 2023
and 2024, owing to faster onshore wind, hydropower and distributed solar
PV deployment. However, utility-scale solar PV projects, India’s largest
renewable electricity growth segment, are expected to slow briefly this year due
to supply chain challenges, lower auction volumes and trade policies. While largescale PV manufacturing is emerging in India, import tariffs are causing short-term
demand and supply mismatches.

Competitiveness of wind and solar PV has improved, but
policies need to adapt to changing market conditions

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Electricity generation costs from new onshore wind and solar PV plants areprojected to decline by 2024 but will likely remain 10-15% above their preCovid levels in most markets outside China. Regardless, solar PV and onshore
wind remain the lowest cost options for new electricity generation in mostRenewable Energy Market Update June 2023

countries. Future power contracts for the end of 2023 and into 2024 in theEuropean Union, the United States, Japan, Australia and India indicate wholesale
power prices two to three times above 2020 averages. Today, wind and solar PV
plants can provide electricity at prices 30-50% lower than those of future power
contracts in most key markets, increasing renewables’ attractiveness for investors.
Policy uncertainties and volatile prices left one-sixth of renewable energy
auction volumes unallocated in 2022. Competitive renewable energy auctions
resulted in the awarding of a record-breaking 100 GW of capacity. However, 20
GW remained unallocated, the highest ever level with Europe accounting for twothirds of it. Government auction designs need to take into account recent inflation,interest rate rises and turbulence in commodity prices – and to envisage dynamic
indexation methods to attract investments.
Market-driven procurement is expected to contribute to approximately onefifth of solar PV and wind capacity expansion in 2023 and 2024, driven bycorporate power purchase agreements. The United States leads expansion incorporate power purchasing agreements, followed by Brazil, Australia, Spain and
Sweden. These agreements are motivated by the economic attractiveness ofrenewables, by the opportunity to hedge against rising and volatile power prices,and by sustainability goals.
The financial health of renewable energy value chains is critical for theindustry’s sustainable growth. Despite challenges from volatile commodity
prices, higher interest rates, supply chain constraints and trade measures, therenewable energy industry has shown financial resilience overall. However, there
is significant variation across sectors and countries. The solar PV manufacturingsector has a positive outlook with increasing capacity additions, but potential
supply gluts and declining prices may reduce company profit margins. Westernwind manufacturers face challenges from high commodity prices, as well as
permitting and auction designs that do not reflect changing financing
environments. While the energy crisis has also hurt the profitability of somespecific electricity utilities, these companies overall are maintaining their role aslarge investors in renewables.

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Global manufacturing capacity of solar PV is projected to reach nearly 1 000
GW in 2024, sufficient to meet annual demand in the IEA’s Net Zero
Emissions by 2050 Scenario. In contrast, wind equipment manufacturing is
expanding more slowly and may struggle to keep up with demand growth through2030. While China will continue to dominate global manufacturing capacity forsolar PV, announcements of solar PV manufacturing projects in the United Statesand India have doubled since December, indicating that supply chains arediversifying in the medium term.

Renewable Energy Market Update June 2023

The rapid expansion of wind and solar PV needs to be accompanied bypolicies and market rules supporting grid infrastructure and flexibility
investments. An increasing amount of electricity generation from wind and solar
PV is being curtailed in many markets, particularly where grid infrastructure andsystem planning lag behind deployment of these variable renewables. However,curtailed generation remains relatively low, ranging from 1.5% to 4% in most large
renewable energy markets. Multiple countries in Europe – including Spain,
Germany and Ireland – will see their annual share of wind and solar PV reach over
40% by 2024, which will require effective grid management to hold back risingcurtailment rates.

Biofuels have supported energy security during therecent crisis but are facing challenges of their own
Biofuels avoided the consumption of 2 million barrels of oil equivalent per
day (mboe/d) in 2022, equivalent to 4% of global transport sector oil demand.
Argentina, India and Indonesia all accelerated biofuel use in 2022. However, whilebiofuels offered energy security benefits, their prices climbed more quickly thanthose of gasoline and diesel in many countries. To mitigate increases in transport
fuel costs, Brazil, Sweden and Finland delayed planned increases to biofuel
blending obligations in 2022.
Biofuel prices are set to decline in 2023 and 2024 while remaining well above
pre-Ukraine war levels. Biofuel prices have declined in all major markets fromtheir peaks in 2022. In the first four months of 2023, ethanol prices declined
7%-16% from their 2022 average and biodiesel prices dropped 15%-28% acrossdifferent markets. While below 2022 peaks, prices for major biofuel feedstocks
such as corn, sugar and vegetable oils are expected to remain above pre-war
price levels, keeping biofuel prices at historically high levels through 2024.

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Biofuel demand is to expand by 11% by 2024, supported by existing policies
targeting energy security objectives. Only Indonesia and Brazil areaccelerating deployment by 2024. In advanced economies, new policies are not
likely to influence production until after 2024 as high prices, feedstock concerns
and technical constraints limit additional growth potential.

Renewable Energy Market Update June 2023

Introduction
The IEA created the Renewable Energy Market Update in March 2020 to evaluate
the short-term impact of the unprecedented Covid-19 crisis on renewable energy.
As part of the IEA's Renewables Market Report Series, this update concentrates
on short-term deployment trends rather than offering a comprehensive five-year
forecast for electricity, transport and heat developments. The 2020 and 2021
assessments focused on renewable energy market implications of the Covid-19
pandemic in an increasingly challenging economic environment.
In 2022, the Russian Federation’s (hereafter “Russia”) invasion of Ukraine sent
shockwaves through energy and agriculture markets, resulting in the world’s mostserious energy crisis to date. Last year’s edition of this report therefore provided
an early assessment of possible short-term impacts of the war on renewableenergy capacity additions and biofuel demand.
This year, with geopolitical tensions, a fragile global economy and high energy
prices persisting, policy makers and investors as well as industry and civil society
members involved in renewable energy have more questions than answers
concerning recent developments. This year’s Renewable Energy Market Update
has thus been redesigned to address 21 key questions that focus on the
renewable energy outlook for 2023 and 2024.
Despite the global energy crisis, renewable electricity capacity additions brokeanother record in 2022, prompting us to ask:
1. Did all renewable electricity technologies break deployment records in
2022?

The answer is no, but this leads naturally to a more pertinent question concerning
the short-term outlook:
2. Will renewable electricity capacity additions continue to break new records
in 2023 and 2024?
The global energy crisis that followed Russia’s invasion of Ukraine hit Europe’s
energy systems hard due to their dependence on Russian natural gas imports.
This report attempts to answer four questions concerning Europe’s changing
policies and market developments, and their implications for renewable energy in2023 and 2024:

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3. How will the energy crisis affect EU renewable energy deployment in 2023
and 2024?
4. How much less money is the European Union spending on expensive
electricity thanks to additional renewable energy capacity?
5. Will hydropower in Europe recover in 2023?

Renewable Energy Market Update June 2023

6. How are European countries addressing permitting challenges to accelerate
renewable energy development?
7. To what extent can renewable energy use displace gas consumption in EU
buildings in 2023 and 2024?

While the European Union is accelerating deployment to address energy security
concerns, the People’s Republic of China (hereafter “China”) remains the world’s
largest renewable energy market for all renewable energy technologies. The
country’s share in global capacity additions depends on policy changes andmarket conditions, impacting the global outlook. This report’s seventh question istherefore:
8. Will China’s share in global renewable energy deployment decline in 2023
and 2024?

In the United States, the Inflation Reduction Act (IRA) has introduced
unprecedented policy uncertainty for wind and solar PV developers, begging thequestion:
9. How will the US Inflation Reduction Act impact wind and PV deployment in
the short term?

Meanwhile, in India, considerable supply chain challenges stemming from theCovid-19 crisis have affected renewable energy development, causing us towonder:
10. Will India’s renewable energy deployment boom in 2023 and 2024?

The global energy crisis has placed energy and supply chain security at the heartof global policy discussions. Although enlarging renewable energy use could
tackle multiple policy challenges at the same time – including those related toenergy security, climate change and affordability – deployment could be deterredby supply chain challenges, high prices and elevated interest rates. The next fourquestions therefore address emerging policy and regulatory hurdles and ongoingmacroeconomic challenges:
11. Are competitive renewable energy auctions increasingly undersubscribed?
12. Will market forces now drive the expansion of wind and solar PV plants, oris policy still key?
13. Is the renewable energy industry’s financial health improving?
14. Will solar PV and wind costs finally begin to fall again in 2023 and 2024?

While more favourable policies and market conditions can accelerate renewablecapacity deployment, system integration and grid expansion implications arebound to arise. Our next two questions therefore address the threats of risingcurtailment rates and slow grid expansion, which could impede project application:

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15. Do higher shares of wind and solar PV generation always imply morecurtailment?

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16. How are higher shares of wind and solar PV challenging power systems?

Demand for solar PV panels and wind turbines will grow drastically over the next
decade to meet the IEA Net Zero Emissions by 2050 Scenario targets. The raceto acquire the capacity to meet this demand is therefore ongoing and clean energy
technology manufacturing is expanding rapidly, but we have to wonder:
17. Will global solar PV and wind technology manufacturing capacity beadequate to meet Net Zero demand in 2030?

Even though electricity remains at the core of global energy discussions, thetransport sector registers greater final energy consumption than the electricity
sector. Because the energy crisis has also affected biofuel supply, demand andprices worldwide, our final section of questions relates to the impact of biofuels onenergy security:
18. Where were governments able to rely on biofuels to secure energy
supplies during the 2022 energy crisis?
19. Will energy security concerns drive biofuel growth in 2023-2024?
20. Will we see lower biofuel prices in 2023-2024?

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21. What are governments and companies doing to avoid a supply crunch, andis it enough?

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Did all renewable electricity
technologies break deployment
records in 2022?
Solar PV was the only technology to break arecord for annual capacity additions
Overall renewable energy capacity additions rose by almost 13% to nearly
340 GW in 2022. However, solar PV was the only technology that broke adeployment record last year, with net additions of nearly 220 GW – a 35% increase
from 2021. Expansions in China and the European Union alone accounted for over
85% of the growth in annual PV capacity additions.
Annual PV growth rose in all major markets last year except the United States,
where it shrank almost 15% due to supply chain challenges and rising costs. Aftersolar PV, hydropower was the next-largest contributor to record-level renewableenergy expansion globally, owing to the commissioning of multiple large projects,
mostly in Asia. While global hydropower capacity additions did not break any
records, they were the highest they have been since 2016 thanks to continuous
expansion in China.

400
Others350
300

Hydropower

250
200

Wind

150
Solar PV100
500All renewables
2016

2017

2018

2019

2020

2021

Decline Increase

2022

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GW

Renewable electricity net annual capacity additions, 2017-2022

Renewable Energy Market Update June 2023

Wind power capacity additions decreased thepast two consecutive years
Annual wind capacity additions fell 21% from 2021 to 2022, declining for thesecond year in a row following record-level expansion in 2020, when developers
in China were rushing to complete projects before subsidies from the central
government ended that year. In 2022, Covid-related restrictions delayed thecommissioning of multiple wind projects in China, resulting in a drop in annual
additions.
Like in China, capacity additions in the US market declined for the second
consecutive year because of policy uncertainty ahead of promulgation of theInflation Reduction Act (IRA) and supply chain constraints leading to project
delays. In the European Union, however, wind capacity growth was much stronger
thanks to rapid expansion in Germany with the commissioning of previously
auctioned capacity, and in Spain owing to its large corporate PPA market.

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Global additions of bioenergy production for power generation also declined in
2022 due to the phaseout of subsidies in China, the world’s largest market. For
geothermal and concentrated solar power (CSP) technologies, global annual
market growth remained small but stable because policy support is concentrated
in just a few countries.

Renewable Energy Market Update June 2023

Will renewable electricity capacity
additions continue to break newrecords in 2023 and 2024?
The deployment of new renewable electricity installations is expected to breakrecords in both 2023 and 2024 thanks to strong and continuous policy support aswell as high electricity prices, which will increase the economic attractiveness of
distributed PV systems. Global renewable capacity additions are set to soar by
107 gigawatts (GW), the largest absolute increase ever, to more than 440 GW in
2023. Despite a hike in interest rates, rising system costs and persistent supply
chain challenges, faster solar PV and wind expansion underpins this acceleration
due to continuous policy support and improving competitiveness. Renewables will
break another annual deployment record in 2024, driven by solar PV, which willaccount for the two-thirds of next year’s entire renewable capacity additions.

2023: Solar PV dominates growth, andonshore wind additions rebound to break the2020 record
Solar PV remains the main source of global renewable capacity expansion in
2023, accounting for 65% of growth with distributed applications, including
residential and commercial systems, accounting for almost half of global PV
expansion. Since Russia’s invasion of Ukraine, the global energy crisis has driven
up wholesale and retail electricity prices in many parts of the world, making small
solar PV systems more economically attractive for residential and commercial
customers. Policy makers in many countries, especially in Europe, have been
seeking options for immediate diversification away from imported fossil fuels,
improving the policy environment for distributed solar PV systems that can beinstalled rapidly.
Following two consecutive years of decline, annual global onshore wind capacity
additions are expected to jump 70% in 2023 to break the 2020 record. This surge
is being fuelled mostly by the commissioning of projects in China that were
delayed by Covid-related restrictions last year. Supply chain challenges also
slowed the pace of construction in the United States and Europe, pushing projectcommissioning from 2022 to 2023.

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Offshore wind growth is also expected to recover from a major drop in annual
additions last year resulting from a policy rush in China in 2021. While annualRenewable Energy Market Update June 2023

offshore additions are forecast to increase almost 50% in 2023, this growth is not
sufficient to match the record-level expansion of two years ago.
In the accelerated case, renewable capacity additions could reach over 500 GW
this year, almost 15% higher compared with the main case. Distributed solar PV
accounts for the largest upside. While new policies incentivise residential andcommercial PV installations and higher electricity prices improve the businesscase, uncertainty remains over the pace of consumer adaption considering current
macroeconomic environment with elevated interest rates. The upside for utilityscale onshore wind and solar PV projects mostly depends on the pace ofconstruction, permitting and timely grid connection of projects under development.

GW

Net renewable electricity capacity additions by technology, historical, main andaccelerated cases
600
Others500

Bioenergy

400

Hydropower

300

Offshore wind200

Onshore wind
PV-distributed

1000PV-utility
2017

2018

2019

2020

2021

2022

Historical

2023

2024

Main case

2023

2024

Acc. case

IEA. CC BY 4.0.

2024: Another record year for global capacity
additions, led by solar PV
Annual solar PV market growth is expected to continue, reaching almost 310 GW
in 2024, an increase of over 7% from 2023. Lower module prices, greater
distributed PV system uptake and a policy push for large-scale deployment trigger
higher annual additions in all major markets including China, the European Union,
the United States and India. In Brazil, policy changes on net metering rules reduce
remuneration rates for surplus generation and cause additions to decline from2023 to 2024.

PAGE | 19

I EA. CC BY 4.0.

For onshore wind, annual additions are expected to fall around 4% from 2023 to2024. While China’s wind energy expansion is forecast to continue with thecommissioning of large-scale onshore projects in mega-bases in the northeast as
well as provincial incentives that support offshore plants, additions in other major

Renewable Energy Market Update June 2023

markets are expected to decline. In Europe, undersubscription in multiple auctionsin Germany and Spain, permitting delays in France and turbine placement
restrictions in Poland prevent faster wind expansion. In the United States, the paceof adding new capacity decelerates in 2024 because production tax credit rates
are lower than under the previous federal policy.

70

Onshore wind

180
160

60

140

50

120

40

100

30

80
60

20

40

10
0

Solar PV200China European United
Union
States
2022

2023

India

BrazilChina European United
Union
States
2022

2024

2023

India

Brazil2024

IEA. CC BY 4.0.

Meanwhile, higher turbine prices in India due to supply chain challenges reducethe bankability of already-auctioned projects, resulting in delays. Limited auction
capacity in the Brazilian market also cuts annual wind additions by half between
2023 and 2024.
In the accelerated case, renewable power capacity additions in 2024 could be
17% higher than in the main case forecast, reaching over 540 GW. This will require
both faster deployment of distributed PV systems and expedited commissioningof large-scale solar and wind projects in the pipeline, especially in China, Europe,
India and the United States.

