Renewable Energy
Market Update
Outlook for 2022 and 2023

INTERNATIONAL ENERGYAGENCYThe IEA examines thefull spectrumof energy issues
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Italy
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participates in thework of the IEAAbstract

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Abstract
Renewable electricity capacity additions broke another record in 2021 and biofuels
demand almost recovered to pre-Covid levels, despite the continuation of logisticalchallenges and increasing prices. However, the Russian Federation’s (hereafter,“Russia”) invasion of Ukraine is sending shock waves through energy andagriculture markets, resulting in an unprecedented global energy crisis. In many
countries, governments are trying to shelter consumers from higher energy prices,
reduce dependence on Russian supplies and are proposing policies to accelerate
the transition to clean energy technologies.
Renewable energy has great potential to reduce prices and dependence on fossil
fuels in short and long term. Although costs for new solar PV and wind installations
have increased, reversing a decade-long cost reduction trend, natural gas, oil andcoal prices have risen much faster, therefore actually further improving thecompetitiveness of renewable electricity. However, how rapidly renewables cansubstitute fossil fuels hinges on several uncertainties and will depend on manyfactors. Will renewable electricity sources defy this global energy crisis and continue
to expand quickly despite emerging political and macroeconomic challenges? At
the same time, growth in biofuels demand faces significant headwinds from both
lower transport demand growth and high biofuel prices. Will demand growth resume
at historical rates?

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

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Acknowledgements

Acknowledgements
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 lead authors of the report were Heymi Bahar (electricity) and Jeremy
Moorhouse (biofuels). The report benefited from analysis and input from multiple
colleagues: Yasmina Abdelilah, Piotr Bojek, François Briens, Trevor Criswell,
Kazuhiro Kurumi, Kartik Veerakumar and Grecia Rodríguez Jiménez (also
responsible for data management).
Paolo Frankl, Head of the Renewable Energy Division, provided strategic guidance
and input to this work and contributed to relevant messaging. Valuable comments
and feedback were provided by Keisuke Sadamori, Director of Energy Markets andSecurity Directorate.
Thanks go to the IEA Communication and Digitalisation Office (CDO) for their help
in producing the report and website materials, particularly to Jad Mouawad, Headof CDO, and to Jon Custer, Astrid Dumond, Merve Erdil, Jethro Mullen, Isabelle
Nonain-Semelin, Julie Puech, Robert Stone, Gregory Viscusi and Therese Walsh.

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IEA. All rights reserved.

Diane Munro carried editorial responsibility.

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Highlights



The current global energy crisis has added new urgency to accelerate clean
energy transitions and, once again, highlighted the key role of renewable energy.
For renewable electricity, pre-crisis policies lead to faster growth in our updated
forecast. Notably, wind and solar PV have the potential to reduce the European
Union’s power sector dependence on Russian Federation (hereafter, “Russia”)
natural gas by 2023.

At the same time, it is too early to assess the potential impact on our 2022 and2023 forecast of newly announced targets following the Russian invasion of
Ukraine, in the absence of rapid policy implementation.

Annual renewable capacity additions broke a new record in 2021, increasing 6%
to almost 295 GW, despite the continuation of pandemic-driven supply chain
challenges, construction delays and record-level commodity prices for raw
materials.



Solar PV and wind costs are expected to remain higher in 2022 and 2023 thanpre-pandemic levels due to elevated commodity and freight prices. However, theircompetitiveness actually improves, due to much sharper increases in natural gas
and coal prices.



Renewable capacity is expected to further increase over 8% in 2022, reachingalmost 320 GW. However, unless new policies are implemented rapidly, growth
remains stable in 2023 because solar PV expansion cannot fully compensate forlower hydropower and steady year-on-year wind additions.



Globally, forecast additions for 2022 and 2023 have been revised upwards by 8%from December last year, thanks to strong policy support in the People’s Republicof China (hereafter, “China”), the European Union and Latin America, and despite
downward forecast revisions in the United States.

Biofuel demand recovered in 2021 from Covid-19 lows, to near 2019 levels, andwe expect growth to expand year-on-year by 5% in 2022 and by 3% in 2023. On
the other hand, increasing feedstock prices and policy reaction from multiple
countries slows growth in the short term, leading to a 20% downward revision of
our previous biofuel demand growth forecast. Russia’s invasion of Ukraine is also
putting upward pressure on an already high-price environment for biofuel
feedstocks, in particular vegetable oils.



