Renewables
2022

Analysis and forecast to 2027

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Renewables 2022
Analysis and forecasts to 2027

Abstract

Abstract
Renewables 2022 is the IEA’s primary analysis on the sector, based on current
policies and market developments. It forecasts the deployment of renewableenergy technologies in electricity, transport and heat to 2027 while also exploring
key challenges to the industry and identifying barriers to faster growth.
The current global energy crisis brings both new opportunities and new challenges
for renewable energy. Renewables 2022 provides analysis on the new policies
introduced in response to the energy crisis. This year’s report frames current policy
and market dynamics while placing the recent rise in energy prices and energy
security challenges in context.

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In addition to its detailed market analysis and forecasts, Renewables 2022 also
examines key developments and trends for the sector, including the more
ambitious renewable energy targets recently proposed by the European Union;
the issue of windfall profits; the diversification of solar PV manufacturing;
renewable capacity for hydrogen production; and a possible feedstock crunch inthe biofuels industry and viable ways to avoid it.

Renewables 2022
Analysis and forecasts to 2027

Acknowledgements

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 and Laura Cozzi.
Other IEA colleagues who have made important contributions to this work include:
Abdullah Al-Abri, Ana Alcande Bascones, Carlos Alvarez Fernandez, Elisa
Asmelash, Praveen Bains, Jose Miguel Bermudez Menendez, Stéphanie
Bouckaert, Davide d’Ambrosio, Syrine El Abed, Astha Gupta, Ilkka Hannula,
Ciarán Healy, Pablo Hevia-Koch, Joerg Husar, Kevin Lane, Stefan Lorenczik, Rita
Madeira, Yannick Monschauer, Brian Motherway, Francesco Pavan, Uwe
Remme, Luis Fernando Rosa, Brent Wanner.
Timely data from the IEA Energy Data Centre were fundamental to the report, withparticular assistance provided by Pedro Carvalho, Luca Lorenzoni, Taylor
Morrison, Nick Johnstone, Julian Prime and Roberta Quadrelli.
This work benefited from extensive review and comments from the IEA Standing
Group on Long-Term Co-operation, IEA Renewable Energy Working Party,
members of the Renewable Industry Advisory Board (RIAB) and experts from IEA
partner countries and other international institutions. The work also benefited fromfeedback by the IEA Committee on Energy Research and Technology, IEA
Technology Collaboration Programmes (IEA TCPs).

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Many experts from outside of the IEA provided valuable input, commented andreviewed this report. They include:Renewables 2022
Analysis and forecasts to 2027

Acknowledgements

Countries
Argentina (Ministry of Energy), Brazil (Empresa de Pesquisa Energética), Canada(Natural Resources Canada), China (Energy Research Institute – ERI), Denmark(Ministry of Climate, Energy and Utilities), European Union (European
Commission – DG Energy), Finland ( Ministry of Economic Affairs andEmployment), Japan (Ministry of Economy, Trade and Industry - METI), Spain(Institute for Energy Diversification and Energy Saving - IDAE).

Technology Collaboration Programme (TCPs)
Bioenergy TCP, Heat Pump Centre (HPC) TCP, Hydropower TCP, Photovoltaic
Power Systems (PVPS) TCP, Solar Heating and Cooling TCP, SolarPaces TCP,
Wind Energy TCP.

Other Organisations
Archer Daniels Midland Company (ADM), Australian Energy Market Operator(AEMO), Enel, Energy Information Administration (EIA), European Commission,
European Heat Pump Association (EHPA), European Renewable Ethanol
Association (EPURE), European Solar Thermal Industry Federation (ESTIF),
Global Wind Energy Association (GWEC), Iberdrola, National Renewable Energy
Laboratory (NREL), Natural Resources Canada, Neste, Ørsted, Siemens Gamesa
Renewable Energy, Solar Energy Corporation of India Ltd. (SECI), Solar Power
Europe, Solrico, SPV Market Research, The Energy and Resources Insitute(TERI), US Grains Council, Vestas, WindEurope, World Bank, World Bioenergy
Association.
The authors would also like to thank Kristine Douaud for skilfully editing themanuscript and the IEA Communication and Digital Office, in particular Jon
Custer, Astrid Dumond, Jad Mouawad, Barbara Moure, Jethro Mullen, Julie
Puech, Robert Stone and Therese Walsh for their assistance. In addition, Ivo Letrafrom the Office of Management and Administration supported data management.
Questions or comments?

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Please write to us at IEA-REMR@iea.org

Renewables 2022
Analysis and forecasts to 2027

Table of contents

Table of contents
Renewables 2022 ...................................................................................................................... 1
Analysis and forecasts to 2027............................................................................................... 1
Abstract ................................................................................................................................... 3
Acknowledgements, contributors and credits ......................................................................... 4
Table of contents..................................................................................................................... 6
Executive summary ............................................................................................................... 10
Chapter 1. Renewable electricity .......................................................................................... 17
Forecast summary ................................................................................................................... 17
China ........................................................................................................................................ 28
United States ............................................................................................................................ 30
Europe ...................................................................................................................................... 34
Asia Pacific ............................................................................................................................... 56
Latin America ........................................................................................................................... 70
Middle East and North Africa ................................................................................................... 76
Sub-Saharan Africa .................................................................................................................. 81

Chapter 2. Transport Biofuels ............................................................................................... 84
Forecast summary ................................................................................................................... 84
Demand, supply and trade ....................................................................................................... 92

Chapter 3. Renewable heat ................................................................................................ 108
Recent trends and policy update ........................................................................................... 108
Outlook to 2027 ...................................................................................................................... 110

Chapter 4. Trends to watch................................................................................................. 117
Question 1: Is the European Union on track to meet its REPowerEU goals? ....................... 117
Question 2: Is renewable energy capacity in the European Union making windfall profits fromhigh wholesale prices? ........................................................................................................... 129
Question 3: Will new PV manufacturing policies in the United States, India and the European
Union create global PV supply diversification? ...................................................................... 135
Question 4: Is the biofuel industry approaching a feedstock crunch? ................................... 141
Question 5: How much will renewable hydrogen production drive demand for new renewableenergy capacity by 2027? ...................................................................................................... 146
Question 6: Is the energy crisis really making the business case for heat pumps? .............. 151

General annex..................................................................................................................... 156
Abbreviations and acronyms .................................................................................................. 156

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Units of measure .................................................................................................................... 157

Renewables 2022
Analysis and forecasts to 2027

Table of contents

List of Figures

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Upward revisions to renewable capacity expansion forecasts from Renewables
2021 to Renewables 2022........................................................................................ 17
Renewable capacity growth in the main and accelerated cases, 2010-2027 .......... 18
Quarterly average utility-scale solar PV and onshore wind auction contract andwholesale power prices in selected European countries, 2018-2022 ...................... 19
Renewable capacity growth outside of China, main and accelerated cases, 20102027.......................................................................................................................... 20
Renewable annual net capacity additions by technology, main and accelerated
cases, 2015-2027 ..................................................................................................... 21
Renewable capacity auctioned by region, Q1 2018 to Q3 2022 .............................. 23
Auction contract prices for utility-scale solar PV (left) and onshore wind (right) byregion........................................................................................................................ 24
Cumulative power capacity by technology, 2010-2027 ............................................ 26
Global electricity generation by technology, 2015, 2021 and 2027 ......................... 26
Hydropower electricity generation absolute year-on-year change, 2018-2022 ....... 27
China renewable capacity additions, 2010-2027 (left) and shares of renewables inelectricity generation, 2015-2027 (right) ................................................................... 28
United States annual renewable capacity additions by technology, 2020-2027 (left)
and total renewables capacity growth, 2010-2027 (right) ........................................ 31
United States solar PV capacity additions, 2019-2027 (left) and median time
between solar PV interconnection request and plant commissioning for selected
system operators, 2013-2021 (right) ........................................................................ 32
United States onshore wind capacity additions and maximum PTC credit rate, 20202027 (left) and offshore wind project status (right) ................................................... 33
Europe renewable electricity capacity additions, 2022-2027 (left) and wholesale
electricity prices for selected markets (right) ............................................................ 35
Germany renewable capacity additions, 2022-2027 (left) and 2030 targets forcumulative installed capacity in EEG2021 and EEG2023 vs installed capacity today(2021) ....................................................................................................................... 39
Historical feed-in premiums (2014-2021) and new rates under the EEG2023 with fullfeed-in premium (2023-2024) ................................................................................... 40
France capacity additions by technology, 2010-2027 (left) and project pipeline vsannual commissioning, 2016-2021 (right) ................................................................ 44
Spain renewable capacity additions by technology, 2010-2027 (left) and annual
auctions vs deployment targets, 2022-2026 (right) .................................................. 45
The Netherlands renewable capacity additions, 2020-2027 (left) and capacity tosolar PV and other technologies in SDE+ and SDE++ (right) .................................. 47
Belgium renewable capacity additions by technology, 2010-2027 (left) and Denmark
renewable capacity additions by technology, 2010-2027 (right) .............................. 50
Italy renewable capacity additions, 2010-2027 (left) and results of FER renewableenergy auctions (right) .............................................................................................. 51
United Kingdom renewable capacity additions, 2010-2027 (left) and CfD auction
results, capacity limits and projects pipeline in Renewable Energy Planning
Database (right) ........................................................................................................ 53
Poland renewable capacity additions, 2010-2027 (left) and quarterly distributed PV
capacity additions, 2019-2022 (right) ....................................................................... 55
Asia Pacific renewable capacity additions by technology, 2010-2027 (left) andannual capacity additions by country, 2019-2027 (right) ......................................... 57
India renewable capacity additions, 2010-2027 (left) and renewable capacity
awarded in auctions, 2017-2022 (right) .................................................................... 58
India awarded and commissioned renewable capacity, 2017-2022 (left) andDISCOM energy market shares by integrated rating, 2015-2021 (right) ................. 60

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Analysis and forecasts to 2027

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Japan renewable capacity additions, 2010-2027 (left) and FIT-approved capacityand prices for solar PV and onshore wind, 2012-2021 (right).................................. 63
Korea renewable capacity additions, 2010-2027 (left) and fixed-price solar PV
capacity and average revenue per MWh by technology, 2017-2022 (right) ............ 64
Australia renewable capacity additions, 2010-2027 (left) and quarterly distributed PV
capacity additions, 2017-2022 (right) ....................................................................... 66
ASEAN renewable capacity additions, 2010-2027 (left) and annual capacity
additions by country, 2019-2027 (right) .................................................................... 68
Brazil renewable capacity additions, 2020-2027 (left) and utility-scale solar PV andonshore wind capacity by market registration (right) ............................................... 71
Chile renewable capacity additions, 2020-2027 (left) and capacity and prices
awarded in Chilean energy auctions (right).............................................................. 72
Colombia renewable capacity additions, 2020-2027 (left) and installed renewablecapacity in REMR2022 forecast vs Colombia’s National Energy Plan (right) .......... 73
Mexico renewable capacity additions, 2010-2027 (left) and Argentina renewablecapacity additions, 2010-2027 (right) ....................................................................... 75
Middle East and North Africa renewable capacity additions, 2010-2027 (left) andrenewable additions by technology and country, 2022-2027 (right) ........................ 76
Middle East and North Africa renewable capacity additions dedicated to hydrogenproduction, 2010-2027 (left) and project status for electrolysers using dedicatedrenewables with commissioning planned by 2027 (right) ........................................ 80
Sub-Saharan Africa renewable capacity additions, 2010-2027 (left) and renewable
additions by technology and country, 2016-2027 (right) .......................................... 82
Biofuel demand growth by fuel and region, 2021-2022 ........................................... 84
Ethanol and gasoline prices (left), and biodiesel and diesel prices (right), 2019-2022.................................................................................................................................. 85
Global biofuel demand (left) and growth for advanced and emerging economies(right), main case, 2021-2027 .................................................................................. 86
Forecast growth by country (left) and biofuel share of transport demand (right), maincase, 2021-2027 ....................................................................................................... 87
Global biojet fuel demand and supply growth, 2022-2027 ....................................... 89
Demand growth by country (left) and total demand (right), accelerated case, 20212027.......................................................................................................................... 91
United States five-year biofuel growth, main and accelerated cases, 2016-2027 ... 93
Brazil five-year biofuel growth, main and accelerated cases, 2016-2027 ................ 96
Europe five-year biofuel growth, main and accelerated cases, 2016-2027 ............. 98
Indonesia five-year biofuel growth, main and accelerated cases, 2016-2027 ....... 101
India five-year biofuel growth, main and accelerated cases, 2016-2027 ............... 102
Other markets five-year biofuel growth, main and accelerated cases, 2016-2027 104
Global increase in renewable energy consumption and share of total heat demandin buildings and industry, 2010-2027 ..................................................................... 110
Increase in renewable heat consumption in industry and share of renewables inindustrial heat demand, selected regions, 2016-2027 ........................................... 111
Contribution of different factors to renewable electricity consumption growth inindustry and buildings, selected regions, 2022-2027 ............................................. 113
Buildings sector increase in renewable heat consumption and share of renewables
in heat demand, selected regions, 2016-2027 ....................................................... 114
Renewable electricity shares in main case (left), and average annual additions forsolar PV (middle) and wind (right) in the main and accelerated cases (2022-2027)................................................................................................................................ 119
European Union renewable energy share in transport, main case (left) andaccelerated case (right), 2020-2030 ...................................................................... 123
Share of renewables in heating and cooling, historical average annual progress andproposed targets for EU member states ................................................................ 127

Renewables 2022
Analysis and forecasts to 2027

Table of contents

European Union shares of installed renewable capacity by exposure to wholesalemarket price, based on member country policy schemes ...................................... 130
Revenue and EBITDA comparison of major European utilities for the first halves of2022 and 2021 (left) and their shares in installed generation capacity mix (right). 132
Total manufacturing costs for mono PERC c-Si solar components by input, 2022 136
India PLI subsidies and investment cost difference with lowest cost manufacturing(left) and US c-Si manufacturing costs with and without IRA Manufacturing
Production Tax Credit, compared with China and ASEAN (right) .......................... 137
Solar PV manufacturing capacity outside China and total investment by 5-year
periods, 2017-2027 ................................................................................................ 139
Solar PV manufacturing capacity and production by country and region, 2021-2027................................................................................................................................ 140
Total biofuel production by feedstock (left) and growth by region (right), main case,2021-2027 .............................................................................................................. 141
Biofuel demand shares of global crop production (left) and wastes and residues(right), main case, 2010-2027 ................................................................................ 143
Total renewable capacity dedicated to hydrogen production in the main andaccelerated case globally (left) and for main case by region (right), 2021-2027 ... 146
Europe dedicated renewable capacity in the main case by country, 2021-2027 (left),and proposed EU targets for renewables of non-biological origin in transport andreplacing non-renewable with renewable hydrogen use in industry (right) ............ 148
Levelised cost of heating for air-to-water heat pumps and gas boilers for selected
countries, and fuel-price sensitivity ........................................................................ 154

List of Tables

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Renewable energy targets by Australian state ........................................................ 66
Summary of Inflation Reduction Act provisions for biofuels ..................................... 94
Policy and assumption summary, main and accelerated cases ............................ 105
Summary of renewable energy benchmarks by sector in REPowerEU plan and in
main and accelerated cases .................................................................................. 118
Transport renewable energy shares with and without multipliers, main andaccelerated cases .................................................................................................. 124
European Union proposed targets for renewable heating and cooling .................. 125
Selected European countries that have introduced or announced a windfall-profit tax................................................................................................................................ 134
Planned solar PV component manufacturing expansion in the United States andIndia in 2022 ........................................................................................................... 137
Liquid biofuel production pathways, costs and feedstock potential ....................... 145
Change in residential consumer prices for electricity and gas between H1 2021 andH1 2022 (left) and marginal cost of heating with residential heat pumps and gas
boilers under different energy cost assumptions (right), selected countries .......... 152
Prevalent public investment support for heat pumps by policy type, selected
countries, 2022 ....................................................................................................... 153

Renewables 2022
Analysis and forecasts to 2027

Executive summary

Executive summary
Energy security concerns and new policies lead tolargest ever upward revision of IEA’s renewable power
forecast
The first truly global energy crisis, triggered by Russia’s invasion of Ukraine,
has sparked unprecedented momentum for renewables. Fossil fuel supply
disruptions have underlined the energy security benefits of domestically generated
renewable electricity, leading many countries to strengthen policies supporting
renewables. Meanwhile, higher fossil fuel prices worldwide have improved thecompetitiveness of solar PV and wind generation against other fuels.
Renewable capacity expansion in the next five years will be much faster thanwhat was expected just a year ago. Over 2022-2027, renewables are seen
growing by almost 2 400 GW in our main forecast, equal to the entire installed
power capacity of China today. That’s an 85% acceleration from the previous five
years, and almost 30% higher than what was forecast in last year’s report, making
it our largest ever upward revision. Renewables are set to account for over 90%
of global electricity capacity expansion over the forecast period. The upwardrevision is mainly driven by China, the European Union, the United States andIndia, which are all implementing existing policies and regulatory and market
reforms, while also introducing new ones more quickly than expected in reaction
to the energy crisis. China’s 14th Five-Year Plan and market reforms, the
REPowerEU plan and the US Inflation Reduction Act are the main drivers of therevised forecasts.

Renewables will transform the global power mix through2027, becoming the largest source of electricity

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Renewables become the largest source of global electricity generation by
early 2025, surpassing coal. Their share of the power mix is forecast to increaseby 10 percentage points over the forecast period, reaching 38% in 2027.
Renewables are the only electricity generation source whose share is expected togrow, with declining shares for coal, natural gas, nuclear and oil generation.
Electricity from wind and solar PV more than doubles in the next five years,
providing almost 20% of global power generation in 2027. These variable
technologies account for 80% of global renewable generation increase over theforecast period, which will require additional sources of power system flexibility.
Meanwhile, the growth of dispatchable renewables including hydropower,

Renewables 2022
Analysis and forecasts to 2027

Executive summary

bioenergy, geothermal and concentrated solar power remains limited despite theircritical role in integrating wind and solar PV into global electricity systems.
Solar PV’s installed power capacity is poised to surpass that of coal by 2027,
becoming the largest in the world. Cumulative solar PV capacity almost triples
in our forecast, growing by almost 1 500 GW over the period, exceeding natural
gas by 2026 and coal by 2027. Annual solar PV capacity additions increase every
year for the next five years. Despite current higher investment costs due toelevated commodity prices, utility-scale solar PV is the least costly option for new
electricity generation in a significant majority of countries worldwide. Distributed
solar PV, such as rooftop solar on buildings, is also set for faster growth as a resultof higher retail electricity prices and growing policy support to help consumers
save money on their energy bills.
Global wind capacity almost doubles, with offshore projects accounting forone-fifth of the growth. Over 570 GW of new onshore wind capacity are forecast
to become operational over the 2022-27 period. However, onshore wind additions
will only break their annual record, set in 2020, by the end of the forecast period
because of lengthy permitting procedures and lack of improvements to grid
infrastructure. Offshore wind growth accelerates globally, while Europe’s share of
installed offshore capacity declines from 50% in 2021 to 30% in 2027 as China’s
provincial policies support faster expansion and the United States becomes a
sizeable market at the end of the forecast period.

Improved policies can narrow the gap to net zero by 2050
Our accelerated case shows global renewable capacity can expand by anadditional 25% compared with the main forecast if countries address policy,
regulatory, permitting and financing challenges. Most advanced economies
face challenges to implementation, especially related to permitting and grid
infrastructure expansion. In emerging economies, policy and regulatory
uncertainties still remain major barriers to faster renewable energy expansion.
Finally, in developing economies, weak grid infrastructure and a lack of access toaffordable financing hamper the timely commissioning of projects in our main
forecast. Should countries address those challenges, global renewable capacity
could expand by almost 3 000 GW. This faster increase would significantly narrow
the gap on the amount of renewable electricity growth that is needed in a pathway
to net zero emissions by 2050.

Russia’s invasion of Ukraine is a turning point for
renewables in Europe

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The war is expediting Europe’s clean energy transitions. The energy crisis hit
the EU while it was already discussing ambitious renewables targets under the Fit

Renewables 2022
Analysis and forecasts to 2027

Executive summaryfor 55 package. After Russia invaded Ukraine in February 2022, energy security
emerged as an additional strong motivation to accelerate renewable energy
deployment. At the EU level, the European Commission’s REPowerEU plan
released in May 2022 proposes ending the bloc’s reliance on Russian fossil fuelsby 2027. Among other goals, the plan aims to increase the share of renewables
in final energy consumption to 45% by 2030, exceeding the 40% previously undernegotiation.
Europe’s renewable electricity expansion doubles over the 2022-2027 period
as energy security concerns add to climate ambitions. Many European
countries passed or proposed action plans to further raise their ambitions,increased policy support and addressed non-financial challenges. Our forecast for
growth in the EU has been revised upward significantly (by 30%) from last year’s
report, led by Germany (50% higher) and Spain (60% higher). Germany has
increased renewable electricity targets, introduced higher auction volumes andimproved remuneration for distributed PV while reducing permitting timelines.
Spain has streamlined permitting for solar PV and wind plants, and increased grid
capacity for new renewable energy projects.
Sluggish growth of renewables in the transport and heating sectors holds
back higher renewable energy penetration in the EU. In our main case,renewables’ share of transport energy demand expands from 9% in 2020 to 15%
in 2027, which is not in line with the EU’s aspirations for 2030. While demand forelectric vehicles and biofuel expands, state and EU-level incentives to meet higher
renewable shares are not in place in most cases. For heating and cooling, theannual increase in the share of renewables would need to almost quadruple from
historical and forecasted growth to be on track with the REPowerEU plan targets.

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Policy improvements can drastically increase renewables expansion andput the European Union in line with REPowerEU goals. Our main forecast falls
short of the modelled goals of REPowerEU plan for all sectors. For electricity, inorder to reach the installed capacity needed to generate 69% of electricity fromrenewables by 2030, average annual net additions need to be 30% higher for solar
PV and more than twice as high for wind. Faster acceleration of wind and solar
PV would require EU member states to reduce permitting and licensing timelines,
extend auction schemes with clear schedules, redesign auctions to reflect theincreasing cost of renewables and their energy security benefits, and improve
incentive schemes for distributed solar PV generation. If EU governments rapidly
implement these changes, the accelerated case sees growth 30% higher, putting
the EU on track with its more ambitious REPowerEU modelled goals. For
transport, countries would need to implement more ambitious transport
decarbonisation programmes, including both biofuels and EVs. In the accelerated
case, renewable energy’s share in transport climbs to 20% by 2027, narrowing the
gap with the EU goal of 29% by 2030. For heating and cooling, accelerating theRenewables 2022
Analysis and forecasts to 2027

Executive summary

rollout of heat pumps will require overcoming high upfront costs throughincentives, regulations and low-cost financing for households to facilitate
investment.
Market interventions must shelter citizens from high costs but without
hurting the business case for new renewable energy investments. In October
2022, the European Council passed emergency regulations to protect vulnerable
customers from high energy prices, including windfall profit levies on electricity
generators. While there is strong rationale behind these interventions, their impact
needs to be assessed in terms of the potential harm to renewable developers’
capacity to invest in new projects. Current and proposed market interventions in
Europe (such as wholesale market caps and windfall-profit taxes) could create
uncertainties for renewable energy investments if they are not well designed or
co-ordinated across countries. Moreover, the ongoing energy crisis has also
sparked new discussions within the European Union concerning possible future
electricity market design. These proposed reforms could, in principle, boost
market-driven renewable energy deployment, ensure energy security andencourage investment in flexibility resources. However, it is important that any
proposals be carefully and transparently prepared, with clear visibility on timing
and involving all relevant stakeholders, in order to avoid unintended uncertainty
among investors.

China, the United States and India all double theirrenewable capacity expansion in the next five years,
accounting for two-thirds of global growth
China is forecast to install almost half of new global renewable power
capacity over 2022-2027, as growth accelerates in the next five years despite thephaseout of wind and solar PV subsidies. Policy guidelines and targets in China’s
new 14th Five-Year Plan on renewable energy are the basis for this year’s 35%
upward revision on last year’s forecast. Very ambitious new renewable energy
targets, market reforms and strong provincial government support provide longterm revenue certainty for renewables. In most Chinese provinces, utility-scale
renewables are cheaper than regulated coal electricity prices, driving rapid
adoption. In the main forecast, China is expected to reach its 2030 target of 1 200
GW of total wind and solar PV capacity five years in advance.

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In the United States, the Inflation Reduction Act is providing unprecedented
long-term policy visibility for wind and solar PV projects. Passed in August
2022, the legislation extended tax credits for renewables until 2032. In addition,
37 out of 50 states have renewable portfolio standards and goals supporting
expansion. By 2027, US annual wind and PV capacity additions double comparedwith 2021. Given that the United States now has clear long-term policy visibility,

Renewables 2022
Analysis and forecasts to 2027

Executive summary

any remaining forecast uncertainties relate to supply chain constraints, trademeasures, grid infrastructure inadequacy and long permitting lead times.
In India, new installations are set to double over our forecast period, led bysolar PV and driven by competitive auctions implemented to achieve thegovernment’s ambitious target of 500 GW of non-fossil capacity by 2030.

New policies in the United States and India can lead tomore diversified global solar PV manufacturing
Solar PV manufacturing investment in India and the United States is
expected to reach almost USD 25 billion over 2022-2027, a sevenfold
increase compared with the last five years. India’s Production Linked
Incentives (PLI) initiative closes nearly 80% of Indian manufacturers’ investment
cost gap with the lowest-cost manufacturers in China. Meanwhile, fully monetising
manufacturing tax credits in the United States could bring all segments of PV
manufacturing to cost parity with the lowest-cost manufacturers. In addition to
manufacturing subsidies, tariffs on imported PV equipment and local-content
premiums encourage project developers to purchase domestically manufactured
products in both India and the United States.
The global solar PV supply chain is diversifying, but China will continue todominate manufacturing. Despite growing investment in the United States andIndia, China is forecast to invest USD 90 billion over the forecast period, morethan triple the expected investment by the rest of the world combined. China’s
share in global manufacturing capacity could decrease slightly, from 80-95% today
to 75-90%, depending on the manufacturing segment. Furthermore, if countries
maintain trade policies that limit imports and favour domestically produced PV
products, greater geographical distribution of production could result in China’s
share shrinking more significantly to 60-75% by 2027 depending on the segment.
At the same time, investment plans also indicate supply significantly exceeding
expected global PV demand even in the most optimistic forecasts by 2027. In theabsence of faster growth in global demand, this could result in plant utilisation
factors as low as half today’s levels for all manufacturing segments in China.

Policy efforts are turning hydrogen production from windand solar PV into a new growth area

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Global renewable capacity dedicated to producing hydrogen increases 100fold in the next five years, offering opportunities to decarbonise industry
and transport. Policies and targets introduced in more than 25 countries acrossall continents are expected to result in 50 GW of wind and PV capacity focused on
producing hydrogen over the 2022-2027 period. This expansion is geographicallydiversified, with China leading the growth, followed by Australia, Chile and theRenewables 2022
Analysis and forecasts to 2027

Executive summary

United States. Together, these four markets account for roughly two-thirds ofdedicated renewable capacity for hydrogen production. While renewable capacity
dedicated to hydrogen accounts for only 2% of our main forecast, the share issignificantly higher at 13% in the Middle East and North Africa and 5% in Latin
America because of export opportunities.

Climate and energy goals underpin robust biofuels
forecast
Total global biofuel demand expands by 35 000 million litres per year
(MLPY), or 22%, over 2022-2027 in the main forecast. The United States,
Canada, Brazil, Indonesia and India make up 80% of global expansion in biofueluse, as all five countries have comprehensive policy packages that support
growth. Renewable diesel is expected to lead the global expansion for the firsttime mainly, driven by policies designed to reduce greenhouse gas emissions inadvanced economies. Biojet fuel demand expands significantly to 3 800 MLPY in
our main forecast – 35 times the 2021 level – to account for nearly 1% of total jet
fuel consumption. Recent US tax incentives and the EU’s ReFuelEU target propel
most of the growth in biojet fuel. Meanwhile, rising ethanol and biodiesel use
occurs almost entirely in emerging economies as they aim to reduce oil imports
while benefiting the local economy by using indigenous resources.

Waste and residues are a key growth area for biofuels
but require action to prevent a supply crunch
One-third of new biofuels production is set to come from waste and residues
by 2027. Transport greenhouse gas reduction policies in Europe and the UnitedStates are fuelling global demand for waste and residues. The United States’
Inflation Reduction Act drives a 20% increase in our biojet and renewable diesel
forecast. The policy rewards lower greenhouse gas intensity fuels, driving biofuel
producers to focus on waste and residues. In Europe, the existing Renewable
Energy Directive and member state policies reward biofuels made from waste andresidues. Most biofuel growth in Europe is also for renewable diesel and biojet.
Singapore and China are also expanding renewable diesel and biojet production
from waste and residues to serve the European and US markets.

PAGE | 15

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Unprecedented demand growth is straining supply chains, but government
policies and innovation may yet provide relief. Demand for waste and residue
oils and fats is expected to nearly exhaust supplies of the most readily available
sources by 2027. In advanced economies, supply limits are prompting biodiesel,
renewable diesel and biojet producers to secure conventional vegetable oils suchsoybean oil and rapeseed oil. Vegetable oil supplies dedicated to biofuel
production expand to 23% from 17% over the forecast period. However, higher

Renewables 2022
Analysis and forecasts to 2027

Executive summary

prices due to strong demand will prompt companies and governments to improvefeedstock supply chains, seek out new supplies and develop new techniques.
Policies and innovation can also help unlock untapped supplies and support
technology development, enabling the use of more widely available feedstocks forsustainable biofuel production

Heating with renewables grows but not fast enough tocontain fossil fuel use

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Modern renewable consumption for heating purposes is expected toincrease by almost one-third during 2022-2027, raising the modern use ofrenewables in heat from 11% to 14% by 2027. Renewable heat currently
benefits from policy momentum, in particular in the European Union, in responseto the energy security concerns fuelled by the current energy crisis. In both theindustry and buildings sectors, the combination of rising shares of renewables in
the power sector and greater reliance on electricity for heating, including throughheat pumps, makes the largest contribution to renewable heat uptake.
Nevertheless, renewable heat developments are insufficient to contain fossil fuelbased heat consumption.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Chapter 1. Renewable electricity
Forecast summary
The global energy crisis is pushing the accelerator on
renewable energy expansion
Global renewable capacity is expected to increase by almost 2 400 GW (almost75%) between 2022 and 2027 in the IEA main-case forecast, equal to the entire
installed power capacity of the People’s Republic of China (hereafter “China”).
Renewables growth is propelled by more ambitious expansion policies in key
markets, partly in response to the current energy crisis. This 85% acceleration on
the last five years’ expansion rate results primarily from two factors. First, highfossil fuel and electricity prices resulting from the global energy crisis have maderenewable power technologies much more economically attractive, and second,
Russia’s invasion of Ukraine has caused fossil fuel importers, especially inEurope, to increasingly value the energy security benefits of renewable energy.
This year’s forecast has been revised upwards by almost 30% from last year’s
despite energy market turbulence, mainly because China, Europe, the UnitedStates and India are implementing existing policies, regulatory and market reforms
and new policies more quickly than expected to combat the energy crisis. China’s
14th Five-Year Plan and market reforms, the REPowerEU plan and the US
Inflation Reduction Act (IRA) are the foremost policy changes since our last
forecast of December 2021.

40%
35%
30%
25%
20%
15%
10%
5%
0%

China

EU

GlobalUnited States

India

IEA. CC BY 4.0.

PAGE | 17

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Forecast revision from 2021

Upward revisions to renewable capacity expansion forecasts from
Renewables 2021 to Renewables 2022

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

The forecast for most advanced economies is based on these countries’ ambitious
targets and policy incentives, but implementation challenges remain, especiallyrelated to permitting and grid infrastructure expansion. In emerging economies,
policy and regulatory uncertainties, in addition to implementation challenges,
continue to be key barriers to faster renewable energy expansion. Finally, indeveloping countries, weak grid infrastructure and a lack of access to affordable
financing hamper faster commissioning of multiple projects in our main-caseforecast. Should countries address those challenges over the next 12-24 months,
renewable capacity expansion under the accelerated case is demonstrated to bealmost 25% higher than in the main case, producing nearly 2 950 GW in total
additions globally.
Globally, the pace of renewable capacity expansion over the forecast period in themain case needs to increase 60% to be in line with the IEA Net Zero by 2050
Scenario. In the accelerated case, however, growth in the next five years (underpolicies that address challenges and faster implementation of countries’ existingplans) narrows the gap for renewable electricity growth needed to achieve net zero
emissions by 2050.
Overall, China on its own is forecast to install almost half of new global renewable
power capacity over 2022-2027, as growth accelerates in the next five years
despite the phaseout of wind and solar PV subsidies. Ambitious renewable energy
targets in the 14th Five-Year Plan, market reforms and strong provincial
government support provide long-term revenue certainty for renewables. The
main-case forecast thus expects China to reach its 2030 wind and solar PV
capacity targets in 2025. However, the early achievement of 2030 targets leaves
the accelerated case’s upside potential relatively limited.
Renewable capacity growth in the main and accelerated cases, 2010-2027
2022-27 Net Zeroby 2050 Scenario
China2022-27 acc. case2022-27 maincase

Advanced
economies

2016-21
Other emerging
and developing
countries

2010-15
0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

GW

IEA. CC BY 4.0.

PAGE | 18

I EA. CC BY 4.0.

Note: acc. case = accelerated case.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

The European Union, the second-largest growth market after China, has had stable
renewable capacity expansion in the past five years compared with 2010-2015, but
its pace of expansion is expected to more than double during 2022-2027. While
several EU member countries had already introduced ambitious targets and policies
to accelerate renewable energy deployment before Russia’s invasion of Ukraine,since then the European Union has proposed even more aggressive goals under
the REPowerEU package to eliminate Russian fossil fuel imports by 2027. Our
forecast thus expects that EU and country-level policies implemented since thebeginning of the war will accelerate renewable electricity deployment.
For the EU electricity sector, expanding wind and solar PV power generation
remains one of the most effective ways to reduce natural gas consumption. Steepelectricity prices resulting from record-high natural gas prices continue to improvethe competitiveness of utility-scale renewables with fossil fuel-based alternatives. In
fact, from December 2021 to October 2022, average contract prices for long-term
wind and solar PV projects were 77% below wholesale market prices. In addition,
uptake of distributed solar PV applications is expanding because they can help
industrial and residential customers reduce their electricity bills, which have risen
significantly since the beginning of 2022.
While these drivers indicate faster expansion in the main case, forecast upside
potential is still high and depends on countries resolving pre-existing deployment
challenges by simplifying permitting procedures, upgrading and expandingtransmission and distribution networks, and providing long-term visibility over policy
support for both utility-scale and distributed projects. In fact, accelerated-casemodelling shows that the European Union could install over 30% more renewableenergy capacity, the largest absolute upside potential of all key countries andregions.

USD/MWh

Quarterly average utility-scale solar PV and onshore wind auction contract
and wholesale power prices in selected European countries, 2018-2022
500
450
400
350
300
250
200
150
100
50
0

Utility-scale solar PV

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2018

2019

Germany
UK
Spain auction price

2020

2021

500
450
400
350
300
250
200
150
100
50
0

2022

FranceGermany auction price
UK auction priceOnshore wind

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2018

2019

Italy
France auction price

2020

2021

2022

Spain
Italy auction price

IEA. CC BY 4.0.

PAGE | 19

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Notes: Italy’s spot price refers to the ITA-CSO. Electricity prices in Spain have been lower than in other EU countries due tothe introduction of gas price cap.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

In the United States, renewable energy expansion almost doubles from the last
five years in our main case. The IRA passed in August 2022 extended tax credits
for renewables until 2032, providing unprecedented long-term visibility for windand solar PV projects. In India, new installations are set to double over our forecast
period, led by solar PV and driven by competitive auctions implemented to achieve
the government’s ambitious target of 500 GW of renewable power by 2030.
In Brazil, forecast growth is based on the booming distributed PV market and theconsiderable pipeline of utility-scale wind and solar projects contracted throughbilateral power purchase agreements outside the government-led auction
scheme. Renewable energy expansion also accelerates in the Middle East andNorth Africa (MENA), sub-Saharan Africa, Association of Southeast Asian Nations(ASEAN) and other regions, owing mostly to policy incentives that take advantageof the cost-competitiveness of hydro, solar PV and onshore wind power.

GW

Renewable capacity growth outside of China, main and accelerated cases,
2010-2027
500
450
400
350
300
250
200
150
100
50
0

European United StatesUnion
2010-15

India

Brazil

MENA

2016-212022-27 main case

Sub-SaharanAfrica

ASEAN

Other
countries

2022-27 acc. case

IEA. CC BY 4.0.

Renewable capacity additions reach new record highs
through 2027, led by solar PV and wind
Annual additions are expected to ramp up in 2022, ranging from 350 GW in themain case to 400 GW in the accelerated case, with solar PV and wind accounting
for almost 90% of all new renewable energy installations. Achieving the higher
level of additions this year will mostly depend on the pace of commissioning for
utility-scale and distributed PV projects in China and the European Union.

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Annual renewable capacity additions are forecast to increase continuously overthe forecast period, reaching a record 460 GW in 2027 in the main case, 60%

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

higher than last year’s growth. At the end of the forecast period, solar PV and windprovide the vast majority of global renewable capacity additions in 2027,
accounting for nearly 95% as technology-specific challenges and limited policy
support hamper faster expansion of hydropower, bioenergy, geothermal, CSP and
ocean technologies.
Solar PV on its own accounts for over 60% of all renewable capacity expansion,
setting records for annual additions every year through 2027. Although module
prices have increased, utility-scale solar PV is the least costly option for new
electricity generation in a significant majority of countries worldwide. Commercial
and residential solar PV systems make up 26% of the global renewable capacity
additions forecast for the next five years, and the outlook for distributed solar PV
applications has been revised upwards because high natural gas prices are raisingretail electricity bills.
Distributed PV applications thus remain a key element in faster solar PV growth in
the accelerated case, in which annual additions reach almost 170 GW by 2027.
Achieving faster solar PV expansion in the next five years also depends on adecline in module prices, which are currently 25-30% higher than in 2020. Greater
solar PV affordability therefore underpins the accelerated case, as it would
improve economic attractiveness worldwide.