PAGE | 20

I EA. CC BY 4.0.

GW

Net renewable electricity capacity additions by country/region, main caseRenewable Energy Market Update June 2023

How will the energy crisis affectEU renewable energy deployment
in 2023 and 2024?
Russia’s invasion of Ukraine has pushed the accelerator on renewable energy
deployment in the European Union, impacting short-term deployment especially,as the bloc urgently needs to reduce its dependence on Russian natural gas
imports. As a result of policy actions in many European countries, we have revised
the forecast for renewable capacity additions for 2023 and 2024 upwards by 38%
compared with IEA expectations before the war in December 2021.

Rapid distributed solar PV growth is the main
reason for the upwards forecast revision
In the European Union, residential and commercial solar PV systems account for
74% of the increase to our forecast, with the majority (82%) of the rise comingfrom six key markets: Germany, Spain, the Netherlands, France, Italy andSweden. Two main developments are driving this transformation: the first is theincreasingly attractive business case for self-consumption since January 2021.

Paris

BerlinRome

Amsterdam

MadridStockholm

1Q2023

3Q20220
1Q2022

Renewables Revision Renewables
2021
2023
(May)
Distributed solar PV
Utility solar PV
Wind onshore
Wind offshore

100
3Q20210200

1Q202120300

3Q202040

400

1Q202060500

3Q201980600

1Q2019100

700

3Q2018120

800

1Q2018GW

140

EUR/MWhEU capacity additions in 2023-2024 (left) and average household electricity prices forselected capital cities (right)

IEA. CC BY 4.0.

PAGE | 21

I EA. CC BY 4.0.

Notes: Retail prices for households exclude taxes and value-added taxes. Household prices consider new tariff
offers. Quarterly data are an average of the months. The price trend in capital cities are considered a proxy for that country.
Source: (right) Household Energy Price Index (HEPI) by Energie-Control Austria, MEKH and VaasaETT, © 2023
VaasaETT Ltd.

Renewable Energy Market Update June 2023

Rising gas and coal prices during the economic rebound from Covid-19 caused
retail electricity prices in the European Union 1 to climb approximately 60%
between January 2021 and January 2022, making self-consumption more
economically appealing. This accounts for 32% of the upwards revision for
distributed solar PV.
The second reason for this transformation is the new market conditions triggered
by Russia's invasion of Ukraine and the policy response of some countries toincentivise distributed solar PV deployment. Higher retail prices and concrete
policy action in Europe explain almost 60% of the distributed solar PV forecast
revision. Following Russia’s invasion of Ukraine, European electricity prices
increased another 40% from February to October 2022 due to gas supply
restrictions. Policy makers acted swiftly to accelerate distributed PV deployment
to help mitigate the burden of energy cost increases for consumers.
Revisions to the distributed solar PV forecast (2023-2024) due to policy and market
changes (left) and by major country (right)
GW

Other
11%

6
5
4
3
2
1
0

Market & policy:
Pre-January 2022
32%

Market & policy:
Post-January 2022
57%

Spain

Nether- Germany France Sweden
lands

Commerical PV

Italy

Residential PV

IEA. CC BY 4.0.
Note: “Other” refers to the share of remaining EU countries in the revised forecast for net distributed PV (Poland, Italy,
Portugal, Greece, Austria, Finland, Denmark, Belgium, Ireland, Lithuania, Romania, Croatia, Hungary, Bulgaria, Estonia,
Cyprus, Luxembourg, Slovenia, Slovakia, Latvia, the Czech Republic and Malta.).
Note by Türkiye: The information in this document with reference to “Cyprus” relates to the southern part of the Island.
There is no single authority representing both Turkish and Greek Cypriot people on the Island. Türkiye recognises the
Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United
Nations, Türkiye shall preserve its position concerning the “Cyprus issue”.
Note by all the European Union member states of the OECD and the European Union: The Republic of Cyprus isrecognised by all members of the United Nations with the exception of Türkiye. The information in this document relates tothe area under the effective control of the government of the Republic of Cyprus.

For instance, Germany offered more direct financial support, raised existing
remuneration levels and introduced further incentives (premiums) to sell all
generation to the grid. The prolongation of tax rebates in Italy and net metering in

PAGE | 22

I EA. CC BY 4.0.

1
Data for the European Union is from the Household Energy Price Index (HEPI) for Europe by Energie-Control Austria,
MEKH and VaasaETT, © 2022 VaasaETT Ltd. Released March 31, 2023.

Renewable Energy Market Update June 2023

the Netherlands, which were both due to expire before the war began, are also
driving faster distributed solar PV uptake. Meanwhile, Spain’s regulatory reforms
to expedite the environmental permitting process and to free up grid capacity for
self-consumption are also prompting faster expansion. In France, the government
modified auctions to retroactively increase awarded capacity by 40% for largecommercial installations.
These policy actions, combined with higher retail prices, underpin the upwards
forecast revisions for these markets. However, even in the absence of concrete
policy change, consumer action to reduce electricity bills remains a key driver ofaccelerated residential solar PV growth in Sweden, France and Spain where retailprices remain above pre-war levels. While electricity prices have begun to fallsince January 2023 in most European markets, they remain approximately 80%
higher than January 2021. Permitting challenges and limited participation incompetitive auctions prevent faster growth of utility-scale wind and solar PV.

Permitting challenges and limited
participation in competitive auctions prevent
faster growth of utility-scale wind and solar
PV
Utility-scale growth for 2023 and 2024 has also been revised up, but to a muchlesser extent due to permitting challenges, auction undersubscription and longdevelopment timelines. While European countries and the European Commission
are moving quickly to streamline permitting (see “How are European countries
addressing permitting challenges to accelerate renewable energy
development?”), the impact on deployment in 2023-2024 is expected to be limited.
Developers face multiple challenges, including rising equipment costs, inflation,and supply chain constraints, which have made them less eager to participate incompetitive auctions. Part of this is due to relatively low ceiling or reference prices,
as well as fixed contract prices that are not indexed to inflation. Somegovernments have taken steps to modify auction designs to better reflect thechanging pricing environment: for instance, Germany raised its auction ceiling
prices and Portugal has adjusted contract prices for inflation. We have accordingly
revised the forecast for utility-scale solar PV upwards for these markets.

PAGE | 23

I EA. CC BY 4.0.

Meanwhile, Spain’s corporate PPA market growth is also resulting in revised
utility-scale deployment for that country, but the upside potential for other markets
is more uncertain (see “Will market forces now drive the expansion of wind andsolar PV plants, or is policy still key?”). For onshore wind capacity, the upwardrevision results from delayed projects coming online after supply chain constraints
and cumbersome permitting procedures lengthened project lead times.

Renewable Energy Market Update June 2023

How are European countries
addressing permitting challenges
to accelerate renewable energy
development?
Most countries in Europe have introduced policies to address the challenges
posed by slow and complex permitting procedures for renewable energy projects.
In fact, more policies and regulatory changes have been instituted in the last
18 months to ease permitting than over the entire previous decade.
The time required to obtain permits can vary significantly from one EU country to
the next, ranging from one to five years for ground-mounted solar projects andfrom three to nine years for onshore wind projects. Delays resulting from complex
and slow authorisation procedures are leading to limited participation in renewableenergy auctions, increasing project risks and costs and ultimately weakening
project economics and the bankability of power plants.

Permitting has finally become a key policy
focus in Europe
Today at least 59 GW of onshore wind capacity (four times the capacity
commissioned in 2022) is held up in various permitting procedures in Europe. For
solar PV, the average length of permitting procedures is shorter than for wind, butthere could be a significant number of projects awaiting permitting. For example,
solar PV projects waiting for construction and generation permits in Portugal amountto more than 4 GW, which is almost five times the capacity commissioned in 2022.
Although long permitting timelines remain a major challenge in many countries,
they became a key policy focus in the European Union following Russia’s invasionof Ukraine. In May 2022, the European Commission released recommendations
on permitting in the communication package of its REPowerEU Plan. The
European Council also agreed to member states’ identification of renewableenergy “go-to areas” where low environmental risk and suitability for renewable
power plants could allow shortened and simplified permitting to be applied.

PAGE | 24

I EA. CC BY 4.0.

Mostly following the EU guidelines, half of the EU member states and the United
Kingdom have made important policy changes to streamline permitting
procedures. These policies focus on three major areas: simplifying permitting
procedures and/or setting clear permitting timelines (adopted by 10 countries);
identifying preferential areas for renewable energy projects to fast-track permittingRenewable Energy Market Update June 2023

(adopted by 2 governments); and removing certain permitting requirements forsmall renewable power projects or increasing the minimum capacity requirement
for environmental impact assessments (adopted by 4 countries). These changes
aim to reduce permitting lead times, increase project bankability, and ultimately
accelerate the deployment of renewable energy in Europe.
Policy changes on renewable energy permitting in EU and other countries following
Russia’s invasion of Ukraine
Country /RegionEuropean
Union

Month
and
year

Technology

Category

Description

May 2022

All renewables

1) Simplify
permitting
procedures

The recommendation on permitting under
the REPowerEU Plan identifies bestpractices and provides guidance to speed
up permit-granting procedures forrenewable energy projects.

2) Identify
priority areas
3) Revisit
threshold for
permitting
All renewables

1) Simplify
permitting
procedures
2) Identify
priority areas
3) Revisit
threshold for
permitting

The European Council agreed on targeted
amendments to the Renewable Energy
Directive. Member states will design
dedicated “go-to areas” for renewableenergy development, with shortened andsimplified permitting processes in areas
with lower environmental risks. Member
states are also required to ensure public
involvement to address social acceptanceissues, and to exempt PV equipment onbuildings from environmental impact
assessments (EIAs).

Austria

Jan 2023

Solar PV

1) Simplify
permitting
procedures

In Austria, EIAs for solar PV projects will
be accelerated given their special public
interest status, while projects that receive
no complaints will not have to be halted.

Czech
Republic

Apr 2023

Solar PV

1) Simplify
permitting
procedures

The Czech Republic approved anamendment to the construction law tocreate a simplified permitting procedure forsolar panel installation with fixed deadlines.

Estonia

Feb 2023

Wind1) Simplify
permitting
procedures

To speed up permitting procedures in
Estonia, wind farm developers have theopportunity to waive the second stage ofplanning in the case of special planning of
the state and local government.

Finland

Aug 2022

All renewables

1) Simplify
permitting
procedures

Certain renewable energy projects in
Finland are to be given temporary priority
until the end of 2025 in regional
administrative agencies’ processing of
permits.

PAGE | 25

I EA. CC BY 4.0.

Dec 2022

Country /Region

Month
and
year

Technology

Category

Description

FranceFeb 2023

All renewables

2) Identify
priority areas

France adopted a law empowering local
authorities to create preferred “go-to” and“no-go” areas for renewable energy
development.

Germany

Apr 2022

Offshore wind1) Simplify
permitting
procedures

As a part of the Easter Package, Germany
has prioritised offshore wind in maritime
spatial planning and streamlined permitting
procedures.

Dec 2022

Onshore wind1) Simplify
permitting
procedures

Germany relaxed air radio navigation rules
to accelerate the permitting process foronshore wind.

IrelandOct 2022

Solar PV

3) Revisit
threshold for
permitting

Ireland’s revised law on exemptions forrooftop solar panel installations removed
the requirement for planning permission
and extended the exemptions to newbuilding categories.

Italy

Mar 2022

All renewables

1) Simplify
permitting
procedures

Italy began bypassing regional authorities
to permit some renewable energy projects.
The government also simplified permitting
processes to install commercial rooftop PV
systems.

Feb 2023

Solar PV

1) Simplify
permitting
procedures

A new law simplifies the PV installation
process and sets a limit of 150 days on thepermitting process.

Lithuania

Apr 2022

Solar PVWind

3) Revisit
threshold for
permitting

Lithuania abolished solar PV and windproduction permits for self-consumption(power plants of up to 30 kW currently do
not require them).

Luxembourg

Jan 2023

Solar PV

1) Simplify
permitting
procedures

Luxembourg adopted a regulation to limit
the permit-granting time to less than threemonths for solar PV installations and colocated energy storage systems.

PortugalApr 2022

All renewables

1) Simplify
permitting
procedures

Portugal’s exceptional measures to simplify
procedures for renewable energy projects
exempt developers from securing an
operating licence/certificate, provided thatthe network operator confirms conditions
for grid connection. They also simplify EIA
procedures as long as projects are not
located in sensitive areas.

2) Identify
priority areas

Spain

Dec 2022

Solar PVWind

3) Revisit
threshold for
permitting

Portugal scrapped EIA requirements forsolar PV installations occupying less than
100 hectares and for wind stations locatedmore than 2 km apart.

Mar 2023

Solar PVWind

3) Revisit
threshold for
permitting

Spain has enabled an accelerated
temporary procedure until 2024 to grant
environmental approvals for wind power
plants of less than 75 MW and solar parks
not exceeding 150 MW.

PAGE | 26

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Renewable Energy Market Update June 2023

Renewable Energy Market Update June 2023

Country /Region

Month
and
year

Technology

Category

Description

SwedenNov 2022

All renewables

1) Simplify
permitting
procedures

To strengthen its energy supply, Sweden
proposed a list of budgetary investmentsthat includes streamlining permitting
processes for grid connection.

UnitedKingdom

Sep 2022

Onshore wind1) Simplify
permitting
procedures

The United Kingdom has presented
measures to relax planning rules forapproving onshore wind projects and to
streamline EIAs.

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I EA. CC BY 4.0.

In last year’s Renewables 2022 report, we determined that addressing a numberof barriers, including permitting challenges in Europe, could result in 30% more
renewable energy deployment than what was detailed in the main forecast for2022-2027.

Renewable Energy Market Update June 2023

How much less money is theEuropean Union spending on
expensive electricity thanks toadditional renewable energy
capacity?
EU electricity consumers are expected to save an estimated EUR 100 billion
during 2021-2023 thanks to additional electricity generation from newly installed
solar PV and wind capacity. Low-cost new wind and solar PV installations havedisplaced an estimated 230 TWh of expensive fossil fuel generation since Russia’s
invasion of Ukraine, leading to a reduction in wholesale electricity prices on all
European markets. Without these capacity additions, the average wholesale priceof electricity in the European Union in 2022 would have been 8% higher.

100

500

Scenario

80

400

60

300

40

200

20

100

0

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 122021

Germany
Netherlands
Rest of EU

2022
FrancePolandActual av. price (right axis)

EUR/MWhbln EUR

Cumulative electricity costs decrease due to PV and wind additions, and average EU
wholesale spot electricity price, actual and in no-RES-additions scenario, 2021-2023

0

2023
Spain
Italy
No-RES-additions av. price (right axis)

IEA. CC BY 4.0.

PAGE | 28

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Notes: RES = renewable energy source. The no-RES-additions scenario assumes no PV or wind capacity additions in
2021-2023.
Source: IEA analysis based on ENTSO-E Transparency Platform (accessed April 2023).

Renewable Energy Market Update June 2023

Reduced Russian natural gas supplies andmulti-year lows in hydro and nuclear output
led to an unparalleled increase in the EU
wholesale electricity spot price
Following Russia’s invasion of Ukraine, Russian natural gas deliveries to theEuropean Union by pipeline decreased by 80% from 2021 to 2022. This sharp
drop coincided with multi-year lows in European hydro and nuclear power output.
Between January 2021 and August 2022, the average monthly natural gas priceincreased ten-fold and the price of hard coal quintupled. As a result, the cost of
power generation from natural gas, which usually sets the electricity price in most
EU wholesale markets, increased to unparalleled levels, reaching almost 800
EUR/MWh for open-cycle gas turbines (OCGTs) and 500 EUR/MWh for
combined-cycle gas turbines (CCGTs).

