Renewables
2021

Analysis and forecast to 2026

INTERNATIONAL ENERGYAGENCYThe IEA examines thefull spectrumof energy issues
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Renewables 2021
Analysis and forecasts to 2026

Abstract

Abstract
Renewables 2021 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 2026 while also exploring
key challenges to the industry and identifying barriers to faster growth.
Renewables are the backbone of any energy transition to achieve net zero. As theworld increasingly shifts away from carbon emitting fossil fuels, understanding thecurrent role renewables play in the decarbonisation of multiple sectors is key toensuring a smooth pathway to net zero.
While renewables continued to be deployed at a strong pace during the Covid-19
crisis, they face new opportunities and challenges. This year’s report frames
current policy and market dynamics while placing the recent rise in energy andcommodities prices in context. In addition to providing detailed market analysis
and forecasts, Renewables 2021 also explores trends to watch including storage,
producing hydrogen from renewable electricity, stimulus packages, aviation

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biofuels and residential heating.

Renewables 2021
Analysis and forecasts to 2026

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 Grecia Rodríguez
Jiménez, 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:
Nadim Abilllama, Ali Al-Saffar, Carlos Alvarez Fernandez, Lucila Arboleya, Elisa
Asmelash, Praveen Bains, Christophe Barret, Jose, Bermudez Menendez, Sylvia
Beyer, Toril Bosoni, Stéphanie Bouckaert, Davide d’Ambrosio, Peter Fraser,
Astha Gupta, Ilkka Hannula, César Alejandro Hernandez, Joerg Husar, Kevin
Lane, Stefan Lorenczik, Dionisia Lyngopoulou, Yannick Monschauer, Apostolos
Petropoulos, Kristine Petrosyan, Uwe Remme, Luis Fernando Rosa, Michael
Oppermann, Gabriel Saive, Jacopo Tattini, Jacob Teter, Nicole Thomas, Aad Van
Bohemen, Peerapat Vithayasrichareon, Timothy Goodson, Ariane Millot, FabianVoswinkel, Brent Wanner, Daniel Wetzel.
Timely data from the IEA Energy Data Centre were fundamental to the report, withparticular assistance provided by Mathilde Daugy, Julia Guyon, Nick Johnstone,
Julian Prime, Céline Rouquette 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

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IEA. All rights reserved.

partner countries and other international institutions. The work also benefited from

Renewables 2021
Analysis and forecasts to 2026

Acknowledgements

feedback by the IEA Committee on Energy Research and Technology, IEA
Technology Collaboration Programmes (IEA TCPs).
Many experts from outside of the IEA provided valuable input, commented andreviewed this report. They include:
Countries:
Austria (Austrian Energy Agency), Belgium (Federal Public Service Economy),
Brazil (Empresa de Pesquisa Energética), Canada (Natural Resources Canada),
Chile (Ministry of Energy), People’s Republic of China (Energy Research Institute– ERI), Colombia (Unidad de Planeación Minero Energética), European Union(European Commission – DG Energy), Finland ( Ministry of Economic Affairs andEmployment), France (Ministry of Ecological and Solidarity Transition), Italy(National Agency for New Technologies, Energy and Sustainable Economic
Development ENEA), Ireland (Sustainable Energy Authority – SEAI), Japan(Ministry of Economy, Trade and Industry - METI), Spain (Institute for Energy
Diversification and Energy Saving - IDAE), Switzerland (Federal Office of Energy),
United States (Department of Energy).
Technology Collaboration Programme (TCPs):
Bioenergy TCP, Heat Pumping Technologies (HPT) TCP, Hydropower TCP,
Photovoltaic Power Systems (PVPS) TCP, Solar Heating and Cooling TCP,
SolarPACES TCP, Wind Energy TCP.
Other Organisations:
Abengoa Solar, Acciona Energía, American Clean Power Association (ACPA),
American Wind Energy Association (AWEA), Amrock Pty Ltd, Australian Energy
Market Operator (AEMO), Council on Energy, Environment and Water (CEEW),
Electric Power Development Company (JPOWER), Électricité de France (EDF),
ENEL, Energy Insights Ltd, European Bank for Reconstruction and Development(EBRD), European Commission, European Geothermal Energy Association(EGEC), European Bioenergy (AEBIOM), EA Energy Analyses, European Heat
Pump Association (EHPA), European heating industry (EHI), European
Renewable

EnergyFoundation(EREF),

EuropeanRenewable

Ethanol

Association (EPURE), European Solar Thermal Industry Federation (ESTIF), First
Solar, FTI Consulting, General Electric (GE), Gestore dei Servizi Energetici(GSE). Global Wind Energy Association (GWEC), Iberdrola, Institute of Energy
Economics

Japan(IEEJ),

International

Hydropower

Association(IHA),

International Renewable Energy Agency (IRENA), National Renewable Energy

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Laboratory (NREL), Neste, Ørsted, POET, Queen’s University, REN21, SiemensRenewables 2021
Analysis and forecasts to 2026

Acknowledgements

Gamesa, Solar Power Europe, SPV Market Research, TECSOL, SOLISART,
United Nations Economic Commission for Europe (UNECE), US Grains Council,
Università Degli Studi di Firenze, Vestas, WindEurope, World Bank, World
Bioenergy Association.
The authors would also like to thank Justin French-Brooks for skilfully editing themanuscript and the IEA Communication and Digital Office, in particular Jon
Custer, Astrid Dumond, Merve Erdem, Christopher Gully, Jad Mouawad, Barbara
Moure, Jethro Mullen, Julie Puech, Robert Stone and Therese Walsh for theirassistance. In addition, Ivo Letra from the Office of Management andAdministration supported data management.
Questions or comments?

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

Renewables 2021
Analysis and forecasts to 2026

Tables of contents

Table of contents
Executive summary ................................................................................................................ 14
Improved policies and COP26 climate goals are set to propel renewable electricity growth to
new heights .............................................................................................................................. 14
Despite rising prices, solar PV will set new records and wind will grow faster than over theprevious five years ................................................................................................................... 15
Asia is set to overtake Europe as India and Indonesia lead renewed growth in global demandfor biofuels ................................................................................................................................ 16
Renewable heat has gained some policy momentum, but its market share is not set toincrease significantly ................................................................................................................ 16High commodity and energy prices bring significant uncertainties .......................................... 17
Supported by the right policies, recovery spending on renewables could unleash a huge waveof private capital ....................................................................................................................... 18
Faster growth of renewables is within reach but requires addressing persistent challenges .. 18
Renewables’ penetration in to hard-to-decarbonise sectors is slowly emerging and promises abright future .............................................................................................................................. 19
Renewables need to grow faster than our forecasts to close the gap with a pathway to net
zero by 2050............................................................................................................................. 19

Chapter 1. Renewable electricity .......................................................................................... 21
Forecast summary ................................................................................................................ 21
Renewable capacity additions are set to grow faster than ever in the next five years, but the
expansion trend is not on track to meet the IEA Net Zero by 2050 Scenario .......................... 21
Growing policy momentum worldwide is driving our forecast upward ..................................... 22
Government-led auction capacity is in slight decline, but is compensated by robust corporate
PPA activity .............................................................................................................................. 24
Top-10 countries continue to dominate renewables expansion, indicating that more diversity isneeded ..................................................................................................................................... 25
Solar PV breaks new records in our forecast, despite rising prices ......................................... 26
Low wind conditions and droughts in key markets hamper more rapid growth of renewablegeneration in 2021 ................................................................................................................... 30
Achieving the IEA Net Zero by 2050 Scenario requires policy makers to significantly increase
their ambition for all renewables .............................................................................................. 34

Country and regional analysis .............................................................................................. 35
China ........................................................................................................................................ 35
United States ............................................................................................................................ 37
Asia Pacific ............................................................................................................................... 40
India .......................................................................................................................................... 41
Japan ........................................................................................................................................ 45
Korea ........................................................................................................................................ 46
ASEAN ..................................................................................................................................... 47

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Australia ................................................................................................................................... 50

Renewables 2021
Analysis and forecasts to 2026

Tables of contents

Europe ...................................................................................................................................... 52
Germany................................................................................................................................... 54
Spain ........................................................................................................................................ 56
France ...................................................................................................................................... 58
The Netherlands ....................................................................................................................... 60
Turkey ...................................................................................................................................... 62
Poland ...................................................................................................................................... 64
Italy ........................................................................................................................................... 65
United Kingdom ........................................................................................................................ 67
Denmark ................................................................................................................................... 68
Belgium .................................................................................................................................... 69
Latin America ........................................................................................................................... 71
Sub-Saharan Africa .................................................................................................................. 78
Middle East and North Africa ................................................................................................... 81

References ............................................................................................................................ 84
Chapter 2. Biofuels ................................................................................................................. 89
Forecast summary ................................................................................................................ 89
Biofuels recover in 2021 despite high costs ............................................................................. 89
Asia to surpass European biofuel production before 2026 ...................................................... 90
Ethanol and renewable diesel lead biofuels growth ................................................................. 91
Four policy discussions to watch that will help double biofuel growth rates ............................ 91

Demand and supply .............................................................................................................. 93
Asia surpasses European biofuel demand and supply ............................................................ 95
Different fuels for different parts of the world ........................................................................... 96
Fuel demand and government policies are driving different supply outcomes in different
regions ...................................................................................................................................... 98
Biofuel demand growth doubles in the accelerated case ...................................................... 102
Biofuels need to expand faster to align with the IEA Net Zero by 2050 Scenario ................. 105

Trade ................................................................................................................................... 107
Renewable diesel and biojet lead growth in net trade ........................................................... 108
Singapore climbs to second largest exporter, while top importers remain the same ............ 109
Ethanol and biojet import demand drives trade growth in the accelerated case ................... 110

References .......................................................................................................................... 111
Chapter 3. Renewable heat.................................................................................................. 114
Recent trends ...................................................................................................................... 114
Global progress on conversion to renewable heat has been limited ..................................... 114

Policy update....................................................................................................................... 115
Renewable heat has gained some policy momentum, but not enough to put the heat sector on
track to meet climate ambitions.............................................................................................. 115

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Outlook to 2026 ................................................................................................................... 122

Renewables 2021
Analysis and forecasts to 2026

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Buildings ................................................................................................................................. 123
Industry................................................................................................................................... 125

References .......................................................................................................................... 129
Chapter 4. Renewable energy trends to watch ................................................................. 133
What is the impact of increasing commodity and energy prices on solar PV, wind andbiofuels? .............................................................................................................................. 133
Wind and solar PV ................................................................................................................. 133
How do commodity prices affect the investment costs of solar PV and onshore wind? ........ 134
Rising energy prices and trade policies put additional upward price pressure on wind andsolar ........................................................................................................................................ 138
Despite rising equipment prices, wind and solar remain competitive .................................... 140

How much will renewable energy benefit from global stimulus packages? ....................... 145
Focus on the EU Recovery and Resilience Facility ............................................................... 148

Could the green hydrogen boom lead to additional renewable capacity by 2026? ........... 151
How rapidly will the global electricity storage market grow by 2026? ................................ 154
Are conditions right for biojet to take flight over the next five years? ................................. 157
Condition 1 – Confidence in biojet ......................................................................................... 158
Condition 2 – Costs ................................................................................................................ 159
Condition 3 – Policies ............................................................................................................. 160
Condition 4 – Production ........................................................................................................ 161
Condition 5 – Feedstock sustainability ................................................................................... 162

Are renewable heating options cost-competitive with fossil fuels in the residential sector?
............................................................................................................................................. 163
Upfront costs .......................................................................................................................... 163
Operating costs ...................................................................................................................... 165
Overall cost-competitiveness of heating technologies ........................................................... 166

References .......................................................................................................................... 168
General annex ....................................................................................................................... 172
Abbreviations and acronyms............................................................................................... 172
Units of measure ................................................................................................................. 173

List of boxes
Box 2.1

India has tripled ethanol demand over the past five years, putting it on track to be
the world’s third-largest ethanol consumer by 2026 .............................................. 100

List of figures

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Average annual renewable capacity additions and cumulative installed capacity,historical, forecasts and IEA Net Zero Scenario, 2009-2026 ................................... 22

Renewables 2021
Analysis and forecasts to 2026

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IEA five-year renewable capacity forecasts by country/region, main case, 2021
and 2021 ................................................................................................................. 23
Renewable electricity auctioned capacity by country/region, 2015-2021 (left)
and by technology and corporate PPAs, 2015-2021 (right) ..................................... 24
Auction-awarded renewable capacity by contract duration, 2017-2021 .................. 25
Top-ten countries’ share of total installed renewable capacity, historical and maincase forecast, 1991-2026 ......................................................................................... 26
Annual capacity additions of solar PV, wind and other renewables, main andaccelerated cases, 2020-2026 ................................................................................. 27
Solar PV and onshore wind capacity additions, actual and forecast bycountry/region, 2015-2026 ....................................................................................... 28
Hydropower and wind electricity generation growth in selected markets, 20152020 average and 2021 ........................................................................................... 30
Renewable electricity generation by technology, 1990-2026 (left) and share bytechnology, 1990-2026 (right) .................................................................................. 31
Share of wind, solar PV, hydropower and all renewables in total electricity
generation, 2000-2026 ............................................................................................. 32
Wind and solar PV generation curtailment by country ............................................. 33
Average annual capacity additions by technology, actual, forecasts and IEANet Zero Scenario, 2015-2026 ................................................................................. 34
China renewable capacity additions, 2009-2026 (left) and non-fossil energy
target proposals for 2030 (right) ............................................................................... 35
United States renewable capacity additions, 2008-2026 (left) and solar PV andwind PPA capacity and average contract price, 2014-2020 (right) .......................... 37
United States solar and wind capacity additions, 2017-2026 (left) and low-carbon
electricity target, 2020-2030 (right) .......................................................................... 39
Asia Pacific renewable capacity additions by country, 2019-2026 (left) andcapacity additions by technology, 2015-2026 (right) ................................................ 41
India renewable capacity additions, 2009-2026 (left) and national targets for2022 and 2030 (right) ............................................................................................... 42
India renewable capacity awarded via auctions, 2018-2021 (left) and DISCOMs’
overdue payments to generators, 2019-2021 (right) ................................................ 43
Japan renewable capacity additions, 2009-2026 (left) and renewable energy
capacity targets, 2019-2030 (right) .......................................................................... 45
Korea renewable capacity additions, 2009-2026 (left) and average revenue per
MWh by technology, 2017-2020 (right) .................................................................... 47
ASEAN renewable capacity additions by country, 2019-2026 (left) and capacity
additions by technology, 2015-2026 (right) .............................................................. 49
Australia renewable capacity additions, 2009-2026 (left) and renewables
curtailment, Q1 2019-Q2 2021 (right) ...................................................................... 50
EU member states installed renewable capacity and capacity expected in 2030
based on submitted NECPs ..................................................................................... 52
Europe renewable capacity additions by country, 2009-2026 (left) and capacity
growth by technology, 2015-2026 (right) .................................................................. 54
Germany renewable capacity additions, 2019-2026 (left) and onshore windauctions (right) .......................................................................................................... 55
Spain renewable capacity additions, 2019-2026 (left) and comparison of auction
prices and wholesale electricity prices, 2018-2021 (right) ....................................... 57
France renewable capacity additions, 2009-2026 (left), and auction results, 20192020 (right) ............................................................................................................... 59
Netherlands renewable capacity additions, 2009-2026 (left) and share of budget
award by technology, 2016-2020 (right) ................................................................... 61
Turkey renewable capacity additions, 2009-2026 (left) and solar PV auction
results, 2021 (right) .................................................................................................. 63

Renewables 2021
Analysis and forecasts to 2026

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Poland’s renewable capacity additions, 2009-2026 (left), and estimated PV
and wind capacity additions resulting from renewable energy auctions, 20172021 (right) ............................................................................................................... 64
Italy renewable capacity additions, 2009-2026 (left) and FER auction results,
2019-2021 (right) ...................................................................................................... 66
United Kingdom renewable capacity additions, 2009-2026 (left), and CfD auction
results (capacity and strike prices), 2021-2026 (right) ............................................. 67
Denmark renewable capacity additions, 2009-2026 (left) and types of policy
driver by technology, 2021-2026 (right) ................................................................... 69
Belgium renewable capacity additions, 2019-2026 (left) and historical andforecast solar PV additions by region, 2011-2026 (right) ......................................... 70
Latin America capacity additions by country, 2019-2026 (left) and capacity
additions by technology, 2015-2026 (right) .............................................................. 71
Brazil renewable capacity additions, 2019-2026 (left) and awarded auction
and spot market prices, 2018-2021 (right) ............................................................... 72
Chile renewable capacity additions, 2019-2026 (left) and non-conventional
renewable generation historical share and future target and demand by
type (right) ................................................................................................................ 74
Mexico renewable capacity additions, 2019-2026 (left) and Argentina renewablecapacity additions, 2019-2026 (right) ....................................................................... 76
Colombia renewable capacity additions, 2019-2026 (left) and capacity awardedby auctions, 2019 and 2021 (right) ........................................................................... 77
Sub-Saharan Africa renewable additions by country, 2019-2026 (left) andadditions by technology and country, 2015-2026 (right) .......................................... 79
MENA renewable capacity growth by technology, 2009-2026 (left) and bycountry, 2021-2026 (right) ........................................................................................ 82
MENA solar PV growth, 2009-2026 (left) and awarded bid prices, 20142022 (right) ............................................................................................................... 83
Biofuel demand growth and share of total demand by fuel (left) and region (right),
main case, 2021-2026 .............................................................................................. 90
Biofuel demand and share of total biofuel demand in the accelerated caseversus the main case by fuel (left) and by region (right) .......................................... 92
Biofuel demand by region (left) and by fuel (right), main case, 2018-2026 ............. 93
Biofuel supply and demand growth by region and fuel, main case, 2022-2026 ...... 94
Biofuel regional demand (left) and supply (right), main case, 2018-2026 ............... 95
Biofuel demand growth by fuel (left) and share of fuel demand growth by region(right), main case, 2021-2026 .................................................................................. 97
US ethanol fuel supply (left) and Asian biodiesel and renewable diesel supply(right), main case, 2019 and 2026 ........................................................................... 99
Biofuel demand growth by region and fuel in the accelerated case, 2021-2026 ... 102
Biofuel production growth by region in the accelerated case (left) and total
production shares by region in the main and accelerated cases (right), 20212026........................................................................................................................ 103
Biofuel demand in the main case, accelerated case and the Net Zero Scenario,
2014-2026 .............................................................................................................. 105
Net trade by fuel and net trade share of demand by fuel, main case, 2020
and 2026 ................................................................................................................ 109
Top five global exporters and importers of biofuel in 2026 compared with 2021,
main case ............................................................................................................... 110
Net trade in 2021, 2026 main case and 2026 accelerated case ............................ 111
Renewable and non-renewable heat consumption and heat-related CO2
emissions in buildings and industry, world, 2010-2020.......................................... 115
Increase in renewable heat consumption by energy source (left) andcountry/region (right), 2009-2026 ........................................................................... 122

Renewables 2021
Analysis and forecasts to 2026

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Renewable heat consumption and share of total heat demand in buildings andindustry, 2014-2026................................................................................................ 123
Increase in renewable heat consumption in buildings, and share of modern
renewables and traditional uses of biomass in buildings heat demand,
selected regions, 2015-2026 .................................................................................. 125
Contribution of different factors to changes in renewable electricity consumption
in industry, selected regions, 2021-2026 ............................................................... 126
Increase in renewable heat consumption in industry and share of renewables inindustrial heat demand, selected regions, 2015-2026 ........................................... 127
Growth in renewable heat consumption and global cumulative heat-related
CO2 emissions in the IEA outlook and Net Zero Emissions Scenario, world,2021-2026 .............................................................................................................. 129
Monthly commodity and freight price indexes, 2020-2021..................................... 134
Utility-scale PV and onshore wind investment cost structure by component and bycommodity breakdown ........................................................................................... 135
Utility-scale PV and onshore wind, total investment cost change by commodityand freight input, from average 2019 prices........................................................... 136
Impact of high commodity price scenario on forecast total investment costs and
CAPEX, onshore wind and utility-scale PV, 2015-2026 ......................................... 138
Average wholesale electricity prices and LCOE of utility-scale solar PV andonshore in 2020 and in high commodity price scenario in Germany,
United Kingdom and Spain..................................................................................... 140
Demand decline in response to high prices, selected countries, 2021 .................. 142
Biofuel prices and feedstock costs in selected markets, ethanol (left) andbiodiesel (right), 2017-2021 ................................................................................... 143
Global government clean energy stimulus in response to Covid-19, allocatedup to October 2021................................................................................................. 145
Global government clean energy spending by sector and technology, allocatedup to October 2021................................................................................................. 146
Government clean energy approved spending by region and share of
renewables, allocated up to October 2021............................................................. 147
Estimated renewable capacity additions resulting from approved government
spending, depending on private financing leverage, to be commissioned
over 2021-2026 ...................................................................................................... 148
EU RFF funding allocation by country and share of clean energy ......................... 149
EU RFF fund allocation by sector and between renewables ................................. 150
EU RFF fund allocation by renewable technology or fuel ...................................... 150
Global installed electrolyser capacity in 2020 and projects planned forcommissioning, 2021-2026 (left) and additional renewable capacity forelectrolysis, 2021-2026 .......................................................................................... 151
Additional renewable capacity according to planned and announced greenhydrogen projects ................................................................................................... 152
Global planned electrolyser capacity and estimation of additional renewablecapacity by country/region...................................................................................... 153
Concentrated solar power, pumped hydro and batteries, installed storage
capacity in 2020 and 2026 ..................................................................................... 154
CSP, PSH and battery storage capability in 2020 and 2026 ................................. 156
PSH storage capability, 2021-2030 ........................................................................ 157
Fossil jet and biojet fuel production cost ranges .................................................... 159
Annual SAF demand range over the main and accelerated cases comparedwith capacity potential ............................................................................................ 160
Investment cost range for selected residential space and water heating
technologies and regions ....................................................................................... 164

Renewables 2021
Analysis and forecasts to 2026

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Average annual operating cost range for selected space and water heating
technologies and regions ....................................................................................... 165
Levelised cost of heating for consumers, for selected space and water heating
technologies and countries..................................................................................... 166

List of tables

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Main and accelerated case policy and assumption summary................................ 106
Recent policy updates encouraging the uptake of renewable heat ....................... 117
Reductions in material processing due to high energy prices, commodities used inrenewables equipment, selected examples ........................................................... 138
Trade measures targeting wind and solar PV equipment ...................................... 139

Renewables 2021
Analysis and forecasts to 2026

Executive summary

Executive summary
Improved policies and COP26 climate goals are set topropel renewable electricity growth to new heights
Additions of renewable power capacity are on track to set yet another annual
record in 2021, driven by solar PV. Almost 290 gigawatts (GW) of new
renewable power will be commissioned this year, which is 3% higher than 2020’s
already exceptional growth. Solar PV alone accounts for more than half of all
renewable power expansion in 2021, followed by wind and hydropower.
The growth of renewable capacity is forecast to accelerate in the next five
years, accounting for almost 95% of the increase in global power capacity
through 2026. We have revised up our forecast from a year earlier, as stronger
policy support and ambitious climate targets announced for COP26 outweigh thecurrent record commodity prices that have increased the costs of building new
wind and solar PV installations. Globally, renewable electricity capacity is forecast
to increase by over 60% between 2020 and 2026, reaching more than 4 800 GW.
This is equivalent to the current global power capacity of fossil fuels and nuclear
combined. Overall, China remains the leader over the next five years, accounting
for 43% of global renewable capacity growth, followed by Europe, the UnitedStates and India. These four markets alone account for 80% of renewable capacity
expansion worldwide.
China and the European Union are set to overshoot their current targets,setting the stage for a more ambitious growth trajectory. China’s commitment
to reach carbon neutrality before 2060 has led to new nearer-term targets, suchas 1 200 GW of total wind and solar PV capacity by 2030. We forecast that China
will reach this target four years early thanks to the availability of long-term
contracts, improved grid integration, and the cost competitiveness of onshore windand solar PV compared with coal generation in many provinces. The trajectory of
renewable capacity growth over the 2021-26 period indicates that renewable
power growth in the European Union as a whole is set to outpace what the current
National Energy and Climate Plans (NECPs) envision for 2030. This trend
supports the ambition of reaching the stronger targets being finalised under the“Fit for 55” programme. Rapid deployment is being driven by member countries
implementing larger auction volumes, corporations contracting for more
renewable electricity, and consumers continuing to install large amounts of solar

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panels.

Renewables 2021
Analysis and forecasts to 2026

Executive summary

Improving competitiveness, ambitious targets and policy support are
putting renewable power on course for new highs in India and the UnitedStates. Relative to existing capacity, renewable power is growing faster in India
than any other key market in the world, with new installations set to double over
our forecast period compared with 2015-20. Solar PV is expected to lead the way,driven by competitive auctions aimed at achieving the government’s ambitious
renewable power target of 500 GW by 2030. Over the 2021-26 period, theexpansion of renewable capacity in the United States is 65% greater than in theprevious five years. This is the combined result of the economic attractiveness ofwind and solar PV, increased ambition at the federal level, the extension of federal
tax credits in December 2020, a growing market for corporate power purchaseagreements, and growing support for offshore wind.

Despite rising prices, solar PV will set new records andwind will grow faster than over the previous five years
Even with surging commodity prices increasing manufacturing costs forsolar PV, its capacity additions are forecast to grow by 17% in 2021. This will
set a new annual record of almost 160 GW. Solar PV alone accounts for 60% of
all renewable capacity additions, with almost 1 100 GW becoming operational
over the forecast period in our main case, double the rate over the previous five
years. In a significant majority of countries worldwide, utility-scale solar PV is theleast costly option for adding new electricity capacity, especially amid rising natural
gas and coal prices. Utility-scale solar projects continue to provide over 60% of all
solar PV additions worldwide. Meanwhile, policy initiatives in China, the European
Union and India are boosting the deployment of commercial and residential PV
projects.
Onshore wind additions through 2026 are set to be almost 25% higher on
average than in the 2015-2020 period. Global onshore wind additions doubled
in 2020, reaching an exceptional level of almost 110 GW. This was driven by anacceleration in China as developers rushed to complete projects before subsidies
expired. While annual additions in the coming years are not expected to match
2020’s record, we forecast that they will average 75 GW per year over the 20212026 period.
Total offshore wind capacity is forecast to more than triple by 2026. By then,offshore wind additions are expected to account for one-fifth of the global windmarket, a major milestone. Global capacity additions of offshore wind are set to

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reach 21 GW by 2026, thanks to rapid expansion in new markets beyond Europe

Renewables 2021
Analysis and forecasts to 2026

Executive summary

and China. This includes large-scale projects that are expected to becommissioned in the United States, Chinese Taipei, Korea, Viet Nam, and Japan.
The expansion of dispatchable renewables is critical to support the
integration of more wind and solar, but their growth is forecast to slow
slightly. The expansion of hydropower, bioenergy, geothermal and concentrated
solar power accounts for only 11% of renewable capacity expansion worldwide
over our forecast period. Relatively higher costs, lack of policy support and limited
remuneration of flexible and dispatchable renewables discourage their expansion.

Asia is set to overtake Europe as India and Indonesia
lead renewed growth in global demand for biofuels
Following a historic decline last year amid global transport disruption, total
biofuel demand is on course to surpass 2019 levels in 2021. In our main case,annual global demand for biofuels is set to grow by 28% by 2026, reaching
186 billion litres. The United States leads in volume increases, but much of thisgrowth is a rebound from the drop caused by the pandemic. Asia accounts foralmost 30% of new production over the forecast period, overtaking European
biofuel production by 2026. This is thanks to strong domestic policies, growing
liquid fuel demand and export-driven production. Recent Indian ethanol policies
and blending targets for biodiesel in Indonesia and Malaysia are responsible formost of the growth in Asia. India is set to become the third largest market forethanol demand worldwide by 2026.

Renewable heat has gained some policy momentum, but
its market share is not set to increase significantly
Since the start of 2020, heat from renewable sources has benefited directly
or indirectly from several policy developments, mostly in Europe. Under
current policies, renewable heat consumption, excluding traditional uses ofbiomass, is expected to increase by one-quarter during the 2021-26 period. Its
share of global heat consumption is only forecast to rise from 11% in 2020 to 13%
in 2026. Fossil fuels are set to continue meeting much of the growing global
demand for heat, leading to a 5% increase in heat-related CO2 emissions over our
forecast period.
The lack of policy and financial incentives for renewable heat is preventing
faster growth. Globally, more than one-third of heat consumption is not coveredby any financial incentive for renewables, and more than half is not subject to any

PAGE | 16

IEA. All rights reserved.

renewables-related regulatory measures. The fragmented nature of heat markets

Renewables 2021
Analysis and forecasts to 2026

Executive summaryand local characteristics of heat demand partly explain the limited national policy
coverage. This makes greater collaboration with subnational actors necessary.

High commodity and energy prices bring significant
uncertainties
Rising commodity, energy and shipping prices have increased the cost of
producing and transporting solar PV modules, wind turbines and biofuels
worldwide. Since the beginning of 2020, prices for PV-grade polysilicon morethan quadrupled, steel has increased by 50%, aluminium by 80%, copper by 60%,
and freight fees have risen six-fold. Compared with commodity prices in 2019, we
estimate that investment costs for utility-scale solar PV and onshore wind are 25%
higher. In addition, restrictive trade measures have brought additional priceincreases to solar PV modules and wind turbines in key markets such as theUnited States, India and the European Union.
Around 100 GW of contracted capacity risks being delayed by commodity
price shocks. Equipment manufacturers, installers and developers are absorbing
cost increases in different ways, with some sectors being more heavily affected
than others. Smaller companies are more exposed because of their more limited
finances. Higher prices for solar PV and wind plants pose a particular challenge
for developers who won competitive auctions anticipating continuous reductions
in equipment prices. If commodity prices remain high through 2022, three years ofcosts reductions for solar and five years for wind would be erased. The increased
costs would require over USD 100 billion of additional investment to install thesame amount of capacity. This is equivalent to increasing today’s annual global
investment in renewable power capacity by about one-third.
But higher natural gas and coal prices have improved the competitivenessof wind and solar PV. For corporations, fixed-price renewable energy contracts
serve as a hedge against higher spot prices for fossil fuel energy. For
governments, higher electricity prices have not brought higher subsidies for windand solar PV, as around 90% of all wind and PV projects have long-term fixedprice purchase agreements.
Rising prices are slowing biofuels’ growth by more than 3 percentage points
in 2021 as polices changed in key markets. Compared with average 2019prices prior to the Covid-19 crisis, biofuel prices had increased between 70% and150% across the United States, Europe, Brazil and Indonesia by October 2021,
depending on the market and fuel. In response, governments have lowered

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IEA. All rights reserved.

blending mandates in Argentina, Colombia, Indonesia and Brazil, reducing

Renewables 2021
Analysis and forecasts to 2026

Executive summary

demand. We estimate these actions have reduced demand by 5 billion litres in
2021 compared with a scenario in which mandates remained unchanged or wereincreased as planned.

Supported by the right policies, recovery spending on
renewables could unleash a huge wave of private capital
Renewables – including electricity, heat, biofuels and biogas – account forjust 11% of governments’ economic recovery spending on clean energy.
Renewables are expected to receive USD 42 billion, led by solar PV and offshore
wind. But greater public spending on renewable power could mobilise more than
USD 400 billion of total investment. If appropriate enabling policies and regulatory
frameworks were implemented, almost 400 GW of additional renewable projects– led by solar and wind -- could be deployed over our forecast period, equal to theentire installed power capacity of the Middle East. However, the level of private
sector contribution will depend on the effectiveness of the policies andimplementation measures supporting the new investment.
Despite their important role in decarbonising key sectors, biofuels andbiogas were allocated less than USD 5.5 billion of government economic
recovery spending. Renewable heat technologies also saw a limited publicfunding. Both industries would strongly benefit from enhanced recovery stimulus
programmes.

Faster growth of renewables is within reach but requires
addressing persistent challenges
Governments need to address four main barriers to accelerate renewables
deployment. For wind and solar PV projects in advanced economies, various
challenges to permitting and grid integration have led to lower-than-planned
capacity being awarded in government auctions. In emerging and developing
economies, stop-and-go policies, the lack of grid availability and risks concerning
off-takers’ financial health are hurting investor confidence, resulting in elevatedfinancing rates. Lack of remuneration and targeted policy support for flexibility are
an issue in all countries. In addition, challenges concerning social acceptance ofwind and hydropower projects caused an increasing number of countries to delay
or cancel planned projects.
In our accelerated case, annual renewable capacity additions in the next five
years could be one-quarter higher than in our main case, reaching more than

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IEA. All rights reserved.

380 GW per year on average. Our accelerated case assumes that governments

Renewables 2021
Analysis and forecasts to 2026

Executive summary

address the above-mentioned policy, regulatory and implementation challenges in
the next 12-24 months. Moreover, the stabilisation and eventual decline ofcommodity prices and increasing volumes of affordable financing from the private
sector all contribute to the accelerated growth of renewable electricity capacity.
Biofuels demand growth could more than double between 2021-2026 in our
accelerated case. Increasing biofuel demand and production hinges on stronger
policies that address cost, sustainability and technical limitations. India, theEuropean Union, the United States, China and other countries are all considering
or implementing strengthened biofuels policies. However, relatively higher cost of
biofuels compared with gasoline or diesel in most markets remain a key challenge,
limiting policy ambition or how well biofuels compete with other emission reduction
technologies. Uncertainty over the availability of sustainable feedstocks andtechnical constraints are also important barriers.

Renewables’ penetration in to hard-to-decarbonise
sectors is slowly emerging and promises a bright future
Policy momentum supporting the production of hydrogen from renewables
and biojet has stimulated a large number of projects. If realised, planned
projects indicate that global electrolyser capacity for hydrogen could stimulate thedeployment of 18 GW of additional wind and solar PV capacity in the 2021-2026
period. While this would account for only 1% of forecast growth of renewables inour main case, the fulfilment of the entire announced electrolyser capacity pipeline
could bring an additional 475 GW of wind and solar PV capacity in the longer term,
the equivalent of one-third of total installed variable renewable capacity today.
Biojet technology is ready to fly but policies to stimulate demand lag behind.
Global biojet demand is set to range from 2 billion to 6 billion litres by 2026 in our
main and accelerated cases. The success of biofuels mainly depends on policy
discussions in the United States, Europe and potentially China. Given the low
absolute volumes proposed, feedstock sustainability will likely not prove a
constraint over the next five years. However, increasing the diversity of feedstock
supply from waste remains critical to achieve rapid expansion in the medium-term.

Renewables need to grow faster than our forecasts toclose the gap with a pathway to net zero by 2050
Globally, annual renewable power capacity additions through 2026 in the

PAGE | 19

IEA. All rights reserved.

IEA’s Net Zero Emissions by 2050 Scenario are 80% higher than in our mainRenewables 2021
Analysis and forecasts to 2026

Executive summarycase. For solar PV and wind, average annual additions would need to be almost
double what we see in our main case forecast over the next five years.
For biofuels, annual demand growth needs to quadruple. To align with the Net
Zero Emissions by 2050 Scenario, countries would need to implement existingand planned policies while also strengthening them before 2026. These policies
must ensure that biofuels are produced sustainably and avoid negative impacts
on biodiversity, freshwater systems, food prices and food availability. Policies
must also incentivise greenhouse gas reductions, not just biofuel demand. For net
zero by 2050, renewable heat demand growth needs to almost triple from the maincase.
To get renewables on track with net zero by 2050, governments not only
need to address current policy and implementation challenges but also
increase ambition for all renewable energy uses. Governments can build on
the momentum of competitive solar and wind, but they must also significantly
strengthen their policy focus on dispatchable renewable electricity and renewableenergy use in buildings, industry and transport. Governments should also consider
targeting much more economic recovery spending on renewables while also
putting in place policies and regulations enabling higher mobilisation of private

PAGE | 20

IEA. All rights reserved.

capital.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

Chapter 1. Renewable electricity
Forecast summary
Renewable capacity additions are set to grow faster thanever in the next five years, but the expansion trend is not
on track to meet the IEA Net Zero by 2050 Scenario
Annual additions to global renewable electricity capacity are expected to averagearound 305 GW per year between 2021 and 2026 in the IEA main case forecast.
This implies an acceleration of almost 60% compared to renewables’ expansion
over the last five years. Continuous policy support in more than 130 countries,
ambitious net zero goals announced by nations accounting for almost 90% of
global GDP, and improving competitiveness of wind and solar PV are all driving
this expansion. Nonetheless, despite this growing support, renewables face a
range of policy uncertainties and implementation challenges, including thoserelating to financing, permitting, social acceptance and grid integration. Current
increases in commodity prices have put upward pressure on investment costs,
while the availability of raw materials and rising electricity prices in some markets
pose additional challenges for wind and solar PV manufacturers in the short term.
However, the impact of volatile commodity and transport prices on demand are
expected to be limited, as high fossil fuel prices improve the competitiveness ofwind and solar PV further (see Chapter 4 for more detailed analysis).
Our accelerated case assumes that governments address policy, regulatory andimplementation challenges in the next couple of years. The stabilisation andeventual decline of commodity prices to levels observed over 2015-2019 and more
affordable financing from the private sector also contribute to the accelerated
growth of renewable electricity in this case. Accordingly, annual renewablecapacity additions are a quarter higher than in our main case, reaching over 380
GW on average over 2021-2026. However, the gap between both our main andaccelerated case forecasts and the trajectory necessary to meet Net Zero by 2050
remains significant. Annual capacity growth under the IEA Net Zero Scenario
during 2021-2026 needs to be 80% faster than in our accelerated case, implyingthat governments need to not only address policy and implementation challenges,

PAGE | 21

IEA. All rights reserved.

but also to increase their ambition.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

600

7 500

500

GW

GW

Average annual renewable capacity additions and cumulative installedcapacity, historical, forecasts and IEA Net Zero Scenario, 2009-2026

6 000

400

4 500

300
3 000

200

1 500

100
0

2009-142015-20
Historical

Average annual additions

2021-262021-262021-26

Main caseAccelerated case

IEA Net Zero by2050

0

Cumulative capacity at the end of the period (right axis)

Source: IEA (2021a), Net Zero by 2050.

Growing policy momentum worldwide is driving ourforecast upward
Globally, we anticipate renewable capacity to expand by over 1 800 GW, or over
60%, in our main case forecast to 2026, accounting for almost 95% of the increase
in total power capacity worldwide. Overall, People’s Republic of China (hereafter‘China’) remains the leader, accounting for 43% of global growth, followed by
Europe, the United States and India. These four markets alone provide almost
80% of renewable capacity expansion worldwide. We have revised the forecast
up from last year, with China alone accounting for about 60% of the revision. For
China, last year’s forecast reflected the phase-out of subsidies at the end of 2020
and the resulting policy uncertainty for onshore wind and solar PV. However,China’s subsequent commitment to net zero by 2060 has led to new targets, suchas 40% of all electricity consumed to be from non-fossil generation by 2030 and acapacity target of 1 200 GW wind and solar PV by the same year, all reflected in
our updated forecast.
In Europe, the upward revision stems from larger auction volumes in most EU
member countries to accelerate deployment towards 2030 renewable energy
targets, a growing market for corporate power purchase agreements (PPAs) andthe increasing attractiveness of self-consumption for distributed PV. The economic
recovery plan for Europe, which will provide over EUR 800 billion (USD 940 billion)in the form of loans and grants, should partly contribute to facilitating the financing

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IEA. All rights reserved.

of renewables. Our main case renewable capacity growth trajectory shows that

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

the European Union is set to overachieve the country plans for 2030 stated incurrent National Energy and Climate Plans (NECPs), supporting higher targets
under the “Fit for 55” programme (55% emissions reduction by 2030), which is
expected to be finalised in 2023 or 2024.
In the United States, favourable wind and solar PV economics, and increased
ambition at the federal level drive renewables to new highs. The continuation offederal tax credits in December 2020, a growing corporate PPA market andincreasing federal and state-level support for offshore wind all drive higher
capacity additions in our main case forecast.