700

100%

Other renewables

600

95%

Bioenergy

90%

Hydropower

500

85%

400

80%

300

75%

200

70%

Historical

Main case

2027

2026

2025

2024

2023

2022

2027

2026

2025

2024

2023

2022

2021

2020

2019

60%

2018

0

2017

65%

2016

100

2015

Offshore wind
Onshore windDistributed PV
Utility-scale PV% of wind and PV(right axis)

Accelerated case

IEA. CC BY 4.0.

Onshore wind additions also increase in our main-case forecast, from 74 GW in
2021 to 109 GW in 2027. This is just slightly above the record growth achieved in
2020, which was propelled by developers in China rushing to complete projects
before subsidies were suspended. Onshore wind additions are climbing mostquickly in countries that have stable policy frameworks providing long-term

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GW

Renewable annual net capacity additions by technology, main andaccelerated cases, 2015-2027

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

revenue certainty, policies that address permitting challenges and plans for timely
grid expansion. However, just a small number of countries, including China,
Germany and Spain, have so far made improvements in all three areas.
Similar to solar PV, high commodity and freight prices have led wind turbine
manufacturing costs to surge in 2022 to 25-30% above the 2020 level, except in
China. Achieving accelerated-case annual onshore wind additions of 145 GW in
2027 will therefore require the resolution of permitting, policy uncertainty and grid
expansion concerns worldwide.
In 2022, annual offshore wind capacity additions are forecast to decline more than
30% compared with 2021 because China’s record expansion of last year will halve
now that developers are no longer rushing to beat subsidy phaseouts. Still, global
annual offshore wind installations are expected to increase 50% to over 30 GW in
2027, propelled by policy support in the European Union, the United States andChina. Taking long lead times and existing auctions and leasing schedules into
consideration, further upside potential is possible but limited. Accordingly, offshore
wind capacity growth is 20% higher in the accelerated case, with China claiming
the majority.

Global competitive auction capacity is expected to breakanother record in 2022 as a result of Chinese and EU
policies
Competitive auctions remain the main driver of forecast growth, with increasing
contributions from corporate PPAs, bilateral contracts and merchant activity. From
January to September 2022, 77 GW of new renewable auction capacity wasawarded globally, mostly in solar PV and wind. This is a 70% increase from thesame period in 2021, with China and Europe accounting for three-quarters of total
awarded capacity.
In China, provincial auctions have replaced national tenders and feed-in tariffs,
both of which were phased out in 2020 for solar PV and onshore wind and in 2021
for offshore wind. Nine provinces held auctions in Q4 2021, while an additional
13 held auctions in Q3 of 2022. In Europe, auction volumes in the first threequarters were 60% higher than in the same period in 2021 owing to a record
11 GW of renewable capacity being awarded in the United Kingdom. Excluding
the United Kingdom, auction volumes in Europe have remained stable in 2022
because France, Germany and Italy have awarded similar levels of capacity as
last year. Poland and Türkiye, which awarded a combined 3.5 GW of renewablecapacity last year, have not yet held auctions in the first three-quarters of 2022.

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Outside of China and Europe, the world awarded 26% less renewable capacity
during the first three-quarters of 2022. In the Asia Pacific region, India awardedRenewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

37% less capacity this year than in 2021. Similarly, auctioned volumes in Latin
America were 60% lower in the first three-quarters, as moderate power demand
from distribution companies reduced auction volumes in Brazil, and Chile’s tender
did not allocate as much capacity as expected.
In the Middle East and North Africa, in September 2022 Saudi Arabia launched a
3.3-GW tender for wind and solar projects that has not yet been closed, but itwould increase auctioned volumes in the region by more than half if announced
capacity is fully allocated by the end of 2022.

MW

Renewable capacity auctioned by region, Q1 2018 to Q3 2022
40 000

North America

35 000

Middle East andNorth Africa

30 000Latin America

25 000
20 000Europe15 000Eurasia

10 000

China

5 000
0

Asia Pacific
1

2

3

2018

4

1

2

3

2019

4

1

2

3

4

2020

1

2

3

2021

4

1

2
2022

3

AfricaIEA. CC BY 4.0.

After a decade-long downward trend, high commodity
prices are causing auction prices to rise
Elevated commodity prices, high freight costs and ongoing supply chain
disruptions have caused onshore wind investment costs to increase by 15-25%
and solar PV by 10-20% from pre-Covid levels. As a result, auction prices foronshore wind and solar PV rose worldwide in 2022, reversing a decade-longdeclining trend. Two factors have led to higher contract prices: developers arereflecting price increases in their bidding strategies; and some governments
increased reference bidding prices to offer higher remuneration on account ofrising investment costs.

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Prices for the primary materials used in wind and solar PV technologies increased
drastically from January 2021 to April 2022. For instance, the price of PV-grade
polysilicon almost quadrupled, aluminium more than doubled, copper shot up by
90%, steel was 40% higher, and freight fees rose fourfold. Some of these raw
materials broke price records, considering total increases since the beginning of
the Covid-19 crisis.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Commodity prices have been falling since May 2022, with economic slowdown in
China, Europe and the United States resulting from the global energy crisis caused
by Russia’s invasion of Ukraine. However, turbine and solar PV module prices are
not expected to drop immediately, as companies have been adjusting theirbusiness models to ongoing macroeconomic uncertainty. In addition, high power
prices, especially in Europe, are raising manufacturing costs, as most plants use
electricity for their main industrial processes.
In Europe, average auction prices in 2022 were 44% higher for solar PV and 21%
higher for onshore wind than in 2021, in US-dollar terms.
In the Asia Pacific region, average contract prices from government-led auctions
in US dollars increased slightly for solar technologies and wind. In India,
depreciation of the Indian rupee against the US dollar led to a 1% decrease inaverage auction prices expressed in US dollars, but a 4% increase in Indian rupee
terms. In Latin America, higher reference bidding prices in Brazil and Chile due tohigher investment costs led to higher contract prices in the region.

180

180

160

160

140

140

120

120

100

100

80

80

60

60

40

40

20

20

0
2012

2014

AfricaEurasia
North America

2016

2018

2020

2022

0
2012

Asia Pacific
EuropeMiddle East and Noth Africa

2014

2016

2018

2020

2022

China
Latin America
IEA. CC BY 4.0.

PAGE | 24

I EA. CC BY 4.0.

USD/MWh

Auction contract prices for utility-scale solar PV (left) and onshore wind(right) by region

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Dispatchable renewables make up just 10% of forecast
growth despite growing wind and PV integration
challenges
Higher investment costs than for wind and solar PV, a lack of policy support andinadequate recognition of the flexibility value of hydropower, bioenergy, CSP,
geothermal and ocean technologies are preventing faster uptake of dispatchable
renewable power generation.
For hydropower, annual additions peaked in 2013 with the commissioning of almost
45 GW, but deployment over the forecast period is volatile, ranging from 17 GW to33 GW according to the commissioning deadlines of large reservoir projects in
China, India and Türkiye. These three large markets form the basis of our maincase forecast of 141 GW over 2022-2027, which is slightly lower than deployment
achieved in the last five years. Because environmental permitting and construction
times are long, the upside potential for hydropower remains limited, with only an
additional 40 GW deemed possible in the accelerated case.
For bioenergy, over 60% of global capacity expansion is in China thanks to its
ongoing policy support at the provincial level for waste-to-energy projects. Outsideof China, Türkiye promotes bioenergy growth through feed-in tariffs and Brazil has
implemented auctions.
Despite geothermal energy’s great resource potential, growth is hampered by a lackof policies to address pre-development and resource exploration risks, with
anticipated expansion of less than 6 GW over 2022-2027 concentrated in Africa andSoutheast Asia. For CSP, relatively high investment costs and limited support todevelop storage capabilities result in an increase of almost 5 GW during the forecast
period.

Solar PV claims the most installed power capacity
worldwide by 2027, surpassing coal, natural gas andhydropower

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Cumulative PV capacity almost triples to over 2 350 GW by 2027 in the main case,surpassing hydropower in 2024, natural gas in 2026 and coal in 2027 to become
the largest installed electricity capacity worldwide. Hydropower is falling to third
place in terms of installed renewable capacity due to the rapid expansion of wind.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Cumulative power capacity by technology, 2010-2027
GW

2 500
2 000
1 500
1 000
500

Solar PV

Wind

Hydropower

Bioenergy

Coal

2027

2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

0

Natural gas

IEA. CC BY 4.0.
Source: IEA analysis based on World Energy Outlook 2022. (2022), Fossil fuel capacity.

Overall renewable electricity generation is expected to increase almost 60% toreach over 12 400 TWh, with hydropower remaining the primary source of
renewable electricity generation throughout the forecast period even though its
capacity expands less than that of wind and solar PV. The main-case forecast
expects renewables to become the primary energy source for electricity
generation globally in the next three years, overtaking coal. Renewables accountfor almost 40% of global electricity output in 2027, making up for declining sharesof coal, natural gas and nuclear.
Global electricity generation by technology, 2015, 2021 and 2027
100%
Oil

90%
80%

Nuclear

70%
60%
50%

Natural gas

40%
30%

Renewables

20%
10%

Coal

2027

2021

2015

0%

IEA. CC BY 4.0.

PAGE | 26

I EA. CC BY 4.0.

Source: IEA analysis based on World Energy Outlook 2022. (2022), Fossil fuel and electricity generation.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Large hydropower markets recover slowly from severe
droughts in 2021, except in the European Union
Severe drought conditions in Brazil, the United States, China and Türkiye
restricted global hydropower generation in 2021, with output declining for the firsttime in two decades (-3% year-on-year). Although the forecast indicates a 15%
drop in EU hydropower generation in 2022, data for the first nine months of thisyear indicate that hydropower generation in China, the United States and Brazil
will be higher than in 2021, with drought conditions easing in other countries as
well.
While EU hydropower generation is subject to a high level of uncertainty, historical
trends indicate that it could rebound. Given the European Union’s eagerness todisplace natural gas generation next winter, higher hydropower output could not
only contribute significant additional renewable electricity but improve energy
system flexibility.

500
Other countries

400
300

Brazil

200
India

100
0

United States

- 100
- 200

European Union

- 300
- 400

China
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
IEA. CC BY 4.0.

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TWh

Hydropower electricity generation absolute year-on-year change, 20182022

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

China
China is set to surpass its newly announced renewableelectricity targets thanks to rapid wind and PV
deployment
China’s cumulative renewable power capacity is expected to double during 20222027, increasing by almost 1 070 GW. Solar PV and wind account for 90% of
renewable energy growth, with hydropower providing most of the remainder. In
the main case, China is expected to reach its 2030 target of 1 200 GW of total
wind and solar PV capacity five years early. By 2023, solar PV will have surpassedhydropower to have the largest portion of installed renewable capacity in China.
Policy guidelines and targets in China’s new 14th Five-Year Plan on renewableenergy (released in June 2022) are the basis for this year’s 35% upward revisionon last year’s forecast. For the first time, China has shifted its policy focus frominstalled capacity to shares of renewable energy sources in electricity generation.
Accordingly, the country aims for 33% renewables and 18% wind and solar PV inelectricity generation by 2025. Depending on overall power demand growth andhydropower output, China could reach its renewable energy generation targets
even earlier.

45%

1 400

35%

1 200

30%

1 000

25%

800

20%

25%

600

15%

20%

400

10%

200

5%

0

0%

Hydropower
PV - utility
Other renewables

Wind
PV - residential
Forecast revision %Bioenergy
PV - commercial

10%% of wind and solar PV

2027

2026

2025

2024

2023

2022

2021

0%

2020

5%
2018

Main case Acc. case

15%

2019

2022-27

30%

2017

Historical2022-2735%

2016

2016-2140%

2015

2010-15%% of renewables

IEA. CC BY 4.0.

Informing our forecast for China are the four policy aims of its 14th Five-Year Planon renewable energy: 1) accelerate large-scale renewable energy deployment; 2)
increase the share of renewables in overall energy demand through electrification;

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GW

China renewable capacity additions, 2010-2027 (left) and shares ofrenewables in electricity generation, 2015-2027 (right)

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity3) shift from subsidy-oriented to market-oriented renewable energy deployment
with fixed prices; and 4) promote electricity system stability and security.
China’s government has identified large-scale deployment bases for utility-scalePV, with onshore and offshore wind easing project permitting. It has also phasedout subsidies for renewable electricity projects because generation costs formega-sized facilities (i.e. 500-2 000 MW) can easily be lower than for coal-fired
generation, especially in provinces with high renewable resource potential.
Utility-scale onshore wind and large-scale solar PV projects with 500 GW ofcapacity have been announced, to be installed mainly in the Gobi Desert in
Xinjiang, around the Yellow River in Inner Mongolia, and in the Hexi Corridor in
Gansu. These large plants, most of which are expected to be operational by 2027,
are to export power through underutilised ultra-high-voltage (UHV) transmission
lines to demand centres. To support large-scale project deployment, the 14th FiveYear Plan also proposes that new UHV lines be built by 2025 to raise power export
capacity from east to west from 200 GW to 300 GW.
Recent market reforms enable the use of new business models for solar PV andwind projects, supporting forecast growth. Since November 2021, largecommercial and industrial consumers have been exposed to market-based
electricity prices, and in the first quarter of 2022 almost half of China’s electricity
demand was traded in the liberalised market, mostly through provincial long-term
contracts.
In addition, the government passed a regulation enabling large consumers to sign
clean energy power purchase agreements with new projects developed without
subsidies. Thus, developers and consumers can exchange green certificates andenvironmental attributes in the market. Depending on the agreement, projects
receive a premium either from green certificates or environmental attributes on top
of market-based prices, improving project bankability.
New government initiatives and regulations are expected to enable faster
distributed solar PV expansion over 2022-2027. At the beginning of 2022,
commercial and industrial retail electricity prices rose to 10-20% above last year’s
in most provinces because developers have begun to pass the cost of their higher
fossil fuel bills on to consumers under the liberalised market. In our main-caseforecast, these higher prices are expected to hasten commercial and industrial PV
deployment.

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The Chinese government also introduced a new target requiring 50% of all large
public buildings and new buildings in industrial parks to have rooftop PV
installations. For residential consumers, retail electricity prices remain regulated
and relatively low, but provincial incentives from rural economic development
programmes continue to support small PV applications.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

In the accelerated case, renewable capacity growth in China could be 10% or
almost 120 GW higher than in our main case, mainly owing to faster solar PV andwind deployment. Plus, addressing remaining policy and market challenges could
lead to stronger uptake of renewables in the electricity sector over 2022-2027.
The pace of implementing large-scale renewable energy bases far from demand
centres depends partly on the timely expansion of interprovincial transmission
lines. In the absence of subsidies, revenue risks associated with curtailment
continue to be a challenge for onshore wind and solar PV projects. Furthermore,rising renewable energy investment costs, especially for solar PV, have reduced
the profitability and thus the bankability of some projects.
Developers of utility-scale renewable energy projects will also be increasingly
exposed to market price fluctuations for green certificates and environmental
attributes. Although volumes are increasing, these markets are still nascent andthe interactions among various products remain unclear, especially regarding
connections with corporate PPAs. Additionally, new government policy requirescommercial and industrial distributed PV applications to maximise selfconsumption, but a detailed accounting regime for self-consumption has yet to bereleased.

United States
Inflation Reduction Act incentives provide
unprecedented policy certainty, boosting wind and PV
deployment
Renewable energy capacity in the United States is forecast to increase 74%, orover 280 GW from 2022 to 2027, with solar PV and wind accounting for nearly all
renewable expansion. This upwards revision of more than 25% from last year’s
forecast takes account of new incentives under the IRA, which provides
unprecedented long-term policy visibility for multiple technologies.
While previous IEA forecasts assumed capacity addition uncertainty or evendeclining capacity additions because federal tax credits for solar PV and onshore
wind developers were declining or expired, the IRA now offers uncapped
investment tax credits (ITCs) and production tax credits (PTCs) through 2032. Our
updated forecast is therefore more optimistic and will impact deployment beyond
2023. 1

The maximum rate for the ITC is 30%, and for the base PTC rate is USD 0.026/kWh; the PTC is adjusted for inflation. ITC
and PTC rates step down in the final years covered by the IRA.

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Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

IRA incentives are expected to support the Biden Administration target of 100%carbon-pollution-free electricity by 2035. In addition, 37 out of 50 states haverenewable portfolio standards and goals supporting expansion. Given that thecountry now has clear long-term policy visibility, uncertainties in the US renewableelectricity forecast relate to project delays due to supply chain constraints, trademeasures, the availability of grid infrastructure and long permitting timelines.

100

400

20%

90

350

18%

80

16%

300

70

14%

60

250

50

200

10%

40

150

8%

30

12%

6%

100

20
10

50

0

0

2020 2021 2022 2023 2024 2025 2026 2027

4%2%
2010-152016-21

HistoricalHydropower

Wind

Bioenergy

PV-utility

PV-distributed

Other renewables

2022-272022-27

Main caseAcc. caseAcc. case0%

Forecast revision %IEA. CC BY 4.0.

Despite the introduction of new incentives, however, US renewable capacity
additions are forecast to decrease over 20% in 2022 compared with last year.
Overall, utility-scale solar PV and wind projects have been delayed by supply
chain challenges and rising costs. In addition to supply chain interruptions, several
measures impacting imports have also impeded solar PV project development.
First, the United States started an anti-dumping and circumvention investigation
into solar panels from several Southeast Asian exporters in March 2022. While an
executive order of June 2022 suspended the investigation for two years, the threemonth period of uncertainty stalled decisions throughout the project pipeline.
Second, the Uyghur Forced Labour Act came into force in June 2022, requiring
imports from China’s Xinjiang province to be accompanied by documentation
stating that no materials were manufactured using forced labour. Since the act
came into force, confirmation and compliance procedures at US ports havedelayed the delivery of some PV products to developers.

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GW

United States annual renewable capacity additions by technology, 20202027 (left) and total renewables capacity growth, 2010-2027 (right)

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

60

monthsGW

United States solar PV capacity additions, 2019-2027 (left) and mediantime between solar PV interconnection request and plant commissioning
for selected system operators, 2013-2021 (right)

50

120
100

40

80

30

60

20

40

10

20

0

2019 2020 2021 2022 2023 2024 2025 2026 2027
Residential
Utility-scale
REMR2021

Commercial
Accelerated case

0
2013
CAISO

2015
ERCOT

2017

2019
PJM

2021
National*

IEA. CC BY 4.0.
Note: REMR2021 = Renewable energy market report 2021 (i.e. Renewables 2021).

Nevertheless, while trade measures hamper faster solar PV expansion in the shortterm, IRA incentives induce a more optimistic forecast beyond 2023. Extension of
the ITC, the new availability of the PTC, and options for stronger support basedon labour and domestic-content bonuses are expected to make the business casemore attractive for utility-scale projects. The inclusion of interconnection costs
within the ITC and new ways to monetise tax credits are also expected to facilitate
rapid uptake.
For distributed PV, the extension of tax credits and attractive economics resulting
from net-metering rules in some states drive growth. In fact, net-metering
incentives and demand for self-sufficiency resulted in over 4 GW of residential
installations in 2021, surpassing previous expectations even before the IRA cameinto effect. However, ongoing discussions concerning California’s net-meteringreforms to switch to time-of-use pricing and apply grid use fees continue to impose
forecast uncertainty, as the state remains the largest growth market for residential
and commercial installations in the United States.

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For onshore wind, last year’s forecast expected a more than 60% decline in annual
additions in 2026 compared with 2021 due to the phaseout of tax incentives.
However, the long-term tax credit certainty provided by the IRA is now expected
to lead to an increase in capacity additions, especially beyond 2023 (the US
government’s previous one-year PTC extensions provided little policy certainty,
creating boom-bust cycles of additions).

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

20

3.00

18

2.50

16
14

2.00

12
10

1.50

8

1.00

6
4

0.50

2
0

cents/kWh
GW

GW

United States onshore wind capacity additions and maximum PTC credit
rate, 2020-2027 (left) and offshore wind project status (right)

2020 2021 2022 2023 2024 2025 2026 2027

0.00

Onshore wind capacity additions
Previous forecast
Maximum PTC rate (USD cents/kWh)

16
14
12
10
8
6
4
2
0

Federalapproval

FederalreviewFederalreviewplannedFederal
award

State
award

Offshore wind capacity

IEA. CC BY 4.0.
Notes: PTC values in left figure are base values and exclude inflation adjustment. The PTC will change to a technologyneutral Clean Energy Production Tax Credit beginning in 2024.
Source: (right) IEA analysis based on information from the United States Permitting Dashboard for Federal Infrastructure
Projects (accessed November 2022).

The US offshore wind forecast expects more than 11 GW of new capacity because
projects previously awarded at the state level are entering federal review, leading
to their faster commissioning. The forecast thus expects most projects that havebeen approved (nearly 1 GW) or currently under the federal permitting review
process (over 14 GW) to become operational by 2027. Nevertheless, longdevelopment timelines remain a key challenge. For instance, Vineyard Wind 1 wasawarded its lease area in 2015 while only being granted federal permitting
approval in 2021, with construction finally beginning in 2022.
To help achieve the federal target of 30 GW of offshore wind capacity by 2030,
federal and state governments have held additional lease auctions and identified
new areas for future development. However, several barriers must still beovercome, including long federal and state-level permitting wait times; Jones Act 2
requirements that reduce the number of installation vessels available; and theneed for port and transmission infrastructure development.
In the accelerated case, growth is 30% higher if the primary uncertainties affecting
utility-scale solar PV and onshore wind expansion in the main-case forecast are
addressed. The first challenge is the backlog of grid interconnection applications.
The average time from interconnection approval to commissioning is over four

The Jones Act allows only US-built and -operated ships to move goods between US ports. Offshore wind installation vessels
are currently under construction in the United States, so the number of vessels available to install turbines is limited.

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2

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

years (and as high as six to seven for some independent system operators) andhas been increasing steadily over the last decade. Growth could therefore behigher if proposed legislation (the Energy Independence and Security Act) to help
facilitate transmission expansion is passed. Another forecast uncertainty is how
well developers will be able to fully monetise all IRA rate multipliers. If conditions
for labour, local content and project location are met, the ITC rate could almost
double and the PTC could be five times as high, but the Internal Revenue Service
has yet to release further guidance on interpreting these requirements.

EuropeEurope’s renewable capacity expansion doubles asenergy security concerns accelerate actions towards
climate goals
Cumulative renewable electricity capacity in Europe is expected to increase nearly
60% (+425 GW) between 2022 and 2027, more than twice as much as in theprevious five-year period (2016-2021). Solar PV leads growth, followed byonshore wind, offshore wind, bioenergy and hydropower. Three-quarters ofEuropean expansion is concentrated in seven countries – Germany, Spain, theUnited Kingdom, Türkiye, France, the Netherlands and Poland. Europe’s main
drivers for growth are long-term renewable energy targets and competitive
auctions for utility-scale projects.
For distributed solar PV, feed-in tariffs or self-consumption with remuneration forexcess generation promote uptake. The increasing attractiveness of projects
developed outside of government-led auction schemes, through business models
that employ corporate PPAs, revenues from the spot market, or a mixture of both,also spur growth.

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This year’s main-case forecast has been revised upwards 30% to reflect policychanges made by governments over the last year to accelerate clean energy
transitions and reduce reliance on Russian fossil fuels.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

600

35%

500

30%
25%

400

20%

300

15%

200

10%

100
0

EUR/MWh

GW

Europe renewable electricity capacity additions, 2022-2027 (left) andwholesale electricity prices for selected markets (right)

5%
2010-152016-212022-272022-27

0%Historical
Main case Acc. case
Hydropower
Wind
Bioenergy
PV - residential
PV - utility
PV - commercial
Forecast revision %Other renewables

600
500
400
300
200
100
0

2021 - 2021 - 2021 - 2021 - 2022 - 2022 - 2022 1Q
2Q
3Q
4Q
1Q
2Q
3Q
Germany
France
Italy
Netherlands
United Kingdom
Nordpool
PolandIEA. CC BY 4.0.
Note: Acc. case = accelerated case.

Policy momentum and market conditions were alreadysignalling faster renewable energy growth before the energy
crisisEven before the energy crisis began, policy actions in 2021 were pointing towards
a more optimistic renewable energy forecast for Europe, prompted by policy
reforms to accelerate renewable energy growth to reach more ambitious climate
goals. Last year, the European Commission released its Fit for 55 policy package
and proposed raising the targeted EU renewable energy share from 32% to atleast 40% by 2030 to put the European Union on a net zero GHG emissions
trajectory for climate neutrality by 2050. The final target is still under negotiation,but once it has been set, member states will have to update their National Energy
and Climate Plans (NECPs) during 2023-2024 to reflect new national targets andidentify support policies.
By the end of 2021, some member states had already begun to raise theirambitions in anticipation of a higher EU target and had introduced policy andregulatory changes to accelerate the use of renewable energy sources. For
instance, Ireland’s National Development Plan increased the targeted share of
renewables in electricity consumption to 80% by 2030 (up from its current NECP’s70%), and Italy’s Ministry of Ecological Transition proposed increasing the shareof renewable electricity to 72% (up from 55% in the country’s current NECP).

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Meanwhile, other countries continued to boost existing support. For example,
France raised the size limit for commercial PV eligibility for feed-in tariffs and theRenewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Netherlands extended net metering. Outside of policy action, countries also began
to tackle permitting barriers by simplifying procedures: for instance, Greece
unveiled a digital one-stop-shop application.
At the same time, favourable market conditions in 2021 were also positioning
Europe for faster growth. In many European markets, wholesale electricity prices
more than doubled between the first and fourth quarters of 2021, improving theattractiveness of merchant projects. In addition, pipelines of corporate PPA
projects expanded in several markets as energy-intensive end users sought tolock in lower tariffs to hedge against possible hikes in retail prices. Higher retailprices also improved the business case for self-consumption.

Reducing reliance on fossil fuel imports expedites action on
Europe’s renewable energy plans
Following the February 2022 invasion of Ukraine, energy security emerged as anadditional motivation to accelerate renewable energy development. Governments
responded by making their targets more ambitious and by fast-tracking policies tofacilitate quicker growth. At the EU level, the European Commission’s
REPowerEU strategy released in May 2022 proposes increasing the share of
renewables in final energy consumption to 45% by 2030, exceeding the 40%
currently under negotiation. Reaching this target will require almost 600 GW ofsolar PV 3 and 510 GW of wind capacity by 2030. 4
The Commission also proposes amending the Renewable Energy Directive withrequirements for member states to streamline and shorten permitting processes.
While legislation supporting this strategy has not yet passed at the EU level,
member states and other European countries have already begun to announceplans, draft legislation, and swiftly implement a raft of reforms to quickly end
dependency on Russian gas and mitigate the rising cost of energy to consumers.
These policy actions can be classified into three categories, and the main caseconsiders them on a case-by-case basis depending on the status of the legislative
process and country-specific challenges:
Raising renewable energy ambitions. In March 2022, Germany raised its 2030
renewable electricity target from 65% to 80% and accelerated the pace of solar
PV and wind expansion, aiming for 350 GW installed by 2030 compared to theprevious 191 GW. The United Kingdom proposed a 2030 PV target for the firsttime in its energy strategy, and Portugal announced plans to meet its 2030 target

Refers to alternating current (AC) as outlined in the EU Solar Energy Strategy.
The Staff Working Document on investment needs to implement the REPowerEU Action Plan states that 510 GW ofcumulative wind capacity and 592 GW of solar are required to reach the target of 45% renewables in final energy consumption
by 2030.
3

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4Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

by 2026. The forecast is more optimistic in these markets, based on the
expectation of draft legislation coming into force within the next five years.



Increasing policy support. Government actions include raising remunerationlevels and introducing new financial support. For example, Germany increased
feed-in tariffs for distributed PV, the Netherlands eliminated the VAT for residential
PV systems, and the United Kingdom unveiled plans to hold annual auctions forthe first time. Other countries modified existing schemes (e.g. France adjusted its
auction rules so that developers could increase capacity after the auction) or
extended current ones (e.g. Cyprus 5,6 allocated additional funding for net metering
until 2023). As the main case assumes that these changes, among others, will
increase the attractiveness of renewable energy projects, the forecast was
adjusted upwards.



Addressing non-financial challenges. Governments have passed regulatory
reforms to streamline permitting, make grid connection easier and improve
network congestion – three barriers that have lengthened project development
times. For instance, Germany overhauled onshore wind siting requirements andstreamlined compliance with environmental laws while Spain introduced asimplified permitting procedure and made grid capacity available for renewableenergy projects. Portugal eliminated environmental impact assessments forrenewable energy projects, while Italy raised the size limit to qualify for licensing
exemptions. These changes are expected to raise auction subscription levels andaccelerate movement in project pipelines, resulting in stronger growth

While this year’s main-case forecast is more optimistic than last year’s, non-policyrelated barriers threaten the pace of growth. The impact of supply chain
disruptions and rising raw material prices on future investment costs continue toimpose forecast uncertainty, and a lack of skilled workers to install higher volumesof distributed solar PV is another challenge.
Permitting delays are a key barrier to faster growth for both solar PV and wind inEurope. For onshore wind, wind turbine orders fell 36% in Q3 2022 compared with
Q3 2021. In 2021, onshore wind auctions held in Germany, France, Italy and theUnited Kingdom were undersubscribed because projects could not obtain permits
due to authorisation complexity, siting restrictions or social opposition. As a result,the onshore wind forecast for these markets has been revised downwards. Grid
congestion, coupled with a lack of investment and long lead times for network
upgrades, also constrain renewable energy growth.

Footnote 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”.
6
Footnote by all the European Union member states of the OECD and the European Union:
The Republic of Cyprus is recognised by all members of the United Nations with the exception of Türkiye. The information inthis document relates to the area under the effective control of the government of the Republic of Cyprus.

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5Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

In addition, current and proposed market interventions in Europe (such as
wholesale market caps and windfall-profit taxes) could create uncertainty forrenewable energy investments in the upcoming months if they are not welldesigned. Moreover, the ongoing energy crisis has also sparked new discussions
within the European Union concerning future electricity market design. Whilereforms could, in principle, boost market-driven renewable energy deployment,
ensure energy security and encourage investment in flexibility resources, it isimportant that any reform proposal be carefully and transparently prepared,
involving all relevant stakeholders. Failure in this regard could increase investor
uncertainty and slow renewable expansion.
Europe’s renewable capacity expansion during 2022-2027 could be 30% higher if
accelerated-case conditions are met. Simplified permitting regulations and shorter
licensing times would accelerate onshore wind development. This could beachieved if the temporary emergency regulations to address permitting
bottlenecks proposed by the European Commission were formally passed andimplemented at the country level. In November 2022 the European Commission 7
proposed the designation of renewables as a matter of public interest to benefit
from simplified procedures for new permits, and it introduced caps on permitting
response times under certain conditions.
Accelerated-case growth is also possible with more grid capacity and faster
network improvements to integrate new projects; simplified permitting regulations
and shorter licensing times to accelerate onshore wind development; training
programmes to increase the number of skilled workers; and greater landavailability for new projects to shrink bottlenecks and allow development.
Furthermore, an increase in auction volumes would accelerate utility-scale project
development while lower investment costs and elevated electricity prices could
offer further stimulus for unsubsidised projects.

Germany
Germany’s swift policy and regulatory response to theenergy crisis doubles the pace of renewable energy
expansion
Between 2022 and 2027, Germany’s renewable power capacity is expected to
expand 67% (97 GW), more than twice as much as during the previous five-year
period owing to ambitious new renewable energy targets designed to decrease

In 29 November 2022, EU energy ministers informally agreed to designate renewable energy projects as part of the “overriding public interest” that would be valid for 18 months. However, this regulation proposal is expected to be formally approvedby the European Council after the publication of the Renewables 2022 report.

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Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

reliance on imported Russian gas and achieve climate goals. This year’s forecast
has been revised upwards 52% from last year’s to reflect the passing of policy
reforms and support schemes to meet these new targets.
In July 2022, Germany revised its Renewable Energy Sources Act (EEG 2023)
just two years after the previous revision (EEG 2021) to raise the share of
renewables in electricity generation from 65% to 80% by 2030. The government
also increased the 2030 capacity targets for solar PV and wind substantially.
Accompanying the target revisions are support policies, including higher auction
volumes, increased remuneration for distributed solar PV, and regulations to
reduce permitting times for onshore wind. Renewable energy technologies werealso legally established as a matter of overriding public interest in the EEG 2023,
giving them priority in approval and permitting decisions when evaluated against
competing interests.

150

60%

250

50%

120

40%

90
60
30
0

GW

GW

Germany renewable capacity additions, 2022-2027 (left) and 2030 targets
for cumulative installed capacity in EEG2021 and EEG2023 vs installedcapacity today (2021)

30%

150

20%

100

10%
2010-152016-21

HistoricalHydropower
PV - utility
Other renewables

2022-272022-270%Main case Acc. caseWind
PV - commercial
Forecast revision %200

Bioenergy
PV - residential

50
0Solar PV

Wind
Wind Bioenergy
onshore offshore

EEG2021 2030 target

EEG2023 2030 target

2021

IEA. CC BY 4.0.
Note: Acc. case = accelerated case.

Solar PV accounts for 70% of total forecast growth, led by distributed PV, whichis also responsible for half of the upwards revision to this year’s forecast. This
year’s forecast for distributed PV is more optimistic than last year’s because the
new EEG 2023 offers greater support. For the first time since 2014, feed-in tariffs(FITs) and feed-in premiums (FIPs) will rise in 2023, monthly degressions havebeen halted until 2025, and the size limit for systems to qualify for the FIP wasraised from 750 kW to 1 MW.

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In addition, a premium on top of remuneration received through the FIP or FIT was
introduced for systems of less than 1 MW that do not self-consume and insteadRenewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

feed all their electricity into the grid. With this extra benefit, designed to encourage
installations on unused roof space, total support would return to levels not seen
since 2013 for residential systems and 2018 for commercial ones.
This year’s distributed PV forecast is also more optimistic owing to prospects of amore attractive business case for self-consumption with removal of the EEG
surcharge and anticipation of higher retail electricity prices. Utility-scale solar PV
growth has also been revised upwards because of greater capacity allocated to
auctions under the EEG 2023 and an increase in the amount of land available fordevelopment near motorways and agricultural sites.

USD/MWh

Historical feed-in premiums (2014-2021) and new rates under the EEG2023
with full feed-in premium (2023-2024)
160

160

140

140

120

120

100

100

80

80

60

60

40

40

20

20

0

0

Feed-in premium

Premium for 100% grid feed-in

Premium for 100% grid feed-in

Feed-in premium
IEA. CC BY 4.0.

Notes: In the right graph, feed-in rates for residential refer to systems of less than10 kW and for commercial are forsystems of less than 400 kW. The annual feed-in rate is an average of monthly feed-in rates for that year.

Nonetheless, two main challenges threaten solar PV growth, and resolving them
results in near 30% greater expansion in the accelerated case. The first isundersubscribed bid auctions and higher bid prices because of supply chain
challenges. For instance, utility-scale auctions in June 2022 were
undersubscribed for the first time since the scheme was launched in 2017. Only
62% of the 1.1 GW on offer were awarded, and bid prices increased 6% to
55 EUR/MWh for the first time since 2019. Contract prices for the first two largecommercial rooftop auctions in 2022 were also higher, and only 26% of offeredcapacity was awarded.

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The second challenge is labour shortages, which are slowing the pace ofdistributed PV installation. Naturally, high demand for systems coupled with ashortage of skilled labour raises the forecast’s downside potential. Thus, in theaccelerated case, more equipment, fewer delays, an adequate work force and anRenewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

attractive business case for corporate PPAs boost growth in annual additions to
19 GW by 2027, in line with the new 2030 target.
For onshore wind, the forecast has also been revised upwards 30% to reflectincreased auction volumes, new regulations to make more land available fordevelopment, accelerated permitting and less decommissioning. From 2024, thegovernment will double auction volumes to 10 GW per year. However, permitting
has been the major challenge for onshore wind development in Germany, withlong project approval wait times resulting from social opposition, land development
restrictions and nature conservancy requirements. Because of permitting
challenges, 14 out of 25 onshore wind auctions have been undersubscribed since2017, resulting in 5 GW of unawarded capacity.
To address these hindrances, the government passed the Onshore Wind Act(Wind-an-Land-Gesetz) in summer 2022, mandating that each of the federal
states dedicate an average 2% of their land to onshore wind development by 2032.
Until these targets are reached, rules on minimum distances from residential
homes are being suspended and turbines can be permitted in landscapeprotection areas.
The Species Protection Act was also revised to reduce litigation and facilitate
compliance with nature conservancy laws. Species protection assessments havebeen standardised at the national level, permitting times for species compliance
have been reduced from three to two years, and a finite list of endangered bird
species has been compiled.
Under the main case, we expect these reforms to make more land available forproject development, shorten permitting wait times, and subsequently allow more
projects to bid into auctions and be awarded. Although annual additions fromauctions in the main case are forecast to reach 5.5 GW by 2027, up from anaverage of 1.5 GW during 2019-2022, this still falls below the 10 GW on offer
annually in the new auction schedule.
The forecast is cautious about full subscriptions, given the rapid increase in
auction volumes and the time needed for industry to adjust to the new rules. A lackof available grid capacity is another impediment to rapid deployment of onshore
additions, and the pace of grid infrastructure expansion remains a forecast
uncertainty. Since 2008, a high-voltage line has been planned to connect windsites in the north to demand centres in the south, but it has yet to becommissioned. Complications involving permitting across multiple jurisdictions
and a shortage of skilled labourers with experience are further barriers to faster
grid expansion.

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The second reason the onshore wind forecast has been revised upwards is that
decommissioning estimates have been lowered: it is now expected that turbines

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

for which support is expiring will gain sufficient revenue from the spot market or
corporate off-takers. In the first half of 2022, only 100 MW out of 5.6 GW were
decommissioned because their FITs expired; the remaining continued to operate
thanks to high market prices.
In the accelerated case, onshore wind growth could increase 38% to 32 GW over2022-2027 if several conditions are met. Permitting reforms would have to be
implemented more quickly to shorten lead times and raise auction subscription
rates, and network updates would have to be undertaken sooner to reduce
congestion and allow for more capacity to be built. Furthermore, the business casefor onshore wind systems would have to be made more attractive throughcorporate PPAs, and there would also have to be less decommissioning of older
plants.
For offshore wind, the forecast remains unchanged from last year even though
Germany has raised its 2030 target from 10 GW to 20 GW. Because of long project
lead times and transmission capacity constraints, the main case does not expect
higher 2030 targets to result in stronger growth before 2027. The forecast
therefore reflects only the current project development pipeline, which is on track
to be commissioned as previously anticipated.
Regarding bioenergy, this year’s forecast is more optimistic due higher
expectations for biomethane capacity. Compared with biomass auctions, whichhave been consistently undersubscribed since 2017, Germany’s first twobiomethane auctions have been fully subscribed and we expect this trend tocontinue under the new EEG 2023 emphasis on increased auctions.