1 600

800

1 400

700

1 200

600

1 000

500

800

400

600

300

400

200

200

100

0

1

2

3

4

5

6

7

8

9 10 11 12 1

2

3

4

5

2021

6

7

8

9 10 11 12 1

2022

2

3

Variable costs (EUR/MWh)

Index (Jan 2021=100)

EU CO2 emissions allowances, natural gas prices, coal price index, and variable
electricity generation costs, 2021-2023

0

2023

CO2 price

Natural gas priceCoal price

Hard coal gen. costs (right axis)

CCGT gen. costs (right axis)

OCGT gen. costs (right axis)

IEA. CC BY 4.0.
Notes: CCGT = combined-cycle gas turbine. OCGT = open-cycle gas turbine. Natural gas price – TTF index; hard coalprice – API2 index; CO2 price – EEC index. Gen: generation
Source: Bloomberg LP Terminal (accessed April 2023).

PAGE | 29

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In the European Union, the wholesale electricity spot market is the benchmark formost electricity supply contracts, driving prices up for all consumers. The price isset by the most expensive generator needed to fill demand at any given moment.
Due to the steep increases in natural gas and coal prices in 2021-2022,
consumers in the wholesale market such as retailers or large companies withlimited fixed-contract energy portfolios and without strong hedging positions had
to purchase electricity at rates of up to 15-20 times the averages of 2015-2020.

Renewable Energy Market Update June 2023

60

700

50

600
500

40

EUR/MWh

GW

Germany hourly generation from hard coal and natural gas, and from PV and wind, andhourly wholesale electricity spot price, actual and in no-RES-additions scenario, 8-14
August 2022

400

30

300

20

200

10

100

0

0
8

Hard coal and gas
Actual price (right axis)

9

10

11

12

Hard coal and gas displaced
No-RES-additions price (right axis)

13

14

PV and wind

IEA. CC BY 4.0.
Note: RES = renewable energy source. The no-RES scenario assumes no PV or wind capacity additions in 2021-2023.
Source: IEA analysis based on ENTSO-E Transparency Platform (accessed April 2023).

New PV and wind capacity is expected toprovide savings of EUR 100 billion since thebeginning of the energy crisis
In 2021 and 2022, the European Union added nearly 90 GW of PV and windcapacity. This capacity has displaced almost 10% of hard coal and natural gas
generation, pushing the most expensive power plants out of the market andeffectively reducing the price for all consumers. In addition, another 60 GW of solar
PV and wind is expected to come online in 2023, increasing displacement toalmost 20% this year.
Based on the historical relationship between hourly generation from hard coal andnatural gas, and wholesale electricity spot prices for several large EU economies
in 2021 and 2022, we modelled a scenario for 2023 to estimate the further savings
possible with additional wind and solar PV capacity. The results show that without
PV and wind capacity growth in 2021-2023, average wholesale electricity prices
would be higher by about 3% in 2021, 8% in 2022 and 15% in 2023, raising thecost of electricity supply for the entire European Union by roughly EUR 100 billion.

PAGE | 30

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For instance, new renewable energy capacity in Spain offers saving of 60% morethan the country’s allocated budget of EUR 6.3 billion for an EC-approved
temporary intervention to reduce wholesale electricity prices. For Germany,savings gained through new renewable generation capacity would pay for thegovernment’s recent proposal to support electricity prices for energy-intensive
industries until 2030.

Renewable Energy Market Update June 2023

Accelerating annual renewable energy deployment since 2021 has provided a
cost-effective solution to the energy crisis’ economic challenges. Long-term
contracts secured through policy mechanisms and regulations provide stableprices for most wind and solar PV power generators in Europe, limiting their
exposure to volatile electricity prices. They can also help shelter consumers fromrising electricity prices. The total investment cost of deploying PV and windcapacity over 2021-2023 is expected to amount to about EUR 200 billion. Almost
50% of this investment cost will likely be returned in the form of savings on power
consumers’ bills by as early as the end of 2023, while these power plants willcontinue to provide benefits for the next 20-25 years.

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According to the IEA accelerated case forecast, savings could have been about
15% higher if EU capacity had been increased more rapidly, through quicker
implementation of policies supporting the deployment of technologies with shortlead times (i.e. distributed solar PV) and a reduction in red tape for projects at theadvanced stages of permitting.

Renewable Energy Market Update June 2023

Will hydropower in Europe recoverin 2023 following a severe droughtlast year?
European hydropower generation declined by 15% (80 TWh) in 2022 to 460 TWh,dropping to its lowest level since 2004. Variations in hydropower output arecommon due to natural fluctuations in rainfall, but last year’s drop was the largest
annual decline in the region since 1990. Four consecutive below-average rainyseasons led to drought conditions and lowered reservoir levels.
The reduced hydropower output resulted in an estimated additional 13-14 bcm ofnatural gas being used to generate electricity last year. This exacerbated thealready high electricity prices the region was experiencing due to reduced gas
supply caused by Russia’s invasion of Ukraine and nuclear plant outages inFrance. Some large hydropower operators in Europe suffered financial losses as
they had to buy back power at higher prices to meet their electricity delivery
commitments.

60

TWh

40

800
700

20

600

0

500

- 20

400
300

- 40

200

- 60

100

- 80

April - December
Minimum

Change in generation

2023*

2022

2021

2020

2019

2018

2017

2016

2015

2022

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

2014

0

- 100

2013

TWh

Annual year-on-year change in hydropower generation in Europe (1992-2022) andhistorical and forecast (2013-2023)

January - March
Maximum

IEA. CC BY 4.0.
Notes: 2023*= forecast. Minimum = the lower bound for the 2023 forecast and Maximum = the upper bound.

PAGE | 32

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In 2023, hydropower electricity generation is forecast to increase by 3% year-onyear (16 TWh), based on preliminary data for the first three months of this year.
First quarter data in Europe is up 5% year-on-year compared to 2022, thanks tohigher output from the Iberian and Balkan regions. Generation for January throughMarch in Spain and Portugal was up 60% and 140% respectively, as highRenewable Energy Market Update June 2023

precipitation in January helped fill reservoirs to above average levels for the firstquarter. Heavier than average rainfall along the Danube also boosted annual
output from run-of-river plants in Romania, Croatia, and Slovenia by about 40%.
While generation in 2023 is expected to increase to 480 TWh, this is still 9% below
the 10-year average (530 TWh) as drought conditions in key markets continued
during the past winter. First quarter generation is down year-on-year in France,
Italy, and Greece following low rainfall. In the Alps, warmer winter temperaturesand less snowfall are expected to result in below average snowmelt for theremainder of the year. Output will also depend on whether operators decide to fillreservoirs or generate.

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However, generation will depend on how much precipitation Europe gets from
April to December, a key uncertainty for the forecast. Seasonal precipitation
patterns are becoming increasingly unpredictable and can exhibit different trends
compared to the first quarter. For instance, after the three consecutive months of
year-on-year growth in January to March 2023, hydropower generation in Spain
dropped 15% in April compared to 2022. Lower precipitation levels across several
markets could result in Europe’s hydro generation falling to 470 TWh, though thisis still above last year’s levels. Conversely, should some markets receiver higher
precipitation, such as Italy where rainfall was heavier in May than previous
months, Europe’s generation could exceed 535 TWh. This upside potential ofaround 50 TWh could contribute to displacing around 9-10 bcm of additional
natural gas in Europe.

Renewable Energy Market Update June 2023

To what extent can renewableenergy use displace gas
consumption in EU buildings in
2023 and 2024?
With heating and cooling being the largest energy end-users in the EU buildings
sector, air temperature is the primary short-term determinant of the bloc’s buildings
sector energy demand. Direct and indirect use of renewable energy throughelectricity, in addition to greater energy efficiency and energy sobriety, can play a
key role in reducing EU gas demand in the short term.
Annual EU buildings natural gas demand, including indirect consumption, hasranged from 150 bcm to 210 bcm since 2010. The number of heating degree days
has largely influenced this demand along with prices and consumer behaviour.
The 2022/23 heating season was the second warmest on record for the European
Union, with the average air temperature 1°C above the previous ten-year average,
and 9% fewer heating degree days.

0.0
-5 0

5

10

15

20

25

Average daily temperature (°C)

30

2021

2018

2015

2012

2009

2006

2003

0.5

2000

Change in annual heating degree days
Change in annual gas consumption inbuildings

9
8
7
6
5
4
3
2
1
0

4 000
3 500
3 000
2 500
2 000
1 500
1 000
500

Heating degree days (°C)

1.0

1997

1.5

1994

2.0

°C

20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%

0
1980
1985
1990
1995
2000
2005
2010
2015
2020

2.5

1991

Daily electricity demand (TWh)Sensitivity of total final electricity consumption to temperature in France, 2021-2022(left), correlations between annual heating degree days and final consumption (directuse) of natural gas in buildings in the EU, 1991-2020 (centre), and EU long-term
average air temperature and variability during the heating season, 1980-2022 (right)

Average air temperature from October ofthe previous year to MarchAnnual heating degree days (right axis)

CC BY 4.0.

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Note: The heating degree days series was calculated based on a reference temperature of 18°C with a 15°C threshold.
Sources: Eurostat (2023), Heating and cooling degree days - statistics; IEA (2022), Energy Balances; Entsoe (2023),
Transparency Platform; IEA (2023), Weather for Energy Tracker.

Renewable Energy Market Update June 2023

All other things being equal, such mild winter conditions alone would entail an
estimated 7% drop in gas consumption in buildings from previous winters. This
mild weather therefore eased pressure on EU gas markets considerably in thewinter of 2022/23. 2
While long-term climate trends point to an overall temperature rise, a harsh winterand a hot summer could intensify EU buildings sector heating and cooling demandin the short term.

250

4000
3500

200

3000
2500

150

2000
100

1500
1000

50

2022(e)

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

500

2010

0

(°C)

bcm

EU historical gas consumption in the buildings sector, 2010-2022

Indirect gas consumption (district heating)Indirect gas consumption (electricity)

Direct gas consumption

Heating degree days (right axis)

0

CC BY 4.0.
Note: The heating degree days series was calculated based on a reference temperature of 18°C with a 15°C threshold.
Sources: Eurostat (2023), Heating and cooling degree days - statistics; IEA energy balances (2023); IEA (2023), Weather
for Energy Tracker. 2022e: 2022 estimate

The rapid expansion of renewable energy technology use in buildings can ease
EU natural gas demand and contribute to the bloc’s energy security in the shortterm. Projected cumulative new developments in direct use of renewable heat andexpansion of renewable electricity post-2022 would displace almost 8 bcm of EU
buildings-related gas consumption annually in 2023 and more than 17 bcm in 2024. 3
This is equivalent to avoided emissions of more than 50 Mt CO2 in 2023-2024.

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2
In addition to weather, behavioural factors (i.e. a drop in space heating as a result of voluntary efforts or in reaction to highgas prices) also helped reduce gas demand in the EU buildings sector.
3
These calculations take into consideration hourly demand profiles and generation patterns of each renewable electricity
technology at the country level.

Renewable Energy Market Update June 2023

bcm

Natural gas consumption displaced by projected additional renewable energy supply in
the European Union in 2023 and cumulative in 2024
20
18
16
14
12
10
8
6
4
2
0

2023

2024

Natural gas displaced by new direct uses of RE heat
Natural gas displaced by additional RE electricity generation
Natural gas displaced by new heat pump deployment

CC BY 4.0.
Notes: RE: renewable energy.

The largest contribution to gas displacement in buildings is expected to come fromprojected development of renewables in the electricity sector, with additional
renewable generation compared to 2022 substituting 5 bcm of gas consumption forbuildings electricity consumption in 2023 and more than 10 bcm in 2024. Countries
for which growth in electricity generation is projected to displace the most gas
cumulatively in 2023-2024 are Spain, Italy, Netherlands, Germany and France.
Spain and Italy have important shares of gas in their electricity mixes and they
benefit from well-matched demand-supply profiles with solar PV generation patterns
accommodating summer cooling demand.

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The sustained growth of annual heat pump sales driven by policy incentives in many
countries is anticipated to represent another quarter of the gas displaced in buildings(7 bcm cumulatively by 2024). Limited biomass stoves and boilers, solar thermal
and geothermal developments in buildings yield only marginal gas savings by 2024
(less than 3 bcm cumulatively). While these renewable energy contributions will
help ease potential tensions on gas markets, the potential of renewable heattechnologies is still largely untapped, both in buildings and industry. Harnessing
their potential would, however, require sustained and comprehensive policy action
to improve consumer awareness, reduce high upfront costs and split-incentive
challenges, alleviate supply chain challenges, expedite permitting procedures,
establish training programmes and support R&D to further improve technologies.

Renewable Energy Market Update June 2023

Will China’s role in global
renewable energy deployment
decline in 2023 and 2024?
China’s ambitious target of net zero emissions by 2060, its strong and continuous
policy support for renewable energy, and the large size of its domestic
manufacturing industry for all renewable technologies consolidate China’s position
as the undisputed leader in global renewable energy deployment in 2023 and 2024.

China’s contribution to global renewablecapacity additions is expected to increase in
2023 and 2024 thanks to distributed solar PV
and wind
In 2022, China accounted for 49% of global renewable capacity additions, due
mostly to acceleration in solar PV growth, particularly for distributed systems.
Following the phaseout of solar PV subsidies, the Chinese government has
transferred the focus of its renewable energy deployment strategy to two principal
areas that underpin the forecast for 2023 and 2024.

300

Annual capacity additions

60%

250

50%

200

40%

150

30%

100

20%

50

10%

0

0%

2017 2018 2019 2020 2021 2022 2023 2024
PV-utility
Onshore wind
Hydropower
Other technologies

PV-distributed
Offshore wind
Bioenergy% of China

90%% of China in global capacity additions

80%
70%
60%
50%
40%
30%
20%
10%
0%
2020

2021

PV-utility
Onshore wind
Hydropower

2022

2023

2024

PV-distributed
Offshore wind

IEA. CC BY 4.0.

China’s first aim is to develop large-scale mega projects far from demand centres
that can provide power at prices equal to or lower than provincial benchmark coal

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GW

China net renewable capacity additions (2017-2024) and its share in global deployment

Renewable Energy Market Update June 2023

electricity prices. Second, the government is incentivising distributed solar PV
projects through capacity targets for public institutions and large state-owned
enterprises for self-consumption, and for smaller residential systems throughsubsidies to promote rural economic development.
Owing to rising industrial electricity prices and government policy support,
distributed PV applications are the main source of China’s renewable capacity
expansion in 2023 and 2024, with the country’s share in global expansion reachingalmost 55%. Higher module prices over the last 12-18 months have affected thecompetitiveness of distributed applications less than that of utility-scale projects,
for which profit margins remain tight and modules account for a larger share of
total system costs.
Our forecast expects onshore wind to rebound strongly in 2023 compared withlast year, as China deployed almost 30% less wind energy than was anticipatedin the IEA Renewables 2022 report. As movement restrictions due to the Covid19 outbreak in 2022 delayed the completion of multiple onshore and offshore windprojects, we now expect these installations to become operational in 2023 and2024, pushing China’s share in global onshore and offshore wind expansion toover 60%.
Considering that the central government phased out direct financial incentives in
2021, the strengthening role of China in global wind growth indicates greater
competitiveness and strong provincial support, motivated by the economic
benefits of rural deployment.

China’s increasing solar PV and wind
manufacturing capabilities will maintain astrong domestic demand
China’s demand and supply policies for wind and solar PV technologies are wellestablished, and its industrial policies have been designed holistically to produce
competitive clean energy equipment for both domestic demand and exports. In
2022, China’s annual manufacturing capacity for solar PV equipment continued to
expand much more quickly than global demand. Last year, manufacturing capacity
increased 40-50% for wafers, cells and modules and almost doubled forpolysilicon.

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Today, utilisation rates of Chinese solar PV manufacturing facilities range from
20% to 40%, and the country is expected to double its PV manufacturing capacity
again by the end of 2024, significantly swelling the supply glut. Thus, strong
domestic demand in China remains essential to maintain or increase
manufacturers’ utilisation rates in 2023 and 2024.

Renewable Energy Market Update June 2023

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I EA. CC BY 4.0.

For wind, China is expected to expand onshore and offshore manufacturing
facilities almost 20% by 2025, especially for offshore wind. More than 90% of
domestic demand is met by Chinese companies and their exports are limited,highlighting the importance of a strong domestic market.