While looming market uncertainties increase challenges, the new focus on energy
security – especially in the European Union – is also triggering an unprecedented
policy momentum towards accelerating energy efficiency and renewables.
Ultimately, the forecast of renewable markets for 2023 and beyond will depend onwhether new and stronger policies will be introduced and implemented in the next
six months.

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IEA. All rights reserved.

Highlights

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

Renewable electricity
A brief look back at 2021
Another record year of growth but with new boom andbust deployment cycles
Despite the persistent pandemic-induced supply chain challenges, construction
delays, and record-level raw material and commodity prices, renewable capacity
additions in 2021 increased 6% and broke another record, reaching almost
295 GW. This growth is slightly higher than the forecast last year in the IEA’s
Renewables 2021. Globally, the 17% decline in annual wind capacity additions in
2021 was offset by an increase in solar PV and growth in hydropower installations.
The expansion of bioenergy, concentrated solar power (CSP) and geothermal was
stable in 2021 compared with 2020. In terms of speed of growth, renewablecapacity’s year-on-year increase last year was slower, following an exceptional
jump in 2020 when Chinese developers rushed to connect projects before thephase out of subsidies, especially for onshore wind.

350

2019

300
250

2020

200
2021

150
100

Previous
Renewables
2021 forecast

50
0

Total

PV

Wind

Hydro

Bioenergy
IEA. All rights reserved.

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IEA. All rights reserved.

GW

Renewable net capacity additions, 2019-2021

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

China largely maintained its market share of deployment in 2021, accounting for
46% of worldwide renewable capacity additions. However, new Chinese capacity
declined 2% year-on-year, with onshore wind and utility-scale solar PV installations
55% and 22% lower, respectively, than the record boom cycle levels in 2020 whendevelopers rushed to complete projects before the subsidy expiration deadline. On
the other hand, offshore wind, residential solar PV and bioenergy annual additions
broke new records thanks to the availability of subsidies through 2021. For instance,
offshore wind new installations increased almost six-fold in 2021 compared with
2020. In addition, the commissioning of multiple units at the Chinese Baihetanhydropower plant contributed to the global acceleration of hydropower expansions.
Outside of China, the European Union was the second largest market in terms ofincreased capacity, with the region surpassing for the first time the all-time-recordin 2011. Solar PV alone accounted for the majority of the European Union’s
expansion last year due to project acceleration in Spain, France, Poland andGermany, which was driven by a combination of government-led auctions anddistributed solar PV incentives. In the United States, lower production tax credit(PTC) rates led to onshore wind additions declining by one-quarter. Solar PV
expansion continued to increase thanks to the investment tax credits (ITC) available
until 2023-2024 providing a relatively stable policy environment, even as supply
chain and logistical challenges hampered much faster growth.

160
140

2019

120
100

2020

80
60
40

2021

20
0

China

Europe

USA

India

ASEAN

Latin
America

MiddleEast &
AfricaOther
countries
IEA. All rights reserved.

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IEA. All rights reserved.

GW

Renewable net capacity additions by country and region, 2019-2021

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

India’s renewable energy growth recovered in 2021 following a record slowdown in2020 due to project delays related to Covid-19 challenges. With the commissioningof already auctioned utility-scale projects and the acceleration of the distributed PV
market due to policy improvements, India’s renewable capacity additions in 2021
more than doubled compared to 2020. In Brazil, generous net metering incentives
for distributed PV application led to a rush in installations while onshore windadditions accelerated because of supportive economics from bilateral contracting
in the free market. In Africa, renewable capacity additions resumed growth with thecommissioning of previously awarded wind and solar PV projects in South Africa.
The phase out of the generous feed-in tariff (FIT) scheme in Viet Nam resulted in abust in the deployment cycle, with the country’s additions halving from 2020 to 2021.
As a result, ASEAN’s annual installations declined 40% year-on-year, although stillslightly higher than in 2019.

2022 and 2023 forecast summary
Renewable capacity additions will break another recordin 2022 led by solar PV
Renewable capacity is expected to increase over 8% in 2022 compared with lastyear, pushing through the 300 GW mark for the first time. Solar PV is forecast to
account for 60% of the increase in global renewable capacity this year with thecommissioning of 190 GW, a 25% gain from last year. Utility-scale projects accountfor almost two-thirds of overall PV expansion in 2022, mostly driven by a strong
policy environment in China and the European Union driving faster deployment.