FrancePermitting issues impair deployment, but ongoing policy
efforts to shorten development lead times could help
unlock faster expansion from auctions

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In the main case, France’s cumulative renewable capacity is projected to grow by
50% (31 GW) over 2022-2027, with the greatest annual capacity additions in solar
PV (+2.8 GW/year on average) and wind (+2.3 GW/year on average). Overall,France’s forecast has been revised downwards from last year mainly because
permitting challenges are hampering faster expansion of utility-scale renewableenergy projects, particularly onshore wind. Permitting delays and land constraints
have caused government-led FIP auctions to be undersubscribed, and longdevelopment wait times are widening the gap between the time projects enter the
pipeline (i.e. in the announced or permitting phase) and their actual deployment.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

The current FIP auction framework offers potential for faster growth for both utilityscale solar PV and onshore wind. Today, project development timelines in France
are double those of neighbouring EU countries, with about four to five years on
average for ground PV, seven years for onshore wind and ten years for offshore
wind. 8 These delays are raising development costs and leading to high projectcancellation rates.
To mitigate the economic impacts of lengthy project development timelines, theregulator (CRE) introduced modified tender specifications in September 2022.
Producers now have the option of selling their generation on the market before
they receive government support, enabling additional revenues to offset higher
technology costs. The CRE also extended the commissioning deadlines for
auctioned projects to avoid penalties for developers, and it allows developers toincrease project capacity by up to 140% of that secured in tenders.
More recently, the government announced a new bill to streamline and assure
permit delivery and to shorten connection delays, enhancing citizen participationin projects and simplifying access to degraded land for renewable energy projects.
However, the effectiveness of regulatory measures and the details of theannounced bill to ease permitting are strong forecast uncertainties.
Annual onshore wind additions are expected to step up in 2022, primarily becauseof rising auction volumes over the past few years. Corporate PPA use is still
marginal but expanding, which presents opportunities for both new small-scale
plants and the increasing number of projects reaching the end of their 20-year
policy support period. In 2022, France launched large-scale offshore wind
generation with full commissioning of a 480-MW project at Saint-Nazaire, a full
decade after the tendering competition had been held. Cumulative offshore windcapacity is expected to reach 3.6 GW at the end of the forecast period with thecommissioning of six other projects from the same tendering scheme.
In 2021, France’s annual PV installations more than doubled from 2020 with thecommissioning of previously auctioned capacity for utility-scale and commercial
PV projects. Modified tendering specifications and an increased threshold forcommercial solar PV project eligibility for the on-demand FIT lead to a more
optimistic forecast this year, despite ongoing supply chain challenges and risingcosts. In addition, high electricity prices and expectations of further increases
stimulate demand from residential consumers, who may benefit from new selfconsumption support measures the government announced in September 2022.
Overall, France’s installed PV capacity more than doubles over 2022-2027 in our
main case.

In comparison, the lead time for ground solar PV projects in Germany is generally just over one year to three years.

PAGE | 43

I EA. CC BY 4.0.

8

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

2010-152016-212022-272022-27-5.0%

Historical
Main case Acc. caseWind
Hydropower
Bioenergy
PV - utility
PV - residential
PV - commercial
Other renewables
Forecast revision %

2021

0

2020

-4.0%

5

2019

-3.0%

10

2018

15

2017

-2.0%

2016

20

2021

-1.0%

25

2020

0.0%

30

2019

35

20
18
16
14
12
10
8
6
4
2
0

2018

1.0%

2017

40

2016

45

GW

GW

France capacity additions by technology, 2010-2027 (left) and projectpipeline vs annual commissioning, 2016-2021 (right)

Wind
PV
Projects in development (net)
Annual additions
IEA. CC BY 4.0.

Note: Acc. case = accelerated case.
Source: Wind and solar PV project pipeline data are from SER (2021), Panorama de l’électricité renouvelable.

Accelerated-case modelling suggests that France’s renewable capacity additions
over 2022-2027 could be more than one-third higher than in our main case if
several conditions are met. For instance, the accelerated case assumes thesimplification of land eligibility criteria for projects, which currently encompass
multiple regulations at different jurisdictional levels; faster handling ofadministrative and permitting procedures; re-evaluation of the costcompetitiveness criteria for auctions, 9 especially for the building and rooftop PV
segment, in which small projects struggle to compete with large ones, leaving
significant PV potential untapped; improvements to the adequacy of network
connection capacity; and the securing of a reliable supply chain for equipment.

Spain
Renewable power capacity almost doubles thanks tofavourable market conditions and reforms to address permitting
and grid challenges
Spain’s installed renewable electricity capacity is expected to almost double by2027 as competitive auctions, corporate PPAs and merchant projects add 58 GW
of solar PV, onshore wind and pumped-storage hydro. This year’s forecast has
been revised 63% upwards to reflect a more optimistic outlook for solar PV for two
reasons.

PAGE | 44

I EA. CC BY 4.0.

9Although France’s auction design already integrates non-economic criteria to evaluate several environmental dimensionsof renewable projects, these criteria are currently accorded relatively lower weight in the final scoring methodology.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

The first is an increasingly attractive business case for both unsubsidised utilityscale solar PV and self-consumption in distributed PV. In both segments, growth
was stronger than expected in 2021, resulting in total PV additions of 4.7 GW, thehighest on record in Spain. The second reason is the passing of regulatory reforms
to accelerate renewable capacity growth in response to the war in Ukraine. The
reforms streamline permitting for solar PV and wind plants, increase grid capacity
for new renewable energy projects, and provide clarity over clawback policies for
windfall profits.

90

80%

16

80

70%

14

70

60%

12

60

50%

50

40%

40

30%

30

10
8
6

20

20%

10

10%

4

0%

2

0

2010-152016-21

HistoricalHydropower
PV - utility
Other renewables

2022-272022-27

Main case Acc. caseWind
PV - residential
Forecast revision %Bioenergy
PV - commercial

0

Solar PV

Onshorewind

Auctions

CSP

Bioenergy

Annual deployment target
IEA. CC BY 4.0.

In March 2022, Spain passed Royal Decree 06/2022 – a series of reforms toaddress permitting challenges and grid congestion for renewable energy projects.
Among their various measures, these reforms underpin a more optimistic forecastby:

Introducing simplified environmental approvals for solar PV projects of less than
150 MW and wind projects below 75 MW, and by shortening the regulatory
response deadline from six to two months.



Requiring distribution grid operators to earmark 10% of their investment budget
for upgrades to facilitate connection for new small-scale renewable power plants.



Mandating that 10% of transmission capacity be released specifically for large
self-consumption projects.

Announcing an end date for windfall-profit caps for merchant projects andclarifying that projects with fixed-price PPAs would be subject to the clawback only
if the contract price is above USD 67/MWh.

PAGE | 45

I EA. CC BY 4.0.

GW

Spain renewable capacity additions by technology, 2010-2027 (left) andannual auctions vs deployment targets, 2022-2026 (right)

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Projects outside of the auction scheme account for 50% of the main-case forecast
for utility-scale growth. The regulatory reforms clarifying the clawback mechanism,shortening permitting times and increasing grid capacity are expected to address
challenges that limited the pace of unsubsidised project expansion in last year’s
forecast. Accordingly, the utility-scale solar PV forecast has been revised upwards
by 60%.
While the reforms are also expected to facilitate onshore wind expansion, theirimpact is limited because the decommissioning of older plants offsets upwards
revisions resulting from the reforms. Not all projects coming to the end of theirfeed-in-tariff eligibility are expected to gain sufficient revenue in the spot market
or from corporate off-takers to maintain operations or repower.
For distributed PV applications, the forecast has been revised upwards, with 88%
more expansion in 2021 than expected as self-consumption is increasingly
economically attractive and grid reforms will facilitate connection. The Spanish
government’s 2019 decisions to lift the tax on self-consumption, allow collective
consumption and remunerate excess generation have improved the businesscase for commercial and residential applications, causing capacity additions toincrease from 2020 to 2021. The main case expects the prospect of higher retailelectricity tariffs to make self-consumption even more financially attractive, while
recent regulatory reforms reduce grid congestion and shorten connection queues.
Accelerated-case forecasting indicates that growth could be almost 40% higher
than in the main case under two conditions. The first is higher growth fromunsubsidised utility-scale projects and distributed PV, encouraged by lower
investment costs and sustained or higher electricity prices. The second is theawarding of more capacity through competitive auctions. For solar PV andonshore wind, greater volumes would have to be allocated under the tendering
scheme. Current auction volumes do not provide enough annual deployment tomeet the 2030 targets, implying that the residual would come from projects
contracted outside of the auction scheme.

PAGE | 46

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Higher auction volumes would boost growth and increase the probability ofmeeting long-term targets, particularly for onshore wind, for which unsubsidisedmarkets are not as attractive as for solar PV. For CSP, raising bidding thresholds
could also result in stronger growth. The first auction for 200 MW of CSP in
October 2022 awarded no capacity because the bids exceeded the ceiling priceof USD 110/MWh.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Netherlands
Subsidy programmes and net metering encourage solar PV
and wind expansion, but grid and roof infrastructure challenges
persistThe Netherlands is forecast to add nearly 30 GW of renewable power capacityfrom 2022 to 2027, led by solar PV and offshore wind. The SDE+ and SDE++
programmes, which provide subsidies for renewable energy generation or CO2
emissions reductions, prompt onshore wind and utility-scale and commercial solar
PV uptake.
Meanwhile, offshore wind capacity expands thanks to tendering schemes, and net
metering encourages residential PV growth. The 2022 forecast has been revised
20% upwards from last year because utility-scale and commercial PV projects
were deployed more quickly than expected, and the government extended netmetering benefits.

8

GW

GW

The Netherlands renewable capacity additions, 2020-2027 (left) andcapacity to solar PV and other technologies in SDE+ and SDE++ (right)
7

9
8

6

7

5

6
5

4

4

3

3

2

2

1
0

1
2020 2021 2022 2023 2024 2025 2026 2027

Hydropower
Bioenergy
PV-residential

Onshore windPV-utility
Acc. case

Offshore windPV-commercial

0

2016

2017

Other technologies

2018

2019

2020

2021

Awarded solar PV capacity

IEA. CC BY 4.0.
Source: (right) IEA analysis based on data from the Netherlands Enterprise Agency (accessed October 2022).

PAGE | 47

I EA. CC BY 4.0.

Dutch utility- and commercial-scale PV capacity is forecast to increase over
17 GW in 2022-2027. However, annual additions decline because theNetherlands’ subsidy scheme now prescribes fewer auctions per year and therequested SDE++ budget subsidy for solar PV in 2022 is halved compared withlast year. In the residential segment, full net-metering benefits were extended to2024 and will continue to be a major driver of growth before their phasedown

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

begins in 2025. In addition, the Dutch government recently decided to lift the VAT
on residential solar panels starting in 2023, making systems more economicallyattractive.
Fewer auction bids and low awarded capacity due to grid constraints also affectannual onshore wind capacity additions over the forecast period, with just 2.8 GWof new onshore wind capacity anticipated. Offshore wind additions of over 3.5 GW
are expected in previously awarded development zones, including an additional
1.4 GW that will be tendered this year. Although the government increased its
2030 capacity target from 11.5 GW to 21 GW to help reduce dependency on
Russian gas, much of the additional capacity has yet to be tendered and is
expected to become operational only after 2027.
Three major obstacles challenge expansion. The first is grid constraints, which are
rendering some regions unable to accept new capacity until 2029. The second isfuture policy uncertainty. Under the EU Climate Agreement, the Netherlands has
pledged to generate 35 TWh of electricity from onshore renewables by 2030. The
Dutch government expects that enough onshore renewable capacity will beawarded to achieve this goal by the 2023 SDE++ auction round creating
uncertainty about future subsidies for onshore renewables from 2024. The third
impediment is rooftop infrastructure, as most large roofs have inadequate loadbearing capacity. From 2022, building owners must demonstrate a roof’s ability tohost a solar installation to be eligible for a subsidy; the government is thus
considering policy assistance to help owners retrofit roofs for solar panel
suitability.
The accelerated case demonstrates nearly 20% greater additions, assuming theSDE++ scheme continues to award high volumes of onshore renewables beyond
2023. Plus, growth in the residential and commercial PV sectors can be higher if
a policy to address roof structure issues is passed. Expanding the use of corporate
PPAs, which have been employed in conjunction with SDE subsidies, could alsoachieve greater capacity increases. Finally, accelerating the pace of grid upgrades
to address congestion issues would free up additional capacity for large-scale
onshore wind and solar PV projects.

Belgium and Denmark
Policy support and high retail prices lead to faster distributed
solar PV expansion in Belgium

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Belgium is set to add almost 6 GW of renewable capacity over 2022-2027, driven
by distributed solar PV and wind in the main case. Forecast growth is slightly lower
than in the previous five years due to limited offshore wind expansion. Overall,Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

four separate green certificate (GC) programmes spur growth: one from thefederal government for offshore wind and hydropower and three regional ones (inFlanders, Wallonia and Brussels).
For distributed PV, rebates for residential systems in the Flanders region are being
continued. Plus, the federal government has extended the VAT reduction forresidential solar applications to buildings constructed since 2010, as it waspreviously available for older ones only. The combination of federal and regional
incentives has improved the business case for distributed PV, especially in thecontext of higher retail prices.
Following Russia’s invasion of Ukraine, in March 2022 Belgium’s federal
government decided to extend the operation of 2 GW of nuclear capacity by ten
years. It also introduced a EUR 1.2-billion financial package to accelerate thecountry’s energy transition and protect consumers from high energy prices. The
package’s measures include developing new offshore wind zones to expand andaccelerate offshore wind deployment, raising the country’s wind target from 4 GW
to 5.7 GW by 2030.
This new target spurs additional offshore capacity deployment of 800 MW in our
main-case forecast. The package also supports accelerated solar PV uptake atnational railway stations and on federal buildings, as well as floating PV systems.
It also prioritises the shortening of permitting and licensing wait times for onshore
wind and solar PV.
In the accelerated case, renewable energy growth is demonstrated to be nearly
50% higher, with offshore wind and distributed PV showing the most upside
potential. In May 2022, Belgium, Denmark, Germany and the Netherlands signed
the Esbjerg declaration, a EUR 135-billion offshore wind pact to deploy at least
65 GW by 2030 and 150 GW by 2050. Furthermore, Belgium’s national recovery
and resilience plan includes EUR 100 million to develop an offshore hub and greenhydrogen production.

PAGE | 49

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The accelerated-case forecast thus assumes an early launch of the Energy Island
hub with the North Sea Energy Cooperation and an additional 2 GW of offshore
wind capacity by 2027. Plus, faster distributed PV expansion owing to higher retailelectricity prices and increased auction capacity in Flanders and other regions
leads to 35% higher solar PV deployment.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

9

8%

8

7%

7

6%

6

12

35%

10

30%

4
3

4%

6

3%

4

2

2%

1

1%
2010-152016-21

Historical
Onshore wind2022-272022-27

Main caseAcc. case

Offshore wind

Bioenergy

25%

8

5%

5

0

GW

GW

Belgium renewable capacity additions by technology, 2010-2027 (left) and
Denmark renewable capacity additions by technology, 2010-2027 (right)

20%
15%
10%

2
0

0%

5%
2010-152016-21

Historical

PV-utility

PV-distributed

2022-272022-27

Main caseAcc. case

Other renewables

0%

Forecast revision (%)

IEA. CC BY 4.0.
Note: Acc. case = accelerated case.

Subsidy-free projects and bilateral contracts spur renewableenergy expansion in Denmark
With stronger ambitions towards 2030, Denmark’s renewable electricity capacity
nearly doubles over 2022-2027 in the main case, led by solar PV. This year’s
forecast has been revised upwards by 40% because considerable utility-scalesolar PV additions are expected, mainly from unsubsidised projects financed
through merchant revenues and bilateral contracts.
In the main case, almost 2 GW of offshore wind capacity is commissioned,
including the Thor wind farm awarded last December. Onshore wind expansion
includes the repowering of existing capacity, either through competitive auctions
or corporate PPAs.
However, renewable capacity growth in the accelerated case is almost 30% higher
than in the main case, with more subsidy-free PV projects based on PPAs or direct
participation in the electricity market.

PAGE | 50

I EA. CC BY 4.0.

Towards the end of 2030, the state is expected to put an additional 9 GW of
offshore wind out to tender. Furthermore, faster commissioning of projects in thepipeline and simplified permitting could provide an additional 1 GW of utility-scalesolar PV capacity and 1 GW of wind.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Italy
Italy is accelerating renewable capacity deployment inresponse to the energy crisis, but permitting challenges persist
Italy’s renewable capacity is expected to increase 25 GW over 2021-2027 (+40%).
Utility-scale and distributed solar PV each account for 40% of growth, with onshore
wind providing the remainder. This year’s forecast has been revised upwards 17%
because stronger distributed PV expansion is expected from Italy’s net-billing
scheme, generous tax incentives and higher electricity prices, which improve thetechnology’s economic attractiveness.
Meanwhile, the main drivers for utility-scale deployment are competitive auctions
with growing contributions from merchant projects and bilateral PPAs. However,while utility-scale solar PV and onshore wind additions accelerate over theforecast period, they expand more slowly than previously expected because
permitting challenges persist despite reform attempts.

8

40

18%

35

16%

30

14%

6

12%

5

25

10%

20

8%

15

6%

10
5
0

GW

GW

Italy renewable capacity additions, 2010-2027 (left) and results of FER
renewable energy auctions (right)

2010-152016-21

HistoricalHydropower
PV - utility
Other renewables

2022-272022-27

7

4
3

4%

2

2%

1

0%

0

Main case Acc. caseWind
PV - residential
Forecast revision %Bioenergy
PV - commercial

Wind and PV

Unallocated

IEA. CC BY 4.0.
Note: Acc. case = accelerated case.
Source: (right) IEA analysis based on data from Italy’s GSE (Gestore Servizi Energetici), 2022.

PAGE | 51

I EA. CC BY 4.0.

Although auctions remain the primary driver of utility-scale PV deployment in Italy,
the average allocation rate was just 35% in all rounds. After nine auctions, total
awarded capacity had reached 5 GW, while the pipeline of PV and onshore windprojects applying for grid connection at the end of 2020 was 105 GW. A
complicated and lengthy permitting process is the main obstacle impeding project
development and preventing developers from bidding.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

In addition, regulations restricting the participation of projects built on agriculturalland significantly limit capacity available for auctions. Although the government
introduced new regulations in December 2021 to streamline permitting andfacilitate investment on agricultural land, auctions conducted in 2022 remained
undersubscribed. Nevertheless, our forecast anticipates an uptick in utility-scale
project deployment.
For distributed solar PV, policies introduced in response to the energy crisis should
lead to rapid expansion. The new regulations have significantly simplified thepermitting process for rooftop PV systems of less than 200 kW on commercial
buildings and extended the 110% tax rebate introduced during the Covid-19 crisisby another year. In addition, higher electricity prices have improved the economic
attractiveness of distributed PV under the net-billing scheme. Accordingly,
distributed PV additions in 2022 will reach almost 2 GW, the highest growth since
2012.
In the accelerated case, Italy could achieve almost 50% higher renewable capacity
growth over 2022-2027 than in the main case. Significantly streamlining permitting
processes will be crucial to spur development of the huge pipeline of utility-scale
PV and wind projects. At the same time, raising support for distributed PV throughnew tax rebates, subsidies and rooftop PV mandates should incentivise greater
consumer investment. In parallel, faster development of power grids and flexibility
resources will be necessary to ensure efficient integration of additional variable
renewable capacity.

United Kingdom
New renewable capacity targets and policies improving
permitting lead to a more optimistic forecast
Renewable capacity in the United Kingdom is forecast to increase nearly 70%(36 GW) over 2022-2027, almost doubling the pace of growth of the last five years.
Offshore wind accounts for half of this expansion, followed by solar PV andonshore wind. Utility-scale projects lead the surge, spurred by competitive contractfor difference (CfD) auctions.

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In response to the energy crisis, the UK government increased its 2030 offshore
wind target from 40 GW to 50 GW and established a 70-GW solar PV target for2035 in the new British Energy Security Strategy. This year’s forecast has thus
been revised upwards almost 10% to reflect recently introduced and anticipatedpolicies.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

50
45
40
35
30
25
20
15
10
5
0

16%
14%
12%
10%
8%
6%
4%
2%
2010-152016-212022-272022-27GW

GW

United Kingdom renewable capacity additions, 2010-2027 (left) and CfD
auction results, capacity limits and projects pipeline in Renewable Energy
Planning Database (right)
25
20
15
10
5

0%

Historical
Main case Acc. case
Hydropower
Wind onshore
Wind offshore
Bioenergy
PV - utility
PV - residential
Other renewables
PV - commercial
Forecast revision %0PVOnshore wind Offshore windCfD Round-4 results
Projects pipeline*

CfD Round-4 limits

IEA. CC BY 4.0.
* Includes projects with “under construction” and “awaiting construction” status in the Renewable Energy Planning
Database as of September 2022.
Notes: Acc. case = accelerated case, CfD = contract for difference. “CfD Round-4 limits” reflects the maximum CfD
Round-4 capacity available for allocation to PV and onshore wind projects.
Source: (right) IEA analysis based on data from UK Department for Business, Energy and Industrial Strategy, 2022.

The CfD auction conducted in 2022 resulted in the contracting of almost 7 GW of
offshore wind projects, and for the first time a 32-MW project with floating
foundation won a contract. Currently, the pipeline of offshore wind projects underdevelopment represents only 70% of the capacity needed to meet the United
Kingdom’s 2030 target. Offshore project development can take up to 13 years,
limiting the potential of new projects to be commissioned before 2030. However,the UK government plans to halve development lead times by streamlining
administrative procedures. The forecast therefore assumes additional capacityfrom planned CfD auctions and improvements in permitting.
While the 2022 CfD auction offered an unprecedented 3.5 GW of capacity eachfor solar PV and onshore wind, only 2 GW of solar and 1 GW of onshore wind
were awarded even though the project pipeline for each was at almost 7 GW.
Many developers preferred not to participate in the auction, presumably to takeadvantage of high electricity prices through corporate PPAs or because theywanted to wait for equipment and material prices to fall.

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Future auction rounds will be organised annually instead of every two years andwill continue to include PV and onshore wind. Auctions remain the main driver of
expansion, followed by corporate PPAs, which contribute 0.5-1 GW of additions
annually. The government also plans to ease local permitting rules to make alarger portion of the project pipeline eligible for bidding.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

For distributed PV, the government’s strategy includes introducing design
standards to encourage rooftop PV installation on new buildings, increasing theavailability of low-cost financing and facilitating permitting. In addition, highelectricity prices are expected to make distributed PV more economicallyattractive. As a result, capacity growth in both the residential and commercial PV
segments is expected to increase significantly in the forecast period, exceeding
last year’s expectations.
In the accelerated case, UK renewable energy deployment over 2022-2027 is 27%
higher than in the main case. Onshore wind has the highest upside potential if
permitting and consenting rules are streamlined. Meanwhile, allocating moreonshore wind and solar PV capacity in future auctions and raising price caps
should attract more interest from developers and result in higher deployment ofutility-scale projects. Successful implementation of plans to streamline permitting
for offshore wind will also be necessary for the timely development of new projects
to achieve 2030 targets.

PolandRenewable capacity almost triples by 2027, led by solar PV
Poland is expected to almost triple its installed capacity by adding 31 GW ofrenewables over 2022-2027, with distributed PV projects accounting for nearly halfof all expansion, followed by utility-scale PV. In addition, its first offshore windcapacity will start operation in 2026, adding 2 GW by the end of the forecast period.
Competitive auctions are expected to remain the main driver of utility-scale PV
and onshore wind deployment.

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After a step increase in distributed PV capacity growth in 2021 and the first half of2022, the annual installation pace will slow with the transition from net metering to
net billing, which is less generous. Still, the distributed solar PV forecast for thisyear is more optimistic than last year’s thanks to higher-than-expected deployment
over 2021-2022 and elevated electricity prices increasing profitability. Faster
rooftop PV adoption is the main reason for Poland’s 27% upward forecast revision.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

45

30%

40

25%

35
30

20%

25

15%

20
15

10%

10

5%

5
0

2010-152016-21

HistoricalHydropower
Bioenergy
PV - commercial

2022-272022-27

0%

GW

GW

Poland renewable capacity additions, 2010-2027 (left) and quarterly
distributed PV capacity additions, 2019-2022 (right)
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0

Main case Acc. caseOnshore wind
Offshore wind
PV - utility
PV - residential
Other renewables
Forecast revision %Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2019

2020

2021

2022

Distributed PV capacity additions

IEA. CC BY 4.0.
Note: Acc. case = accelerated case.
Source: (right) IEA analysis based on PTPiREE (2022), Micro installations in Poland.

Investment subsidies, tax rebates and a generous net-metering scheme allowed
Poland’s distributed PV capacity to quintuple between 2019 and 2021, exceeding
government expectations. As a result, the country already surpassed its 2030 PV
target last year. Subsidies were scaled down in 2022 and net billing replaced net
metering in April 2022, as integrating rapidly rising volumes of new capacity into
the energy system has been challenging for distribution grid infrastructure. Policychanges led to an almost 60% decrease in installations between Q1 and Q3 2022,
but high electricity prices are making rooftop PV investments considerably more
attractive, leading to higher-than-expected installations in the second half of 2022.
Auctions are the principal driver of utility-scale capacity expansion, with 6 GW of
PV and 5 GW of onshore wind expected to come online as a result of contracts
awarded during 2016-2021. The next auctions will be held in December 2022 andthe government has published a regulation determining the annual tenderingschedule up to 2027. Planned auctions are expected to result in the installation of
9 GW of utility-scale PV and 3 GW of onshore wind. The forecast includes
commissioning of some of these projects by 2027.

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For offshore wind, Poland awarded 6 GW of capacity in 2021 via contracts fordifference, while the next auctions are planned for 2025. Poland has also
requested around EUR 3.7 billion in grants and loans through the EU Recovery
and Resilience Facility to support development of port infrastructure. The
payments have been delayed, however, putting the timely commissioning ofawarded projects at risk. Plus, restrictive-distance rules for turbines continue toslow the pace of onshore wind capacity additions, leading to a downward forecast
revision for this technology.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

In the accelerated-case forecast, Poland achieves 36% higher renewable capacity
additions over 2022-2027 than in the main case, with onshore wind having thelargest upside potential. While faster onshore wind expansion could be achieved
through the prompt easing of turbine placement restrictions, offering higher
volumes in planned auctions would lead to faster growth of both onshore wind andutility-scale PV. Extending tax rebates and subsidies for residential PV owners
and small companies would accelerate deployment significantly, but greater
investment in transmission and distribution grids will be necessary to enable fasterwind and solar PV capacity growth. In addition, updating national strategic
documents for long-term power sector development would provide greater
visibility for renewable energy developers, encouraging investment.

Asia Pacific
Solar PV leads deployment thanks to competitive auctions, butbetter policy support could boost growth
Renewable capacity in the Asia Pacific region (excluding China) is expected to
grow by 360 GW (+70%) over 2022-2027. Solar PV accounts for over two-thirdsof deployment, followed by wind and hydropower. India leads expansion in theregion with more than a 40% share in total growth, thanks to auctions for utilityscale PV and onshore wind capacity and better incentives for distributed PV.
In the ASEAN region, the introduction of competitive auctions in Indonesia and thePhilippines (and plans for them in Viet Nam) accelerates renewable capacity
growth. However, expansion remains limited by persistent challenges related to
the lack of long-term policy support.
In Australia, new state-level auctions and high demand for corporate PPAs have
led to significant upward revisions to this year’s forecast. In contrast, renewableenergy deployment in Japan is expected to slow after 2023 as the transition froma FIT to a FIP leads to fewer capacity awards, while permitting challenges in Korea
cause development to stagnate despite prolongation of its attractive fixed-pricescheme.
Overall, despite downward forecast revisions for the ASEAN (due to delays inpolicy implementation) as well as for Japan and Korea, positive developments in
India and Australia cause the forecast for Asia Pacific to be 6% higher this year
than last.

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In the accelerated case, renewable capacity growth in the region over 2022-2027
is more than 40% higher than in the main case. Such strong upside potential
results mostly from the enlargement of currently limited policy support in theRenewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

ASEAN, for example by speeding the implementation of planned competitive
auctions in Viet Nam and Indonesia and introducing effective support policies inThailand.
In addition, relaxing local-content and project ownership rules and improving thebankability of standard PPAs would encourage more international investment.
Renewable power development in India could also be accelerated considerably if
persistent challenges related to distribution companies’ poor financial health andland procurement were solved. In Australia, more auctions, timely investment ingrids and rapid development of green hydrogen projects would result in almost
50% faster deployment of renewables. Throughout the region, simplifying
permitting, especially in the ASEAN region, Korea and Japan, and boosting
investment in grid development will be necessary to accelerate deployment.

600

7%

500

6%
5%

400

4%

300

3%

200

2%

100
0

GW

GW

Asia Pacific renewable capacity additions by technology, 2010-2027 (left)
and annual capacity additions by country, 2019-2027 (right)

2010-152016-21

HistoricalHydropower
PV - utility
Other renewables

2022-272022-27

120
100
80
60
40

1%

20

0%

0

2019 2020 2021 2022 2023 2024 2025 2026 2027

Main case Acc. caseWind
PV - residential
Forecast revision %Bioenergy
PV - commercial

India

ASEAN

Australia

Japan

Korea

Acc. case

IEA. CC BY 4.0.
Notes: Acc. case = accelerated case. ASEAN = Association of Southeast Asian Nations. Asia Pacific excludes China.

India
Consistent policy support and ambitious long-term targets
enable India to double its renewable capacity by 2027

PAGE | 57

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With the addition of 145 GW, India is forecast to almost double its renewable
power capacity over 2022-2027. Solar PV accounts for three-quarters of thisgrowth, followed by onshore wind with 15% and hydropower providing almost all
the rest. Renewable capacity deployment will be dominated by utility-scale plants

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

contracted through competitive auctions. However, distributed PV is expected to
be increasingly important thanks to growing consumer awareness and continued
policy support.
This year’s forecast has been revised upwards 7% from last year’s owing tohigher-than-expected PV capacity additions in 2022, the announcement of several
ambitious domestic PV manufacturing projects and a planned improvement ofauction rules for wind farms. The overarching drivers of renewable energy growth
are India’s targets of 500 GW of non-fossil installed capacity by 2030 and net zero
emissions by 2070, ensuring long-term visibility for renewable energy developers.

30

60

25

50

20

40

15

30

10

20

1%

5

10

0%

0

7%
6%

200

5%

150

4%

100

3%
2%

50
0

2010-152016-21

HistoricalHydropower
PV - utility
Other renewables

2022-272022-27

Main case Acc. caseWind
PV - residential
Forecast revision %Bioenergy
PV - commercial

2017 2018 2019 2020 2021 2022*

Unallocated capacity
PVWind
Av. wind price (right axis)

USD/MWh

250

GW

GW

India renewable capacity additions, 2010-2027 (left) and renewablecapacity awarded in auctions, 2017-2022 (right)

0

PV - 12 GW manufacturingHybridAv. PV price (right axis)

IEA. CC BY 4.0.
* Data for January-September only.
Notes: Acc. case = accelerated case. Av. = average. “PV – 12 GW manufacturing” refers to the January 2020 auction
linked to national solar PV manufacturing.
Sources: (right) BNEF (2022), 3Q 2022 Global Auction and Tender Results and Calendar; Bridge to India (2022), India RE
Navigator (accessed October 2022).

India’s auction volumes declined in 2022, but the participation rate rose thanks topolicy improvements. From January to September 2022, India auctioned over
8 GW of renewable capacity, 30% below the average for these months in
2019-2021. This slowdown was caused by auction organisers focusing on
finalising PPAs and developers prioritising the execution of projects already underconstruction.

PAGE | 58

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Almost one-quarter of capacity awarded since 2021 has been contracted throughhybrid auctions that require multiple renewable technologies to provide power at
specified minimum annual capacity utilisation factors. These auctions usually
result in the addition of significantly more capacity than what has been contracted,
along with energy storage to ensure compliance with power availability

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

requirements. Hybrid auctions are thus expected to be an increasingly important
growth driver as the penetration of wind and PV technologies in India’s powersystem grows and grid integration challenges emerge.
The undersubscription rate fell to just 10% in 2022, with most auctions significantly
oversubscribed. Reducing off-taker risks prompted greater auction participation as
the number of auctions held by national rather than state agencies increased andthe solar parks programme advanced, facilitating land procurement and gridconnection.
On the demand side, higher renewable purchase obligations, which wereannounced in July 2022 and specify targets for wind, hydro and other renewableenergy sources (solar, bioenergy), should further encourage power utilities(DISCOMs) to procure renewable energy. Increasing participation in auctions, an
expanding project pipeline and higher renewable energy demand from DISCOMs
are all expected to accelerate utility-scale capacity growth in India over 2022-2027.
However, the poor financial health of India’s DISCOMs continues to prevent faster
renewable capacity deployment. The number of overdue payments to renewable
power producers continues to grow, worth almost USD 3 billion in June 2022 – anincrease of nearly 60% since January 2021. According to the Ministry of Power’s
latest annual financial performance report, the share of energy supplied by thelowest-rated DISCOMs increased from 32% in FY 2019-2020 to 70% in FY 20202021.
While DISCOM payment delays negatively affect developers’ profits and increase
project risks, DISCOMs are also often reluctant to support rooftop PV deployment
in their grids because they fear losing revenue from energy sales. Although they
are obligated to fulfil their renewable purchase obligations and increase renewableenergy procurement, they often lack the financial capacity to sign new PPAs withauction winners, resulting in project commissioning delays.
In June 2021, India’s government approved another support scheme for
DISCOMs, linked with achieving financial and operational improvements worth
almost USD 40 billion. So far, about 65% of the planned amount has been
earmarked for 38 qualified DISCOMs, but the actual effects of the programme
remain to be seen, as previous such incentives (UDAY) did not improve thesituation substantially.

PAGE | 59

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In 2022, the average tariff awarded in PV-only auctions increased by 10% in Indianrupee terms, and is now back at the 2019 level to compensate for higher PV
equipment prices since 2021. Moreover, in April 2022 the duty on imports
increased from 15% to 40% for PV modules and to 25% for solar cells. Developers
prepared for this change by stocking up on PV equipment, leading to record

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

imports of roughly 10 GW in Q1 2022. This import rush is expected to result in an
unprecedented 16 GW of PV capacity additions in 2022, 60% more than in 2021.
However, future projects benefitting from any type of policy support will have tosource their supplies from government-approved manufacturers. As of August
2022, the list of authorised manufacturers encompasses about 18 GW of PV
module manufacturing capacity, all domestic. Although this is enough to cover
India’s demand in upcoming years, the modules offered are often based on
outdated technology and are smaller than the top-tier products predominantly
used by developers today. The low availability of domestic top-tier modules could
raise investment costs and tariffs in the short term.
At the beginning of 2022, the government awarded support for the ProductionLinked Incentive (PLI) scheme’s first 9 GW of integrated PV manufacturing
capacity, and the second batch of projects is in the allocation process. This
programme aims to expand India’s solar PV cell and module manufacturing
capacity to over 70 GW in this decade, including 29 GW of manufacturing capacity
fully integrated across the whole supply chain. Supply-demand synergy in the
Indian PV market is also expected to stimulate capacity growth in the medium
term.

GW

India awarded and commissioned renewable capacity, 2017-2022 (left) andDISCOM energy market shares by integrated rating, 2015-2021 (right)
90

90% 100%

80

80%

90%

70

70%

80%

60

60%

50

50%

40

40%

30

30%

20

20%

10

10%

0

0%

Auctioned Comissioned Auctioned Comissioned
2017-2020 2019-2022 2013-2020 2014-2022
Wind
Wind capacity

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

FY 2015- FY 2016- FY 2017- FY 2019- FY 202016
17
18
20
21*

PV
PV capacity

Realisation rate %

A, A+

B, B+

C, C+

No rating

IEA. CC BY 4.0.

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I EA. CC BY 4.0.

* In the Tenth Annual Integrated Rating and Ranking of Power Distribution Utilities, the grading scale changed from A+, A,
B+, B, C+, C to A+, A, B, B-, C, C-, D. For compatibility with previous reports, grades for FY 2020-21 are grouped asfollows: D, C-, C as C, C+; B-, B as B, B+; A, A+ as A, A+.
Sources: (left) IEA analysis based on BNEF (2022), 3Q 2022 Global Auction and Tender Results and Calendar (accessed
October 2022); Bridge to India (2022), India RE Navigator (accessed October 2022); (right) IEA analysis based on India,
Power Finance Corporation Ltd (2017-2022), Report on Performance of State Power Utilities, editions for FY 2016-17 toFY 2020-2021; India, Power Finance Corporation Ltd (2016-2022) Annual Integrated Rating and Ranking of PowerDistribution Utilities, fourth to tenth editions.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Onshore wind deployment in India has been slow in recent years as a result ofland procurement and grid connection challenges as well as Covid-19-related
supply chain disruptions. In addition, an unexpected increase in material andequipment costs since 2021 has rendered many projects economically unviable.
In consequence, a large portion of capacity awarded in auctions has been delayedor cancelled: as of September 2022, only 45% of the 14 GW of wind projects
awarded during 2017-2020 had been commissioned.
In July 2022, the Indian government announced it is suspending reverse bidding
in wind auctions and is considering limiting the process to closed-envelope
submissions. This could raise tariffs for wind energy, which should make projects
more feasible. Although DISCOMs may be reluctant to accept higher energy
prices, the new renewable purchase obligation for wind should encourage them tosign PPAs. In addition, expanding wind-based power generation has the potential
to alleviate some of the grid integration issues faced by DISCOMs that have highshares of solar PV in their systems. These positive policy changes are the basisof our upward wind forecast revision this year.
Annual distributed PV additions doubled in 2021 with the commissioning of many
projects delayed by Covid-19-related disruptions. Although expansion slowed in
2022, deployment is expected to accelerate steadily in upcoming years. Publicawareness is growing, and the economic attractiveness of investing in distributed
PV is becoming apparent for commercial and industrial consumers, especially intimes of higher energy costs.
Still, several major obstacles are preventing India from achieving deployment
commensurate with its huge potential. While DISCOMs are hesitant to support
rooftop PV growth because they fear revenue loss from reduced energy sales andhigher grid costs, financing options for small commercial and residential
consumers remain limited.
Over one-third of rooftop PV systems added in 2022 were installed in the state ofGujarat, which is home to just 5% of India’s population. High deployment in thisstate was achieved through net billing and subsidies, which exist in most Indianstates. This indicates that effective on-the-ground implementation of policies is
crucial to achieve faster distributed PV growth in India.
In the accelerated case, India achieves 50% higher renewable capacity
deployment over 2022-2027 than in the main case, putting the country firmly oncourse to meet its 2030 targets. Raising the capability of DISCOMs to procure
more renewable energy will be crucial to achieve faster growth.