Renewable Energy Market Update June 2023

Will the US inflation Reduction Act
impact wind and PV deployment in
the short term?
The impact of the IRA on wind and solar PV deployment in 2023 and 2024 will belimited. While federal tax credits under the IRA provide unprecedented investment
certainty for renewable energy projects up to 2032, installations due to comeonline within the next two years have already qualified for previous tax incentive
schemes. Thus, pre-IRA policies as well as developments concerning supply
chain constraints and trade measures affect our short-term capacity forecast.

Trade and supply chain concerns led to lower
capacity additions in 2022, but wind and PV
expansion will accelerate this year
In 2022, the US anti-dumping and circumvention investigation involving solar
panels from several Southeast Asian countries in March and the Uyghur Forced
Labour Act in June delayed the delivery of PV products. In addition, higher
commodity prices and continuous supply chain challenges for renewableequipment parts coming from China pushed wind turbine and solar panel pricesup.
For solar PV, the impact of trade measures on deployment and prices was muchlarger than for wind. In 2022, the solar PV market contracted 15% due touncertainty over trade restrictions, which paused imports and slowed project
development. However, an interim order published in June 2022 addressed sometrade issues and, as a result, the market is expected to expand in the next two
years. In fact, solar PV additions could break new records, reaching more than 30
GW in 2024 – a 50% increase from 2022 – thanks to accelerated utility-scale
project deployment. Meanwhile, distributed solar PV additions, which benefit fromthe Investment Tax Credit (ITC) and local net metering provisions, remain stable
at around 8 GW.

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However, two important policy developments counteract one another to prevent
higher total annual solar PV additions. While changes to California’s net metering
law could slow down deployment in the largest distributed PV market in the UnitedStates, commercial solar PV is expected to start benefitting from new IRA
incentives such as eligibility for community solar and economic adders in 2023,
making commercial solar PV more economically attractive.

Renewable Energy Market Update June 2023

The US onshore wind market added 8 GW of new capacity in 2022 – a 40% fallfrom 2021 and a 50% drop from record-level expansion in 2020. This decline was
expected with the reduction and eventual expiration of the pre-IRA production tax
credit policy, but supply chain constraints and inflationary pressure also caused
project commissioning delays last year. As a result, the commissioning of delayed
projects will mean 40% higher additions this year than in 2022.
However, due to lower production tax credit rates under the previous tax policy,
onshore wind additions are forecast to decelerate again in 2024. Nonetheless, thecommissioning of roughly 2 GW of large-scale offshore projects is expected to keep
annual US wind capacity additions stable at around 12 GW in 2023 and 2024.

GW

Net solar PV and wind capacity additions by year, 2021-2024
35
30
25
20
15
10
5
0

2021

2022

2023

2024

Wind
Renewables 2021

2021

2022

2023

2024

Solar
Renewables 2022

Renewables 2023 May Update

IEA. CC BY 4.0

The Inflation Reduction Act’s impact on
renewable energy technology deployment
will become evident in 2025
For both solar PV and wind projects, long-term tax incentives under the IRA are agame-changer. Considering the deployment timelines for large-scale installations,the IRA’s impact will become visible mainly beginning in 2025. Under the act, solar
PV projects are once again eligible for the production tax credit if construction
begins before 2025, providing an alternative driver for new capacity additions
beyond the ITC.

PAGE | 41

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After 2025, multiple technologies, including for wind and solar PV, will be eligible
for the Clean Energy Production Tax Credit. While the IRA’s long-term credit
visibility will create steadily increasing demand for renewable energy, it will also
place greater pressure on permitting, transmission and distribution grids, andsupply chains.

Renewable Energy Market Update June 2023

Will India’s renewable energy
deployment boom in 2023 and2024?
India’s renewable capacity additions are expected to increase again in 2023 and2024 owing to faster onshore wind, hydropower and distributed solar PV
deployment. However, annual additions for utility-scale projects, India’s largest
renewable electricity growth segment, are expected to slow briefly this year due
to supply chain challenges, preventing renewable energy growth from truly
booming in the short term.

Higher prices, lower auction volumes andtrade policies weigh on short-term PV
deployment
In 2022, India’s utility-scale solar PV capacity additions (made up mainly of
capacity awarded in auctions) reached a record-breaking 14 GW, accounting forover two-thirds of renewable energy growth in the country. For 2023, however,lower auction volumes and supply chain challenges indicate that a slowdown ofalmost 20% is probable, with a possible recovery in 2024.

30

GW

25

25
20

20
15
15
10

10

5

5
0

0

2018 2019 2020 2021 2022 2023 2024

Hydropower
PV - utility

Wind
PV distributed

Bioenergy

2018 2019 2020
PV - utility
PV - residential

2021

2022 2023 2024
PV - commercial
PV - off-grid
IEA. CC BY 4.0.

In 2022, auction volumes dropped by one-third, with only 10 GWAC awarded, thelowest amount since 2017 and significantly below the volumes required to reachthe national target of 500 GW of non-fossil capacity by 2030. Average solar PV

PAGE | 42

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GW

India net renewable capacity additions by technology, 2018-2024

Renewable Energy Market Update June 2023

tariffs from 2022 auctions were 15% higher than in 2021, which discouraged
distribution companies (DISCOMs) in poor financial health from signing contracts.
In addition, some states that had fulfilled their Renewable Purchase Obligations
neglected to organise further auctions, and federal agencies were putting moreemphasis on hybrid tenders. Lower awarded capacity is expected to translate intoa slowdown in capacity additions in 2023-2024. To improve the situation, in March2023 the Indian government ordered federal agencies to increase auction capacity
to 50 GWAC annually starting in FY 2023-2024, which should lead to higher
deployment beyond 2025.

3.5

50

Planned 3.0
2.5

40

GW

60

INR/kWh

GW AC

India renewable capacity awarded in auctions, 2017-2023 (left) and PV module supply
and demand, 2021-2024

15

1.0

10

0.5

0

0.0

PV
HybridAv. wind price (right axis)

30
20

1.5

20

35
25

2.0

30

40

10
5
0

2021

2022

Total capacity
Capacity >500 W modules
Demand - low

Wind
Av. PV price (right axis)

2023

2024

Capacity >1 000-MW plant
Potential supply**
Demand - high

IEA. CC BY 4.0.
* Data for January-April only.
** Indicates a potential annual supply of over 500 W of modules by producers with over 1 GW of manufacturing capacity.
Note: Planned 2024-2028 capacity indicates targeted annual auction awards.
Sources: (left) Bridge to India (2023), India RE Navigator (accessed April 2023); BNEF (2023), Q1 2023 Global Auction and
Tender Results and Calendar. (right) PV InfoLink (2023), Supply and Demand Database (accessed April 2023); Ministry of
New and Renewable Energy (February 2023), Approved List of Models and Manufacturers.

Large-scale PV manufacturing is emerging,but it creates short-term demand and supply
mismatches

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India’s push to expand domestic manufacturing is triggering a supply-demand
mismatch and higher prices in the short term, affecting PV expansion in 2023 and2024. Historically, India has imported almost 90% of its solar PV modules from
China. However, the government’s production-linked incentives (PLIs) for PV
manufacturing aim to increase India’s domestic manufacturing capabilities toRenewable Energy Market Update June 2023

reduce or eliminate imports. The two rounds of the PLI subsidy scheme should
allow India to become fully self-sufficient in terms of solar PV supply in the next
four to five years.
In the short term, however, demand for high-capacity modules from large-scale
top-tier manufacturers exceeds supply. Although the list of government-approved
manufacturers (ALMM) in February 2023 implied total manufacturing capacity of
22 GW, only less than 5 GW were declared by large producers offering modules
with over 500 W of power. Developers demand these high-quality top-tier modules
for their cost efficiency and to more easily secure low-cost financing.
Along with supply-demand mismatches, the introduction of higher import tariffs on
PV modules and cells in April 2022 led to a 30-40% increase in module prices inthe second half of 2022. This reduced project bankability, forcing developers toeither cancel or delay projects while waiting for PV prices to fall. In response, thegovernment postponed ALMM requirements for all projects commissioned by April
2024 and extended the commissioning deadlines.

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Although government actions have mitigated some challenges, our forecast
nevertheless expects that the temporary supply-demand mismatch for top-tier PV
modules will prevent rapid utility-scale PV expansion in 2023 and 2024. However,the Indian market should experience a real deployment boom beyond 2025, withhigher auction volumes and lower prices.

Renewable Energy Market Update June 2023

Are competitive renewable energy
auctions increasingly
undersubscribed?
In 2022, competitive renewable energy auctions resulted in governments
awarding a record-breaking 100 GW of capacity. However, unallocated capacity
also reached its highest-ever level last year (20 GW) with only close to 85% of
proposed capacity being awarded, the lowest rate ever.

The energy crisis has negatively affectedparticipation in European auctions
In 2022, Europe accounted for two-thirds of global unallocated capacity incompetitive renewable energy auctions, triple the volume of the previous year.
Meanwhile, India’s auction allocation rates have been improving since 2019
thanks to policy changes. However, outside of these two markets in which
competitive auctions drive utility-scale renewable energy development, 9% ofauction volumes remained unallocated in 2022. If China is excluded, unallocatedvolumes rise to 23%, a more than ten-fold increase from 2021 in absolute value.

140
120

100%
90%

100
80
60

80%

0

2019
2020
Capacity awarded
Subscription rate (%)

14
12
10
8

70%

40
20

16

60%

6
4
2

50%
2021
2022
Capacity not awarded

0

2019
India

2020
Europe2021

2022

Rest of world

IEA. CC BY 4.0.

India’s auction volumes for renewable capacity decreased in 2022, with thecountry offering as well as awarding less than half of what it had annually during

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GW

Global renewable energy auction results (left) and volumes of unawarded auction
capacity by region (right)

Renewable Energy Market Update June 2023

2019-2021. Auction volumes dropped because state-level tenders prioritise thesigning of previously awarded power purchase agreements, and because
developers are currently focused on completing construction of a large-scale
project pipeline.
In 2022, India awarded almost 90% of auctioned capacity thanks to policy
improvements to reduce offtaker risks. Contrary to historical trends, last year thecentral government offered more capacity than the financially challenged state
DISCOMs did, and rapid implementation of the solar park programme facilitatedland procurement and grid connection.
Europe experienced the opposite trend. The reason for record-level
undersubscription in European auctions is an increase in investment costs for windand solar PV compared with previous years, combined with an unchanged auction
ceiling and static reference prices. Furthermore, some developers have foundcorporate power purchase agreements and wholesale market opportunities to be
more economically attractive than auctions, allowing them to tap into higher prices.
Price volatility in commodity markets, rising interest rates and inflation have alladded to uncertainty over project economics. As most European contract prices
from competitive auctions were not indexed to address rising costs, developers
were reluctant to participate.

25

100%
90%
80%

20

70%
15

60%
50%

10

40%
30%

5

20%
10%

0

Germany

FranceCapacity awarded

Spain

Italy

Capacity not awarded

PolandRest of Europe

Undersubscription rate
IEA. CC BY 4.0.

In Germany, sluggish permitting procedures and rising auction volumes have left
record amounts of capacity unallocated. In fact, the country allocated only twothirds of offered capacity in feed-in-premium auctions, sustaining the trend of risingundersubscription that began in 2020. To address these challenges, in 2022
Germany increased the ceiling price of tenders for the first time since 2020.

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GW

Unawarded capacity in renewable energy auctions in Europe, 2022

Renewable Energy Market Update June 2023

Spain’s third auction for 3.3 GW in 2022 was undersubscribed due to a
combination of factors. Rising costs, low ceiling prices, and long-term contracts
without inflation indexing were suggested as a main reason that only 5% of theoffered capacity (3.3 GW) was awarded. Developers may have also foundcorporate PPAs and merchant projects offer more suitable economics orcontractual arrangements. Similarly, Poland experienced a record-high 75%
undersubscription rate in 2022, significantly higher than the usual rate of less than
10% in previous years.
Italy conducts three technology-neutral auction rounds per year under the FER
programme, with each round rolling over unallocated capacity from the previous
one. In 2022, however, it allocated only half of the capacity initially targeted androlled over capacity from the previous year. For the past two years, all tenders had
undersubscription rates of more than 70%, resulting in a large amount of capacity
being rolled over and even extension of the FER programme into 2023.

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In South Africa, grid access challenges in areas of high wind potential resulted in
3 GW of wind projects remaining unallocated in recent auctions. In Chile, a
successful 1-GW auction in 2021 was followed by a 2022 auction of similar sizethat allocated only 15% of the capacity offered, as the auction prices did not
address challenges associated with rising costs and interest rates.

Renewable Energy Market Update June 2023

Will market forces now drive theexpansion of wind and solar PV
plants, or is policy still key?
Market-driven procurement is expected to account for one-fifth of utility solar PV
and wind capacity expansion between 2023 and 2024, and almost twice as much(36%) when China is excluded. Market-driven procurement is a business modelthat allows for renewable power price discovery between buyers and sellers.
Modes include bilateral contracts (PPAs) between IPPs and corporate consumers
or utilities; merchant projects; and remuneration from certificate schemes.
Conversely, policy-driven procurement refers to models in which government
decisions affect the price signal for investment. It can take the form of policy
support, such as the setting of volumes or controlling of prices, or regulatory
measures, which directly affect competition. The two most prominent policies havebeen administratively set tariffs for remuneration (wherein the government decides
on a fixed tariff to offer developers) and competitive auctions (wherein thegovernment puts a set amount of capacity up for bid and sets a limit on what it will
pay for the power). Utility-owned projects in regulated markets constitute a third
policy-based procurement method, as the price signal is effectively absent bydefault of the regulatory environment.

Competitive auctions
20%
Unidentified
4%

Marketdriven
17%

Fixed tariffs andpremiums
56%

Utility-owned
3%

PPA(corporate)
13%

Fixed tariffs and premiums
Utility-owned

GW

Solar PV and wind forecast by primary procurement type, 2023-2024
350
300
250
Competitive
auctions
PPA (corporate)
PPA (utility)
3%

Merchantand other
1%

200
150

PPA (utility)

100

Merchant and other50

Unidentified

0

China

North
EuropeAmerica

AsiaPacific

Latin
Rest of
America world

IEA. CC BY 4.0.
Notes: This analysis only covers procurement methods for the sale of electricity; it excludes any additional subsidies oninvestment costs such as tax credits, accelerated depreciation, rebates, grants, etc.). PPA = power purchase agreements
are defined in this report as contracts that are bilaterally negotiated. “other” (left graph) includes renewable certificates andcapacity dedicated to renewable hydrogen production. “Rest of world” (right graph) refers to the Middle East and North
Africa, Eurasia and sub-Saharan Africa. “Unidentified” refers to countries for which the breakdown by procurement was notapplied.

PAGE | 48

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Globally, almost 60% of utility-scale solar PV and wind deployment in the next two
years will be developed under policies with administratively set remuneration

Renewable Energy Market Update June 2023

policies such as fixed tariffs, premiums, and utility-owned projects. However, mostof this deployment will be in China, where developers receive tariffs set at theprovincial benchmark electricity price now that renewable energy feed-in tariffs
have been phased out. Excluding China, less than 15% of the world’s utility-scalesolar PV and wind capacity additions are expected to be procured throughadministratively set tariffs.
The largest growth is in the United States, from utility-owned projects in regulated
markets, followed by the Asia Pacific region, from feed-in tariffs in Japan, Chinese
Taipei and Viet Nam. In Europe, growth in administratively set procurement ismostly in onshore wind in France, where a feed-in premium exists for small
projects, and from feed-in tariffs in the Republic of Türkiye (hereafter “Türkiye”).
Competitive auctions are the largest source of policy-driven growth outside of
China, accounting for almost half, led by Europe and followed by India, the UnitedStates, Korea, the United Arab Emirates and Brazil. The main motivations for
auction-based growth are policy actions to meet climate goals (in the European
Union), utility choice (in the United States) and economic attractiveness (in the
Middle East and North Africa).
Market-driven growth, which accounts for 17% of the world’s utility solar and windexpansion, is dominated mostly by corporate PPAs. The United States leads
expansion in corporate PPAs, followed by Brazil, Australia, Spain and Sweden, allmotivated by the economic attractiveness of these technologies, the opportunity
to hedge against rising and volatile power prices, and sustainability goals.
Unsolicited bilateral contracts with utilities (PPAs with utility offtake) are prominent
mostly in regulated markets, while some growth is expected from merchantprojects in Chile, the United States, Denmark and Spain.
Outside of China, Europe leads most of the policy-driven renewable capacity
expansion, while market-driven growth remains very important in the UnitedStates and North America in general. How each of these markets evolves over the
next two years will depend on the wholesale electricity price environment and on
regulatory and policy decisions.