GW

IEA five-year renewable capacity forecasts by country/region, main case,2021 and 2021
2 000

Other countries

1 800

Sub-Saharan Africa

1 600

MENA

1 400

ASEAN

1 200

Latin America

1 000
800

India

600

United States

400

Europe

200
0

China
Renewables 2020 main caseRenewables 2021 main case

IEA. All rights reserved.
Notes: ASEAN = Association of Southeast Asian Nations; MENA = Middle East and North Africa. Renewables 2020
forecast covers the period 2020-2025; Renewables 2021 forecast covers the period of 2021-2026.

An improved policy environment and higher targets in multiple countries in Asia
Pacific result in more optimistic renewable capacity growth in the region. In India
the forecast is slightly revised upward, especially for solar PV, due to deployment
acceleration towards the government’s ambitious renewables target of 500 GW
by 2030 and additional policies introduced to improve the attractiveness of
distributed PV. Higher renewable energy targets for 2030 in Japan, improved
incentive schemes providing stable remuneration for solar PV developers in Korea
and increased capacity targets in Viet Nam all support our higher forecast.

PAGE | 23

IEA. All rights reserved.

In Latin America, resumed competitive auctions following delays due to the Covid19 crisis remain a key driver for utility-scale wind and solar PV development. In
addition, deployment outside government policy schemes through bilateralcontracts is rising in the region, especially in Brazil and Chile, leading to upwardrevisions for variable renewables.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

In sub-Saharan Africa, faster commissioning of large hydropower plants to meetfinancing and construction deadlines, new auctions and project announcements
lead to a higher forecast. In the Middle East and North Africa our forecast is slightly
higher compared with last year. Although solar PV’s competitiveness drives
renewables expansion in the region, the faster pace is challenged by slower
electricity demand and insufficient grid infrastructure.

Government-led auction capacity is in slight decline, but
is compensated by robust corporate PPA activity
Between January and November 2021 globally awarded auction capacity fell by
11% compared with the same period in 2020. The end of the central solar PV
auction scheme in China played a critical role in this decline. Excluding China,
governments around the globe awarded 4% more auction capacity in the first 11
months of this year compared with the same period last year as countries in Latin
America resumed tendering capacity. Corporate PPAs partially compensated forlower auction capacity, especially in Europe and North America – their volumes
remained robust from January to November 2021 and are on track to reach record
procurement by the year end. Global average contract prices from governmentled auctions continued to decline for PV this year thanks to low bids in India andthe Middle East, while onshore wind contract prices increased in 2019 and 2020
due to more capacity auctioned in Europe, where average prices are higher thanin Latin America and India.

80
70

120

80

100

70

80

60
50

60
50

60

40
30

40

40

20

30
20

20

10
0

90

0

2015 2016 2017 2018 2019 2020 2021*

EuropeUnited States

Latin America
Other countries

102015 2016 2017 2018 2019 2020 2021*

Corporate PPAs
Onshore windHybrid auctions
PV price (right axis)

India
China

USD/MWh

90

GW

GW

Renewable electricity auctioned capacity by country/region, 2015-2021(left) and by technology and corporate PPAs, 2015-2021 (right)

0

Solar PV
Offshore wind
Other renewables
Wind price (right axis)

IEA. All rights reserved.

PAGE | 24

IEA. All rights reserved.

* January to October.
Note: PPAs = power purchase agreements . Wind and solar PV price refers to global weighted average from auctions andexcludes prices for corporate PPAs, for which the data are not complete.
Source: Corporate PPA volumes from BNEF (2021a).

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

Long-term contracts play a key role in facilitating the financing of wind and solar
PV projects globally. Government-led auctions usually provide 20-year PPAs,
accounting for almost half of all awarded contracts from 2017 to 2021. In India thestandard contract duration is 25 years, as longer contract periods help developers
offset risks associated with offtakers’ financial health, providing firm pricing for
financing. Between 2019 and 2021 the volume of contracts shorter than 20 years
increased in Europe, mostly due to the United Kingdom’s offshore contracts fordifference, which are for 15 years. Shorter contracts encourage developers to
prepare for market prices at an earlier date, while also providing flexibility for otherrevenue streams (e.g. bilateral PPAs) with large consumers over the remaining
years of the plant’s operation.

GW

Auction-awarded renewable capacity by contract duration, 2017-2021
45

Rest of world

40

North America

35

Middle East30

Latin America

25
20

Europe

15

China

10

Asia Pacific

50Africa2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021
Below 20 years

20 years

Above 20 years

IEA. All rights reserved.

Top-10 countries continue to dominate renewables
expansion, indicating that more diversity is needed
Ten countries account for almost 80% of all renewable capacity growth over theperiod 2021-2026. China alone provides almost 45% of all renewables expansionin our forecast, followed by the United States, India and Germany. Since 1990,
worldwide renewable capacity has more than quadrupled, but the top ten growthmarkets have more or less remained the same. Even though there remains
tremendous economic and resource potential in countries outside the ten largest,these markets have seen their share stay static since the early 2000s, a trend

PAGE | 25

IEA. All rights reserved.

expected to continue over the forecast period.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

Australia
2%

Others
23%

Korea
2%
China
43%

France
2%

100%

5 000

90%

4 500

80%

4 000

70%

3 500

60%

3 000

50%

2 500

40%

2 000

Spain
2%

30%

1 500

20%

1 000

Brazil
2%

10%

500

Japan
2% Germany India
3%
7%

0%
UnitedStates12%

1991- 1997- 2003- 2009- 2015- 20211996 2002 2008 2014 2020 2026

OthersTop-ten markets

GW

Top-ten countries’ share of total installed renewable capacity, historicaland main case forecast, 1991-2026

0

Cumulative capacity*(right axis)
IEA. All rights reserved.

* Cumulative capacity = installed renewable capacity at the end of each five-year period.

Solar PV breaks new records in our forecast, despite
rising prices
Additions of renewable power capacity are on track to set yet another annual
record in 2021, driven by solar PV. Almost 290 gigawatts (GW) of new renewable
power will be commissioned this year, which is 3% higher than 2020’s alreadyexceptional growth.
In our main case forecast for 2021-2026, we expect annual average renewablecapacity additions to reach 305 GW, 58% higher than the figure for the last five
years. Despite surging commodity prices increasingly affecting solar PV
investment costs (see Chapter 4 for further analysis), we expect the annual market
to grow by 17% year-on-year to almost 160 GW in 2021 with additions reachingalmost 200 GW in 2026. In the significant majority of countries worldwide, utilityscale solar PV provides the lowest cost of adding new electricity capacity,
especially in the context of increasing natural gas prices.
Overall, solar PV alone accounts for almost 60% of all renewable capacity
additions, with almost 1 100 GW becoming operational over the forecast period in
our main case. The expansion of solar PV capacity in the next five years is
expected to be almost double that of the previous five years. Utility-scale projects
continue to provide over 60% of all solar PV additions worldwide. Annual additions

PAGE | 26

IEA. All rights reserved.

of distributed PV are increasing thanks to policy initiatives in China, theRenewables 2021
Analysis and forecasts to 2026

Renewable electricity

European Union and India stimulating the deployment of commercial andresidential projects.

300
250
200
150
100
50

Solar PV
Accelerated case
Offshore windWind
Other renewables
Onshore wind

Bioenergy
Distributed PV

2026

2025

2024

2023

2022

2021

2020

2026

2025

2024

2023

2022

2021

2020

2026

2025

2024

2023

2022

2021

0

2020

Other renewables
Hydropower
Utility-scale PV

IEA. All rights reserved.

Under the accelerated case, total growth of global solar PV capacity could be 22%
higher with annual additions growing continuously, reaching almost 260 GW by2026. The upside is largest in key markets such as China, Europe, theUnited States and India, but considerable growth potential remains in nascentmarkets such as sub-Saharan Africa and the Middle East. However, reaching theaccelerated case will require the major markets to address their persistent
challenges. These are the highlights:
China: Clarify the rules around the new renewable portfolio standard and green
certificate scheme for utility-scale and large-scale commercial applications.
Continue support for residential solar PV following the phase-out of incentives in
2021.
United States: Extend investment tax credits and the monetisation of credits
through a direct-pay scheme.
India: Improve the distribution companies’ financial health, reducing delays insigning PPAs following solar PV auctions, accelerate grid expansion and improve
the remuneration for distributed PV applications.
European Union: Increase auction capacity and improve participation rates inutility and large commercial-scale auctions via smoother permitting procedures
when these are required for bidding. Increase support for distributed solar PV
through the EU resilience and recovery fund.

PAGE | 27

IEA. All rights reserved.

GW

Annual capacity additions of solar PV, wind and other renewables, main
and accelerated cases, 2020-2026

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

Japan: Smooth the transition to the feed-in premium (FIP) scheme to build up a
declining project pipeline from the former feed-in tariff (FIT).
Middle East and North Africa: Increase the frequency of auction rounds, andspeed up bidder selection and contractual negotiations to accelerate utility-scale
PV rollout. More rapid expansion of transmission and distribution grids allows theconnection of additional solar PV capacity.

GW

Solar PV and onshore wind capacity additions, actual and forecast bycountry/region, 2015-2026
Solar PV

1 400

Others

1 200

SSAFR
MENA

1 000

Latin America

800

ASEAN

600

India

400
200
0

1 000
800
600
400

Europe2002021-26 main 2021-26 acc.
case
case

Onshore wind

1 200

United States

China
2015-20

1 400

02015-202021-26 main 2021-26 acc.
case
case

IEA. All rights reserved.
Note: acc. case = accelerated case; ASEAN = Association of Southeast Asian Nations; MENA = Middle East and North
Africa; SSAFR = sub-Saharan Africa.

Global onshore wind additions reached almost 108 GW in 2020, driven byacceleration in China as developers rushed to complete projects before the expiryof subsidies. Our forecast expects lower onshore wind growth through the forecast
period, averaging 75 GW a year. Still, this is almost 25% higher than averageannual additions between 2015 and 2020. China, Europe and the United States
together account for 80% of global onshore wind expansion over 2021-2026.

PAGE | 28

IEA. All rights reserved.

In general, the challenges of permitting, social acceptance, grid connection andintegration combined to limit faster onshore wind growth. These challenges
prevent developers from participating in wind-specific or technology-neutral
auctions, especially when permitting and grid connection agreements are requiredfor participation. In addition, higher steel and transport costs have seen turbine
prices rise by 10-25% in several markets, increasing challenges associated withproject financing and profitability. In our accelerated case, global onshore windcapacity growth is almost 30% higher, assuming that governments tackle social
acceptance and expand network capacity faster and tackle grid integration
challenges. In addition, the accelerated case assumes countries introduce higher

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

auction capacity or increase auction participation as a result of smootherpermitting. In this case, annual additions reach 110 GW by 2026, slightly higher
than the record level achieved in 2020.
The offshore wind market is forecast to accelerate in 2021, with additions reaching
11 GW, almost double compared with last year. This is driven by expansion in
China, as developers rush to secure expiring national subsidies. Despite China’s
growth slowing through to 2026, offshore annual capacity additions reach 21 GW
globally thanks to rapid expansion in new markets beyond the United Kingdom,
Germany, Belgium, Denmark and the Netherlands. Large-scale projects are
expected to be commissioned in France, Chinese Taipei, Korea, Viet Nam, Japanand the United States in the next five years, pushing our forecast up. Cumulative
offshore capacity is forecast to more than triple by 2026, reaching almost 120 GW.
The share of offshore capacity in overall annual wind additions reaches over 20%
in the main case, up from 5% in 2020, breaking a record at the end of our forecast
period. However, faster offshore and onshore grid expansion in the
United Kingdom and the European Union, rapid cost decline and strong provinciallevel policies in China, and the early-commissioning of large-scale pipeline in the
United States together could push cumulative global offshore wind capacity to
134 GW in 2026 in the accelerated case.
The growth of dispatchable renewables such as hydropower, bioenergy,
geothermal and CSP slows by 5% compared with expansion over 2015-2020.
Relatively higher investment and generation costs compared with wind and solarPV, the lack of policy support and limited recognition of the flexibility of
dispatchable renewables prevent their faster expansion. For hydropower, annual
additions are volatile according to the commissioning deadlines of large reservoir
projects in China, India and Turkey. These three large markets drive our maincase forecast of 153 GW over 2021-2026, which is similar to the deployment
achieved in the last five years. Considering long environmental permitting andconstruction times, the upside for hydropower remains limited in the next five
years.

PAGE | 29

IEA. All rights reserved.

Expansion of bioenergy for power capacity is expected to slow by 10% over theforecast period. China provides almost 60% of this new capacity due to waste-toenergy projects driven by growing urbanisation. Beyond China, supply chain
challenges, lack of policy support and relatively high generation costs contributeto the slowdown in expansion. Despite its great resource potential, geothermal
growth is limited to less than 5 GW over 2021-2026, representing only 0.2% of ourforecasted renewable capacity expansion. Limited policy support to address thetechnology’s pre-development risks hampers investment in large-scale
geothermal projects. For CSP, we expect less than 3 GW to be commissioned by
2026. Relatively high investment costs, lack of dedicated auctions and competition
from solar PV and battery storage projects prevent faster expansion of CSP.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

Low wind conditions and droughts in key markets
hamper more rapid growth of renewable generation in
2021
In 2021 renewable electricity generation is forecast to increase year-on-year by
6% and reach over 7 900 TWh, slightly higher than the average annual growthrate observed during 2015-2020. Conversely, the expansion rate of cumulative
capacity in 2021 is faster over the same time period. This decoupling is mainly
due to weather conditions in key markets affecting wind and hydropower
generation. Without these conditions, renewable electricity generation would be
up by almost 9% in 2021 compared with 2020.
Severe drought conditions in Brazil, the United States, China and Turkey have
limited global hydropower generation. As a result, our forecast expects
hydropower generation to remain stable compared with 2020, ending the annual
increases seen since 2001. Wind electricity generation is expected to increase by
14%, or almost 220 TWh, worldwide in 2021; however, geographical variations
due to adverse weather conditions prevent much faster annual growth. The
European Union is set to see wind generation decline by 3% due to low windconditions. This is the first annual decline in more than three decades, comparedwith 10% (or 30 TWh) average growth per year between 2015-20. Strong capacity
growth and normal wind conditions in Brazil, China, India and the United States
make up for slowing growth in other key markets.

250

European Union

200

Brazil

150

India

100
50

United States0

Turkey

- 50

China

- 100
- 150

World
2015-20 average

2020-2021

2015-20 average

Hydropower

2020-2021

Wind

IEA. All rights reserved.

In our main case, renewable electricity generation is forecast to increase by almost
52% in the next five years, reaching over 11 300 TWh by 2026, two-thirds faster

PAGE | 30

IEA. All rights reserved.

TWh

Hydropower and wind electricity generation growth in selected markets,
2015-2020 average and 2021

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

than the growth seen during 2015-2020. As a result, renewables are expected toaccount for almost 37% of global electricity generation by 2026 to become thelargest source of generation. While hydropower remains the largest source of
renewable generation, its share of global electricity generation declines slightly to
15.6%. Over the forecast period, non-hydro renewables are expected to accountfor the majority of renewable generation globally for the first time. Meanwhile,
output from variable renewables (solar PV and wind) more than doubles, theirshare reaching almost 18% of global generation to surpass hydropower. Offshore
wind sees the fastest growth in the next five years (240%) among all renewables,
reaching 1.5% of total generation by 2026.

14 000% of renewables

TWh

Renewable electricity generation by technology, 1990-2026 (left) andshare by technology, 1990-2026 (right)

12 000
10 000
8 000

40%
35%
30%
25%
20%

6 000

15%

4 000

10%

2 000
0

5%
0%

1990 1996 2002 2008 2014 2020 2026

Hydropower

Onshore wind

Offshore wind

Solar PV

1990 1996 2002 2008 2014 2020 2026
Bioenergy

CSP

Geothermal

Ocean

IEA. All rights reserved.
Note: CSP = Concentrated solar power
Sources: IEA analysis based on total electricity generation from IEA (2021b), World Energy Outlook 2021.

PAGE | 31

IEA. All rights reserved.

In China, the United States, India, the European Union and Latin America, theshare of hydropower in the generation mix is expected to decline over the forecast
period, as generation from wind and solar PV drives growth. Sub-Saharan Africa
sees all renewables growing, the share of hydropower and variable renewables
both forecast to expand, contributing to electrification in a region where energy
access remains a challenge. In Latin America the share of renewables is forecast
to reach over 75% by 2026, driven by growing output from variable renewables,
although hydropower remains the largest source of generation in the region. Windand PV generation increases offset hydropower’s declining share in the region. In
the European Union and China we expect renewables to account for 50% and
40% of their respective generation mix by 2026. The acceleration of wind and solar
PV generation in India and the United States drives the share of renewables inboth markets to a record 30% at the end of the forecast period.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

Share of wind, solar PV, hydropower and all renewables in total electricity
generation, 2000-2026
Renewables

Wind and solar PV

Hydropower

2026

2024

2022

2020

2018

2016

2014

2012

2008

2026

2024

2022

2020

2018

2016

2014

2012

2010

2006

2004

2002

2008

2026

2024

2022

2020

2018

2016

2014

2012

2010

2008

0%

2006

0%

2004

10%

2002

10%

2026

20%

2024

20%

2022

30%

2020

30%

2018

40%

2016

40%

2014

50%

2012

50%

2010

60%

2008

60%

2006

70%

2000

80%

70%

2004

2006

2000

Sub-Saharan Africa

Latin America

2000% of total generation

2000

0%

2026

0%

2024

10%

2022

20%

10%

2020

20%

2018

30%

2016

30%

2014

40%

2012

40%

2010

50%

2008

50%

2006

60%

2004

60%

2002

70%

80%

India

80%

70%

2000

% of total generation

European Union

80%

2004

0%

2002

0%

2026

10%

2024

10%

2022

20%

2020

20%

2018

30%

2016

30%

2014

40%

2012

40%

2010

50%

2006

50%

2008

60%

2004

60%

2002

70%

2000

70%

2002

% of total generation

80%

2010

United States

China
80%

IEA. All rights reserved.

PAGE | 32

IEA. All rights reserved.

Sources: IEA analysis based on total electricity generation from IEA (2021b), World Energy Outlook 2021.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

The rapid expansion of wind and solar PV increases system integration
challenges. As a result, policy priorities should be revised in the next five years toensure secure and cost-effective system integration of larger shares of variable
renewables. In order to ensure system operations during periods of oversupply,
grid operators have chosen to curtail, 1 constrain or “dispatch down” renewables,
mostly solar PV and wind. New load patterns caused by the Covid‑19 demand
shock resulted in an increase in curtailment in countries where wind and solar PV
generation reached record levels during certain hours of the day. In the
United States, Australia, Spain and Italy the share of dispatched-down wind andsolar PV increased last year while remaining stable in Germany and Great Britain.
Despite relatively lower demand growth and record levels of wind and solar PV
expansion, curtailment continued to improve in China thanks to the commissioningof additional interprovincial transmission capacity and improved market
operations.
Growing system integration challenges and ambitious clean energy targets call for
improved grid and market operations, appropriate market design, better
forecasting and the efficient operation of interconnectors. As the proportion ofgeneration from variable renewable energy (VRE) grows rapidly, greater
dispatchable renewable generation – such as hydropower, bioenergy, geothermaland CSP – and investment in new grid infrastructure are needed.
Wind and solar PV generation curtailment by country
Share of curtailed VRE%

TWhCurtailed VRE generation
80
70

25%

60

20%

50
40

15%

30

10%

20

5%

10
0

30%

2010

China

2012

2014

United States

2016
Ontario

2020

0%
2010

Australia - NEM

Germany

2018

2012
Italy

2014

2016

Spain

2018

2020

Great Britain

IEA. All rights reserved.
Notes: NEM = National Electricity Market; VRE = variable renewable energy. The graphs represent officially reported
curtailed or constrained energy and also combine various curtailment schemes depending on the country.
Sources: Bundesnetzagentur (2020), Netz- und Systemsicherheit; China Energy Portal (2021), 2020 Wind Power
Installations and Production by Province; LBNL (2021a), Curtailment Data; IESO (2020), 2020 Year in Review; AEMO
(2021), Statistical Reporting Streams; GSE (2020), Rapporto delle Attivita 2019; REE (2021a), El sistema eléctrico español
síntesis; REF (2020), Balancing Mechanism Wind Farm Constraint Payments.

The terms curtail, constrain and dispatch down all refer to instructing a renewable electricity generator to produce lesselectricity than it could at that moment. This can occur for system-wide reasons (e.g. inertia requirements, ramping limitations,contractual arrangements such as priority dispatch) and because of local network limitations or constraints (e.g. gridcongestion, faults).

PAGE | 33

IEA. All rights reserved.

1

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity

Achieving the IEA Net Zero by 2050 Scenario requires
policy makers to significantly increase their ambition for
all renewables
Overall, the forecast for renewable generating capacity remains significantly below
the level required for the Net Zero Scenario. For solar PV, average annual
additions need to almost double in the next five years compared to what we seein our main case forecast. While solar PV is already one of the most competitivetechnologies in the market today, policy and regulatory support needs to scale up
extensively.
Average annual capacity additions by technology, actual, forecasts and
IEA Net Zero Scenario, 2015-2026
Solar PV

2015-20Wind

2021-26 main case2021-26 acc. case

Hydropower

2021-26 IEA Net
Zero by 2050

Other renewables
0

50

100

150

200

250

300

350

Average annual additions (GW)

IEA. All rights reserved.
Note: acc. case = accelerated case.

To achieve the Net Zero Scenario, wind additions also need to more than double
those in our main case. Although onshore wind generation costs are cheaper thanfossil-fuel alternatives in most countries, non-economic barriers including
permitting and social acceptance hamper faster expansion. Hydropower, including
pumped-storage projects, also faces non-economic barriers and market design
challenges despite its potential to provide much-needed flexibility to integrate
larger shares of wind and solar PV. Other renewables such as bioenergy, CSP
and geothermal can also provide dispatchable electricity, but policy support
remains limited and costs remain significantly higher compared with variable
renewables. Reaching net zero requires the deployment of a portfolio of all
renewable technologies, including those that can provide dispatchable low-carbon

PAGE | 34

IEA. All rights reserved.

electricity.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Country and regional analysis
China
China’s climate ambitions and higher 2030 targets boost
renewables
In the main case, renewable electricity capacity in China is expected to increaseby almost 800 GW, or 85%, over the period 2021-2026, led by solar PV and wind.
China’s forecast is revised upwards by almost 70% from last year's, driven by
newly proposed renewable energy targets designed to accelerate non-fossil
energy growth in line with the government’s Net Zero by 2060 target. China has
set a goal of achieving 40% of electricity consumption from non-fossil generation
by 2030, five percentage points higher than the country’s previous target. In
addition, the president announced that China’s wind and solar PV capacity is toreach 1 200 GW also by 2030, more than doubling the country’s current fleet.
Previously, China surpassed its renewable energy targets in both the 12th and13th five-year plans. With wind and solar PV capacity reaching over 1 220 GW by
2026, our main case forecast expects China to reach its announced target earlier
than 2030.

80%

900

70%

40%

60%

35%

800
700
600

50%

500

40%

400

30%

300

20%

200
100
0

2009-142015-20

HistoricalHydropower
PV - utility
Other renewables

2021-262021-26

0.8

25%

0.6

20%
15%

0.4

10%
5%

0%

0%

Bioenergy
PV - commercial

1.0

30%

10%

Main case Acc. caseWind
PV - residential
Forecast revision %

1.2

TW

45%

1 000

%

GW

China renewable capacity additions, 2009-2026 (left) and non-fossil
energy target proposals for 2030 (right)

0.2
2020 2026* 2030 2020 2026* 2030

% non-fossil
electricity
Non-hydro renewables
Wind+PV (right axis)

0.0

Wind+PV total
capacity
Hydro and nuclear
Previous targets* 2026 values are estimated according to 2030 trajectory.
Notes: Acc. case = accelerated case. Forecast revision shows the change in the forecast since last year’s report.

PAGE | 35

IEA. All rights reserved.

Given their large untapped potential and competitiveness, utility-scale solar PV
and wind are expected to provide two-thirds of China’s renewable capacity

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

expansion in the next five years. With FITs and central renewable capacity
auctions ending in 2020/21, centrally set renewable portfolio standards are
expected to guide China’s provinces to achieve a certain share of hydro and nonhydro renewables in their consumption every year to reach 40% non-fossil
electricity (including nuclear) by 2030.
After the phase-out of onshore wind and solar PV subsidies in 2020, developers
have two remuneration options: 1) a 20-year power purchase contract at theprovincial benchmark coal power price, ranging from USD 45 to 60 per MWh; or2) selling electricity in the provincial wholesale power pools and receiving green
certificates as a premium from the newly established renewable portfolio standard(RPS) and green certificate system. In most provinces, utility-scale onshore windand solar PV projects can achieve reasonable returns with a 20-year fixed pricecontract at provincial coal prices. Thus, the forecast expects the significant
majority of developers to choose the first option because uncertainty over liquidity
and price volatility in the newly establish wholesale and green certificate markets
may result in higher project risks.
For residential solar PV, offshore wind and CSP, subsidies remain available until
the end of 2021. As a result, the main case forecast expects a boom in annual
residential solar PV and offshore wind installations in 2021, doubling from last year
to reach over 18 GW and 8 GW respectively. However, their growth beyond thisyear is expected to slow after the phase-out of subsidies. CSP deployment is
expected to be limited despite the subsidy deadline, as many projects struggle
with technical challenges, high investment costs and poor project returns.
In the accelerated case, renewable capacity growth could be 15%, or 120 GW,
higher than our main case, mainly driven by faster solar PV and wind deployment.
The implementation pace of China’s ongoing policy and market reforms in the next
five years is critical to unlocking additional renewable capacity. Policy transition
from a fixed-price FIT for wind, bioenergy and Concentrated solar power, andcompetitive auctions for solar PV, to a variable-price RPS and green certificate
scheme for all technologies poses several challenges to onshore wind and PV
developers as these markets are nascent with high price volatility.

PAGE | 36

IEA. All rights reserved.

Overall, growing market participation is expected to provide more stableremuneration and also to help alleviate ongoing curtailment challenges throughcost-reflective dispatching and improved electricity trading across provinces. In
addition, regulation enabling corporate PPAs or bilateral contracts between large
consumers and developers could unlock further large-scale wind and PV capacity.
For residential and commercial/industrial PV, growth could be 15% higher than
anticipated, depending on policy reforms providing stable remuneration and theincreased availability of affordable financing. Offshore wind upside depends onfaster cost reductions and the resolution of supply chain challenges.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

United States
Favourable economics and increased ambition at the federal
level drive renewables to new highs
The United States’ renewable capacity is forecast to increase by 65% in the maincase, adding over 200 GW from 2021 to 2026, the third-largest market behind
China and Europe. The expansion is driven by state-level targets, federal tax
incentives and the increasing economic attractiveness of corporate procurementof renewable electricity. More than three-quarters of the growth is from solar PV
and the remainder is almost exclusively from wind.
We have revised our forecast up by over 35% for three main reasons. The first is
faster than expected growth in 2020 and the expectation that this pace willcontinue thanks to continuously improving economics and a growing projectpipeline. This is partially due to strong demand for corporate PPAs, even in 2020.
Both solar PV and onshore wind saw record-breaking growth in 2020 (19.2 GW
and 16.9 GW respectively) despite the lockdowns, equipment delays and social
distancing measures resulting from the Covid-19 pandemic. Second, in December
2020 the federal government extended the investment tax credit (ITC) and the
production tax credit (PTC) for two years and one year respectively. Third, theforecast anticipates larger offshore wind additions, as federal and state ambitions
ease previously onerous permitting challenges, unlocking development pipelines.

60%

250

50%

200

40%

150

30%

100

20%

25

0

0%

0

HistoricalWind
PV – utility
Hydropower

2021-26

Main case Acc. case
Bioenergy
PV – distributed
Forecast revision (%)

60
50
40

10

10%
2021-2670

15

50
2015-2080

20

5

2009-1490

USD/MWh

300

GW

GW

United States renewable capacity additions, 2008-2026 (left) and solar PV
and wind PPA capacity and average contract price, 2014-2020 (right)

30
20
10
2014 2015 2016 2017 2018 2019 2020

0

Solar PV

Wind

Wind average price

Solar PV average price

IEA. All rights reserved.

PAGE | 37

IEA. All rights reserved.

Notes: Acc. case = accelerated case. Prices include federal investment and production tax incentives.
Sources: IEA analysis based on data from the US LBNL and BNEF. PPA volumes are from: LBNL (2021b), Tracking the
Sun and (2021c) Land-Based Wind Market Report and BNEF (2021a), Global Corporate PPA database; pricing is from US
LBNL (2021a), Tracking the Sun and Land-Based Wind Market Report, combined with BNEF (2021c), US PPA and Offtake
Pricing database.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

The main case assumes that federal tax incentives are phased down as planned.
Thus, the pace of annual growth in solar PV and wind is expected to fluctuate inline with the step down of federal tax incentives. However, the impact on capacity
additions is expected to be seen more acutely in the wind market than in solar PV.
Onshore wind capacity expands by 48 GW over the forecast period. After recordbreaking new wind capacity additions in 2020, growth slows slightly in 2021 dueto the decrease in the PTC and continues the downward trend to 2023. Then
increased PTC rates passed in 2019 and 2020 lead to higher additions in 2024
and 2025. Policy uncertainty clouds the final year of the forecast, as qualification
for the PTC is currently scheduled to end this year, affecting additions in 2026. For
solar PV, the impact is less pronounced. Additions are expected to decline in 2025,
in line with the reduction in the ITC to 10% in 2024, but rebound in 2026 as theindustry adjusts to the new economics.
Distributed PV is also expected to be affected by the ITC step-down, with thelargest impact on the residential segment as the tax incentive reduces to 0%
beyond 2025. Nonetheless, residential systems account for two-thirds of thegrowth in distributed PV capacity, driven by net metering schemes, an increase inhome renovation projects and the desire for self-sufficiency following severe
weather-related events recently. Policies aimed at improving the permitting
process for community solar should boost the forecast for commercial systems,
but interconnection delays remain a challenge.
Installed offshore wind capacity is forecast to reach almost 8 GW by 2026. The
first large-scale offshore wind farm received final federal approval and closed
financing this year. Seabed lease auctions, coupled with tax and certificate
incentives (ocean renewable energy certificates [ORECs]) and long-term PPAs
give developers firm financials for future project development. The recently
announced federal target of 30 GW of new offshore wind by 2030 will bechallenging to meet unless permitting processes continue to be streamlined,

PAGE | 38

IEA. All rights reserved.

vessel constraints are addressed and new areas are developed.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

GW

United States solar and wind capacity additions, 2017-2026 (left) and lowcarbon electricity target, 2020-2030 (right)
45
40

2030

35
30
25

2026

20
15
10

2020

5
0

500

PV – utility

PV – distributed

Onshore wind

Offshore wind

2020

1 000

2026 base

1 500

2 000

2026 acc.

2 500

3 000
TWh

2030 target

IEA. All rights reserved.
Notes: acc. case = accelerated case. The federal goal is for a carbon-free electricity sector by 2035. The intermediary goalof 80% by 2030 is also shown. The right graph shows the amount of additional renewable generation needed to hit the 80%2030 goal. 2026 base case, 2026 acc. case and 2030 target are the additional generation values required to meet the 2030
goal.
Sources: IEA analysis based on IEA data and EIA (2021a), Annual Energy Outlook 2021.

The United States faces three key challenges to greater solar PV and windexpansion. First is policy uncertainty beyond current incentive schedules and themonetisation of tax credits. Qualification for the ITC and PTC is scheduled to end
in 2024 and 2021 respectively. The demand for tax equity – the way to monetisefederal production tax credits – has grown rapidly, driven by a larger pipeline ofwind and solar PV projects. At the same time, the federal corporate tax cut in 2017
has contributed to a decline in the availability of tax equity. While an extension of
the ITC and PTC – including an option for the direct payment of federal tax credits– is being discussed, it has yet to be approved. Second, increasing commodity
prices are having an impact on overall project economics, potentially delaying
investment decisions in both sectors. Third, limits to the availability of transmission
and distribution infrastructure are leading to increased interconnection wait times.
The recently passed Infrastructure Investment and Jobs Act includes funding fortransmission infrastructure upgrades, but it is unclear how many of these upgrades
will be completed within the forecast period.
Additional risk factors putting upward pressure on the price of solar PV equipment
are: 1) a filed petition proposing to extend the anti-dumping duties (currently at239%) to four countries in Southeast Asia, which could affect a significant amountof crystalline silicon cell and silicon module imports; 2) project delays resulting
from bans on importing cells and modules containing silicon from certain

PAGE | 39

IEA. All rights reserved.

companies in Xinjiang, China; and 3) raw material price increases (SEIA, 2021).

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

In the accelerated case, renewable capacity growth in the United States could
reach almost 275 GW during 2021-2026, 26% higher than in the main case, if
federal tax incentives are extended and monetised using a direct-pay scheme
rather than just as tax equity. Both potential drivers depend on the final text ofbudget reconciliation, currently being negotiated. Higher growth would also result
from increased grid capacity from upgraded networks as outlined in the
Infrastructure Investment and Jobs Act. However, state-level policies need to alignwith federal ambitions to meet the stated federal clean energy targets for 2030:
only 21 out of 50 states have carbon-free electricity goals; and Rhode Island is the
only state that aims to achieve a carbon-free sector by 2035 (CESA, 2021).

Asia Pacific
Solar PV leads the deployment of renewables in the region,
driven by auctions in India, FITs in Japan and new policies
expected in ASEAN countries
The Asia Pacific region (excluding China) is expected to add almost 330 GW ofrenewable capacity during 2021-2026 in the main case, representing almost 70%
growth. Solar PV leads the deployment (68% share), followed by wind (18%) andhydropower (11%). The forecast is 27% higher than last year, with annual
additions in 2026 42% higher than in 2020. India accounts for almost 40% of theregion’s renewable capacity expansion over the forecast period thanks to thecontinuation of auctions and improving incentives for distributed PV. Continuous
acceleration is expected in ASEAN countries, led by Viet Nam and with thePhilippines and Indonesia both becoming increasing sources of growth thanks to
implementation of new auction and FIT schemes. Beyond ASEAN, in our maincase forecast capacity additions in Japan slow after 2022-2023 due to a smaller
FIT project pipeline, and in Australia due to grid integration challenges.
In the accelerated case, renewables growth in Asia Pacific is around 40% higher
than in the main case. Achieving higher growth will require faster and smoother
implementation of new support policies (especially in ASEAN countries andJapan), increased investment in grid development (in Australia, ASEAN countries
and India), reducing risks to investors by easing permitting rules, introducing morebankable PPAs (in ASEAN countries) and resolving land acquisition challenges

PAGE | 40

IEA. All rights reserved.

(in India and ASEAN countries).

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

100

40%

300

80

30%

250

60

200

20%

150

40

100

20
0

350

Forecast revision (%)

GW

GWAsia Pacific renewable capacity additions by country, 2019-2026 (left) andcapacity additions by technology, 2015-2026 (right)

10%

50
0

2019 2020 2021 2022 2023 2024 2025 2026

India
Korea
Acc. case

ASEAN
Australia

Japan
Other Asia Pacific

Solar PV

Wind

Hydro

2015-20 historical2021-26 acc. case

Bioenergy*0%2021-26 main case
Forecast revision (%)
IEA. All rights reserved.

* Bioenergy forecast revision is -7%.
Notes: ASEAN = Association of Southeast Asian Nations; Asia Pacific excludes China; acc. case = accelerated case.

India
Renewables expansion in India accelerates, but reachingtargets on time requires persistent challenges to be resolved
India is expected to add 121 GW of renewable capacity over 2021-2026, an 86%
increase on existing capacity, making it the third-largest growth market globally
after China and the United States. Solar PV leads this deployment (74%), followed
by onshore wind (16%) and hydropower. India’s forecast is revised upwards, but
this is mostly due to accelerating capacity additions at the end of the forecast
period following the dip in 2020, as some policy improvements have offset
increasing challenges. The financial health of India’s distribution companies(DISCOMs) remains a critical challenge, leading to delays in signing PPAs withauction winners and putting some projects at risk of delay and cancellation.
Progress in the agricultural distributed PV scheme (KUSUM) and highoversubscription in recent PPA auctions drive additional expansion. Reduced
mobility and supply chain challenges due to Covid-19 led to a 44% drop in
renewable installations in 2020. At the same time, India maintained its firm support
for renewables by contracting a record level of solar and wind capacity to reachits ambitious renewable capacity target for 2022 (175 GW), which excludes largehydropower. During COP26, India announced new 2030 targets of 500 GW of total
non-fossil capacity and 50% renewable electricity generation share (more thandouble the 22% share in 2020), as well as net zero emissions by 2070. These

PAGE | 41

IEA. All rights reserved.

further confirm the country’s commitment to energy transitions.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

200
180
160
140
120
100
80
60
40
20
0

35%

GW

GW

India renewable capacity additions, 2009-2026 (left) and national targets
for 2022 and 2030 (right)
30%
25%
20%
15%
10%
5%
2009-142015-202021-26

Historical
Main case
HydropowerWind
PV - utility
PV - distributed
Forecast revision (%)

2021-26

0%Acc. case
Bioenergy
Other renewables

550
500
450
400
350
300
250
200
150
100
50
0

2020
historical

2022
2026 2026 acc.
target* main case case2030
targetTotal renewables capacity

IEA. All rights reserved.

* Includes large hydropower
Notes: Acc. case = accelerated case. National targets for 2022 exclude large hydropower.

In April-May 2021 India reintroduced movement restrictions around the country tocontain the increasing spread of Covid-19 infections. Although restrictions weremuch less severe than during the first Covid-19 wave last year, they still led to a
slowdown in economic activity and increased logistical challenges. As a result,developers have faced construction delays, while reduced electricity demand has
put additional strain on the DISCOMs’ financial health. As a relief measure, thegovernment extended commissioning deadlines by two and a half months for
projects already under construction. The combination of additional construction
delays and the deadline extension is expected to push the commissioning of
projects planned for this year into 2022.
The DISCOMs’ poor financial health remains the greatest challenge to faster
renewable deployment in India. The government’s financial aid in 2020 put
overdue payments on a downward trend in Q1 2021, improving the companies’
finances. Following the second wave of restrictions, their total overdue payments
started to rise again in Q2 2021. As a result, they are postponing the finalisationof wind and solar PV PPAs while seeking to renegotiate downwards the contract
prices already awarded in competitive tenders. For instance, developers of 12 GW
of solar PV awarded at USD 41/MWh in a manufacturing-linked auction held inJanuary 2020 are facing challenges to the signing of the PPA, delaying expansionin our forecast.
The Indian government announced a new stimulus programme (USD 41 billion
over the next five years) to support the DISCOMs in the installation of smart and

PAGE | 42

IEA. All rights reserved.

prepaid meters to reduce losses and decrease their revenue gap. In order toRenewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

improve their financial health further, the government introduced new guidelines
enabling them to terminate PPAs with coal plants after 25 years. This will help
them reduce fixed capacity payments, and enable greater flexibility in adapting tosystem needs and renewable energy mandates. This change may affect almost athird of India’s coal fleet of around 210 GW and facilitate the procurement of more
renewable energy.

50

20

40

15

1 400

14%

1 200

12%

1 000

10%

800

8%

600

6%

400

4%

200

2%

0

0%

30

10

20

5

10

0

INR billion

25

USD/MWh

GW

India renewable capacity awarded via auctions, 2018-2021 (left) andDISCOMs’ overdue payments to generators, 2019-2021 (right)

H1

H2

2018

H1

H2

2019

PV - 12 GW manufacturingHybridAverage PV price (right axis)

H1

H2

2020

H1 H2*

0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2019

2021

PV
Wind
Average wind price (right axis)

2020

2021

Total overdue payments
Renewable generators' share of overdue payments (rightaxis)

IEA. All rights reserved.
* Comprises July-October data.
Note: PV – 12 GW manufacturing = national solar PV manufacturing-linked auction from January 2020.
Sources: (left) BNEF (2021b); Bridge to India (2021); (right) PRAAPTI (2021).