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To this end, improving the financial performance of DISCOMs and increasing
penalties for non-compliance with renewable purchase obligations should limit
delays in signing PPAs with auction winners, making developers and investors

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

more willing to undertake new utility-scale projects. In addition, offering DISCOMs
financial and regulatory incentives to increase rooftop PV deployment in their grids
should encourage them to attract tens of millions of potential prosumers byfacilitating investment, thereby tripling main-case distributed PV deployment for2022-2027.
Achieving faster solar PV growth will also require the timely deployment of
manufacturing projects included in the PLI scheme and expansion of competitive
auctions. For wind, the rapid implementation of simplified auction rules, moregovernment support in site identification and land procurement, and greater policy
support for repowering could double the main case’s capacity growth.

Japan
Solar PV remains the main source of renewable energy growth,
but smooth transition to a feed-in premium is crucial toaccelerate expansion
Renewable capacity in Japan is expected to increase 44 GW (+30%) over 20222027 in the main case, led by solar PV and wind. The forecast has been revised
down slightly (-2%) from last year, mainly because the commissioning of projects
previously approved under the FIT scheme has been slower than expected.
Uncertainty about capacity awarded under the newly introduced FIP also affects
the forecast. Regardless of the challenges, however, the pace of growth expected
over 2022-2027 indicates that the country is on track to reach its 2030 renewablegeneration targets (36-38% of electricity generation) introduced in 2021.
Annual solar PV capacity growth is forecast to be slower over the forecast period
than in the previous five years, with projects approved under the FIT scheme(16 GW as of June 2022) remaining the primary source of expansion. Japan’s goalin transitioning from FITs to FIPs is to improve the market integration ofrenewables and spur utility-scale PV growth. Meanwhile, policy improvements to
identify preferential areas, including public buildings and agricultural land, and topromote corporate PPAs, are expected to foster distributed solar PV development.
While these policy measures are making the outlook for new projects more
optimistic, fewer FIT approvals (an 70% decline for non-residential PV in the past
five years) due to lower land availability for large-scale solar PV projects negatively
affects the forecast.

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Japan’s wind forecast remains mostly unchanged from last year, with gridconnection and environmental permitting difficulties remaining key impediments
to faster wind energy uptake. Capacity additions come mainly from projects
previously approved under the FIT scheme (11 GW as of June 2022 – double the2019 level).

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

In 2021, the government raised the environmental impact assessment thresholdfor onshore wind from 10 MW to 50 MW. This policy change could lead to fastercommissioning of projects already in the onshore wind pipeline, as half of the FITapproved projects are below 50 MW.
Meanwhile, offshore wind expansion accelerates during 2022-2027 with over
0.5 GW of capacity commissioned. The Japanese government’s policy changes
for offshore wind include a FIT, sea area designation and improved community
engagement. However, while these policies will promote growth, they will notaffect the present forecast because their impact will be pertinent only after 2027,
according to current project development timelines. This year’s forecast also
assumes that some projects will be commissioned before the government-set
benchmark dates, thanks to the new auction rule incentivising earlycommissioning.

12%

50

8%

40

4%

30

0%

20

-4%

10
0

2010-152016-21

HistoricalHydropower
PV - utility
Other renewables

2022-272022-27

25

500

20

400

15

300

10

200

-8%

5

100

-12%

0

0

USD/MWh

60

GW

GW

Japan renewable capacity additions, 2010-2027 (left) and FIT-approved
capacity and prices for solar PV and onshore wind, 2012-2021 (right)

Main case Acc. caseWind
PV - residential
Forecast revision %Bioenergy
PV - commercial

Solar PV approved capacity
Onshore wind approved capacity
Solar PV priceOnshore wind price

IEA. CC BY 4.0.
Notes: Acc. case = accelerated case. FY = financial year (April-March). In the right graph, solar PV capacity and price refer
to PV systems of more than 10 kW. Solar PV prices between FY 2017 and FY 2021 are the average auction price.
Sources: (right) IEA analysis based on Japan, METI (Ministry of Economy, Trade and Industry) (2022), 78th Procurement
Price Calculation Committee; METI (2022), FIT portal site (accessed November 2022).

PAGE | 63

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In the accelerated case, Japan’s renewable capacity growth is 22% higher than in
the main case. For solar PV, realising the upside potential depends on further
approval of projects under the FIT scheme. In addition, smooth transition to the
FIP for utility-scale PV projects and the wider use of PPAs could accelerate
growth. For onshore wind, greater permitting and grid connection efficiency as wellas higher completion of approved FIT projects could enable faster expansion.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Korea
While permitting complications slow PV expansion, newpolicies ensuring revenue stability for wind improve the forecast
Korea’s renewable capacity is expected to double in the main case, expanding by
28 GW over 2022-2027, with solar PV accounting for almost 85% of all expansion.
However, this forecast has been revised down slightly (-8%) from last year’s
because permitting challenges have led to 80% lower bidding capacity for fixedprice PV contracts over the last two years. In addition, the scheme wasundersubscribed for the first time since its introduction in 2017 because thegovernment lowered the auction ceiling price even though costs had risen.
Korea’s cumulative wind capacity is expected to more than triple by 2027.
Although PV expectations are lower, the forecast for wind developments is more
optimistic than last year. While higher renewable energy certificate (REC) prices
and strong wholesale prices remain key drivers of growth, the new policy
introducing 20-year fixed-price contracts (from the second half of 2022) for
onshore and offshore wind projects will especially improve their revenue certainty
compared with the REC scheme, leading to more optimistic outlook.

600

5

500

4

400

3

300

2

200

-8%

1

100

-12%

0

16%

30

12%

25

8%

20

4%

15

0%

10

-4%

5
0

2010-15 2016-21 2022-27 2022-27
HistoricalHydropower
PV - utility
Other renewables

Main case Acc. caseWind
PV - residential
Forecast revision %Bioenergy
PV - commercial

H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1
2017

2018

2019

PV announced capacity
PV average price (auction)
Onshore wind average price

2020

USD/MWh

6

35

GW

GW

Korea renewable capacity additions, 2010-2027 (left) and fixed-price solar
PV capacity and average revenue per MWh by technology, 2017-2022(right)02021 2022

PV bid capacity
PV average price (large-scale)
Offshore wind average price

IEA. CC BY 4.0.

PAGE | 64

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Notes: Acc. case = accelerated case. In the right graph, average revenues (excluding PV auction) are calculated using thesystem marginal price (SMP) and weighted REC price. Offshore wind assumes projects with a total interconnection
distance of more than 15 km. PV auction prices reflect biannual average awarded prices.
Sources (right): IEA analysis based on Korean New and Renewable Energy Centre (2022),
Results of bidding for solar PV fixed-price contracts; KPX (Korean Power Exchange) (2022), Monthly SMP; KPX (2022),
REC spot market trade volumes and prices.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

In the accelerated case, Korea’s renewable market growth could be 23% higher
than in our main case. This would result mainly from greater auction volumes if
the government adjusts the ceiling price upwards to account for higher costs. Plus,
corporate PPA market expansion under the Korean government’s K-RE100
initiative could accelerate the development of renewable energy projects of morethan 300 kW of capacity. Permitting, social acceptance and land availability
obstacles, which remain key impediments to both solar PV and wind expansion,need to be addressed to enable faster commissioning.

Australia
While grid fees and system costs impair distributed solar PV
growth, state-level targets and PPAs propel expansion of utilityscale renewables
With nearly 40 GW of new additions expected, Australia’s renewable power
capacity is forecast to increase more than 85% from 2022 to 2027 thanks to statelevel auctions, incentives for distributed solar PV and corporate PPAs. This year’s
forecast has been revised over 30% upwards from last year’s to reflect theannouncement of new auctions, continued corporate power purchase activity tomeet private sector decarbonisation goals, and new projects associated withrenewable energy zones (REZs).

PAGE | 65

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With the federal large-scale renewable energy target (LRET) having beenachieved in 2019, states have set additional renewable energy targets. The
current government’s Climate Bill 2022 pledges to reduce carbon emissions 43%
by 2030 from 2005 levels and achieve net zero emissions by 2050. This new law
is expected to create an additional impetus for renewable energy growth.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

60

40%
35%

50

30%

40

25%

30

20%
15%

20
10
0

MW

GW

Australia renewable capacity additions, 2010-2027 (left) and quarterly
distributed PV capacity additions, 2017-2022 (right)

2010-152016-21

HistoricalHydropower
PV - utility
Other renewables

2022-272022-27

900
800
700
600
500
400
300

10%

200

5%

100

0%

0

Q1

Q2

Q3

Q4

Main case Acc. caseWind
PV - residential
Forecast revision %Bioenergy
PV - commercial

2017

2018

2019

2020

2021

2022

IEA. CC BY 4.0.
Notes: Acc. case = accelerated case.
Source: (right) IEA analysis based on Australia, Clean Energy Regulator (2022), Postcode data for small-scale installations.

Of all renewable technologies, distributed PV deployment expands the most, but
annual market growth is expected to slow as new charges for exported power areproposed and higher system prices reduce its economic attractiveness. In Q4
2021, for instance, the quarterly installation pace slowed for the first time since2015, a trend that has persisted into 2022.
Since 2017, distributed solar PV uptake has grown by over 1 GW annually thanks
to net metering, solar FITs and low investment costs. However, the upsurge inself-consumption and power exports resulting from all this new capacity has put
pressure on the distribution grid. New market rules were therefore introduced
allowing distributors to charge for exporting electricity to the grid.

State

Target type

Year

TargetNew South Wales

New renewable generation

2030

24 600 GWh

Queensland

Percentage renewable generation

2032

70%

Queensland

Percentage renewable generation

2035

80%

South Australia

Percentage renewable generation

2030

100%

Tasmania

Total renewable generation

2030

15 750 GWh

PAGE | 66

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Renewable energy targets by Australian stateRenewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

State

Target type

Year

TargetTasmania

Total renewable generation

2040

21 000 GWh

Victoria

Percentage renewable generation

2025

40%

Victoria

Percentage renewable generation

2030

50%

Western Australia

Emissions reduction

2030

80%

Note: Targets are from AEMO Inputs and Assumptions, unless otherwise noted.

Utility-scale solar PV and onshore wind growth have both been revised upwards
over 35% from last year owing to state-level auctions for new capacity, projects
associated with emerging REZs and a growing number of corporate PPAs withgovernments, utilities and businesses. Non-price factors, such as corporate
sustainability goals and emissions or renewable energy targets, are the primarystimulants of corporate PPA market growth.
Meanwhile, rising LRET generation certificate prices resulting from demand
increases provide additional revenue for developers. However, higher amounts ofvariable renewable energy generation have led to system integration concerns.
Connection delays and curtailment remain key forecast challenges.
The accelerated case forecasts nearly 25% higher additions than the main case,with upside potential enabled by more state-level auctions and faster-thanexpected commissioning of REZs. Furthermore, additional coal-fired plant
retirements could allow for the deployment of new large-scale renewable energy
installations paired with battery storage. For distributed PV, the continuation ofhigh wholesale and retail prices could encourage greater investment. In addition,
renewable additions from captive wind and solar PV capacity associated withhydrogen from renewable energy could add over 6 GW of additional capacity overthe forecast period.

ASEAN
New auction schemes will accelerate deployment in upcoming
years, but policy uncertainty remains a challenge

PAGE | 67

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Renewable capacity in the ASEAN region is expected to increase by 51 GW during2022-2027 (+56%). Solar PV will account for over half of the growth, followed byonshore wind and hydropower. ASEAN is also expected to be a leading region in
geothermal power deployment worldwide, responsible for close to one-third ofglobal additions up to 2027. Solar PV leads renewable capacity growth, and the
speed of deployment is expected accelerate over the forecast period owing toRenewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

policy improvements, notably new auction and procurement schemes in thePhilippines and Indonesia.
Viet Nam leads expansion as its commercial distributed PV deployment
accelerates and its planned auction system hastens wind uptake. Renewablecapacity expansion, led by PV, will also accelerate in other ASEAN countries over2022-2027, driven by policy improvements such as the Philippines’ andIndonesia’s new competitive auction schemes. In addition, a few large-scalehydropower projects are expected to come online in Malaysia and Indonesia.
Although the main-case forecast is largely unchanged from last year, theaccelerated case has been revised 9% downwards due to delays in implementing
new policies in Viet Nam, Indonesia and Thailand.
Although the ASEAN region has the potential for much stronger renewable energy
growth, policy uncertainty is the main challenge. In almost all countries in theregion, delays in introducing support policies are discouraging investment, whilelengthy and complicated permitting procedures are hindering faster project
development. Gaps in policy support have led to boom-bust cycles in Viet Nam
and Thailand.
Furthermore, low project bankability due to limited risk protection in standard PPAs
is curbing the interest of international investors, and strict local-content and project
ownership rules further inhibit foreign investment and raise the cost of renewableenergy. Under the accelerated case, all these challenges are resolved withfocused policies, leading to significantly higher deployment.

90

0%

80

-1%

70

-2%

60

-3%

50

-4%

40

-5%

30

-6%

20

-7%

10

-8%

0

-9%

2010-152016-21

HistoricalHydropower
PV - utility
Other renewables

2022-272022-27GW

GW

ASEAN renewable capacity additions, 2010-2027 (left) and annual capacity
additions by country, 2019-2027 (right)
20
18
16
14
12
10
8
6
4
2
0

2019 2020 2021 2022 2023 2024 2025 2026 2027

Main case Acc. caseWind
PV - residential
Forecast revision %Bioenergy
PV - commercial

Viet Nam

Indonesia

Philippines

ThailandRest of ASEAN

Acc. case

IEA. CC BY 4.0.

PAGE | 68

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Notes: Acc. case = accelerated case. “Rest of ASEAN” comprises Brunei, Cambodia, Lao PDR, Malaysia, Myanmar andSingapore.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Viet Nam is expected to lead ASEAN renewable capacity expansion over theforecast period. While generous subsidies led to deployment booms in utility-scalesolar PV projects in 2019, in distributed solar PV in 2020 and in wind in 2021, asignificant slowdown in annual additions is expected in 2022-2023 with thephasedown of incentives.
Further deployment of both wind and PV will depend on how quickly Viet Nam’s
new Power Development Plan (PDP8) and planned auction scheme are
implemented. It is expected that auctions will focus on wind, with 20 GW ofadditions targeted in the draft PDP8 and just 4 GW of utility-scale PV. Rapid
capacity growth is forecast for the commercial PV segment, owing to economicallyattractive self-consumption and new policies facilitating bilateral PPA contracts.
In Indonesia, renewable capacity deployment in 2022-2027 is expected toquadruple from the 2016-2021 level. Solar PV accounts for almost half of thisgrowth, followed by hydropower. We also expect the country to add over 1.5 GW
of geothermal capacity by 2027, the second-highest addition globally.
A presidential decree of September 2022 introduced competitive auctions, which
will be the main impetus for utility-scale PV and onshore wind deployment in thesecond half of the forecast period. The decree is an important step towards faster
renewable energy uptake in Indonesia, but a lack of detailed regulations leads toforecast uncertainty. In addition, several large-scale hydropower projects are to
be commissioned by 2027, based on bilateral PPAs with the state-owned utility(PLN).
The Philippines is set to add more than 7 GW of renewable capacity over 20222027 (almost four times as much as during 2016-2021), mainly in solar PV andwind. In June 2022, the Philippines awarded 2 GW of renewable capacity throughits Green Energy Auction Program, and in July 2022 it introduced the National
Renewable Energy Program 2020-2040, targeting 35% renewable energy inelectricity generation by 2030 and 50% by 2040. The government also plans todouble the geothermal share in installed capacity from the current 12% to 24% by
2040.
Competitive auctions are expected to be the main tool used to achieve all thesetargets. Furthermore, the Philippines’ government is considering allowing more
foreign ownership of renewable energy assets to encourage international
investment, which is assumed to hasten capacity deployment in the main case.

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In Thailand, commercial PV installations producing power for self-consumption
are expected to drive capacity growth over 2022-2027 as policy support for
renewable energy technologies remains limited. Although a new power
development plan is under consideration, it is unclear which targets and measures
for renewable capacity will be included. Auctions and net metering continue toRenewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

support growth in utility-scale and commercial PV in Malaysia, while the private
PPA market will continue to propel rooftop and floating PV uptake in Singapore.
In the accelerated case, renewable capacity deployment in ASEAN during 20222027 is over 50% higher than in the main case. Solar PV and wind offer thegreatest upside potential because their generation costs are the lowest of all
renewable technologies and are rapidly becoming more competitive with coal-fired
generation. Faster implementation of new auction schemes in Viet Nam andambitious auction schedules in Indonesia and the Philippines could drive much
faster deployment of these technologies.
Increased investment in grid infrastructure, especially in Viet Nam, is also neededto achieve faster solar PV expansion. Simplifying permitting procedures, easing
local-content requirements and implementing standardised bankable PPAs should
propel international investment. Additionally, reducing delays in updating energy
strategy documents with more ambitious renewable capacity targets in Viet Nam,
Thailand and Indonesia could provide long-term policy certainty and further boost
deployment.

Latin America
Renewable power capacity in Latin America is expected to increase 45%(+130 GW) during 2022-2027 in the main case. Growth shifts from hydropower tosolar PV (+78 GW) and wind (+36 GW), which together make up almost 90% of
the region’s expansion. Brazil accounts for over 55% of regional growth, though aslowdown in distributed solar PV is expected due to a change in net-metering
compensation, leading to a sharp decline in the region’s annual additions.
Lower government-led auction volumes in Brazil, Chile, Mexico and Argentina areoffset by greater numbers of bilateral power purchase contracts, which
increasingly drive expansion. However, in addition to declining auction volumes
and participation, the lack of long-term policy certainty remains a key challenge inmarkets such as Argentina and Mexico, hampering growth in the long term.

BrazilDeployment outside of the government’s auction scheme andnet metering prompts over a 60% upward revision to theforecast

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Brazil is expected add over 70 GW of new renewable capacity through 2027, withsolar PV and wind making up the majority. This year’s forecast has been revisedRenewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

upwards by over 60% to reflect continued utility-scale project growth through thefree market, auction deadlines for onshore wind power and a deadline for
distributed PV benefits.

GW

Brazil renewable capacity additions, 2020-2027 (left) and utility-scale solar
PV and onshore wind capacity by market registration (right)
100%

20

90%

18
16

80%

14

70%

12

60%

10

50%

8

40%

6

30%

4

20%

2

10%

0

2020 2021 2022 2023 2024 2025 2026 2027

Hydropower
PV-utility
Acc. caseWind
PV-distributed

Bioenergy
Other renewables

0%2020 2021 2022 2023 2024 2025 2026 2027
Non-ACR (free market)

ACR (regulated)

IEA. CC BY 4.0.
Note: Values for 2022-2027 are based on projects registered with ANEEL and may not reflect final values.
Source: IEA analysis based on ANEEL (2022), ANEEL database (accessed November 2022).

For utility-scale solar PV and onshore wind, free-market demand is the main
growth driver, supplemented by previously awarded auction capacity. Demand forfree-market capacity comes partially from bilateral contracts with retail andindustrial customers to help meet corporate decarbonisation goals. In addition, theforecast expects a rush of installations in 2023 before the grid use tariff exemption
ends in March 2024.
New distributed PV capacity of more than 20 GW is forecast, with over 8 GW
forecast to come online this year (systems installed before January 2023 are
eligible for the current generous net-metering scheme, which has provoked an
installation rush). New installations will receive less compensation for surplus
energy, reducing their economic attractiveness and resulting in lower annual
capacity additions over 2024-2027. Still, average market growth of over 2.5 GW
per year is expected in the remainder of the forecast period as the business caseremains attractive despite lower remuneration.

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The accelerated case forecasts 16% higher growth, which can be achieved withadditional free-market contracts, a slower-than-expected demand drop for
distributed PV and higher-than-anticipated auction volumes due to higher
consumer demand.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Chile
Ambitious renewables-based hydrogen production accelerates
wind expansion
Renewable energy capacity in Chile is forecast to more than double by 2027,
reaching 45 GW. Onshore wind leads growth, with half of new capacity intended
to supply electricity for green hydrogen and ammonia production. Indeed, Chile’s
ambitious plans to expand renewables-based hydrogen production, combinedwith solar PV additions in its deregulated market, incite a 46% upward revisionfrom last year’s forecast.

9
8

800

100

700

90
80

600

7

70

6

500

5

400

50

4

300

40

3

60

30

200

2

20

100

1

0

0

2020 2021 2022 2023 2024 2025 2026 2027
HydropowerWind
PV-utility
Bioenergy
PV-distributed
Other renewables
Acc. case

USD/MWh

10

MW

GW

Chile renewable capacity additions, 2020-2027 (left) and capacity andprices awarded in Chilean energy auctions (right)

10
Oct-15 Aug-16 Nov-17 Sep-21 Aug-22

0Wind capacity

PV capacity

Wind - average auction pricePV - average auction price

IEA. CC BY 4.0.
Note: Acc. case = accelerated case.
Source: (right) CNE (Comisión Nacional de Energía de Chile).

Auctions have historically driven utility-scale renewable capacity expansion in
Chile. However, the country awarded only 15% of offered energy during its latest
auction in August 2022. Despite higher investment costs for onshore wind andsolar PV due to elevated commodity prices, auction reference prices remained
unchanged. Thus, three-quarters of the bids submitted were not accepted
because they exceeded the reference price of USD 42/MWh. While the forecast
therefore expects less renewable capacity to come online from auctions,
expansion in the deregulated market is accelerating owing to higher prices.

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In 2020, Chile announced ambitious plans to ramp up renewables-basedhydrogen production, and in December 2021 the Chilean National Development
Agency (Corfo) issued a call to finance and leverage green hydrogen projects,
awarding a total of USD 50 million to six green hydrogen initiatives. These projects

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

are expected to be operational in 2025 and will use 100% renewable energy
supplied by PV and wind plants (some currently operational, and some planned),
as well as employing PPAs. Renewable energy projects dedicated to hydrogenproduction represent 27% of the main-case forecast, which takes into account the
10-GW H2 Magallanes project.
The accelerated case estimates 31% higher installed capacity over the forecast
period compared with the main case, led by wind and solar. It assumes additional
capacity from potential auctions in upcoming years as well as higher growth fromprojects participating in the deregulated market. The accelerated case also
includes faster expansion of transmission and distribution infrastructure, as
bottlenecks have been restricting renewable energy expansion, especially in thenorth.

Colombia
Realising high renewable energy ambitions depends on thetimely construction of transmission infrastructure
Colombia’s renewable capacity is forecast to expand by more than 5 GW (+44%)
during 2022-2027. Hydropower, utility-scale solar PV and onshore wind make up
nearly all this expansion. While the largest share of total renewable capacity iscurrently hydropower, auctions to help meet national targets will enlarge the windand utility-scale solar PV share to 17% by 2027.

3

GW

GW

Colombia renewable capacity additions, 2020-2027 (left) and installed
renewable capacity in REMR2022 forecast vs Colombia’s National Energy
Plan (right)
25
20

2

15

2

10
1

5

1
0

0

2020 2021 2022 2023 2024 2025 2026 2027

Hydropower
PV-utility
Acc. caseWind
PV-distributed

Bioenergy
Other renewables

NEP "Actualización" scenario (most conservative)
NEP "Disrupción" scenario (most optimistic)
REMR2022 main case
REMR2022 accelerated caseHistoric

IEA. CC BY 4.0.

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Notes: Acc. case = accelerated case. NEP = National Energy Plan. REMR2022 = Renewable energy market report 2022
(i.e. Renewables 2022).
Source: (right) UPME (Unidad de Planeación Minero-Energética) (2020), Plan Energético Nacional 2020-2050.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

The 2.4-GW Ituango hydropower plant is the main source of hydropower additions,as commissioning is to begin in 2023 and it is expected to be fully operational by2026. Meanwhile, past auctions enable the commissioning of over 1.1 GW ofcapacity for each solar PV and onshore wind during the forecast period. The
country’s Long-Term Auction Programme has awarded more than 2 GW of windand solar capacity combined, with additional auctions planned for 2023. However,slow transmission infrastructure development is impacting the pace of expansion
and permitting delays due to community acceptance concerns have resulted inproject deferments of up to three years.
Offshore wind additions of 550 MW in the forecast period come from two projects
currently undergoing feasibility studies. In addition, Colombia launched its
Offshore Wind Roadmap in May 2022, outlining the potential for 50 GW of new
capacity. The government will open tendering in 2023 to help realise this capacity,
though awarded projects will not be commissioned within the forecast period.
Renewable capacity growth could be almost 60% higher in the accelerated casewith additional renewable capacity auctions and the realisation of moreannounced projects. In addition, this case assumes that current transmission
infrastructure issues will be resolved quickly, enabling faster wind and solar
capacity uptake. Finally, Colombia aims to begin producing green hydrogen in
2030 (with 1-3 GW of electrolysis capacity installed), spurring additional
development by the end of the forecast period.

Mexico and Argentina
Distributed solar PV leads renewable capacity expansion in
MexicoMexico’s renewable energy capacity is set to expand nearly 8 GW during 20222027 in the main-case forecast. At COP 27, Mexico announced its intention to
deploy 30 GW of combined wind, solar PV, geothermal and hydropower by 2030.
The forecast has been revised upwards by more than 20% to reflect higher
distributed solar PV uptake resulting from net-metering and net-billing benefits.
Distributed projects of less than 500 kW do not require a generation permit or need
to be registered as market participants, enabling faster project deployment.

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Outside of government-led efforts for utility-scale expansion, lack of policy
certainty remains the main reason for declining additions throughout the forecast
period. Growth in utility-scale solar PV capacity (+2.5 GW) and wind (+1.2 GW) is
enabled by projects awarded previously through green certificate auctions,
corporate PPAs and bilateral agreements.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

14

25%

12

20%

10

7

0%

6

-1%

5

8

15%

6

10%

4

5%

2
0

GW

GW

Mexico renewable capacity additions, 2010-2027 (left) and Argentina
renewable capacity additions, 2010-2027 (right)

2010-152016-212022-272022-27

Historical

Main case Acc. case

Hydropower

Wind

Bioenergy

0%

-2%

4

-3%

3

-4%

2

-5%

1
0

2010-152016-21

HistoricalPV - utility

PV-distributed

2022-272022-27-6%

Main case Acc. case
Forecast revision %IEA. CC BY 4.0.
Note: Acc. case = accelerated case.

While large hydro projects under construction drive expansion
in Argentina, policy uncertainty and growing macroeconomic
challenges prompt a downward revision to the wind and PV
forecast
Argentina’s renewable capacity is set to increase by almost 5 GW over theforecast period, led by hydropower and followed by onshore wind. Full or partial
commissioning of large-scale hydropower projects, including Jorge Cepernic,
Presidente Nestor Kirchner and Brazo Aña Cuá, provides almost half ofArgentina’s renewable electricity expansion.
Historically, the long-term auction scheme RenovAr was the primary driver ofrecord wind and solar contracts of more than 4 GW. However, persistent economic
challenges and suspension of the fourth round of the RenovAr programme havedelayed many projects. As of September 2022, only half of the programme’s
projects had been commissioned.
Meanwhile, the government’s fund for the development of renewable energies(FODER) continues to support project financing at preferential interest rates. The
country is also promoting distributed renewable energy generation through realtime self-consumption models. Considering Argentina’s macroeconomic
challenges and the absence of long-term renewable energy targets, our forecast
expects that only some of the delayed projects will be commissioned by 2027.

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In the accelerated case, growth could be over 30% higher if the country addresses
challenges of transmission network availability, provides affordable financing,encourages private investment and resumes supply auctions.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Middle East and North Africa
Solar PV dominates expansion because it offers
prospects for low-cost power and hydrogen production
Renewable electricity capacity expansion in the MENA is expected to triple in2022-2027 compared with the previous five-year period, reaching 45 GW. Solar
PV makes up three-quarters of capacity growth in the MENA region because of its
expansion due to attractive economics for utility-scale projects. Significant solar
resource potential and favourable financing conditions in some MENA countries
have led to some of the world’s lowest awarded bid prices (i.e. USD 10.4/MWh in
2021 in Saudi Arabia) contracted in competitive IPP auctions.
Onshore wind development, mostly in Morocco and Egypt, accounts for 15% of
the region’s growth, while hydropower expansion is concentrated in Iran. The main
catalysts for renewable capacity expansion are fast-growing power demand, longterm climate targets, and diversification away from fossil fuels for net-importing
countries. Hydrogen and ammonia production are also beginning to drive interestin new renewable power projects.

GW

Middle East and North Africa renewable capacity additions, 2010-2027(left) and renewable additions by technology and country, 2022-2027(right)
90

18%

20

100%

80

16%

18

80%

70

14%

16

60%

60

12%

14

40%

50

10%

12

20%

40

8%

10

0%

30

6%

8

-20%

20

4%

6

-40%

10

2%

4

-60%

0

0%

2

-80%

0

-100%

2010-2015 2016-21 2022-20272022-2027
HistoricalHydropower

Wind

Main case Acc. case
Bioenergy

PV - utility

PV - residential

PV - commercial

CSP

Forecast revision %IEA. CC BY 4.0.
*Statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of suchdata by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in theWest Bank under the terms of international law.
Notes: Acc. case = accelerated case. CSP = concentrating solar power. S. Arabia = Saudi Arabia. UAE = United ArabEmirates. MENA = Middle East and North Africa.

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Six markets account for 85% of MENA’s renewable capacity growth between 2022
and 2027: Saudi Arabia, the United Arab Emirates, Israel, Oman, Morocco andRenewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Egypt. Competitive IPP auctions are the key policy mechanism propelling
renewable capacity growth in most markets. While this year’s forecast has beenrevised upwards (+16%) because new solar PV auctions have been opened inboth the United Arab Emirates and Saudi Arabia, long lead times and uncertainty
over the tendering process for onshore wind and CSP are emerging as key
challenges to faster growth in the region.
For onshore wind, no new tenders have been announced in Egypt, capacity wascancelled in Round 3 in Saudi Arabia, the announcing of shortlisted bidders in
Jordan’s Round-3 auction has been delayed and some awarded projects in
Morocco have not started construction. For CSP, Egypt cancelled a 100-MW
tender, while in Morocco the winning projects for a tender opened in 2019 have
yet to be announced, and the commissioning of projects in the United ArabEmirates is taking longer than expected.
In the absence of auctions for onshore wind, developers have been turning toother procurement mechanisms such as selling directly to large consumers whenregulations allow (through corporate PPAs) or directly approaching the state utility(unsolicited bilateral contracts).
Saudi Arabia is expected to add 10 GW of renewable capacity during 2022-2027,
led by solar PV and driven by four procurement mechanisms: competitive
auctions, unsolicited bilateral utility contracts, corporate PPAs and state-owned
projects. The forecast has been revised upwards from last year to reflect progress
made under all four business models.
For competitive auctions, PPAs were signed for one-half of Round 3 projects, andRound 4 opened in September 2022 with higher-than-expected volumes on offer.
The country’s first corporate PPA project was commissioned in 2021 after the new
Private Sector Participation Law came into effect allowing developers to sell
directly to consumers for the first time. In our main case, this regulatory change
facilitates the growth of future corporate PPA projects.
Furthermore, in the past year the government has announced plans to develop
another 2.3 GW through bilateral contracts under the Public Investment Fund andbuild state-owned projects in industrial cities. Nonetheless, the pace of auctions
for onshore wind remains a forecast uncertainty. Round-1 projects took four years
to commission and the capacity earmarked for wind in Round 3 was neverawarded.

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The United Arab Emirates is expected to add 9.5 GW of renewable capacity
between 2022 and 2027 – quadrupling its current installations. Solar PV leads
growth, as competitive auctions for large volumes of utility-scale projects aremaking it increasingly economically attractive. Bid prices fell from USD 56/MWhfor 260 MW in the first tender (held in 2015 in Dubai) to USD 13.5/MWh for 2 GW

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

in 2020 in Abu Dhabi because solar resources are abundant, economies of scale
have been achieved, and financing and land-leasing rates are favourable.
The distributed PV forecast has been revised upwards owing to two consecutive
years of over-100-MW growth from Dubai’s net-metering programme and an
expanding pipeline of large industrial and commercial projects. However, long leadtimes challenge the forecast for CSP. Projects awarded in the first CSP auction in2016 were only commissioned in 2022.
Oman’s renewable electricity capacity is expected to increase 4.8 GW in 20222027, with solar PV installations making up most of the expansion. Over half
(2.8 GW) of total renewable capacity additions will be dedicated to renewablehydrogen production. Oman’s excellent solar and wind resources, its establishedhydrogen industry and its strategic location along shipping routes encourage
renewable hydrogen production and ammonia exports. As result, a pipeline ofplanned projects situated at ports has emerged, although many are in the earlystages of development.
Nonetheless, the main case expects renewable capacity of some of these projects
to be at least partially commissioned by 2027 owing to policy support unveiled in
the government’s new National Hydrogen Strategy. Long-term renewablehydrogen production targets, a dedicated institution to manage state involvement
in hydrogen projects, and competitive auctions for leasing earmarked land are
expected to facilitate development. The government estimates 16-20 GW ofadditional renewable capacity is needed by 2030 to achieve the new renewablehydrogen production target of 1-1.25 Mt/year. However, securing financing and
off-takers are key forecast uncertainties.
Outside of capacity dedicated especially for renewable hydrogen production, themajority of growth is expected to come from competitive IPP auctions. The stateutility plans to auction and commission 1.9 GW of renewable capacity by 2026,
but the forecast carries uncertainty because it is not known how quickly thetendering rounds will be conducted. The first 1 GW has been on tender since 2019
but winners have yet to be awarded, and wind auctions depend on the outcomeof feasibility studies.

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Nonetheless, growth is now also possible outside of auctions. In January 2022,
the state utility launched the region’s first wholesale electricity spot market,
wherein generators can offer power for sale one day ahead to the sole purchaser,
Oman Power and Water Procurement Company SAOC (OPWP). Two main
challenges to faster renewable capacity expansion in Oman are the high cost ofcapital and insufficient electricity storage in times of high supply and low demand.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

Israel’s 10 renewable capacity is anticipated to expand by 6 GW, with distributed
solar PV growth driven by the country’s considerable solar resources, high retailelectricity prices and a supportive policy environment. Israel leads the MENA
region in installed distributed PV capacity thanks to favourable net-metering and
FITs for residential and commercial systems. Competitive auctions are the main
driver for utility-scale solar PV growth, but land constraints remain a challenge.
For Morocco, 4.4 GW of renewable capacity growth is forecast for 2022-2027, led
by solar PV, wind and hydropower. The main impetus for new capacity additions
is the government’s established competitive IPP auction programme. Corporate
PPAs also boost onshore wind development, and solar PV expansion comes fromstate-owned projects and installations to produce renewable hydrogen.
This year’s onshore wind forecast is more optimistic than last year’s because
Morocco intends to expand existing projects and has announced new corporate
PPA projects. However, we are revising the CSP forecast downwards to reflectincreasing uncertainty over the government’s plans for solar thermal. The lasttender was opened in in 2019 but the project has still not been awarded.
Meanwhile, the slow pace of regulatory reform remains an obstacle to distributed
PV development. While the new draft law released last year (No. 82-21) makes
progress in defining self-producers and introducing procedures for connecting to
distribution grids, it may also make the business case for self-consumption lessattractive because it proposes to cap excess generation fed into the grid at 10%
and introduce a self-consumption surcharge.
Egypt’s renewable capacity is expected to grow by 4.1 GW between 2022 and
2027, led by onshore wind and followed by solar PV. For utility-scale projects,
most of the expansion will be settled through unsolicited bilateral IPP contracts
negotiated with the state utility, as deployment under other schemes has slowed
or even stalled completely.
Uncertainty over the government’s plans for state-owned utility projects anddelays in the competitive auction scheme have caused this year’s forecast to berevised downwards. Only 26 MW out of 1 GW of planned state-owned projects
have been commissioned since they were announced in 2017. Despite plans toorganise more competitive IPP auctions, the government has not held competitive
tendering since 2013 for solar PV and 2015 for wind.
Overcapacity and financing challenges hamper renewable energy development
overall. For the 2020-2021 financial year, peak load reached 32 GW compared

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10
Statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of suchdata by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the WestBank under the terms of international law.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

with 59 GW installed, and most projects rely on concessional financing.
Nonetheless, the net-metering scheme should continue to encourage distributed
PV growth, especially large utility-scale projects for onsite self-consumption inagriculture and the cement industry, and for commercial centres.

GW

Middle East and North Africa renewable capacity additions dedicated tohydrogen production, 2010-2027 (left) and project status for electrolysers
using dedicated renewables with commissioning planned by 2027 (right)
20

20%

16

16%

12

12%

8

8%

4

4%

0
Oman

Main case
Saudi Arabia

Morocco

FID and underconstruction
50%

0%Acc. case
Egypt

Concept
7%

UAE% of renewablecapacity growth(right-axis)

Feasibility
43%

IEA. CC BY 4.0.
Notes: Acc. case = accelerated case. UAE = United Arab Emirates. FID = final investment decision. Concept = generally
refers to projects that are announced. Feasibility = projects where feasibility studies are underway to assess the viability of
project.
Source: (right) IEA (2022), Hydrogen Projects Database.