Economic attractiveness and consumer
demand drive PPA growth in the UnitedStates

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Over half of US utility-scale solar and wind growth is expected to come frombilateral contracts for either corporate or utility offtake, spurred by both economic
attractiveness and corporate demand to meet sustainability goals. Corporate
PPAs are forecast to account for the largest share (40%), mostly in the form ofRenewable Energy Market Update June 2023

virtual PPAs 4 in deregulated wholesale markets. Over 80% of the virtual PPAs
signed between 2021-2023 were in the ERCOT, MISO and PJM service areas.
However, rising PPA prices do pose a downside risk. Climbing interest rates,
equipment price increases and interconnection queues have driven up costs fordevelopers, while supply chain delays slowed supply amid rising demand. As aresult, CPPA prices rose an estimated 11% in the ERCOT, PJM and MISO service
areas between Q4 2022 and Q1 2023.
Nonetheless, consumer demand for virtual PPAs is expected to remain strong, inpart because of the cost savings they can offer consumers by aggregating demandacross multiple locations. For developers, the economics of PPAs are expected toremain appealing with the IRA extending the ITC, and with new opportunities for
10% premiums for projects being developed in energy communities starting in
2023. Additional revenue from renewable energy certificates (RECs) in somemarkets also strengthens the business case.
The remaining 60% of US renewable capacity expansion over 2023-2024 is mostly
from utility-owned plants, competitive auctions, and PPAs with utilities. These are
the dominant procurement methods in regulated markets in the Southeastern,Southwestern and Northwestern states, but procurement approaches vary acrossstates depending on the regulatory environment and whether utilities have a
choice. The main drivers for growth are consumer demand for renewable power(sometimes in the form of green tariffs), the economic attractiveness of PV andwind systems compared with a utility’s existing fleet, and the need to comply witha government’s renewable energy targets.

Competitive auctions drive European growthin 2023-2024, but the pace will depend on
policy responses to volatile wholesale prices
and rising costs
The leading procurement method in Europe is competitive auctions, accounting
for at least 60% 5 of renewable capacity growth between 2022 and 2024. Almost
half of this growth will be from auctions for two-way fixed contracts for difference, 6
led by Poland, the United Kingdom, France, Italy, and Spain. Türkiye use one-way

Virtual PPAs are a financial contract for difference between a wholesale electricity price and the PPA price. As virtual PPAs
require access to the wholesale market, the majority of the corporate PPA growth will occur in deregulated markets.
5
The value represents deployment in Germany, Spain, France, the United Kingdom, Poland, the Netherlands, Sweden, Italy,
Denmark, Belgium, and Türkiye, which account for 85% of Europe’s growth. The value would be higher if competitive auctions
from the remaining European countries are included.
6
In this model, developers receive a subsidy from the government when the wholesale price is below the strike price and will
pay back any revenues that exceed the strike price.

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4Renewable Energy Market Update June 2023

fixed-tariff auctions with price indexation, wherein the strike price is the contractual
price irrespective of the wholesale market price.
Meanwhile, Germany, the Netherlands, the Czech Republic and Slovenia use aone-way floor that guarantees developers the minimum strike price and an
uncapped maximum from the wholesale market. 7 In September 2022, theEuropean Union agreed to begin taxing wholesale market revenues of more than
180 EUR/MWh in an attempt to reduce the burden on consumers, with somemember states implementing even lower thresholds.
Europe solar and wind forecast (2023-2024) by policy and procurement type (left) andGermany prices for wholesale electricity, PPAs and auction ceilings (right)
500
400
300
200
100

Auction (two-way fixed)
PPA (corporate & utility)
Other

Auction ceiling(PV)

Jan-23Mar-23

Nov-22

Jul-22

Sep-22

May-22

Jan-22Wholesale

Mar-22

Nov-21

Jul-21

20

Sep-21

15

May-21

10

Jan-210

Mar-21

0
5
GW
Auction (one-way minimum)
Auction (one-way fixed)
Merchant

EUR/MWh

Germany
Spain
FranceUnited Kingdom
PolandNetherlands
Türkiye
SwedenItaly
Denmark
Belgium

PPA
index*
Auction ceiling(onshore wind)

IEA. CC BY 4.0.
Notes: PPA = power purchase agreement. August 2022 data were not published, so the figure is estimated as the average
between July and September 2022. * Refers to Pexapark’s index.
Sources: (right) Pexapark (monthly reports from 2021,2022,2023), Bloomberg New Energy Finance (accessed May 2023),
and Bundesnetzagentur (accessed May 2023).

However, uncertainty over future capacity growth in Europe’s auctions is mounting
because they have been increasingly undersubscribed due to permitting
challenges, and more recently due to the rising costs developers are facing from
commodity prices, equipment costs, interest rates and inflation. As a result,developers are wondering whether they should turn to wholesale markets anddirect PPAs with corporations and utilities with the prospect of higher
remuneration. For instance, auction ceiling prices in Germany at the end of 2022
were just EUR 60/MWh, compared with corporate PPA of almost EUR 100/MWh
and wholesale prices over 250 EUR/MWh.

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7
New regulations to protect consumers have introduced temporary wholesale and gas price caps in multiple European
countries.

Renewable Energy Market Update June 2023

Going forward, unsubsidised projects in the form of PPAs and merchant plants are
expected to account for 22% of Europe’s capacity expansion. The majority of thiswill be corporate PPAs, led by Spain, Sweden, Germany, the Netherlands, andDenmark, with projects emerging in the United Kingdom, Italy, and Poland. While
installations being developed on a fully merchant model are likely to constitute a
minority, PPA projects are expected to stack revenues by combining a merchanttail.
Nonetheless, the pace of growth for unsubsidised projects in the Europe is also
somewhat uncertain. Ambiguity over how long high wholesale prices will persist,
especially with the share of marginal-cost PV and wind increasing, poses adownside risk to plants relying solely on merchant revenue. In addition, signed
PPA volumes in Europe were down 20% in 2022 compared to 2021, as developers
raised contract prices to account for rising costs, while buyers were hesitant tolock in higher tariffs.
The primary factor affecting procurement methods in Europe will be countries’
policy and regulatory responses to the risks developers face. For competitive
auctions, some governments have already begun to take action to accelerate
growth by adjusting auction designs and contracts to reflect developers’ cost
uncertainties. In 2023, Germany raised its auction price ceilings by 90% (toEUR 113/MWh) for onshore wind and by 25% (to EUR 74/MWh) for solar PV. As
a result, solar PV auctions were oversubscribed for the first time since 2021.
Portugal, meanwhile, will adjust the strike prices of its last three years of projects
to account for inflation and rising equipment prices, and France will allow nonoperational auctioned projects to sell electricity on the spot market for 18 months
prior to the contract start date.

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Our forecast also expects corporate PPA growth to resume. PPA prices in March2023 have fallen around 30% from November 2022, and the European
Commission’s draft of electricity market reforms suggests PPAs may play a more
prominent role in the future. The March 2023 draft proposes that auctions bechanged to two-way contracts and that auction bidders be allowed andencouraged to also enter into bilateral PPAs with other offtakers. While a final
proposal will not be approved until 2025, developers may begin to devise businessmodels in anticipation.

Renewable Energy Market Update June 2023

Is the renewable energy industry’s
financial health improving?
Despite challenges associated with energy security concerns, volatile commodity
prices, supply chain constraints and trade measures, the renewable energy
industry has shown financial resilience. This is evident across various segmentsof the industry, including among major equipment manufacturers, developers andinvestors. In the short term, strong policy support in major economies, increasing
demand and falling commodity prices can improve the financial performance of
renewable energy companies, although challenges and risks will persist.

Multiple challenges have tested the financial
health of renewable energy companies since
2019
Prior to the Covid-19 pandemic, the renewable energy industry had beensurpassing most major market indices and the energy sector overall in equity
markets. In the first half of 2020, however, wind turbine and solar equipment
manufacturers recorded negative earnings before interest, taxes, depreciation andamortisation (EBITDAs) as revenues temporarily fell due to Covid-19 impacts. In
2021, rising commodity prices led to higher solar PV module and wind turbine
costs. Then in 2022, Russia’s invasion of Ukraine triggered a global energy crisis,
leading to a further increase in input costs (including for electricity, raw materials
and transportation), higher interest rates and continued supply chain disruptions.
Despite the challenges posed by energy security concerns, volatile commodity
prices, supply chain constraints and trade measures, the renewable energy
industry has demonstrated remarkable financial resilience. This is especially true
for the solar PV sector, which has recorded stable profits in recent years. One of
the reasons for this is the increasing market share of Chinese integrated
companies since the early 2010s, thanks to China’s industrial policy and growing
global demand. These companies have achieved cost efficiencies throughintegration and their ability to absorb price shocks, allowing them to produce theworld’s lowest-cost solar PV equipment.
In the last two years, tight polysilicon supplies and rising PV demand have led toa more than fourfold increase in polysilicon prices, the highest level since the early2010s. This has improved manufacturers’ net margins, and polysilicon producers
are posting record profits.

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In contrast with the stable profits seen in the solar PV sector, the wind industry
has faced significant financial challenges in recent years. Western windRenewable Energy Market Update June 2023

manufacturers have registered negative net margins for eight consecutive
quarters since 2019, due to factors such as volatile global demand, supply chain
and logistical challenges, and rising costs. These challenges have impacted theirprofitability, particularly for contracts signed with developers through competitive
auctions during 2017-2020. These manufacturers have been unable to pass theircost increases on to developers.
Chinese wind turbine manufacturers have been less affected by commodity pricevolatility, and strong domestic demand has supported their financial health. Thisis partly because large Chinese manufacturers are also important project
developers, which gives them greater control over project costs and enables themto absorb price shocks more effectively.

Weighted average net margin

Quarterly weighted average net margin of renewable energy companies, large utilities
and oil majors, 2021, 2022 and 2023 (Q1)30%

Polysilicon

25%
20%

Solar PV integrated

15%
10%

Wind manufg.

5%
Utilities

0%-5%

Oil majors

-10%
-15%

Wind manufg.
China

-20%
-25%

Q1

Q2

Q3

Q4

Q1

Q2

2021

Q3
2022

Q4

Q1
2023

Wind manufg. nonChina

IEA. CC BY 4.0.
Note: Wind manufg. = wind equipment manufacturing companies.
Source: IEA analysis based on annual financial reports.

The financial health of utilities is crucial for the sustainable growth of the renewableenergy industry, but the global energy crisis has posed challenges to their financial
performance and profitability. While large global utilities reported very highrevenues, they were also exposed to volatile gas and electricity prices, which
increased their energy procurement costs and sales. Their profitability wasdependent on their retail exposure and on hydropower and nuclear output, andEuropean utilities found it challenging to pass on the higher generation costs
resulting from existing or new regulatory measures to protect vulnerable
customers.

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Furthermore, some large utilities incurred hedging losses by contracting energy athigh prices, especially for Q4 2022 when electricity prices began to decline from

Renewable Energy Market Update June 2023

peak levels. European utilities also registered higher taxes than in previous years
because of taxation on windfall revenues/profits, which affected their overallprofitability.
Meanwhile, medium- to large-sized global utilities made marginal profits or losses
thanks to their geographical diversity, which allowed them to compensate forlosses in certain markets by gaining profits in others. In the United States, utilities
reported 2022 to be one of the best years for new renewable energy resource
growth thanks to incentives such as accelerated depreciation and income tax
credits. Some utilities used hedging strategies, long-term contracts and market
trading activities to gain profits by selling supplies at higher market prices. The
better-performing utilities had a significant share of renewables in their generation
mix, which also allowed them to take advantage of favourable weather conditions
in some regions and markets.

A bright future for the financial health of therenewable energy industry is on the horizon,
but it requires governments and the industry
to tackle multiple challenges
For the solar PV manufacturing sector, increasing annual capacity additions in
2023 and 2024 and government ambitions in the long term provide a positive
outlook for demand growth. In the short term, integrated manufacturers, mostly
based in China, will benefit from lower commodity prices, cost efficiencies andlimited competition to maintain healthy profitability. However, the high profitabilityof polysilicon producers could be short-lived because global polysilicon capacity
is expected to double by 2024, and price declines have already begun.
Overall, solar PV demand is not expected to grow as quickly as supply in the shortterm, leaving capacity utilisation of all manufacturing segments relatively low. In
the past, this situation has led to negative margins for the industry but did not resultin major bankruptcies for Chinese manufacturers. However, new manufacturing
investments in India, the United States and Europe are also moving ahead andwill contribute to the supply glut. While trade measures are expected to shelter
new markets from competition, it will be difficult for these new facilities to maintainlong-term profit sustainability.

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Wind equipment manufacturers are expected to benefit from lower commodity,
electricity and freight prices, which could improve their margins as demand
expands in the short term. However, turbine prices are likely to remain relatively
high, especially for Western manufacturers, due to uncertainties regarding
commodity prices, interest rates and policies. Moreover, current supplies inRenewable Energy Market Update June 2023

Europe and the United States may not keep up with growing demand over the
medium term because manufacturers’ poor financial health is preventing themfrom investing in new facilities.
To improve the financial health of companies, it is crucial that government policies
address permitting challenges, raise auction volumes and change tender designs
with contract price indexation. In China, competition in local markets has lowered
turbine prices even though commodity prices remain high, reducing company
profitability. While lower prices create opportunities for Chinese manufacturers toincrease their global market share, their success will depend on their financial
sustainability.

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Despite challenges stemming from electricity price volatility, most large utilities
have decided to strengthen their renewable energy portfolios. However, risinginterest rates and policy uncertainties threaten the ability of utilities to increase
their investments in renewables.

Renewable Energy Market Update June 2023

Will solar PV and wind costs finallybegin to fall again in 2023 and2024?
Electricity generation costs from new utility-scale onshore wind and solar PV
plants are expected to decline by 2024, but not rapidly enough to fall below pre
Covid-19 values in most markets outside China. Although commodity and freight
prices have dropped from last year’s peaks, they remain elevated. At the sametime, developers’ financing costs have increased due to rising interest rates. As aresult, global average levelised costs of energy (LCOEs) for onshore wind andsolar PV are expected to remain 10-15% above 2020 levels in 2024.

Other
Commodities, logistics price change

Commodities, logistics
Technology improvement

2024

2023

2022

2020

2019

160
140
120
100
80
60
40
20
0

2018

2024

PV utility-scale

2023

2022

2020

160
140
120
100
80
60
40
20
0

2019

Wind onshore

2018

LCOE (2020=100)

Solar PV and wind LCOE index based on average annual input costs, 2018-2024

Financing
WACC increase

IEA. CC BY 4.0.
Notes: “Other” includes remaining investment costs, including other commodities, labour, energy, manufacturing
processes, construction etc. LCOE = levelised cost of energy. WACC = weighted average cost of capital. LCOE index
calculations are based on WACC of 4.5% in 2020-2022 and 5.5% in 2023-2024. Analysed commodities include steel,copper, aluminium and polysilicon. Technology improvement impact is based on historical trends. The data excludes
China.

Initial investment accounts for the majority of solar PV and wind power plant
generation costs, as operations and maintenance expenditures are low. In late2020, the prices of major inputs such as steel, copper, aluminium and polysiliconbegan to rise sharply, as did freight and land transport costs, due to supply chain
challenges and growing demand during the post Covid-19 global economic
rebound.