National and state-level auctions continue to be the main driver of utility-scale PV
and onshore wind capacity growth. Solar PV auction volumes slowed fromJanuary to October in 2021 following the cancellation of a 6.4 GW auction inAndhra Pradesh due to disputed contract rules. For wind, more capacity has been
contracted this year than in 2019 and 2020 combined. Hybrid auctions requiring
multiple renewable technologies to provide more dispatchable power are
emerging rapidly. From January to October 2021 the volume contracted fromthese auctions was already higher than historical levels. Recent changes in
auction rules, for example lifting the price cap, have improved competition andalmost all auctions conducted since H2 2020 have been oversubscribed. Our
forecast expects auctions to continue at the level of about 14-16 GW annually,
resulting in capacity additions of about 10-13 GW of utility-scale PV and 3 GW ofwind per year until 2026.
Rising solar PV equipment costs are putting additional stress on developers who

PAGE | 43

IEA. All rights reserved.

aggressively bid in auctions, betting on further continuation of earlier costRenewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

reductions. Equipment cost inflation may lead to project delays and cancellations.
Cost increases and trade policy are also putting upward pressure on solar PV
pricing over the forecast period. After the record low PV price of USD 27/MWh
observed in the December 2020 auction, tariffs rebounded to USD 34/MWh on
average in H1 2021 partly due to rising prices. In addition, developers winningpublic auctions from April 2021 are obliged to use the modules produced bydomestic manufacturers. From April 2022 the duty on modules imported from large
manufacturing countries, including China, will increase from 14% to 40%. As
imports cover 80% of India’s annual capacity additions, local content requirements
and trade policy are expected to lead to higher prices in the short term while India
increases its manufacturing capabilities. For wind, prices mostly remainunchanged, sitting in the range of USD 38-40/MWh since 2018. Price reductions
are elusive because of persistent challenges in finding available land, risks related
to securing grid connection and delays in signing PPAs. Without increased
assistance from state and central governments in land procurement, accelerating
wind deployment remains challenging, resulting in flat capacity additions until
2026.
India’s distributed PV capacity additions are expected to grow steadily over theforecast period following a 20% decline in 2020 from 2019. Cost attractivenessand continued policy support are expected to drive deployment. Increasing the PV
system capacity limit eligible for net metering from 10 kW to 500 kW and a newproposal for more favourable rules for commercial installations should stimulate
growth in the commercial sector. However, several major challenges persist.
DISCOMs remain hesitant to support faster adoption of distributed PV due to fears
of losing revenue from reduced energy sales caused by self-consumption andincurring higher grid costs. Financing options for small commercial and residential
consumers remain limited due to high transaction costs, lack of specialised
financial products and the difficulty of establishing a credit rating. Publicawareness also remains low, which altogether leads to subdued deployment
despite high economic attractiveness in many Indian states. In addition, theKUSUM programme supporting solar PV deployment in rural areas for agricultural
consumers has a target of commissioning about 31 GW of PV capacity until 2024.
However, due to financing and implementation challenges, we expect about
10 GW of this PV capacity to come online over 2021-2026.
In the accelerated case, renewables deployment in India during 2021-2026 is 50%
higher, putting the country firmly on the pathway towards achieving thegovernment’s 2030 targets. Distributed PV deployment is about 82% higher in theaccelerated case, conditional on assuring the DISCOMs’ full support by offering

PAGE | 44

IEA. All rights reserved.

them financial incentives, improved remuneration schemes that fairly allocate gridRenewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

costs and innovative business models that provide them with benefits. For
consumers, new financial products and education campaigns will be needed toincrease public demand. Upside potential in the KUSUM programme also exists if
financing and implementation challenges are resolved. Utility-scale PV and wind
installations could be 37% and 70% higher respectively compared with the maincase. The accelerated case also assumes that delays in DISCOMs signing PPAs
with auction winners are reduced, thus speeding up investment. More support
from central and state governments in identification of suitable sites for wind andsolar PV, and providing grid connections, are essential elements of theaccelerated case, speeding the development of large-scale projects, especially inonshore wind.

Japan
Revised renewable targets for 2030 drive faster expansion
Renewable capacity in Japan is expected to increase by 46 GW over 2021-2026
in the main case, or 35%, led by solar PV and wind. The forecast is revised
upwards almost 20% from last year, driven by higher renewable electricity targets
in Japan’s new Strategic Energy Plan (from 22-24% of electricity generation to 3638% by 2030 [METI, 2021a]) and the remaining large FIT project pipeline, which
is mainly for solar PV and wind. Overall, our main case forecast for renewables isin line with Japan’s higher targets.

70

35%

60

30%

50

25%

40

20%

30

15%

20

10%

10

5%

0

2009-142015-20

HistoricalHydropower
Offshore wind
PV – utility
PV – residential
Forecast revision (%)

2021-262021-26

GW (AC)

GW

Japan renewable capacity additions, 2009-2026 (left) and renewableenergy capacity targets, 2019-2030 (right)

0%

Main case Acc. caseOnshore wind
Bioenergy
PV – commercial
Geothermal

200

40%

150

30%

100

20%

50

10%

0

FY2019FY2030Previous targets

HistoricalHydropower
Offshore windPV
Renewable generation (%)

FY2030
New targets

0%

Targets

Onshore wind
Bioenergy
Geothermal

IEA. All rights reserved.

PAGE | 45

IEA. All rights reserved.

Notes: Acc. case = accelerated case; FY = financial year (April-March); AC = alternating current. Japan’s official renewableenergy capacity targets are announced in AC while our solar PV forecast is in direct current.
Sources: based on METI (2021a); METI (2021b).

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Despite the higher targets and upward forecast revision, Japan’s renewablecapacity growth is expected to slow down over the forecast period compared withthe previous five years. This is mainly due to a lower FIT pipeline of utility-scaleand distributed PV projects for commissioning over 2024-2026. Still, the majorityof solar PV expansion over the forecast period will be led by the commissioning ofpreviously approved FIT capacity (18.5 GW AC as of June 2021 [METI, 2021c]) in
addition to auction projects. In June 2020 the Japanese government approved a
FIP scheme starting from 2022 (METI, 2021d). While FIP implementation details
remain a forecast uncertainty, we expect additional utility-scale PV growth fromthe new scheme.
Japan’s wind market is expected to add 8 GW over the forecast period, almost
tripling the cumulative wind capacity by 2026. The forecast is driven by thecommissioning of FIT-approved onshore wind projects rushing to meet a projectcompletion deadline, with grid connection and environmental permitting remaining
key challenges. The offshore wind market is still at an early stage of development,
but thanks to the government’s ambitious target for offshore wind deployment andsupporting measures, including a FIT and sea area designation for construction,
this market is expected to reach 1.5 GW over the forecast period.
In the accelerated case, renewable capacity growth could be almost 30% higher
than our main case. This will require a higher completion rate of already approved
FIT projects and smooth transition to the FIP scheme, enabling additional solar
PV capacity to become operational. For onshore wind, faster permitting and gridconnection could enable additional growth.

Korea
Recent policies providing stable remuneration for solar PV are
critical to our forecast

PAGE | 46

IEA. All rights reserved.

Korea’s renewable capacity is expected to double in the main case, expanding by
almost 30 GW during 2021-2026. Solar PV accounts for 90% of the country’s
renewable expansion over the forecast period. We have revised our forecast up
by 50% from last year, driven by rising auction volumes with fixed-price contracts
for utility-scale and commercial PV, as well as a FIT mechanism for residential PV.
Korea’s cumulative wind capacity is expected to almost triple by 2026, with
offshore wind providing the majority of the expansion. Unlike solar PV, windprojects are not eligible for fixed-price contracts, instead relying on wholesalemarket revenues and RECs, both of which have declined over the last four years.
According to our estimates, remuneration for all large-scale renewable energy
projects has halved since June 2017. Future remuneration remains the largest

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

forecast uncertainty for technologies beyond solar PV, for which fixed-priceauctions provide revenue stability.

2009-142015-20

HistoricalHydropower
Bioenergy
PV – distributed
Forecast revision (%)

2021-262021-26

100

0%

0

Main case Acc. caseWind
PV – utility
Other renewables

Onshore windPV (large-scale)PV (auction)

Jun-210

10%Oct-205200

Feb-21

20%

10

300

Jun-2015400

Oct-1930%

Feb-2020

Jun-1925

500

Feb-1940%

Oct-1830

600

Jun-1850%

Oct-1735

700

Feb-1860%

Jun-1740

USD/MWh

GW

Korea renewable capacity additions, 2009-2026 (left) and average revenue
per MWh by technology, 2017-2020 (right)

Offshore windPV with storage

IEA. All rights reserved.
Notes: The average revenue excluding PV (auction) is calculated using the system marginal price (SMP) and weighted
REC price. Offshore wind assumes projects with a total interconnection distance more than 15 km. PV (auction) prices
reflect biannual average awarded prices. Acc. case = accelerated case.
Sources: Based on IEA (2020a); KNREC (2021); KPX (2021a); KPX (2021b).

In the accelerated case, renewable market growth could be 23% higher than in
our main case, driven by higher auction volumes for solar PV and a growing
corporate PPA market. For wind, social acceptance challenges need to beaddressed, while higher REC prices or new policies providing further revenue
stability would contribute to faster expansion.

ASEAN
Viet Nam continues to lead capacity growth in ASEAN,
although new deployment is spreading throughout the region

PAGE | 47

IEA. All rights reserved.

Renewable capacity in ASEAN is expected to increase by 52 GW during 20212026, representing growth over current capacity of more than 65%. We haverevised this main case forecast upwards by almost 50% compared to last year.
This is mostly attributable to an onshore wind investment boom in Viet Nam
anticipated in 2021 due to an expiring FIT scheme and the release of draft national
long-term energy plans with higher wind capacity targets. In addition, more widelyan acceleration in hydro and geothermal deployment is expected towards 2026,
with a few large-scale projects coming online in Malaysia and Indonesia.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Solar PV accounts for around half of total renewables capacity growth in ASEAN,
followed by wind. Low availability of land due to high population density and amountainous landscape in many countries in the region remains a significant
challenge for developing large-scale solar PV and onshore wind projects.
Therefore, onshore wind development is likely to be limited outside Viet Nam anddistributed PV applications are expected to cover almost 60% of total PV growthduring 2021-2026. While offshore wind potential is robust and land availability
does not pose challenges, relatively high costs are expected to constrain
deployment.
Viet Nam alone provides over 40% of all ASEAN’s renewable capacity expansion
over the forecast period in the main case. Following the deployment boom in utilityscale solar PV projects in 2019, and distributed solar PV in 2020 due to policy
incentive deadlines, our forecast expects a similar trend for wind this year as a
generous FIT expires. Further deployment of both wind and PV will depend on theimplementation timeline of the country’s planned auction scheme. It is expectedthat auctions will mostly target wind capacity, based on the new draft national
Power Development Plan (PDP8), which assumes 11 GW of new wind capacity
until 2030, but only 2 GW of PV. Utility-scale solar PV deployment is expected toslow due to system integration challenges, with growth limited mostly to distributed
installations.
In Indonesia the acceleration of renewables growth is expected in the second halfof the forecast period, with solar PV, hydro and geothermal dominating theadditions. Growth expectations are based on the new draft national energy plan
(RUPTL 2021-30), which targets almost 5 GW of PV capacity additions until 2030,
a fivefold increase compared to the previous plan. Planned introduction of a FIT
and auction schemes are principal drivers of the acceleration of PV deployment,
bypassing current regulation that requires renewable generators to compete withsubsidised coal plants, reducing the economic attractiveness of renewableprojects. Bilateral PPAs with the state-owned utility (PLN) are expected tostimulate the commissioning of several large-scale hydropower and geothermal
projects towards 2026.

PAGE | 48

IEA. All rights reserved.

In the Philippines an RPS was introduced in 2020, with auctions planned toensure cost-effective procurement of renewable energy. The first 2 GW auction isplanned for Q4 2021. Auctions are expected to accelerate capacity growth in the
coming years, towards achieving the 35% generation share target in 2030. Apartfrom limited policy support outside the planned auction scheme, main challenges
to faster deployment are lengthy permitting procedures, grid connection delays
and limited financing available from international institutions due to local
ownership rules for renewable projects.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Renewables development remains stable in Thailand as there is limited room for
new power generation capacity. The situation is further exacerbated by growing
imports of hydropower from Laos contracted through a long-term PPA.
Commercial PV installations are expected to drive capacity growth during 20212026. Steady growth in utility-scale and commercial PV supported throughauctions and net metering quotas is expected in Malaysia, while the private PPA
market will continue to drive rooftop and floating PV installations in Singapore.

18
16
14
12
10
8
6
4
2
0

45
40
35
30
25
20
15
10
5
0

120%
100%
80%
60%
40%

Forecast revision (%)

20

GW

GW

ASEAN renewable capacity additions by country, 2019-2026 (left) andcapacity additions by technology, 2015-2026 (right)

20%
0%2019 2020 2021 2022 2023 2024 2025 2026

Viet Nam

Indonesia

Philippines

ThailandRest of ASEAN

Acc. case2015-20 historical2021-26 acc. case2021-26 main case
Forecast revision (%)

IEA. All rights reserved.
Notes: Rest of ASEAN comprises Brunei, Cambodia, Laos, Malaysia, Myanmar and Singapore. Acc. case = acceleratedcase.

In the accelerated case, renewable capacity additions in ASEAN are 52% higher
than in the main case, with solar PV and wind providing the greatest upside
potential. Faster implementation of new auction support schemes in Viet Nam,
Indonesia and the Philippines and increased investment in grid infrastructure,especially in Viet Nam, are needed to achieve this faster expansion. Creating amore investor-friendly regulatory and market environment through implementationof standardised bankable PPAs and faster permitting is necessary to propel local
and international investment in the region. Maintaining a long-term vision forsupport schemes with clear rules and targets is needed to achieve the accelerated
case, as policy and regulatory uncertainties can stall project development, as
observed in Viet Nam and the Philippines during the transition from FITs toauctions. In addition, relaxation of local content and project ownership
requirements in countries like Indonesia and the Philippines could lead to lower
renewable costs, improving their competitiveness against conventional generators
and attracting more international financing.

PAGE | 49

IEA. All rights reserved.

During COP26, Viet Nam, the Philippines and Indonesia (conditional oninternational assistance) joined a commitment to cease the utilisation of andsupport for unabated coal power generation by 2040. Furthermore, Viet Nam

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

announced a net zero emissions target by 2050 and Thailand by 2065, joining
Malaysia, Indonesia, Singapore, Laos and Cambodia who announced their net
zero targets before COP26. Announced pledges signal a commitment of ASEAN
countries to clean energy transitions, which are expected to drive renewablecapacity growth in the region in the long term.

Australia
Distributed solar PV drives growth as large-scale installations
await network upgrades
Australia’s renewable capacity is forecast to increase by nearly 30 GW, or 75%,
in the main case during the period 2021-2026. For large-scale renewables, growthis driven by current policies to achieve renewable energy targets at both federal
and state levels and by increased corporate buying. Low PV system prices andfinancial incentives are driving distributed PV installations. We have revised theforecast up by over 25% from last year thanks to network upgrades and statepolicies establishing Renewable Energy Zones (REZs) for large-scale renewables
development. However, until these improvements are realised, grid integration
challenges remain, leading to increased interconnection lead times and highvolumes of curtailment. Australia’s recently released net zero roadmap for carbon
neutrality by 2050 indicates a heavy reliance on clean energy technologies,
including “ultra-low cost” solar PV (Australian Government, 2021).

40

30%

35

25%

30

20%

25
20

15%

15

10%

10

5%

5
0

% VRE curtailed

GW

Australia renewable capacity additions, 2009-2026 (left) and renewables
curtailment, Q1 2019-Q2 2021 (right)

2009-142015-20

Historical2021-262021-26

0%

9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

Main case Acc. case

Hydropower
Bioenergy
PV – distributedWind
PV – utility
Forecast revision (%)

Economic curtailment

System curtailment
IEA. All rights reserved.

PAGE | 50

IEA. All rights reserved.

Note: Acc. case = accelerated case.
Source: (right) AEMO.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Distributed solar PV provides nearly 50% of total growth, adding almost 14 GW of
new capacity through the forecast period. Favourable economics due to relatively
low system costs, support from the small-scale certificate scheme at the federal
level and FITs at the state level drive expansion. However, distributed PV capacity
additions have caused system integration challenges across multiple networks. In
response, the Australian Energy Market Commission introduced new rules
allowing distribution companies to charge fees for exported energy, leading tolower additions during the forecast period.
Utility-scale solar PV and onshore wind are forecast to grow by over 7 GW eachduring 2021-2026. The two main drivers of growth are: 1) energy revenue awarded
via state-level auctions or PPAs with state and local governments, energy
retailers, utilities and businesses; and 2) certificate revenues via the federal
Large-scale Renewable Energy Target (LRET) programme. PPAs emerge as a
key driver, with volumes increasing in order to hedge against wholesale pricevolatility and to meet state-level portfolio standards. LRET, which ends in 2030,
has met its target, resulting in an oversupply of certificates and leading toconverging certificate values. Thus, the effectiveness of LRET as an ongoing
driver of capacity growth remains a forecast uncertainty. In addition, network
challenges remain. Connection delays have extended project timelines anddevelopers have increasingly self-curtailed existing projects to avoid gridpenalties. REZs are expected to unlock additional grid capacity and enable more
renewables development. The first REZ and associated projects are scheduled tobe realised by the middle of the decade, boosting solar PV and wind deployment
at the end of the forecast period.
The accelerated case sees nearly 30% higher additions than in our main case. In
this case additional capacity could come from new auctions to achieve state-leveltargets or to procure capacity for REZs. Continued upgrades to synchronisationfor existing installations and the timely implementation of planned network
expansion ease investor concerns, eliminating project delays and backlogs.
Distributed PV additions should achieve higher growth if energy export tariffs do
not significantly affect the overall economics of the installation. The country haslarge ambitions for hydrogen from renewable energy, which could add substantial

PAGE | 51

IEA. All rights reserved.

capacity at the end of the forecast period.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

EuropeStronger policy support drives faster utility-scale growth, while
the increasing attractiveness of distributed PV exceeds our
expectations
Europe’s renewable capacity is forecast to expand by 45% in the main case fromthe addition of 300 GW, led by solar PV and wind. Three-quarters of the growth isfrom seven countries: Germany, Spain, France, the Netherlands, Turkey, theUnited Kingdom and Poland. Government-held auctions remain a critical policy
driver of utility-scale growth in most markets. An increasing proportion of thegrowth is expected to come from corporate PPAs due to the competitiveness ofwind and solar PV with wholesale electricity prices and the private sector’ssustainability goals.
For countries in the European Union, the 2030 renewable energy targets set out
in the NECPs remain a key policy underpinning renewable electricity capacity
growth. These targets are part of a larger climate and energy framework, whichcurrently sets a target of at least 32% of final energy consumption at the EU level
to be from renewables by 2030. By 2026 the European Union’s renewablecapacity is expected to reach 750 GW, expanding by 40 GW per year on average.
If this pace continues, the bloc will be on track to not only meet, but to exceed
current renewable capacity plans for 2030 stated in NECPs. This trajectory is evenmore likely in the accelerated case.

GW

EU member states installed renewable capacity and capacity expected in
2030 based on submitted NECPs
900

Rest of EU

800

Denmark

700

Greece600

Portugal

500

Poland400

Sweden300

Netherlands

200

Italy

100
0

France2015

2020
Actual

2026

2026

2030

Spain

Main caseAcc. case

NECP

Germany

IEA. All rights reserved.

PAGE | 52

IEA. All rights reserved.

Note: Acc. case = accelerated case, NECPs = National Energy and Climate Plans
Source: IEA analysis based on NECPs.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

The 2030 target is likely to be raised; however, the final amount and when thatwould be reflected in member states’ NECPs remain a forecast uncertainty. In July
2021 the European Commission proposed to update the EU target from 32% to
40% to align renewable policy with raised ambitions for emissions reduction (55%emissions reduction by 2030 and climate neutrality by 2050). Given the deadline
for finalising the new target is May 2024, the main case assumes that the impact
on capacity additions would occur after 2026 in order to allow member states to
update their individual targets and policies, in line with the current governance.
However, the accelerated case assumes swifter implementation of policies in eachcountry in anticipation of new EU targets and due to increased national ambitions.
Still, annual capacity additions are expected to fluctuate due to permitting andsocial acceptance challenges, which create lulls in the project pipeline. In somemarkets, this has resulted in auctions being undersubscribed or postponed.
Overall, the forecast is 19% higher compared to last year. A majority of the
upwards revisions is from wind and utility-scale solar PV due to increased policy
support under auction schemes. Over the past year, governments haveannounced new auction schedules or have extended current ones (e.g. Germany,
Spain), in some cases with more capacity earmarked than in their previously
announced plans (e.g. Turkey, Poland). The main driver for this is to accelerate
growth towards 2030 targets. Furthermore, in several auction rounds held overthe past year, more solar or wind capacity has been awarded than previously
expected, while the subscription rates exceeded our expectations in some cases.
Accordingly, we have modified the assumptions about future auctions.
In addition, distributed PV accounts for 40% of our upward capacity revisions for
Europe. We assumed that the economic uncertainty due to the Covid-19 crisis
would shift the financial priorities of both individuals and small/medium-sizedenterprises in some countries. However, Europe installed 14 GW of distributed PV
in 2020, the highest level since 2011 and higher than we forecast (9.7 GW). In
addition we see regulatory changes and higher retail electricity prices in key
markets making self-consumption and net metering more attractive. Over theforecast period, we expect the average annual pace to remain between 12 GW

PAGE | 53

IEA. All rights reserved.

and 15 GW.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

GW

Europe renewable capacity additions by country, 2009-2026 (left) andcapacity growth by technology, 2015-2026 (right)
400

Bioenergy

300

Hydropower
Offshorewind200

Onshore
wind

100
0

Solar
PV
2009-142020-25

Historical
Germany
Netherlands
Poland2021-262021-26

Main case Acc. case

Spain
TurkeyOther Europe

FranceUnited Kingdom

0

100

200

300

GW
2015-20 historical2021-26 acc. case2021-26 main case

IEA. All rights reserved.
Notes: Europe comprises EU member states, United Kingdom, Turkey, Norway and Switzerland. Acc. case = accelerated
case.

Compared to the previous five-year periods, solar PV growth is expected tosurpass wind. Increasing economic attractiveness resulting from distributed PV
policies and corporate PPAs supports this trend. Growth of both hydropower andbioenergy is projected to be lower than the previous five-year period. The
permitting process for hydropower projects is typically a challenge in Europe, withfew available sites, and the economics of bioenergy remain challenging without
further government support. In the accelerated case, Europe’s renewable
expansion is about a quarter higher than in the main case. In addition to increasing
2030 ambitions, this would require countries to alleviate permitting and social
acceptance challenges to enable higher participation in auctions, to expand grid
capacity more quickly and to implement policies that improve the attractiveness of
distributed PV.

Germany
New auctions accelerate utility-scale growth, but the impact of
new self-consumption policies on large commercial PV is amajor uncertainty
Germany’s renewable capacity is forecast to increase by more than 40% (57 GW)
over 2021-2026, led by solar PV and followed by onshore wind, offshore wind and

PAGE | 54

IEA. All rights reserved.

bioenergy. Growth is mostly driven by support policies to meet long-term climate

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

goals. Government-held auctions drive most of the utility-scale renewables, while
distributed PV deployment is supported by FITs and self-consumption withremuneration for excess generation.
Our forecast is revised upwards by 35% compared to last year, mostly due to a
5 GW increase in auction volumes announced in April 2021. The government
decided that the amount of capacity to be auctioned in 2022 will increase from
1.9 GW to 6 GW for solar PV and from 2.9 GW to 4 GW for wind. Also supporting
the more optimistic forecast are the impacts from new regulations to easepermitting for onshore wind under the new Renewable Energy Sources Act (EEG2021), which entered into force in January 2021.

100
90

75%

4.0

60%

3.0

45%

20%

2.0

30%

0%

1.0

15%

80%

80
70

60%

60
50

40%

40
30
20
10
0

5.0

100%

GW

GW

Germany renewable capacity additions, 2019-2026 (left) and onshore windauctions (right)

2009-142015-20

Historical2021-262021-26-20%

Main case Acc. case

Hydropower
Bioenergy
PV - distributedWind
PV - utility
Forecast revision (right axis)

0.0

2017

Awarded

2018

2019

Not awarded

2020

2021

0%

Percentage not awarded(right axis)

IEA. All rights reserved.
Note: Acc. case = accelerated case.
Source: Bundesnetzagentur (2021).

Distributed PV leads Germany’s expansion, accounting for 36% of the growth inrenewable capacity, led by the commercial segment. However, a key forecast
uncertainty is the impact of two new policies under EEG 2021 to increase selfconsumption in the commercial segment. First, the new regulation stipulates thatcommercial PV projects between 300 kW and 750 kW may sell only up to 50% of
their generation on a monthly basis. If the owner wants to sell more than 50%,
they must compete in annual auctions capped at 300 MW per year. Monthly
additions in this segment dropped from 125 MW per month under the previous
policy when all generation was eligible to be sold, to 35 MW per month after the
new policy entered into force in March 2021. Notably, an opposite trend is

PAGE | 55

IEA. All rights reserved.

expected for smaller systems (10-30 kW), where the surcharge on self-consumed

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

electricity was removed in EEG 2021. Following this change, average additions
doubled from 35 MW per month to 75 MW per month in 2021 compared with lastyear. The main case assumes that the increase in economic attractiveness of
self-consumption drives growth in this segment.
The forecast for onshore wind is revised upwards in part due to the regulatory
reforms aimed at tackling permitting challenges, which have previously caused
auctions to be undersubscribed. Since 2017 only 13 GW out of the 17 GW offered
were awarded in auctions because social acceptance and litigation issues havemade obtaining a permit, which is required to bid in an auction, a lengthy process.
However, annual subscription rates have been increasing since 2019 and two outof the three auctions in 2021 were fully subscribed. The main case forecast
expects new reforms that increase the benefits to local communities will improvesocial acceptance and, consequently, permitting and subscription rates. EEG
2021 guarantees that a proportion of revenues from wind farms will go to local
communities, taxes will be paid at the place of installation rather than at company
headquarters, and local residents will be eligible for reduced electricity tariffs.
Nonetheless, the continued decommissioning of older wind turbines for which
support is expiring remains a downside risk to the forecast. An additional 3.5 GWof renewable capacity is also set to come from offshore wind and bioenergy, bothdriven by auction schemes.
Overall, renewables growth in the accelerated case could be 16% faster than themain case, with greater economic attractiveness for self-consumption in
distributed PV, improved economics for repowering and increased social
acceptance of onshore wind projects, and more rapid development of the offshore
wind project pipeline.

Spain
Auctions for renewable capacity resume, but regulatory
uncertainty poses a risk to growth from corporate PPAs andmerchant projects
Renewable electricity capacity in Spain expands by 52% between 2021-2026 fromthe addition of 34 GW in the main case, almost entirely from solar PV and wind.
Overall, our forecast is 27% higher than last year due to the allocation of EU
stimulus to incentivise distributed PV and higher than expected wind capacity
awarded in the second round of auctions, held in October 2021. Only 1.5 GW was
earmarked for onshore wind in the second round; however, 2.3 GW was awarded

PAGE | 56

IEA. All rights reserved.

to compensate for unallocated capacity in other categories that wereRenewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

undersubscribed. The impact on investor confidence of recent regulatory changes– which put a levy on the revenues of low-carbon generation exposed to thewholesale market – remains a forecast uncertainty, especially for future corporate
PPAs and merchant activity.

35

50%

2.5

30

40

40%

2

30

30%

1.5

20

20%

1

10

10%

0.5

0%

0

60%

50

0

2009-142015-20

HistoricalHydropower
PV - utility
Other renewables

2021-262021-26

Main case Acc. case

25
20
15
10
5
44470

44197
PV

Wind
PV - distributed
Forecast revision (right axis)

EUR/MWh

3

60

GW

GW

Spain renewable capacity additions, 2019-2026 (left) and comparison of
auction prices and wholesale electricity prices, 2018-2021 (right)

44197

44470

0

Onshore windAwarded capacity
Average bid price (right axis)

IEA. All rights reserved.
Notes: Acc. case = accelerated case. In the right graph, the average bid price represents the weighted average winning
auction price of onshore wind and solar PV.

The main policy driver for capacity growth in Spain is government-held auctions,which resumed in 2021 after three years of delay. The first round was in January
and achieved relatively attractive weighted average prices for utility solar PV andonshore wind of EUR 24.47/MWh and EUR 25.31/MWh, respectively. However
the awarded prices increased by 29% and 19%, respectively, in October’s second
round, in part due to the increase in commodity prices. The forecast contains two
main uncertainties related to project realisation under auctions. First, securing
financing may be a challenge given the low bid prices and relatively short contract
lengths of 12 years. Second, projects still need to obtain grid connection permits,which can be in short supply and expensive due to the existence of a secondary
market where permits can be sold at a higher value. To free up capacity for new
projects, the government introduced regulations last year stipulating the expiry of
permits if certain project development milestones are not met.
Spain’s onshore wind and utility-scale solar PV forecast is also driven by a pipelineof projects outside the auction process, with revenues from corporate PPAs andthe wholesale market. However, Royal Decree-Laws 17/2021 and 23/2021,
passed in October 2021, recuperate a proportion of the revenues of low-carbon

PAGE | 57

IEA. All rights reserved.

electricity generators from sales linked to the wholesale market; this action wasRenewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

taken to avoid excessive increases in consumer electricity bills in response to highnatural gas prices. The new law is set to last until 31 March 2022; however, it could
be extended if gas prices remain high. The main case expects this regulation anduncertainty surrounding the length of time it will remain effective to slow newcontract signing and to delay financial closure of projects outside the auction
scheme.
Distributed PV accounts for 19% of Spain’s renewable capacity growth, driven
largely by self-consumption in the commercial segment. We have revised thisforecast upwards due to higher than expected growth in 2020 and newly
announced plans to allocate EU stimulus money to increase self-consumption.
Spain’s recovery plan earmarks EUR 450 million towards investment grants for
distributed PV and another EUR 110-220 million for storage systems.
In the accelerated case Spain’s renewable capacity growth is 35% higher than themain case, due to increased deployment outside auctions. This depends on
clarification of the length of time that Royal Decree-Law 17/2021 revenue
recuperation lasts, providing investors with the visibility needed to plan future
investment. Higher distributed PV growth could occur if additional EU stimulus isallocated to self-consumption. Spain plans to apply for another EUR 70 billion in
the form of loans to support the energy transition and some could be earmarked
to support self-consumption from solar PV.

FranceDespite growing policy ambition, implementation challenges
lead to a downward forecast revision
France’s total installed renewables capacity is projected to grow by 55% (32 GW)
during 2021-2026 in the main case. Solar PV and wind account for almost all of
this growth, with annual capacity additions averaging 2.7 GW and 2.4 GW
respectively over the forecast period. Three-quarters of wind additions are
anticipated to be onshore, while utility- and commercial-scale segments continue
to represent the large majority of PV developments. Compared to last year, wehave revised France’s outlook for 2021-2026 slightly downwards, based on: 1) the
postponement and downward adjustment of auction capacity initially scheduled
for 2020-2021; 2) the undersubscription of recent auction rounds for groundmounted PV and onshore wind; 3) a high rate of cancellation among PV projects
awarded in the past; 4) limited land eligibility for PV and wind projects; and 5)

PAGE | 58

IEA. All rights reserved.

ongoing permitting bottlenecks, partly due to limited administrative resources.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Expansion is largely steered by the country’s multiannual energy plan (PPE),
updated in 2020, which sets technology-specific targets for 2023 and 2028, as
well as indicative auction schedules. Large solar PV and wind projects benefit fromsliding FIPs awarded through competitive tenders, while FITs support smaller windprojects and residential-scale PV. In 2021 the government published the schedule
for seven new technology-specific auction schemes, which replace the previous
schemes ending in the same year. These new schemes aim for 29.9 GW ofrenewable energy capacity over the period 2021-2026 (16.4 GW of PV and10.2 GW of onshore wind).

45

6%

40

4%

35

2%

30
25

0%

20

-2%

15

-4%

10
5
0

MW

GW

France renewable capacity additions, 2009-2026 (left), and auction results,
2019-2020 (right)

2009-142015-202021-262021-26

3 000
2 500
2 000
1 500
1 000

-6%

500

-8%

0

Historical
Main case Acc. caseOnshore windPV ‒ distributed
PV ‒ utility
Offshore wind
Bioenergy
Hydropower
Other renewables
Forecast revision (%)

2019

2020

PV ‒ ground

2019

2020

2019

2020

PV ‒ buildings Onshore windAwarded capacity
PPE planned auction capacity

IEA. All rights reserved.
Note: Acc. case = accelerated case.

Annual solar PV additions are expected to more than triple from 2020 levels during
the forecast period, enabled by previous tenders for utility-scale and commercial
projects, as well as the new auction frameworks. While the latter offer potential for
more rapid growth, multiple PV tenders have suffered undersubscription since
2018, mostly due to permitting challenges, leading to a downward revision of
auctioned capacity targets. In addition, awarded projects have faced a highcancellation rate during the past two years, while complex administrative
procedures cause very long project lead times ‒ about four years to develop aground-mounted plant (France Territoire Solaire, 2021). Supportive policy updates
for solar PV were confirmed in October 2021, including the extension of FIT
eligibility to larger projects, tax cuts and PV installation obligations on new
warehouses, supermarkets and parking canopies. Despite these improvements,
investor confidence might be challenged by the recent retroactive revision of FITs

PAGE | 59

IEA. All rights reserved.

already awarded to projects between 2006 and 2010.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Onshore wind growth is anticipated to accelerate, largely driven by rising auction
volumes under the new auction schemes. The new auction specifications include
supportive updates, in particular an extension to project eligibility and the reductionof administrative delays during the selection process. However, land constraints
remain a critical challenge. High spatial concentration of projects in regions withthe greatest wind potential has led to rising local opposition in recent years,
despite stringent heritage, landscaping and environmental limitations. Restricted
areas around military radars were extended in 2021, potentially exacerbating
permitting issues.
France’s offshore wind capacity is expected to take off in 2022 with the fullcommissioning of the 480 MW project in Saint-Nazaire, a decade after the tender
was held in 2012. By the end of 2026, offshore capacity is expected to reach
3.7 GW, with seven large projects expected to come online. Projects have faced
significant delays related to extended litigation while the government renegotiatedcontracts to prevent windfall profits. In addition, in April 2021 France launched acall for tender for a floating offshore wind project with a capacity of up to 270 MW.
Under the accelerated case, France’s renewable capacity additions reach 40 GW
during 2021-2026 – a quarter more than in the main case. Assuming the full
subscription of the new auction schemes, lower abandonment rates for awarded
projects, and the rapid uptake of residential PV and corporate PPA projects, solar
PV capacity could expand almost a third more than in the main case, potentially
meeting the 2023 PPE target. With greater auction participation, an additional
1.6 GW of onshore wind is also achieved in the accelerated case, assuming thatland constraints and social acceptance challenges are overcome, and thepermitting procedure is streamlined. The Ministry of Ecological Transition recently
announced a set of measures, including mapping of wind zones and a better
tracking of projects, which could help achieve a more regionally balanced
deployment of onshore wind – hence potentially reducing social opposition
challenges.

The Netherlands
Solar PV leads capacity additions, but grid availability andcompetition with carbon capture for future subsidy budget
allocation remain forecast uncertainties
The Netherlands’ renewable capacity is forecast to increase by over 27 GW overthe forecast period in the main case, more than doubling the currently installedcapacity. Capacity awarded in the SDE+ and SDE++ auction rounds, completed

PAGE | 60

IEA. All rights reserved.

tenders for offshore wind and the net metering policy for PV projects under 15 kW

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

are the primary factors for growth. We have revised the forecast up by nearly 10%
from last year due to a large amount of PV capacity being awarded in the first
SDE++ auction round held at the end of 2020, more than previously anticipated.
The amount of subsidies available for renewables in upcoming auctions remains
a principal forecast uncertainty during 2021-2026. In the first SDE++ round lastyear, over 50% of the total subsidy was awarded to carbon capture and storage
and heat pumps, leaving less budget available for wind and solar PV. The
continuation of this trend poses challenges to faster expansion of renewables. In
addition, our forecast expects that the onshore renewable generation target of
35 TWh by 2030 is likely to be achieved prior to that year and could lead to a reevaluation of onshore renewables incentives (IEA, 2020b).

GW

Netherlands renewable capacity additions, 2009-2026 (left) and share ofbudget award by technology, 2016-2020 (right)
35

12%

30

10%

25

8%

20

6%

15

4%

10

2%

5
0

2009-142015-20

Historical
Offshore wind
Bioenergy
PV – commercial
Forecast revision (%)

2021-262021-26

0%

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

Main case Acc. caseOnshore wind
PV – utility
PV – residential

2016 2017 2018 2019 2020 2020
SDE+ SDE+ SDE+ SDE+ SDE+ SDE++
Hybrid heat
Carbon capture
Solar PV
Onshore wind
Biomass
Other renewables

IEA. All rights reserved.
Notes: Acc. case = accelerated case. Two auctions took place per year. 2016, 2017, 2018 and 2019 values are combined
results. In 2020, two auctions were held, the final SDE+ round and the first SDE++ round, resulting in the broken-out values
in the right figure. Offshore wind totalling over 5 GW was tendered 2015-2021.
Source: (right) IEA analysis based on data from Netherlands Enterprise Agency (RVO) (2020), Verplichtingen SDE per
technologie.

Solar PV accounts for two-thirds of the Netherlands’ renewable capacity
expansion in the forecast period, led by distributed PV. The country awarded
nearly 3.6 GW in the latest SDE++ auction round held in 2020, with rooftop
applications winning 97% of all PV projects. Auction results over the period 20182020 indicate a large PV pipeline of nearly 12 GW eligible for subsidies. In
addition, our forecast expects demand for residential projects to remain strong in
2022 and 2023 before the remuneration under the net metering scheme is

PAGE | 61

IEA. All rights reserved.

reduced.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

For utility-scale solar PV and onshore wind projects, grid availability and permitting
present a key challenge for greater growth. The regional grid operator has statedthat regions in the central and eastern Netherlands have no remaining grid
capacity due to a backlog of solar PV and wind projects. Connection delays are
expected over the forecast period (TenneT, 2021). Reduced network availability
has already contributed to lower participation of onshore wind projects in auctions,as developers must prove grid availability at the time of their bid. Thus, the maincase forecast expects substantially lower onshore wind additions over 2024-2026
after the commissioning of previously awarded projects. Driven by previously
allocated capacity, offshore wind is forecast to add 5 GW during 2021-2026,
accounting for nearly two-thirds of the country’s total wind expansion.
The accelerated case sees higher additions on the assumption that gridcongestion issues are addressed, freeing up space for new large-scale projects,
especially utility solar PV and onshore wind installations. In addition, the following
factors are also considered in the accelerated case: 1) similar or larger budgets
for SDE++ and faster cost declines leading to more capacity and 2) an extensionof the 100% net metering credit, which was proposed but not passed, would leadto higher deployment of residential PV.