In the main case, we expect 14% (6 GW) of MENA’s renewable capacity growth
to come from plants dedicated to hydrogen production. Almost 80% of this growthis in Oman and Saudi Arabia, as both countries aspire to become exporters ofrenewables-based ammonia. Other uses of additional renewable electricity
capacity include producing ammonia for shipping fuel and renewable hydrogen for
local industries such as petrochemical production and steelmaking.
Almost 75% of dedicated capacity is expected to be solar PV because of its
economic attractiveness, which is one of the main motivations for hydrogendevelopment in the region. Since 2015, solar PV-awarded bid prices have fallenfrom USD 56/MWh in Dubai to USD 10.4/MWh in 2021 in Saudi Arabia owing to
the abundance of solar resources, investment cost reductions and beneficial
financing conditions.

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The forecast is conservative compared with the current pipeline of electrolyser
projects announced to be built by 2027. Owing to the region’s large amount ofavailable space, its ideal location along international shipping routes and its
existing hydrogen use and infrastructure, MENA has announced 4.5 GW of

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

electrolyser projects powered by dedicated renewable electricity. However, only
half of electrolyser capacity has reached final investment decision or started
construction.
While our main case does assume some projects in the feasibility stage will befinanced thanks to state-backed support, securing financing and off-takers are themain challenges to bringing projects to fruition. In the accelerated case, renewablecapacity for hydrogen production could be twice as high (16% of total renewablecapacity) if financial close were reached for some of the planned projects.
Furthermore, the accelerated case demonstrates that MENA’s total renewablecapacity growth could be almost twice as high (77 GW) if auctions proceeded more
quickly, PPAs were signed in a timelier manner, and construction was begun onawarded projects. Clarity over regulatory reforms allowing distributed solar PV
production and consumption, cost-reflective end-user electricity prices andremuneration of excess generation would also accelerate commercial andresidential PV deployment.

Sub-Saharan Africa
Financial guarantees facilitate utility-scale growth while
new government programmes boost distributed solar PV
Sub-Saharan Africa’s renewable power capacity is expected to almost double withthe addition of over 40 GW from 2022 to 2027. Five countries – South Africa,
Ethiopia, Tanzania, Angola and Kenya – account for over 60% of all renewablecapacity additions. Solar PV and wind make up the majority of capacity growth in
the region, marking a technology shift as hydropower accounted for nearly 55% ofadditions from 2016 to 2021. However, hydropower still continues to expand,enlarging electricity access cost-effectively in many countries.

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We have revised our forecast upwards 25% to take account of new and additional
wind and PV auction capacity and additional projects reaching financial closure insome markets. Electricity purchase guarantees from state-owned utilities orinternational development organisations, and concessional financing byinternational, regional or country-level development banks, facilitate capacity
growth in the region.

Renewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

2016-21

HistoricalWind
PV - utility
Other renewables

2022-272022-27

Main caseAcc. case

Hydropower
PV - commercial
Forecast revision %Bioenergy
PV - residential

0

Hydropower Solar PV

WindSouth Africa

Ethiopia

Kenya

Tanzania

Nigeria

Other SSA

2022-27

2010-152016-21052022-27

10

10

2016-2120

152022-27

30

2016-2140

202022-27

50

25

2016-21

40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%

60

GW

GW

Sub-Saharan Africa renewable capacity additions, 2010-2027 (left) andrenewable additions by technology and country, 2016-2027 (right)

OthersIEA. CC BY 4.0.
Notes: Acc. case = accelerated case. SSA = sub-Saharan Africa.

South Africa’s renewable energy capacity is forecast to expand more than
13 GW from 2022 to 2027. Government-led auctions enable development of over
7 GW of new utility-scale solar PV and more than 3 GW of onshore wind.
Additional drivers outside of auctions for utility-scale uptake include municipalities
contracting renewable power from IPPs to reduce the impact of loadshedding. In
addition, Eskom is repurposing retiring coal plants as hubs for renewable capacity.
Meanwhile, two policies aid distributed solar PV deployment: the first is thegovernment’s increase to the licensing capacity threshold for small-scale(embedded generation) power stations up to 100 MW, enabling development oflarger installations, especially by mining companies. The second is a proposed
feed-in tariff for commercial and residential PV systems. While the details of the
FIT have yet to be confirmed, heightened loadshedding and a proposed electricity
price increase are expected to accelerate distributed PV deployment throughout
the forecast period as consumers increasingly view self-consumption as a means
to maintain power and avoid high bills. Market challenges include delays in thesigning of PPAs for awarded auction projects and low grid availability, as bothhinder the timely development of new capacity.

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Ethiopia’s renewable capacity will expand more than 125% (+6 GW) from 2022
to 2027. With commissioning of the Grand Ethiopian Renaissance Dam,hydropower provides over 80% of additions. At the same time, the solar PV andwind forecast has been revised downwards 25% due to project cancellations.
Government agreements with private firms will lead to utility-scale solar PV
additions later in the forecast period, supported by concessional financing, but aRenewables 2022
Analysis and forecasts to 2027

Chapter 1: Renewable electricity

lack of additional tenders and ongoing social and political issues are barriers tofurther development.
Kenya’s renewable capacity expands nearly 90% (+2 GW) from 2022 to 2027.
PPAs signed under the country’s previous FIT policy drive over 1 GW of wind andutility-scale solar PV expansion. Meanwhile, growth in the residential PV segmentis spurred by a recently announced net-metering programme for up to 100 MW of
total capacity, although customer fees may hinder uptake. Additionally, theexpansion of existing geothermal resources and new developments provide over
500 MW of new capacity. Nevertheless, land-rights issues, interconnection delays,
stop-and-go policy and PPA renegotiations lead to project delays andcancellations, lowering investor confidence.
Nigeria is forecast to add over 1 GW of renewable capacity from 2022 to 2027,
half from hydropower. PPAs enable utility-scale solar PV development, andprivate capital and development bank financing support the country’s prioritisationof solar PV mini-grids for universities, hospitals and rural electrification. Distributed
solar PV deployment increases as consumers install solar PV systems to
supplement or replace fossil fuel-fired backup generators to offset rising diesel
costs. The lack of enabling policy for large-scale renewables, along with power
outages caused by ageing infrastructure, hinders more extensive development.
Hydropower will make up 70% of Tanzania’s 3 GW of additions through 2027,
while agreements with the national utility (TANESCO) enable nearly 500 MW of
new utility-scale solar and wind development. Although low installed capacity andlimited transmission and distribution infrastructure challenge additional growth,
proposed projects will be built near existing transmission infrastructure, helping
ease grid access and increasing utility-scale solar PV capacity during the forecast
period. A combination of grants and government programmes drive off-grid solar
PV growth, bringing power to homes and critical infrastructure. Nevertheless, alack of policies supporting the country’s target of 6 GW of renewable energy by2025 prevents higher growth.

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As sub-Saharan Africa has some of the world’s highest renewable resource
potential, the accelerated case forecasts nearly 30% greater additions, led by solarPV, onshore wind and hydropower. Achieving higher deployment will require firm
auction and tendering schedules with the timely signing of PPAs for awarded
projects. Plus, additional partnerships between IPPs and governments ordevelopment banks for credit enhancement mechanisms to address project
financing and off-taker risk could increase investor confidence. Finally, grid
upgrades could help facilitate project interconnection and integration, which cansometimes take as long as one year.

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

Chapter 2. Transport Biofuels
Forecast summary
Biofuel use expands in 2022 despite rising costs
Global biofuel demand is expected to be 6% or 9 100 million litres per year (MLPY)
higher in 2022 than in 2021. Renewable diesel makes up the largest share of thisyear-on-year expansion, thanks to attractive policies in the United States andEurope. Blending requirements and financial incentives support demand growth
in India and Brazil, and Indonesia’s 30% biodiesel blending requirement also
boosts biodiesel use in that country.
Nevertheless, we have revised year-on-year growth downwards 25% from our2021 forecast, with price and market developments in Brazil, Finland and Sweden
responsible for 80% of this downward revision. While high biodiesel prices led theBrazilian government to reduce its biodiesel blending requirements for 2021/22, inFinland high fuel prices prompted the government to temporarily lower its
renewable distribution obligation for 2022/23. Sweden froze 2023 greenhouse gas
targets for transport fuels at 2022 levels. However, 2030 targets remainunchanged.

4 500

RoW

4 000

India

3 500

Indonesia

3 000Europe2 500

Brazil2 000

United States

1 500% growth(right graph)

1 000
500

Volume (million litres per year)

Volume (million litres per year)

Biofuel demand growth by fuel and region, 2021-2022
10 000

6 000

3.0%

4 000
3 000
1 000

Biojet

4.0%

5 000

0

Biodiesel Renewablediesel

5.0%

7 000

- 500
Ethanol

6.0%

8 000

2 000

-1 000

7.0%

9 000

0

2.0%
1.0%

Total demand growth

0.0%

IEA. CC BY 4.0.
Note: RoW = Rest of world.

PAGE | 84

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Renewable diesel demand expanded 3 800 MLPY or 40% over 2021-2022. The
United States accounted for most of this growth, with state-level low-carbon fuelRenewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

standards, the federal Renewable Fuel Standard and the biodiesel production andblending tax credit driving consumption. Domestic production thus expanded
2 800 MLPY to help meet rising demand. In Europe, existing policies in Germany,
Spain and France helped boost renewable diesel uptake.
Ethanol demand rose 3 100 MLPY or 3% during 2021-2022, with India accounting
for more than one-third of this growth. In 2022, India continued to provide
guaranteed pricing for ethanol in pursuit of its 20% ethanol blending target.
Meanwhile, consumer ethanol purchases supported a 4% demand increase in
Brazil, where the large flex-fuel vehicle fleet allows consumers to choose ethanol
over gasoline when prices are advantageous. To date in 2022, the consumer pricefor ethanol has been 30% lower than for gasoline on average.
Indonesia accounts for almost all the 1 800 MLPY of new biodiesel demand. Its
30% blending target for biodiesel in 2022 and an overall 4% increase in diesel
demand have been driving growth.

Price (USD/litre)

Ethanol and gasoline prices (left), and biodiesel and diesel prices (right),
2019-2022
2.0

2.0

1.8

1.8

1.6

1.6

1.4

1.4

1.2

1.2

1.0

1.0

0.8

0.8

0.6

0.6

0.4

0.4

0.2

0.2

0.0
2019

2020

United States

2021

Q1
2022
Europe

Q2
2022

0.0
2019

Q3
2022
Brazil2020

2021

United States - gasoline

United States - diesel

Q1
2022

Q2
2022

Q3
2022

Europe - gasoline

Europe - diesel
IEA. CC BY 4.0.

Sources: IEA analysis based on Argus America Biofuels and Argus Biofuels (accessed September 2022); IHS Markits,
Food and Agricultural Commodities (accessed September 2022); and Bloomberg New Energy Finance (accessed
September 2022). Prices are before taxes and averaged annually and quarterly.

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Nonetheless, while stronger policies are encouraging demand growth, high prices
are slowing its pace. We have therefore reduced this year’s demand forecast by
3 100 MLPY compared with last year’s. In the first half of 2022, diesel prices morethan doubled, raising consumer prices and putting pressure on governments to
reduce costs. At the same time, biodiesel prices went up in the United States,
Europe and Brazil, making it increasingly more expensive than regular diesel.

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

Biodiesel price increases resulted from vegetable oil export losses from Ukraine,
weather-related supply disruptions, high energy prices, high fertiliser costs andexport restrictions that pushed agricultural commodity prices to record highs in
2022. In response, Brazil, Finland and Sweden reduced their blending mandates.
This evolution accounts for a 2 600 MLPY downward revision to our forecast.
Finland plans to reinstate ascending blending requirements in 2023 and Sweden
in 2024. Brazil has not announced when it will re-establish higher biodiesel
blending. It had initially targeted 14% blending in 2022.

Robust growth over the next five years will help meetclimate and energy security goals
Total global biofuel demand expands by 35 000 MLPY or 20% over 2022-2027 in
the main-case forecast. Growth in renewable diesel and biojet fuel consumption
is almost entirely in advanced economies. Here, policies designed to reduce GHG
emissions are driving demand because these fuels can be produced with low GHG
emissions, blended at high levels and made from wastes and residues. In fact,
nearly 70% of renewable diesel and biojet fuel came from wastes and residues in
2021.
Meanwhile, rising ethanol and biodiesel use occurs almost entirely in emerging
economies aiming to reduce oil imports while also maximising the use ofindigenous resources to benefit the local economy. Plus, biofuel use helps reduce
GHG emissions in these countries.

3.00

30 000100 000

2.50

25 00080 0002.00

60 0001.50

40 0001.00

20 0000.50

02021 2027 2021 2027 2021 2027 2021 2027
VolumeEthanol

Biodiesel

0.00

Volume (million litres per year)

120 000

Energy (EJ)

Volume (million litres per year)

Global biofuel demand (left) and growth for advanced and emerging
economies (right), main case, 2021-2027

EnergyRenewable diesel

Biojet fuel20 000
15 000
10 0005 000
0-5 000-10 000

Advanced Economies

Renewable diesel

Ethanol

Emerging Economies
Biodiesel

Biojet fuelIEA. CC BY 4.0.

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Notes: “Advanced economies” covers all OECD member nations plus Bulgaria, Croatia, Cyprus, Malta and Romania.
“Emerging economies” encompasses all other countries and regions.

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

While demand for ethanol is higher than for biodiesel, renewable diesel and biojet
on a volume basis, total energy demand met by ethanol is similar in 2021 because
the energy content of the three other biofuels, are 60% higher than that of ethanol.
By 2027, biodiesel, renewable diesel and biojet fuel demand is expected to reach
2.5 EJ, ahead of 2.4 EJ for ethanol.
The United States, Canada, Brazil, Indonesia and India make up 80% of global
expansion in biofuel use, as all five countries have comprehensive policy
packages that support growth. In Brazil, Indonesia and India, rising gasoline anddiesel use also accelerates demand for biofuels, while in the United States andCanada declining gasoline and diesel demand slow biofuel growth and evenreduce the use of some fuels. In Europe, falling transport fuel demand nearly stalls
volume growth even though state-level policies are increasingly stringent.
Globally, the biofuel share in transport fuel consumption climbs from 4.3% to 5.4%
during 2022-2027.
Forecast growth by country (left) and biofuel share of transport demand(right), main case, 2021-2027

Share of transport demand

Demand (million litres per year)

15 000
10 0005 000
0-5 000

20%
15%
10%
5%
0%

-10 000

Ethanol

25%

Biodiesel

Renewable diesel

Biojet fuel

2021

2027

IEA. CC BY 4.0.
Notes: RoW = Rest of world. Renewable diesel, biodiesel and ethanol shares of gasoline and diesel are on an energy
basis. Gasoline and diesel demand figures taken from the IEA Oil Information database.

Biofuel demand across Brazil, Indonesia and India expands by 19 000 MLPY over2022-2027, as all three countries intend to raise blending requirements during thisperiod. In Brazil, we also expect the RenovaBio programme to help reduce theprice of ethanol relative to gasoline, prompting greater consumer use.
Furthermore, overall gasoline and diesel demand is also expanding in all three
countries, accelerating biofuel consumption growth.

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The United States and Canada have introduced new national policies to support
9 500 MLPY of new biofuel demand in 2022-2027. In the United States, theRenewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

Inflation Reduction Act includes an estimated USD 9.4 billion in tax credits andfinancial support for new production capacity and biofuel infrastructure generally.
The tax credits have no financial cap, and we expect these incentives to boost
biojet and renewable diesel fuel use over the forecast period. For ethanol,
however, an expected 8% decline in gasoline demand over 2022-2027 and static
blending levels will cause its use to drop by 4 200 million litres. Overall, the biofuel
share in transport energy demand climbs from 6% to 8%.
Canada published its Clean Fuel Regulations in July 2022, requiring suppliers ofliquid road transport fuel to progressively reduce their fuel carbon intensity by
14 g CO2-eq/MJ by 2030. We expect greater biofuel use will be required for the
regulations to be met. Thus, the total share of biofuels in transport energy demand
increases from near 4% to 7% over the forecast period.
Meanwhile, biofuel demand in Europe expands 1 400 MLPY or 5% during 20222027, driven by the increasing stringency of existing country-level policies. For
instance, blending requirements in France, Finland, Italy, the United Kingdom andSpain – as well as GHG emissions reduction targets in Germany – propel most of
the expansion. However, as gasoline and diesel sales decline across Europe, lessbiofuel will be needed to meet blending mandates and GHG emissions reduction
requirements. Still, the biofuel share in transport energy demand expands from
5.9% to 6.5% over the forecast period. This main-case forecast does not include
the Fit for 55 programme or the European Commission’s REPowerEU proposal.

Biojet fuel to make up 1-2% of jet fuel globally by 2027
Biojet fuel demand expands to 3 900 MLPY in our main-case forecast – 37 times
the 2021 level – to account for nearly 1% of total jet fuel consumption. Recent US
and EU policies prompt most of this growth. In the United States, tax credits
included in the IRA and measures in the Sustainable Aviation Fuel Grand
Challenge Roadmap boost consumption, while in Europe we expect the
ReFuelEU target of 2% by 2025 to come into force during the forecast period.

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Planned capacity additions in Europe and the United States meet most of thisincreased demand, with additional supplies coming primarily from Singapore.
Biojet fuel production depends primarily on the availability of waste and residue
oils and fats (52%) and vegetable oils (36%). Ethanol, woody residues and wastes
provide the remainder. In Europe, the European Commission is likely to limit theamount of eligible feedstocks available to produce sustainable aviation fuel (SAF),
while vegetable oils such as soybean oil will support SAF manufacturing in the
United States. In our accelerated case, demand swells to 8 100 MLPY (2% of
global jet fuel use) if existing policies as well as those under discussion drive faster
growth.

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

Biojet fuel demand in the United States expands to 2 000 MLPY over 2022-2027,
bringing blending levels to 2% for domestic jet fuel in the main case. This forecast
includes plans to provide USD 3.3 billion during 2023-2031 for SAF support, as
outlined in the IRA. SAFs include a range of non-fossil fuels such as biojet andnon-fossil synthetic fuels made from hydrogen and CO2. The majority of thisfunding (an estimated USD 3 billion) supports a dedicated SAF tax credit thattransitions into a clean fuel tax credit, which SAFs are also eligible for.
Global biojet fuel demand and supply growth, 2022-2027

4.0%

6 000

3.0%

4 000

2.0%

2 000

1.0%

0

16-21 22-27 22-27 16-21 22-27 22-27
Main
DemandUnited StatesJapan
Share (right axis)

Acc.
EuropeSingapore

Main
Supply

0.0%

3 000

3 000
2 000
2 000
1 000

1 000
0

2021

Energy (Ktoe)

8 000

4 000
Volume (million litres per year)

5.0%

Volume (million litres per year)

10 000

0

2027

Acc.
BrazilOther

UCO and fats

Vegetable oils

Other

IEA. CC BY 4.0.
Notes: Acc. = accelerated case. UCO = used cooking oil. “Energy” is the energy value of the fuels made from different
feedstocks.

In Europe, biojet fuel demand grows to 1 300 MLPY by 2027 to meet existing SAF
blending targets in France and Norway, planned targets in the United Kingdom(planned for 2025) and a GHG emissions intensity reduction target in Sweden (seePolicy and Assumption table below). However, the majority of growth depends on
the European Union implementing its ReFuelEU targets of 2% SAF use by 2025

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The dedicated SAF credit provides up to USD 1.75 per gallon of fuel produced
and sold in the United States in 2023 and 2024, depending on the GHG emissions
intensity of the fuel. From 2025 to 2027, SAFs will be eligible for a clean fuel creditof up to 1.75 per gallon – a 75% premium relative to other fuels – if they fall below
the maximum GHG emissions intensity. Plus, a further USD 0.3 billion is available
to fund new projects and infrastructure, such as blending and storage facilities.
The US Sustainable Aviation Grand Challenge Roadmap aims to remove barriers
to SAF deployment by co-ordinating government actions, supporting the collectionof agricultural, waste and residue feedstocks, promoting production innovation,and strengthening supply chains.

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

and 5% by 2030 (the proposal disallows the use of food and feed crops as
feedstock). Biojet fuel is already being produced in Finland, France and Spain,
and production is expected next in the Netherlands and Italy.
Elsewhere, Japan aims for SAFs to make up 10% of the aviation fuel used by its
airlines by 2030, and in China the Civil Aviation Administration of China targets
SAF use of 65 MLPY and lower GHG emissions intensity in 2025. Beyond
government programmes, airlines have signed agreements to use nearly
35 000 MLPY of SAFs over the next 20 years. The International Civil Aviation
Organisation (ICAO) has also established a Carbon Offsetting and Reduction
Scheme for International Aviation (CORSIA), and in October 2022 it adopted an
aspirational goal of net zero emissions by 2050.
Although airline commitments, the CORSIA initiative and the ICAO pledge are notconsidered direct drivers and thus do not affect our forecast, these actions do
enable broader SAF development. For instance, airline commitments to purchase
SAFs reinforce the business case for new facilities by guaranteeing sales. At thesame time, CORSIA aims to establish a global market to reduce GHG emissions
from aviation, and SAF use is an effective option.
While SAF production is rapidly expanding, high costs, limited policy support andlow feedstock availability may slow growth. Biojet fuel production costs remain
more than double those of fossil jet fuel, restricting expansion to just a handful ofcountries that have tax incentives or mandates. Most SAF production to 2027 will
rely on waste and residue oils and fats and vegetable oils. Demand for theseproducts for the manufacture of all biofuels is thus expected to increase 50% over2022-2027, which will likely keep feedstock costs high (see Chapter 4, Question 4,
for more on feedstock availability).
In the accelerated case, demand expands to 8 000 MLPY, bringing the biojet fuelshare to nearly 2% of global jet fuel use. The United States has the most significant
growth potential in the accelerated case, as we assume existing policies will favour
biojet fuel over renewable diesel, enlarging growth prospects. In fact, biojet fuelmakes up 4% of US domestic jet fuel use by 2027 in this case.

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Meanwhile, development in China is uncertain. The National Development andReform Commission says it will “promote the demonstration and application of bioaviation fuel”, but it has not released targets or policies beyond the 65-million-litre
target for 2025. New policies in Brazil and Indonesia, and more stringent policies
in Europe, would also help accelerate production, as planned capacity is sufficient
to support growth. Although announced biojet fuel plants would raise production
capacity to 17 000 MLPY by 2027, this level of expansion is contingent on all
facilities being built and feedstock being available.

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

The United States, China, Europe and India account for
80% of biofuel consumption growth in the accelerated
case
Total biofuel demand reaches 240 000 MLPY in the accelerated case, up 25%
from the main case. This level of growth is premised on China, Europe, India andthe United States implementing more stringent policies to drive demand, and also
assumes that efforts to increase ethanol blending in the United States and India
are successful. Furthermore, all four countries must enlarge their supplies offeedstocks, especially wastes and residues, to expand renewable diesel, biojet
fuel and biodiesel production.
Demand growth by country (left) and total demand (right), accelerated
case, 2021-2027
260 000

Volume (million litres per year)

Volume (million litres per year)

25 000
20 000
15 000
10 0005 000
0United China Europe India
StatesMain case

EthanolBrazilRoW
Biodiesel

240 000
220 000
200 000
180 000
160 000
140 000
120 000
100 000
2021

2022

2023

Renewable diesel

2024

2025

2026

2027

Biojet fuelIEA. CC BY 4.0.
Note: RoW = Rest of world.

For the United States, demand growth in the accelerated case is more than threetimes that of the main case, with increases to the Renewable Fuel Standard’s
blending requirements and strengthening of California’s Low-Carbon FuelStandard boosting biofuel consumption and providing broad support for higher
demand. We also assume that 15% ethanol blending is allowed year-round andthat fuel dispensers make use of IRA grants to make higher biofuel blends moreavailable. Additionally, greater access to vegetable, waste and residue oils means
renewable diesel and biojet fuel production can expand without reducing biodiesel
production.

PAGE | 91

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The forecast for China includes new blending requirements to help the country
meet its net zero target. However, the National Development and Reform
Commission has committed to “actively promote the use of advanced biofuels” buthas yet to release targeted measures. Even modest aims for 2027 would produceRenewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuelssignificantly higher biofuel consumption, given China’s sizeable gasoline anddiesel demand. With China focused on advanced fuels, most production growth
will likely be based on wastes and residues, or on energy crops that do notcompete with food and feed crops.
Meanwhile, European biofuel demand growth in the accelerated case is six times
higher than in the main case because the accelerated case includes the EU-levelFit for 55 target of cutting transport GHG emissions 13% across all countries.
Member states are assumed to modify their transport policies to achieve this goal,
and the European Commission estimates that these actions would surpass
existing transport sector renewable energy targets by two, raising the share of
renewables to 28% by 2030. 11 In this case, biofuel producers would also achieve
the EU target of 2.2% advanced fuels in total fuel consumption by 2030. Producing
these fuels requires feedstocks that are little used today, including wastes andresidues other than used cooking oil and animal fats.
In the accelerated case for India, a 3.5% blending target for biodiesel is assumed,
leading up to its goal of 5% by 2030, but achieving this aim will require thecollection of used cooking oils for feedstock. Ethanol blends also reach 20% inthis case, assuming India expands its fleet of compatible vehicles and retrofits
those that are currently incompatible. The Indian government is supporting flexfuel vehicles (for example those that run on 85% ethanol blends) through incentive
programmes such as its Production-Linked Incentive scheme.
Brazil’s biofuel demand is 30% higher in the accelerated case, owing to a 1% GHG
emissions reduction target for aviation and a small increase in the country’s
biodiesel target. Based on the number of facilities currently planned, renewablediesel would supply most of the additional biofuels blended with diesel. Ethanol
demand increases slightly, assuming Brazil’s RenovaBio programme makes
ethanol more affordable than gasoline.

Demand, supply and trade
United States
US biofuel consumption expands 11% to 70 600 MLPY in the main case. Greater
renewable diesel and biojet fuel demand account for this rise, with the IRA, theSustainable Aviation Fuel Grand Challenge, the Renewable Fuel Standard andstate-level low-carbon fuel standards spurring growth. However, renewable diesel
and biojet fuel displace biodiesel, causing its consumption to drop during theforecast period. Ethanol demand also declines because gasoline demand falls andThis projection is based on the current Renewable Energy Directive’s calculation methodology for renewable energy
sources, which includes multipliers for electricity and advanced biofuels.

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11

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

blending rates remain static. Overall, the main-case forecast is down 8% from lastyear because of lower ethanol and biodiesel demand, countered by a stronger
forecast for renewable diesel and biojet fuel.
United States five-year biofuel growth, main and accelerated cases, 20162027

Volume (million litres per year)

30,0005%

25,0000%

20,000-5%

15,00010,000

-10%

5,000

-15%

0

-20%

-5,000-10,000

2016-212022-272022-27

Main case Acc. case
Ethanol

DemandBiodiesel

2016-212022-272022-27

2016-21Main case Acc. case
SupplyRenewable Diesel

Biojet2022-272022-27-25%

Main case Acc. case
Net Trade
Forecast revision %IEA. CC BY 4.0.

Note: Acc. case = accelerated case.

Owing to IRA provisions, the renewable diesel forecast is up 7% and biojet fuel up
130% from last year. The IRA offers an estimated USD 9.4 billion of dedicatedbiofuel support to 2032, 12 with the majority (an estimated USD 8.6 billion) allocatedto biofuel PTCs (their total financial value is not capped). The remaining
USD 0.8 billion is for competitive grants to support blending infrastructure, SAF
production and biofuel distribution. Renewable diesel and biojet fuel will also
continue to benefit from state-level low-carbon fuel standards and the federal
Renewable Fuel Standard. Additionally, the United States has an SAF production
goal of 11 000 MLPY by 2030.

Total estimated by the congressional budget office for Sections 13201, 13202, 13203, 13404, 13704, 22003 and 40007.
The fuel infrastructure tax credit (Sec. 13404), tax credit for carbon dioxide sequestration (Sec. 13104) and the extension of
the advanced energy project credit (Sec. 13501) are not included in the total, although biofuel producers will likely accesssome portion of these tax credits (Congressional Budget Office [2022], Estimated Budgetary Effects of H.R. 5376, the Inflation
Reduction Act of 2022, https://www.cbo.gov/system/files/2022-08/hr5376_IR_Act_8-3-22.pdf).

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12

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

Summary of Inflation Reduction Act provisions for biofuels
Tax credit / grantTime
periodValue

Extension of the
Biodiesel andRenewable Diesel
Credit2022 –2024

USD 0.26 per litre (USD 1 pergallon)

New Sustainable
Aviation Fuel Credit

2023 2024

New Clean Fuel
Production Credit

2025 2027

New Clean Fuel
Production Credit –SAFs

2025 –
2027

Extension of theSecond-Generation
Biofuel Incentive
Extension of theAlternative FuelInfrastructure Tax
CreditNew Biofuel
Infrastructure andAgriculture ProductMarket Expansion
Grant
New Alternative Fueland Low-Emission
Aviation Technology
Program

Minimum USD 0.33 per litre(USD 1.25 per gallon). Up to
USD 0.46 per litre (USD 1.75
per gallon) for lower GHG
intensity
Qualified facilities USD 0.26
per litre (USD 1 per gallon)
times the fuel emission factor
Qualified facilities up to
USD 0.46 per litre (1.75 per
gallon) times the fuel emission
factor2022 –2025

USD 0.27 per litre (USD 1.01
per gallon)

2022 –
2032

A 30% credit up to USD 100
000 for fuelling pumps

2022 –2031

USD 500 million total available
for competitive grants forinfrastructure projects that
support higher blending

2022 –2026

USD 297 million forcompetitive grants for projects
that produce, blend or store
SAFs or develop low-emission
aviation technologies

Extension and
Modification of Tax
Credit for Carbon
Sequestration

2022 2033

USD 60-180 per metric tonne,
depending on carbon
sequestration approach anduse

Extension of theAdvanced Energy
Project Credit

2023 –
2031

30% of the qualified
investment for a given year.
Total available credits USD 10
billionEligible fuelsGHG
requirements

Biodiesel andrenewable diesel
SAFs

Any fuel
SAFs

Secondgeneration
biofuels 13
At least 85%
ethanol blends
and 20%
biodiesel blends
Ethanol blends
greater than
10% andbiodiesel blends
greater than 5%
SAFs

Any biofuel
facility withlabourrequirements,
but limits withdouble-counting
with other credits
Any biofuel
facility, but limits
with doublecounting withother credits

At least 50% lessthan averagediesel GHG
emissions
intensity on alifecycle basis

None

None

Must lead tolower GHG
emissions

None

None

The extent to which this mix of incentives favours renewable diesel over biojet fuelis unclear, however. Biofuel producers using hydroprocessed esters and fatty
acids (HEFA), the primary renewable diesel and SAF product considered in thisforecast, can optimise its production for use as either renewable diesel or biojet
fuel, depending on revenue prospects. Producer decisions will hinge on several
factors, including tax credit values, feedstock costs, GHG emissions intensity,

Lignocellulosic or hemicellulosic and cultivated algae, cyanobacteria or lemna.

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13

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

biofuel plant design, interactions with other policies and the value of diesel and jet
fuel relative to renewable diesel and biojet fuel.
Regarding ethanol, demand is expected to fall 8% (by 4 200 MLPY) following an
8% decline in gasoline demand over 2022-2027. This downward revision from ourprevious forecast reflects this year’s lower estimated gasoline demand. As
gasoline demand falls, so does that of ethanol, and production therefore declines.
The IRA does offer support for infrastructure to help raise blending rates, but longterm approval for year-round 15% ethanol blending remains uncertain.
Nevertheless, ethanol producers can still benefit from the IRA by accessing thecarbon sequestration credit to help reduce their emissions, or by claiming theclean fuel production credit for those fuels already associated with relatively low
emissions.
We expect a 24% decline in biodiesel demand and production over the forecast
period. Consumption was already down 8% as of June 2022 compared with thesame period last year, and a 6% decline from 2020 had already been registeredin 2021. These drops are the result of feedstock restrictions, unfavourable policy
design and less-than-optimal fuel properties.
As renewable diesel, biojet fuel and biodiesel are all competing for the same
feedstocks, including vegetable and waste and residue oils, our main-caseforecast would require a 12-million-tonne increase in bio-oils and fat availability forbiofuel production – a more than 100% increase in just six years. The USDA
already expects a decline in soybean oil exports to accommodate growth in 20222023, and biofuel demand has been keeping prices high in 2022.
US energy policies are more supportive of renewable diesel and biojet fuel thanof biodiesel. For example, renewable diesel receives a higher credit (1.7 credits
per gallon) in the Renewable Fuel Standard compared with biodiesel (1.5 credits
per gallon). Biojet fuel will also receive a higher tax credit (USD 0.46 per litre) thanbiodiesel (USD 0.26 per litre) under the IRA. Furthermore, renewable diesel canbe blended at higher levels than biodiesel and, like biojet fuel, be made in
retrofitted refineries. This situation is already reducing biodiesel demand.
However, other policy decisions will likely be made during the forecast period that
could increase demand. For instance, California is reviewing its Low Carbon FuelStandard and considering more stringent GHG emissions intensity targets for2030. While the federal government has not yet announced its Renewable FuelStandard objectives for 2023, higher targets would lead to additional biodiesel
demand.

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In the accelerated case, biofuel demand growth is three times higher than in themain case, totalling 23 300 MLPY. A stronger Renewable Fuel Standard, a more
stringent Low-Carbon Fuel Standard in California and fewer feedstock constraints

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

would help support this level of growth. Ethanol accounts for 30% of this increase,assuming infrastructure provisions for higher blending in the IRA allow ethanol
blending to increase to 12.5%.
Renewable diesel and biojet fuel demand and production expand as well, provided
that a larger share of announced projects come online and feedstock constraints
lighten. Biojet fuel demand and production are twice as much as in the main case,bringing blending to 4% in aviation, one-third of the way to achieving the US
Sustainable Aviation Grand Challenge goal. Renewable diesel demand expands
an additional 10% and biodiesel remains constant, instead of declining.

BrazilBrazil’s biofuel demand grows 40% to 47 000 MLPY, and production climbs to
49 000 MLPY over 2022-2027. Ethanol accounts for 70% of this expansion, withthe rest coming from biodiesel and renewable diesel. Brazil’s ethanol and biodiesel
mandates, discretionary blending, the RenovaBio mechanism (a carbon intensity
reduction scheme), and increasing diesel and gasoline demand drive biofuel
expansion.

Volume (million litres per year)

Brazil five-year biofuel growth, main and accelerated cases, 2016-2027
18,00016,00014,00012,00010,000
8,000
6,000
4,000
2,000
0
-2,000

35%
30%
25%
20%
15%
10%
5%
2016-212022-272022-27

Main case Acc. case
Ethanol

DemandBiodiesel

2016-212022-272022-27

2016-21Main case Acc. case

SupplyRenewable Diesel

Biojet fuel2022-272022-270%Main case Acc. case
Net Trade
Forecast revision %IEA. CC BY 4.0.

Note: Acc. case = accelerated case.

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We expect ethanol demand to expand 8 500 MLPY over the forecast period.
Brazil’s 27% compulsory ethanol blending mandate, a 3% increase in gasoline
consumption, the RenovaBio programme and discretionary blending support thisgrowth. We estimate discretionary ethanol purchases will account for 23% ofgasoline and ethanol sales by volume in 2022 and 34% by 2027. Brazil has a large

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuelsflex-fuel vehicle fleet, which allows drivers to choose high- or low-ethanol-blended
gasoline depending on the price. In 2022, ethanol prices hovered around the levelat which consumers would choose ethanol over gasoline.
Over the forecast period, we expect more discretionary blending to result fromcontinued tax incentives and rising GHG emissions intensity targets under theRenovaBio programme. Existing and planned ethanol production capacity will be
more than sufficient to meet expected demand. We also anticipate a decline inethanol exports as Brazilian consumption increases and demand growth outsideof Brazil is met by domestic production.
The higher cost of biodiesel relative to diesel led Brazil to reduce its blending
mandate from 13% to 10% in 2021, and to maintain it at 10% in 2022. Assuming
the price differential narrows, we expect Brazil to achieve 15% blending in 2024
and thereafter, one year behind its initial schedule. Renewable diesel and biojet
fuel consumption expand little in the main case since there are no specific targets
or support programmes. To help address this issue, Brazil announced its Fuel ofthe Future Program last year to expand biofuel blending in aviation fuels anddiesel. It also released technical specifications for renewable diesel, but further
support policies have yet to be announced.
The accelerated case assumes Brazil supports both biojet fuel and renewablediesel, achieving 2% biojet blending and expanding its biodiesel blending to 18%
by 2027. This is consistent with statements that Brazil is considering mandating a
1% cut to aviation GHG emissions in 2027. 14 We also assume Brazil’s own
production will satisfy domestic demand, given its soybean and palm oil feedstockpotential and its focus on internal ethanol and biodiesel development in the past.
Ethanol consumption rises slightly, based on a 3-percentage-point increase indiscretionary blending, and production outpaces domestic demand to takeadvantage of growing export opportunities.

EuropeBiofuel demand across Europe expands 5% to 29 200 MLPY over 2022-2027.
Renewable diesel and biojet fuel lead growth while biodiesel demand declines.
Ethanol consumption remains near the 2021 level, as state-level policies
encourage expansion even though gasoline and diesel demand fall 13% over theforecast period.
This year’s demand growth forecast remains near last year. Although there areregional and fuel changes because of modifications to Germany’s feedstock
eligibility rules and lower estimated transport fuel use over the forecast period. In

Ministry of Mines and Energy (2022), Statement from Renato Dutra, head of biodiesel and other biofuels.

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14

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

the accelerated case, demand rises more strongly because we assume that EU
member states incorporate the Fit for 55 transport targets into their domestic
policies.

Volume (million litres per year)

Europe five-year biofuel growth, main and accelerated cases, 2016-2027

10,000

50%

8,000

40%

6,000

30%

4,000

20%

2,000

10%

0

0%

-2,000-4,0002016-212022-272022-27

Main case Acc. case
Ethanol

DemandBiodiesel

2016-212022-272022-27

2016-21Main case Acc. case

SupplyRenewable diesel

Biojet fuel2022-272022-27-10%

Main case Acc. case
Net Trade
Forecast revision %IEA. CC BY 4.0.

Note: Acc. case = accelerated case.