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At its highest point in 2022, the average monthly price of polysilicon – a crucial
material for crystalline silicon solar PV cell production – was four times higher thanat the beginning of 2020. The price of steel, the main construction material for both
utility-scale PV and onshore wind plants, increased 75% in China, 160% in theRenewable Energy Market Update June 2023

United States and 270% in Europe, while copper and aluminium became 60-80%
more expensive. The highest growth was in freight rates, which rose almost
sixfold.
In 2022, the share of main commodities and costs associated with transportationaccounted for an estimated 30-35% of overall CAPEX for utility-scale and windprojects, twice as much as in 2020. Taking the full impact of higher prices on
project development costs into account, and the usual annual cost reductions fromcontinued technological innovation, the resulting LCOE increase for 2022 isestimated at 15-20% for these technologies.

Price index (Jan 2020 = 100)Monthly commodity and freight price indexes, 2020-2023
700
600
500
400
300
200
100
0

1

3

5

7

9

11

1

2020
Steel United States

3

5

7

9

11

1

2021
Steel China

Polysilicon

3

5

7

9

2022
CopperAluminium

11

1

3
2023

Freight

IEA. CC BY 4.0.
Notes: Steel United States: North America steel plate spot price ex-works. Steel China: China domestic 20-mm steel plate
average spot price. Polysilicon: BNEF solar-grade silicon spot price. Copper and aluminium: London Metal Exchange 3month forward contract price. Freight: WCIDCOMP Index.

In 2023, commodity prices have fallen significantly below their peaks, but theyremain elevated compared with 2020. Average prices in Q1 2023 compared with
January 2020 were higher by over 200% for polysilicon; by 100% for steel in the
United States and Europe; and by 20-40% for aluminium, copper and freight. In
many cases, commodity price changes have not yet been directly reflected byequipment manufacturers because of their supply contracts. However, many
suppliers may attempt to recover their increased costs by raising prices inupcoming years, leading to higher investment costs.

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In addition, macroeconomic risks in the global economy – associated with rising
inflation, higher interest rates and the energy crisis caused by Russia’s invasionof Ukraine – lead to a higher cost of capital, including for renewable energy
projects. In real terms (i.e. excluding the impact of inflation), the weighted average
cost of capital (WACC) is expected to increase in most large solar PV and windmarkets, excluding China. The higher cost of capital could offset most of the costRenewable Energy Market Update June 2023

decreases resulting from lower commodity prices and further technology
innovation in the next two years. Consequently, the average LCOE for utility-scale
PV and wind could be 10-15% higher in 2024 than it was in 2020.

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Although their costs continue to exceed pre Covid-19 levels, solar PV and onshore
wind remain the cheapest option for new electricity generation in most countries.
Furthermore, power contracts for the end of 2023 and into 2024 in the European
Union, the United States, Japan, Australia and India all indicate wholesale
electricity prices two to three times above 2020 averages, increasing the economic
attractiveness of wind and solar PV. Continued innovation is also expected toreduce costs further, improving competitiveness even with existing fossil fuel-fired
plants.

Renewable Energy Market Update June 2023

Do higher shares of wind and solar
PV generation always imply morecurtailment?
As the penetration of variable renewable energy (VRE) increases, the share ofcurtailed wind and solar PV generation is also on the rise in many markets. This
trend is particularly evident in areas where major grid infrastructure investments
and/or advanced market design and regulation are not keeping pace with VRE
deployment.

Rewable energy curtailment (%)

VRE shares in generation and technical curtailment for selected countries
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%

0%

5%

10%

15%

Australia

Chile

20%
25%
VRE share (%)
China

Italy

Japan

Spain

30%

35%

40%

Germany

Ireland

US - California

United Kingdom

45%

IEA. CC BY 4.0.
Notes: Data points represent officially reported curtailed or constrained energy and combines various schemes dependingon the country. VRE refers to solar PV and wind unless otherwise specified. Italy includes only wind. Spain includes PV,
wind, CSP and biomass technologies. The United Kingdom includes only wind. “Technical curtailment” refers to thedispatch-down of renewable energy due to network or system reasons. Dispatched-down energy due to economic or
market conditions is not included in this chart.
Sources: Australian Energy Market Operator (AEMO), Quarterly Energy Dynamics (multiple releases); Coordinador
Eléctrico Nacional de Chile (CEN), Reducciones de energía eólica y solar en el SEN (multiple releases); National Bureauof Statistics of China (NBS), China Energy Datasheet 2000-2021; ); Bundesnetzagentur, Monitoring Report 2022; Gestore
Servizi Energetici (GSE), Rapporto attivita 2021; EirGrid, Renewable Dispatch-Down (Constraint and Curtailment) reports(multiple releases); Hokkaido Electric Power Network, Area supply and demand data (multiple releases); Tohoku ElectricPower Network, Area supply and demand data (multiple releases); TEPCO Power Grid, Area supply and demand data
(multiple releases); Chubu Electric Power Grid, Area supply and demand data (multiple releases); Hokuriku Electric Power
Transmission & Distribution, Area supply and demand data (multiple releases); Kansai Transmission and Distribution, Area
supply and demand data (multiple releases); Chugoku Electric Power Transmission & Distribution, Area suppy and demanddata (multiple releases); Shikoku Electric Power Transmission & Distribution, Area supply and demand data (multiple
releases); Kyushu Electric Power Transmission and Distribution, Area supply and demand data (multiple releases);
Okinawa Electric Power, Area supply and demand data (multiple releases; Red Eléctrica de España (REE), I3DIA (multiple
releases); California Independent System Operator (CAISO), Production and Curtailments data (multiple releases;
Renewable Energy Foundation, Balancing Mechanism Wind Farm Constraint Payments.

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Although VRE curtailment is increasing overall, the share of curtailed wind andsolar PV generation remains relatively low, ranging from 1.5% to 4% in most large
renewable energy markets. However, higher VRE shares do not necessarily result

Renewable Energy Market Update June 2023

in rising curtailment rates, as countries can effectively manage renewable energy
integration challenges with timely measures.

The importance of grid infrastructure
Inadequate investment in grid infrastructure remains a challenge worldwide not
only for faster growth in new wind and solar PV capacity, but also for maximising
generation potential from existing power plants. China's large-scale investment ingrid infrastructure (USD 75 billion on average per year since 2010) has
significantly reduced VRE curtailment, decreasing it from 16% in 2012 to less than
3% last year. During this period, China increased the interconnection capacity
between wind and solar resource-rich northern and northwestern provinces to load
centres in the southern and eastern regions.

100

12

90

10

80
70

8

60
50

Australia

China

Germany

Transmission

Italy

Spain

2021

2019

2017

2015

2021

2019

2017

2015

2021

2019

2017

2015

2021

0

2019

2022

2021

2020

2019

2018

2017

2016

2015

0

2017

2

10

2015

20

2021

4

2019

30

2017

6

40

2015

USD billion

Investment in transmission and distribution grids for selected countries

UnitedKingdom

Distribution

IEA. CC BY 4.0.
Source: IEA, World Energy Investment 2023.

Germany has experienced increasing VRE curtailment over the past decade, but
this trend has stabilised since 2015. While most of the country’s wind capacity issituated in the north, major industries and load centres are in the south, leading toa geographical mismatch between renewable generation and consumption. Thismismatch results in curtailment, particularly when the country cannot export its
renewable electricity due to limited interconnection capacity.

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While major grid investment decisions to strengthen the north-south corridor are
still pending, Germany has implemented smaller-scale grid expansions. These
have helped the country reduce onshore wind curtailment by 2 percentage points
since 2015, but offshore wind curtailment increased from less than 1% to around
8% over the same period.

Renewable Energy Market Update June 2023

In Chile, the geographical mismatch between VRE deployment and demand has
resulted in high curtailment rates. The country's strong solar and wind potential islocated primarily in the north, whereas most demand is concentrated in the centre.
To address this mismatch, Chile merged its central and northern electricity
systems in 2017, resulting in an initial reduction from 14% curtailment that year to
2% a few later. However, this trend was not sustained, with VRE curtailment
reaching almost 6% in 2022, as wind and solar PV capacity more than tripled since2017, while the commissioning of additional grid capacity faced delays.
In 2022, the United Kingdom generated one-fourth of its electricity from wind
power, mainly from onshore wind farms in Scotland and offshore installations.
However, most electricity demand is in the country’s southeast. This has led toincreased curtailment, with the amount reaching almost 4 TWh in 2022.
Curtailment rates remained stable at around 3% in the second half of the 2010s
but have since increased due to limited transmission capacity at the ScottishEnglish interface. To address this challenge, the national energy regulator plansto build an high-voltage direct current (HVDC) link on the east coast to increaseinterconnections.

Policy and system planning
To successfully manage rising VRE integration, it is crucial to not only makephysical changes to the power system, but to adjust system planning. China’s
success in reducing curtailment stems not only from grid capacity expansion but
from the government changing FIT remuneration rates to provide higher incentives
in provinces with limited system integration challenges, among other measures.
As lead times for grid investment can be long, policies promoting electricity storage
systems can also be useful to relieve high curtailment rates. Chile's 2022 law onelectricity storage and electromobility aims to tackle renewable energy curtailment
by incentivising installation of batteries and enabling electric vehicles to inject
energy into the distribution grid. Meanwhile, Ireland has allocated budgetary funds
for storage infrastructure in its Renewable Electricity Support Scheme (RESS) andhas begun to award projects through auctions by providing them long-term
revenue certainty and reduced financing costs.

Market design and operation
Integrating VRE sources such as wind and solar PV has necessitated changes to
traditional power markets, both in their design and technical regulation.

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Some countries are updating their market design to facilitate the VRE participationin their power markets, for instance by shortening the imbalance settlement period,
reducing the gate closure time, and increasing the geographical granularity of themarket. Furthermore, renewable energy generators could also be included inRenewable Energy Market Update June 2023

intraday markets (or balancing markets). Operational measures to increasesystem flexibility involve lowering the thermal fleet’s minimum operational
requirements and enhancing forecasting methods.
Ireland has increased its System Non-Synchronous Penetration limit and reduced
minimum negative ramping reserve requirements while offering wind farms
financial incentives to voluntarily reduce their output during high-generation
periods. Chile is also considering options to further reduce thermal plants’
minimum operation requirements to increase system flexibility.

Energy curtailed (GWh)Australia technical and economic curtailment
2 500

5%

2 000

4%

1 500

3%

1 000

2%

500

1%

0

2017
Technical curtailment

2018

2019
Economic curtailment

2020

2021

0%

Total VRE curtailment share (%)

IEA. CC BY 4.0.
Notes: “Technical curtailment” refers to the dispatch-down of energy due to network or system reasons; “Economic
curtailment” refers to the quantities bid out of dispatch in balancing and intraday markets. Spain includes PV, wind, CSP
and biomass technologies.
Sources: Australian Energy Market Operator (AEMO), Quarterly Energy Dynamics (multiple releases).

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Enabling VRE to compete in balancing markets would provide additional income
for renewable generation, while exposure to imbalance penalties would incentivise
producers to smooth their output and improve forecasting. California has
introduced an Energy Imbalance Market (EIM) to balance supply and demand to
curb rapidly increasing curtailment rates. This approach relates to the concept of
economic dispatch-down, wherein generators may bid out of dispatch during times
when high levels of renewable energy are available and demand is low, which
could result in zero or negative prices. For instance, economic curtailment inAustralia has increased since 2017 and was responsible for the majority ofcurtailment in 2021.

Renewable Energy Market Update June 2023

How are higher shares of wind andsolar PV challenging powersystems?
Rapid wind and solar PV capacity expansion is presenting new power systemchallenges, but IEA analysis of system integration phases for variable renewableenergy (VRE) is helping governments identify relevant difficulties and prioritise
measures to facilitate integration. Since 2015, accelerating VRE deployment has
prompted system integration phase shifts in many countries, amplifying
challenges for power system operators and regulators.
While VRE generation did not have a relevant impact (phase 1) on the powersystem of Viet Nam in 2015, today wind and solar PV output is determining theoperation patterns (phase 3). Wind and solar PV capacity surged from less than
500 MW in 2018 to 25 GW in 2022 thanks to the country’s generous FIT policy,
causing the nation to jump two phases and resulting in rising wind and solar PV
power generation curtailment. However, after experiencing power systemchallenges (including curtailment) following this unprecedented expansion,
Viet Nam phased out all incentives and VRE penetration is not expected toincrease any further by 2024.
Variable renewable energy shares and phases for selected jurisdictions, 2015, 2022
and 2024

Solar PV and wind share in annual
electricity generation

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

2015 (left column, in diagonal stripes)

2022 (right column, in solid colour)

2024

Phase 1 - No relevant impact at system level

Phase 2 - Minor to moderate impact on system operation

Phase 3 - VRE determines the system's operation pattern

Phase 4 - VRE meets almost all demand in some periods

Phase 5 - Growing amounts of VRE surplus (1 day or more)

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IEA. CC BY 4.0.

Renewable Energy Market Update June 2023

The United Kingdom also jumped two phases in the same period as a result of
rapid offshore wind and solar PV growth, transitioning from VRE having a minor
to moderate impact on system operations (phase 2) to periods when VRE makes
up almost all generation (phase 4). Multiple European countries (e.g. Germany,
Spain and Ireland) also reached phase 4 in 2022, for them a one-phase increase
from 2015. Accelerating wind and solar PV power generation in these countries
following Russia’s invasion of Ukraine indicates that VRE share increases for 2024
will be higher than previously expected.
For instance, Spain’s annual VRE share is forecast to increase by nearly
15 percentage points to almost 50%, enlarging its VRE surplus, which can be only
partially exported to the rest of Europe due to limited interconnection capacity withFrance. Denmark’s power systems have been managing an over-50% VRE sharesince 2015 thanks to the country’s high interconnection capacities with Sweden,
Norway, Germany and the Netherlands. However, the forecast for 2024 indicatesthat Denmark’s VRE share could reach almost 90%, intensifying system
integration challenges. Considering the country’s size relative to its
interconnections, its ability to tackle upcoming challenges will also depend on the
VRE situation in neighbouring countries.

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The trajectory of European countries in the IEA assessment of system integration
phases highlights the importance of addressing upcoming integration challenges
as soon as possible. Many major economies, including Brazil, China, France andTürkiye, have multiplied their wind and PV capacity by four to five times since 2015and have begun to experience moderate system operation impacts. As all theselarge countries have ambitious VRE expansion plans, they will need to plan for
additional flexibility investments to accommodate greater net load variability.

Renewable Energy Market Update June 2023

Will global solar PV and windtechnology manufacturing
capacity be adequate to meet Net
Zero demand in 2030?
Global solar PV manufacturing capacity is expected to reach almost 1 000 GW in
2024, adequate to meet annual IEA Net Zero by 2050 demand of almost 650 GW
in 2030. However, wind equipment manufacturing continues to expand more
slowly, such that it may not be able to keep pace with demand growth under this
scenario through 2030. While China will dominate global wind and solar PV
manufacturing capacity in the short term, PV project announcements indicate
supply chain diversification.

With PV manufacturing capacity to more thandouble by 2024, the industry is rushingheadlong into a supply glut
China reaffirmed its dominant position last year. In 2022, global solar PV
manufacturing capacity increased by over 70% to reach almost 450 GW, with
China accounting for over 95% of new facilities throughout the supply chain. In
2023 and 2024, global solar PV manufacturing capacity is expected to double,
with China again claiming over 90% of this increase. Meanwhile, the forecast
expects significant wafer, cell, and module manufacturing expansion in the
ASEAN region through investments from Chinese manufacturers. For the firsttime, a relatively large deployment of manufacturing plants is also forecast for
India and the United States, thanks to industrial policies introduced last year.

Announced new PV manufacturing in India,
the United States and Europe reaches 30 GW
for polysilicon and 100 GW for module
assembly, with signs of diversification
emerging

PAGE | 66

I EA. CC BY 4.0.

Governments in the United States, Europe and India have begun to prioritise solar
PV supply chain diversification, implementing policies such as India’s Production
Linked Incentive (PLI) scheme and the US Inflation Reduction Act (IRA) to provide

Renewable Energy Market Update June 2023

direct financial incentives for domestic manufacturers to increase theircompetitiveness with Chinese ones. As a result, over 120% more new solar PV
manufacturing projects were announced from November 2022 to May 2023, topotentially create national PV supply chains with over 20 GW of capacity in eachregion.