TurkeyGrowth shifts from hydropower to low-cost solar PV and wind,
but annual additions remain volatile for onshore wind
Turkey’s renewable electricity capacity is expected to increase by over 26 GW, or
53%, during 2021-2026 in the main case. Solar PV and wind are anticipated toprovide nearly 80% of Turkey’s renewable capacity expansion, mostly driven by
FITs and auctions for utility-scale renewables, and monthly net metering for
distributed solar PV projects. Driven by the commissioning of large hydropower
projects and a FIT deadline for onshore wind, Turkey’s annual additions doubled
last year compared with 2019. However, a reduced hydropower pipeline is
expected to result in lower growth over 2021-2026. In December 2020 thegovernment extended the FIT application deadline for onshore wind to June 2021,
resulting in higher additions this year in our forecast. However, wind additions are
expected slow significantly between 2022 and 2024 due to delayed auctions andproject permitting timescales, leading to a reduced project pipeline. Additions
recover through to 2026, driven by additional wind auctions with higher capacity

PAGE | 62

IEA. All rights reserved.

compared with historical levels.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

10

USD/MWh

GW

Turkey renewable capacity additions, 2019-2026 (left) and solar
PV auction results, 2021 (right)
9
8
7
6

70
60
50
40

5
4

30

3

20

2

10

1
0

2019 2020 2021 2022 2023 2024 2025 2026
HistoricalHydropower
PV - utility
Acc. case

Forecast
Wind
PV - distributed

Bioenergy
Other renewables

0

Jan

Mar

May

Jul

Sep

Nov

Spot power price range (2016-2021)
2021 PV auction min. price2021 PV auction average price2021 PV auction max. price

IEA. All rights reserved.
Note: Acc. case = accelerated case.

Following the solar PV auction (1 GW single plant) in 2019 at USD 70/MWh,
Turkey held a second PV auction in April 2021 awarding 74 projects at an average
price of USD 27/MWh. With the lowest bid price at USD 23/MWh, awarded
contracts are competitive with or lower than average wholesale electricity prices
over the last five years. At these prices, our forecast assumes tenders for an
additional 1 GW are to be held in coming years. However, the project completion
rate at these prices remains a forecast uncertainty in view of macroeconomic
challenges, exchange rate volatility and high interest rates. Large-scalecommercial PV projects are expected to support the forecast as large consumers
seek bill savings in the face of increasing retail electricity prices. Geothermal
capacity is expected to increase by 0.5 GW over the forecast period, driven by thecontinuation of the FIT.
In the accelerated case, renewables growth is over 30% higher than in the maincase. Solar PV has the largest upside, with higher auction volumes and fasterproject completion rates, while improving financing conditions should facilitate
additional growth for both utility-scale and distributed solar PV projects. Moreover,
new regulations enabling hybrid projects and the introduction of corporate PPA
regulations are assumed to unlock additional onshore wind and PV projects atcompetitive prices. The upside for geothermal remains high if affordable financing
is available, reducing pre-development risks and unlocking additional projects in

PAGE | 63

IEA. All rights reserved.

the pipeline.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

PolandRenewable capacity growth triples during 2021-2026 compared
to 2015-2020, but annual additions are volatile due to policychangesPoland is expected to add 23 GW of renewable capacity over 2021-2026 (71%
growth) in the main case. Solar PV accounts for almost 75% of the growth,followed by onshore wind. In addition, Poland’s first offshore wind turbines are
expected to start operations in 2026, adding close to 1 GW of capacity. Poland
has requested about EUR 3.7 billion of grants and loans through the European
Union’s Recovery and Resilience Facility to stimulate development of offshorewind, which should help the development of port infrastructure and ensure timely
commissioning of approved projects. Our forecast is around 50% higher than lastyear’s, due to faster than expected growth of distributed PV, progress on offshore
wind project approval and much higher overall renewables deployment in 2026
compared to 2020.

35

60%

30

50%

3.0

40%

2.5

30%

2.0

20%

1.5

10%

1.0

0%

0.5

25
20
15
10
5
0

2009-142015-20

HistoricalHydropower
Offshore wind
PV - utility
Other renewables

2021-262021-26GW

GW

Poland’s renewable capacity additions, 2009-2026 (left), and estimated PV
and wind capacity additions resulting from renewable energy auctions,2017-2021 (right)
3.5

0.0

Main case Acc. caseOnshore wind
Bioenergy
PV - distributed
Forecast revision (%)

2017

2018

2019

2020

2021

Onshore wind
Solar PV

IEA. All rights reserved.
Note: Acc. case = accelerated case.
Source: (right) IEA analysis based on Urząd Regulacji Energetyki (2021).

PAGE | 64

IEA. All rights reserved.

Auctions remain the principal driver of utility-scale PV and wind deployment. In
October 2021 the Renewable Energy Act was amended, extending auctions from2021 to 2027 and introducing long-term plans for auction volumes, which should
encourage project development. The act also facilitated investment in small
installations, which is expected to result in faster growth of distributed PV capacity.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

The investment subsidies driving distributed PV growth since 2019 are expected
to be scaled down in 2022. Regulators are also planning to replace the generous
net metering scheme with net billing from 2022. Although the final rules are yet to
be announced, current plans indicate a reduction in remuneration, leading to a
slowdown in annual distributed PV growth compared to 2020-2021, especially inthe residential segment.
The first seven offshore wind projects in Poland, with a total capacity of about
6 GW, were approved in Q2 2021 via contracts for difference. The projects are
expected to come online during 2026-2030, with additional capacity planned to beawarded through auctions starting in 2025. However, onshore wind project
development remains constrained by a law prohibiting construction of turbines at
a distance from the nearest residential building of less than ten times the height of
the turbine. Current rules prohibit project development even in areas with strong
local community support, and are expected to result in a significant slowdown inannual deployment after 2022.
In the accelerated case, capacity additions are 40% higher, with the biggest
upward potential being in onshore wind and distributed PV. Achieving more rapid
capacity growth will require the expansion of auctions for large-scale systems, thesoftening of restrictions for onshore wind turbine placement and ensuring the
profitability of installations under the new distributed PV remuneration scheme.
Increased investment in transmission and distribution grids will also be required toenable the system integration of higher wind and solar PV capacity. In addition,
updating national strategic documents for long-term power sector development
would provide renewables developers with greater visibility, encouraging
investment.

Italy
Solar PV leads the revival of the Italian renewables market, butlengthy permitting procedures put 2030 targets at risk

PAGE | 65

IEA. All rights reserved.

Renewable capacity in Italy is forecast to grow by 17 GW, or 30%, over the period2021-2026 in the main case. Solar PV accounts for three-quarters of this growth,
split between utility-scale and distributed applications. Auctions, bilateral PPAs
and merchant projects are driving utility-scale PV expansion. For distributed
applications, the main drivers continue to be the net billing scheme and generous
tax incentives in the residential sector, and self-consumption with a guaranteed
selling price for exported power in the commercial and industrial segments. We
expect renewables growth in Italy to continuously accelerate towards 2026, toreach the targets set out in the NECP. In addition, the renewable electricity sector
is expected to receive around EUR 4.7 billion in grants from the European Union’sRenewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Recovery and Resilience Facility, the largest among all EU members, whichshould contribute to project financing. According to the NECP, cumulative installed
solar PV and wind capacity should almost double to 2030, which requires faster
growth, similar to the capacity additions observed during 2009-2014.

30

30%

GW

GW

Italy renewable capacity additions, 2009-2026 (left) and FER auction
results, 2019-2021 (right)
3.5

25

25%

20

20%

15

15%

10

10%

5

5%

0.5

0%

0.0

0

2009-142015-202021-262021-26

100%

3.0

80%

2.5
2.0

60%

1.5

40%

1.0

Historical
Main case Acc. case
Hydropower
Wind
Bioenergy
PV - utility
PV - distributed
Other renewables
Forecast revision (%)

20%

1

2

2019
Onshore wind

3

4

5

6

2020
FER auctions

2021

PV

PlannedUnallocated70%% allocated

IEA. All rights reserved.
Note: Acc. case = accelerated case.
Source: (right) IEA analysis based on Gestore Servizi Energetici (2021).

In 2019 Italy launched a new auction programme (FER) with the aim of contracting
about 5 GW of new solar PV and onshore wind capacity through seven auctions
by 2021. However, the six auctions held since the programme launched saw only
about 2 GW out of the planned 4 GW being contracted. The main challenge
holding developers back from participating is the complicated and lengthy
permitting process and the restriction on using agricultural land in submitted
projects. In Q4 2021 the government is due to auction all the unallocated capacity(3 GW), but the participation rate remains a key forecast uncertainty.
The long and complicated permitting process remains the main challenge to more
rapid renewables deployment in Italy. Many projects are abandoned during thepermitting process, which can take up to six years. More than 100 GW ofrenewable capacity is stuck at various stages of the administrative process. In July
2021 a simplification decree was enacted, aimed at streamlining various
administrative processes. However, the impact of the new policy remains
uncertain. In addition, limited land availability and growing social acceptancechallenges further hamper faster growth of renewables.
In the accelerated case, renewable capacity additions are 65% higher, putting the

PAGE | 66

IEA. All rights reserved.

country on a path to exceeding current 2030 targets for solar PV and wind.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Achieving faster growth requires the effective streamlining of permitting
processes, strong investment in transmission and distribution grids to integrate
additional variable renewable capacity and a higher success rate at auctions.

United Kingdom
Offshore wind remains the main tool for power sector
decarbonisation on the road to net zero emissions
Renewable capacity in the United Kingdom is expected to grow by almost 26 GW,
or 50%, during 2021-2026 in the main case. Offshore wind accounts for more thanhalf of all renewables growth, making the United Kingdom the second-largest
global growth market for offshore wind after China. The forecast is one-third higher
than last year due to accelerating deployment of projects awarded in contract fordifference (CfD) auctions towards the end of forecast period and low additions in
2020. In 2019 the United Kingdom adopted a binding net zero GHG emissions
target for 2050, with an interim target of a 78% emissions reduction compared to1990 levels by 2035. Currently the renewables capacity target is specified only foroffshore wind, with 40 GW planned to be installed by 2030, quadrupling the current
installed capacity of 10 GW.

45%

30

40%

25

10

30%

8

25%

15

20%
15%

10

10%

5

5%
2009-142015-202021-262021-26

200

12

35%

20

0

14

0%

Historical
Main case Acc. Case
Hydropower
Onshore wind
Offshore wind
Bioenergy
PV - utility
PV - distributed
Other renewables
Forecast revision (%)

150

USD/MWh

35

GW

GW

United Kingdom renewable capacity additions, 2009-2026 (left), and CfD
auction results (capacity and strike prices), 2021-2026 (right)

100

6
4

50

2
0

CfD 1 2015

CfD 2 2017

Offshore
Other
PV and onshore
Price onshore wind0
CfD 4 2021
(planned)
OnshorePV
Price PV
Price offshore windCfD 3 2019

IEA. All rights reserved.
Note: Acc. case = accelerated case, CfD = contract for difference.
Source: (right) GOV.UK (2021), Contracts for Difference.

CfD auctions remain the main driver of growth, with almost 11 GW of renewablecapacity awarded in three auction rounds conducted in 2015, 2017 and 2019,

PAGE | 67

IEA. All rights reserved.

10 GW of which was for offshore wind. The fourth CfD round is planned for Q4

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

2021, with a record 12 GW of total capacity, 5 GW of which is expected to beallocated to onshore wind and PV projects, leading to a rebound in their additions
over 2023-2025.
Development of distributed PV is expected to remain limited due to relatively low
financial incentives in the Smart Export Guarantee scheme introduced in 2020,
replacing a FIT. The scheme mandates power suppliers to purchase exported
electricity from systems with a capacity of up to 5 MW at retailer-set tariffs.
Currently tariffs range from around 50% to 100% of average wholesale electricity
prices (USD 40-70/MWh). Such remuneration levels limit the economic
attractiveness of investment in distributed PV, as costs in the United Kingdom
remain relatively high due to low average solar irradiation.
Corporate PPAs are expected to be an increasingly important driver of utility-scale
PV and onshore wind growth, resulting in 0.3-0.5 GW of new capacity annually.
Procuring renewable electricity directly allows companies to fulfil their emissions
reduction goals and provides a hedge against volatile market prices.
In the accelerated case, renewables capacity growth in the United Kingdom during2021-2026 is almost 20% higher than in the main case, with the main upside
potential identified in onshore wind and utility-scale PV. The main challenges
include long permitting processes and the lack of grid availability. Current rules foronshore wind require lengthy changes in local zoning plans, and in England
individuals can easily block projects even if the majority of the local community
backs them. For utility-scale PV, more financial support is required, as costs ofgeneration are higher than for wind. Continued inclusion of PV in CfD auctions, as
planned for the fourth round, will be a crucial enabler of faster growth. In addition,
offshore wind projects would also benefit from a streamlined permitting schedule.

DenmarkAuctions and subsidy-free projects expand solar PV capacity,while wind still leads forecast growth
Denmark’s renewable electricity capacity is expected to increase by 55% over
2021-2026 in the main case, led by wind and solar PV, with the rate of growth
accelerating compared to the previous decade. We have revised Denmark’s
forecast up by 13% from last year, mainly driven by offshore wind auctions, future

PAGE | 68

IEA. All rights reserved.

technology-neutral tenders and subsidy-free utility-scale solar PV projects.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

9
8
7
6
5
4
3
2
1
0

2009-142015-20

HistoricalHydropower
Offshore wind
PV – distributed
Forecast revision (%)

2021-262021-26

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%

GW

GW

Denmark renewable capacity additions, 2009-2026 (left) and types ofpolicy driver by technology, 2021-2026 (right)
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

Main case Acc. case

PV – distributed

Other projects
Onshore wind repowering*
Subsidy-free projects
Acc. caseOnshore wind
PV – utility
Bioenergy

PV – utility

Wind

Future tenders*
Offshore wind tenders
Past tenders

IEA. All rights reserved.
* Future tenders and onshore wind repowering assumption.
Note: Acc. case = accelerated case.
Source: (right) ENERGINET (2021), Energi Data Service.

Three large offshore wind projects totalling 1.5 GW are expected to come online
in the forecast period The repowering of older turbines and greenfield projects
through technology-neutral tenders are set to drive onshore wind expansion. In
addition, our forecast expects the commissioning of utility-scale solar PV projects
without subsidy through merchant revenues, bilateral contracts and PPAs.
Distributed PV sees sustained growth through the use of real-time selfconsumption models.
In the accelerated case, renewables growth could be 40% higher than in the maincase, with offshore wind having the largest upside. Higher capacities intechnology-neutral tenders, the faster commissioning of projects in the pipeline
and additional plants delivering electricity for green hydrogen production could
bring an additional 1.2 GW of offshore wind.

Belgium
Annual additions slow after the deployment boom in 2019 and2020, the next large-scale offshore wind project coming online
in 2026, while lower remuneration hampers PV growth
Renewable electricity capacity in Belgium is expected to increase by 40% over
2021-2026 in the main case, with solar PV and wind together accounting for

PAGE | 69

IEA. All rights reserved.

almost all of this growth. Four separate Green Certificate (GC) programmes – one

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

from the federal government covering only offshore wind and three regional
government programmes – drive renewable expansion over the forecast period.
In the federal scheme for offshore wind, the minimum guaranteed price for GCs
varies depending on the wind farm and offshore domain concession. GC banding
factors remain attractive for PV systems above 40 kW in the Flanders region,
propelling growth of both commercial and utility-scale PV projects over theforecast period. For distributed solar PV, real-time self-consumption andincentives reducing investment costs (such as rebates) for the residential segmentin the Flanders region drive capacity growth. However, this is hampered by a newpolicy introduced in 2021 reducing the remuneration for the residential sector,
leading to a decline in PV additions. Following the commissioning of large-scale
offshore wind projects in 2019 and 2020, our forecast expects no additions until
2026 when the federal government opens new offshore areas.

3

GW

2

2

Flanders

Wallonia

2021-26

2016-20

2011-15

Offshore wind
Other renewables

2021-26

Onshore wind
PV – distributed

2016-20

Hydropower
PV – utility
Acc. case2011-152019 2020 2021 2022 2023 2024 2025 2026

2021-260

2016-20

1

1

0

3

2011-15

GW

Belgium renewable capacity additions, 2019-2026 (left) and historical andforecast solar PV additions by region, 2011-2026 (right)

Brussels

IEA. All rights reserved.
Notes: Acc. case = accelerated case. Other renewables include bioenergy, CSP, geothermal and marine energy.
Sources: (right) Energie Commune, Flanders, Wallonie energie SPW (2021), Brugel.

In the accelerated case, renewables growth could be 45% higher than in the maincase. Distributed PV and offshore wind hold the largest upside potential. This caseassumes that capital subsidies and incentives for reducing the investment costsof PV continue during the forecast period. In addition, the more rapid
commissioning of new offshore wind projects leads Belgium to reach the 4 GW
target by 2030, coming online in 2025 and 2026. There is further upside for utilityscale and commercial PV with the introduction of additional auctions in the

PAGE | 70

IEA. All rights reserved.

Flanders region, following the allocation of 33 MW of solar PV in 2021. Finally, theRenewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Belgian recovery and resilience plan investment sees an upside potential for new
offshore wind projects via the “Energy Island” in 2026.

Latin America
Renewable capacity in Latin America is expected to increase by 34%, or 96 GW,
during 2021-2026 in the main case, as growth shifts from large-scale hydropower
to solar PV. Variable renewables together account for 84% of the regional
expansion. Brazil remains the largest market in Latin America; however, thecountry’s proposed remuneration reduction for distributed PV in 2023 slows theregion’s overall annual additions. Although competitive auctions remain an
important driver for utility-scale wind and solar PV development, their pace has
slowed since 2018. As equipment prices fall, deployment outside government
policy schemes is rising, especially in Brazil, Chile and Mexico. Policy andregulatory uncertainties remain critical challenges to growth in the region, while
greater investment in transmission will also be required to avoid project delays
caused by system constraints.

25

GW

GW

Latin America capacity additions by country, 2019-2026 (left) and capacity
additions by technology, 2015-2026 (right)

20

70
60
50

15

40

10

30
20

5

10

0

2019 2020 2021 2022 2023 2024 2025 2026
BrazilChile
MexicoColombia
Argentina
Other Latin America
Acc. case0

Solar PV Wind
2015-20 historical2021-26 acc. case

Hydro

Bio

Other

2021-26 main case

IEA. All rights reserved.
Note: Acc. case = accelerated case.

BrazilDistributed PV and market activities outside government-led auctions are
driving expansion
In the main case, Brazil’s renewable capacity is expected to increase by almost

PAGE | 71

IEA. All rights reserved.

45 GW, or 30%, during 2021-2026, with solar PV and wind comprising almost 95%

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecastof the anticipated additions. We have revised Brazil’s forecast up by 60% from lastyear’s market report. Power market reform and grid use tariff exemptions forrenewables have led to increasing amounts of capacity being procured throughthe deregulated market via PPAs with utilities or businesses. Average spot market
prices have exceeded awarded auction prices in the last three years, potentiallyindicating a better business case in the deregulated market. The growing share offree-market projects is supplemented by auction capacity and increasing amountsof distributed PV installations. New hydropower capacity makes up only 3% of all
additions, a steep decline on previous years’ additions, as developing thecountry’s remaining large-scale hydropower potential remains difficult due tosocial acceptance and environmental challenges. Brazil announced two newrevised targets at COP26. The first is a revised emissions reduction target of 50%
by 2030 (up from 43%), while the second is a revised net zero target year of 2050,
ten years earlier than the previous commitment. These revisions indicate policy
momentum beyond the forecast period.

70%

50

60%
50%

40

350

1 600

300

1 400

200

30%

150

20%

100

10

10%

50

0

0%

0

20

2009-142015-20

HistoricalHydropower
Bioenergy
PV – distributed

2021-262021-26

1 200

250

40%

30

Main case Acc. caseWind
PV – utility
Forecast revision (%)

MW60

BRL/MW

GW

Brazil renewable capacity additions, 2019-2026 (left) and awarded auction
and spot market prices, 2018-2021 (right)

1 000
800
600
400
200
2018

2019

Spot price BRL/MW
Solar BRL/MWAwarded solar PV (MW)

2020

2021
Wind BRL/MWAwarded wind (MW)IEA. All rights reserved.
Note: Brazil postponed auctions for new capacity in 2020, hence the missing data points on the right. Acc. case =accelerated case.
Sources: (right) ANEEL (2021a), Leiloes de energía da ANEEL e CCEE viabilizam R$ 4 bi de investimentos em
renovaveis; ANEEL (2021b), Leiao de Energia Nova A-5 atrai mais de R$ 3 biloes em investimentos; CCEE (2021),
Relatorios.

Solar PV expands by over 30 GW, representing nearly 70% of all additions in themain case, with the majority being distributed PV projects. A proposed change innet metering compensation (phasing down the value of surplus energy that canbe offset against distribution, regulatory, and operation and maintenance tariffs) is
anticipated to begin in 2023, leading to lower additions. Systems installed within

PAGE | 72

IEA. All rights reserved.

12 months of the new rules being passed will not be affected by the new structure;Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

thus the forecast anticipates a rush of new installations in 2022 should the newlegislation be approved. Even with the change, the market is expected to averageover 2 GW of additions per year from 2023 to 2026 thanks to lower costs.
The “free” (unregulated) market becomes a primary driver of growth for utility-scale
PV and onshore wind. Uncertainties over future demand have resulted in lower
government auction capacity, as decreased demand leads regulated utilities toprocure less renewable capacity via auctions. Currently 85% of the pipeline ofonshore wind and utility-scale solar PV projects is being developed outside theregulated market. However, approved changes to grid use tariffs, and higher
commodity prices and fluctuating currency exchange rates remain key challenges
to higher market growth for both technologies. Increasing solar PV and windequipment prices were reflected in the latest auction round – they were one of thereasons that the awarded prices in 2021’s auctions were nearly twice as high as
those awarded in 2019.
The accelerated case sees over 15% higher additions across all technologies.
Lowering the demand threshold for participation in the deregulated market would
lead to even higher shares of renewables signing contracts in the free market. In
addition, faster recovery of electricity demand following the slowdown in economic
activity due to the Covid-19 crisis, could lead to additional renewable capacity
being procured via government-run and private auctions, and hence more rapid
expansion of wind and solar PV. Finally, the prolonged drought affectinghydropower production could lead to a greater focus on non-hydro resources.

Chile
Higher targets, competitive renewables and bilateral contracts lead to araised forecast
Chile’s renewable capacity is forecast to more than double in the main case, withthe commissioning of 18 GW over 2021-2026. Utility-scale PV and onshore wind
together account for almost 90% of this expansion. Our forecast is driven by thecountry’s new goal to increase the share of electricity generated by nonconventional renewables’ (ERNC) share in electricity generation from around 23%
today to 40% in 2030. Auction schemes, competitive contracting in the
deregulated power market and, most recently, the country’s hydrogen strategy are

PAGE | 73

IEA. All rights reserved.

all expected to drive renewables expansion.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

5.0

TWh

GW

Chile renewable capacity additions, 2019-2026 (left) and non-conventional
renewable generation historical share and future target and demand by
type (right)
4.5

100

45%

90

40%

4.0

80

3.5

70

3.0

60

2.5

50

2.0

40

1.5

30

1.0

20

0.5

10

0.0

0

2019 2020 2021 2022 2023 2024 2025 2026

Hydropower
PV – utility
CSP

Wind
PV – distributed
Acc. case

Bioenergy
Other renewables

35%
30%
25%
20%
15%
10%
5%
2014

2020

2026

2030

Regulated

Free market

ERNC (%)

2030 ERNC target (%)

0%

IEA. All rights reserved.
Note: Acc. case = accelerated case. ERNC = Non-conventional renewables which exludes large-scale hydropower.
Source: Comisión Nacional de Energía (2021), Previsión de demanda eléctrica.

Auctions have historically driven utility-scale renewables expansion in Chile. Of
the 4 GW contracted between 2015 and 2017, almost 40% became operational.
After postponing the auction in 2020 due to the Covid-19 crisis and reducing theauction volume because of lower forecast demand, this year only 2.3 TWh wereawarded to solar, wind and storage projects (against an original objective ofaround 9.3 TWh by 2027). With an estimated 700 MW of solar and 330 MW ofwind, these projects should start delivering electricity to the grid no later than 2026.
In this latest auction, the lowest bid was from a PV project, which submitted a priceof USD 13.32 /MWh, setting the record as the lowest bid in Latin America.
Auctions are designed to supply regulated customers with loads under 2 MW,
while non-regulated consumers above this demand threshold can procure
electricity directly from the power market. Recent government forecasts indicatethat non-regulated clients will account for almost all the expected demand growthin Chile. As a result, our forecast expects only 20% of solar and wind capacity tocome from long-term electricity auctions (approximately 3.3 GW) and an additional
5.3 GW from special land auctions where the government allocates public land forrenewable energy projects to address acquisition challenges, with the most recent
awarding almost 2.8 GW in November (Ministerio de Bienes Nacionales, 2021).
Another forecast driver for wind and solar PV is Chile’s green hydrogen strategy,
which estimates 5-8 GW of associated renewable capacity being developed by

PAGE | 74

IEA. All rights reserved.

2025 (Ministerio de Energía, 2020).

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

The first CSP project in Latin America, Cerro Dominador (110 MW), entered into
operation this year, bringing with it 17.5 hours of storage and helping the grid
integration of variable renewables. In addition, the Likana CSP project bid thelowest reported price worldwide (USD 34/MWh) in the recent government auction(SolarPaces, 2021).
The main barriers to renewables in the forecast are social acceptance of newplants and the availability of transmission and distribution capacity given the rapid
increase in variable renewable generation. The expansion of renewable electricity
generation technologies calls for a robust grid with good coverage. Slowtransmission infrastructure expansion has caused project delays in the past andcould slow the pace of expansion over the forecast period.
The accelerated case sees almost 15% higher additions over the forecast period
thanks to the rapid increase of new renewable capacity associated with greenhydrogen projects. It also sees greater growth in projects participating in the freemarket, and expects a faster resolution of transmission and distribution
infrastructure bottlenecks.

Argentina and Mexico
Forecasts are revised downwards in both countries
Argentina’s renewable capacity in the main case is set to increase by 5 GW
during the forecast period, equivalent to 32% growth. We have revised the forecast
down by 6% from last year mainly due to the country’s challenging economic
environment. Hydropower dominates Argentina’s expansion, with projects Jorge
Cepernic, Presidente Nestor Kirchner and Brazo Aña Cuá beginning to comeonline in 2023, adding a combined 1.6 GW of capacity.
Long-term auctions (RenovAr) contracted 4.4 GW of wind and solar PV over theperiod 2016-19, driving recent renewable capacity expansion. However, therecent macroeconomic crisis and the pandemic have brought further financing
challenges for renewables projects and delayed their commissioning. As a result,only a half of the wind and solar PV projects awarded in previous auctions wereoperational by mid-2021. In addition, almost a quarter of the auctioned projects
missed their commissioning deadlines and were at risk of losing their powerpurchase contracts (Energía Estrategica, 2021). Following this development, thegovernment has provided flexibility by extending the deadlines. Of the half ofawarded projects yet to become operational, our forecast sees around 40%
becoming operational, while the remainder are expected to be cancelled due to

PAGE | 75

IEA. All rights reserved.

financing challenges.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

4.5

GW

GW

Mexico renewable capacity additions, 2019-2026 (left) and Argentina
renewable capacity additions, 2019-2026 (right)
4.0
3.5

1.6
1.4
1.2

3.0

1.0

2.5

0.8

2.0

0.6

1.5
1.0

0.4

0.5

0.2

0.0

0.0

2019 2020 2021 2022 2023 2024 2025 2026

Hydropower

Wind

Bioenergy

PV – utility

2019 2020 2021 2022 2023 2024 2025 2026

PV – distributed

Other renewables

Acc. case

IEA. All rights reserved.
Note: Acc. case = accelerated case.

The accelerated case sees almost 25% higher additions thanks to a rapid
economic recovery leading to improved financing conditions, higher uptake ofgovernment extensions to commissioning deadlines for projects awarded inprevious auctions, and the restart of auctions in an effort to reach the goal of 20%
renewable generation by the end of 2025.
Mexico’s renewable capacity is set to expand by over 9.5 GW during the forecast
period in the main case, with utility-scale PV leading the expansion (4.3 GW),
followed by wind (2.5 GW). However, the forecast is revised down compared tolast year as a result of a changing policy environment. The cancellation of thegreen certificate auctions in 2018, proposed policies to change dispatch criteria in
2019 and uncertainty over the newly proposed electricity market rules andregulations in 2020 and 2021 have all reduced investor confidence.

PAGE | 76

IEA. All rights reserved.

Corporate PPAs, bilateral contracts and merchant activities outside government
policy schemes are expected to drive 80% of the utility-scale wind and solar PV
capacity growth in our forecast. Wind and PV projects offer competitive prices via
bilateral contracts, meeting the increasing demand for commercial and industrial
customers, which account for over 60% of total electricity demand in Mexico(Secretaria de Energía 2021). In addition, distributed PV capacity is expected tomore than double during 2021-2026, driven by net metering and net billing,
coupled with growing demand and rising electricity tariffs.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Colombia
Government-led auctions drive development, but slow grid expansion
poses challenges
Colombia’s renewable capacity is forecast to expand by almost 50% (close to
7 GW) during 2021-2026 under the main case. This is primarily driven bycompetitive solar PV and wind auctions and the commissioning of the 2.4 GW
Hidroituango hydropower project. Overall, renewables are expected to meet
Colombia’s growing electricity demand, providing low prices. Wind and solar PV
developers have secured almost 2.6 GW of capacity from energy, reliability andprivate auctions since 2019. The latest energy auction in October awarded almost
800 MW of solar capacity to deliver electricity by January 2023 (La Republica,2021). In addition, three wind projects received contracts from the system operator
in the reliability charge auction (OEF), a scheme to ensure electricity security,especially in times of drought.
For the later years of the forecast, we assume almost 1 GW of additional wind andutility-scale PV capacity, spurred by the continuation of the auction schemes.
Considering its contracted projects and government plans, Colombia could reachits 2030 target of 4 GW of non-conventional renewable energy sources five year
early.

2.0

GW

GW

Colombia renewable capacity additions, 2019-2026 (left) and capacity
awarded by auctions, 2019 and 2021 (right)
1.8

0.9
0.8

1.6

0.7

1.4

0.6

1.2

0.5

1.0

0.4

0.8

0.3

0.6

0.2

0.4

0.1

0.2
0.0

2019 2020 2021 2022 2023 2024 2025 2026

Hydropower
PV – utility
Acc. caseWind
PV – distributed

Bioenergy
Other renewables

0

2ndauctionOEF
auctionBothPrivateauction

2019
Wind

3rd
auction

2021
Solar

IEA. All rights reserved.

PAGE | 77

IEA. All rights reserved.

Notes: Acc. case = accelerated case. 2nd and 3rd auctions = the second and third of the government’s long-term energy
auctions; Both includes the capacity of projects whose energy was committed in both auctions. Private auctions differ fromlong-term auctions primarily in that the PPAs can range from 5 to 25 years and the contracts can begin anytime between
2022 and 2025.
Source: BNAmericas (2020).

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

However, transmission infrastructure construction delays due to Covid-19 inlocations where major solar and wind projects are being developed remain aforecast uncertainty. Some projects are at risk of missing their commissioning
deadlines. Insufficient port and road infrastructure has been an additional sourceof delays for new projects (BNAmericas, 2021).
Renewable capacity growth could be 12% higher in the accelerated case fromincreased deployment outside auctions and higher capacities awarded in future
government-led auctions. It assumes higher uptake of wind and solar capacity withthe resolution of transmission infrastructure issues. Additionally, Colombia’s goal
to begin production of green hydrogen by 2030, which aims to have at least 1 GWof electrolysis installed, could spur additional development by the end of theforecast period.

Sub-Saharan Africa
Solar PV becomes an increasing driver of new capacity afterlarge-scale hydropower, but the mismatch between policy andimplementation prevents greater additions
Renewable capacity is expected to increase by 76%, or almost 33 GW, in subSaharan Africa from 2021 to 2026 in the main case, twice the amount of capacity
additions in the preceding five-year period. Nearly half of the new additions arefrom large-scale reservoir hydropower projects, while solar PV and onshore wind
represent the majority of the remaining growth over the forecast period. We haverevised the forecast up by over 50% from last year due to large-scale hydropower
projects receiving financing and meeting construction milestones, new auctions
and tenders and new project announcements. Additions in the region rely heavily
on government guarantees or backing from development banks. Ethiopia is
expected to provide the largest growth in the region, followed by South Africa,

PAGE | 78

IEA. All rights reserved.

Tanzania, Kenya and Nigeria.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

12

GW

10

16
14
12

8

10

6

8
6

4

4

Hydropower

Solar PVWind

2021-26

2015-202021-26

2015-202019 2020 2021 2022 2023 2024 2025 2026
Ethiopia
Kenya
Tanzania
South Africa
Nigeria
Other sub-Saharan Africa
Acc. case2021-260

2015-2002021-26

2

2

2015-20GW

Sub-Saharan Africa renewable additions by country, 2019-2026 (left) andadditions by technology and country, 2015-2026 (right)

OthersIEA. All rights reserved.
Notes: Acc. case = accelerated case. Others: Other renewable electricity technologies.

South Africa is forecast to add over 5 GW of capacity by the end of 2026,
representing almost 30% of all non-hydropower capacity additions in the region.
Annual additions in the country are expected to be stable in 2021 thanks to thecommissioning of projects awarded in 2015 (REIPPP Round 4). However, growthis expected to slow for the next two years, before accelerating in 2024. The
financial situation of the government utility (Eskom) and system constraints remain
key barriers to higher growth as available funds are being allocated for upgrades
and maintenance of the existing network, not for grid expansion, exacerbating low
network availability (Eskom, 2021). Policy decisions facilitating public and private
procurement drive the additions between 2021 and 2026. Utility-scale wind andsolar PV additions are enabled by government auctions and municipal
procurement. Increased commercial-scale PV capacity is expected to result fromthe lift on the licensing cap for embedded generation and tenders from private
firms. At COP26, the South African government announced a revised nationallydetermined contribution to boost renewables by repurposing coal plants due fordecommissioning within the next 15 years. It is supported by USD 8.5 billion ofinternational concessional financing to be allocated over the next three to five
years (Sunday Times, 2021).
Kenya’s renewable capacity expands by over 75%, adding over 1.7 GW from2021 to 2026. Capacity additions are enabled by long-term PPAs signed via thenational FIT policy, with nearly 1.2 GW of combined wind and solar PV. The
forecast is revised down slightly from last year due to the cancellation of previously

PAGE | 79

IEA. All rights reserved.

announced projects. Low investor confidence is a barrier to greater additions inRenewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Kenya. PPA renegotiations and long interconnection periods have extended
project timelines. In addition, land acquisition, compensation and resettlement
remain a challenge, a process that has previously prevented projects from being
realised.
Ethiopia’s renewable capacity more than doubles by 2026, with the country
adding nearly 6 GW of new capacity. The Grand Ethiopian Renaissance Dam andthe Genale-Dawa IV hydropower plants make up over 80% of the capacity
additions. Foreign investment, tenders and bilateral PPAs with the government
utility Ethiopian Electric Power Company have driven capacity additions previously
and continue in the forecast period. Auctions held in 2019 and private investment
are expected to drive solar PV additions, while international concessional
financing helps drive wind development, with two major projects being funded inpart by China and Denmark. However, tenders for additional wind or solar PV
capacity have currently not been scheduled. Challenges to further development
include land and physical grid infrastructure and access, while political concerns
are also a risk, impacting areas for planned development.
Nigeria adds over 1 GW of new capacity through a combination of hydropowerand solar PV plants. Government policies have placed an emphasis on developing
connected mini-grids for schools and universities, while also prioritising thedevelopment of rural off-grid PV as part of the economic recovery from Covid-19.
Utility-scale solar PV is enabled through private investment via public-private
partnerships and PPAs with utilities, representing over 30% of the forecast.
However, further development is hindered by policy uncertainties, as previously
awarded PPAs were subsequently renegotiated, leading to numerous projects not
being realised.
Tanzania’s renewable capacity expands by over 2.5 GW, led by thecommissioning of the 2.1 GW Julius Nyerere hydropower plant. New solar
additions are aided by concessional financing and building developments along
existing transmission infrastructure, easing connection concerns. New regulations
enable independent power producers to sign PPAs in areas currently not servedby the national grid, driving new off-grid capacity through the forecast period. Afterwelcoming its first wind farm in 2020, Tanzania adds 100 MW of new wind capacity
in the forecast period, enabled through negotiation with the government on land
rights and power offtake. Policy uncertainty and infrastructure present challenges
to growth. Previously announced auctions were cancelled and the majority of the

PAGE | 80

IEA. All rights reserved.

country lacks access to the national grid.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

West African nations, such as Cote d’Ivoire, Senegal and Togo install increasing
amounts of solar PV and wind, with major developments backed by multilateraldevelopment banks.
Sub-Saharan Africa has tremendous solar PV and wind potential, in addition tovast hydropower resources. The accelerated case sees over 50% greater
additions if stated government plans for new capacity are realised. In order toachieve this, governments must provide firm and transparent policies for project
timelines, remuneration and land rights, while also investing in transmission
infrastructure. Entering into more partnerships with development banks andprivate entities could increase investment in the region, helping address concerns
associated with capital availability and offtaker risk. Further investment in off-grid
solar PV through government programmes or from private firms would alleviate
concerns over infrastructure availability while also increasing electrification rates.

Middle East and North Africa
Solar PV’s competitiveness drives renewables expansion, but
the pace is challenged by slower electricity demand andinsufficient grid infrastructure
The pace of renewable capacity growth in the Middle East and North Africa(MENA) in the main case is expected to double over the next five years, comparedto the last five years, from 15 GW to over 32 GW. More than three-quarters of thecapacity expansion is concentrated in five countries: the United Arab Emirates,
Saudi Arabia, Israel, Egypt and Morocco. One common driver is the costeffectiveness of solar PV to meet climate goals and fossil fuel diversificationneeds. Solar PV accounts for more than two-thirds of the region’s renewablecapacity growth.
The share of MENA’s solar PV growth taking place in net fossil fuel exporting
countries is expected to increase from 40% over the previous five years to 67%
over 2021-2026. The main reasons for this are the cost reductions achieved bycompetitive independent power producer auctions, in which awarded bid prices
have fallen from USD 56/MWh in 2015 to USD 10.4/MWh in 2021. This trend canbe attributed to falling system costs, good resource potential, favourable financing
conditions and economies of scale. Awarded projects over the last year ranged
from 600 MW in Qatar to 1.5 GW in Abu Dhabi. However, utilities’ attempt to
replicate or achieve lower prices may prolong contract negotiations and slow thePAGE | 81

IEA. All rights reserved.

pace of expansion (MEES, 2020). These bid prices depend on country-specificRenewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

conditions that may not be available in other markets, such as beneficial land costs
and access to low-cost state-supported financing.

8

70

70%

60

60%

50

50%

40

40%

30

30%

20

20%

10

10%

1

0%

0

0

2009-142015-20

HistoricalPV - utility

2021-262021-26GW

GW

MENA renewable capacity growth by technology, 2009-2026 (left) and bycountry, 2021-2026 (right)

Main case Acc. casePV - distributed

Wind

Hydropower

7
6
5
4
3
2

UAE

Saudi
ArabiaBioenergy

IsraelCSP

Egypt Morocco Other
MENA
Forecast revision (%)(right axis)

IEA. All rights reserved.
Note: Acc. case = accelerated case; UAE = United Arab Emirates; MENA = Middle East and North Africa.

There are two main challenges to faster growth in the region. The first is
insufficient grid infrastructure to connect renewable plants and evacuate the power
to demand centres. In Jordan and Tunisia auction plans have slowed, awaiting
grid upgrades, while more rapid growth in distributed PV in Israel also requires anincrease in distribution network capacity. Another emerging challenge in somecountries in the region is the mismatch between supply and demand, with many
countries having an overcapacity of supply due to slower demand growth following
the Covid-19 crisis.
Renewable capacity in the United Arab Emirates is expected to increase by over
6 GW, led by solar PV and followed by CSP, bioenergy and hydropower. The
forecast is slightly higher compared to last year due to higher than expected PV
capacity awarded in the latest independent power producer auction, newgovernment-owned PV projects at data centres and landfills, and progress in thedevelopment of waste-to-energy projects. The independent power producer
competitive auctions remain a key policy driver for utility-scale PV growth;
however, the implementation pace is uncertain. Slower than expected power
demand and overcapacity are raising concerns over the timeline for future
auctions. In addition, regulatory changes pose a downside risk to the distributed
PV forecast. In 2020 the Dubai government capped the system size eligible for

PAGE | 82

IEA. All rights reserved.

net metering at 2 MW and barred ground-mounted systems.