Europe’s renewable diesel demand expands by 1 800 MLPY over 2022-2027, withFrance, Finland and Germany accounting for 80% of this growth. France targets
8% biodiesel blending (including renewable diesel) by 2027, Finland aims for 30%
renewable energy sources in transport by 2027 and Germany targets a 14.5%
GHG emissions intensity reduction in transport by 2027. Renewable diesel
production expands in France, Sweden, the Netherlands, Finland and Spain to
supply the volumes required for proposed projects in these countries.
Biojet fuel consumption expands to 1 200 MLPY by 2027, as the ReFuelEU
Aviation proposal requires 2% SAF blending by 2025 and 5% by 2030. We expect
this policy to be implemented over the forecast period, supporting the SAF
forecast. SAF targets in the United Kingdom and Norway also indicate rising biojet
fuel demand.

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Meanwhile, ethanol demand remains steady over the forecast period. The mostsignificant growth is in the United Kingdom, where consumption expands 55% or
400 MLPY during 2022-2027 to meet the UK Renewable Transport Fuel
Obligation supported by 10% ethanol-blended gasoline availability across thecountry. Ethanol demand rises in France as well, thanks growth of its flex-fuelvehicle fleet.

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

Across the European Union overall, however, ethanol demand peaks mid-forecast
and then falls to 2027. This decline results from a 10% drop in gasoline
consumption over the forecast period as vehicles become more efficient andelectric vehicles are adopted. Lower gasoline demand thus means less ethanol isneeded to meet blending targets.
EU biodiesel consumption declines 3% to 13 900 MLPY over 2022-2027 asdemand for regular diesel drops 14%. Additional biodiesel blending is not an
option for many countries, since they are already near the 7% blending limit set in
the EU Fuel Quality Directive. France, Germany, the Netherlands and Spain allreach this limit over the forecast period, but Italy has considerable growth potential
because it achieved just 2.2% biodiesel blending in 2021.
The combination of declining gasoline and diesel demand as well as feedstock
limitations put additional downward pressure on the forecast. For instance, in
September 2021 Germany reduced its cap on crop-based fuels from 6.5% to 4.4%
and limited the employment of used cooking oil and animal fats to 1.9% on anenergy basis. These feedstock caps will likely be reached during the forecast
period when gasoline and diesel demand declines. Volume growth would
therefore be limited to fuels made from wastes and residues, which rely on noncommercial conversion technologies or feedstocks available in just small
quantities today.
The EU Renewable Energy Directive also limits crop-based fuels to a onepercentage-point increase above 2020 levels and to no more than 7% on anenergy basis. Used cooking oil and certain animal fats are capped at 1.7%, 15 and
IEA analysis indicates this limit will likely be reached across the European Union
during the forecast period.
In the accelerated case, biofuel demand grows by 8 500 MLPY (six times the maincase), assuming the European Union implements its revised Renewable Energy
Directive as outlined in the Fit for 55 package. The revised directive calls for a
13% decline in transport GHG emissions intensity by 2030, 2.2% advanced fueluse and 2.6% use of renewable fuels from non-biological sources. 16
As the revised Renewable Energy Directive is still under negotiation, there ispotential for higher targets as proposed by the European Parliament and Council.
The European Commission estimates the revised Renewable Energy Directive
would achieve 28% renewable content in transport fuels by 2030, double thecurrent target. 17 This does not mean that biofuel demand and production will

This refers to feedstocks in the Renewable Energy Directive Annex IX, Part B.
This can include synthetic fuels made from CO2 and hydrogen.
17
Both the current 14% target and the 28% goal are based on the Renewable Energy Directive’s calculation methodology,
which includes multipliers for specific fuels.
15

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16

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

double, however. The same blending limits, feedstock constraints and declining
gasoline and diesel demand will still limit growth potential. Nevertheless, if allplanned facilities are built, there would be an additional 1 700 MLPY of production
from plants using advanced feedstocks.
Biofuels are also only one option for policy compliance. Electricity, biogas andrenewable fuels from non-biological sources such as hydrogen will also contribute.
Additionally, the transport targets of Germany, Finland and Sweden are alreadymore ambitious than in the revised directive, reducing potential for additional
growth.

Indonesia
Indonesia’s biofuel consumption and production are expected to expand 50%
during 2022-2027 in the main-case forecast. Biodiesel accounts for 70% of thisincrease and renewable diesel makes up the remaining 30%, while new renewablediesel capacity will also add a small amount of biojet fuel production. Combined,bio-based diesels 18 account for a 35% share of transport diesel demand inIndonesia by 2027, up from 30% in 2021. We expect no additional ethanol
production despite existing targets, as no incentives or other regulations are inplace or planned to support it.
The country’s biodiesel blending target, combined with financial incentives,
remains the primary driver of biodiesel production and demand. Indonesia
provides subsidies to ensure a market for palm oil producers, reduce diesel importdependence and curb GHG emissions. Although in 2022 the government intends
to keep biodiesel blending at the same rate as in 2021 (30%), we expect volumes
to increase relative to 2021 because diesel demand is rising and Indonesia has
expanded the share of biodiesel used for non-transport purposes.
This expansion of biodiesel blending for non-transport use is the basis of our
upward forecast revision. Blending levels in non-transport sectors such as
electricity and industry are currently at 20%, and the Indonesian government
targets 30% blending for these uses by 2025. Total biodiesel production in 2022
is thus expected to be near 11 000 MLPY, a 20% increase from 2021.

Bio-based diesels include renewable diesel, biodiesel and biojet fuel.

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18

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

Volume (million litres per year)

Indonesia five-year biofuel growth, main and accelerated cases, 2016-2027
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
-1,0002016-212022-272022-27

Main case Acc. case
Ethanol

DemandBiodiesel

2016-212022-272022-27

2016-21Main case Acc. case

SupplyRenewable diesel

Biojet fuel2022-272022-27

20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
-35%

Main case Acc. case
Net Trade
Forecast revision %IEA. CC BY 4.0.

Note: Acc. case = accelerated case.

Indonesia’s ultimate goal of 40% biodiesel blending in transport fuels is expected
to be implemented in some regions in 2025. However, meeting this target acrossthe country will be challenging overall, and technical trials carried out by theIndonesian government have revealed that 40% biodiesel blending could
compromise engine performance. Renewable diesel is a viable alternative, since
it can be used at higher blend levels without threatening engine integrity, butplanned capacity would expand blending by only an additional 3 percentage
points.
Exports offer another growth path, but we expect little expansion in this domain
because of the European Union’s planned phaseout of palm oil for biofuel
production and incompatibility with the US Renewable Fuel Standard. Imports arealso likely to remain limited, as Indonesia’s production capacity is sufficient to meetinternal demand. We also expect little growth in ethanol or biojet fuel production
without government support programmes.

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In the accelerated case, production and demand increase 90% during 2022-2027,
assuming Indonesia supports ethanol and biojet fuel demand and production andexpands renewable diesel consumption to meet its 40% blending target. However,forecast growth is down 30% for both production and demand because of a higher
2021 baseline this year (we revised the 2021 baseline upwards to incorporate newdata on biodiesel blending in non-transport sectors). Nearly 20% of Indonesia’s
biodiesel demand in 2021 came from non-transport sectors.

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

India
India’s biofuel demand and production increase 70% or 2 400 MLPY over 20222027 in the main case, thanks primarily to its goal of reaching 20% ethanol
blending by 2025 and buoyed by rising gasoline demand. The government
requires that ethanol demand be met with domestic production, and in its updated
National Biofuel Policy it has reiterated its aim to blend biodiesel at a rate of 5%
by 2030. It is also exploring biojet fuel opportunities but has introduced no specificrequirements or incentives to stimulate demand and production, limiting growthprospects. Overall, this year’s main-case forecast is similar to last year’s.

Volume (million litres per year)

India five-year biofuel growth, main and accelerated cases, 2016-2027
10,000
8,000
6,000
4,000
2,000
0
-2,0002016-212022-272022-27

Main case Acc. case
Ethanol

DemandBiodiesel

2016-212022-272022-27

2016-21Main case Acc. case

SupplyRenewable diesel

Biojet fuel2022-272022-27

40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%

Main case Acc. case
Net Trade
Forecast revision %IEA. CC BY 4.0.

Note: Acc. case = accelerated case.

Ethanol demand and production increase by 70% or 2 360 MLPY, with India
supporting its 20%-by-2025 ethanol blending target with guaranteed ethanol
pricing per feedstock and offering financial support for new ethanol production(these policies already boosted blending from 4% in 2017 to more than 9% in2021). Gasoline consumption also rises 8% over the forecast period, contributing
to ethanol demand growth. Already, in 2022 we expect ethanol demand andproduction to increase by 35%, or 1 200 MLPY.
India’s ethanol prices have remained low relative to other regions because it
makes ethanol primarily from surplus sugar and molasses. While the averagesugar price in 2022 was 50% higher than 2019, the cost of corn rose 80%. 19

Based on USDA data for world raw sugar prices and US corn prices.

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19

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

Nevertheless, several challenges may impair ethanol uptake in India. For
instance, a significant portion of India’s vehicle fleet, especially two-wheelers, may
be incompatible with E20 blends. Although India is working to expand its numberof new compatible vehicles, replacement time is a forecast uncertainty.
Furthermore, while the country has ample feedstocks to support the level of
ethanol expansion envisioned, grain-based production capacity has yet to beenlarged to supplement sugar-based ethanol manufacturing. India estimatesgrain-based ethanol will provide 46% of its supplies.
For biodiesel, renewable diesel and biojet fuel, a lack of policy support limits
growth in our main case. We therefore assume biodiesel blending remains below
1%, following the historical average, and no use or production of renewable dieselor biojet fuel is planned. While India does endorse 5% biodiesel blending by 2030
in its updated National Biofuel Policy, it has yet to announce specific policies toachieve this target. Should it pursue this goal, it could draw on its potentiallyconsiderable supply of collectable used cooking oil, which could support 2.5%
blending. 20
In the accelerated case, biofuel demand expands by 8 500 MLPY, more than triple
the main case. In this scenario, ethanol blending reaches 20% because India
expands its grain-based ethanol production capacity, allows some imports andovercomes vehicle compatibility issues. Biodiesel blending reaches 3.5% with theuse of used cooking oil, and biojet fuel demand reaches 0.5% thanks to blending.

Other markets
Demand in other markets 21 grows 35% to 26 700 MLPY over 2022-2027 in themain case, with Canada’s Clean Fuel Standard and strengthened blending
requirements in Malaysia, Thailand and Argentina driving expansion. In emerging
markets, growing demand for gasoline and diesel also accelerates biofuel use.
While production expands in these countries to satisfy domestic demand, imports
are also necessary in some. For instance, Canada’s imports nearly double overthe forecast period while greater production in Singapore and China permits
exports to European and North American markets.

India has an estimated 1.5 million tonnes of used cooking oil collection potential, which could meet 2.5% of India’s diesel
demand in 2027.
21
Remaining countries account for 15% of global supply and demand. The top five in demand in 2021 were China, Canada,
Thailand, Argentina and Malaysia.

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20

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

Other markets five-year biofuel growth, main and accelerated cases, 20162027

Volume (million litres per year)

25 000
20 000
15 000
10 0005 000
0-5 0002016-212022-272022-27

Main

Acc.

2016-21

DemandCanadaMalaysia

2022-272022-27

Main

Acc.

2016-21

SupplyThailand

Argentina

2022-272022-27

Main

Acc.

Net trade
China

Other
IEA. CC BY 4.0.

Note: Acc. = accelerated case.

In July 2022, Canada released the final version of its Clean Fuel Regulations,requiring fuel producers and importers to reduce the carbon intensity of their fuelsby 14 g CO2-eq/MJ by 2030. This policy alone will prompt around 2 300 MLPY of
new demand.
Meanwhile, Malaysia plans to roll out its 20% biodiesel blending target for transport
at the end of 2022. This mandate, combined with growing diesel demand, doubles
biodiesel use by 2027.
In Thailand, pursuit of its 20% ethanol target and 10% biodiesel target, combinedwith increasing gasoline and diesel demand, drive a 30% increase in biofuel
demand.
In 2022, Argentina temporarily allowed biodiesel blending of up to 12.5% to help
guard against diesel shortages in the country, which created a sharp doubling in
biodiesel demand this year. We therefore assume a 10% blending rate for theremainder of the forecast period.
In China, biofuel consumption increases 10% to 5 400 MLPY, primarily because ofhigher gasoline and diesel demand. Meanwhile, biojet fuel demand expands to meet
the Chinese Civil Aviation Administration’s 50 000-tonne (62.5-million-litre) biojet
fuel target. China also reiterated its commitment to develop advanced fuels in the
National Development and Reform Commission’s May 2022 bioenergy plan.

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Although biofuel production in all these countries expands to supply growing
domestic use, both Singapore and China raise renewable diesel and biojet fuelproduction by 60% to also satisfy export market demands in the main case. Most ofthese fuels are made using wastes and residues to meet European policy

Renewables 2022
Analysis and forecasts to 2027

Chapter 2: Biofuels

stipulations as well as the low GHG emissions requirements of California’s LowCarbon Fuel Standard and Canada’s Clean Fuel Regulations.
In the accelerated case, demand and production growth are three times higher thanin the main case. China alone accounts for more than half of this potential: if its
blending requirements are consistent with the IEA’s Net Zero Emissions by 2050
Scenario, growth jumps to 11 300 MLPY over the forecast period.
There is also scope for greater demand growth in Malaysia, Argentina and Thailand
if these countries pursue more stringent policies (see Policy and Assumption tablebelow). Production in these countries would also expand to satisfy domestic usage.
At the same time, renewable diesel and biojet fuel production also increase,especially in Singapore and Paraguay, assuming global consumption increases
enough to justify new projects to serve export markets in Europe and North America.
Policy and assumption summary, main and accelerated cases
Country or
regionUnitedStatesMain- and accelerated-case policies, assumptions and blending levels
Main case: No significant changes to the Renewable Fuel Standard or other existing
policies. Includes IRA provisions as outlined in the table above. Ethanol blending stays near
10% and exports remain around 2021 levels for the forecast period. Renewable diesel
expands according to planned capacity additions for projects in advanced development
stages. Renewable diesel blending reaches 8.5% in 2027. Biodiesel blending declines to
2.7% while biojet fuel supply and demand reach 2% blending for domestic jet use. Biojet fuelmakes up almost 15% of renewable diesel production in 2027.
Accelerated case: An accelerated version of the Renewable Fuel Standard boosts domestic
biofuel demand, with ethanol reaching 12.5% blending and biodiesel expanding to 4%.
Renewable diesel blending increases to 9.5%, requiring additional production capacity
beyond projects in advanced development stages. Biojet fuel blending expands to 4%, justover one-quarter of the way to meeting the Sustainable Aviation Grand Challenge goal.
Ethanol production increases to meet both domestic and net export demand using existing
ethanol-manufacturing capacity.
Main case: Brazil maintains mandatory ethanol blending, and hydrous ethanol purchases
expand so that total blending reaches 57% by 2027. Biodiesel remains at B10 for 2022,
climbing to B15 by 2024 and onwards. There is a small amount (0.8%) of renewable diesel
blending by 2027 based on planned project additions. The forecast assumes soybean oil
prices decline from 2021/22 highs.

Brazil

Accelerated case: Brazil achieves its B15 blending target as in the main case but also
accepts renewable diesel and co-processing so that additional growth flows to renewablediesel for 3% blending in 2027. Ethanol blending expands marginally more quickly, to 59% in
2027. Part of total ethanol blending is a continuation of blending requirements of 25%(premium gasoline) and 27% (regular gasoline). Hydrous ethanol sales (100% ethanol) makeup the remainder of ethanol demand. Brazil produces enough ethanol, biodiesel, renewablediesel and biojet fuel to serve domestic consumption. Ethanol production increases further tomeet export demand.
Main case: India achieves 12% ethanol blending on average across the country by 2027 andall fuel ethanol is produced domestically. E20 is available starting in 2023. The forecast
assumes vehicle incompatibility limits ethanol uptake. Biodiesel blending remains near 0.4%.
Accelerated case: India achieves its 20% ethanol blending mandate in 2025 and makes
progress towards its 5% biodiesel blending ambitions, reaching 3.5% by 2027. This assumes
India addresses vehicle compatibility concerns and establishes used cooking oil collection. It
continues to support domestic production and allows fuel ethanol imports of up to 20% of
demand.

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India

Renewables 2022
Analysis and forecasts to 2027

Country or
regionChapter 2: Biofuels

Main- and accelerated-case policies, assumptions and blending levels
Main case: No significant changes to ethanol or biodiesel policy. Ethanol blending remains
near 2% and biodiesel at 0.5%. Ethanol imports stay around 2020/21 levels. Biodiesel
exports are close to 2020 levels and renewable diesel exports expand according to planned
project additions in advanced development stages.

China

Indonesia

Accelerated case: China implements policies aligned with its bioeconomy plan, including
blending targets of 4% for ethanol, 3% for biodiesel and hydrotreated vegetable oil (HVO),
and 1% for SAFs in domestic aviation by 2026. China continues to allow ethanol imports of
up to 10% of demand from the United States and other countries. Exports continue forbiodiesel but drop to zero for renewable diesel and biojet fuel. Production of both fuels isused to satisfy domestic demand.
Main case: Biodiesel blending increases to 35% by 2027 for transport and to 30% for nontransport uses. The main blending source is biodiesel at 32%, followed by renewable diesel
at 3% blending. Biodiesel use remains at 30% because of compatibility issues, andrenewable diesel is limited to planned projects. There is no ethanol or biojet fuel production
or use. Exports remain near 2020 levels.
Accelerated case: Indonesia meets the B40 mandate for transport and non-transport fuelconsumption, with the 40% blend broken down as 32% biodiesel and 8% renewable diesel.
This requires additional renewable diesel manufacturing capacity. Indonesia also enforces
SAF blending of 2% by 2025 and 3% by 2027. Exports decline by 2027, as nearly all
production is directed towards domestic demand.

Main case: EU member countries implement the Renewable Energy Directive II or achieve
domestic targets if more stringent, and non-EU countries achieve domestic targets. Biojet fueluse expands to meet the ReFuelEU’s 2%-by-2025 target. As per the ReFuel proposal, feed
and food crop-based fuels are not eligible and fuels must otherwise meet the requirements ofRenewable Energy Directive II Annex IX, Part A or Part B.
•
•

•
•

•

Accelerated case: The European Union moves more quickly towards its 2030 6% biojet fueluse target. Germany focuses on non-biogenic renewable fuels in aviation instead of biojet
fuel. The European Commission also implements proposed changes to the Renewable
Energy Directive II to reduce the transport sector’s GHG emissions intensity by 13%, as
proposed by the Fit for 55 package. Member states implement this standard. The European
Union maintains and strengthens sustainability requirements for biofuels, which limits some
imports. The United Kingdom establishes a 1%-by-2025 SAF target.

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EuropeGermany’s GHG emissions reduction target climbs to 14.5% by 2027, up from 6%.
Biodiesel and ethanol blending remain steady, while renewable diesel expands to 3%.
France meets its 8.6% ethanol and biodiesel blending targets. Ethanol blending
increases to 12.7%, biodiesel blending remains flat, renewable diesel blending expands
to 3% and biojet fuel reaches 2.3% by 2027.
In Spain, ethanol and biodiesel blending remain flat but renewable diesel blending
expands to 3% and biojet fuel to 2.7%.
Finland, the Netherlands and the United Kingdom all achieve near-10% ethanol
blending. Sweden reaches 3% biojet fuel blending. In Italy renewable diesel blending
expands to 5%.
The United Kingdom makes progress towards its target of 10% SAF blending by 2030,
with the mandate starting in 2025. Norway continues working towards its 0.5% SAF
target.

Renewables 2022
Analysis and forecasts to 2027

Othercountries

Main- and accelerated-case policies, assumptions and blending levels
Main case: Canada implements its Clean Fuel Standard in 2023. Malaysia’s B20 mandate isdelayed until 2023. Thailand makes progress on its E20 target, reaching 15% blending by
2027, while biodiesel use expands to 10% based on government support plans. Singapore’s
renewable diesel and biojet fuel production expand to fill domestic shortfalls in the rest of theworld. Argentina’s biodiesel blending climbs to 10%, and ethanol to 12%. Colombia returns to
10% ethanol blending by 2022, while biodiesel blending rises to 12% over the forecast
period. Japan pursues 10% SAF use by 2030.
Accelerated case: Canada follows the United States in supporting SAFs. US SAF blending
reaches 4%. Malaysia expands biodiesel blending for the industrial sector to 20%. Colombia
pursues 13% biodiesel blending. Thailand achieves 20% ethanol blending by 2026 andallows 10% ethanol imports.

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Country or
regionChapter 2: Biofuels

Renewables 2022
Analysis and forecasts to 2027

Chapter 3: Renewable heat

Chapter 3. Renewable heat
Heating is the world’s largest energy end use, accounting for almost half of global
final energy consumption. Industrial processes are responsible for 53% of the final
energy consumed for heat, while another 44% is used in buildings for space andwater heating and, to a lesser extent, cooking. The remainder is used inagriculture, primarily for greenhouse heating. The heating sector is largely
dominated by fossil fuels, with renewable energy sources meeting less than onequarter of global heat demand in 2021 (and the traditional use of biomass makes
up half this amount).

Recent trends and policy update
With the global economy rebounding in 2021, heat consumption increased by 4%
year-on-year, exceeding the pre-pandemic level and reaching a record-high
219 EJ. Excluding the traditional use of biomass, modern renewables 22 fuelledjust 13% of this growth, leaving the share of modern renewables in global heatconsumption almost unchanged from the previous year’s 11%.
Modern bioenergy made the largest contribution to the increase in renewable heatconsumption, owing essentially to rebounding activity in industry, followed byrenewable electricity as heat pump deployment in the buildings and industry
sectors accelerated. Annual heat-related CO2 emissions rose by almost
0.6 Gt CO2 to 14.1 Gt CO2, representing 39% of global energy-related CO2
emissions.
The rise in policy attention renewable heat is gaining worldwide is due not only toenvironmental considerations but to acute energy security concerns in the context
of the current global energy crisis. Major recent heat-related policy updates include
the US Inflation Reduction Act passed in August 2022, which allocates anestimated USD 22 billion (out of an estimated USD 369 billion for overall energy
and climate change spending) for home energy supply improvements. The billincludes substantial rebates (of up to USD 8 000 for a space heating heat pumpfor low- and moderate-income households) and ten years of consumer tax credit

In this report, “modern renewable energy” excludes traditional uses of biomass. Modern renewable heat covers the direct
and indirect (e.g. through district heating) final consumption of bioenergy, solar thermal and geothermal energy, as well as
renewable electricity for heat based on an estimate of the amount of electricity used for heat production (including throughheat pumps) and on the share of renewables in electricity generation. Although credited as a renewable heat source, ambient
heat harnessed by heat pumps is not considered in this report due to data insufficiency, especially for the industry sector.
For the sake of simplicity, “modern renewables” is shortened to “renewables” in the remainder of this report.

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Renewables 2022
Analysis and forecasts to 2027

Chapter 3: Renewable heat

(30%, or up to USD 2 000) for heat pumps, geothermal heating and electricheating appliances (e.g. stoves and clothes dryers) as well as high-efficiency
biomass stoves and boilers.
The REPowerEU plan, communicated in March and published in May 2022, aims
to reduce EU dependency on Russian gas and proposes to revise the EU target
for renewables in total final consumption from 40% to 45% by 2030 under the
Fit for 55 package. In addition to a solar PV strategy, it contains provisions forindustry sector decarbonisation through (among other measures) electrification,
the use of large-scale heat pumps and renewables-based hydrogen, and thedeployment of other renewable energy sources, including by integrating solar
thermal and geothermal technologies into district heating systems.
The plan also proposes the cumulative installation of 10 million new hydronic heatpumps in the next five years and 30 million units in the buildings sector by 2030.
This would mean a more than 20% annual increase in hydronic heat pumpinstallations in the European Union throughout this decade, from a starting pointof 1.1 million units in 2021. To align with the ambitions of the REPowerEU plan,
ongoing negotiations on the revision of the European Renewable Energy Directive
include proposals to strengthen member state’s targets for renewable heat
deployment in the buildings, industry and district heating sectors.
In November 2022, the European Commission proposed a new temporary
emergency regulation to accelerate permit-granting for heat pumps by introducing
a three-month deadline and simplifying the grid connection procedure for smaller
units.
Meanwhile, the targets of China’s 14th five-year energy plan to 2025, released in
March 2022, include a 20% non-fossil-fuel share in the energy mix by 2025 and60 million tonnes of coal equivalent (about 1.8 EJ) of non-electric use ofrenewables (i.e. for heating and transport). A total budget of RMB 27.5 billion willbe allocated to clean heating and air pollution control measures.
In Chile, the National Heat and Cold Strategy of 2021 targets 40% GHG emissions
reductions in the heating and cooling sector by 2030 and 65% by 2050, and aims
for 45% sustainable energy in heating and cooling by 2030 and 80% by 2050. The
plan promotes renewable energy sources, particularly solar thermal and biomass,
as well as district heating projects.

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Several other countries, including France, Denmark, Canada, the United
Kingdom, Luxembourg, Austria and Malta, have also implemented new financial
incentives for renewable heating and cooling or have extended or enhanced
existing ones since 2021. Heat pumps have received particular attention, withmost support in the form of tax incentives and grants.

Renewables 2022
Analysis and forecasts to 2027

Chapter 3: Renewable heat

Outlook to 2027
Given the policy landscape as of September 2022, global heat consumption –excluding ambient heat harnessed by heat pumps – is projected to grow almost
14 EJ (+6%) during 2022-2027. Increasing industrial activity drives this trend, with
China and India together representing 60% of industrial heat demand growth,
while energy efficiency improvements allow building heat consumption to decline
4% globally. The traditional use of biomass is anticipated to decline by more than
3 EJ (-13%) over the outlook period, mostly in China and India, owing in part tothe deployment of improved biomass cookstoves.
Modern renewable heat consumption is expected to increase by almost one-third
during 2022-2027, raising the modern use of renewables in heat from 11.4% to
14% by 2027. In both the industry and buildings sectors, using renewableelectricity for heating contributes the most to renewable heat uptake over theoutlook period, owing to the combination of greater use of electricity for heating,including through heat pumps, and rising shares of renewables in the power
sector.
Nevertheless, renewable heat developments are insufficient to contain fossil fuelbased heat consumption, which expands in industry and leads to a 7%(+1 Gt CO2) growth in total annual heat-related CO2 emissions by 2027. For
comparison, to align with the IEA Net Zero Emissions by 2050 Scenario,
renewable heat consumption would have to advance 2.4 times more quickly, andwide-scale behavioural change and much larger energy and material efficiency
improvements would be required to reduce heat demand in both buildings andindustry.
Global increase in renewable energy consumption and share of total heat
demand in buildings and industry, 2010-2027
10
9
8
7
6
5
4
3
2
1
0

Industry
30%

EJ

EJ

Buildings

25%
20%
15%
10%
5%
2010-152016-21

Historical2022-272022-27

Outlook

NZE

Renewable electricity
Solar thermal
Renewable district heat

0%

10
9
8
7
6
5
4
3
2
1
0

30%
25%
20%
15%
10%
5%
2010-152016-21

Historical2022-272022-27

Outlook

NZE

0%Modern use of bioenergy
Geothermal
Share of modern renewables at period end (right axis)

IEA. CC BY 4.0.
Note: NZE = Net Zero Emissions by 2050 Scenario.
Source: IEA (2022), World Energy Outlook 2022.

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.

Renewables 2022
Analysis and forecasts to 2027

Chapter 3: Renewable heat

Industry
Electrification of thermal processes gains traction, but demand
growth outpaces renewable heat progress
Annual industrial heat consumption is projected to rise 17 EJ during 2022-2027,
with chemical manufacturing contributing the most to this increase. Renewableenergy sources are expected to fuel only one-quarter of this growth, with theirshare in industrial heat demand rising to 13% by 2027, less than a twopercentage-point increase from 2022. Thus, decarbonising industry will require
greater renewable heat uptake and significantly faster energy and material
efficiency improvements.
China, which accounts for more than 40% of industrial heat demand growth, also
makes the most progress in renewable heat consumption, followed by theEuropean Union, India and the United States. Together, these regions are
responsible for two-thirds of renewable heat developments in industry over theoutlook period.

60%
50%
40%
30%
20%

Renewable electricity
Renewable district heat
Geothermal
Solar thermal

China

European
Union

India

UnitedStatesBrazil2022-27

2016-212022-27

2016-212022-27

2016-212022-27

2016-212022-27

2016-2110%2022-27

1 800
1 600
1 400
1 200
1 000
800
600
400
200
0

2016-21

PJ

Increase in renewable heat consumption in industry and share of
renewables in industrial heat demand, selected regions, 2016-2027

0%

Bioenergy% renewables in heat at
end of period (right axis)

Rest ofworld

IEA. CC BY 4.0.
Source: IEA (2022), World Energy Outlook 2022.

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Renewable electricity becomes the largest contributor to renewable heat progressin industry globally, accounting for three-quarters of growth. The acceleration ofprocess heat electrification is the main driver globally, with electricity being used
to produce 9% of industrial heat consumed by 2027, up from less than 4% in 2021.
Most electricity demand growth comes from both greater reliance on heat pumps
and direct electricity use in non-energy-intensive industries and chemical
production, and to a lesser extent from the expansion of scrap steel recycling using
electric arc furnaces. After China, the largest increases in renewable electricity

Renewables 2022
Analysis and forecasts to 2027

Chapter 3: Renewable heatuse for process heat are expected in the European Union, the United States andIndia. Together, these four regions account for three-quarters of global
developments.
Bioenergy is expected to remain the foremost renewable heat source in industry,
with its consumption expanding by almost 1 EJ over the outlook period – thesecond-largest absolute increase after renewable electricity. More than one-thirdof this growth takes place in India and Brazil – the two largest industrial bioenergy
consumers – owing primarily to greater use of bagasse in the sugar and ethanolindustries as well as biomass in the food and beverage subsectors. In the latter,
the trend is partly driven by a few large multinational companies seeking to reduce
their fossil fuel consumption to meet their voluntary carbon reduction targets.
Another quarter of the growth takes place in West-, middle- and Eastern Africancountries, due partly to expanding waste use in the cement subsector. Biogas
injected into the gas grid or directly consumed represents only a marginal shareof bioenergy use, but developments continue to gather momentum.
Meanwhile, solar heat for industrial processes (SHIP) remains a niche market,
accounting for less than 0.02% of global industrial heat consumption. A few largescale projects dominate the sector in terms of installed capacity, with the world’s
largest SHIP plant – the Miraah in Oman, dedicated to enhanced oil recovery – on
its own accounting for more than one-third of global capacity.
Yet, interest in SHIP continues to grow, with at least 71 new projects installedworldwide in 2021, raising total operational capacity by 5% to nearly 826 MWth.
France, China and Spain led capacity additions in 2021, while Mexico, theNetherlands and Austria were the most dynamic markets in terms of number of
new plants. While the main SHIP application sectors are currently mining, foodand textiles, large-scale developments are also envisaged in the aluminium
subsector.

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“Heat-as-a-service” business models for SHIP are also emerging, with France andMexico having launched the first large systems with heat purchase agreements in
2021. The use of concentrating solar heat for industrial applications is also
expanding strongly, with Spain in the lead thanks to grants available under the
Thermal Energy Production scheme. By 2027, the industrial use of solar heat isprojected to increase more than twofold globally. Well suited to a variety ofindustrial applications with low- to medium-temperature heat requirements, theglobal potential for solar heat in industrial processes is still largely untapped, owing
partly to lack of awareness and low policy support.

Renewables 2022
Analysis and forecasts to 2027

Chapter 3: Renewable heatContribution of different factors to renewable electricity consumption
growth in industry and buildings, selected regions, 2022-2027
Industry

Buildings

1 600

PJ

PJ

500

1 200

300

800

200
100

400
0

400

0
China

EU

- 100
US
India RoW
China
EU
Change in the share of renewables in electricity generation
Change in the share of electricity in total heat supply
Change in total heat demand

US

India

RoW

IEA. CC BY 4.0.
Note: RoW = rest of world.
Source: IEA (2022), World Energy Outlook 2022.

Buildings
Heat pump market expansion and the rollout of improved
biomass stoves boost modern renewable heat use in buildings
Although building stocks are expanding worldwide, global consumption of heat inbuildings (excluding ambient heat) is projected to drop 3.6 EJ during 2022-2027.
This decline results mostly from a decrease in the inefficient traditional use of
biomass (especially in China and India), efficiency improvements to buildings andheating appliances, and the deployment of heat pumps. China and the European
Union demonstrate the largest absolute reduction in building heat consumption,
together accounting for more than 80% of the total, followed by Russia, the UnitedStates and India.

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Over the same period, the modern use of renewable heat in buildings isanticipated to grow almost 30% (+3.2 EJ) globally, with its share in total heatconsumption rising from 12% in 2021 to near 16% by 2027 – excluding ambient
heat. China alone is responsible for one-third of this growth, while sub-SaharanAfrica, the European Union and the United States together contribute almost 40%.

Renewables 2022
Analysis and forecasts to 2027

Chapter 3: Renewable heat

0%

- 300

China

SubEuropean
Saharan
Union
AfricaUnitedStatesIndia

2022-270

2016-2120%

2022-27300

2016-2140%

2022-27600

2016-2160%

2022-27900

2016-2180%

2022-27

1 200

2016-21100%2022-27

1 500

2016-21

PJ

Buildings sector increase in renewable heat consumption and share of
renewables in heat demand, selected regions, 2016-2027

Rest of
world

-20%

Renewable electricity
Renewable district heat
Geothermal
Solar thermal
Bioenergy% modern renewables in heatat end of period (right axis)% traditional use of biomass at
end of period (right axis)

IEA. CC BY 4.0
Source: IEA (2022), World Energy Outlook 2022.

Almost half the growth in renewable heat use in buildings globally is expected toresult from a stronger renewable electricity presence as the share of renewables
in power generation expands and electric heat pump deployment accelerates.
China, the European Union and the United States together account for two-thirdsof the 1.6-EJ increase in the use of renewable electricity for thermal purposes inbuildings over the outlook period.
In 2021, the European Union registered record 34% growth in heat pump sales,with France, Italy, Germany, Spain and Sweden leading in unit sales, bringing total
units in operation in Europe by the end of the year to an estimated 17 million. Heatpump uptake gained further traction in the first half of 2022, with sales up onequarter in Germany, 80% in Finland, 96% in Poland and 114% in Italy (for hydronicheat pumps).
In addition to high gas prices and growing consumer willingness to reduce
dependency on Russian gas, policy support for electric heat pumps in theEuropean Union and the United States is expected to significantly boost
deployment in these markets. However, strategic co-ordination and robust,
diversified supply chains for components, as well as job-training programmes, will
be needed to avoid bottlenecks and secure the skilled manufacturing andinstallation labourers needed to enable rapid market expansion.

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The second-largest increase in renewable heat consumption in buildings comesfrom modern bioenergy use, which represents nearly one-quarter of growth in theoutlook period. Most developments in this domain are expected in China, Indiaand sub-Saharan Africa, where improved biomass stoves displace the traditionaluse of biomass. In contrast, even though wood pellet heating appliances sales

Renewables 2022
Analysis and forecasts to 2027

Chapter 3: Renewable heat

expand, bioenergy consumption in historically large markets such as Europe andthe United States stagnates or even declines slightly owing to building efficiency
improvements and falling heat demand.
Following seven consecutive years of decline, the global solar thermal market
rebounded in 2021 with a 3% increase in installed collector area, representing
25.6 GWth of new installations and 21 GWth of net capacity additions. Growth wasmade possible by the stabilisation and slight upturn of the Chinese market, whichis by far the largest one, representing 83% of global additions, with India, Türkiye
and Brazil primarily responsible for the remaining fraction. In relative terms, Italy,
the United States, Greece and Poland also experienced remarkable year-on-year
market growth.
Small-scale domestic water heaters are the most common solar thermal
applications globally, followed by solar combi systems. However, thesetechnologies are facing increasing competition from heat pumps and solar PV
systems in large parts of Europe and China. By 2027, solar thermal heatconsumption in the buildings sector is projected to increase nearly 40% (+0.6 EJ).
One-third of this growth occurs in China alone, while the Middle East, theEuropean Union and the United States together account for half.
Meanwhile, a one-quarter increase (+0.3 EJ) in geothermal heat consumption inbuildings is expected during 2022-2027, with China accounting for more than
three-quarters of new developments. While the upfront expenses of geothermal
heating systems are generally high, recent innovative techniques for installingunderground heat exchangers could reduce their cost while limiting disruption forcustomers. Together with the development of alternative business models (e.g.
heat-as-a-service), these new methods could accelerate expansion in geothermalheat use.

District heating
In 2021, district heating networks supplied 3% more heat than in the previous year,
furnishing 6% of total heat consumed globally. However, the decarbonisation
potential of district heating networks remains largely untapped because fossil fuels
still dominate district heat production, especially in China and Russia, the world’s
largest markets.

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Renewables (mostly bioenergy, including biogenic waste) were used to produce
8% of district heat supplies globally in 2021, and the use of solar thermal
resources, though still limited, continues to progress, with almost 300 solar district
systems (total capacity of 1.6 GWth) in operation worldwide at the end of 2021(+10% year-on-year). China has led solar district system developments since theDanish market – historically the largest – collapsed in 2020 following a shift inRenewables 2022
Analysis and forecasts to 2027

Chapter 3: Renewable heat

policy. Beyond China, solar thermal district systems are garnering increasing
interest in Germany, Sweden, Austria, Poland and France.
Other innovative technological combinations are also being developed, based on
the integration and coupling of distributed reversible heat pumps, thermal storage
and variable renewables in efficient low-temperature networks. These systems
offer promising options to optimally supply heating and cooling to buildings acrossan entire neighbourhood in densely populated areas.