1 200

China

100%

1 000

80%

800

60%

600

40%

APAC

120

India

30%

100

25%

80

20%

60

15%

40

10%

200

20%

20

5%

0

0%

0

0%

400

2021 total

GW

GW

GW

Solar PV manufacturing capacity by region and component, 2021-2024

1202022 additions

North America

2023 additions

2024 additions

EuropeShare 2021 (%)

RoWShare 2024 (%)
30%

100

25%

80

20%

60

15%

40

10%

20

5%

0

0%

IEA. CC BY 4.0.
Notes: APAC = Asia Pacific region excluding India and China. RoW = rest of world. Manufacturing capacity in 2027 is thevalue expected based on announced policies and projects. Manufacturing capacity refers to a nameplate year-end value.
Sources: IEA analysis based on BNEF, Solar PV Equipment Manufacturers database (accessed April 2022), IEA PVPS,SPV Market Research, RTS Corporation and PV InfoLink.

However, differences in policy design between India and the United States have
led to the promotion of different PV production segments. While India's PLI
focuses on integrated facilities, the IRA provides tax credits for various PV
segments, leading to mostly segment-specific project announcements.

PAGE | 67

I EA. CC BY 4.0.

New manufacturing capacity in the European Union makes up just 14% ofannouncements tracked by the IEA since August 2022. The EU Green Deal
Industrial Plan for the Net-Zero Age and the Net-Zero Industry Act target specificpercentages of domestic solar PV manufacturing, but do not yet include specificincentives. In addition, high industrial power prices have made it more expensive
to manufacture solar PV equipment in EU countries. Without a manufacturing

Renewable Energy Market Update June 2023

policy or domestic-content premiums, manufacturing solar PV equipment in theEuropean Union is less competitive than in India or the United States.

GW

Announced solar PV manufacturing capacity by region and component, 2022-2023
50
45
40
35
30
25
20
15
10
5
0

Integrated

Thinfilm

Modules
India

US

Cells/modules
EuropeCells

Wafers/ingots

Polysilicon

December 2022

IEA. CC BY 4.0.
Notes: “Integrated” indicates three or more manufacturing processes in one single plant. The budget for India’s PLI scheme
was announced in February 2022, with project capacities for the second phase awarded in March 2023.

Integrated, module and thin-film manufacturing plants make up nearly 85% of new
facilities, while capacity lags for dedicated manufacturing for new cells (less than1%), ingots and wafers (9%) and polysilicon production (6%). Integrated
manufacturing plants produce three or more components, but nearly 80% of thisannounced capacity does not include dedicated polysilicon production. In addition,
while new module assembly plants will have a capacity of nearly 30 GW, thisamount is not matched by capacity announced for other components, especiallycells and polysilicon. These new plants will therefore still need to import cells andother components from China.

China leads sluggish growth in windequipment manufacturing as Westernequipment suppliers struggle financially
In 2022, manufacturing capacity for the main wind power components (nacelles,
towers and blades) remained relatively stable at 110-120 GW. However, global
production capabilities are anticipated to increase in line with demand over the
next three years, resulting in approximately 120-140 GW of capacity by 2025,
about one-third of what is required in 2030 to meet annual IEA Net Zero by 2050
demand.

PAGE | 68

I EA. CC BY 4.0.

Unlike solar PV manufacturing, wind equipment production is less concentrated
geographically, as suppliers prefer to locate production plants close to demandRenewable Energy Market Update June 2023

centres due to the high costs and risks associated with transporting large andfragile components over long distances.
Until 2025, China is expected to remain the largest manufacturing hub for all main
wind energy components, commensurate with its growing demand. However, theUnited States’ first manufacturing plants for offshore wind equipment are also
anticipated to come online in this period to support planned offshore wind farm
deployment.
Wind equipment manufacturing capacity by region and component, 2022-2025
GW

GW

Onshore

100

25

80

20

60

15

40

10

20
0

Offshore

30

5
'22

'25

China

'22

'25

APAC

'22

'25

North
America'22'25

EuropeDemand

'22

'25

0

RoW

'22

'25

China

NacellesTowers

'22

'25

APAC

'22

'25

North
America'22'25

Europe

'22

'25

RoW

BladesIEA. CC BY 4.0.
Notes: APAC = Asia Pacific region excluding India and China. RoW = rest of world. Manufacturing capacity refers to a
nameplate year-end value.

PAGE | 69

I EA. CC BY 4.0.

Source: IEA analysis based on BNEF and Wood Mackenzie.

Renewable Energy Market Update June 2023

Where were governments able torely on biofuels to secure energy
supplies during the 2022 energy
crisis?
Biofuel production expanded in countries with readily available, affordable
feedstocks, spare production capacity and flexible policy instruments. For
instance, Argentina, India and Indonesia all accelerated biofuel use in 2022
helping reduce fossil fuel imports. However, in many countries biofuel prices
climbed more quickly than gasoline and diesel prices, contributing to higher
transportation costs. To mitigate increases in transport fuel costs, Brazil, Sweden
and Finland delayed planned increases to biofuel blending obligations in 2022.

12 000
9 000
6 000
3 000
0

2022
Previous
forecast

Other
Argentina
FranceDeclines

Increases

FinlandIndonesia
Brazil ethanol

2022 Actual

SwedenIndia
Brazil biodiesel

60

1.2
40

0.9
0.6

20

0.3
0.0

2021

2022

2021

2022

0

Export/import savings (billion USD)

1.5

15 000
Avoided oil demand (mboe/d)Demand (million litres/yr)

Forecast changes to biofuel demand growth, 2022 (2021 forecast vs. current forecast)(left) Avoided gasoline and diesel demand and fossil fuel import savings, 2021-2022(right)Emerging economies Advanced economies
Avoided diesel demand
Fossil fuel import/export savings

Avoided gasoline demand

IEA. CC BY 4.0.
Notes: Amounts of avoided gasoline and diesel demand are based on energy content for domestically produced biofuels.
Gasoline and diesel import savings are estimates based on average annual pre-tax market prices for gasoline and diesel in
2022. Estimates include any export revenues from additional oil sales for oil-exporting countries. In this case, countries
benefited from additional oil exports due to less domestic demand.

PAGE | 70

I EA. CC BY 4.0.

Globally, biofuels helped avoid consumption of 2 million barrels of oil equivalent
per day (mboe/d) in 2022, which accounts for 4% of global transport sector oil
demand. Most of these fuels were produced domestically, allowing countries tosave on import costs. As a result, countries avoided oil import costs of USD 90
billion in 2022, up 70% from 2021. Domestic production of biofuels in emerging
markets alone (mainly Brazil, India and Indonesia) avoided USD 38 billion ofimport costs. These estimates do not account for the relative prices of biofuels andRenewable Energy Market Update June 2023

fossil fuels in each of these countries, nor the benefits of increased local economic
activity that domestic biofuel production can stimulate, including in the agriculture
sector. Biofuels also continued to deliver greenhouse gas (GHG) reduction
benefits, helping countries maintain the pace of their clean energy transitions in
the transport sector.

Some markets increased biofuel production
to mitigate high prices and address supply
concerns…
Argentina, India and Indonesia all accelerated their biofuel production in 2022
because of their readily available domestic feedstocks, affordable biofuel supplies,
available capacity, flexible policy instruments and high dependence on fuelimports. The Argentinian government, for instance, responded to concerns ofdiesel shortages by increasing its biodiesel blending rate and offering incentives.
These measures boosted biodiesel use 80% from 2021 to 2022, offsetting an
estimated 6.5% of Argentina’s diesel demand. In Indonesia, higher-than-expecteddiesel demand prompted the government to increase its biodiesel allocation,
expanding biodiesel supplies by 6% above planned biodiesel allocations fromearlier in 2022.
In India, ethanol supplies expanded more quickly than previously expected,
climbing to 10% of total gasoline supply in 2022. Ethanol in India is produced
mostly from molasses and sugar cane, for which prices did not rise as much as
for other biofuel feedstocks. In Europe, France also expanded its ethanol usage
through a combination of generous tax breaks for high ethanol blends (E85) andfinancial support for conversion kits to allow existing vehicles to run on E85. These
efforts helped boost E85 share of gasoline use by 2 percentage points in one year,
driving a 10% increase in ethanol consumption.

… but overall biofuel demand growthdeclined by 40% during the energy crisis

PAGE | 71

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By the end of 2022, however, five governments had delayed planned policy
measures to increase biofuel use over concerns these policies would increasetransport costs. These five changes (Brazil, Sweden, Finland, Croatia and Latvia)
account for the majority of the 40% drop. Biofuel consumption still grew 5% in
2021-2022, similar to annual growth over the last decade but well below our
expectations for 2022 before the energy crisis. Brazil’s delay in implementing
higher biodiesel blending rates is the main factor: in 2021 and again in 2022, it
delayed a five-percentage-point increase to its biodiesel blending mandate,Renewable Energy Market Update June 2023

keeping blending at 10%. It now plans to slowly increase the blending mandate to
15% by 2026. Finland and Sweden also froze their respective policies until 2023.
Last year’s forecast had also expected Brazil’s ethanol demand to be higher.
Although the country did maintain its 27% ethanol blending mandate, securing a
portion of ethanol demand, discretionary blending declined because ethanol was
more expensive than gasoline at some points during the year. Brazil also modified
its fuel tax rates to keep gasoline prices low, which provided less support forethanol than usual.

PAGE | 72

I EA. CC BY 4.0.

In 2022, the United States approved the use of 15% ethanol blends year-round inan effort to reduce pump prices. However, the impact on ethanol use was limited
because only a few pumps could handle the 15% ethanol blend.

Renewable Energy Market Update June 2023

Will energy security concerns
drive biofuel growth in 2023-2024?
Energy security returned as a primary rationale for expanding biofuel policies lastyear. Similar to the forecast before Russia’s invasion of Ukraine, our updated
forecast expects 11% (18 000 million litres) of new demand by 2024, supported
by policies with energy security objectives. However, as in 2022, only a few
markets are actively trying to accelerate deployment by 2024. In advanced
markets, new policies are not likely to influence production until after 2024, andhigh prices, feedstock concerns and technical constraints limit additional growth
beyond our 2021 forecast.

Emerging markets to lead growth in 20232024
Nearly two-thirds of biofuel demand growth will occur in emerging economies,
primarily India, Brazil and Indonesia. All three countries have ample domestic
feedstocks, additional production capacity, relatively low production costs and apackage of policies they can leverage to increase demand. Policies in all three
countries are also rooted in energy security considerations, as greater biofuel use
will offset some oil imports. India imported 87% of its crude oil supply andIndonesia net imports made up 20% of supply in 2021. Brazil is a net crude
exporter but still imported 19% of its gasoline and diesel in 2021.

7 000

Other
emerging
India

6 000
5 000

Indonesia

4 000
3 000

Brazil

2 000

Other
advanced
Europe

1 000
0Canada-1 000-2 000Ethanol

Biodiesel Renewable Biojet fueldieselEthanol

Advanced economies

Biodiesel Renewable Biojet fueldieselUnitedStatesEmerging economies

IEA. CC BY 4.0.

PAGE | 73

I EA. CC BY 4.0.

Demand (million litres/yr)

Biofuel demand growth by fuel and region, 2022-2024

Renewable Energy Market Update June 2023

Indonesia also announced two initiatives to accelerate biofuel deployment at theend of 2022. First, it plans to increase its biodiesel blending mandate to 35% in
2023, up from 30% in 2022. Second, it released an Ethanol for Energy Security
strategy to increase ethanol use, but implementation details remain limited.
Brazil plans to reinstate a climbing biodiesel blending target to reach 15% blendingby 2024, up from 10% in 2022. Ethanol demand will expand as well, but more
slowly than anticipated in our 2021 pre-energy-crisis forecast because sugar
prices have risen. Depending on which option is more profitable, sugar producers
in Brazil can switch some production from sweeteners to ethanol or the reverse.
The country is also considering a 2.5% increase to its mandatory ethanol blending
requirement, but no date has been released.
In 2022, India did not announce any new biofuel policies. However, the country is
still committed to its target of achieving 20% ethanol blending by 2025, which will
drive demand growth in upcoming years.

Renewable diesel growth remains strong in
advanced economies, but overall biofuel
demand expansion will not accelerate by
2024
Biofuel demand is projected to rise by 6% or 5 700 million litres between 2022 and2024 in advanced economies, with most of the increase occurring in the UnitedStates and Europe. The Renewable Fuel Standard and the Inflation Reduction Act
in the United States are intended to achieve various goals, including enhancing
energy security. Meanwhile, the EU Renewable Energy Directive (RED), which
member states’ governments have implemented through domestic policies, aims
to achieve 14% renewable content in transport fuels by 2030.
One of the reasons for the RED’s initial implementation in 2003 was to decrease
oil import reliance to strengthen EU energy security. In 2022, this rationale wasreiterated, with the RED additionally considered a measure to reduce both energy
prices and EU dependence on imported fossil fuels.
Nevertheless, we do not expect biofuel demand to accelerate in response toenergy security concerns in either the European Union or the United States during2023-2024.

PAGE | 74

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Although the European Union is planning to increase its targeted share of
renewable energy in transport from 14% to 29% by 2030, a final agreement has
yet to be reached, and member governments would need time to align theirdomestic targets. Ethanol, biodiesel and renewable diesel prices also remain
above those of gasoline and diesel (see next section), so biofuel use can be lessexpensive for consumers only if it is subsidised. Furthermore, over 40% of theRenewable Energy Market Update June 2023

European Union’s biodiesel (or the feedstocks to produce it) were imported in
2022. Renewed concerns over the difficulty of verifying the sustainability
credentials of these imports presents additional doubts about increasing blending
requirements.
In the United States, the IRA provides production support to 2027 and investment
support to 2031. We do not, however, expect a notable change in production or
demand to 2024, since projects take more than two years to complete and we had
assumed the biodiesel blending credit available in 2021 would remain in place.
The Environmental Protection Agency (EPA) has released proposed volume
obligations for 2023 through 2025, but the amounts for biodiesel and renewablediesel are lower than our current forecast. If the proposed values stand, it will likely
lead to a decrease in our forecast. The EPA noted that “feedstock limitations are
more likely [than capacity] to limit renewable diesel supply”.
Biofuel policies and energy security rationale by region, with influence on forecast

United States

Energy security policy
links and changes
With the Renewable FuelStandard (RFS), congress
intended the renewable fuelprogramme to provide greater
US energy security. The intent
of the Inflation Reduction Act(IRA) is to take the mostaggressive action ever toconfront the climate crisis,
strengthening the US
economy and energy security.

No change

On 28 April, the US
government provided an
emergency waiver for yearround E15 blending.

BrazilBrazil introduced its firstethanol blending requirementin 1976. Since then thebiodiesel blending programme
has aimed to reduce diesel
use and effectuate savings
sustainably while promotingsocial inclusion, guaranteeing
competitive prices, quality andsupplies, and enablingbiodiesel production fromvarious oil sources in different
regions. The RenovaBio
programme recognises thestrategic role of all biofuels incontributing to energy security,
market predictability and themitigation of GHG emissions.

PAGE | 75

DeclineExplanation

The 2021 forecast
assumed the biodiesel
blender credit would
continue to 2024 as it had
been extended several
times in the past. The IRA
is therefore unlikely todrive additional volumes in
the forecast time horizon.
The RFS has not yet been
set to 2024. Proposedvalues for biodiesel andrenewable diesel, if
implemented, would likely
downgrade our forecast.
The 2021 forecast
included 15% biodiesel
blending in 2024, which
the Brazilian government
had delayed to 2026. We
revised the ethanol
forecast down slightly toreflect lower blending in
2022 and the potential forhigh sugar prices in 2023,
which would divert somesugar to sweetener
manufacturing rather thanethanol production.

I EA. CC BY 4.0.