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

40

80%

35
30

60%

60
Morocco

50

Dubai

40

25
20

40%

15

Abu Dhabi
Dubai

Bahrain
Egypt

Jordan30

Tunisia

10

20%

5
0

USD/MWhGW

MENA solar PV growth, 2009-2026 (left) and awarded bid prices, 2014-2022(right)2009-14 2015-20 2021-26

0%

Net fossil fuel importers
Net fossil fuel exporters% Net fossil fuel exporters

20

Saudi Arabia

Saudi
Arabia

Dubai

10

Dubai

0
2014

2015

2016

Qatar

2017

2018

Abu Dhabi
2019

2020

2021

2022

IEA. All rights reserved.
Notes: Net fossil fuel importers and exporters according to net trade in 2019. Bubble size = auction capacity.
Source: IEA (2021c), World Energy Statistics, www.iea.org/statistics/.

Saudi Arabia’s renewable capacity is set to grow by over 6 GW, driven by
renewable energy targets to diversify the power generation mix away from oil.
More than 80% of the growth is from utility-scale solar PV via two procurement
methods: competitive auctions for independent power producers, and unsolicitedbilateral contracts with the utility. However, limited visibility over auction timelines
and lengthy tender and contractual processes pose a risk to the pace ofdevelopment.
Israel’s 1 renewable capacity is expected to more than double over the period2021-2026 from the addition of 5.2 GW. More than half of the growth is from
distributed PV, driven by a supportive policy framework comprising FITs, net
metering, self-consumption with remuneration for excess generation, andcompetitive auctions. The forecast is more optimistic than last year due to anincrease in 2030 targets for the share of renewables (up from 17% to 30%) andadditional support for solar PV. In April 2020 the government earmarked ILS 6.5
billion (USD 2.1 billion) of Covid-19 stimulus to help deploy 2 GW of solar PV andintroduced low-interest loans and FITs for systems installed on public buildings.
Nonetheless, insufficient grid infrastructure may slow the growth of distributed PV,
while land availability is a key challenge for utility-scale PV.

The 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.

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1

Renewables 2021
Analysis and forecasts to 2026

Renewable electricity forecast

Egypt’s renewable capacity is expected to increase by 68% (4 GW), led byonshore wind, followed by solar PV. The majority of the growth comes from
unsolicited bilateral contracts with the state-owned utility. Recent developments
under this scheme have increased the renewable capacity of planned projects.
For instance, one developer received approval to increase their planned solar PV
plant size from 200 MW to 500 MW and another will switch plans to build a 2.3 GW
gas plant to 1.1 GW of wind. However, overcapacity and lower power demand due
to Covid-19 have raised questions over the pace of plans for renewables under
the other procurement policies. Last year, the government cancelled an
independent power producer auction for 200 MW of solar PV and put caps on theamount of capacity eligible for net metering, a main driver of corporate
procurement.
Morocco’s renewable capacity is forecast to double during 2021-2026 with theaddition of 3.8 GW, led by utility-scale solar PV, onshore wind, CSP andhydropower. The main drivers for growth are long-term renewable energy targets
supported by competitive auctions for solar and wind, and having them managed
by a dedicated institution (MASEN). In addition, an enabling regulatoryenvironment that permits bilateral sales between large electricity consumers andself-consumption projects connected to transmission lines also supports new windprojects. However, a similar regulatory framework for the distributed grid is lacking
implementation, which hampers faster PV growth in the commercial andresidential segments.
In the accelerated case, MENA’s renewable capacity expansion could be almost
twice as high (57 GW) on the assumption that several challenges are addressed.
More frequent auction rounds and more rapid bidder selection and contractual
negotiations would accelerate utility-scale deployment. Regulatory frameworks
that permit corporate PPAs, bilateral contracts and self-consumption could open
up the potential for private investment outside auctions and having cost-reflective
end-user tariffs could make the business case for such investment. Investment ingrid upgrades would permit faster connection of planned projects and building
interconnections would open up new demand markets.

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ENERGINET, https://en.energinet.dk (accessed September 2021).

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LBNL (Lawrence Berkeley National Laboratory) (2021a), Land-Based Wind Market Report,
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LBNL (Lawrence Berkeley National Laboratory) (2021b), Tracking the Sun, Berkeley, CA(accessed September 2021).
LBNL (2021c) Land-Based Wind Market Report (accessed September 2021).
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SolarPaces (2021), Why Likana’s 24-Hour Solar Bid under $34/MWh Lost in Chile,https://www.solarpaces.org/likanas-24-hour-solar-under-34-mwh-lost-chile-bid/(accessed October 2021).

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Analysis and forecasts to 2026

Renewable electricity forecast

Sunday Times (2021). Cyril Ramaphosa secures ‘historic’ COP26 green financing deal
(https://www.timeslive.co.za/politics/2021-11-02-cyril-ramaphosa-secures-historiccop26-green-finance-deal/. (accessed November 2021).
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Urząd Regulacji Energetyki (2021) https://www.ure.gov.pl/pl/oze/aukcje-oze/ogloszenia-iwyniki-auk (accessed September 2021).

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Wallonie energie SPW , https://energie.wallonie.be (accessed September 2021).

Renewables 2021
Analysis and forecasts to 2026

Biofuels

Chapter 2. Biofuels
Forecast summary
Global demand for biofuels is set to grow by 41 billion litres, or 28%, over 20212026 in the main case. The recovery to pre-Covid-19 demand levels accounts for
one-fifth of this demand growth. Government policies are the principal driver of theremaining expansion, but other factors such as overall transport fuel demand,
costs and specific policy design influence where growth occurs and which fuels
grow quickest. The combination of these influences pushes Asian biofuel
production past that of Europe during the forecast period. Policies in the UnitedStates and Europe help demand for renewable diesel (also known ashydrogenated vegetable oil [HVO] in Europe) to nearly triple. 1 The factors
influencing biofuel demand are all subject to uncertainty. For example, somegovernments have responded to the current high price of feedstock by relaxing ordelaying biofuel blending mandates, with the effect of reducing demand. However,
over the medium term, major policy discussions in the United States, Europe, India
and People’s Republic of China (hereafter ‘China’) hold the promise of a morethan doubling of biofuel demand growth in the accelerated case.

Biofuels recover in 2021 despite high costs
Rising prices are slowing biofuels’ growth, but according to our forecast, demandin 2021 nevertheless recovers from the lows seen in 2020 during the Covid-19
crisis. Brazil, Argentina, Colombia and Indonesia are managing climbing feedstockand biofuel costs by temporarily reducing or delaying blending mandates. We
estimate these actions to reduce demand by 3%, or 5 billion litres, in 2021
compared to a scenario where mandates remained unchanged or were increased
as planned. By August 2021 biofuel prices had increased by between 70% and150% across the United States, Europe, Brazil and Indonesia, 2 depending on themarket and fuel, from average 2019 prices (see Chapter 4 for more details). For
comparison, crude oil prices increased by 40% over the same time period.
While overall biofuel demand returns to 2019 levels this year even with slower
growth, the recovery is uneven. Ethanol demand remains 4% below 2019 levels

Biodiesel, also called fatty acid methyl ester (FAME), and renewable diesel, also known as hydrogenated vegetable oil(HVO), can both be blended with diesel fuel. Renewable diesel has the same chemical composition as fossil diesel and so
is fully compatible with existing diesel engines. Biodiesel has a different chemical composition to fossil diesel and so blendingis limited. Europe, for example, limits blends to 7%.
2
Based on US ethanol, Brazilian ethanol and biodiesel, Indonesian biodiesel and EU biodiesel. EU ethanol in August 2021
averaged 7% higher than average 2019 values, but has since climbed to a 33% increase (IHS Markits, 2021a).

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Renewables 2021
Analysis and forecasts to 2026

Biofuelsin 2021 and does not fully recover until 2023. High ethanol prices in Brazil andlower gasoline demand in the United States relative to 2019 levels are both driving
lower ethanol volumes in 2021. By 2023 US and European gasoline demand has
recovered from Covid-19 disruption, but remains well below 2019 levels (IEA,
2021c). Increasing energy efficiency, surging electric vehicle sales and behaviourchange all contribute to lower demand. Lower gasoline demand reduces ethanol
volumes under current policies. However, ethanol demand recovery in Brazil andgrowing demand in Asia eventually offset declines in the United States and Europe
in 2023.
By comparison, in 2021 biodiesel, renewable diesel and biojet, expand wellbeyond 2019 levels, albeit from a low base for biojet. The combined demand forthese fuels in 2021 is up 15%, or 7 billion litres, from 2019 levels. Renewablediesel demand in the United States and Asian biodiesel demand are responsible
for the majority of this growth.

Asia to surpass European biofuel production before 2026
Asia surpasses total European biofuel production in the forecast period thanks tostrong domestic policies, growing liquid fuel demand and export-driven production.
Asian countries account for nearly one-third of new production over the forecast
period. Blending targets for biodiesel in Indonesia and Malaysia and India’s
ethanol policies are responsible for most of this growth. North American biofuel
demand grows the most by 2026; however, 40% of this growth is demand recovery
following Covid-19 declines. The United States and Brazil remain the largest
centres for both biofuel demand and production.
Biofuel demand growth and share of total demand by fuel (left) and region(right), main case, 2021-2026
70%

16

60%

14

50%

12
10

40%

8

30%

6

20%

4

10%

2
0

Ethanol

Biodiesel RenewabledieselBiojet0%Volume (billion litres/year)

Volume (billion litres/year)

18

18

45%

16

40%

14

35%

12

30%

10

25%

8

20%

6

15%

4

10%

2

5%

0

Asia

North
Latin Europe
America America

RoW

0%

2020 share of total demand (right axis)
2026 share of total demand (right axis)

IEA. All rights reserved.

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Sources: Argus Direct (2021a), CNMC (2021), CSET (2021), Department of Agriculture (2021), EIA (2021b), EIA (2020),
EPA (2021), IEA (2021d), IHS Markits (2021a), Ministère de la Transition Écologique (2020), Ministério de Mins e Energia(2021), Statistics Canada (2021)

Renewables 2021
Analysis and forecasts to 2026

Biofuels

Ethanol and renewable diesel lead biofuels growth
Renewable diesel demand nearly triples between 2020 and 2026, primarily thanks
to policies in the United States and Europe. However, in absolute volume, ethanol
demand growth surpasses that of renewable diesel. The majority of renewablediesel growth is concentrated in the United States and Europe. In both regions
renewable diesel competes well in a policy environment that values GHG
reductions and places limits on some biofuel feedstocks, as it can be producedwith a low GHG intensity using wastes and residues. It has a further benefit in thatit can be blended at higher levels than biodiesel.
Ethanol and biodiesel growth remains robust, however, thanks to demand in
Latin America and Asia, and recovery from Covid-19 declines. In Asia, India’s
efforts to reach 20% ethanol blending by 2025 support global ethanol demand
growth, while Indonesia’s 40% blending mandate planned for 2022 stimulates
biodiesel expansion. In both countries, growing transport fuel demand over theforecast period, in combination with mandates, accelerates biofuel demand.
Similarly, in Latin America, Brazil’s biofuel policies combined with growing
gasoline and diesel demand drive up biofuel use.

Four policy discussions to watch that will help double
biofuel growth rates
The outcomes of policy discussions in the United States, Europe, India andChina will have a profound impact on biofuel prospects over the next five years.
Overall biofuel demand growth could more than double to near 9% a year in theaccelerated case. If implemented, policies under discussion in these countries
would account for two-thirds of this growth. In this case, Asia accounts for thelargest upside and surpasses Brazil to become the second-largest biofuel
producer globally. Biojet demand also expands considerably, growing by almost 6
billion litres by 2026, higher than the demand growth for renewable diesel over thelast five years (see Chapter 4 for a full analysis of biojet’s potential over the next
five years).
In the United States, the Sustainable Aviation Challenge sets a goal for the airline
industry to use 11 billion litres of sustainable aviation fuel (SAF) by 2030 (Officeof Energy Efficiency & Renewable Energy, 2021), equivalent to 15% of current jet
fuel demand. 3 To support this goal the government is working on a SAF tax credit
linked to GHG intensity. The United States also plans to outline rule-making for

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3
SAFs are jet fuels that are certified for use in commercial jet aircraft and that meet GHG and other sustainability criteria,
and are also made from raw materials other than fossil fuels, such as wastes and agricultural residues.

Renewables 2021
Analysis and forecasts to 2026

Biofuels

the Renewable Fuel Standard (RFS) later this year (Office of Information andRegulatory Affairs, 2021b). SAFs qualify for credits under the RFS.
Biofuel demand and share of total biofuel demand in the accelerated caseversus the main case by fuel (left) and by region (right)
70%

40

60%

35

50%

30
25

40%

20

30%

15

20%

10

10%

5
Ethanol

Accelerated case

Biodiesel RenewabledieselBiojet2026 main case share of total demand (right axis)

0%

45

45%

40

40%

35

35%

30

30%

25

25%

20

20%

15

15%

10

10%

5

5%

0
Main case

Asia

North
Latin Europe
America America

RoW

0%

2026 accelerated case share of total demand (right axis)

IEA. All rights reserved.

In the European Union, the “Fit for 55” package includes a proposal for atransport GHG intensity requirement that would double the existing renewableenergy target for transport of 14% by 2030 (European Commission, 2021a). The
package also includes a proposed 2% SAF blending mandate by 2025 under the
ReFuelEU Aviation initiative (European Commission 2021c) and a 2% GHG
improvement for shipping under FuelEU Maritime (European Commission,
2021d).
Although biofuels and bioenergy received scant attention in China’s outline of its
14th Five-Year Plan, the country plans to peak emissions before 2030. As part ofthat plan, China plans to vigorously promote alternatives like advanced liquidbiofuels and SAF (The State Council of the Peoples Republic of China, 2021).
According to IEA analysis, biofuels play an important role in achieving emission
reductions in China.
India will find it challenging to implement its 20% blending mandate in just five
years, but even reaching 11% blending would make it the world’s third-largest
ethanol market behind the United States and Brazil.

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0

Volume (billion litres/year)

Volume (billion litres/year)

45Renewables 2021
Analysis and forecasts to 2026

Biofuels

Demand and supply
Biofuel demand grows at an average of 4% annually over the forecast period toreach 186 billion litres by 2026 in the main case, an increase of 41 billion litresfrom 2020. Brazil and the United States remain the largest markets for biofuels.
They also account for the greatest expansion of demand in the next five years.
At the end of the forecast period, ethanol and biodiesel make up 87% of all biofuel
demand globally, eight percentage points lower than today. The market sees both
geographical and fuel shifts. Asia surpasses Europe to become the third-largest
regional demand centre in 2024. Policies in Europe and the United States drive
demand for renewable diesel and biojet, growing the global share of these fuelsfrom 5% of total biofuel demand in 2020 to 13% in 2026.

200

200

180

180

160

160

140

140

120

120

100

100

80

80

60

60

40

40

20

20

0
2018
United States

2020
Brazil

2022
Asia

2024
Europe

0
2018

2026
RoW

2020
Ethanol

2022
Biodiesel

2024

2026

Renewable diesel

BiojetIEA. All rights reserved.

New supply, beyond the recovery in 2021, primarily comes online to support
increasing local demand. However, Asia sees a greater increase in production
than in demand, as Asian countries support increasing local demand and expand
exports of renewable diesel and biojet to serve North American and European
markets. Total Asian supply grows by 40% between 2022 and 2026. In the UnitedStates ethanol supply declines because of lower domestic demand. Increasing
exports only partially offset the pace of this decline. In Europe ethanol supply
keeps up with demand, while domestic biodiesel production expands, substituting
some imports despite an overall decline in demand.

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Volume (billion litres/year)

Biofuel demand by region (left) and by fuel (right), main case, 2018-2026

Renewables 2021
Analysis and forecasts to 2026

Biofuels

Biofuel supply and demand growth by region and fuel, main case, 20222026
Biojet10
8Renewablediesel6
4

Biodiesel

20Ethanol-2-4

Demand Supply Demand Supply Demand Supply Demand Supply Demand Supply
United States

BrazilEuropeAsia

RoW

IEA. All rights reserved.

In Brazil biofuel demand grows by 27% between 2022 and 2026, an increase of
10 billion litres. However, nearly half of this growth is ethanol demand returning to2019 levels. Growing liquid transport fuel demand, mandates for 27% ethanol and
15% biodiesel blending, and consumer ethanol purchases beyond the mandated
amounts are the main drivers of growing consumption. RenovaBio, a transport
GHG intensity policy, supports both increasing biofuel demand and GHG
reductions along the biofuel supply chain. Sugar cane ethanol generally performs
better under the regulation compared with domestic corn ethanol production. Bothperform better than imported US corn according to RenovaCalc, Brazil’s analytical
tool used to generate certificates of energy intensity for biofuel production.
Across countries and regions, the interplay between policy, transport fuel demand,and prices for feedstocks and fuels drive the major trends in the forecast. Global
transport fuel demand recovers from the Covid-19-related demand lows of 2020,
but in many countries ethanol and biodiesel demand never return to 2019 levels
as vehicle efficiency, electric vehicle purchases and behaviour change reducedemand for liquid transport fuels. Falls in demand for gasoline are more
pronounced than for diesel. Feedstock prices have also delayed a number ofnational policies. Our forecast assumes the high feedstock prices of 2021 andgovernment responses are temporary, although feedstock price increases do slow
biofuel demand over the coming years in some markets (see Chapter 4 for moredetails). Biofuel policies are also increasingly rewarding fuels with better GHG
emission profiles and lower environmental impacts, and introducing competition
amongst fuels; this is shifting the types of fuels used in some regions.

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Volume (billion litres/year)

12Renewables 2021
Analysis and forecasts to 2026

Biofuels

Asia surpasses European biofuel demand and supply
The Asia Pacific region accounts for 27% of new demand and 29% of new supply
over the forecast period – enough to surpass European demand and production.
Most new production comes online to satisfy the 11 billion litres of new Asiandemand over the forecast period. India and Indonesia drive much of this growth.
In India the government has brought forward its 20% ethanol blending target to2025 from an initial 2030 target. This forecast assumes India achieves 20%
blending in some locations by 2025, but total blending averages 11% because ofblending compatibility constraints in the vehicle fleet. This blend rate still nearly
doubles ethanol demand in India, which increases by 3.4 billion litres by 2026.
Ethanol supply increases to match India’s demand, since it plans to satisfy
domestic demand with local production.
In Indonesia biodiesel demand grows by 38% as the government increases its
biodiesel mandate and continues to subsidise biofuel consumption. In April 2021
Indonesia delayed implementing its 40% biodiesel blending target, citing highbiodiesel prices as a major concern. Our forecast assumes that in 2022 feedstockand biofuel prices return to their average level over the past five years andIndonesia continues to increase biodiesel blending, lifting annual demand by
3 billion litres by 2026.
China and Singapore are building renewable diesel and biojet supplies to service
export markets, adding to the production totals in the rest of Asia that service
domestic demand. In total 2.5 billion litres of new renewable diesel capacity isplanned for export. In Singapore, for instance, Neste is planning to expand
capacity by 1.7 billion litres by the end of 2022 (Neste, 2021a).

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0
2018

2020

United States

2022

2024
Brazil

0
2018

2026
Europe

2020
Asia

2022

2024

2026

RoW
IEA. All rights reserved.

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IEA. All rights reserved.

Volumte (billion litres/year)

Biofuel regional demand (left) and supply (right), main case, 2018-2026

Renewables 2021
Analysis and forecasts to 2026

Biofuels

Biofuel demand prospects in Europe remain weak, with only 13% growth
expected over the forecast period. This is in part because liquid fuel demand isdeclining. In the major demand markets of Germany, France and Spain diesel
demand declines by 4% and gasoline by 11% between 2022 and 2026 (IEA,
2021c). Policies such as the Renewable Energy Directive (RED II), and member
country efforts to meet it, are intended to increase the share of renewable energy
in transport. However, RED II allows for double counting of some fuels, which
reduces the total quantity of fuels required to meet it. For instance, countries cancount every unit of biogas, renewable electricity to power vehicles and advanced
liquid fuels as two or more units towards compliance with RED II targets (European
Commission, 2021b). The Fit for 55 package includes changes to the RED II thatwould do away with most multipliers. The impact of this and other changes are
considered in the accelerated case (see below for further detail). Demand growthis primarily for renewable diesel and ethanol, although there is scope forincreasing biodiesel production if it replaces imports.
To satisfy Europe’s growing demand, albeit at a slow pace, Spain, France, theNetherlands, Italy, Finland, the United Kingdom and Sweden all add newrenewable diesel production over the forecast period. This growth includes bothrefinery conversions and dedicated projects. In France, for instance, Total isplanning a USD 590 million conversion of its Grandpuits refinery to produce
renewable diesel, biojet and bioplastics by 2024 (Total Energies, 2020). In the
Netherlands Neste is preparing for biojet production at its Rotterdam facility, whichcurrently produces primarily renewable diesel (Neste, 2021b).

Different fuels for different parts of the world
Ethanol and renewable diesel account for nearly four-fifths of the 41 billion litresof new demand between 2021 and 2026, with biodiesel making up most of theremainder. In addition, in the main case biojet grows by 1.5 billion litres, more thanten times 2021 estimated demand levels, but still less than 4% of new biofuel
demand. However, 20% of the total growth in demand for biofuel, nearly 8 billion
litres, is the recovery from Covid-19 demand impacts. Total new demand istherefore 32 billion litres over 2021-2026. This overall scale of growth is similar to
the 32 billion litres of new biofuel demand created over the last six years. Ethanoland biodiesel demand expands most in Asia, and renewable diesel and biojet
demand expands most in North America and Europe.
The United States and Europe, for example, account for 90% of renewable diesel
demand growth and nearly all biojet demand. Renewable diesel competes well in

PAGE | 96

IEA. All rights reserved.

these markets, where policies prioritise GHG performance, fuel suppliers andRenewables 2021
Analysis and forecasts to 2026

Biofuels

consumers value its performance characteristics, and refinery closures open up
potential for conversion to biofuel production.
Biofuel demand growth by fuel (left) and share of fuel demand growth byregion (right), main case, 2021-2026

Volume (billion litres/year)

16
14
12
10
8
6
4

100%

RoW

80%

Europe60%

UnitedStatesBrazil

40%
20%

2

0%

0

India
Indonesia

IEA. All rights reserved.

In the United States renewable diesel and biojet account for 78% of forecast
growth. However, when excluding ethanol’s recovery, the share jumps to nearly
100%. The RFS and the blender’s tax credit, as well as low-carbon fuel standard
credits in California, continue to drive renewable diesel expansion. The blender’s
tax credit is due to end in 2022, but has been extended four times in the past andan extension is included in the US Build Back Better bill. California’s low-carbon
fuel standard, the federal RFS and airport or airline commitments also drive biojet
demand in the main case to 0.7 billion litres by 2026. The United States has alsoannounced the Sustainable Aviation Fuel Grand Challenge and a proposedsustainable aviation tax credit to support it; however, the tax credit was not
approved at the time of writing and thus remains a forecast uncertainty. The tax
credit proposes a minimum 50% reduction in lifecycle GHG emissions compared
to conventional aviation fuels (The White House, 2021). Which lifecycle GHG
values the United States chooses will have a significant impact on the fuelfeedstocks that would be eligible for the credit. For example, the Carbon Offsetting
and Reduction Scheme for International Aviation (CORSIA), an agreement underthe International Civil Aviation Organization, specifies life-cycle GHG factors thatwould make corn-based alcohol to jet fuel and US soybean oil-derived jet fuelineligible, since life-cycle emissions for these two pathways do not meet the 50%
improvement threshold (ICAO, 2021a).

PAGE | 97

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18

Renewables 2021
Analysis and forecasts to 2026

Biofuels

Domestic renewable diesel and biojet supply in the United States meet most new
demand, but some imports are still likely to be required over the forecast period.
Despite high feedstock costs, there is little evidence of project cancellations todate; only CVR Energy has delayed conversion of its Wynnewood refinery to
renewable diesel because of the high cost of feedstocks, with a delay until spring
2022 (S&P Global, 2021). Nevertheless, fat, oil and grease feedstock availability
remain the primary risk to the expansion of renewable diesel production (EIA,
2021b).
The US government’s sustainable aviation announcement, including existing andnew funding of USD 4.3 billion to support sustainable aviation projects, also
prompted a number of SAF agreements (Office of Energy Efficiency & Renewable
Energy, 2021).
In contrast to renewable diesel and biojet, ethanol and biodiesel growth isconcentrated in just three countries, Brazil, India and Indonesia, which account for
64% of ethanol and biodiesel demand growth. All three have significant domestic
feedstocks, growing gasoline and diesel demand and a desire to reduce fossil fuelimports. In contrast, China has pulled back from its earlier 10% ethanol blending
ambitions and only Shanghai has a biodiesel mandate. Biofuel demand in China
grows in line with gasoline and diesel demand, at just under 2% per year.

Fuel demand and government policies are driving
different supply outcomes in different regions
The combination of transport fuel demand, biofuel policies and trade policies help
explain why different fuels are growing in some areas and not others. In the
United States gasoline demand is declining and future increases in the RFS
remain forecast uncertainties. It is also affected by countries with growing ethanol
demand slowing policy deployment or seeking to limit biofuel imports by focusing
on domestic production.
US ethanol supply increases from 2020 Covid-19 lows, but then declines by 4%
between 2022 and 2026, tracking a similar decline in domestic ethanol demand of
4.5%. The demand for ethanol follows the gasoline market since ethanol blending
is expected to remain near 10%, as E15 and E85 uptake has been limited. The
US Court of Appeals also ruled in early July that the Environmental Protection
Agency exceeded its authority in lifting restrictions on E15 sales during summer
months. This ruling, if upheld, would make it more difficult to sell 15% ethanol
blends during summer months, limiting opportunities to increase blending beyond

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10% (Argus, 2021b). At the time of writing, the US government had not modified

Renewables 2021
Analysis and forecasts to 2026

Biofuels

renewable fuel volume targets under the RFS for 2023 and following years, nor
had it set retrospective targets for 2020/21. Updates are expected in December
2021.
US ethanol fuel supply (left) and Asian biodiesel and renewable diesel
supply (right), main case, 2020 and 2026
25

Volume (billion litres/year)

50
40
30
20
10
0

20
15
10
5
0

2020 USsupply2021 USsupply2026 USsupplyDomestic ethanol demand
Net ethanol exports

2020 Asia
2021 Asia
2026 Asia
supplysupplysupplyNet renewable diesel exports
Net biodiesel exports
Domestic renewable diesel demand
Domestic biodiesel demand
IEA. All rights reserved.

For the United States, exports are unlikely to make up for declining domestic
demand since governments of growing demand centres show a preference fordomestic production. For instance, India plans to expand domestic ethanol
demand, places limits on ethanol fuel imports and is financially supporting new
production. At the same time, Colombia has lowered its ethanol mandate, whichthen limits export opportunities for other countries. China’s willingness to import
US ethanol increases import demand, but overall exports remain near 2021 levels
since this increase is offset by declines in other markets. The accelerated casebelow explores ethanol supply prospects assuming that US domestic demand
increases in parallel with more favourable trade policies.
In contrast with US ethanol, the combination of growing fuel demand, increasing
mandates and increasing export markets combine to support significant growth in
the production of biodiesel and renewable diesel in Asia. Together this is expected
to grow by 41% between 2021 and 2026.

PAGE | 99

IEA. All rights reserved.

Volume (billion litres/year)

60Renewables 2021
Analysis and forecasts to 2026

Box 2.1

Biofuels

India has tripled ethanol demand over the past five years, putting
it on track to be the world’s third-largest ethanol consumer by
2026

India is on track to surpass China as the world’s third-largest ethanol consumer by
2026. In January 2021 India brought forward its 20% ethanol blending target withgasoline from 2030 to 2025, and is aiming to start selling 20% blends in 2023. India
is supporting ethanol because it helps reduce oil imports, reduces air pollution andprovides economic and employment opportunities for farmers. Lifting ethanol
demand is also aligned with a net zero pathway according to IEA analysis.
India has already made impressive progress in increasing ethanol blending.
Between 2017 and 2021 India tripled ethanol demand to an estimated 3 billion litresin 2021. Ethanol blending rates with gasoline have also increased. In 2017 blendingstood at 2%, and by the summer of 2021 it had reached 8% blending, putting India
on track to achieve 10% blending by 2022. India has also increased its policy
commitment. In pursuit of its 20% target, the country has set guaranteed prices per
litre of ethanol according to feedstock; established financial support for new ethanol
capacity; released an ethanol roadmap; and is planning to mandate flex-fuelvehicles that can operate on higher ethanol blends.
What will it take for India to achieve 20% blending?
There are, nevertheless, significant challenges India must overcome to achieve its
20% target. Vehicle compatibility, GHG and sustainability criteria, feedstock
availability, and maintaining incentives at the right level will all require dedicatedattention. Fortunately, there are examples from other countries for India to draw
upon. In our accelerated case we assume India meets these challenges andachieves its 20% blending target in 2025.

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IEA. All rights reserved.

A large segment of India’s existing vehicle fleet may have compatibility issues with
fuel blends above E10 (NITI Aayog, 2021). Retrofits are an option, but the scale ofthe undertaking may make that impractical. Flex-fuel vehicles or vehicles otherwise
compatible with 20% blends will need to be made available and consumers will need
to be convinced to purchase them. There is also a co-ordination challenge, as flexfuel vehicles will need to be sold before E20 is broadly available. Brazil offers an
example, since flex-fuel vehicles now make up 80% of gasoline-fuelled vehicles andBrazil’s ethanol blend rate averages near 50% (IEA, 2019).

Renewables 2021
Analysis and forecasts to 2026

Biofuels

12 00025%

10 000

20%

8 000

15%

6 000
10%

4 000
2 000

5%

0

0%

Existing capacity

Planned capacity

Capacity gap

Ethanol demand acc.

30 000Volume (million litres/year)

Capacity & Volume (million litres/year)

Ethanol demand in the accelerated case compared with capacity, (2017-2026)(left) and production potential based on feedstock (right), India, 2020-2026

Average ethanol blend acc.

25 000
20 000
15 000
10 0005 000
02020 2021 2022 2023 2024 2025 2026

Surplus maize

Surplus rice

Damaged grains

Surplus sugars

Existing production - Sugars

Ethanol demand acc.

IEA. All rights reserved.
Note: The right-hand graph compares estimates of ethanol production potential from different feedstocks with ethanol
demand in the accelerated case.
Sources: IEA analysis based on OECD, IHS Markit and NITI Aayog data.

Clear GHG performance requirements and sustainability criteria will also help
ensure ethanol production reduces emissions and avoids other impacts. India
estimates that ethanol blending has reduced its GHG emissions by 19 Mt CO2-eq
since 2014 and its ethanol roadmap notes the need to supplement sugarcane, awater-intensive crop, with less water-intensive feedstocks (MoPNG, 2021; NITI,
Aayog 2021). The United States, Brazil and the European Union all offer examples
of how to develop and implement these frameworks. The United States, forexample, has a minimum GHG threshold as part of its RFS and the European Union
provides broader sustainability criteria for fuels.
Surplus sugar, maize, corn, rice and damaged grains should be more than sufficient
to provide for proposed demand according to current production and consumption
data (NITI Aayog, 2021). However, surpluses can quickly become deficits, as India
experienced with maize in 2015 as a result of the 2015/16 drought (OECD, 2021).
China, which had targeted 10% ethanol blending based on surplus agricultural
stocks, quietly moved away from this target once the surpluses declined. Feedstock
diversity and investing in technologies that use wastes can help minimise feedstock
availability concerns.

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India will also need to regularly modify incentives to ensure ethanol is competitive
under its current incentive structure, while also ensuring there are sufficient funds
to pay for those incentives. India is currently guaranteeing fixed rates for ethanol
according to the feedstock it is produced from. In November 2021 India increased
its incentive rates by between 1 and 2% to encourage production (CCEA, 2021).

Renewables 2021
Analysis and forecasts to 2026

Biofuels

The incentive structure and funding system will need to be carefully structured.
Here, too, India can learn from other examples. Indonesia for instance has scaled
back its biodiesel blending ambitions because of high costs, a situation India would
like to avoid. India may also look to other models, such as targets with credit trading,as applied under the US RFS.
These are significant challenges, especially with only four years to overcome them.
Success will require applying lessons from other jurisdictions and long-term
commitment.

Biofuel demand growth doubles in the accelerated caseIn the accelerated case, biofuel demand grows by an average of nearly 9%
annually, amounting to 94 billion litres of new demand by 2026. This scale ofgrowth relies on governments implementing proposed policies according to theirindicated date and accelerating existing policies. Ethanol has the greatest
potential for additional growth, followed by biodiesel, renewable diesel and biojet.
Regionally, biofuel demand grows the most in Asia, followed by North America,
Latin America and then Europe.
Biofuel demand growth by region and fuel in the accelerated case, 20212026
35
30
25
20
15
10
5
0

Asia

Recovery 2020-21

North America

Latin America

Main case growth 2022-26

Ethanol

EuropeBiodiesel

RoW

Renewable diesel

BiojetIEA. All rights reserved.

In Asia under the accelerated case, the combination of growing transport fueldemand and increasing blending mandates leads to a 17% average annual growth

PAGE | 102

IEA. All rights reserved.

Volume (billion litres/year)

40Renewables 2021
Analysis and forecasts to 2026

Biofuels

rate. India, Indonesia and China drive this demand, primarily for ethanol andbiodiesel. India meets its 20% ethanol blending target, Indonesia expands
blending to biojet and China introduces modest blending requirements for ethanol,
biodiesel and biojet.
Domestic production meets most of this new demand, increasing Asia’s share of
global biofuel production to 22% by 2026, ahead of Brazil. Asia also expands
renewable diesel and biojet production to supply growing demand in Europe.
However, the scale of demand growth in some countries, including India andChina, is likely to require some imports to help keep costs in check and increase
the likelihood of achieving domestic blending targets. This relaxing of tradebarriers prompts additional supply from countries like the United States.
In North America, a more ambitious RFS in the United States and dedicatedsupport for biojet in the United States and Canada could see biofuel demand growby 55% by 2026. Given the United States’ large transport fuel demand, relatively
small changes can lead to large volume increases. In the accelerated case, a
2 percentage point increase in ethanol blending translates into 8 billion litres of
new demand, equal to one-fifth of ethanol growth in the rest of the world in thiscase. Ethanol production satisfies domestic demand and exports an additional
7 billion litres. Biojet blending also increases to 3% in the United States by 2026,
which brings the country over a quarter of the way to the proposed 11 billion litre
goal in the Sustainable Aviation Fuel Grand Challenge.
Biofuel production growth by region in the accelerated case (left) andtotal production shares by region in the main and accelerated cases(right), 2021-2026
40

100%

5%

5%

15%

14%

13%

26%

24%

21%

40%

39%

15%

18%

22%

2020

2026 main
case

2026
accelerated
case

80%

30
25

60%

20
40%

15
10

20%

5
0

39%

0%
Ethanol

Biodiesel RenewabledieselAsia

BiojetUnited States

EuropeBrazilRoW

IEA. All rights reserved.

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IEA. All rights reserved.

Volume (billion litres/year)

35

4%Renewables 2021
Analysis and forecasts to 2026

Biofuels

In the European Union, member states implement policies aligned with the Fit for
55 proposals, especially the ReFuelEU Aviation proposal. Our forecast expects
Europe’s biofuel demand to expand by 11 billion litres, driven by the
implementation of ReFuelEU Aviation, which calls for a 2% biojet blending
mandate by 2025 and 5% by 2030, and a revised RED II. The revised directive
proposes a number of important changes, including a GHG intensity target insteadof a renewable content target, changing multipliers, new minimum requirements
for advanced fuels, and requirements for renewable non-biogenic fuels.
The European Commission expects its proposals to double the renewable energy
content of fuels by 2030 from the existing 14% target based on the existing
calculation methodology (European Commission, 2021a). However, this does notmean that biofuel demand will double. Under the proposals, GHG intensity
reductions are rewarded, not biofuel volumes. Should member states focus on
GHG intensity reductions, as Germany currently does, then biofuels will competewith all other eligible reduction options such as electric vehicles. In addition, liquidbiofuels are blended with gasoline and diesel, the demand for which are in decline.
Biofuels must also increasingly be produced from renewable non-biogenic fuels,
which depend on technologies in the early stages of development, or wastes andresidues like used cooking oil, which are in high demand. Despite this, the forecast
expects a modest increase in biofuel demand in Europe under the accelerated
case, primarily from renewable diesel, since it can be blended at higher levels thanethanol and biodiesel, performs well on GHG intensity and can be produced fromwastes and residues.
Expanding renewable diesel demand and production will increase competition forcompliant feedstocks, which may drive up costs. Increasing targets for both roadtransport and aviation will also contribute to competition for fuels, most notably
between renewable diesel and biojet.
Marine fuels offer another potential growth area for biofuels. The International
Maritime Organization (IMO) has committed to the long-term target of reducing
absolute international shipping-related GHG emissions by 50% by 2050 (versus
the 2008 level) and to reduce CO2 emissions per transport activity by 40% by2030. To help achieve this target, the IMO announced in June 2021 that ships
must calculate their energy efficiency intensity, and the organisation expanded
technical support and collaboration efforts to accelerate low-carbon pathways forthe industry. The IMO expects to update its GHG strategy in 2023 (IMO, 2021).

PAGE | 104

IEA. All rights reserved.

Beyond the IMO, regional and country-level policies and programmes can also
support GHG reduction in marine fuels. The European Commission’s proposed
FuelEU Maritime programme, for example, would require a 2% decline in the GHG
intensity of marine fuels by 2025 (European Commission, 2021d). Efforts at thePort of Rotterdam also increased biofuel blending in its supplies to between 0.5%
and 2% in 2019. Biofuels accounted for 0.1% of the fuel used for global shippingin 2019, equivalent to 0.8% of total biodiesel demand. See Renewables 2020 for
an in-depth analysis of marine fuel’s potential for GHG reductions (IEA, 2020).

Renewables 2021
Analysis and forecasts to 2026

Biofuels

Biofuels need to expand faster to align with the IEA Net
Zero by 2050 Scenario
Biofuel demand must nearly double from our main case or expand by over 40%
from the accelerated case to align with the IEA Net Zero Scenario. Liquid biofuels
expand in the Net Zero Scenario to 2026 primarily to reduce emissions in roadtransport and to a lesser extent for planes and ships.

400

16%

350

14%

300

12%

250

10%

200

8%

150

6%

100

4%

50

2%

0

2014

2020
Biofuel demand2026 main2026 accelerated

2026 NZE

0%

Compound annual growth rate from 2021-26
IEA. All rights reserved.

Note: NZE = Net Zero by 2050 Scenario.

To align with the Net Zero Scenario, countries would need to implement existingand planned policies, and then strengthen them before 2026. These policies mustalso ensure that biofuels are produced sustainably and avoid the risk of negative
impacts on biodiversity, freshwater systems, and food prices and availability. In
addition, policies must incentivise GHG reductions, not simply biofuel demand, sothat every litre of biofuels used reduces emissions relative to fossil fuels as muchas possible.
The following policy summary table provides details for major biofuel markets,
including notable policy changes for selected countries in the main andaccelerated cases. The analysis is based on policy assumptions for demand,
supply and trade for 61 countries.

PAGE | 105

IEA. All rights reserved.