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The share of renewables in district heating is expected to remain stable globallyduring 2022-2027, while district heat consumption expands 4%. Two-thirds ofprojected growth in renewable district heat consumption is in the European Union,
as greater bioenergy use and the integration of large-scale heat pumps raise theshare of renewables by two percentage points to 37%. Most of the remaining
growth is expected to take place in China, where district heat consumption – mostof which is in the industry sector – expands 13% over the outlook period.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Chapter 4. Trends to watch
Question 1: Is the European Union on track tomeet its REPowerEU goals?
The REPowerEU plan’s aim is to rapidly reduce dependence on Russian fossil
fuels by 2027, and the European Commission estimates that this will requiresignificant expansion of renewable energy shares in the electricity, transport andheating sectors. Although the use of renewable energy does increase in all threeof these sectors by 2027 in our main-case forecast, in none of them are levels
consistent with the REPowerEU plan.
While the share of renewables in electricity expands to almost 55% by 2027 in our
main case, this is well below the 69% share the European Commission estimatesis needed to support the REPowerEU plan. To enable further increases,
governments across the European Union will need to minimise policy uncertainty,
simplify permitting procedures and accelerate transmission and distribution
network upgrades. Ramping up renewables-based power generation is alsoessential to expand renewable energy uptake in the transport and heating sectors,
as renewable electricity can power electric vehicles and heat pumps and be used
to produce green hydrogen.
For transport, a renewable energy share of 16% by 2027 in our main case is lessthan half the estimated REPowerEU requirement. Member states will need to aligntheir domestic policies, accelerate biofuel deployment and reinforce conservationand efficiency programmes to contain or reduce energy demand and enlarge theshare of renewables in final energy consumption.
Meanwhile, renewable energy shares in heating and cooling expand
0.9 percentage points annually up to 2027 – one-third faster than during the last
decade, but well below the 2.3-percentage-point annual increases needed tomatch REPowerEU ambitions. To accelerate deployment, more aggressive
policies will be needed to strengthen heat pump supply chains; increase labour
availability for installations; integrate renewable energy sources in district heating
networks; scale up biomethane production; streamline permitting regulations forlarge-scale renewable heat projects; and support alternative business models forheating.

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Should government and industry overcome deployment challenges in theelectricity, transport and heating and cooling sectors, REPowerEU goals appear
to be within reach, at least in terms of renewable energy.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Summary of renewable energy benchmarks by sector in REPowerEU planand in main and accelerated cases
Segment
Electricity 24

RePowerEU benchmarks,
2030 23

Main case / accelerated casebenchmarks, 2027

69%

54% / n/a

592 GW

396 GW / 471GW

510 GW

290 GW / 316 GW

32%

16% / 20%

2.3-percentage-point
average annual increase to2030

0.9-percentage-point averageannual increase to 2030**

Solar capacity
Wind capacity
Transport*
Heating and cooling
Share of renewable energy in heating
and cooling
Share of renewable energy in industry
Share of renewable energy inbuildings sector final energy
consumption

1.9-percentage-point
average annual increase to
2030
60%

0.9-percentage-point averageannual increase to 2030**
32%**

Including RED II multipliers.
** Excluding ambient heat harnessed by heat pumps.
*

The REPowerEU plan
The European Commission’s REPowerEU plan, released in May 2022 in response
to energy market disruptions from Russia’s invasion of Ukraine, aims to rapidly
reduce dependence on Russian fossil fuels by 2027. It builds upon existing
initiatives, including the Recovery and Resilience Facility, and increases therenewable energy target of the proposed Fit for 55 package (launched in 2021)
from 40% to 45%.
This higher aim for renewable energy use, combined with other REPowerEU
provisions to reduce energy demand, implies significant increases in renewablecapacity shares across the electricity, transport and heating and cooling sectors.
The Commission estimates that renewable energy in electricity would need toclimb to 69% by 2030, to 32% in transport, and in heating/cooling should expand
at least 2.3 percentage points annually.

The REPowerEU plan targets a 45% renewable energy share across the European Union as well as numerous otherobjectives and spending commitments. The European Commission modelled the programme package to determine
renewable energy shares likely necessary in electricity, transport and heating (see Implementing the REPowerEU Action
Plan, p. 23). While the benchmarks for electricity and transport are based on these modelled outcomes, the heating andcooling annual growth benchmarks are targets in the REPowerEU plan, not just modelled outcomes.
24Electricity and transport shares are not REPowerEU targets. Rather, they are European Commission estimates of shares
needed to achieve REPowerEU goals.

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23

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Renewable electricity
In our main-case forecast, solar PV and wind capacity expansion are insufficient
to reach the REPowerEU plan’s renewable electricity objectives for 2030.
According to the latest European Commission Staff Working Document, capacitiesof 592 GW 25 of solar PV and 510 GW of wind are required by 2030 to achieve the
69% share of renewable electricity modelled by the Commission. This would
require average annual additions of 48 GW for solar PV and 36 GW for wind. In
comparison, our main case foresees average annual net additions of only 39 GW
for solar PV and 17 GW for wind during 2022-2027. This results in a 54% share of
renewables-based generation in the electricity sector, 15 percentage points below
the 69% desired three years later. Thus, to reach the installed capacity needed togenerate 69% of electricity from renewables by 2030, average annual net
additions need to be 22% higher for solar PV and more than two times greater forwind.
Renewable electricity shares in main case (left), and average annual
additions for solar PV (middle) and wind (right) in the main andaccelerated cases (2022-2027)
80%

Wind annual additions

Solar PV annual additions
60

60

50

50

50%

40

40

40%

30

30

20

20

10

10

GW

TWh

Renewable share in generation
70%
60%

30%
20%
10%
0%

2020

2025

Main
case

2030
REPower 2030
Target

0

0
Main
case

Acc.
case

2030
capacityneeds

Average annual additions

Main
case

Acc.
case

2030
capacityneeds

Average annual additions

IEA. CC BY 4.0.
Note: Acc. case = accelerated case.

Europe’s renewable capacity expansion is limited by three main challenges:
inadequate support schemes; lengthy and complex permitting procedures; and theslow pace of transmission and distribution network upgrades.
Insufficient or limited policy support – For utility-scale projects, theuncertainty created by an absence of competitive auctions or limited visibility

over future ones in some countries constrains the level of annual additions inRefers to alternating current (AC) as outlined in the EU Solar Energy Strategy.

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25

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

the main case. Moreover, most current EU auction designs use bid price as
the only selection criterion, which has led to very low or negative bids reducing
profitability for both developers and manufacturers. For distributed PV,
ambiguity regarding the extension of current support schemes challenges
growth in some countries. Insufficient remuneration also prevents faster
uptake for self-consumption in some segments.
Permitting challenges – Permitting difficulties are the primary reason auctions

have been undersubscribed in Europe for both solar PV and onshore wind.
Developers often need a permit to enter an auction, but obtaining it is notalways a guarantee. Furthermore, regulations forbid installing renewableenergy systems on certain types of land (e.g. agricultural) or set distancelimitations for siting turbines near buildings, and social opposition and litigation
also lengthen permitting wait times. In addition to building permits, somejurisdictions require permits for transport and for building roads close toconstruction sites. In many markets, permitting is time-intensive because thecomplex process involves several steps and institutions (which sometimes
lack digitalisation), the response deadline for the approving authority can belong or even unlimited, and understaffing at permitting offices creates backlogs.
These challenges lengthen project lead times, drive up costs, and limit the paceof deployment in the main-case forecast.
Grid congestion – Many transmission and distribution networks have insufficient
capacity to connect new solar PV and wind plants. System operators therefore
need to reinforce existing infrastructure and, in some cases, install new lines.
However, permitting complexity, a lack of skilled labour, social opposition and highcosts limit the pace of upgrades. Local populations often oppose the constructionof overhead lines, and permitting new lines across multiple jurisdictions is alengthy process. Because it can take years to complete grid improvement projects,
developers face long wait times for grid connection approvals, which slows project
development.

Addressing some of these challenges could increase the pace of solar and wind
deployment in the European Union by 30% between 2022 and 2027. In fact, ouraccelerated case assumes that increased policy support, regulatory reforms andfaster infrastructure development boost average annual solar PV additions to
52 GW, in line with what is needed to reach the REPowerEU target.

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For utility-scale solar PV, reaching this level would require countries lacking
auction schemes (i.e. Sweden and Belgium) to implement them. Countries alreadyusing competitive auctions would have to extend their current scheme (theNetherlands), provide schedules for planned auctions (Italy and Denmark),
allocate higher volumes (Spain and Poland) and improve auction design to ensure
full subscription (France). Furthermore, countries could consider modifying theirauction rules to reflect higher investment costs and ongoing supply chain

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

challenges, improving the business case for solar PV and wind developers. They
could also include non-price criteria (e.g. the security benefits of renewableenergy) in the selection process.
For distributed solar PV, if expiring support schemes are extended andremuneration levels raised to make the business case for self-consumption more
attractive, annual growth could reach 35 GW by 2027, a pace that would be
sufficient to meet the 2030 target. The accelerated case for solar PV also assumes
local manufacturing and job-training programmes would ease the logistical andlabour constraints currently preventing faster solar PV project development.
Equipment delays and higher freight costs on solar cell and module imports havestifled competition in auctions, resulting in undersubscriptions and price hikes,
while the shortage of skilled workers has slowed the installation pace for
distributed PV systems.
For wind, however, average annual additions still fall below the REPowerEU
modelling exercise’s 2030 installed capacity objectives despite stronger policy
support, regulatory reforms and grid expansion. In the accelerated case, averageannual wind additions increase to only 21 GW by 2027, 40% less than the 36 GW
needed to achieve the 2030 goals.
For onshore wind, persistent permitting challenges hinder faster growth in theaccelerated case. While some countries have announced plans to streamline
processes and have formed institutional working groups to propose reforms, theonly ones to implement substantial legislative changes for onshore wind permitting
over the last year are Germany and Spain. More widespread regulatory changes
would be needed to advance onshore wind development such as the temporary
emergency regulations proposed by the European Commission to address
permitting bottlenecks. In November 2022, the Commission proposed thedesignation of renewables as a matter of public interest to benefit from simplified
procedures for new permits, and it introduced caps on permitting response times
under certain conditions. If these were formally passed by the European Council 26
and implemented rapidly at the member-state level, onshore wind development
times would be significantly shortened. Uncertainty over the business case forrepowering also limits the pace of growth in the accelerated case.
For offshore wind, long lead times and grid connection difficulties continue to be
the main impediments to achieving faster growth by 2027. While many countries
have raised their ambitions for offshore wind expansion and announced auctionplans, the pace of implementation hinges upon new site selection and increasingtransmission capacity. Excessive prerequisites for grid connection and forIn 29 November 2022, EU energy ministers informally agreed to designate renewable energy projects as part of the “overriding public interest” that would be valid for 18 months. However, this regulation proposal is expected to be formally approvedby the European Council after the publication of the Renewables 2022 report.

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26

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

expanding transmission networks lengthen project lead times and limit the paceof deployment in the accelerated case.
In addition to the technology-specific challenges that hamper faster expansion ofrenewables, protecting vulnerable consumers through current and proposed
market interventions (such as wholesale market caps and windfall-profit taxes) willaffect renewable energy investments in the upcoming months. Moreover, theongoing energy crisis has also sparked new discussions within the European
Union concerning future electricity market design. While reforms could, inprinciple, boost market-driven renewable energy deployment, ensure energy
security and encourage investment in flexibility resources, it is important that any
reform proposal be carefully and transparently prepared, involving all relevant
stakeholders. Failure in this regard could increase investor uncertainty and slow
expansion.

Transport
The share of renewable energy consumed in transport in our main case does notmeet the level the European Commission estimates is necessary to achieve the
REPowerEU target. While the REPowerEU plan requires a 32% 27 share of
renewable energy in transport by 2030, our main case models 16% by 2027,
putting the European Union on track for 20% by 2030.
Biofuels make up the largest portion of the renewable energy share in transport,
but growing EV sales and renewable capacity expansion mean renewableelectricity expands more quickly. To accelerate growth, the European Union would
need to adopt more stringent targets, with most member states aligning theirdomestic policies accordingly. Policies would need to focus on raising biofuel use,
boosting EV sales and expanding infrastructure and renewable electricity shares,
as well as reducing energy demand through conservation and efficiency
measures. Including these actions in the accelerated case puts the European
Union on track for a 29% renewable share by 2030, but this still falls short of the
REPowerEU requirement.

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27
Based on Renewable Energy Directive (Directive 2018/2001/EU) calculation methodology, which includes multipliers fordifferent fuels.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Renewable share in transport

European Union renewable energy share in transport, main case (left) andaccelerated case (right), 2020-2030
35%

35%

30%

30%

25%

25%

20%

20%

15%

15%

10%

10%

5%

5%

0%
2020 2021 2022 2023 2024 2025 2026 2027

0%2021 2022 2023 2024 2025 2026 2027

Biofuels

Renewable electricity

RePowerEU

IEA. CC BY 4.0.
Notes: Calculations are based on RED II methodology, with multipliers for advanced biofuels (2x), electricity for roadtransport (5x) and electricity for rail transport (2.5x). Fossil fuel demand include gasoline, diesel and jet fuel based on the
IEA Oil Information Database.

In our main case, the renewable share in transport energy consumption expands
from 9% in 2020 to 16% in 2027, with biofuel use increasing 1 billion litres during2022-2027. Member-state policies that require minimum shares of biofuels or
renewable fuels (and GHG reductions, in Germany’s case) drive this growth. In
most countries, policies are designed to become more stringent over time to meet
EU-wide directives, including the revised Renewable Energy Directive (RED II).
The RED II targets 14% renewable energy in transport by 2030, including
multipliers, and the share of electric vans and cars on the road rises from 2.3% to
15% across Europe (although every country’s uptake will be different). Electricvehicles are increasingly powered by renewable electricity, as its share in total
generation climbs from 37% to almost 55% during 2022-2027. Main-casemodelling is based on existing member state EV policies and EU-level CO2
emissions standards for new cars and trucks.

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Growth is limited in the main case because state- and EU-level policies to meethigher targets are not in place in most cases. To increase the renewable energy
share, member states would need to make transport policies more ambitious,
expand biofuel production (particularly of advanced biofuels), accelerate electricvehicle deployment and raise renewable electricity shares more quickly. Vehicle
efficiency and conservation measures would also reduce gasoline and diesel
demand, which could help achieve higher renewable shares in the transport
sector.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Transport renewable energy shares with and without multipliers, main andaccelerated cases
Year and caseRenewable sharewith multipliers

Renewable share without multipliers

2020 main case

9%6%2027 main case

16%

8%

2027 accelerated case

20%

10%

In the accelerated case, renewable energy in transport climbs to 20% by 2027,
putting the European Union on track for a 29% share by 2030. This boost resultsfrom policy changes to meet the EU Fit for 55 objective of a 13% decline in GHG
emissions intensity in the transport sector by 2030, which the European
Commission estimates would lead to a 28% share of renewable energy in thetransport sector. In alignment with this goal, biofuel use expands by an additional
6 billion litres, the electric car and van share of vehicles on the road climbs to 18%
and renewable electricity production rises to 59% by 2027. To achieve this growth,
member states would need more ambitious transportation programmes. Only
Germany, Sweden and Finland have policies in place that exceed the Fit for 55
targets.
Even in the accelerated case, however, the EU transport sector renewable energy
share falls short of the REPowerEU estimate. To close this gap, the European
Union is considering a 3-percentage-point increase in its requirement for
renewable fuels from non-biological sources (such as synthetic fuels made from
CO2 and hydrogen), but it has only one commercial-scale facility underconstruction so far.

Renewable heat
In 2020, heating and cooling accounted for over half of the European Union’s total
final energy consumption, with renewables representing only 23% of it.
Decarbonising the heating and cooling sector will thus be crucial for alignment withthe overall EU target of at least 55% GHG emissions reductions by 2030.
However, our outlook for renewable heat developments in the European Union
falls significantly short of REPowerEU requirements.

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The 2018 Renewable Energy Directive (RED II) introduced an indicative target foreach member country to increase the share of renewables in heating and coolingby 1.1 percentage points annually through 2030, with a similar target for district
heating and cooling. The proposed 2021 revision of the RED II strengthens thesetargets and introduces new ones for integrating renewables in the buildings andindustry sectors.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

More recently, European Commission modelling of the REPowerEU plan,
published in May 2022, suggests a pathway to meet the targeted 45% renewableenergy share in overall total final energy consumption. In this scenario, the shareof renewables in heating and cooling and in district heating and cooling increases
an average of 2.3 percentage points annually to 2030 and by 1.9 percentage
points in industry, while the share of renewables in the buildings sector climbs to
60% by 2030. 28
Nevertheless, in June 2022 the European Council announced its negotiation
position, which includes less ambitious minimal binding targets of an
0.8-percentage-point annual increase in the share of renewables in heating andcooling up to 2025, and a 1.1-percentage-point annual increase over 2026-2030.
It is also considering the indicative target of a 1.1-percentage-point annual
increase for the share of renewables in industry, as well as a 49% indicative target
for renewables in buildings sector final energy consumption by 2030.
In September 2022, the European Parliament adopted a series of amendmentsthat define its starting position for the ongoing trilogue negotiations on the RED II
revision proposal. They include the indicative target of a 2.3-percentage-point
average annual increase in the share of renewables in heating and cooling during
the periods 2021-2025 and 2026-2030 (and the same target for district heating
and cooling); an indicative average annual increase of 1.9 percentage points inindustry during the periods 2024-2027 and 2027-2030; and an indicative target of
49% renewables in buildings by 2030.
European Union proposed targets for renewable heating and cooling

RED II – 2018
(EC 2018/2001)

Article 23 – Mainstreaming renewable energy in heating and cooling:•
Indicative target for the share of renewables in heating and cooling: averageannual increase of 1.1 percentage points over 2021-2025 and 2026-2030 (1.3
percentage points for states where waste heat and cold are used)o Target reduced by half for countries with share of renewables in heating andcooling between 50% and 60%
o Target does not apply to countries with a renewable share above 60%•
Indicative target for the share of renewables in district heating and cooling:
average annual increase of 1 percentage point over 2021-2025 and 2026-2030•

RED II revision
proposal – July
2021

Minimal binding target for all member states for the share of renewables in heating
and cooling: average annual increase of 1.1 percentage points over 2021-2025
and 2026-2030 (1.5 percentage points for states where waste heat and cold areused)o Target reduced by half for countries with the share of renewables inheating and cooling between 50% and 60%
o Target does not apply to countries with a renewable share above 60%
o Indicative country-specific top-up targets

The first figures from the EU Solar Energy Strategy were also announced in May 2022. According to this strategy, the joint
contribution of solar thermal and geothermal would need to at least triple by 2030.

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28

Renewables 2022
Analysis and forecasts to 2027•••

Chapter 4: Trends to watch

Indicative target for the share of renewables in district heating and cooling:
average annual increase of 2.1 percentage point over 2021-2025 and 2026-2030
Indicative target for the share of renewables in industry: annual average increaseof 1.1 percentage points over 2021-2025 and 2026-2030
Requirement for each member state to achieve a share of at least 49%
renewables in buildings sector final energy consumption by 2030

REPowerEU scenario assessed through modelling (model PRIMES):
2.3-percentage-point average annual increase in the share of renewables in
Commission Staff •heating and cooling over 2020-2030 at the EU level
WorkingDocument•
2.3-percentage-point average annual increase in the share of renewables in
Implementing the
district heating and cooling over 2020-2030 at the EU level
REPowerEU•
1.9-percentage-point average annual increase in the share of renewables in
Action Plan –industry over 2020-2030 at the EU levelMay 2022•
Share of renewables in buildings: 60% in 2030 at the EU level

EuropeanCouncil revision
proposal – June
2022

Negotiating positions adopted by the European Council in June 2022 :•Minimal binding target for each member state for the share of renewables inheating and cooling: 0.8-percentage-point annual increase until 2025;
1.1-percentage-point annual increase over 2026-2030
o Country-specific indicative top-up targets for the share of renewables inheating and cooling•
Indicative target of 49% renewables in buildings sector final energy consumption
by 2030•
Indicative target of 1.1-percentage-point annual increase in the share of
renewables in industry

Amendments adopted by the European Parliament in September 2022:•
Indicative target for each member state for the share of renewables in heating andcooling: 2.3-percentage-point average annual increase until 2025 and over 20262030 (2.8 percentage points for member states that use waste heat and cold)•
Indicative target of 49% renewables in buildings sector final energy consumption
EuropeanParliamentby 2030
revision proposal •Indicative target of 1.9-percentage-point annual increase in the share of– September 2022
renewables in industry over the periods 2024-2027 and 2027-2030•
Indicative target of 2.3-percentage-point average annual increase in the share of
renewables in district heating and cooling over the periods 2021-2025 and 20262030

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Over 2010-2020, the EU share of renewables in heating and cooling increased byjust 0.6 percentage points annually on average, with the industry sector on its own
performing similarly. Only 13 member countries recorded average annual
increases of more than 0.8 percentage points, and only 8 exceeded the indicative
top-ups proposed in July 2021 for the period to 2030. While this progress was
sufficient to meet the EU-wide overall target of 20% renewables in total final
energy consumption by 2020, it fell short of REPowerEU targets. Thus, achieving
REPowerEU ambitions for 2030 will require considerably faster renewable heatuptake in most member countries.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Share of renewables in heating andcooling

Share of renewables in heating and cooling, historical average annual
progress and proposed targets for EU member states
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%

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

2020 share of renewables in heating and cooling2010-2020 average annual percentage-point improvement (right axis)
Proposed 1.1-percentage-point annual improvement to 2030 (right axis)
Proposed 2.3-percentage-point annual improvement in modelled REPowerEU scenario (right axis)
Indicative national top-up targets - July 2021 proposal (right axis)

IEA. CC BY 4.0.
Source: Eurostat (2020), SHARES database.

Looking forward, the EU share of renewables in heating and cooling – excluding
ambient heat – is expected to rise an average of 0.8 percentage points annually
over 2022-2025 and by 1.0 percentage point over 2026-2027. Including ambient
heat harnessed by heat pumps, the outlook at the regional aggregate level mayalign with the European Council’s negotiation positions as well as with the minimal
heating and cooling targets of the proposed 2021 RED II revision. However, it
would still be far behind the much higher development pace required in theEuropean Commission’s modelling assessment of the REPowerEU scenario (i.e.
a 2.3-percentage-point annual increase). According to the European Commission,
the deployment of renewable heat technologies, especially heat pumps, would
need to accelerate tremendously over the next seven years.

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Regarding heat pumps, recent European market evolution is encouraging: in
2021, EU sales totalled a record-high 2.2 million units – a 34% increase year-onyear. In Germany, heat pump installations in the first half of 2022 were up by onequarter compared with the same period in 2021, and there were as many
applications for federal funding to install heat pumps in August 2022 as during thewhole of 2021. In Poland, the share of heat pumps in applications for heat system
subsidies under the Clean Air Programme in 2022 rose from 28% in January to
60% in June. This trend is expected to endure in the medium term, sustained byhigh energy prices and supported by the ambitious REPowerEU target of 10
million hydronic heat pump installations over the next five years. However, suchacceleration is already challenging the capabilities of supply chains, which willneed to expand rapidly to avoid bottlenecks. The availability of skilled installers is
another uncertainty.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Projected developments in the industry sector and district heating are also
expected to fall below REPowerEU ambitions, with the share of renewables(excluding ambient heat) in final industrial heat consumption anticipated to rise byless than 0.9 percentage points annually over 2022-2027, and in district heatingby only 0.3 percentage points.
Achieving REPowerEU objectives will require strong policy action along two key
axes: (i) accelerated deployment of renewable heat technologies in buildings,
industry and district heating and cooling; and (ii) energy conservation and demand
reductions through energy and material efficiency and from large-scale
behavioural changes. Policy strategies may articulate a combination of
informational measures, regulatory instruments and incentives. They could, forinstance, focus on overcoming the relatively high upfront costs of renewable
technologies through specific loan schemes, investment grants or support for thedevelopment of innovative business models (e.g. heat-as-a-service). Policies
could also focus on making the business case for renewable technologies more
attractive by offering specific energy tariffs.

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Among the many other policy options to accelerate renewable heat uptake arebans on fossil fuel-based appliances in new buildings; tailored informational
support for households and companies (e.g. through audit campaigns); andsupport for building and heat distribution system retrofits to enhance compatibility
with renewable heat options. In addition, industrial policies that include job-training
programmes (e.g. for renewable technology installers), as well as strong
international co-operation among EU member states and with other regions, will
be necessary to enable rapid upscaling of international renewable heat technology
supply chains, such as for heat pumps.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Question 2: Is renewable energy capacity inthe European Union making windfall profits
from high wholesale prices?
Russia’s invasion of Ukraine triggered a global energy crisis, leading to sharp
increases in oil, natural gas and coal prices. As a result, electricity prices in Europe
have risen drastically because natural gas-fuelled plants remain the price-setter inthe wholesale market. Furthermore, high fossil fuel prices have resulted in windfall
profits for some energy companies. In fact, the profits of major oil, gas, coal andrefinery companies in the first half of 2022 more than doubled from the same
period last year, and discussion on windfall profits in the European Union has
extended to electricity generators (including renewables-based ones) that can
produce electricity at lower marginal costs than natural gas-fuelled power plants.
In October 2022, the European Council passed a regulation on an emergency
intervention to address high energy prices. The regulation proposes windfall-profit
levies on fossil fuel producers through a temporary solidarity contribution, and onelectricity generators (or inframarginal electricity producers) that have lower
marginal costs than the price-setting gas units.
The Council also introduced plans to cap the wholesale electricity price at
EUR 180/MWh or lower, and expects that member countries would raise EUR 117
billion annually. This market intervention aims to reduce electricity prices to protect
and support vulnerable energy consumers. As the proposal’s interpretation andimplementation by each member state remains an uncertainty, its implications at
the country and EU level are difficult to estimate. In addition, several European
countries have already introduced national-level windfall taxes for electricity
generation and trading companies.
The direct answer to whether renewable power plant owners are making windfall
profits is highly complex. While renewable energy policies can provide insights onwhether developers are allowed to receive higher revenues from the market, they
can only partially answer the question on windfall profits because data are limited
concerning non-policy factors, including long-term bilateral power purchase
contracts, developers’ hedging strategies and exposure in the wholesale electricity
market. To understand these non-policy factors, we examined the balance sheetsof the European utilities with large operational renewable and fossil fuel capacities.

In the European Union, policy schemes make more than half of utility- andcommercial-scale renewable power capacity (including large-scale hydropower)
eligible to receive wholesale energy prices. Excluding hydropower, wholesalemarket exposure is under 40% for wind, solar PV and bioenergy technologies.

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Policy schemes

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Hydropower plants, which account for one-quarter of EU installed capacity (built
mostly during the 1960s and ‘70s), are usually not covered under any policy
scheme unless they are small-scale projects. Thus, a significant majority of theselargely amortised hydropower plants could receive high wholesale electricity
prices in the absence of long-term fixed-price bilateral contracts. For instance, arecent financial report of the Norwegian utility Statkraft, which has one of thelargest operating hydropower plants in Europe, indicates that only one-third of its
generation is hedged in the medium and long term.
Over the last decade, European renewable power incentive schemes have
evolved from FITs to competitive auction schemes with FIPs, exposing renewable
technologies (especially utility-scale wind and solar PV plants) to market prices.
The classical feed-in-tariff policy commonly implemented in most EU member
countries until 2015-2017 for utility-scale and commercial projects is based on
20-year fixed-price contracts, and thus does not expose renewable power plants
to market prices. We estimate that the significant majority of onshore wind, solar
PV and bioenergy projects (totalling around 200 GW commissioned between 2003
and 2013/14) are under classical feed-in-tariff schemes, with the remainder
contracted mostly under former green-certificate arrangements exposed towholesale price revenues.
European Union shares of installed renewable capacity by exposure towholesale market price, based on member country policy schemes
100%
80%
60%
40%
20%
0%

All
Non-hydro
renewables renewables

Hydropower Onshorewind

Offshore Utility-scale Commercial Bioenergy
windsolar PVsolar PV

Policy schemes NOT enabling wholesale electricity price exposure
Policy schemes enabling wholesale market exposure
IEA. CC BY 4.0.
Note: The significant majority of European hydropower plants are not under a policy scheme.

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Since 2012/13, EU countries (led by Germany) have been introducing sliding FIPs
with a floor price defined through competitive auctions. The purpose of theseschemes is to facilitate market integration of renewables by enabling developers
to sell electricity in the spot market while receiving subsidies to top up theirRenewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

revenues. However, contract prices awarded in feed-in-premium schemes werelower than average wholesale prices over the past decade, enabling projects toreceive subsidies. Today, these projects (onshore wind, offshore wind and utilityscale solar PV), located mostly in Germany, the Netherlands and Denmark, could
benefit from high spot-market prices. In Spain, the RECORE regime, which caps
the returns of most wind and PV plants commissioned before 2019, also enables
developers to receive market revenues if projects have already achieved
regulated profits.
Recently, more EU countries have introduced CfD auctions. CfDs requiredevelopers to pay back additional revenues if wholesale prices exceed the strikeprice. They provide revenue certainty and enable developers to share risks with
off-takers, minimising the impact of wholesale electricity prices on project
economics. In the European Union, the majority of onshore and offshore windcapacity operational today could receive market prices through FIPs, while utilityscale solar PV projects are mostly exposed to either classic FITs or CfDs. Forcommercial solar PV projects, FITs or fixed tariffs for remuneration of excess
generation remain the common incentive schemes. Thus, almost 70% of theseprojects cannot receive wholesale electricity prices.

Financial situation of selected large European utilities
The financial statements of large European utilities indicate higher revenues
resulting from steep fossil fuel and electricity prices in the first half of 2022
compared with the same period in 2021. However, unlike for oil and gas majors,
higher revenues for European utilities have not always translated into profits inrecent months because utility companies have diverse business profiles, allowing
them to compensate losses in one business segment with profits from another.
Plus, technological and geographical portfolios as well as business strategies
have been important determinants for how companies are navigating the global
energy crisis.
Our analysis cannot be generalised to cover the entire EU market, as it assesses
just ten large utilities, or around one-quarter of total installed EU electricity
generation capacity. The majority of installed renewable capacity is owned andoperated by private companies that are not obligated to disclose their financial
standing.

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All the major utilities reported significantly higher revenues but also higher
costs in H1 2022 than in H1 2021, with hikes ranging from 30% to 170%. Higher
average electricity and gas prices since November 2021 have clearly boosted
revenues. However, even though all large utilities reported higher revenues in H1
2022, their financial performance and profitability within Europe were quite
different due to a myriad of variables, including generation mix diversity; thesplitting of earnings before interest, taxes, depreciation and amortisation(EBITDA) into different operations involving regulated networks, contracted
renewables and trading activities; and exposure to retail business.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

H1 2021
H1 2022% EBITDA change between H1 2021 to H1 2022 (right axis)

Fossil fuelRenewables*

Hydro

OrstedStatkraft

RWE

Verbund

Statkraft

Orsted

RWE

VerbundEDP

EndesaIberdrola

Vattenfall

Enel

EnBW

EDF

0

EDP

10 000Endesa20 000Iberdrola

30 000Vattenfall

40 000Enel

50 000

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

EnBW

120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
-100%
-120%

EDF

60 000Installed capacity mix

Revenue in EUR million

Revenue and EBITDA comparison of major European utilities for the first
halves of 2022 and 2021 (left) and their shares in installed generation
capacity mix (right)

Nuclear

IEA. CC BY 4.0.
* Mainly wind and solar resources. Due to its larger volumes, hydro is shown separately.
Note: Most of these utilities are geographically diversified. For example, utilities such as Iberdrola, EDP and Enel have astrong presence in North America and Latin America, where the markets have different regulations and dynamics. Some
European utilities also operate in the United Kingdom and others have a global presence. Most of these utilities are also
integrated, giving them cash flows from activities across the value chain.
Sources: EDF; ENEL; EnBW; Iberdrola; Vattenfall; Endesa; EDP; RWE; Verbund; Orsted; Statkraft.

An increase in costly fossil fuel-based generation is compensating for lower
hydropower output in Europe. Indeed, extreme drought conditions in Italy, France,
Spain and Portugal reduced EU hydropower output by more than 15% in the firsthalf of 2022. Lower hydropower generation reduced the European EBIDTA ofEnel, Iberdrola and EDP, although higher profits from increased fossil fuel-fired
generation and trading activities made up for this loss. In addition, these utilities
had to purchase energy from the market at higher prices to meet their retailcustomer obligations, putting further pressure on their profitability.
EDF’s nuclear power generation dropped more than 15% and hydropower
production was 23% lower in the first half of 2022 compared with the same period
in 2021, requiring the company to purchase electricity from the spot market at highprices and reducing its revenues significantly. In some cases, higher wind andsolar PV generation and additional installed capacity have contributed to
profitability. For example, EnBW registered an EBITDA rise of 43% related to its
renewable energy business, and Orsted, a utility with major investments inrenewable generation, increased its EBITDA (excluding new partnerships) by 48%
relative to H1 2021.

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Exposure to retail and customer business reduced utilities’ profitability.
Most major European utilities have large retail customer businesses. Whileelectricity generation and purchase costs have risen drastically, retail priceincreases remain limited in most parts of Europe due to regulated-price contracts

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

and to additional government interventions to protect consumers in the current
extraordinary situation.
For instance, Spain and Portugal capped the wholesale gas price for power plant
use at EUR 40/MWh, leading to relatively lower wholesale electricity prices andshielding Iberian electricity consumers. In general, most utilities’ retail businesses
recorded a lower EBIDTA in the first half of 2022 than in 2021. For instance, EDF’s
EBITDA dropped sharply in France due to the government’s regulatory measures
to limit sales price increases for consumers in 2022.
Hedging strategies and long-term contracts are key tools for utilities tonavigate the current European energy crisis. The exposure of European
utilities on wholesale markets can vary significantly, impacting their profits. For
instance, only one-third of Statkraft’s total generation is hedged through 2030,
resulting in higher revenues from the electricity spot market. At the same time,
however, Orsted’s low 10% exposure to the wholesale market limits thecompany’s ability to profit from high market prices. For Verbund, the company’s
hedging strategy has increased its profits, as it was able to obtain an average saleprice of EUR 112.5/MWh in H1 2022, boosting its electricity revenue considerably
and raising its EBITDA, 111% from the previous year.
Meanwhile, Spain introduced a clawback mechanism for forward electricity
contracts of more than EUR 67/MWh, but Iberdrola contracted unregulated
renewable generation with its retail business at EUR 66/MWh in January 2022,
before Spain had introduced the clawback mechanism. The fixed-price policy
partly sheltered the company from volatile wholesale market prices.
Policies and regulations on windfall profits
Several European countries have introduced regulatory measures to tax energy
companies’ extraordinary profits or revenues, with the aim of limiting inflation
increases and protecting society’s most vulnerable consumers. For the electricity
sector, governments expect to collect additional taxation income on the profits orrevenues of generation units that have low marginal costs, including renewableenergy producers and energy trading companies that have been selling/trading
generation in the wholesale market.

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Five European countries (Greece, Hungary, Italy, Spain, and Romania) alreadybegan implementing new taxation and fiscal measures in 2022 to claw backwindfall profits covering periods of six months to three years, while discussion on
this topic is ongoing in nine other EU countries. In addition, Germany has
announced that it expects to raise about EUR 10 billion by imposing windfall taxes
on electricity generators, and Belgium anticipates EUR 3 billion. Whileremuneration policies may enable renewable energy generators to tap into thewholesale market to receive higher revenues, hedging mechanisms and long-term
bilateral contracts make the actual amount governments could eventually collectless certain.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Selected European countries that have introduced or announced a windfallprofit tax
Country

Tax rate

Greece90%

Hungary

40%

PeriodAnnounced revenue
estimates(EUR billion)

Implemented

2021 - 2022

0.6

Implemented

2022 - 2023

2.1
2 (collected)
10-11

Status25%

Implemented

2021 - 2022

50%

Announced/Propo
sed2022 - 2023

Spain

Varying rates

Implemented

2022 - 2024

7

Romania

80%

Implemented

2022 - 2023

Unknown

Undecided

10

2022 - 2023

Undecided

Unknown

Unknown

2023 - 2025

62022 - 2024

3.1

Unknown

Undecided

2022 - 2024

2.8

2022 - 2023

0.04

Italy

Germany

90%

Poland80%

Slovakia

50%

Czech Republic

60%

Belgium

38%

FranceUndecided

Netherlands

Undecided

Finland

Undecided

Announced/Propo
sed
Announced/Propo
sed
Announced/
proposedAnnounced/
proposedAnnounced/
proposedAnnounced/
proposedAnnounced/
proposedAnnounced/
proposed

Implications for the energy transition in Europe
Accelerating renewable energy expansion is crucial to reduce EU reliance on
imported fossil fuels from Russia. Large utilities and independent power producers
continue to be the main investors in renewables in Europe and thus have a pivotal
role in increasing the pace of wind and solar PV expansion. Following theEuropean Council’s October 2022 regulation of price caps for electricity
generators, more EU countries are expected to introduce new regulatory
measures.

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The current regulation enables member countries to define their own price caps
as well as clawback mechanisms for profits or revenues, depending on national
circumstances. However, inconsistencies among regulatory regimes could create
uncertainty for investors, especially if they make the business case for renewables
less appealing. Thus, it is important for regulations to tax profits from energy sales
in the wholesale market and not revenues.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Question 3: Will new PV manufacturing
policies in the United States, India and theEuropean Union create global PV supply
diversification?
The high level of geographical concentration in the global PV supply chain has led
the European Union, India and the United States to introduce policy incentives tosupport domestic PV production. This could result in an unprecedented expansionof PV manufacturing outside of China in the next five years. However, diversifying
manufacturing will be possible only if production costs fall to ensurecompetitiveness with the lowest-cost producers (e.g. in China and ASEAN
countries) in both the short and long term.