Country/region

Productionchange in2023-2024
compared to2021 forecast

Renewable Energy Market Update June 2023

Country/region

European Union

Indonesia

India

Energy security policy
links and changes
In 2023 the EU Parliament andCouncil agreed to new
Renewable Energy Directive(RED) targets, including a
14.5% GHG or 29%
renewable energy share target
for transport by 2030. The
overall aim of the RED is to
reduce energy prices as well
as EU dependence on
imported fossil fuels. However,
Sweden announced its
intention to reduce its blending
obligation to 6%, down from
7.8% for gasoline and 30.5%
for biodiesel.
Indonesia launched its
biodiesel blending programmein 2006 to ensure the country’s
energy supply security, and in
2023 it increased its biodiesel
blending mandate to 35% toreduce diesel imports andexpenses. Indonesia alsoannounced an Ethanol for
Energy Security Strategy in
2022.
India launched its National
Policy on Biofuels as one partof a five-pronged strategy tomeet energy security
objectives, with the primaryenergy security aim of
reducing imports.

Productionchange in2023-2024
compared to2021 forecast

DeclineIncrease

Increase

Explanation

RED III has not yet been
finalised and it is unlikelythat member governments
will be able to incorporate
new targets that would
raise demand by 2024.
We also assume Finland
return to its initial target asplanned. Sweden reduces
blending obligation to 6%
by January 2024 forgasoline and diesel.

Indonesia has set an
allocation for additional
biodiesel and has the
production capacity tosupport this level growth.
It also has surplus palm oilstocks. We did notincrease ethanol blending
since there are no details
on the Ethanol for Energy
Security Strategy.
In 2022 India officiallyadopted a target of 20%
ethanol blending by 2025.
It also increased
guaranteed ethanol
prices, which contribute toa higher forecast.

PAGE | 76

I EA. CC BY 4.0.

The United States has additional ethanol capacity, and ethanol prices are currently
close to gasoline prices. To promote sales, the US government issued an
emergency waiver in 2022 allowing for year-round 15% ethanol sales, and has
done so again for 2023 to help reduce gasoline prices. However, ethanol
consumption cannot be boosted quickly because compatible infrastructure isrequired for higher ethanol blends.

Renewable Energy Market Update June 2023

Will we see lower biofuel prices in2023-2024?
Biofuel prices peaked in 2022 and have since declined, but we expect them toremain above pre-war levels in most markets in 2023-2024. In 2022, biodiesel
prices rose by up to 160% and ethanol prices by up to 75% from 2019 levels.
These price increases resulted from a combination of factors, including tradedisruptions, high energy prices, high fertiliser costs, and weather-related supply
interruptions for primary biofuel feedstocks.
In the first four months of 2023, ethanol prices declined 7-16% from the 2022
average and biodiesel prices dropped 15-28% (depending on the market). In
2023, US ethanol prices are expected to climb due to slightly higher-priced corn,which is the country’s primary feedstock for ethanol production. In Brazil and India,
decade-high sugar prices are likely to put upward pressure on ethanol prices,since ethanol production in both countries relies primarily on sugar.
Meanwhile, even though vegetable oil prices for biodiesel production have fallen
27% from record highs in 2022, supplies remain tight, limiting the pace and scaleof price declines in the next two years. The risk of higher prices due to Russia’s
invasion of Ukraine continues to be a concern, as the conflict may disrupt
international agricultural trade again this year.

Price (USD/litre)

Ethanol and gasoline prices (left) and biodiesel and diesel prices (right) in selectedmarkets, 2019-2023
Ethanol vs. gasoline

Biodiesel vs. diesel

1.2

2.4

1.0

2.0

0.8

1.6

0.6

1.2

0.4

0.8

0.2

0.4

0.0

0.0

United States
United States gasoline
Europe diesel

EuropeEurope gasoline

BrazilUnited States diesel

IEA. CC BY 4.0.

PAGE | 77

I EA. CC BY 4.0.

Notes: Gasoline and diesel prices are based on reported IEA data and exclude taxes. Ethanol and biodiesel prices are
based on Argus, IHS Markit and IEA analysis.

Renewable Energy Market Update June 2023

Advanced biofuel imports drive down
biodiesel costs in Europe
As of April 2023, biodiesel prices had fallen by more than 40% since 2022 forseveral reasons, including lower vegetable oil prices and increased imports oflower-priced advanced biofuels and feedstocks. Advanced biodiesel is produced
from used cooking oil, tallow, palm oil mill effluent, and other residues.
In the first three months of 2023, imports of advanced biofuels and used cooking
oil from China increased 18% from the same time last year. In many EU markets,
each litre of advanced biofuel can be counted twice towards blending obligations,displacing two litres of conventional biodiesel, reducing overall biodiesel demandand contributing to more significant price declines.
Ethanol prices have also declined from peaks in 2022 but remain 40% above 2019
levels. High sugar prices, a poor harvest of sugar beets (used to make ethanol)and still-high farming input costs for natural gas and fertiliser are contributing tohigher prices. Ethanol demand is also expected to increase by 12% to 8 billion
litres by 2024 as countries continue to pursue biofuel obligations and GHG targets
in the transport sector.

Renewable diesel growth supports higher
vegetable oil prices in the United States
We expect biodiesel prices to decline slightly in 2023/24 from their highs in 2022
owing to drops in vegetable oil prices. The cost of soybean oil, for instance, is 12%
lower this year than it was in 2022. This decline is still below the global average,
however, partly because expanding renewable diesel production is boosting
domestic demand while soybean oil supplies have not increased. The USDA
expects rising renewable diesel demand to displace exports, reducing them by
75% in 2023.

PAGE | 78

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Ethanol prices are still high compared with historical levels and are expected toremain elevated in 2023. The USDA foresees a 9% drop in corn production from2021/22 to 2022/23 while demand remains stable, supporting 10% higher cornprices. Prices are then expected to decline over 2023/24. Corn is the dominantethanol feedstock in the United States.

Renewable Energy Market Update June 2023

High Brazilian sugar and soybean production
supports domestic and international demand
increases
In Brazil, ethanol prices are expected to increase in 2023 due to higher
international sugar prices and rising domestic demand. Globally, sugar prices
soared to 10-year highs in the first four months of 2023 because key producing
regions such as India had lower output while global demand remained stable.
Ethanol produced from corn, 15% of Brazil’s production, may offer relief if
production prices remain below those of sugarcane ethanol.
Brazil’s biodiesel prices are down 30% from last year and the country expects arecord soybean crop, which should keep prices low. However, raising of thecountry’s biodiesel blending mandate will command an additional 7 Mt ofsoybeans (5% of estimated total production in 2023 and 9% in 2024), contributing
to higher domestic demand. Brazilian soybean exports are also expected toincrease 17% (13 Mt) from last year, making up for a 60% year-on-year drop in
Argentinian production. Droughts in Argentina, the world’s largest soymeal andsoybean oil exporter, have left its soy crushers searching for new supplies,
prompting increased imports from Brazil.
Price drivers per biofuel by country/region

United States

BrazilEthanol

BiodieselPricepressure

Drivers

Increasethendecrease

Corn prices are
expected to rise 10% in
2023 because of lower
production and stabledemand, and to return
to below 2021/22 values
in 2023/24.

Decrease

Increase

Sugar prices are up
40% from December
2022 and are expected
to stay high in 2023
because of production
declines in India.
Ethanol demand is also
expected to be 11%
higher in 2024 than in
2022. Brazil is expecting
a 6% production
increase this year tohelp cover ethanol
demand and export

Decrease

PAGE | 79

Pricepressure

Drivers
Vegetable oil prices are
expected to decline
slightly in 2023/24,
although greater
renewable diesel demand
could raise prices. Higher
final renewable fuelstandard volume
obligations for renewablediesel and biodiesel
could also influence
prices.
Prices for soybean oil,
Brazil’s dominantbiodiesel feedstock, aredown 27% year-on-year
and production is atrecord levels. Demand
increases from thebiodiesel mandate andhigher exports, but prices
are expected to decline
overall.

I EA. CC BY 4.0.

Country/
regionRenewable Energy Market Update June 2023

European Union

EthanolPricepressure

Increase

Biodiesel

Drivers
expansion, and it is also
considering a 2.5%
increase to its ethanol
blending requirement,
which would boost
demand.

Although agricultural
input costs are still well
above pre-energy-crisis
levels, they are down
considerably from 2022
peaks, helping reduce
feedstock costs.
However, sugar prices
have nearly doubled
from 2022, raising theprice of sugar beets, adominant feedstock for
EU biofuel production.

PAGE | 80

Pricepressure

Decrease

Drivers

Increases in advanced
biofuel imports from
China, which countdouble under the
Renewable Energy
Directive, have reduced
used cooking oil prices
by 28%, contributing to a
40% decline in biodiesel
prices.
However, high importlevels have raised
concerns that supplies do
not meet sustainability
requirements. Validationof these concerns could
slow the pace of pricedeclines.

I EA. CC BY 4.0.

Country/
regionRenewable Energy Market Update June 2023

What are governments andcompanies doing to avoid a supply
crunch, and is it enough?
The number of planned projects using unconventional feedstocks is not enoughto avoid a feedstock supply crunch over the medium term. Even if every proposed
project is built on time, new production potential amounts to just 4% of existing
biofuel production globally. Nevertheless, thanks to policies in major biofuel
markets, these planned facilities could more than triple existing capacity of plants
using unconventional feedstocks by 2030. Beyond investing in new projects, therenewable energy industry is also helping expand feedstock supply chains byenlarging the use of new oilseeds.

6 000

Volume (million litres per year)

Volume (million litres per year)

Existing and planned biofuel capacity using non-conventional feedstocks andincorporating CCUS, 2021-2030

5 000
4 000
3 000
2 000
1 000
0

Cellulosic

Other

Ethanol
Existing

Novel oils

Ag, forestand MSW

Alcohol tojet fuel

Biodiesel, renewable diesel andbiojet fuelUnder construction
Projects

12 000
10 000
8 000
6 000
4 000
2 000
0

Ethanol Renewablediesel
CCUS

Under consideration

IEA. CC BY 4.0.
Notes: CCUS = carbon capture, utilisation and storage. MSW = municipal solid waste. “Existing” projects are those with
operational capacity as of the end of 2022. “Under construction” are projects being built as of Q1-2023. “Projects” are thosewith announced final investment decisions or otherwise highly likely to move forward as of Q1-2023. “Under consideration”
covers all other announced projects with planned operation dates as of Q1-2023.

The feedstock supply crunch

PAGE | 81

I EA. CC BY 4.0.

In Renewables 2022, we found that raising biodiesel, renewable diesel and biojet
fuel production would likely require most available supplies of used cooking oil andanimal fats as well as a sharp increase in vegetable oil supplies to 2027. Althoughethanol feedstocks such as sugar and corn are under less pressure, feedstock
diversification is ultimately necessary for all biofuel pathways on a net zero
trajectory.

Renewable Energy Market Update June 2023

Broadly, governments and companies have four options to reduce feedstockpressure while expanding production of sustainable biofuels:
1. Enlarge production from existing feedstocks by intensifying crop production,
investing in supply chains and improving waste and residue collection.
2. Expand crop production to areas where there is no competition from food or feedcrops.
3. Use biofuel technologies that can process alternative feedstocks such as woody
organic residues.
4. Reduce the GHG intensity of fuels so that emissions reduction targets can be met
with lower biofuel volumes.

Government policies and market reactions
are encouraging the largest-ever expansion
in new biofuel technologies
Planned projects using unconventional feedstocks would more than triple existingproduction, with government policies and industry reactions to market demand
helping drive investment. Government programmes and policies fall into threebroad categories:
1. Strategic planning: Many jurisdictions use roadmaps and strategic plans toaddress feedstock limitations. For example, three of the six action areas of the US
SAF Grand Challenge Roadmap focus on expanding feedstock supplies, as do
China’s bioeconomy plan and Brazil’s Fuel of the Future Programme.
2. Regulatory design: Regulatory design can also prompt feedstock diversification.
The EU Renewable Energy Directive (RED), for instance, limits the contribution ofcrop-based feedstocks, used cooking oil and animal fats, and also allows certain
feedstocks (Part A of Annex IX) to count double to help stimulate demand.
Meanwhile, California’s low-carbon fuel standard requires GHG intensity
reductions for transport fuels, such that fuel producers receive financial benefits
per unit of GHG reduction delivered (rather than per volume of fuel), helping
achieve the same policy objective with lower feedstock demand.
3. Financial support: Production and investment incentives in the form of tax credits,
guaranteed pricing and grants are also helping drive investment. For instance, the
IRA in the United States provides tax credits through the Second-Generation
Biofuel Incentive, the Advanced Energy Project Credit and the Tax Credit for
Carbon Sequestration. While Canada provides funding for feedstock
diversification, India is offering support for cellulosic ethanol projects.

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These policies and programmes, in addition to historical efforts to date, are helping
spur new project development. For biodiesel, renewable diesel and biojet fuel,new projects are being dedicated to alcohol-to-jet fuel, thermal treatment ofRenewable Energy Market Update June 2023

agricultural and forest residues and municipal solid waste streams, and to novel
oils that do not compete with food or feed crops. In fact, eights projects involving
major biofuel producers investing in novel oil supply chains have been announced
in 2022-2023. All planned projects would introduce 7 billion litres of new capacity– four times the existing capacity from these types of projects – but half of them
are currently just proposals with no firm production date.
Meanwhile, new cellulosic ethanol projects, mostly in India and Brazil, would triple
existing production capacity. Although they would cover only a small fraction of
new ethanol demand, these developments are the most significant cellulosic
buildout in a decade.
Biofuel production combined with CCUS can also reduce pressure on feedstock
supplies in jurisdictions such as California that have GHG intensity targets.
While not in the figure above, biofuel producers are also expanding theirconventional supply chains. In North America, crushing capacity (to produce oils
from oilseeds) is expected to increase by up to 40% by 2025 for soybeans alone,helping biofuel producers access more local vegetable oil supplies.

More efforts are needed to expand feedstock
supplies
While the scale of new projects is impressive, it is not yet at a level that would
avoid a feedstock supply crunch, and the feasibility of most new projects is
uncertain. Even if every project is built, combined they would represent only 16%
of new production expected by 2024. In most cases these projects will also not
replace existing demand.

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Nevertheless, these projects could lay the groundwork for speedier deployment if
successful approaches are demonstrated and economies of scale are established.
Higher feedstock prices, which would indicate scarcity, will also prompt investment
in new supplies. In addition, many options do not require the construction of new
facilities, just access to new feedstocks and/or modifications to existing plants.
Change can therefore happen quickly with the right incentives.

Renewable Energy Market Update June 2023

General annex
AEMO

Australian Energy Market Operator

ASEAN

Association of Southeast Asian Nations

CAISO

California Independent System Operator

CCGT

Combined-cycle gas turbines

CCUS

Carbon capture, utilisation and storage

CEN

Coordinador Eléctrico Nacional de

CSP

Concentrated solar power

DISCOM

Discouraged distribution companies

EBITDA

Earnings before interest, taxes, depreciation and amortisation

EIA

Environmental impact assessments

EIM

Energy Imbalance Market

EPA

Environmental Protection Agency

FIT
GHG

feed-in tariff
greenhouse gas

GSE

Gestore Servizi Energetici

HEPI

Household Energy Price Index

HVDC

High-voltage direct current

IRA

Inflation Reduction Act

ITC

Investment Tax Credit

LCOE

Levelised costs of energy

OCGT

Open-cycle gas turbines

PLI

Production-linked incentives

PPA

power purchase agreement

REC

Renewable energy certificatesRED

Renewable Energy Directive

RESS

Renewable Electricity Support Scheme

RFS

Renewable Fuel Standard

TRNC

Turkish Republic of Northern Cyprus

VRE

Variable renewable energy

WACC

Weighted average cost of capital

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Abbreviations and acronyms

Renewable Energy Market Update June 2023

Units of measurebarrelbarrels per day
billion cubic metres
billion cubic metres per year
centimetres per second
exajoule
gigajoulegigatons per year
gigatonne of carbon dioxide
gigatons of carbon dioxide per year
gigawatt
gigawatt hour
million litres per year
megawatt
megawatt hour

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bbl
bbl/d
bcm
bcm/yr
cm/s
EJ
GJ
Gt/yr
GtCO2
GtCO2/yr
GW
GWh
MLPY
MW
MWh

International Energy Agency (IEA)
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