Volume (billion litres/year)

Biofuel demand in the main case, accelerated case and the Net Zero
Scenario, 2014-2026

Renewables 2021
Analysis and forecasts to 2026

Biofuels

Main and accelerated case policy and assumption summary
Country or
regionMain and accelerated case policy and assumption summary
Main case: No significant changes to the RFS or other existing policies. Ethanol blending
remains near 10% and exports remain near 2020 levels for the forecast period.
Renewable diesel expands according to planned capacity additions for projects inadvanced development stages. Biodiesel blending remains near 3%. Biojet supply anddemand reach 0.7% blending of domestic jet use according to planned biojet capacity
additions for projects in advanced development stages.

United States

Accelerated case: An accelerated version of the RFS increases domestic biofuel
demand, with ethanol reaching 12% blending and biodiesel expanding to 4%. Renewablediesel expands to 7% blending, requiring additional capacity beyond projects in advanced
development stages. Biojet expands to 3% blending, just over one-quarter of the way to
the Sustainable Aviation Grand Challenge goal. US ethanol production increases to meetboth domestic demand and satisfy net export demand. This is possible within existing
ethanol capacity. By 2026 the United States produces sufficient renewable diesel, biojet
and biodiesel for domestic demand, with some excess capacity for exports.
Main case: Brazil maintains mandatory ethanol blending and hydrous ethanol purchases
expand so that total blending reaches 57% by 2026. Biodiesel remains at B15, but there
is little growth in renewable diesel and biojet.

Brazil

Accelerated case: Brazil achieves its B15 blending target as in the main case, but
accepts renewable diesel and co-processing so additional growth flows to renewablediesel, achieving 2% blending in 2026. Ethanol blending expands marginally more
quickly, achieving 59% blending in 2026, up from 57% in the main case. Part of the totalethanol blend is a continuation of Brazil’s 25% (premium gasoline) to 27% (regulargasoline) blending requirements. Hydrous ethanol sales (100% ethanol) make up theremainder of ethanol demand. Brazil produces sufficient ethanol, biodiesel, renewablediesel and biojet to meet domestic demand. Exports continue but at lower than historicalrates, assuming that there is long-term preference for sugar production if India diverts
sugar production to ethanol.
Main case: India achieves 11% ethanol blending on average across the country by 2026
and all fuel ethanol is produced domestically. E20 is available starting in 2023. Biodiesel
blending remains near 0.4%.

India

Accelerated case: India achieves its 20% blending mandate in 2025 and makes
progress towards its 5% biodiesel blending ambitions, reaching 3% by 2026. India
continues to support domestic production. India allows fuel ethanol imports up to 20% of
demand.
Main case: No significant changes to ethanol or biodiesel policy. Ethanol blending
remains near 2% and biodiesel at 1%. Ethanol imports remain near 2020/21 levels.
Biodiesel exports remain near 2020 levels and renewable diesel exports expand
according to planned project additions in advanced development stages.

Indonesia

Accelerated case: We assume China’s 14th five-year plan includes a modest role forbiofuels, targeting 4% blending for ethanol, 3% for biodiesel and renewable diesel, and a
1% SAF target for domestic aviation by 2026. China continues to allow ethanol imports
from the United States and other countries for up to 10% of demand. Exports continue forbiodiesel and renewable diesel.
Main case: Indonesia achieves 40% biodiesel blending by 2026, the majority frombiodiesel, while renewable diesel makes up three percentage points of the 40% blend.
There is no ethanol or biojet production or use. Exports remain near 2020 levels.
Accelerated case: Indonesia meets a B40 mandate for biodiesel with an additional 5%
from renewable diesel. It also enforces its SAF blend mandate, reaching 2% by 2025.
Exports decline by 2026 as nearly all production is directed towards domestic demand.

PAGE | 106

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ChinaRenewables 2021
Analysis and forecasts to 2026

Country or
regionBiofuels

Main and accelerated case policy and assumption summary
Main case: EU member countries implement RED II or achieve domestic targets if more
stringent, and non-EU countries achieve domestic targets. Biojet expands according tocountry-level targets. Countries without targets achieve 75% of the ReFuelEU aviation 2%
by 2025 target.Germany’s biodiesel and ethanol blending remains steady, while
renewable diesel expands to 2.5%. France expands ethanol blending, biodiesel blending
remains flat, renewable diesel blending expands to 2% and biojet reaches 2% blending by
2025. In Spain ethanol and biodiesel blending remain flat, but renewable diesel and biojet
expand to 3% blending and 0.5% blending respectively according to planned additions.
Finland, Netherlands and the United Kingdom all reach near 10% ethanol blending.
Sweden reaches 3% biojet blending. In Italy renewable diesel blending expands to 5%.

EuropeAccelerated case: The European Union sets a 2% SAF target as envisaged in the
ReFuel proposal for fuel use, increasing demand threefold from the main case. As per the
ReFuel proposal, feed and food crop-based fuels are not eligible, there is no cap on
waste oils and fats, and fuels must otherwise meet the requirements of RED II Annex IX,
Part A or Part B. Germany sees no biojet in accordance with its plan to focus on
renewable non-biogenic fuels. The European Commission also implements its proposedchanges to RED II, focusing on a 13% improvement in the GHG intensity of transport aspresented in the Fit for 55 proposal. The European Union maintains and strengthenssustainability requirements for biofuels, which limits some imports. The United Kingdom
establishes a 1% SAF target by 2025.
Main case: Canada implements its Clean Fuel Standard in 2022, but Malaysia’s B20
mandate is delayed until 2023. Thailand makes progress on its E20 target, reaching 15%
blending by 2026, while biodiesel expands to 10% based on government support plans.
Singapore’s renewable diesel and biojet production expands to fill domestic shortfalls in
the rest of the world. Argentina’s biodiesel blending remains at 5%, and ethanol at 12%.
Colombia returns to 10% ethanol blending by 2022, while biodiesel blending remains at
10% over the forecast period.

Othercountries

Accelerated case: Canada follows the United States in supporting SAF, Malaysia
expands biodiesel blending for the industrial sector to 20%, Argentina reinstates its 10%
biodiesel blending requirement and Colombia pursues 13% biodiesel blending. Thailand
achieves 20% ethanol blending by 2026 and allows 10% ethanol imports.

Trade
Absolute net trade 4 volumes of biofuel remain the same in 2021 and 2026 at near
18 billion litres. While net trade volumes remain the same, net trade as a share ofdemand declines by two percentage points to 10% by 2026.
The United States, the Netherlands and Singapore remain the top three biofuel
net exporting countries, and Canada, Sweden and the United Kingdom the top
importing destinations over the forecast period. While the Netherlands andSingapore are important export centres, biofuel production in these countries still

This analysis uses the terms net trade, net exports and net imports, which account for countries or regions with a net surplus
or deficit in biofuel supply. It does not include other trading activity that may occur to accommodate short-term demand/supply
mismatches or trade through countries where fuels are ultimately destined for another market. For example, in 2018 Canada
imported 370 million litres of biodiesel and exported 270 million litres. In this case, Canada had net imports of 100 million
litres in 2018.

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4

Renewables 2021
Analysis and forecasts to 2026

Biofuels

depends on imported feedstocks. The Philippines joins the top five net importers
in 2026, thanks to increasing ethanol imports.
Countries with renewable diesel and biojet demand rely the most on trade tosatisfy that demand. In 2026, 21% of global renewable diesel demand and 31% of
global biojet demand is satisfied through trade.

Renewable diesel and biojet lead growth in net trade
Global net trade remains stable, although there are increases in renewable diesel
and biojet trading, balanced by declines in ethanol trading. Renewable diesel andbiojet net trade expands by 60% between 2021-2026, mainly for imports to Europe
and the United States. While domestic production satisfies most of their domestic
demand, especially in the United States, imports, primarily from Asia, are expected
to fill the gaps. Net trade in ethanol and biodiesel on the other hand decline by
13% over the forecast period. The existing large ethanol markets of Brazil and theUnited States remain net exporters; however, new demand centres such as India
intend to be self-sufficient, limiting trade growth prospects. Biodiesel tradedeclines slightly because of increased domestic production in Europe. However,this production may still be based on imported feedstocks. Overall, ethanol andbiodiesel account for 82% of net trade of all biofuels in 2020, declining to 72% by
2026.
A number of factors – including domestic trade policy, biofuel policy design,
domestic production capacity, biofuel costs and the scale of the market – influence
the share of demand satisfied by trade for any given biofuel. For instance, in 2020
trade satisfied over 40% of global demand for renewable diesel, higher thanethanol and biodiesel. The United States and Europe account for nearly all
renewable diesel imports since domestic capacity does not meet local demand,
imports can count towards policy objectives and demand is growing for fuels thatmeet GHG and sustainability requirements. Given these circumstances,
renewable diesel imports offer a competitive option to meet domestic policy
requirements. Over the forecast period renewable diesel demand swells in Europe
and the United States. The scale of new demand and favourable policy leads to
new investment in domestic production. As domestic production expands, tradeas a share of renewable diesel demand declines to 21% by 2026.
In contrast, ethanol trade satisfies just 9% of total ethanol demand in 2020. Trade’sshare is lower for ethanol since many countries have launched or continued tooperate ethanol programmes to improve energy security, or to support domestic

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agriculture. The United States and Brazil, for example, launched ethanol support

Renewables 2021
Analysis and forecasts to 2026

Biofuels

policies in part to reduce reliance on imported oil. Domestic demand is therefore
met primarily with local production based on ample feedstocks in both countries.
Over the forecast period countries with sufficient existing or planned ethanol
capacity to meet domestic demand, such as Brazil, or those aiming to be selfsufficient, such as India, drive growth in ethanol production and demand. As aresult, ethanol trade as a share of demand remains low at 7% by 2026.

Volume (billion litres/year)

Net trade by fuel and net trade share of demand by fuel, main case, 2020
and 2026
9

45%

8

40%

7

35%

6

30%

5

25%

4

20%

3

15%

2

10%

1

5%

0

2020

2026

Ethanol

2020

2026

Biodiesel

2020

2026

Renewable diesel

2021*

Net tradeshare of fueldemand0%2026
BiojetIEA. All rights reserved.
* Trade data unavailable for biojet in 2020. Data for 2021 shown.

Singapore climbs to second largest exporter, while top
importers remain the same
With significant ethanol capacity, slowing domestic demand and competitive
ethanol prices, the United States is by far the world’s largest biofuel exporter. As
the United States adds to its own renewable diesel supply over the forecast period,
imports decline, increasing net exports to 4.7 billion litres by 2026, up by 0.7 billion
litres from 2020. In Singapore, growing global demand for renewable diesel andbiojet increases exports by 78% by 2026. The Netherlands continues as a major
renewable diesel and biodiesel exporter in Europe, but the country exports lower
volumes in 2026 compared with 2020 as its own demand grows.
In 2026 Canada, Sweden and the United Kingdom remain significant net importersof biofuels. Canada’s imports grow as it implements its Clean Fuel Standard,
which will require reductions in liquid fuel carbon intensities, since new domestic
production, supported by government programmes and private investment, does
not keep up with demand. In the United Kingdom new demand is primarily met

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with domestic supply, but import growth is still needed to satisfy domestic demandRenewables 2021
Analysis and forecasts to 2026

Biofuelsin 2026. Sweden continues to import biodiesel and renewable diesel to comply
with its GHG intensity requirements on transport. Net imports in Sweden increaseslightly from 2020 levels. The Philippines joins the top five import list as a stableethanol blending requirement, increasing gasoline demand and a historically highimport ratio lead to growing imports
Top five global exporters and importers of biofuel in 2026 compared with
2020, main caseTop 5 net importers

CanadaUnited Kingdom
SwedenJapan
Philippines-2 000Top 5 net exporters
2020

2020

2026

2026

2020

2020

2026

2026

2020

2020

2026

2026

2020

2020

2026

2026

2020

2020

2026

2026

-1 0000Volume (million litres/year)

United States
Singapore
Argentina
Netherlands
China
0

2 000

4 000

6 000

Volume (million litres/year)
IEA. All rights reserved.

Ethanol and biojet import demand drives trade growth in
the accelerated caseIn the accelerated case, demand for biojet and the relaxation of some trade
restrictions for ethanol imports drive net trade in biofuels 16% higher than in themain case in 2026. Ethanol demand expands significantly in the accelerated case,primarily because of more progressive policies in India and China. Global ethanol
net exports in 2026 expand by 25% over the main case on the basis that China
continues to import at historical rates and India allows imports to meet up to 20%
of fuel ethanol demand.
Countries and regions with biojet mandates offer another potential area for trade
growth where demand outstrips local production capacity. In the United States andEurope, for example, both SAF mandates and stronger policies for road transport,
whether GHG intensity or blending based, increase biojet and renewable diesel
demand, beyond domestic supply capacity over the forecast time period. Imports

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of SAF alone expand to 2 billion litres a year by 2026 in the accelerated case.

Renewables 2021
Analysis and forecasts to 2026

Biofuels

Volume (billion litres/year)

Net trade in 2021, 2026 main case and 2026 accelerated case
30

14%

25

12%
10%

20

8%

15

6%

10

Other trade growthSingapore biojet exports
US ethanol exports

4%

Main case

5

2%

0

0%

Trade share of demand
(%)

2020

2026 main case2026 accelerated
case

IEA. All rights reserved.

In the rest of the world, Brazil also expands ethanol exports to meet growing global
demand, and the Netherlands further expands renewable diesel and biojet
production for regional markets in Europe.

References
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CNMC (Comisón Nacional de los Mercados y La Competencia) (2021). Biocarburantes.
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CSET (Center for Security and Emerging Technology) (2021) Outline of the People’s
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EIA (Energy Information Administration) U.S. (2020), Petroleum and Other Liquids,
www.eia.gov/petroleum/data.cfm (accessed September 2021).

Renewables 2021
Analysis and forecasts to 2026

Biofuels

EPA (Environmental Protection Agency) (2021) Spreadsheet of RIN Generation andRenewable Fuel Volume Productino by Fuel Type for the Renewable Fuel Standard
https://www.epa.gov/fuels-registration-reporting-and-compliance-help/spreadsheet-ringeneration-and-renewable-fuel-0 (accessed September 2021).
European Commission (2021a) Directive of the European Parliament and of the Council,
COM(2021) (accessed September 2021).
European Commision (2021b) Renewable energy – directive, targets and rules. (accessed
September 2021).
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September 2021).
European Commission (2021d) Regulation of the European Parliament and of the Council on
the use of renewable and low-carbon fuels in maritime transport and amending
Directive 2009/16/EC. https://ec.europa.eu/info/law/better-regulation/ (accessed
September 2021).
ICAO (2021a) CORSIA Default Life Cycle Emissions Values for Corsia Eligible Fuels.
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October 2021).
IEA (2021c), Oil Information (database), www.iea.org/statistics. (accessed September 2021).
IEA (2021d), Monthly Oil Data Service (MODS), www.iea.org/statistics (accessed September2021).
IEA (2020) Renewables 2020. https://www.iea.org/reports/renewables-2020 (accessed
October 2021).
IEA (2019), Fuel Economy in Major Car Markets. https://www.iea.org/reports/fuel-economy-inmajor-car-markets. (accessed October 2021)
IHS Markit (2021a), Biofuels market (subscription service), IHS Markit, London. (accessed
September 2021).
IMO (2021) Initial IMO GHG Strategy.
https://www.imo.org/en/MediaCentre/HotTopics/Pages/Reducing-greenhouse-gasemissions-from-ships.aspx (accessed October 2021).
Ministère de la Transition Écologique (2020) Chiffres clés des énergies renouvables – Édition
2020, https://www.statistiques.developpement-durable.gouv.fr/chiffres-cles-desenergies-renouvelables-edition2020#:~:text=En%20croissance%20r%C3%A9guli%C3%A8re%20depuis%20plusieurs,%C3%A9nergie%20en%20France%20en%202019 (accessed September 2021).
Ministério de Mins e Energia (2021) Dados estatisticos. https://www.gov.br/anp/pt-br/centraisde-conteudo/dados-estatisticos (accessed September 2021).
MoPNG (2021), Ethanol Growth Story – Fulfilling Aatmanirbhar Bharat Dream.
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Neste (2021a) Neste Singapore Expansion Project. https://www.neste.com/neste-insingapore-and-asia-pacific/journeytozerostories/singapore-expansion-project (accessed
September 2021).

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Biofuels

Neste (2021b) Neste to enable production of up to 500,000 tons/a of Sustainable Aviation
Fuel at its Rotterdam renewable products refinery.
https://www.neste.com/releases-and-news/renewable-solutions/neste-enableproduction-500000-tonsa-sustainable-aviation-fuel-its-rotterdam-renewable-products(accessed September 2021).
NITI Aayog (2021) Roadmap for Ethanol Blending in India 2020-25.
https://www.niti.gov.in/expert-committee-roadmap-ethanol-blending-india-2025(accessed September 2021).
Office of Energy Efficiency & Renewalble Energy, US (2021) Sustianable Aviation Fuel Grand
Challenge, https://www.energy.gov/eere/bioenergy/sustainable-aviation-fuel-grandchallenge, (accessed September 2021).
Office of Information and Regulatory Affairs, US (2021a) Renewable Fuel Standard Program:
Annual volumes and Percentage Standards
https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202104&RIN=2060-AV11(accessed September 2021).
Office of Information and Regulatory Affairs, US (2021b) Volume Requirements for 2023 andBeyond Under the Renewable Fuel Standard Program
https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202104&RIN=2060-AV14(accessed September 2021).
OECD (2021a) Agricultureal Outlook 2021-2030.
https://stats.oecd.org/viewhtml.aspx?QueryId=107144&vh=0000&vf=0&l&il=&lang=en(accessed September 2021).
S&P Global (2021) CVR delays Wynnewood renewable diesel conversion due to highfeedstock prices. https://www.spglobal.com/platts/en/market-insights/latestnews/electric-power/080521-cvr-delays-wynnewood-renewable-diesel-conversion-dueto-high-feedstock-prices, (accessed September 2021).
Statistics Canada (2021), Petroleum products by supply and disposition, monthly, Table 2510-0081-01. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=2510008101(accessed September 2021).
Total Energies (2020) Energy Transition: Total is Investing More Than 400 Million To Convert
Its Grandpuits Refinery Into a Zero-Crude Platform for Biofuels and Bioplastics.
https://totalenergies.com/media/news/news/energy-transition-total-investing-moreeu500-million-convert-its-grandpuits (accessed September 2021).
The State Council – The Peoples Republic of China (2021) Full Text: Action Plan for Carbon
Dioxide Peaking Before 2030.
http://english.www.gov.cn/policies/latestreleases/202110/27/content_WS6178a47ec6d0
df57f98e3dfb.html (accessed September 2021).

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The White House (2021) FACT SHEET: Biden Administration Advances the Future of
Sustainable Fuels in American Aviation. https://www.whitehouse.gov/briefingroom/statements-releases/2021/09/09/fact-sheet-biden-administration-advances-thefuture-of-sustainable-fuels-in-american-aviation/ (accessed September 2021).

Renewables 2021
Analysis and forecasts to 2026

Renewable heat

Chapter 3. Renewable heat
Recent trends
Global progress on conversion to renewable heat has
been limited
Heat is the world’s largest energy end use, accounting for almost half of global
final energy consumption in 2021, significantly more than electricity (20%) andtransport (30%). Industrial processes are responsible for 51% of the energy
consumed for heat, while another 46% is consumed in buildings for space andwater heating, and, to a lesser extent, cooking. The remainder is used inagriculture, primarily for greenhouse heating. Global heat demand declined by 2%
in 2020, primarily due to the curtailment of economic activity as a result of theCovid-19 pandemic, while renewable heat consumption increased by over 3.5%
year on year.
More than a quarter of global heat consumption takes place in People’s Republicof China (hereafter ‘China’) – almost 70% of which is for industry – while the UnitedStates, the European Union, India and the Russian Federation (“Russia”) together
account for another 35%.
The supply of heat, which contributed more than 40% (13.1 Gt) of global energyrelated CO2 emissions in 2020, remains heavily fossil fuel dependent, withrenewable sources (including traditional uses of biomass) meeting less than aquarter of global heat demand in 2020 – a share that has remained static during
the past three decades. Excluding ambient heat, for which limited data are
available at the global scale, 1 as well as traditional uses of biomass, modern
renewables 2 contributed only 11% (23 EJ) of the energy used for heat in 2020, up
from 10% in 2015.

While data on ambient heat harnessed by heat pumps are available for member countries of the European Union, data
availability is still very limited for other regions of the world.
2
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 and on the share of
renewables in electricity generation. Although credited as a renewable heat source, ambient heat harnessed by heat pumps
is not systematically accounted for in this report, due to limited data availability, especially for the industrial sector. Specificmention is made when ambient heat is included. For the sake of simplicity, “modern renewables” is referred to as“renewables” in the remainder of this report.

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1

Renewables 2021
Analysis and forecasts to 2026

Renewable heat

Renewable and non-renewable heat consumption and heat-related CO2
emissions in buildings and industry, world, 2010-2020
12

100

10

80

0

0
2010

2020

Non-renewable heat consumption
Modern uses of renewables for heat

2020

0

2019

0

2018

2
2017

20
2016

2

2015

20

2014

4

2013

40

2012

4

2011

40

EJ

6

Gt CO2

60

2019

6

2018

60

2017

8

2016

80

2015

8

2014

10

2013

100

2012

12

2011

120

Gt CO2

Industry

120

2010

EJ

Buildings

Traditional uses of biomass
Heat-related CO₂ emissions (right axis)

Note: This figure does not account for ambient heat harnessed by heat pumps.
Sources: IEA (2021c), World Energy Statistics and Balances 2021 (database); IEA (2021b), World Energy Outlook 2021.

Policy update
Renewable heat has gained some policy momentum, but
not enough to put the heat sector on track to meetclimate ambitions
Despite heat accounting for a large share of final energy consumption, renewable
heat has until recently received limited policy attention globally compared withother end-use sectors. In 2020 the number of countries with national regulatory
policies for renewable heating and cooling was less than a sixth of those withregulatory policies for renewable electricity (REN21, 2021). More than a third ofglobal heat consumption was not covered by any financial incentive forrenewables, and more than half was not subject to any national or provincial
renewables-related regulatory measures. At the end of 2020 only ten countries
had renewable heat policies covering all sectors (residential and commercial
buildings, public facilities and industry) (REN21, 2021). Designing policy forrenewable heating and cooling can be a challenge due to the fragmented anddiverse nature of heat markets and the local characteristics of heat demand. This
makes collaboration with subnational actors necessary, and partly explains thelimited national policy coverage.
At least 46 countries ‒ the majority from the European Union ‒ had a target inplace to increase the share of renewables in the heating and cooling sector by

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2020. However, while about half of these countries were able to achieve their 2020

Renewables 2021
Analysis and forecasts to 2026

Renewable heat

ambition, many did not set out new targets (REN21, 2021). In the European Union(EU27), while member countries performed at different levels, the overall share of
renewables in heating and cooling reached 22% in 2019, helping to meet the 2020
target of 20% renewable energy in total final energy consumption.
Since the start of 2020 renewable heat has benefited directly or indirectly fromseveral policy developments, a number of them part of stimulus and recovery
plans. Some measures consist of extending existing policies, while others
implement new support schemes. The majority of recent policy developments
have taken place in European countries (see table below). Among these new or
updated policies are direct incentives, such as subsidies, tax incentives, rebates
and loan programmes for renewable heating systems as well as for theelectrification of heating (e.g. with heat pumps) in buildings and industry. Other
measures include the implementation of a national CO2 price, renewablemandates in building energy codes, and support for the expansion and conversionof district heating networks to renewable heat sources (e.g. solar thermal,
biomass) and for the use of renewable-based hydrogen in high-temperatureindustrial processes (e.g. iron and steel). Various policies targeting energy
efficiency in industry and buildings (e.g. retrofits) are also expected to play a keyrole in enabling new opportunities for renewable heat technologies wherecomplementary measures exist.
Financial incentives remain the most common type of policy support to encourage
renewable heat uptake globally, while regulatory measures are in most cases
directed at new building construction. This is the case, for instance, with bans andrestrictions on certain fossil fuel technologies, which are becoming increasingly
prevalent in the buildings sector, and can indirectly stimulate the use ofrenewables for space and water heating (REN21, 2021). Beyond national policies,
such as in Germany, France, Sweden, Slovenia and the United Kingdom, manyof these bans are introduced at the municipal level, confirming the sustained
dynamism of subnational jurisdictions in renewable heat policy making.
Nevertheless, local governments often lack knowledge about renewable heat
options and have limited experience in implementing renewable heat policies.
This recent increase in policy attention on renewable heat is welcome, but remains

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largely below the ambitions of the IEA Net Zero by 2050 Scenario.

Renewables 2021
Analysis and forecasts to 2026

Renewable heat

Recent policy updates encouraging the uptake of renewable heat

Austria

Policy update• In May 2021 the budget of the Austrian Climate and Energy
Fund grant scheme for large solar thermal plants was increased
to EUR 45 million for the period until February 2023.
• (Styria): An amendment to the Styrian building law came into
force in October 2021. The new regulation requires that newlarge buildings are equipped with solar thermal or solar PV
systems in proportion to their gross floor area.
(Quebec): The 2030 Plan for a Green Economy, launched in
November 2020:- Commits to a 50% reduction in emissions related to heat forbuildings by 2030 (and 60% for government buildings
compared to 1990), to be achieved by way of support
measures for heat electrification, with a budget of
CAD 550 million.
- Targets 10% renewable natural gas in the network by 2030.
(British Columbia): From January to June 2021 the province
doubled the rebates available under the CleanBC Better Homes
scheme for the replacement of fossil fuel heating with residential
heat pumps.
(British Columbia): The Greenhouse Gas Reduction (Clean
Energy) Regulation was amended in 2021, giving utilities theright to pay for and blend up to 15% renewable gas in their
public gas supply. These changes support the target of 15%
renewable gas use by 2030.

•

Canada•••Denmark

The Danish Climate Agreement for Energy and Industry 2020,
adopted in June 2020:- Allocates DKK 2.5 billion in subsidies from 2020 to 2030 for
electrification and energy efficiency improvements inindustry, and DKK 2.9 billion for low-carbon gases.
- Lowers taxes on renewable electricity used for heat inbuildings.
- Raises taxes on fossil fuels for heating.
- Allocates DKK 2.3 billion for the replacement of oil andnatural gas boilers with “green” heat sources.
- Cancels the mandatory requirement binding consumers to
use natural gas in some areas.
- Removes the requirement that some district heating plants
have to generate both electricity and heat, making it easierto switch to renewable heat sources.

PAGE | 117

Policy typeand sector*

Economic
incentives(B, I)
Regulation(B)

Targets,
Economic
incentives(B)

Economic
incentives(B)

Regulation

Economic
incentives,
Regulation(B, I)

IEA. All rights reserved.

Country/
regionRenewables 2021
Analysis and forecasts to 2026

Country/
regionFrancePolicy update• Grants have been introduced to support the phase-out of oil
boilers in households and municipal buildings (EUR 45 million
budget for 2020).

India• The new Buildings Energy Act (EEG) (in force since November2020) replaced the Act on the Promotion of Renewable Energy
in the Heat Sector (EEWärmeG). It limits the installation of oilfired heating systems and fossil fuel boilers from 2026, andplaces tighter mandates on how much energy can be used in
new buildings. The EEG also requires minimum shares ofrenewable energy in heating and cooling for public buildings andnew buildings.
• The National Emissions Trading System (nEHS) for heat andtransport fuels was launched in 2021. The scheme will bephased in progressively, with a fixed price per tonne of CO2,
rising from EUR 25/tonne of CO2 in 2021 to 55 EUR/tonne of
CO2 in 2025, followed by auctions from 2026. The revenue fromthis scheme will finance a reduction in consumer electricity rates(via a decrease in the renewable electricity levy).
• Guidelines for biogas production were issued in April 2021,
envisaging up to 10% biogas being blended into the domesticgas network.
•

Italy

Economic
incentives(B)• The Heat Fund has been continued in 2021, with an annual
budget of EUR 350 million. The scheme has been extended to
Economic
solar thermal projects (< 250 m²) for space and domestic water
incentives
heating. Geothermal projects under 1 000 MWh now benefit from (B)a flat-rate grant.
• New installations of oil-fired boilers will be banned from midRegulation
2022.
(B)
• The new building code (RT2020) will come into force in 2022. It
Regulation
requires new buildings to be energy positive, which implies the(B)integration of renewable energy systems.
• The programme MaPrimeRenov, launched in 2020, provides
grants for energy efficiency and renewable heat in buildings. It
replaced two previous programmes. This change was made tosimplify the administrative process. The scheme was extended
in 2021.

Germany

Policy typeand sector*

The 110% Superbonus tax deduction scheme for energy
efficiency retrofits and heating and cooling system replacement(including heat pump installations) in the residential sector was
extended until the end of 2022.

PAGE | 118

Economic
incentives(B)

Regulation(B)

Economic
incentives(B, I)

Regulation(B, I)

Economic
incentives(B)

IEA. All rights reserved.

FinlandRenewable heatCountry/
regionPolicy update•

Ireland

In October 2021 the country announced the ambition to install
600 000 heat pumps by 2030, of which 400 000 are to be inexisting buildings, as part of the National Development Plan
2021-2030.

Policy typeand sector*

Target(B)•

The government is offering compensatory payments to building
owners for the replacement of inefficient or fossil fuel boilers with Economic
incentives
more efficient biofuel boilers or heat pumps. It has a budget of(B)
EUR 14 million from EU investment funds until 2022.

•

The Renewable Energy Transition Incentive Scheme (SDE++)replaces and broadens the former SDE+ scheme to include
renewable and low-carbon heat (geothermal, aquathermal,
biomass and solar thermal systems as well as electric boilers,large-scale heat pumps and renewable gases). The next roundof SDE++ will award EUR 11 billion of projects with public
support of up to EUR 8 billion.**Economic
incentives(B, I)

Following a pilot phase started in 2019, Poland updated its
District Heating support scheme, which offers grants and loans
for the integration of renewable energy and waste heat into
district heat networks. The total budget for the programme is
PLN 500 million, of which PLN 150 million is for grants and PLN
350 million is for loans.

Economic
incentives,
Finance(DHC)

Lithuania

Netherlands•
Poland•The More Sustainable Buildings programme, launched in
September 2020, offers investment grants for decarbonisationand energy efficiency in buildings, including for efficient airconditioning and heating systems such as heat pumps and solar Economic
incentives
thermal. Following the success of the first phase, the initial EUR(B)
4.5 million budget envelope was expanded, and a EUR 30
million budget is allocated to the second phase, which runs until
the end of 2021.

•

In November 2020 the European Commission approved a EUR
150 million Romanian scheme to support the construction ofrenewables-based district heating systems or the conversion ofexisting networks to renewable energy sources.

Economic
incentives
(DHC)

•

The government introduced VAT exemptions for solar thermal
and PV components in summer 2020.

Economic
incentives(B, I)

Portugal

Romania

SenegalRenewable heat

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Renewables 2021
Analysis and forecasts to 2026

Renewables 2021
Analysis and forecasts to 2026

Policy update•

The final National Energy and Climate Plan submitted in 2020
indicates a commitment to ban the installation of new heating oil
boilers from 2023 at the latest.***•In September 2020 the country launched an investment grantEconomicscheme focused on renewables-based thermal energy
incentives(B, I)
production.
In June 2021 a further investment grant scheme was launched
Economic
for the implementation of renewable heat in the residential
incentives
sector, within the framework of the Recovery Plan, endowed with(B)
EUR 200 million. The grants are available until the end of 2023.

Slovenia

Spain

•

•

•
•

UnitedKingdom

Policy typeand sector*•••

Regulation(B)

The Ten-Point Plan for a Green Industrial Revolution, launched Targets(B)
in November 2020, sets a target of 600 000 heat pumpinstallations per year by 2028 in residential and public buildings.
The Domestic Renewable Heat Incentive Scheme (DRHI) was
Economic
extended until March 2022.
incentives (B)In July 2020 the government announced a GBP 2 billion budget
for the Green Home Grant scheme, which opened in September Economic
incentives,
the same year. In November 2020 announcement was made to Financeextend the scheme until March 2022 with an additional budget of (B)GBP 1 billion. However, the programme was closed to new
applicants a year early in March 2021, with only a small fractionof the initial budget spent.
Regulation
In October 2021 the government confirmed that new gas boiler(B)installations will be banned from 2035.
(Scotland): The Social Housing Net Zero Heat Fund, launchedunder the Low Carbon Infrastructure Transition Programme, was Finance(B)
allocated GBP 100 million over five years. It supports social
landlords across Scotland with capital grant and loan funding forenergy efficiency and low-carbon heating projects (including heatpumps, biomass boilers and connection to existing heat
networks) in social housing.
Finance(Scotland): The SME Loan fund, launched in 2008, offers small(I)
and medium-sized enterprises based in Scotland interest-freeloans of up to GBP 100 000 over 8 years and cashback grants
for renewable or energy efficiency projects. A new scheme wasallocated GBP 4 million in 2021.

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Country/
regionRenewable heatRenewables 2021
Analysis and forecasts to 2026

Country/
regionPolicy update••

UnitedStates••••European
Union

Renewable heat

Policy typeand sector*(California): In 2020 regulators allocated USD 45 million to
incentives for electric heat pump water heaters until 2025.
(California): In August 2021 the California Energy
Commission approved the 2022 Energy Code, which
includes electric heat pumps as a baseline technology for
new builds and requires new single family homes to be“electric-ready”. Pending approval by the state’s BuildingStandards Commission, the new code would take effect inJanuary 2023.
(New Mexico): The state’s solar tax credit, which expired in2016, was reinstated in 2020. Solar thermal water heaters
are eligible for this support, which amounts to 10% of total
installation costs.
(Washington): The Commercial Property Assessed Clean
Energy (C-PACER) programme went into effect in June
2020. Under this scheme, renewable heat investments are
eligible for loans that run with the property and are repaid
through property taxes.

Economic
incentives(B)

In 2020 the European Commission committed to a legallybinding emissions reduction target of 55% by 2030
compared to 1990.****In July 2021 the European Commission proposed the “Fitfor-55” policy package, which will be discussed by theCouncil and the European Parliament over the next two
years. Among key elements, the package proposes to set up
a specific emissions trading system for buildings emissions,and to revise upwards renewable energy targets under the
Renewable Energy Directive (REDII). The proposal requires
member states to achieve at least 49% renewables inbuildings energy use by 2030 and to increase the use ofrenewable energy in heating and cooling by 1.1 percentage
points each year, alongside a ban on fossil fuels in district
heating and cooling. An EU benchmark for the use ofrenewables in industry is also part of the proposal, including
a certification system for renewable and low-carbon fuels. In
addition, the European Commission proposed to set up risk
mitigation frameworks to help reduce the cost of capital forrenewable heating and cooling projects.***Targets(B, I)

Regulation(B)

Economic
incentive(B)
Finance(B)

Targets,
Economic
incentives(B, I)

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IEA. All rights reserved.

* “Economic incentives” include direct subsidies and grants, rebates, tax reliefs and other fiscal incentives, and feed-intariffs; “Finance” refers to loans; “Regulation” refers to mandates, bans, norms and codes. (B) = buildings; (I) = industry;(DHC) = district heating and cooling.
** The SDE++ is also a tender-based sliding feed-in premium scheme that compensates the difference between thetechnology cost and the market price of the energy service. However, it is now allocated on the basis of avoided CO2
emissions instead of renewable energy production. It also applies to industrial companies that generate renewable power,
heat and gas for their own use.
*** Policies not enacted yet.
**** This target refers to CO2 emitted within the borders of the European Union (production-based approach); it excludes
embodied CO2 emissions from foreign trade, in contrast to a footprint ‒ or consumption-based ‒ accounting approach.
Sources: Solarthermalworld (2021a, 2021b, 2021c); Building Times (2021); Gouvernement du Québec (2021); British
Columbia (2021a, 2021b); KEFM (2020); Valtioneuvosto (2020); Ecologie.gouv (2021a, 2021b); Effy (2021); PrimesEnergie(2021); BMI (2021a, 2021b); ICAP (2021); Government of India (2021); Gov.ie (2021); Rödle & Partner (2021)); Apva
(2021); Netherlands Enterprise Agency (2021); Serwis Rzeczypospolitej Polskiej (2021); STEP (2021); European
Commission (2020); Republika Slovenija (2020); IDEA (2021); Gov.UK (2021a, 2021b); BNEF (2021d); Energy Live News,(2021); Scottish Government (2021); Greentechmedia (2020); Reuters (2021); SolarReviews, (2021); The National Law
Review (2021); Georisk (2021).

Renewables 2021
Analysis and forecasts to 2026

Renewable heat

Outlook to 2026
Considering the policy landscape as of September 2021, global heat demand is
projected to expand by 17 EJ during 2021-2026. This increase of almost 9% isabout three times larger than that during the decade 2011-2020. The industrial
sector accounts for almost all of this growth, half of which occurs in China andIndia. Traditional uses of biomass are anticipated to decline slightly by 1.7 EJ(down 7%) over the outlook period, mostly in China and India, driven in part by the
deployment of improved biomass cookstoves.

Buildings
Bioenergy
Solar thermal
Renewable district heat
Renewable heat growth (right axis)

Buildings

Industry
Renewable electricity
Geothermal
Heat demand growth (right axis)

2021-26

2015-20

2009-142021-26

2015-20

3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
2009-14EJ

2021-26

2015-20

2009-142021-26

35%
30%
25%
20%
15%
10%
5%
0%
-5%
2015-20

3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
2009-14

EJ

Increase in renewable heat consumption by energy source (left) andcountry/region (right), 2009-2026

Industry

China
European Union
Rest of the world

United States
India

IEA. All Rights Reserved
Note: This figure does not account for ambient heat harnessed by heat pumps.
Sources: IEA (2021c), World Energy Statistics and Balances 2021 (database); IEA (2021b), World Energy Outlook 2021.

Global modern renewable heat consumption is expected to increase at a fasterrate than heat demand, expanding by a quarter (an increase of 5.4 EJ) 3 in the next
five years, with the majority of the growth occurring in the buildings sector. While
the share of modern uses of renewables rises from 11% in 2020 to 13% in 2026,
these investments fall short of containing non-renewable heat consumption. Fossil
fuel consumption for heat is forecast to see a 5% increase in heat-related CO2
emissions over the outlook period, equivalent to 0.6 Gt CO2.
For comparison, to align with the IEA Net Zero Emissions Scenario, renewable
heat consumption would have to progress 2.5 times faster, combined with wide-

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IEA. All rights reserved.

3
This is excluding ambient heat harnessed by heat pumps, for which limited data are available globally, especially in theindustrial sector.

Renewables 2021
Analysis and forecasts to 2026

Renewable heatscale behavioural change and much larger energy and material efficiency
improvements in both buildings and industry.

20
18
16
14
12
10
8
6
4
2
0

Buildings

30%
25%
20%
15%
10%
5%

2014

2020

Historical

2026

2026

Outlook

NZE

0%

EJ

EJ

Renewable heat consumption and share of total heat demand in buildings
and industry, 2014-2026
20
18
16
14
12
10
8
6
4
2
0

Industry

25%
20%
15%
10%
5%
2014

2020

Historical

Modern uses of bioenergy
Solar thermal
Renewable district heat% traditional uses of biomass (right axis)

30%

2026

2026

Outlook

NZE

0%

Renewable electricity
Geothermal% modern uses of renewables (right axis)

IEA. All rights reserved
Notes: NZE = IEA Net Zero Emissions by 2050 Scenario. This figure does not account for ambient heat harnessed by heatpumps.
Sources: IEA (2021c), World Energy Statistics and Balances 2021 (database), IEA (2021b), World Energy Outlook 2021.