PV manufacturing cost-competitiveness

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In the past year, rising global commodity prices have led to higher material costs
for solar PV manufacturing. Today, China and ASEAN countries (Viet Nam,
Thailand and Malaysia) have the lowest solar PV module manufacturing costs forall segments of the supply chain. Economies of scale, supply chain integration,
relatively low energy costs and labour productivity make China the mostcompetitive solar module manufacturer worldwide. Higher investment costs in
India are the primary reason for the cost differential with China, while higher
overhead and labour costs makes US PV manufacturing not as competitive. In
Europe, rising energy prices following Russia’s invasion of Ukraine widened thecost gap with China. Today, EU industrial energy prices are more than triple thoseof China, India and the United States.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

USD/W

Total manufacturing costs for mono PERC c-Si solar components by
input, 2022
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00

China
Materials
Manufacturing labour
Other overhead costs

ASEAN

India

United States
Korea
EuropeEnergyInvestment
Total module cost with USD 37/kg polysilicon price

IEA. CC BY 4.0.
Notes: ASEAN = Association of Southeast Asian Nations. Values exclude subsidies as well as additional costs such astransportation, company profits, taxes and tariffs. Thus, total cost inputs may not match final market sale prices. Polysilicon
prices include the processing of metallurgical-grade silicon. Industrial electricity prices used in this analysis: China,
USD 88.20/MWh; ASEAN, USD 101.27/MWh; India, USD 123.79/MWh; United States, USD 79.07/MWh; Korea,
USD 105.14/MWh; Europe, USD 325/MWh. Commodity prices from October 2021-September 2022 used in this analysis:
glass, USD 590/Mt; aluminium, USD 2 779/Mt; polymers, USD 6 000/Mt; silica sand (quartz), USD 100/Mt; copper,
USD 9 160/Mt; silver, USD 706/kg; zinc, USD 3 618/Mt; lead, USD 2 203/Mt; tin, USD 35 190/Mt; other, USD 18 700/Mt.

Manufacturing policies in India and the United States
Recent policy actions in India and the United States aim to increase thecompetitiveness of domestic manufacturing through subsidies and tax rebates,
while the European Union is considering similar steps. India’s PLI scheme and the
US IRA offer manufacturers support in different ways. While the PLI furnishes a
subsidy to reduce plant investment costs through payments linked with achieved
production, the IRA provides a PTCs for the manufacturing of certain equipment,
including solar PV modules, cells, wafers and polysilicon through 2032. 29
According to estimates, PLI support closes nearly 80% of the investment cost gap
between India and the lowest-cost manufacturers in China. However, the one-time
subsidy means that manufacturing efficiencies will need to be achieved througheconomies of scale to maintain long-term competitiveness. Meanwhile, fully
monetising manufacturing tax credits in the United States could bring all thecountry’s segments of solar PV manufacturing to cost parity with the lowest-cost
manufacturers.

The IRA provides tax credits for a range of products, including but not limited to solar PV equipment and inverters and windturbines.

PAGE | 136

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29

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

10.0

USD/watt

USD billion

India PLI subsidies and investment cost difference with lowest cost
manufacturing (left) and US c-Si manufacturing costs with and without
IRA Manufacturing Production Tax Credit, compared with China and
ASEAN (right)
9.0
8.0
7.0

0.40
0.35
0.30

6.0

0.25

5.0

0.20

4.0

0.15

3.0

0.10

2.0

0.05

1.0
0.0

Lowest cost
manufacturing

PLI subsidies

0.00

India

Captial expenditure

Polysilicon Wafers andingots
China

ASEAN

Cells
US

Moduleassembly

US with IRA

IEA. CC BY 4.0.
Notes: PLI = Production-Linked Incentive (India). IRA = Inflation Reduction Act (United States). ASEAN = Association ofSoutheast Asian Nations. PLI costs represent the investment required to produce 18.85 GW of polysilicon, 27.85 GW ofwafers/ingots, and 36.85 GW of cells and modules.

Favourable solar PV manufacturing policies in India and the United States havespurred multiple new project announcements. In the first phase of India’s PLI
programme, almost 9 GW of integrated manufacturing capacity were contracted,
and in the second phase the government is expecting to subsidise another 65 GW.
In the United States, expansion already planned includes the manufacturing ofroughly 9 GW of integrated crystalline silicon (c-Si) modules and 6 GW of thin-film
panels.

Country

Company

Component

New capacity

United States

First SolarThin-film modules

3.5 GW

United States

Q Cells

Integrated c-Si
modules

9.0 GW

United States

SPI Energy

Wafers/ingots

1.5 GW

United States

REC Silicon

Polysilicon

20 000 MT

United States

Fuyao Group

Glass

-

United States

Toledo SolarThin-film modules

2.7 GW

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Planned solar PV component manufacturing expansion in the United Statesand India in 2022

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Country

Company

Component

New capacity

United States

Meyer Burger

Modules

1.5 GW

United States

PV Hardware

Trackers

6.0 GW

United States

Endurans Solar

Backsheets-

United States

Q Cells

Modules

1.4 GW

United States

GameChange Solar

Trackers

6.0 GW

United States

Mission Solar

Modules

700 MW

United States

3Sun (Enel)

Modules/cells

3.0 GW

India

Reliance New
EnergyIntegrated PV

4.0 GW

India

Adani Infrastructure

Integrated PV

737 MW

India

Shirdi Sai

Integrated PV

4.0 GW

In addition to manufacturing subsidies, tariffs on imported PV equipment and localcontent premiums encourage project developers to purchase domesticallymanufactured products. In India, import duties were increased from 15% to 40%
for PV modules and to 25% for cells, making local manufacturers significantly
more cost-competitive. In addition, all PV modules used in projects subsidised
under national support programmes must be manufactured by companies namedin the government-maintained list, which currently has only Indian manufacturers.
In the United States, the IRA offers an additional investment or PTCs bonus forthe use of domestically produced content. These types of policies significantly
boost local manufacturers’ confidence about demand for their products, resulting
in more ambitious expansion plans.

Solar PV manufacturing capacity and production
forecast to 2027

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Policies and planned PV manufacturing capacity in India, the United States andthe ASEAN region will increase production capabilities outside of China, especiallyfor polysilicon, wafer and ingot manufacturing. In fact, wafer manufacturing
capacity in these countries is forecast to increase almost fivefold in the next five
years, and polysilicon and solar cell manufacturing could double by 2027.
However, achieving this level of growth will require almost USD 30 billion of new
investment, close to three times more than these countries committed in theprevious five years.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

250

10

200

8

150

6

100

4

50

2

0

2017 2022 2027 2027 2017 2022 2027 2027 2017 2022 2027 2027 2017 2022 2027 2027
low high
low high
low high
low high
Polysilicon
APAC

India

WafersEuropeCells

North America

RoW

Investment (USD billion)

Manufacturing capacity (GW)

Solar PV manufacturing capacity outside China and total investment by 5year periods, 2017-2027

0Modules

Investment in previous 5 years

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.

As a result, China’s share of manufacturing capacity could decrease slightly, from80-95% to 75-90% depending on the segment. Furthermore, if countries maintaintrade policies that limit imports and favour domestically produced PV products,
greater geographical distribution in the global solar PV supply chain could resultin China’s share in production shrinking from 75-90% to 60-75% by 2027.

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However, China plans to expand manufacturing throughout the entire supply chain
much more quickly than India, the United States and other countries do. This is
expected to cause a major glut by 2027, with supply significantly exceeding
expected global PV demand in most optimistic forecasts. The result would be plantutilisation factors of as low as 25-30% in China for all manufacturing segments,
about half of today’s level. This supply glut could also create fierce pricecompetition and cause investors to cancel many announced manufacturing
expansion projects both within and outside of China.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Solar PV manufacturing capacity and production by country and region,2021-2027
100%

Expected capacity in 2027

Capacity in 2021

Expected production in 2027

80%
60%
40%
20%
0%

China

EuropeNorth America

APAC

India

RoW

IEA. CC BY 4.0.

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Notes: APAC = Asia Pacific region excluding India and China. RoW = Rest of world. Manufacturing capacity and production
in 2027 are the values expected based on announced policies and projects.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Question 4: Is the biofuel industry
approaching a feedstock crunch?
Biodiesel, renewable diesel and biojet fuel producers are headed for a feedstock
supply crunch during 2022-2027 if current trends do not change. In our main case,demand for vegetable oil, waste and residue oils and fats increases 56% to79 million tonnes over the forecast period. Fuels made from wastes and residues
are in particularly high demand because they satisfy GHG and feedstock policy
objectives in the United States and Europe. In fact, wastes and residues are
expected to be used for 13% of biofuel production in 2027, up from 9% in 2021.
However, demand is approaching the supply limits of the most-used wastes andresidues. Nevertheless, markets are dynamic. High prices are a signal to seek out
new supplies, which is prompting the development of government programmes
and industry innovation to help avoid the crunch.
Compared with wastes and residues, the sugars and starches used to produce
ethanol are under less pressure. Although biofuel demand for these feedstocks is
growing, sugar cane and maize production expands as well, keep the sharededicated to biofuel production nearly flat over the forecast. 30

250

Volume (billion litres per year)

Volume (billion litres per year)

Total biofuel production by feedstock (left) and growth by region (right),
main case, 2021-2027

200
150
100
50
0

2021

2022

2023

2024

SugarsRapeseed oil
Animal fats
Waste and residue share of total demand

2025

2026

12

24%

10

20%

8

2027

6

16%
12%

4

8%

2

2021

0

4%

-2

0%

-4

-4%

2027

Maize
Palm oil
Other crop

Soybean oil
Used cooking oil
Other wastes and residues

IEA. CC BY 4.0.
Notes: “Other crop” includes corn oil, wheat, rice, cassava, camelina and plantation wood. “Other wastes and residues”
includes municipal solid wastes, wood wastes, tall oil and palm oil mill effluent (POME).

Agricultural growth expectations based on the OECD-FAO Agricultural Outlook 2022-2031.

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30

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Four regions are driving demand
The United States, Europe, Brazil and Indonesia are responsible for the majorityof biodiesel, renewable diesel and biojet fuel consumption growth. Combined,
demand for these fuels increases by 44% or 21 billion litres in our main case over2022-2027. In the United States, the renewable fuel standard, state-level lowcarbon fuel standards and the IRA’s tax credits boost demand for renewable diesel
and biojet fuel. Most requirements are met with domestic production from a
mixture of feedstocks (e.g. soybean oil, rapeseed oil, corn oil, used cooking oil
and animal fats).
In Europe also, consumption of renewable diesel and biojet fuel increase the most.
Total demand growth is relatively small, but the European Union is phasing out
the use of palm oil and has placed limits on other feedstocks, which is boostingproduction from wastes, residues and rapeseed oil. Meanwhile, Brazil andIndonesia both have biodiesel blending mandates that will become more stringent
over the forecast period. Indonesian biofuel manufacturers primarily use palm oil
to produce biodiesel, and Brazilian ones rely on soybean oil.

The looming supply crunch…
Consumption of vegetable oil for biofuel production is expected to increase 46%
to 54 million tonnes over 2022-2027, raising the share of vegetable oil production
directed to meeting growing biofuel demand from 17% to 23%. In the UnitedStates, this increase in demand is already reducing soybean oil export estimatesand supporting higher prices.

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Used cooking oil and animal fats are unlikely to provide relief, as they are in evenhigher demand because they offer lower GHG emissions intensity and meet EU
feedstock requirements. In fact, the use of used cooking oil and animal fats nearlyexhausts 100% of estimated supplies over the forecast period. Even when abroader range of wastes (such as palm oil mill effluent, tall oil and otheragribusiness waste oils) is considered, demand still swells to nearly 65% of global
supply.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

30%

Biofuel demand share of global supply

Biofuel demand share of global
production

Biofuel demand shares of global crop production (left) and wastes andresidues (right), main case, 2010-2027

25%
20%
15%
10%
5%
0%

Maize

Vegetable oils

Sugar cane

100%
80%
60%
40%
20%
0%

UCO and animal fats

UCO, animal fats and other waste oils

IEA. CC BY 4.0.
Notes: UCO = used cooking oil. Biofuel demand by feedstock is calculated based on forecast demand, yield coefficients,
project feedstock statements, historical feedstock shares and feedstock policy. Ethanol production using maize produces
co-products such as feed, corn oil, CO2 and electricity. Maize, vegetable oil and sugar cane production is based on the
OECD-FAO Agricultural Outlook 2022-2031. Collection potential is based on the Clean Skies for Tomorrow Coalition: usedcooking oil, avg. 12 million tonnes; animal fats, 13 million tonnes; and other waste oil, 13 million tonnes.

If this situation remains unchanged throughout the forecast period, the potential
for biofuels to contribute to global decarbonisation efforts could be undermined.
Bio-based diesel and biokerosene are essential components of net zero pathways
because they can be used in marine, aviation and heavy trucking applications, forwhich few other decarbonisation options exist. However, attaining a net zero
trajectory would require a more than three times production increase in our maincase.

… and how it may be avoided
Our forecast takes a relatively static view of agricultural and waste oil markets.
This doesn’t Steep prices will prompt companies and governments to improvefeedstock supply chains, seek out new supplies and develop new techniques.

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Policies and programmes in the United States, Canada and Europe will be helpful.
In the United States, the Sustainable Aviation Grand Challenge Roadmap aims to
improve understanding of the feedstock challenge, boost supply potential andsupport new technology development. Meanwhile, the European Union as awhole, and individual member states such as Germany, have dedicated targets
for fuels made from less-developed wastes and residues. In Canada, a
USD 1.1-billion Clean Fuels Fund supports supply chain development. Policies
focused on GHG emissions reductions can also be useful, since they give biofuel

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

producers an incentive to reduce the GHG intensity of their fuels, not just produce
more. This can mean lower feedstock requirements with the same or better GHG
emissions benefit.
Biofuel producers and users are also interested in expanding feedstock supplies
for commercial biofuel technologies, as additional stocks could support up toanother 8.5 EJ of biofuel production (300 billion litres), compared with 4 EJ
(160 billion litres) in 2021 (see table below for sources). The industry sector is also
investing in new technologies that use more widely available feedstocks, offering
up to 50 EJ of sustainable potential. In fact, expanding commercial and newtechnologies could sustainably increase bio-based diesel and biokerosene
production more than four times by 2030.
Exploiting the potential of conventional crop-based feedstocks that meetsustainability requirements could support a near-70% increase in biofuel
production by 2030 from the 2021 level. Although there are limits to the pace andscale of growth for certain feedstocks such as vegetable oils, crops alreadysupport a 20% increase in liquid biofuel production by 2027 in the main-caseforecast. However, governments and companies will need to be diligent to detectfraudulent waste supplies and maintain the integrity of sustainability frameworks,
as high costs are also an incentive to circumvent policies.
Biofuel producers are also seeking feedstocks produced on degraded land or fromcrops planted during what were previously fallow periods to increase acreage
without appropriating land that would otherwise be used for food and feed
production. In Brazil, for instance, 75% of corn ethanol production comes fromsecond-crop production in existing fields. In Europe, some biofuel producers are
sourcing oilseeds grown on degraded terrain to meet RED II sustainability criteria,
and bio-based diesel feedstock producers globally are establishing new supply
chains for bio-oils such as tall oil and fish oil, and expanding those for animal fats
and used cooking oil.
Redirecting some ethanol production to make biojet fuel using alcohol-to-jet or
ethanol-to-jet production pathways could also help relieve pressure on vegetableoil demand. As gasoline consumption declines in advanced economies, someethanol can be redirected towards biojet fuel production. Biogas, which is mademostly from wastes and residues, can also be used to produce biojet fuel.

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However, on the path to net zero emissions, these efforts will need to besupplemented with biofuel production from far more abundant resources. The IEA
estimates that nearly 100 EJ of sustainable biomass supplies are available,
including from woody residues, organic wastes, forest plantations and shortrotation woody crops planted on marginal land. These resources could support up
to 50 EJ of liquid biofuel production, even though biogas and bioenergy producers
will compete for the use of these resources. On a net zero trajectory, biofuel

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

demand reaches 14 EJ in 2040. While gasification and pyrolysis technologies canmake use of these more available feedstocks, estimated production costs remain
at least 50% higher than for conventional technologies.
In our accelerated case, we assume that governments and biofuel producers
overcome their feedstock challenges, removing one barrier to faster growth andaccelerating decarbonisation. Thus, biodiesel, renewable diesel and biojet fuelproduction are 30% higher in this scenario than in the main case in 2027.
Liquid biofuel production pathways, costs and feedstock potential
Production
cost range(USD/MJ)

Feedstock types

Feedstock demand 2021
/ total potential

Conventional ethanol,
biodiesel, renewablediesel and biojet fuel14 – 34*

Conventional biofuel crops such asmaize, sugar cane, palm oil,soybean oil and residual or wasteoils compatible with FAME andHEFA production. (Production on
degraded land, cover crops andintercropping are possible.)

4 EJ / 12.5 EJ

Cellulosic ethanol

34 – 51

Agricultural residues, wood
residues, dedicated energy crops
and other woody wastes.

Bio-based FischerTropsch synthesis

25 – 47

Woody biomass, agriculturalresidues, wastes such as
municipal solid waste.

Bio-oil co-processing

26 – 46

Woody biomass, agriculturalresidues, wastes such as
municipal solid waste.

Technology~0 EJ / 50 EJ

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*This is the market price range for crop-based feedstocks. It does not include production on degraded land, cover crops
and intercropping.
Notes: Production costs and prices are from IEA Bioenergy TCP (2019) Advanced Biofuels – Potential for Cost Reduction.
2021 feedstock demand is based on IEA analysis. Total potential for conventional feedstocks includes current crop demand(IEA analysis), 2030 crop potential (IEA analysis; IEA [2021], Net Zero by 2050), global used cooking oil, animal fat, otheragrifood oils, potential for vegetable oil production on degraded land and vegetable oil production via cover crops (Clean
Skies for Tomorrow Coalition). Other feedstocks are based on organic wastes, forest and wood residues, short-rotation
woody crops and forestry plantations. Biogas and solid bioenergy would compete for these feedstocks (IEA analysis; IEA[2021], Net Zero by 2050). Other feedstocks are converted to final liquid biofuel production potential using average
conversion efficiency of 50%.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Question 5: How much will renewablehydrogen production drive demand for new
renewable energy capacity by 2027?
Hydrogen production from renewable electricity is expected to play an importantrole in reaching long-term decarbonisation goals and improving energy security.
While less than 1% of global hydrogen production comes from renewable energy
sources today, renewable hydrogen is receiving increasing policy attention. A totalof 25 countries, plus the European Commission, have announced plans that
include hydrogen as a source of clean energy, and several have begun to
introduce financial support schemes.
As a result, project pipelines for using electrolysers to produce hydrogen fromrenewable electricity have swelled in recent years, with projects at various stagesof development. This momentum is expected to increase renewable capacity
needs, but the question is: By how much?

100

16%

90

14%

80

12%

70

GW

GW

Total renewable capacity dedicated to hydrogen production in the main
and accelerated case globally (left) and for main case by region (right),
2021-2027
20
16

10%

50

8%

40

6%

8

4%

6

20

2%

10
0

Main case Acc. caseOnshore wind0%

Solar PV

20%

14

60

30

25%

18

12

15%

10
10%

4

5%

2
0

Chile
United Other
Europe Australia Middle
StatesEast &
N.Africa
Offshore wind
% total renewable capacity growth (right axis)
China

0%

IEA. CC BY 4.0.
Notes: Acc. case = accelerated case. N. Africa = North Africa.

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For 2022-2027, the main case forecasts around 50 GW of renewable capacity to
be dedicated to hydrogen production, accounting for 2% of total renewablecapacity growth. China leads expansion, followed by Australia, Chile and theUnited States. Together, these four markets account for roughly two-thirds ofdedicated renewable capacity for hydrogen production.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Globally, new capacity is split evenly between PV and onshore wind, although
regional shares vary depending on resource availability. For instance, solar PV
makes up most of the growth in the MENA, while in Latin America the electrolyser
project pipeline is expected to be mostly filled by onshore wind projects in Chile.
Given their long lead times, offshore wind projects account for less than 1% of
new renewable capacity built for electrolyser plants between 2022 and 2027.
China is expected to deploy over 18 GW of dedicated renewable capacity by
2027, prompted by the central government’s goals to decarbonise industry andtransport as well as an industrial policy on electrolyser manufacturing. While thecentral government announced renewable hydrogen production targets in its 14th
Five-Year Plan, the main catalysts for growth are provincial and local-level
policies.
Thus, expansion is expected to be concentrated in provinces with good solar andwind resources and specific targets for renewable hydrogen production, such as
Inner Mongolia, which aims to produce 500 000 tonnes/yr of renewable hydrogen– more than twice the national target. Other key drivers are access to affordable
financing through state-owned enterprises and to industrial clusters for new
project development. Many new electrolyser projects are large demonstration
plants located in industrial hubs that can offer economy-of-scale savings, lower
unit manufacturing costs and access to local off-takers.
Demand for renewable hydrogen, which is a forecast uncertainty, will determine
the pace of dedicated renewable capacity expansion. While many provinces
include hydrogen in their industrial development strategies and identify production
targets, not all specify that production must be from renewable sources.
Furthermore, demand-side policies such fuel-cell vehicle targets are emissionsagnostic and therefore do not guarantee new demand creation specifically forrenewable hydrogen, especially if it costs more than hydrogen made from nonrenewable resources.
Transport infrastructure limitations may also slow the pace of hydrogen industry
development, as provinces rich in renewable resources are located far from new
demand centres. Also adding uncertainty to the size of future renewable capacity
projects is how much electricity from the grid will be used and whether it can becertified as renewable to meet provincial targets.

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Meanwhile, Europe is expected to deploy 7 GW of dedicated renewable capacity
for hydrogen production during 2022-2027, encouraged by decarbonisation goals
and, more recently, the need to strengthen energy security by displacing Russiangas. Spain is in the lead, accounting for half of Europe’s growth, followed byGermany, Sweden, Denmark and the Netherlands. The main drivers are ambitious
electrolyser goals, supported by financial incentives. While the European Union isRenewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

considering setting an electrolyser target of 44 GW by 2030, REPowerEU
modelling scenarios suggest that 65-80 GW would be required to decrease
Russian gas imports.
In the meantime, several member states have already formulated their own
hydrogen strategies with electrolyser goals for 2030 (e.g. Germany and Spain).
Projects that are financed are at least partially funded by public support, forinstance through the Important Projects of Common European Interest (IPECI)
programme, or by other state-specific funds. For example, Spain is providing
financial support from funds allocated to Covid-19 crisis recovery in its National
Recovery and Resilience Plan.
Europe dedicated renewable capacity in the main case by country, 20212027 (left), and proposed EU targets for renewables of non-biologicalorigin in transport and replacing non-renewable with renewable hydrogenuse in industry (right)
60%

Other
8%

50%

50%

Netherlands
8%

40%

50%
35%

30%

Denmark
9%

Spain
51%

Sweden
12%

20%
10%
0%

Germany
12%2.6% 2.6%

5.7%

Transport

Industry

Commission proposal
Council approval
Parliament approval

IEA. CC BY 4.0.
Notes: “Other” refers to France, the United Kingdom, Italy and Poland. The European Commission’s Fit for 55 and
REPowerEU proposals are currently under consideration by the European Council and Parliament.

There are two key uncertainties in the forecast for dedicated renewable capacity
expansion in Europe. The first is regulatory, concerning how hydrogen will bedefined as renewable and how additionality will be implemented. 31 Developers areawaiting clarity on how electricity from the grid will be monitored to qualifyhydrogen production as renewable. This will ultimately affect size and location
decisions for dedicated onsite solar and PV wind capacity.

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31
The “additionality” requirement, one of the sustainability criteria proposed to qualify hydrogen as renewable, demands thatthe renewable electricity used to produce hydrogen come from renewable capacity installed specifically for hydrogenproduction and not be taken from existing projects generating electricity to meet power demand. Discussions on if it will be
implemented and how it will be measured are ongoing.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Second, policy uncertainty over industry and transport mandates makes itchallenging to assess renewable hydrogen demand potential and plan newelectrolyser investments. The European Union is considering three different
proposals for binding targets for renewables in existing hydrogen use in industry(ranging from 35% to 50%) and renewables of non-biological origin in transport(2.6% to 5.7%), but a final decision has yet to be taken. Whether developers will
be able to secure off-takers and bring projects to financial close also poses a risk
to the forecast.
Producing ammonia for export is the main impetus for dedicated renewablecapacity expansion in the Asia Pacific, Latin America and MENA regions.
Dedicated renewable capacity is expected to reach a combined 19 GW, led byAustralia, Chile, Oman and Saudi Arabia. Large electrolyser project pipelines haveemerged in these countries owing to the availability of space, the presence ofshipping ports along strategic trade routes, and access to low-cost renewableelectricity thanks to ample solar and wind resources.
The share of renewable capacity dedicated to hydrogen in these markets is higher
than in other regions, accounting for 14% of total renewable deployment in MENA,
17% in Australia, and 19% in Chile, compared with 2% globally. While mostprojects are still at the feasibility stage, our forecast assumes that government
support will help move projects to financial close, as these countries all aim to
obtain market shares of low-carbon fuel exports. In fact, the Australian and Chilean
governments have already funded developers, and state-owned enterprises are
involved in planned projects in Oman and Saudi Arabia.
For renewable hydrogen exporters, securing off-takers to finance planned projects
is a key forecast uncertainty, but policies of importing countries to stimulate
demand can help address this challenge. For instance, the European Union
proposes to import 10 Mt/yr of renewable hydrogen by 2030. Germany announced
funding of EUR 4 billion will be awarded through competitive tenders through the
H2Global initiative to specifically bridge the cost gap between renewable hydrogen
imports from non-EU countries and domestic buyers. However, importer countries’
decisions on the emissions intensity levels required for hydrogen imports to qualify
for targets and support remains an uncertainty for exporting markets. Rules andregulations defining threshold levels will affect project viability and influence
decisions on technology choice and oversizing.

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Unprecedented federal policy support for low-carbon hydrogen in the UnitedStates is expected to be responsible for 4 GW of dedicated renewable capacity
additions, or 1.5% of total renewable capacity expansion expected over 20222027. In 2022, the IRA introduced tax credits based on the emissions intensity ofhydrogen production. Renewable hydrogen could be eligible for up to USD 3.0/kg

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

if labour and wage criteria are met. This incentive, coupled with state-specificsupport in the form of grants, loans and tax breaks, is expected to drive growth.
However, dedicated renewable capacity expansion will also depend on thebusiness model chosen for new electrolyser projects. Some projects in the pipeline
are being developed through long-term contracts with existing solar PV projects
or operating hydropower plants. The main threat to forecast growth is the potential
for long project development periods, depending on equipment availability andpermitting and regulatory approval wait times.
Project design and business model strongly influence forecasts for renewablecapacity dedicated to hydrogen production. Electricity can be supplied from thegrid or generated onsite by dedicated renewable plants, or a combination of both.
The supply choice will depend mostly on the business model used by thedeveloper, the regulatory requirements for hydrogen to qualify as renewable, andthe stability of hydrogen supply needed by the off-taker. When new renewablecapacity is built, sizing is highly project-specific and depends on cost optimisation
based on multiple factors, including location, the number of full-load hours
expected, regulatory requirements to meet renewable thresholds, and whether
additional capex needs to be recuperated to provide a stable supply or conversion
to other fuels.
Given the considerable number of policy uncertainties, market challenges andproject-specific variables affecting dedicated renewable capacity growth, we took
a conservative approach in our main-case forecast. Thus, growth could be 80%
higher (90 GW) in our accelerated case if certain challenges are addressed.
Securing off-takers to bring projects to financial close and obtaining regulatory
clarity over definitions of low-emissions hydrogen could be the most importantfactors to unlock development of the project pipeline.

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For example, policy actions to support demand creation for low-emissionhydrogen, particularly in the industry and transport sectors (e.g. throughmandates, public procurement and auctions) could increase the number of willingbuyers; and financial incentives to help reduce production costs could improve thecompetitiveness of renewable hydrogen with other fuels and raise the likelihoodof securing off-takers. Investors would be able to move forward with planned
projects once they have regulatory clarity over what qualifies as renewablehydrogen and how electricity is accounted for. Policies that help lower costs
associated with transport and reconversion of ammonia and other hydrogenbased fuels would encourage the development of international markets forrenewable hydrogen.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

Question 6: Is the energy crisis really making
the business case for heat pumps?
As the current energy crisis is reviving energy security concerns, heat pumps havebenefited recently from growing policy momentum in a number of countries,
particularly the United States and European ones. Heat pumps are expected to bepivotal to reduce fossil fuel dependency and CO2 emissions in the heating sector
by enabling energy savings and supply diversification.
Many heat pump markets are currently experiencing unprecedented growth. While
the recent energy price hikes favour the most energy-efficient technologies, thus
enhancing the business case for heat pumps, public initiatives to support
investment in heat pumps are most often the primary enabling factor for thismarket acceleration.
Several obstacles still impede large-scale heat pump deployment. Chief among
them is the cost-competitiveness of heat pumps in places where lower-cost fossil
fuel alternatives have not yet been banned. Cost-competitiveness is determinedby a combination of parameters, including initial investment costs, operating andmaintenance costs (including fuel costs), equipment durability and economic
incentives. Like most other technologies that exploit renewable energy sources,
upfront costs for heat pumps are relatively high, but running costs are generally
lower than for fossil fuel-based options.
Soaring energy prices since 2021 have accentuated the running-cost advantageof heat pumps, especially as residential consumer tariffs for natural gas have risen
more quickly than for electricity in most major heating markets. 32 This isparticularly true for countries such as Denmark and Sweden, where thecompetitiveness of gas-fired boilers deteriorated substantially when gas pricesrose during the first half of 2022. However, in most countries the overall costcompetitiveness of heat pumps with gas boilers is still determined mainly by thesignificant investment cost difference between the two.

Household electricity prices were higher in all but five EU member states in the first half of 2022 than in the first half of2021. Many countries have implemented or are considering implementing differentiated tariff caps for electricity and gas toprotect consumers from high market prices.

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32

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

300
250
200
150
100
50
0

AAHP
AWHP
Gas
AAHP
AWHP
Gas
AAHP
AWHP
Gas
AAHP
AWHP
Gas
AAHP
AWHP
Gas
AAHP
AWHP
Gas
AAHP
AWHP
Gas

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

Marginal cost of heating (USD/MWh)Change in average consumer fuel prices
from H1 2021 to H2 2022

Change in residential consumer prices for electricity and gas between H1
2021 and H1 2022 (left) and marginal cost of heating with residential heatpumps and gas boilers under different energy cost assumptions (right),
selected countries

Denmark France Germany

Electricity

Gas

H1 2021 energy prices

Italy

United United Sweden
Kingdom States
H1 2022 energy prices

IEA. CC BY 4.0.
Notes: AAHP = air-to-air heat pump. AWHP = air-to-water heat pump. Gas = condensing gas boiler. The marginal cost ofheating estimates the cost of providing an additional 1 MWh of heating with different heating technologies, based on device
efficiency and on energy prices. It does not account for capital and fixed operating and maintenance costs. Energy prices
used here correspond to average residential consumer prices for electricity and natural gas, including taxes, for the firstsemesters of 2021 and of 2022.
Sources: IEA (2022), Energy Prices database (non-EU countries); Eurostat (EU member states).

Investment costs for residential heat pumps (including installation) are generally
higher than for fossil fuel-fired boilers, though the extent of the cost gap varies
widely within and across countries, even for the same technology, depending onmarket maturity. In only a few mature markets (e.g. Denmark, Sweden and Japan)
are the upfront costs for lower-cost air-to-air heat pumps comparable with or lower
than for gas boilers. Hydronic (air-to-water) heat pumps typically entail higher
investment costs than air-to-air heat pumps, while ground-source heat pumps are
the most expensive, owing partly to installation of the underground heatexchanger, which can represent more than half of the total system costs.
Plus, switching to a heat pump in an old building can involve additional expense,as the electrical system may need to be upgraded to accommodate a higher powerload, or existing radiators may have to be replaced with larger ones or with
underfloor heating or a forced-air system to allow more efficient heat pump
operation. Such ancillary costs can make up as much as one-third of the total costof switching to a heat pump. However, some of these upgrades can also improve
thermal comfort and reduce heat demand.

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High investment costs are a major barrier to heat pump adoption in the residential
sector, as financing is a challenge for many households. In the past year, many
countries have strengthened investment support for heat pumps or introducedRenewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

new measures in the form of grants, tax credits, reduced tax rates and specificloan schemes. Some of these measures were taken in response to the energy
crisis and, in the European Union, to reduce dependence on Russian gas. Grants
are the most common policy tool and are currently available in at least 30 countries
that together represent 70% of global space heating demand. Tax credits are also
widely available, but in contrast with direct grants and subsidies, they generally
reach consumers only after a delay, sometimes of as much as two years.
Prevalent public investment support for heat pumps by policy type,selected countries, 2022
Policy type

Examples of supporting countries in 2022

Subsidy

Australia, Austria, Belgium, Canada, China, Croatia, Czech Republic,
Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy,
Japan, Korea, Latvia, Lithuania, Luxembourg, Netherlands, New
Zealand, Norway, Poland, Romania, Slovakia, Slovenia, Spain, United
Kingdom, United States

Tax reduction

Australia, Belgium, Bulgaria, Canada, Finland, France, Germany,
Greece, Hungary, Italy, Luxembourg, New Zealand, Poland, Portugal,
United Kingdom, United States, Slovenia, Sweden

Loan

Australia, Belgium, Bulgaria, Canada, Czech Republic, Denmark,France, Greece, Hungary, Ireland, Japan, Korea, Latvia, Lithuania,
Luxembourg, Netherlands, New Zealand, Poland, Portugal, Slovakia,
Slovenia, United Kingdom

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The level of support sometimes depends on household revenue (e.g. in France
and the United States), and for low-income households it can (in some countries)
cover most – if not all – of the purchase and installation costs. In many countries,
investment subsidies for heat pumps can substantially reduce or even offset the
upfront cost gap with gas boilers, sometimes making heat pumps more
economical for consumers than gas boilers over their lifetime.

Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

USD / MWh

Levelised cost of heating for air-to-water heat pumps and gas boilers forselected countries, and fuel-price sensitivity
250
CAPEX
subsidised

200
150
100

CAPEX

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

Gas boiler

AWHP

0

Gas boiler

50

OPEX

H1
H1
H1
H1
H1
H1
H1
H1
H1
H1
H1
H1
H1
H1
2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022
prices prices prices prices prices prices prices prices prices prices prices prices prices prices
Denmark

FranceGermany

Italy

UnitedKingdom

UnitedStatesSwedenIEA. CC BY 4.0.
Notes: AWHP = air-to-water heat pump. The levelised cost of heating estimates the average cost of providing 1 MWh of
heating over the lifetime of the equipment, considering capital costs, basic installation costs and operating expenditures,
which include fuel and regular maintenance costs. Estimates are based on medium market prices for equipment. A lifetimeof 17 years is assumed for gas boilers and 18 years for air-water heat pumps. Fuel prices correspond to average
residential consumer prices for electricity and natural gas, including taxes, for the first semesters of 2021 and 2022.
Calculations use a discount rate of 3% and assume national household average heat demand for Italy and Sweden, andheat demand corresponding to the heating degree days of Paris, Berlin, Edinburgh and Detroit (colder climate than thenational average) for France, Germany, the United Kingdom and the United States. Subsides correspond to minimum
available subsidies for a household with median income. They reflect available grants, tax credits and reduced tax rates. In
practice, higher subsidies may be available for low-income households or for higher investment costs or high-efficiency
heat pumps, depending on the country.

In addition to direct public investment support, alternative business models (e.g.
on-bill financing, leasing, energy performance contracts and heat-as-a-service)
can also play a pivotal role in reducing or eliminating investment challenges forhouseholds. The two latter options can also help overcome split-incentive barriers.
Investment costs for heat pumps are expected to decline gradually over thisdecade as markets expand, suppliers benefit from economies of scale, andgreater competition puts pressure on prices. Automation and standardisation ofparts could further reduce component, installation and repair and maintenancecosts, while the development of plug-and-play designs could make installation
faster and more affordable. However, clear, stable policy signals are needed for
manufacturers to commit to investments in process upgrades. Targeting serial
installations across similar buildings in the same neighbourhood could also help
mutualise logistical costs.

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Beyond cost-competitiveness challenges, a number of non-cost obstacles mustalso be addressed to mainstream heat pump adoption. For instance, information
campaigns as well as independent and free audits to inform heating system
replacement decisions can raise awareness and confidence in the technology’s
potential benefits, while regulatory changes can make decision making andpermitting for collective buildings simpler. Finally, depending on the building,Renewables 2022
Analysis and forecasts to 2027

Chapter 4: Trends to watch

PAGE | 155

I EA. CC BY 4.0.

application specificities, and local energy source availability, other renewable heat
options such as solar thermal and bioenergy may sometimes be easier or more
economical to implement.

Renewables 2022
Analysis and forecasts to 2027

Annexes

General annexAbbreviations and acronyms
American Clean Power Association
Australian Energy Market Operator
Agencia Nacional de Energia Electrica
American Wind Energy Association
Basic Customs Duty
Council on Energy, Environment and Water
Contract for difference
Comisón Nacional de los Mercados y La Competencia
Carbon Offsetting and Reduction Scheme for International Aviation
Concentrated solar power
Distribution companies
Domestic Renewable Heat Incentive
European Bank for Reconstruction and Development
European heating industry
European Heat Pump Association
Environmental Protection Agency
European Renewable Energy Foundation
European Solar Thermal Industry Federation
Feed-in premium
Feed-in tariff
Green Certificate
General Electric
Gestore dei Servizi Energetici
Hydroprocessed esters and fatty acids
Hydrogenated vegetable oil
International Air Transport Association
International Civil Aviation Organization
Institute of Energy Economics Japan
International Hydropower Association
International Maritime Organization
International Renewable Energy Agency
Investment tax credit
Middle East and North Africa
Monthly Oil Data Service
National Energy and Climate Plans
National Renewable Energy Laboratory
Power purchase agreements
Pumped storage hydropower
Production tax credit
Renewable Energy Zones
Renewable Fuel Standard
Renewable Industry Advisory Board
Renewable Identification Number
Renewable portfolio standard
Recovery and Resilience Facility
Sustainable aviation fuel

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I EA. CC BY 4.0.

ACPA
AEMO
ANEEL
AWEA
BCD
CEEW
CfD
CNMC
CORSIACSPDISCOM
DRHI
EBRD
EHI
EHPA
EPA
EREF
ESTIF
FIP
FIT
GC
GE
GSE
HEFA
HVO
IATA
ICAO
IEEJ
IHA
IMO
IRENA
ITC
MENA
MODS
NECP
NREL
PPA
PSH
PTC
REZ
RFS
RIAB
RIN
RPS
RRF
SAF

Renewables 2022
Analysis and forecasts to 2027

SMP
TCP
TRNC
VAT
VRE
WTPI

Annexes

System marginal priceTechnology Collaboration Programme
Turkish Republic of Northern Cyprus
Value added tax
Variable renewable energy
Wind Turbine Price Index

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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Unless otherwise indicated, all material presented in figures and tables isderived from IEA data and analysis.
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