Buildings
The rising share of renewables in the power sector and heatpump deployment are the main drivers of renewable heat
growth in buildings
Global heat consumption in buildings is expected to remain stable during theoutlook period, since energy efficiency improvements counter growth in energy
demand from an expanding building stock. Meanwhile, the use of renewable heatin buildings, including ambient heat, is projected to grow by almost 35%.
Renewable electricity is, as in the past decade, the largest contributor to thisgrowth, owing primarily to the rising share of renewables in the power sector, and– to a lesser extent – increasing reliance on electricity for heat in buildings (viaelectric heat pumps and boilers). China, the United States and the European
Union together account for two-thirds of the global increase in renewable electricity
use for heat in buildings.
It will be crucial to anticipate the impacts of the greater electrification of heat onelectricity demand patterns when planning future developments in the power
sector, including grid infrastructure needs. While the electrification of heat

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IEA. All rights reserved.

increases electricity demand, it can also potentially contribute to the integration ofRenewables 2021
Analysis and forecasts to 2026

Renewable heatvariable renewable electricity by providing demand-side flexibility, using (forinstance) the thermal inertia of buildings and hot water tanks for load shifting.
While global data are limited, key markets for electric air-source heat pumps are
expanding rapidly, including in the European Union, where heat pump sales haveexperienced double-digit growth over the past five years (EHPA, 2021). As thisexpansion continues, the amount of ambient heat harnessed by electric heatpumps in the buildings sector is expected to almost double during the outlook
period, increasing by 1.1 EJ and making the second-largest contribution to
renewable heat uptake in buildings after renewable electricity.
Modern bioenergy accounts for a fifth (0.9 EJ) of the projected increase inrenewable heat use in buildings over 2021-2026. A third of the additional
consumption takes place in sub-Saharan Africa, where improved cookstoves
slightly alleviate the expansion of traditional uses of biomass, which continue todominate heat supplies. Similarly, India and China together contribute another
30% of modern bioenergy growth in buildings, while the European Union is
responsible for half of the remainder thanks to support for wood chip and pellet
stoves and boilers in various countries, especially in Italy, France and Germany.
Notwithstanding a 4% year-on-year decline in new capacity additions in 2020,
mostly due to market slowdown in China, the United States and India, solar
thermal heat consumption in buildings is projected to expand by 40% over theoutlook period (0.6 EJ). Despite its domestic market declining, China is anticipated
to continue leading this consumption growth, followed by the Middle East, theEuropean Union and the United States. Together, these regions represent almost
three-quarters of the increase. In most of these large markets, however, limited
policy support and increasing policy maker interest in the electrification of end
uses mean that small-scale solar water heating systems face competition not only
from heat pumps, but also from rooftop PV systems (IEA SHC, 2020). From thisperspective, hybrid systems combining PV and thermal (PVT) technologies offer
enormous potential. The global market for PVT systems saw rapid growth of 9%
in 2020 (IEA SHC, 2021). While domestic solar water heaters still represent thelarge majority of installations, there is also growing interest in large-scale solar
thermal systems connected to district heating networks.
Direct geothermal heat consumption is projected to increase by more than onethird globally, nearing 1.3 EJ by 2026. China dominates this trend, accounting foralmost three-quarters of geothermal developments despite a contracting domestic

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IEA. All rights reserved.

market, followed by the European Union and the United States. Deep geothermal

Renewables 2021
Analysis and forecasts to 2026

Renewable heat

heat has recently received growing interest from oil companies, for which it offers
opportunities to diversify their activities while building on their drilling expertise.

20%

0

0%

- 200

China

European
Union

UnitedStatesIndia

SubSaharanAfrica2021-26200

2015-2040%

2021-26400

2015-2060%

2021-26600

2015-2080%2021-26

800

2015-20100%2021-26

1 000

2015-20120%2021-26

1 200

2015-20

PJ

Increase in renewable heat consumption in buildings, and share ofmodern renewables and traditional uses of biomass in buildings heat
demand, selected regions, 2015-2026

Rest of
world

-20%

Renewable district heat
Geothermal
Solar thermal
Modern bioenergy
Renewable electricity% modern renewables in heat at
end of period (right axis)% traditional uses of biomass inheat at end of period (right axis)

IEA. All rights reserved
Note: This figure does not account for ambient heat harnessed by heat pumps.
Sources: IEA (2021c), World Energy Statistics and Balances 2021 (database); IEA (2021b), World Energy Outlook 2021.

Industry
Despite rising contributions from bioenergy and electricity,
renewable heat consumption in industry fails to match
expanding heat demand
Driven by economic growth, industrial heat consumption is projected to expand by
15% globally during 2021-2026, an increase of 16 EJ. Renewables are expectedto account for only one-fifth of this growth. Fossil fuels supply the remaining fourfifths, leading to a 12% surge in annual heat-related industrial CO2 emissions. By
2026 the share of renewables in industrial heat consumption is anticipated toremain near 11%, only 0.4 percentage points higher than in 2020.
Bioenergy makes the largest contribution to renewable heat progression inindustry, with consumption in 2026 projected to exceed 2020 levels by 1.2 EJ (up14%). Half of this increase is expected to take place in India and Brazil – the twolargest industrial bioenergy consumers – owing primarily to greater use of bagassein the sugar and ethanol industries and biomass in the food industry. China, theUnited States and the European Union together are responsible for a further

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IEA. All rights reserved.

quarter of the additional industrial bioenergy consumption, due to the growth ofRenewables 2021
Analysis and forecasts to 2026

Renewable heatbioenergy-intensive subsectors like the pulp and paper industry, as well as
expanding use of waste in the cement subsector.
The share of electricity in global industrial heat consumption is expected to makelittle progress over the outlook period, rising by less than half a percentage point
to 4.5% in 2026. China contributes almost half of this slow electrification trend.
Still, renewable electricity used for heat in industry is projected to expand by 60%(0.7 EJ) globally during 2021-2026, driven primarily by spillover effects fromrenewables uptake in power generation and, to a lesser extent, by the overall
expansion of industrial heat demand. After China, the largest contributors are theEuropean Union, the United States and India. Together these four markets are
expected to account for almost 70% of the growth in renewable electricity use forindustrial heat.

PJ

Contribution of different factors to changes in renewable electricity
consumption in industry, selected regions, 2021-2026
350
300
Change in industrial heat
demand250
200

Change in the share ofelectricity in industrial heatconsumption

150
100

Change in the share of
renewables in electricity

50
0
- 50

China

European
Union

United States

India

Rest of world

IEA. All rights reserved
Source: IEA (2021b), World Energy Outlook 2021.

Despite its current negligible contribution (less than 0.02% of global industrial heatconsumption), solar heat for industrial processes continues to see rising interest,with about 900 projects in operation worldwide by the end of 2020, representing
more than 1.1 million m² of collector area and near 500 MW th of capacity (IEA
SHC, 2021). Well suited to a number of industrial applications with low- to mediumtemperature heat requirements, such as in the food, textile and chemicalindustries, the global potential for solar heat in industrial processes is largely
untapped. From its low base, solar thermal heat consumption in industry is
expected to triple during 2021-2026, an increase of 57 PJ, with the largest single
contribution from India, followed by China, the United States, the European Union

PAGE | 126

IEA. All rights reserved.

and South Africa.

Renewables 2021
Analysis and forecasts to 2026

Renewable heat

10%

0

0%

Bioenergy

- 100

-10%

- 200

-20%

% modern renewables in heatat end of period (right axis)

China

India

BrazilEuropean
Union

UnitedStates2021-26

100

2015-2020%2021-26

Solar thermal

200

2015-2030%

2021-26300

2015-20

Geothermal

2021-2640%

2015-20400

2021-2650%

2015-2060%

500

2021-26600

2015-20

PJ

Increase in renewable heat consumption in industry and share of
renewables in industrial heat demand, selected regions, 2015-2026
Renewable district heat

Renewable electricity

Rest ofworld

IEA. All rights reserved
Note: This figure does not account for ambient heat harnessed by heat pumps.
Sources: IEA (2021c), World Energy Statistics and Balances 2021 (database); IEA (2021b), World Energy Outlook 2021.

Limited development of district heating and cooling is anticipated during theoutlook period, with total global consumption expected to be 11% higher in 2026
compared to 2020, growth of 1.4 EJ, yet still meeting less than 7% of total heat
demand. The share of district supplies from renewable sources is expected toremain low at around 8% globally. Most renewable district heating and coolingdevelopments during the next five years are expected to take place in China andthe European Union, benefiting mostly the industrial sector in the former case, andthe buildings sector in the latter. While bioenergy and municipal waste account for
the large majority of renewable district supplies, large-scale solar thermal systems
and heat pumps are seeing growing interest. By the end of 2020, 262 large-scalesolar district heating systems totalling 1.4 GW th were in operation worldwide, with
Denmark in the lead, followed distantly by China and Germany (IEA SHC, 2021).

Keeping up with ambitions in the IEA NZE Scenario requires
much faster policy action globally in both industry and buildings
In the IEA Net Zero Emissions by 2050 Scenario, the use of modern renewable
heat in buildings expands twice as fast as in our outlook, and almost three times
as fast in industry.
The largest discrepancies are seen in modern bioenergy use, with additional
growth of 5.1 EJ during 2021-2026 under the Net Zero Emissions Scenario
compared to our outlook, almost evenly split between the industrial and buildings
sectors. In industry, this gap comes primarily from greater use of municipal solid

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IEA. All rights reserved.

waste in the cement subsector, and greater reliance on on-site residues for pulp

Renewables 2021
Analysis and forecasts to 2026

Renewable heatand paper industries in the Net Zero Emissions Scenario. In buildings, the wider
rollout of improved biomass cookstoves enables further substitution of traditional
uses of biomass.
Assuming both more rapid penetration of renewables in power generation andgreater electrification of heat through heat pumps and direct electric processes(e.g. induction or electric arc furnaces for secondary steelmaking), the Net Zero
Emissions Scenario sees thermal uses of renewable electricity in industry
expanding twice as fast as in our outlook. In buildings, behavioural changes andenvelope retrofits completely offset additional electricity consumption associatedwith the massive deployment of heat pumps described in the Net Zero Emissions
Scenario. The number of heat pumps installed in buildings globally is 50% larger
than in our outlook by 2026, expanding to 600 million units by 2030, driven by the
introduction of bans on fossil fuel boilers. By 2030 heat pumps meet 20% of energy
demand for heat in buildings, up from 5% in 2019 (IEA, 2021c; REN21, 2021).
Direct solar thermal consumption grows more than 2.5 times as fast during 20212026 in the Net Zero Emissions Scenario than anticipated in our outlook, adifference of 1.1 EJ. The addition is both from the installation of solar thermal water
heaters in buildings and the take-off of solar heat for industrial processes.
Accordingly, the number of dwellings using solar thermal systems rises from
250 million in 2020 to 400 million by 2030, and up to 1.2 billion in 2050 (IEA,
2021c).
Finally, the Net Zero Emissions Scenario sees the exploitation of thedecarbonisation potential of existing district heating networks far beyond ourcurrent projections, with more than a doubling of the share of renewables in global
district supplies by 2026. Under these assumptions, renewable district heatconsumption needs to grow six times faster than in our outlook, with contributions
not only from bioenergy – the largest renewable source for district heat – but also
from solar thermal and large-scale heat pumps.
In the longer term the Net Zero Emissions Scenario also sees a growing – yetlimited – role for renewable gases such as biomethane and renewables-basedhydrogen for heating, in specific contexts, both in buildings and industry. These
renewables-based energy carriers can be introduced by progressive blending,taking advantage of existing gas infrastructure, and provided end-user appliances
are compatible with blending levels. They can also be used in hybrid systems thatcombine electric heat pumps with gas boilers.
Beyond highlighting opportunities to expand the supply of renewable heat, the Net

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IEA. All rights reserved.

Zero Emissions Scenario emphasises the critical importance of simultaneouslyRenewables 2021
Analysis and forecasts to 2026

Renewable heatcontaining heat demand through behavioural change, material efficiency andenergy efficiency. For instance, the scenario’s total global heat demand is 13%
lower (9% lower in industry, 18% lower in buildings) than in our current projections
for the year 2026. Targeting the substitution of traditional uses of biomass withmore efficient cooking and heating technologies is also a critical element of the
Net Zero Emissions Scenario to achieve progress towards more sustainable useof renewable sources. An important multidimensional policy gap remains to beaddressed to bring heat-related CO2 emissions in line with Paris Agreement
ambitions.
Growth in renewable heat consumption and global cumulative heatrelated CO2 emissions in the IEA outlook and Net Zero Emissions
Scenario, world, 2021-2026
Gt CO2

EJ

Increase in renewable heat consumption
10
5
0
-5
- 10
- 15

Outlook

NZE

Buildings
Traditional uses of biomass
Geothermal
Renewable electricity

Outlook

NZE

Industry

90
80
70
60
50
40
30
20
10
0

Global cumulative CO2 emissions, 2021-26

25%
20%
15%
10%
5%

Outlook

NZE

0%

Industry
Buildings% renewables in industrial heat in 2026
% modern renewables in buildings heat in 2026

Renewable district heat
Solar thermal
Modern bioenergy

IEA. All rights reserved
Note: This figure does not account for ambient heat harnessed by heat pumps.
Sources: IEA (2021a), Net Zero by 2050; IEA (2021b), World Energy Outlook 2021.

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https://www.reuters.com/legal/litigation/new-california-rules-move-state-away-naturalgas-new-buildings-2021-08-11/ (accessed October 2021)
Rödle & Partner (2021), Italy 2021 Budget Law, https://www.roedl.com/insights/taxnewsletter-italien/2121-03/italy-2021-budget-law (accessed November 2021)
Scottish Government (2021), Social Housing Net Zero Heat Fund,
https://www.gov.scot/publications/social-housing-net-zero-heat-fund---call-for-fundingapplications---2021/ (accessed October 2021)
Serwis Rzeczypospolitej Polskiej (2021), Program „Ciepłownictwo powiatowe” od 1października na nowych zasadach, https://www.gov.pl/web/nfosigw/programcieplownictwo-powiatowe-od-1-pazdziernika-na-nowych-zasadach (accessed October
2021)
SolarReviews (2021), New Mexico’s solar tax credit is back with big savings,
https://www.solarreviews.com/blog/new-mexico-solar-tax-credit (accessed October
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Solarthermalworld (2021a), Uncapped funding for large solar heat plants in Austria
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Solarthermalworld (2021b), Little known VAT exemption in Senegal,
https://www.solarthermalworld.org/news/little-known-vat-exemption-senegal(accessed October 2021)
Solarthermalworld (2021c), Europe holds top spot for SHIP incentives,
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STEP (2021), Consumers benefit from Deco’s advice as More Sustainable Buildings
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The National Law Review (2021), Keeping “PACE” in commercial real estate improvements: aprimer on the new washington Commercial Property Assessed Clean Energy and
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Valtioneuvosto (2020), Government reaches agreement on fourth supplementary budget
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.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Chapter 4. Renewable energy
trends to watch
What is the impact of increasing commodityand energy prices on solar PV, wind andbiofuels?
Rising commodity prices have increased the cost of producing solar PV modules,
wind turbines and biofuels worldwide. This situation has short-term implications
for equipment manufacturers, project developers and policy makers. Higher prices
for solar PV and wind equipment have reversed the cost reduction trend that theindustry has seen for more than a decade and may delay the financing of someprojects already in the pipeline. While rising input prices have already resulted inpolicy change on biofuels in several countries, demand for wind and solar PV
remains strong, as reflected in recent auction participation and corporatepurchasing, even with rising prices. While uncertainty remains as to how longcommodity prices will continue their upswing, the impact of rising material costson the profitability of the renewable energy industry could have long-term
implications for the cost of clean energy transitions.

Wind and solar PV
Prices for many industrial materials, and freight costs, have been on an increasing
trajectory since Q1 2021, pushing up wind turbine and solar PV costs. Since thebeginning of 2020 the price of PV-grade polysilicon has more than quadrupled,
steel has increased by 50%, copper by 60% and aluminium by 80%. In addition,
freight fees have increased almost sixfold, resulting in additional costs for thegeographically dispersed supply chain of renewables. The reversal of the longterm trend of decreasing costs is already visible in the prices of wind turbines andPV modules, which have increased by 10-25% depending on country and region,
erasing two to three years of cost reductions since 2018 from technology
improvements. The exception, however, is in People’s Republic of China(hereafter ‘China’) where wind turbine costs have continued to decrease in 2021,
as demand declined following the 2020 deployment boom driven by the planned

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phase-out of subsidies.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Price index (Jan 2020 = 100)Monthly commodity and freight price indexes, 2020-2021
700
600
500
400
300
200
100
0

1

2

3

4

5

6

7

8

9

10

11

12

1

2

3

4

2020
Steel

Polysilicon

5

6

7

8

9

10

2021
CopperAluminium

Freight

Notes: Steel – China domestic hot-rolled steel sheet spot average price; polysilicon – solar-grade silicon spot price; copperand aluminium – London Metal Exchange 3-month forward contracts; freight – WCIDCOMP Index.
Sources: IEA analysis based on Bloomberg LP (2021).

How do commodity prices affect the investment costs ofsolar PV and onshore wind?
We estimate that key commodities and freight costs make up about 15% of total
utility-scale solar PV and onshore wind investment costs. Solar PV’s largest cost
component is the manufacturing and shipment of the module, which is directly
affected by the price of polysilicon, steel and aluminium. Inverter and electricalinstallation costs depend on the price of copper, while all components are
impacted by increasing freight rates. Steel contributes the most to the final cost ofwind installations, as large quantities are used in manufacturing and constructionof the tower, nacelle and mechanical equipment. Freight can make up to 6% of
total onshore wind investment costs, as the transport of bulky elements with

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specialised ships is required.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Utility-scale PV and onshore wind investment cost structure bycomponent and by commodity breakdown
Onshore wind

Utility-scale PV
100%

20%

80%

100%
80%

15%

60%

10%

40%
5%

20%
0%

15%

60%

10%

40%

20%

Components
Modules
Inverters
Racking
Electrical
Installation
Freight
Other*

0%
Steel

5%

20%

Materials
Aluminium

Polysilicon

CopperFreight0%Components

0%

Materials

Nacelle

Tower

Steel

Cast ironFoundation

Electrical

CopperFreight

Freight

Other** Includes costs of project development, management and financing.
Sources: IEA analysis, based on NREL (2019) (2020); IRENA (2020); BNEF (2021e).

Upfront capital and associated financing costs are 70-80% of the levelised cost ofelectricity generation for wind and 80-90% for solar PV. Thus, any increase ininitial CAPEX greatly affects the profitability of the investment. We estimate thatthe overall investment cost of utility-scale PV and onshore wind plants could
increase by around 25% due to the commodity and freight price surge, based on
a comparison of average commodity prices between 2019 and 2021.
Increases in commodity prices do not immediately affect investment costs, asdevelopers, manufacturers and other parts of the supply chain usually maintainstocks of materials and have contracts based on previous prices. However, theincrease in raw material and logistics costs ultimately affects the whole value chain
and could result in a higher cost of electricity generated at renewable installations.
Different areas of the value chain, such as manufacturers, equipment installers
and developers, can absorb cost increases in different ways, with some sectors
being more affected than others. Additional hedging mechanisms, the sharing ofcosts or the strategic distribution of equipment are all options developers can use
to minimise the impact of increased costs in the short term.

Implications for manufacturers
Higher costs led to decreased equipment purchases in Q1 2021, as numerous
manufacturers reported fewer orders because of higher input prices led them toadjusting the price of their finished products. While purchases increased in Q2 as

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buyers accepted the new market conditions, growing demand coincided with aRenewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

sharp increase in polysilicon prices. Higher costs have also resulted in windequipment manufacturers reporting reduced margins, with some lowering theirprofit guidance by 50%.
In addition, many European and American wind turbine manufacturers havealready announced price increases ranging from 10% to 25% for new orders.
While manufacturers are reducing freight costs by sourcing equipment fromcountries closer to their assembly hubs, increased material costs could be felt
downstream as manufacturers use hedging clauses to pass commodity price risk
on to the buyer. China has not been insulated from rising commodity costs. Even
though China produces around 80% of the world’s modules, higher commodity
prices have driven solar PV system costs higher in that market. Chinese windequipment prices, however, have hit record lows in 2021 due to fierce competition
among suppliers left with manufacturing overcapacity after exceptionally highdeployment in 2020.

Utility-scale PV

40%

Total investment cost increase (%)

Total investment cost increase (%)

Utility-scale PV and onshore wind, total investment cost change bycommodity and freight input, from average 2019 prices

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

Onshore wind

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%

% increase in commodity price
SteelCast iron

Polysilicon% increase in commodity priceCopperAluminium

Freight

Increase since 2020

IEA. All rights reserved.
Notes: The increase in freight prices is significantly higher than for commodities. The baseline for all prices is the 2019average.

Implications for developers
Recent government-led competitive wind and solar PV auctions have alreadyseen contract price increases partly due to high commodity and freight prices. In
Brazil rising equipment prices have contributed to awarded prices being over 70%
higher in 2021 auctions compared to those held in 2019. Nevertheless, theawarded prices are substantially below those awarded to natural gas-fuelledgeneration in Brazil’s emergency reserve auction held in October. In India auction

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prices for solar PV in Q3 2021 were 16% above the historical lows reached in Q4

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

2020, which may result in delays in signing PPAs with utility companies. The mostrecent renewables auction in Spain resulted in prices nearly 30% higher thanthose awarded in January 2021 due, in part, to increases in the cost of materials.
These auction prices are, however, well below current wholesale prices in the
country. Nascent renewables markets are also seeing higher prices. In Colombia
final contract prices for solar PV at the auction held in November 2021 were almost
45% higher than those awarded in 2019, with these increases partially caused byhigher investment costs.
Upward price trends for the equipment needed to build solar PV and wind power
plants pose a challenge to developers who won bids in competitive auctions
anticipating continuous declines in the cost of modules and turbines. The IEA
estimates that around 100 GW of awarded but yet-to-be commissioned wind andsolar PV capacity from 2019 and 2021 are at risk of the commodity price shock,potentially leading to commissioning delays. A prolonged increase in commodityand equipment prices could result in developers withholding equipment purchases
until prices return to lower levels. Meanwhile, auction organisers, utilities andcompanies purchasing renewable electricity could also be reluctant to accept
higher tariffs, delaying their procurement plans, especially in emerging anddeveloping markets.

Implications for onshore wind and solar PV investment globally
Despite rising costs and contract prices, wind and solar PV generation costs
remain lower than fossil fuel alternatives, especially given current high natural gas
and coal prices. However, if the prices of polysilicon, steel, aluminium, copper andfreight remain at their current elevated levels throughout 2022 and manufacturers
continue to increase equipment prices, as currently observed, global investment
costs of wind and solar PV could increase further. This situation would erase
almost three years of investment cost reductions for solar PV and five years foronshore wind. When compared with previous cost reduction trends, higher
commodity and logistics costs could lead to investment costs increasing by
USD 70 billion for solar PV and USD 35 billion for onshore wind over the forecast
period, affecting the pace of deployment. Without these price increases,
developers could build about 95 GW of additional solar PV and 25 GW of further
wind capacity over 2021-2026. 1

In the case of onshore wind, China was excluded from the analysis due to specific market dynamics.

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1

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

100

50

80

40

60

30

40

20

20

10

0

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

billion USD

CAPEX index (2015=100)

Impact of high commodity price scenario on forecast total investment
costs and CAPEX, onshore wind and utility-scale PV, 2015-2026

0

Onshore wind additional investment costs (right axis)

Utility-scale PV additional investment costs (right axis)

PV CAPEX index - high commodity costs

PV CAPEX index - BAU

Onshore wind CAPEX index - high commodity costs

Onshore wind CAPEX index - BAU

IEA. All rights reserved.
Notes: BAU = business as usual. Onshore wind data exclude China.

Rising energy prices and trade policies put additional
upward price pressure on wind and solar
In addition to increased raw material, commodity and freight prices due to theeconomic recovery after the Covid-19 crisis, rising energy prices are also putting
upward price pressure on renewables as manufacturers of materials critical forrenewable energy equipment have curtailed production in Asia and Europe to
avoid higher fuel and electricity costs. This situation further exacerbates analready strained material supply chain, leading to additional increases andvolatility in prices for commodities such as aluminium, copper and steel.
Reductions in material processing due to high energy prices, commodities
used in renewables equipment, selected examples
Material

Type

Countries impacted

Start month,
2021

Aluminium

Shutdown

China

September

Zinc

Curtailment

China, Europe

September

Polysilicon

Curtailment

China, Europe

September

Magnesium

Shutdown

China

September

Steel

Curtailment

China, Europe

September

Source: Fast Markets (2021a), Fast Markets (2021b), Financial Times (2021), PV Tech (2021), Reuters (2021a), Reuters(2021b), TFI Global (2021)

In addition, trade measures due to concerns over the origin of equipment bring

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IEA. All rights reserved.

additional price increases to solar PV modules and wind turbines in key markets

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

such as the United States, India and the European Union. Both supply-side
constraints and trade measures have a short- and medium-term impact onmarkets, increasing costs and affecting project profitability, especially for thoseprojects that won auction bids prior to price increases, and also delaying
investment.
Trade measures targeting wind and solar PV equipment
Country/region

MeasureDetailStart year

United States

TariffImport duty on cell/modules manufactured in China

2012/2018

European Union

TariffVariable tariff on PV-rated glass from China

2014

India

Import duty

40% duty on solar modules, 25% duty on cells

2022

United States

Anti-dumping

Import duty on wind equipment from India,
Malaysia and Spain

2021

European Union

Anti-dumping

Steel wind towers from China

Pending

United States

Anti-dumping

Crystalline silicon PV products from China andChinese Taipei

2015

CanadaAnti-dumping

PV modules and laminates from China

2015

United States

Anti-dumping

Utility-scale wind towers from Canada, China,
Indonesia, Korea and Viet Nam

2013/2020

Australia

Anti-dumping

Wind towers from China

2019

Source: Australian Government (2020), CBSA (2015), European Commission (2020), European Commission (2021),
Federal Register (2012), Federal Register (2013), Federal Register (2021), MNRE (2021), US Department of Commerce(2020), US ITC (2020), US Trade Representative (2018).

The rapid economic recovery from Covid-19 and higher commodity prices
compared to pre-pandemic levels have contributed to rising inflation in many
countries (IMF, 2021a). The OECD and the IMF expect inflation rate increases topeak at the end of this year before moderating in 2022; however, bothorganisations warn that uncertainties associated with the pace of the Covid-19
economic recovery may prolong inflation beyond their current forecasts (IMF,
2021a; OECD, 2021b).
In the event of inflation remaining above target levels, central banks may consider
increasing interest rates. Higher rates translate into higher borrowing costs,
affecting the total generation costs of renewable energy projects. Although theEuropean Central Bank and the US Federal Reserve currently do not plan to raise
their main interest rates in the short term, uncertainty over possible hikes presents
a longer-term risk. Coupled with prolonged cost increases for equipment, this
could have a material effect on investment in renewables, leading to increased

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costs for developers and governments and affecting the pace of deployment.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Despite rising equipment prices, wind and solar remaincompetitive
Rising natural gas and coal prices have led average wholesale electricity prices toincrease worldwide. In countries such as Germany, the United Kingdom andSpain, average wholesale electricity prices from January to October 2021 morethan doubled compared with values observed in 2019 and 2020. Higher natural
gas and coal prices have improved the competitiveness of wind and solar PV,
despite historic equipment price increases due to high commodity and energy
prices. For corporations, fixed-price renewable energy contracts have served asa hedge against higher spot market prices, increasing the value of such bilateralagreements. For governments, higher electricity prices are not translated intohigher subsidies for wind and solar PV, as almost 90% of all wind and PV projects
have long-term fixed-price PPAs either through FITs or CfDs.

USD/MWh

Average wholesale electricity prices and LCOE of utility-scale solar PV
and onshore in 2020 and in high commodity price scenario in Germany,
United Kingdom and Spain
140
120
100
80
60
40
20
0

2019

2020
Germany

Jan-Oct
2021

2019

2020

Jan-Oct
2021

2019

United Kingdom*

Average wholesale electricity price (baseload)
Utility-scale PV auctions
Offshore wind auctions

2020
Spain

Jan-Oct
2021

2020

Highpricescen.

Utility-scale PV

2020

Highpricescen.

Onshore wind

Usual LCOE range
Onshore wind auctions

IEA. All rights reserved.
* Wholesale prices excluding Northern Ireland.
Notes: scen. = scenario; High-price scenario comprises LCOE calculation with assumption of high commodity prices, as
described in the previous paragraphs of this chapter.
Sources: IEA analysis based on Bloomberg LP, IRENA (2020).

The long-term implications of price increases
Although it is too early to assess the medium- and long-term implications ofcommodity price increases on the deployment of wind and solar PV, so far higher
prices have had limited impact on demand for new capacity. Governments havemade no major changes in their policies or cancelled auctions, both of which are
crucial to ensure the continued deployment of renewables. In addition, corporate

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buying is on pace to break another year-on-year record, demonstrating the cost-Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

competitiveness of renewable resources, even with a slight increase in prices insome markets. Should commodity and freight prices moderate in the near future,
the cost reduction trend of wind and solar PV would continue, and the long-term
impact on the demand for solar PV and wind may be minimal. However, there isa risk of a prolonged period of high commodity prices, inflation and rising interest
rates increasing the cost of clean energy transitions and slowing the pace of windand solar PV capacity expansion.

Biofuels
Feedstock costs have been driving up biofuel prices, causing an estimated 3%
decline in global demand in 2021. A number of factors are causing this priceincrease, including growth in demand for soybeans and corn in China, weather
impacts, climbing shipping costs and, to a lesser extent, biofuel demand itself. In
response, governments have lowered blending mandates in Argentina, Colombia,
Indonesia and Brazil, reducing biofuel demand. These impacts are likely to be
short-lived should prices decline in the coming years. The significant planned
expansion of renewable diesel projects, for instance, remains on track andgovernments seem willing to reinstate mandates if prices come down. However,the prospect of high feedstock and biofuel costs does present a risk to supportive
policies under discussion in the United States, Europe, India, China andIndonesia.

Short-term impacts
In mid-July Argentina passed a law to reduce the biodiesel blend rate from theoriginal 10% to 5% because of high crop costs. The law also authorises thegovernment to reduce the biodiesel blend rate to 3%, and to halve the ethanol
volume entering the fuel sector from corn ethanol if necessary.
The Colombian government reduced its ethanol blending mandate from 10% to
4% from April 2021, with the aim of returning blending to 10% in September 2021.
However, in August, Colombia extended the 10% blending mandate to January
2022. The reduction was in part because of a sugar cane shortage due toexcessive rains, as well as high US ethanol import costs.
Indonesia has continued to delay increasing its biodiesel mandate from 30% to
40% as initially planned. High palm oil and biodiesel costs are part of the reason
for the delay.
In response to high costs, Brazil’s mines and energy ministry reduced its biodiesel

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blending mandate to 10% from 13% for July and August. It then increased theRenewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

mandate to 12%, but is considering reducing it again to 10%. High costs are alsopart of the reason for reduced sales of hydrous ethanol in Brazil, as consumers
have switched from buying ethanol to gasoline.

164
Indonesia

162
160

Brazil - ethanol

158
156

Brazil - biodiesel

154
152
150

Colombia and Argentina
2021 demand without priceimpacts

Reductions

2021 demand with priceimpacts

IEA. All rights reserved.

In the United States high feedstock prices are contributing to climbing Renewable
Identification Number (RIN) trade prices. The US Environmental Protection
Agency (EPA) uses RINs to track the production and use of qualifying renewablefuels under the Renewable Fuel Standard (RFS). RINs are tradeable and fuelproviders with a deficit can purchase credits from those with a surplus. RIN prices
are at an all-time high, having nearly tripled since 2019 for biodiesel and reaching
seven times higher for ethanol as of October 2021, according to IHS Markit data.
These increases are primarily a result of higher feedstock prices according to the
US Environmental Information Administration. However, uncertainty aroundrenewable fuel obligations, ongoing discussions on waivers for small refineries
and lower ethanol production following Covid-19 impacts on fuel demand are also
contributing. The impact these prices will have on biofuel production and demandis unclear. If the RIN market acts as intended, then higher RIN prices should create
an incentive to produce more biofuels since biofuel producers will receive higher
prices for their products. However, since biofuels are blended with gasoline anddiesel, higher biofuel prices can also increase consumer fuel prices, which can
reduce overall fuel demand. The EPA has also yet to set renewable fuelobligations for 2020/21 and will be starting the process for RFS obligations post
2022 later this year. Fuel costs will no doubt feature prominently in those
discussions.

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IEA. All rights reserved.

Volume (billion litres/yr)

Demand decline in response to high prices, selected countries, 2021

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

What is driving price increases?
Weather impacts on biofuel crops, growing corn and soybean demand in China
and certain other markets, and higher shipping costs are all contributing to higher
biofuel prices. They have increased by between 70% and 150% from the 2019average, and more than prices for crude oil in most cases, increasing the spread
between biofuel and fossil fuel costs.

2.5

2.0

2.0

Index

2.5

1.5

1.5
1.0

0.5

0.5

2017
2018
2019
2020
Jan-21
Feb-21
Mar-21
Apr-21
May-21
Jun-21
Jul-21
Aug-21
Sep-21
Oct-21

1.0

2017
2018
2019
2020
Jan-21
Feb-21
Mar-21
Apr-21
May-21
Jun-21
Jul-21
Aug-21
Sep-21
Oct-21

Index

Biofuel prices and feedstock costs in selected markets, ethanol (left) andbiodiesel (right), 2017-2021

Brazil - sugar
US - corn
Crude oil

Brazil - ethanol
US - ethanol

Latin America - soy
Europe - UCO
Crude oil

Brazil - biodiesel
Europe - biodiesel
IEA. All rights reserved.

Source: IEA analysis based on IHS Markits (2021b), indexed to 2017.

Chinese demand for soybeans and corn to help rebuild its pig herd after swine
fever decimated its pig populations, combined with tight supplies, is one of themain drivers of cost increases for these feedstocks according to the US
Department of Agriculture. Biofuel producers use soybeans to make biodiesel andrenewable diesel, and corn to produce ethanol. To help keep costs in check, China
has increased imports of both soybeans and corn. China’s corn imports more thantripled in 2021 relative to 2020, for example, to satisfy this demand (USDA, 2021).
In the United States increased renewable diesel demand for soybeans has also
contributed to cost increases by limiting the soybean harvest available for export.
In the case of sugar, used to produce ethanol, high costs are in part driven by apoor harvest in Brazil; sugar production in 2021 is down by 7% compared to 2020.
In Europe, high shipping costs – up nearly 700% from 2019 levels for a shipmentfrom China – have contributed to higher used cooking oil costs. Nearly 70% ofused cooking oil for biodiesel production in Europe is imported according to IHS

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IEA. All rights reserved.

Markit estimates.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

The impact of cost increases on the prospects for renewable diesel andbiojetProduction of renewable diesel and biojet is set to expand by 9 billion litres overthe next two years in the main case, at a time of high feedstock costs. Despite the
combination of high feedstock costs and growing demand for those feedstocks,
renewable diesel and biojet facilities in the advanced stages of development
remain on track. To date only one advanced project, CVR’s Wynnewood facility,
has delayed start-up, citing high feedstock costs. To mitigate cost increases,
producers are building facilities that can process multiple feedstocks, buying
agricultural supply chains and investing in non-crop feedstocks.
Refiners can produce renewable diesel from plant oils, used cooking oil andanimal fats. One way to mitigate costs is to build renewable diesel facilities thatcan use a variety of feedstocks. This flexibility allows producers to purchasewhichever feedstocks are the least costly at the time.
Owning feedstock supply chains also helps ensure supplies and keep costs incheck. Some renewable diesel and biojet producers are pursuing this strategy bypurchasing seed oil production and used cooking oil collection companies. For
instance, Neste, a renewable diesel producer, purchased used cooking oilcollection and refining companies in the United States and the Netherlands toimprove the used cooking oil supplies it uses to produce renewable diesel.
Some investment continues as well in technologies to process wastes andresidues that would avoid competition with food demand or for limited supplies ofused cooking oil. Wood and agricultural wastes, for instance, can be processed
into biofuels and have other benefits such as meeting sustainability requirements
in regulations such as Europe’s Renewable Energy Directive. These investments
remain limited, however, with most new plants planning to use oil crops and usedcooking oil.

What are the long-term implications?
The long-term implications depend primarily on whether feedstock and biofuel
prices stay high or not. Feedstock demand and weather impacts, mostly unrelated
to biofuel demand, are driving high prices. There is little indication of changes inproject plans for renewable diesel and biojet production, and governments seemwilling to reinstate mandates should prices decline.
High prices are nevertheless a clear reminder of the links between feedstocks,
biofuel costs and government and consumer exposure to them. This comes at a

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time when the United States, Europe, India, China and Indonesia are allRenewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

discussing new policies or working to implement existing plans that could increase
global biofuel demand by 30% by 2026. The greatest risk of high costs may
therefore be how they affect these policy discussions. Current high prices draw
attention to important questions. Where will the feedstocks come from? How
sustainable are they from an economic, environmental and social perspective?
Will costs drive investment into new feedstocks? And what will be the cost impacts
not just on fuels, but on agricultural products?

How much will renewable energy benefit fromglobal stimulus packages?
As of October 2021, governments around the world have mobilised almost
USD 17 trillion in the form of rebates, grants, loans and tax incentives/exemptions
to mitigate the effects of the Covid-19 crisis (IMF, 2021a). The majority of thesemeasures are aimed primarily at providing relief to businesses, the public sector
and consumers affected by the economic downturn arising from the Covid‑19
pandemic and to channel public money towards rebuilding economies around theworld.
Approved government spending on clean energy reached USD 480 billion. The
USD 45 billion allocated to renewables – including electricity, heat and fuels(biofuels, advanced biofuels and biogas) – accounted for about 9% of announced
public spending on clean energy. The majority of global clean energy stimulus is
expected to be spent over 2021-2023.
Global government clean energy stimulus in response to Covid-19,
allocated up to October 2021
Renewable electricity
8.7%

Renewable fuels
0.7%

Total approved public
spending for clean energy:
USD 480 billion

Other clean energy
90.7%

IEA. All rights reserved.

PAGE | 145

IEA. All rights reserved.

Note: Includes only approved government spending on clean energy.
Source: Based on IEA (2021h), Sustainable Recovery Tracker.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Encouraged by its job creation potential and low cost as a CO2 abatement
technique, energy efficiency sector has received USD 144 billion, the greatest
clean energy spending globally. The renovation of public and private buildings andenergy efficiency investment in the industrial sector are the largest beneficiariesof the allocated spending. Depending on country-level regulations, renewable heattechnologies can also benefit from spending allocated to energy efficiency. The
second most supported sector is public transport (USD 94 billion), followed by lowemission vehicles and charging infrastructure (USD 79 billion). Investment inrailways, mass/urban transit and walking/cycling infrastructure have so far
received the largest portion of this funding, followed by EVs and alternative-fuelvehicles and their charging infrastructure.
Global government clean energy spending by sector and technology,
allocated up to October 2021
Energy efficiency

Offshore wind

Public transport

Solar PV
Nuclear

Clean transport

Onshore wind

Low-carbon power

Other renewables

Clean fuels

BiogasInnovation and technologies
including CCUS

Biofuels
Hydrogen

Grids and storage
0

50

100

150
USD billions

IEA. All rights reserved.
Source: Based on IEA (2021h), Sustainable Recovery Tracker.

Of the spending on low carbon power, we expect solar PV to receive the largest
amount, accounting for almost half of low-carbon electricity spending(USD 24 billion) and split between utility-scale and distributed PV. This stimulus
money will mostly support already developed markets in China, Korea and theEuropean Union to further accelerate investments. Nuclear power has received
around USD 9 billion in public spending, followed by offshore wind and onshore
wind. Despite increasingly needed flexibility capabilities, dispatchable renewables
including hydropower, geothermal and bioenergy received only USD 3.5 billion.
Similarly, biogas and biofuels only received around USD 3 billion, despite theirmajor contribution to decarbonisation of the hard-to-abate sectors such as aviationand heavy industry. Many governments consider low-carbon hydrogen to be the

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IEA. All rights reserved.

main fuel for decarbonising the hard-to-abate sectors. This is reflected in large

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

public spending of about USD 30 billion allocated to hydrogen. However,uncertainty remains about whether this allocated spending will be for hydrogenproduced from renewables or non-renewables.
As of October 2021, almost three quarters of public spending on clean energy was
allocated in Europe, followed by the Asia Pacific region and North America. The
share of renewables, including biofuels and renewable electricity, in overall clean
energy spending ranged from 4% to almost 56% depending on the region. In
Europe and North America, transport infrastructure and energy efficiency
spending took priority over renewables. In Asia Pacific, focusing on reaching
ambitious renewables targets have led to a higher renewable share in overallclean energy spending, especially in China and Korea.

USD billions

Government clean energy approved spending by region and share of
renewables, allocated up to October 2021
60%

400
350

50%

300
40%

250
200

30%

150

20%

100
10%

50
0

EuropeAsia and Pacific*

Clean energy spending

North America

Other regions

0%% of renewable electricity & biofuels (right axis)

IEA. All rights reserved.
* Includes China
Source: IEA analysis based on IEA (2021h), Sustainable Recovery Tracker.

About USD 42 billion of approved public spending on renewable electricity could
mobilise USD 380 billion of additional private investment if this spending attracts
nine times more capital. However, the contribution of the private sector will highly
depend on the effectiveness of policies and implementation measures to attract
investment. This would result in the development of an additional 380 GW ofrenewable projects in the coming years, with solar PV providing over 90% of thisupside potential. However, the IEA’s Sustainable Recovery Plan suggests anadditional USD 800 billion investment in renewables is needed over 2021-2023.
This requires not only increasing public spending but also mobilising additional

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IEA. All rights reserved.

private capital.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

GW

Estimated renewable capacity additions resulting from approved
government spending, depending on private financing leverage, to becommissioned over 2021-2026
400

Other
renewables

350
300

Offshore wind

250
200

Onshore wind

150
100

Distributed PV

50
010% and 90%

20% and 80%

30% and 70%

40% and 60%

50% and 50%

Utility-scale PV

Share of government financing and private financing

IEA. All rights reserved.
Source: IEA analysis based on IEA (2021h), Sustainable Recovery Tracker, Bloomberg LP, IRENA (2020).

Focus on the EU Recovery and Resilience Facility
In addition to its long-term budget of EUR 1.2 trillion, the European Union
announced in 2020 the Next Generation EU stimulus programme worth
EUR 800 billion to support recovery in member countries in the form of grants andloans to be allocated over 2021-23. The Recovery and Resilience Facility (RRF)
accounts for about EUR 724 billion of the total spending allocation in the Next
Generation EU programme. Climate-related spending must account for at least
37% of RRF funding used in member states. From March to September 2021,
22 member countries proposed their spending plans, with 18 of them receiving
approved from the European Union.
Overall, EU member countries requested over EUR 460 billion, with two-thirds inthe form of grants. The climate-related part of their proposals was 41%, or
USD 191 billion, higher than initial minimum target of 37%. While the majority ofcountry plans include a climate-related spending share ranging around theaverage, Finland, Denmark, Austria and Luxembourg proposed to spend higher
shares of 60% to 70%. Italy has requested the largest absolute amount ofspending for clean energy at over EUR 70 billion, followed by Spain, Poland,
France and Greece. These five countries account for almost 80% of all climate-

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IEA. All rights reserved.

related spending under the RRF facility.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

80

80%

70

70%

60

60%

50

50%

40

40%

30

30%

Luxembourg

Ireland

Cyprus**

LatviaLithuania

Denmark

Slovenia

Croatia

Sweden*Finland*

Austria

Slovakia

Hungary*

Czechia

Belgium

Portugal

Germany0%

Greece0France10%

Poland*

20%

Spain

20
10

Italy

USD billions

EU RFF funding allocation by country and share of clean energy

EU RFF agreed grants

EU RFF agreed loans% of climate-related (right axis)% of EU average climate-related (right axis)

IEA. All rights reserved.
* Member country spending plan proposed but not yet approved by the European Union.
** Note by Turkey: 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. Turkey recognises the Turkish
Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations,
Turkey shall preserve its position concerning the “Cyprus issue”.
Note by all the European Union member states of the OECD and the European Union: The Republic of Cyprus isrecognised by all members of the United Nations with the exception of Turkey. The information in this document relates tothe area under the effective control of the Government of the Republic of Cyprus.
Source: European Commission (2021f).

Energy efficiency and public transport together account for more than half of theoverall climate budget under the RFF, followed by renewable electricity and“green” hydrogen. Overall renewables including the electricity sector, biofuels,
biogas and renewable heat are to receive about EUR 18 billion, less than 10% of
overall climate-related EU public spending. Based on country proposals, weestimate that the majority of the renewables spending will be used for distributed
PV applications followed by offshore wind, utility-scale solar PV and onshore wind.
Outside the electricity sector, spending on biogas remains a policy priority in somecountries to decarbonise existing gas infrastructure. The spending allocation forbiofuels (including both conventional and advanced biofuels) remains despite theEuropean Union’s Net Zero by 2050 goal, where biofuels play a key role indecarbonising hard-to-abate sectors. Renewable heat received the lowest
spending allocation among all climate-related technologies, although part of theenergy efficiency stimulus may be spent towards renewable heat in buildings and

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IEA. All rights reserved.

industry.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

EU RFF fund allocation by sector and between renewables
Renewable
heat
3%

Energy efficiency
Public transport
Renewable electricity
Hydrogen
Biodiversity & climate resilience
Low-carbon vehicles
Water/waste management
Grids
Education/innovation
Charging infrastructure
Other climate related
Biofuels/biogas
Batteries
Walking and cycling
Recycling
Renewable heat

EUR 18 billion
Biofuels
3%

Biogas11%

Onshorewind
6%

Distributed PV
28%

Other
renewable
electricity
6%

0

15

30

45

Offshorewind
25%

Utilityscale PV
18%60

EUR billions

IEA. All rights reserved.
Source: European Commission (2021f).

Spending proposals for specific renewable technologies are geographicallyconcentrated among two to three countries. For distributed PV, self-consumption
programmes in Italy and Spain are expected to dominate, while Poland has
requested funding for development of its first-ever offshore wind projects andassociated infrastructure. For utility-scale PV and onshore wind, Greece’s policy
on island electrification and Italy’s agrovoltaics programme will receive themajority of the EU spending. For renewable heat and biofuels, Austria and France
respectively support national programmes on the exchange of oil and gas heating
systems with renewable heat options and the production of advanced biofuels.

EUR billion

EU RFF fund allocation by renewable technology or fuel
6
5
4
3
2
1
0

Distributed
PV
Italy

Spain

Offshorewind

Utility-scale
PV

BiogasOther
renewable
electricity

PolandGreeceDenmark

Finland

Onshorewind
Portugal

Biofuels

Austria

Renewable
heat

FranceOthersIEA. All rights reserved.

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IEA. All rights reserved.

Source: European Commission (2021f).

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Could the green hydrogen boom lead to
additional renewable capacity by 2026?
In 2020 global electrolyser capacity stood at 0.3 GW, mostly using grid electricity
to produce hydrogen. Planned project pipelines in almost 30 countries indicatethat global electrolyser capacity could reach almost 17 GW by 2026. Based on
project announcements, we estimate that almost half of the planned expansion touse existing renewable capacity. Most announced projects range from 1 MW to
10 MW in size and are close to industrial sites and ports. The additional renewablecapacity installed for these small projects is expected to be limited, as they will
mostly use renewable electricity from the grid through bilateral agreements with
developers and utilities.

GW

Global installed electrolyser capacity in 2020 and projects planned forcommissioning, 2021-2026 (left) and additional renewable capacity forelectrolysis, 2021-2026
18

Capacity growth over 2021-2026

Planned electrolyser capacity

16
14
12
10
8
6
4
2
0

2020

Electrolyser

2026

With additional renewable capacity
Using existing renewables

Renewables

EuropeChina

North America

Latin America

Asia Pacific

IEA. All rights reserved
Notes: The figure is not a forecast of global electrolyser capacity by 2026. It is based on project announcements and theirannounced commissioning deadlines. Additional renewable capacity is also based on project announcements bydevelopers. For missing data, an average electrolyser to renewable capacity ratio was used at country or regional levelbased on data already available from developers.
Source: IEA analysis based on IEA (2021g), Hydrogen Projects Database.

Larger projects (10-100 MW) are expected to bring almost 18 GW of additional
renewable capacity during 2021-2026 dedicated to the production of hydrogen orammonia from renewables, accounting for only 1% of our main case forecast
growth in renewables. This includes some developers using a combination ofrenewable electricity from the grid and new capacity in the initial phases of project
development. If planned projects are commissioned by 2026, China, Chile, Spain

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IEA. All rights reserved.

and Australia could together bring 85% of the additional 18 GW of renewable

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

capacity dedicated to green hydrogen production. The combination of targets andfinancial support, coupled with solar and wind resource availability, make thesecountries lead the short-term large-scale expansion of hydrogen produced bydedicated renewable capacity.
By October 2021 the announced electrolyser project pipeline had reached over
260 GW globally. We estimate that this could bring an additional 475 GW of windand solar PV capacity, one-third of total installed variable renewables today,
dedicated mostly to green hydrogen production. The majority of planned projects
consider hybrid wind, solar PV and battery storage plants for hydrogen production.

GW

Additional renewable capacity according to planned and announced
green hydrogen projects
300
250
200
150
100
50
0

Wind and solar PV

Solar PV

Wind

Other renewables
IEA. All rights reserved.

Notes: The allocation of the capacity is based on project announcements from developers. For missing data, an average
electrolyser to renewable capacity ratio was used at country or regional level based on data already available fromdevelopers.
Source: IEA analysis based on IEA (2021g), Hydrogen Projects Database.

Europe has the greatest planned electrolyser and associated renewable capacity
globally, mostly from offshore wind and solar PV. This is driven by the European
Union’s green hydrogen targets and associated funding to scale up production to
decarbonise hard-to-abate sectors in line with the bloc’s long-term Net Zero by2050 target. With excellent wind and solar resource availability, Australia has thesecond-largest pipeline following Europe, the country aiming to export greenhydrogen and ammonia. Similar drivers make the business case for electrolyser
expansion in the Middle East and Eurasia. In China and Latin America, projects
announced for the long term remain limited, but the upside potential remains,
especially to reduce curtailment and to abate CO2 emissions in the industrial

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IEA. All rights reserved.

sector.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Global planned electrolyser capacity and estimation of additional
renewable capacity by country/region
EuropeChina

Renewables

Asia PacificNorth America
Latin America
AfricaElectrolyser

Middle East
Eurasia
0

100

200

300

400

500

GW
IEA. All rights reserved.
Notes: The allocation of the capacity is based on project announcements from developers. For missing data, an average
electrolyser to renewable capacity ratio was used at country or regional level based on data already available fromdevelopers.
Source: IEA analysis based on IEA (2021g), Hydrogen Projects Database.

While large companies and countries have announced ambitious green hydrogen
expansion plans for the next two decades, it remains uncertain how many of theseprojects will actually be commissioned on time and on budget. Globally, almost
USD 30 billion of government subsidies for green hydrogen have already beenannounced as part of stimulus packages. Despite this, financing challenges
concerning the profitability of green hydrogen projects remain; in many parts of
the world the cost of producing hydrogen from renewable electricity remains higher
than fossil fuel alternatives. The pace of electrolyser capacity expansion is key toachieving the cost reductions necessary to make hydrogen production fromrenewable electricity comparable or lower than fossil fuel alternatives.
In addition, the mismatch between currently planned projects and the demand forgreen hydrogen output remains a key uncertainty for future electrolyser
expansion. Government policies are currently more focused on decarbonisinghydrogen production than developing demand for new applications, and current
country ambitions to stimulate hydrogen use in new applications are not sufficient

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IEA. All rights reserved.

to meet their net zero pledges (IEA, 2021a).

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

How rapidly will the global electricity storage
market grow by 2026?
Global installed storage capacity is forecast to expand by 56% in the next five
years to reach over 270 GW by 2026. The main driver is the increasing need forsystem flexibility and storage around the world to fully utilise and integrate larger
shares of variable renewable energy (VRE) into power systems.

GW

Concentrated solar power, pumped hydro and batteries, installed storage
capacity in 2020 and 2026
250

Rest of world
Rest of Asia Pacific200

Rest of Europe
Morocco150

South Africa
Switzerland

100

NorwaySpain

50
0

United States
India
2020

2026

Concentrated solar power

2020

2026

Pumped hydro

2020

2026

Batteries (utility-scale)

China

IEA. All rights reserved.
Notes: Rest of Asia Pacific excludes China and India; Rest of Europe excludes Norway, Spain and Switzerland.
Source: For battery storage: IEA (2021b), World Energy Outlook 2021.

Utility-scale batteries are expected to account for the majority of storage growth
worldwide. Their installed capacity increase sixfold over the forecast period, driven
by incentives and an increasing need for system flexibility, especially where theshare of VRE covers almost all demand in certain hours of the day. Hybrid
auctions combining wind or solar PV with storage have emerged in India andGermany, with contracts in the range of USD 40-60/MWh over the last year. In the
United States federal tax incentives, combined with high peak prices in several
markets, are driving expansion, while long-term government targets in China see
battery storage increasing fivefold over 2021-2026.
Pumped storage hydropower (PSH) provides 42% of global expansion ofelectricity storage capacity. With over 40 GW of expansion in the next five years,
PSH remains the largest source of installed storage capacity, achieving 200 GW

PAGE | 154

IEA. All rights reserved.

cumulatively installed by 2026, three times larger than batteries. China alone

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

accounts for three-quarters of global PSH capacity growth thanks to thegovernment’s long-term targets and new remuneration scheme aimed at reducing
VRE curtailment.
Concentrated solar power (CSP) storage expands by only 2.6 GW during theforecast period. China leads the expansion thanks to a generous FIT scheme,
which is set to continue until the end of this year. Beyond China, the United ArabEmirates is expected to bring online the second-largest volume of new capacity
globally, thanks to phase four of the Dubai Electricity and Water Authority’s
Mohammed bin Rashid Al Maktoum Solar Park, which brings an additional
700 MW and aims to help the country achieve its target of 75% clean energy by
2050.
Installed capacity does not provide a full picture of each storage technology’s
capabilities. 2 PSH and CSP can provide medium-term storage capabilities costeffectively. In the case of CSP, storage is usually in the range of 5-15 hours. In
contrast, the most widely used lithium-ion battery technology can usually store
electricity for less than 4 hours. For PSH, the storage duration ranges from 5 to
175 hours, but some installations, such as PSH units installed in cascading
systems that link two or more large reservoirs, offer even greater storage capacity(IEA, 2021f).
Addressing global electricity storage capabilities, our forecast expects them toincrease by 40% to reach almost 12 TWh in 2026, with PSH accounting for almost
all of it. India dominates storage capability expansion by commissioning over
2.5 TWh (80% of the expansion) thanks to projects using existing large reservoirs.
CSP storage capabilities almost double partly thanks to the longer storage hours(10 hours on average) of projects under construction in China, the United ArabEmirates, Morocco, South Africa, Chile and Greece. Similarly, global battery
storage capabilities also increase eightfold by 2026.
In addition to PSH, CSP storage and batteries, the IEA Special Hydropower
Market Report estimated the energy storage capabilities of hydropower (IEA,

PAGE | 155

IEA. All rights reserved.

2
Our estimates of storage capabilities, or stored electrical energy, for PSH are based on the International Commission on
Large Dams’ database of existing dams and reservoirs (ICOLD, 2021), country-level storage data and IEA research. Energy
storage capability calculations depend on the potential energy of water that can be used for power generation stored behindeach dam. Factors include the average head of the dam, energy conversion efficiency (assumed at 90%) and estimates ofthe live part of a reservoir’s volume. In some cases, we also applied a standard assumption of 10 hours’ storage capability.
We based storage capabilities of CSP on the SolarPaces NREL database and project level research (NREL, 2021). For
batteries, we used information from the WEO 2021 report (IEA, 2021d).
All capability calculations are for one charge cycle, and these technologies operate under different charging cycling patterns.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

2021f). Accordingly, existing conventional reservoir hydropower plants can store
up to 1 500 TWh of electricity, significantly more than all other storage
technologies combined.
CSP, PSH and battery storage capability in 2020 and 2026
PSH
Batteries
CSP

2020

8.5 TWh2026

11.9 TWh

GWh

0%

20%

40%

60%

80%

100%

300

140

Rest of world

10 000250

120Rest of Asia Pacific

8 000

200

12 000

150

4 000

100

2 000

50

20

0

0

0

2026

Pumped hydroMorocco

80

6 000

2020

Rest of Europe

100

2020

2026

Batteries

South Africa

60

Switzerland

40

NorwaySpain
United States
2020

2026
CSP

India
China

EA. All rights reserved.
Note: Rest of Asia Pacific excludes China and India; Rest of Europe excludes Norway, Spain and Switzerland.

PSH and CSP storage can use already-installed plant infrastructure instead ofgreenfield projects, providing cost-effective opportunities to accelerate storage
capabilities locally. Currently around half of CSP installations worldwide do nothave any storage capability, especially in Spain and United States (HELIOCSP,
2020). Accordingly, we estimate the potential for retrofitting CSP projects byadding storage could be significantly higher compared with our forecast forgreenfield plants. For instance in Spain, solar PV developers face grid constraints
to connect new projects. CSP retrofits adding storage could help alleviate someof these grid constraints. For CSP retrofits to make economic sense, remunerationfor existing projects would need to be extended and adjusted to reward flexibility
and storage capabilities. For PSH, existing reservoir plants and dams can offer
opportunities to achieve long-term storage cost effectively. In the IEA Special
Hydropower Market Report (IEA, 2021f), the outlook to 2030 indicated that adding
PSH capabilities to existing reservoirs would add more storage capability than new

PAGE | 156

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projects.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

GWh

PSH storage capability, 2021-2030
14 000Rest of World

12 000Morocco10 000South Africa

8 000

Switzerland

6 000

Norway

4 000

Spain

2 000

United States

0

2021

Greenfield

Historical

Existing
infrastructure
Forecast 2030

India
China

IEA. All rights reserved.
Source: PSH forecast from IEA (IEA,2021f), Hydropower Special Market Report.

Technologies like CSP and PSH not only generate electricity and serve as daily
or weekly balancing, but also provide additional services to the grid, such assystem inertia, frequency response and grid regulation by means of their rotating
mass. They are difficult to finance because of their high investment costs and, inmany countries, the lack of remuneration schemes valuing grid services andtherefore

long-term

revenuevisibility.

Somemarkets,

such

as

the

United Kingdom, Ireland and some Nordic countries, provide market-based
remuneration for grid services. However, energy sales continue to be the primarysource of revenue for both CSP and PSH, given that revenues from ancillary
services range from 1% to 5% of total revenue in many markets (IEA,2021f). Moreincome streams are therefore required for storage technologies to becomebankable. Auctions that support hybrid plants can provide a good solution to scale
up PSH and CSP. In India, for instance, a PSH and PV system won a hybrid
auction last year at USD 57/MWh (PV Magazine, 2020).

Are conditions right for biojet to take flightover the next five years?
Aviation fuels must be proven safe and technically sound, and the airline industry
must have confidence in them.



Costs need to be acceptable to consumers and airlines.

PAGE | 157

IEA. All rights reserved.

Five conditions will help dictate whether biojet takes flight over the next five years:

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watchGovernments need to implement clear regulatory and supportive policies, such as
low-carbon fuel standards, mandates, R&D funding, standards development andincentives.



Biojet producers need to finance, permit and build planned facilities.



Fuel feedstocks need to be sustainable.

With these conditions in mind, we expect biojet demand to range from 2 to
6 billion litres by 2026 in our main and accelerated cases respectively. Biojet
production is around 0.1 billion litres today. Existing biojet pathways are safe andcommercial, costs seem acceptable at proposed blend rates, and the biofuels
industry can satisfy demand even in an accelerated case. While biojet is ready,policies are not, or at least not yet. How high biofuel demand increases mostdepends on a handful of policy discussions in the United States, Europe andpotentially China. Given the low absolute volumes proposed, even in our
accelerated case, feedstock sustainability is unlikely to prove a constraint over the
next five years. However, production plans depend heavily on edible oils andcertain wastes and residues for which there is limited supply and considerable
competition. Commercialising new feedstock supplies and production pathways is
critical to medium- and long-term expansion of biojet.

Condition 1 – Confidence in biojet
Biojet already meets the condition that fuels be safe and technically sound. There
are seven certified biojet fuels for use in commercial flights, with blending ratios
up to 50% depending on the technology in question and compatibility with existing
fuelling infrastructure (IEA Bioenergy, 2021). Hydroprocessed esters and fatty
acids (HEFA), the most produced biojet, is approved for up to 50% blending withkerosene. Major airlines and aircraft and engine manufacturers, as well as many
airports,

haveexperiencewithbiojetand are publicly

committed tocommercialising sustainable aviation fuels (SAFs) more broadly via the Clean
Skies for Tomorrow Coalition.
The work of international organisations such as ICAO and IATA, as well as
industry groups bringing together engine manufacturers, airlines, fuel providers
and airports, has been critical to understanding the role of SAFs in reducing
emissions and solving challenges related to standards, logistics, investment,
policy design and building public confidence. SAFs include fuels made from
biological sources, such as biojet, and renewable non-biological sources, such as
power-to-liquids. Industry and governments need to evaluate and certify new fuels
and share learnings across the industry, but successes to date are sufficient to

PAGE | 158

IEA. All rights reserved.

support significant SAF expansion, as considered in this forecast.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Condition 2 – Costs
While biojet is considerably more expensive than fossil jet fuel, additional costs at
2% blending rates are unlikely to pose a major challenge to biojet expansion in
our forecast. For instance, a Paris to New York one-way flight using 2% blended
biojet would cost 0.4% more, or only USD 1.80. 3 The European Commission’s
ReFuelEU proposal targets a 2% blend in 2025. This cost difference drops further
to USD 1.40 if fossil jet fuel is exposed to a USD 50/tonne CO2 price. As
production expands, the biofuels industry also expects biojet costs to decline
nearly 10% over the next decade via learning by doing and through economies ofscale according to the Clean Skies for Tomorrow Coalition. For instance, large
dedicated SAF production facilities or the repurposing of existing refineries offer
opportunities for cost reductions.
HEFA producers will need to keep costs in check, however. Biojet market prices
have soared to an average of USD 1.80/litre over the past year because ofcommodity price increases. On the path to net zero, blending will also need toclimb to the double digits by 2030 according to the IEA Net Zero by 2050 Scenario.
Fossil jet and biojet fuel production cost ranges
2.0
1.8
Price (USD/litre)

1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0

Fossil jet range- 2010-20

FossilFossil jet
jet range
range with
with
CO2
CO2 price2021 market price

HEFA production range HEFA production range- 2021- 2030

Average HEFA production cost
IEA. All rights reserved.

Note: Carbon price = USD 50/tonne.
Sources: IEA analysis based on EIA (2021c), ICAO (2021b), Argus Direct (2021a), (IATA, 2021) and World Economic
Forum (2021) data.

Biojet prices for the above calculation are based on average production costs not accounting for the recent increase incommodity prices.

PAGE | 159

IEA. All rights reserved.

3

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Condition 3 – Policies
Policies under discussion in the United States and Europe would expand biofuel
demand by a factor of five in 2026 compared with existing policies. Current
mandates, financial support and airline offtake agreements for SAFs are likely todrive biojet demand to 2 billion litres by 2026, up from 0.1 billion litres in 2021.
This growth includes SAF mandates in countries such as Norway and Sweden,
and existing polices in the United States. Airlines are also directly contracting forthe purchase of SAFs via offtake agreements for 16 billion litres over the next
20 years (ICAO 2021b). Averaged over 20 years, offtake agreements areequivalent to 0.8 billion litres of demand per year, eight times 2021 demand.
Policies and offtake agreements are not necessarily additive, however. An airlinethat has already committed to purchase SAFs in a country that then adopts a SAF
mandate can use its commitments to satisfy the policy, for example. Neverthelessexisting policies are helpful and necessary to demonstrate commercial production
and streamline policy design. However, growth could be five times higher if all themeasures currently under consideration were to come to fruition.
Annual SAF demand range over the main and accelerated cases
compared with capacity potential
SAF demand range

6

Renewable diesel
optimised for SAF

5

Other announced
projects

4
3

RoW planned
capacity

2

Singapore planned
capacity

1

Europe planned
capacity0

US planned
capacity

2020

2021

2022

2023

2024

2025

2026

IEA. All rights reserved.

When accounting for proposed policies, demand swells to near 6 billion litres per
year, similar to renewable diesels growth over the last five years. The EU and US
policy proposals will have a significant influence on biojet demand prospects. The
ReFuelEU proposal would see a 2% blending target for SAF across the bloc by2025 for any flight leaving an EU airport (European Commission, 2020). The
United States is proposing a tax credit for SAFs and plans to start rulemaking forpost-2022 targets in its RFS in December 2021. These measures may help the

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Volume (billion litres/yr)

7

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

United States achieve its Sustainable Aviation Challenge, which sets a goal forthe aviation industry to use 11 billion litres of SAF 2030. Both EU and US policy
proposals incentivise GHG intensity reductions.
There are some important uncertainties too. The Chinese government is aiming
for peak CO2 emissions before 2030 and, as in other countries, SAF is one of the
few options to reduce airline emissions in the near term. A 1% blending target by2025 in China alone would increase demand by four times global production in
2021. Indonesia also has a 5% SAF mandate on the books, although it is notenforced. Brazil, a biofuels powerhouse, could also turn its sights on biojet,
although there are no proposals beyond existing policies. Some governments arealso requiring a specific role for non-biojet SAFs such as electrofuels. The
ReFuelEU proposal includes a 0.7% target for synthetic fuels by 2030 andGermany is exploring a SAF mandate specifically for renewable fuels from nonbiogenic origins with a 1% target by 2028. Renewable non-biogenic fuels are notincluded in this analysis given the likely small values by 2026.

Condition 4 – Production
Planned projects are more than sufficient to meet existing policy commitments,
but significant additional capacity must be added if proposed policies are
implemented. Projects in advanced stages of development account for just over3 billion litres of biojet capacity. Nearly half of this proposed capacity is in Europe,with the remaining split nearly equally between the United States and Singapore.
This capacity is well beyond the 2 billion litres likely to be needed under existing
policies.
If governments implement all proposed policies, then planned projects would
supply 60% of demand. Other projects that have been proposed, at the early
proposal stages or lacking financial commitment, could add a further billion litres
per year of capacity. However, this still leaves a near 2 billion litre gap. Biojet to fillthat gap could come from new plants or optimising existing and planned renewablediesel plants to produce biojet. This would require optimising around 15% of 2026
renewable diesel capacity for biojet production, well within the realm of possibility.
There are other options too, such as new dedicated SAF production beyond what
is currently on the books, from existing technology pathways or new. Production

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is therefore not a constraint for the level of deployment considered in this analysis.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Condition 5 – Feedstock sustainability
Planned biofuel policies in the United States and Europe include sustainability
requirements, but new fuel pathways and feedstock treatment technologies must
be commercialised to sustain future growth. Biojet must be produced using
sustainable feedstocks to avoid the risk of negative impacts on biodiversity,
freshwater systems, and food prices and availability. The IEA Net Zero Scenario
found that to sustain growth, new biofuel production, including SAFs, can and must
increasingly be from wastes, residues and woody energy crops grown on marginalland and cropland not suitable for food production. The Clean Skies Coalition sees
a limited role for used cooking oil and residue fats, which it estimates could supply
only a maximum of 5% of aviation fuel demand in 2030, and excludes edible oil
seeds as an acceptable feedstock. The ReFuelEU proposal also recommends
excluding feed and food crop-based fuels. Edible oil crops, and wastes andresidues (primarily from used cooking oil and animal wastes) are the main
feedstocks for proposed biojet facilities.
Since forecast volumes to 2026 remain relatively small and biojet plants could
accept oils from other feedstocks in the future, feedstocks and sustainability
constraints do not yet pose a major constraint. However, feedstock constraints forused cooking oil, animal fats and edible oil crops are likely to apply at some point
if biojet is to expand at the scale envisaged in the IEA Net Zero Scenario, either
as a cost issue or unacceptable impacts on sustainability measures. In themedium and long term, biojet will need to be produced overwhelmingly fromwastes, residues (beyond used cooking oil and animal wastes) and crops that do
not compete with arable land.
Governments will also need to include GHG performance criteria as part of SAF
support. This is already the case in proposed and existing policies in Europe andthe United States, examples that other countries considering SAF support could
learn from.
Biojet is ready to take off if governments are willing to establish the right policy
environment.

Long-term growth,

however,depends

on commercialisingtechnologies and new feedstocks that do not compete with edible crops and use

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wastes and residues beyond animal fats and used cooking oil.

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Are renewable heating options costcompetitive with fossil fuels in the residential
sector?
While fossil fuels met more than 60% of heat demand in the buildings sector
globally in 2020, the recent rebound in oil and gas prices revives the question of
the cost-competitiveness of renewable space and water heating technologies. 4
The cost-competitiveness of heating technologies depends on a combination ofparameters, including initial investment costs, variable operating costs, fixed
operating and maintenance costs, and the presence of financial and economic
incentives or disincentives.

Upfront costs
The purchase cost of residential heating units varies greatly, not only from one
technology and sub-technology to another ‒ depending on the system’sfunctionality, quality and degree of automation ‒ but also between regions,depending on the scale of the market. Although economies of scale and market
competition can still yield significant cost reductions in various regions, thepurchase cost of most renewable heating technologies, for example heat pumps
and automated biomass boilers, is anticipated to remain higher than for fossil fueloptions, such as oil and gas boilers, in the medium term. Ground-source heatpumps have among the highest upfront costs; however, this is partly due to thedrilling for and installation of the underground heat exchanger, whose lifetime canreach 40 to 100 years, and which should thus be considered as a long-term
investment. The relatively high cost of reversible heat pumps should also be putin the context of the additional possibility of operating them as air-conditioning
systems.
In addition to the cost of the heating unit per se, upfront costs also include
installation costs (e.g. transport, piping work) as well as ancillary costs (e.g. fuelstorage tank, buffer storage tank). Whether the new heating configuration
combines space and water heating or requires two separate systems (e.g. abiomass stove for space heating in combination with a heat pump or solar thermal
water heater) also influences total investment costs. Importantly, in some cases,
switching to renewable-based technologies for space heating may also require
replacing or adapting the heat distribution system. For instance, heat emitters

Renewable space and water heating options comprise all technologies using renewable energy sources, including biomass,
geothermal heat, solar thermal heat and ambient heat harnessed by heat pumps.

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Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

designed for use with fossil fuel boilers typically operate in the range of 60-80°C,
while heat pumps are more efficient with output temperatures below 55-60°C. 5 In
the United Kingdom, about half of all dwellings may require either modification of
the heat distribution system or reducing heat demand through building retrofits inorder to operate with a 55°C flow temperature on an average winter day. This
share increases to more than 85% of dwellings on a cold winter day (BEIS, 2020).
The cost of installing larger hydronic radiators, underfloor heating or forced-air
heating systems can be significant ‒ as much as half the cost of the heating unit.
Such investments are not necessary with solar thermal systems, which can be
combined with existing installations. This flexibility may, for instance, partly explain
the high interest for solar thermal systems under the United Kingdom’s recent
Green Home Grant scheme, in which it represented 60% of all low-carbon heat
installations (Solar Energy UK, 2021). For most other countries, however, limited
data are available on the characteristics of installed heat distribution systems inbuildings. Consequently, the financial cost and the levels of disruption implied bya wide-scale transition to renewable heating are difficult to estimate.

USD

Investment cost range for selected residential space and water heating
technologies and regions
30 00025 000
20 000
15 000
10 000
5 000
0
Gas
Oil
condensing condensing
boilerboilerPelletstove

Pelletboiler

Solar
Electric air- Electric air- Electric
air heat water heat groundthermal
pump
pump source heat combi
pumpsystemSolarthermalwater
heaterIEA. All rights reserved.
Notes: Investment costs shown in this figure include unit purchase and installation costs, including value added tax (VAT),
for an average single-family house. They exclude ancillary costs (e.g. distribution system) and do not account for policy
support.

In addition to affecting overall cost-competitiveness, the high upfront cost of
renewable technologies can also create financing obstacles for households.

Similarly, integrating renewable heat technologies like solar thermal, geothermal and heat pumps into district heating
systems is easier in high-efficiency networks that operate at low temperature.

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Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

Policies can play a key role in overcoming these challenges, for instance throughinvestment grants, rebates, fiscal incentives and loan schemes. Policies
supporting energy efficiency investment in buildings can also assist the transition
to lower-temperature distribution systems.

Operating costs
Variable operating costs depend on annual heating demand, technology efficiency
and consumer fuel prices. Electric heat pumps – especially ground-source
systems – are by far the most efficient technology, with their coefficient of
performance about three to five times higher than the efficiency of condensing gas
and oil boilers. In contrast, biomass boilers are generally 10% to 20% less efficientthan their gas equivalents on annual average (Energistyrelsen, 2021). As for fuelprices, solar thermal systems make use of a free energy source, while otherrenewable heating technologies benefit from better price visibility than fossil fueloptions, since wood pellet and electricity end-user prices are generally less volatile
than oil and gas prices.

USD per year

Average annual operating cost range for selected space and water
heating technologies and regions
4 000
3 500
3 000
2 500
2 000
1 500
1 000
500
0
Gas condensing Gas condensing
boilerboiler(2019 gas prices) (with gas prices
30% higher than
2019 level)

Pellet boiler

Electric air-water Electric groundheat pumpsource heatpump

Solar thermal
combi system

IEA. All rights reserved.
Note: Operating costs shown in this figure are calculated based on national average dwelling heat demand, technology
efficiency, fixed operation and maintenance costs and 2019 end-user fuel cost for each country.

Importantly, the policy environment can considerably influence fuel costs, forinstance through subsidies, fuel taxes or fuel tax reliefs (e.g. on renewableelectricity used for heat), and carbon pricing. While incentives for renewable
heating in buildings are increasingly prevalent, in many countries, policies

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subsidising the use of fossil fuels for heating continue to conflict with those that

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

support the uptake of renewables (REN21, 2021). For instance, for the year 2020
IEA estimates of global fossil fuel consumption subsidies exceed USD 180 billion(IEA, 2021i).

Overall cost-competitiveness of heating technologies

USD/MWh

Levelised cost of heating for consumers, for selected space and water
heating technologies and countries
350
300
250
200
150
100
50
0
Gas
condensing
boiler(2019 gas
prices)Gas
condensing
boiler(gas prices
30% higher
than 2019
level)

Pellet boiler Electric air-air Electric airheat pumpwater heatpump

Electric
Solar thermal Solar thermal
ground- combi system water heater
source heatpump

IEA. All Rights Reserved
Notes: The levelised cost of heating ranges shown here are simplified estimates provided for information. The calculation
includes investment costs (including VAT., excluding ancillary costs and policy support), maintenance costs and fuel costs
over the lifetime of the technology. It does not account for the cooling potentially supplied by reversible heat pumps. For
ground-source heat pumps, we considered the lifetime of the borehole (assumed to last 60 years), with replacement of thecompressor unit every 20 years. The calculation assumes constant average dwelling space and water heat demand foreach country, constant average national end-user fuel prices at 2019 values (unless specified) and a 2% discount rate. In
practice, parameters such as heat demand, total investment costs, technology lifetime and efficiency vary significantly
across the building fleet, making each installation a specific case.

Overall, the cost-competitiveness of renewable heat technologies versus fossil
fuel options varies significantly across regions. In Sweden, for instance, thecombination of a carbon tax and relatively low equipment costs for heat pumps
make the later more competitive than fossil fuel heating in most cases. In France,
excluding investment support, the payback period of an electric air-to-water heatpump versus a condensing gas boiler for average heat demand can exceed 15
years at 2019 fuel prices. In the United Kingdom, Canada and Germany,
renewable space heating technologies struggle to compete with gas without policy
support. At 2019 fuel prices, the levelised cost of heating with air-to-water heatpumps for an average German dwelling is about 50% higher than with a

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condensing gas boiler, and about 55-70% higher in Canada. In Canada, theRenewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watch

levelised cost of pellet boiler heating can be over three times higher than forcondensing gas boiler heating. Based on 2019 gas prices, assuming a USD
50/tonne carbon tax 6 would increase the levelized cost of heating with gas boilers
in Canada by over 20%.
Capital costs account for a particularly high share of the cumulative discounted
cash flow over the lifetime of heat pumps and solar thermal technologies: inFrance, Germany and the United Kingdom, capital costs represent between a thirdand half of the levelized cost of heat for heat pumps, and more than 85% for solar
thermal technologies. Consequently, the cost competitiveness of thesetechnologies is highly sensitive to their lifetime.
In 2021 the United Kingdom announced a target for the installation of 600 000 heatpumps a year by 2028, while Ireland announced a plan to install 600 000 heatpumps in total by 2030, two-thirds of them in existing buildings. Both targets imply
a significant step up from current deployment levels: in 2020, heat pump sales
amounted to 37 000 units in the United Kingdom and 8 000 units in Ireland (EHPA,2021). Achieving Ireland’s target requires heat pumps to account for
approximately half of all heating system replacements in both residential andcommercial buildings over the 2021-2030 period. In the United Kingdom,compensating for the current investment cost differential between gas boilers andheat pumps for 600 000 installations would represent a commitment of over £3billion in loans or subsidies. However, such a boost in heat pump installations is
expected to push average installation costs down through economies of scale andstronger market competition.
In addition to the technologies discussed in this section, other renewable heating
solutions are emerging, such as solar PV-to-heat (PV2heat), which consists of PV
modules directly (and solely) connected to an electric resistance water heaterusing DC power without inverters. This concept is, for instance, gaining ground inSouth Africa, with almost 12 000 systems installed in less than five years (IEA
SHC, 2021b). While this progress is being driven in South Africa by a mandate
limiting the share of fossil fuels in hot water supply, the simplicity of installation,
the reliability and the cost-competitiveness of PV2heat systems offer perspectives
for wider deployment.
In the longer term, renewable gases could also play a role in specific cases bytaking advantage of existing gas infrastructure. In the case of renewables-based

For comparison, carbon prices in the European trading system have been higher than EUR 50/tonne since May to the timeof writing.

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6

Renewables 2021
Analysis and forecasts to 2026

Renewable energy trends to watchhydrogen, this would imply end-user appliances being hydrogen-ready, which
entails limited extra cost compared with traditional gas appliances.
Beyond cost-competitiveness, multiple non-economic barriers still hinder the
uptake of renewable heat in the residential sector. Some challenges are technical(e.g. building suitability), others concern the maturity of fuel and technology supply
chains ‒ including the availability of qualified installers ‒ while others again relate
to factors influencing consumer choices, such as confidence in the technology,
awareness of potential benefits, split incentives, access to financing and “hassle
costs” associated with the installation (IRENA, IEA and REN21, 2020). Scaling up
the use of renewable heating in buildings therefore requires policy makers toaddress these challenges through comprehensive and multidimensional policy
approaches. These can potentially include a combination of awareness-raising
campaigns, regulatory measures and economic incentives, which ‒ mostimportantly ‒ should place social justice at the heart of the transition.

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Renewables 2021
Analysis and forecasts to 2026

Annex

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
System marginal price

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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
SMP

Renewables 2021
Analysis and forecasts to 2026

TCP
TRNC
VAT
VRE
WTPI

Annex

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

bbl
bbl/d
bcm
bcm/yrcm/s
gCO2
gCO2/kWh
GJ
Gt/yr
GtCO2
GtCO2/yr
GW
GWhbarrelbarrels per day
billion cubic metres
billion cubic metres per year
centimetres per second
gramme of carbon dioxide
grammes of carbon dioxide per kilowatt hour
gigajoulegigatonnes per year
gigatonne of carbon dioxide
gigatonnes of carbon dioxide per year
gigawatt
gigawatt hourMWhmegawatt hour-

PAGE | 173

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Units of measure

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