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Following a 32% year-on-year decline in 2021, new global onshore wind
installations are expected to slightly recover and reach almost 80 GW. Offshore
wind growth worldwide is expected to decline 40% in 2022 following the exceptional
four-fold jump last year in China due to the national subsidy phase-out deadline.
Despite this decline, 2022 global offshore wind capacity additions will still double
compared to 2020, thanks to the continuation of provincial incentives in China andthe expansion in the European Union. As a result, China is expected to have thelargest cumulative installed offshore wind capacity globally and surpass theEuropean Union and United Kingdom combined by the end of this year.

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

Unless new and stronger policies are implemented in 2023, global renewablecapacity additions are expected to remain stable compared with 2022. While solar
PV is forecast to break another record in 2023, reaching almost 200 GW, and withthe expansion of wind and bioenergy remaining stable, 40% lower hydropower
additions due to a reduced project pipeline in China stymies capacity growth in the
global renewable energy market.

GW

Net renewable capacity additions by technology, 2017-2023
350

70%

300

60%

Bioenergy

250

50%

Hydropower

200

40%

Distributed PV

150

30%

100

20%

50

10%

Other renewables

Utility-scale PV
Offshore wind
Onshore wind

0

2017

2018

2019

2020

2021

2022

2023

0%

PV's share (rightaxis)

IEA. All rights reserved.

Higher solar PV and wind costs are here to stay in 2022
and 2023 but they do not challenge competitiveness

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Prices for many raw materials and freight costs have been on an increasing trend
since the beginning of 2021. By March 2022, the price of PV-grade polysilicon morethan quadrupled, steel increased by 50%, copper rose by 70%, aluminium doubled
and freight costs rose almost five-fold. The reversal of the long-term trend of
decreasing costs is reflected in the higher prices of wind turbines and PV modules
as manufacturers pass through increased equipment costs. Compared with 2020,
we estimate that the overall investment costs of new utility-scale PV and onshore
wind plants are from 15% to 25% higher in 2022. Surging freight costs are thebiggest contributor to overall price increases for onshore wind. For solar PV, theimpact is more evenly divided among elevated prices for freight, polysilicon andmetals.

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

100
80
60
40
20
0

2015

2016

2017

2018

2019

Utility-scale solar PV

2020

2021

2022

2023

Onshore wind
IEA. All rights reserved.

High prices for oil, natural gas and coal also contribute to rising production costs ofmanufactured materials for renewable electricity technologies since fossil fuels areused in both industrial processes and power generation.
While significant in absolute terms, the increase in renewables costs have nothampered their competitiveness because prices of fossil fuels and electricity haverisen at a much faster pace since the last quarter of 2021. Globally, power prices arebreaking historic records in many parts of the world, especially where natural gas is
the marginal technology setting the final hourly or daily price in many wholesale
electricity markets. This is especially prevalent in European Union countries, where
wholesale power prices in Germany, France, Italy and Spain have increased morethan six-fold on average compared with mean values from 2016 to 2020.
Historically, long-term contract prices from solar PV and wind auctions have been
higher than wholesale prices in many large European Union markets. However,even the highest-priced onshore wind and utility scale contracts signed over the last
five years are half of the average wholesale prices seen today in the European
Union. For newly contracted projects, despite cost increases, onshore wind andsolar PV ventures are offering long-term contracts significantly lower thanwholesale price averages over the last six months. For instance, prices for utilityscale solar PV and onshore wind projects increased 15-25% in the recent Spanish
auction held in December 2021, to USD 37/MWh and USD 35/MWh, respectively.
Today, these results are one-tenth of average Spanish wholesale electricity prices
over the last 14 months.

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CAPEX index (2015=100)

Solar PV and onshore wind investment cost estimates for new contracted projects
under high commodity prices

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

USD/MWh

Utility-scale solar PV (left) and onshore wind (right) auction contract and wholesale
power prices in selected European Union countries, quarterly averages from 2016-2022
USD 280/MWh

135
115

115

95

95

75

75

55

55

35

35

15

1234123412341234123412341
2016

17

18

19

20

21

USD 280/MWh

135

15

22

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2016

17

18

19

20

Germany

France

Spain

Italy

France Auction

Germany Auction

Italy Auction

Spain Auction

21

22

IEA. All rights reserved.

Forecast additions for 2022 and 2023 have been revised
upwards by 8% from last year led by China and the EU
China accounts for the majority of upward forecast revisions for 2022 and 2023
since our last report, despite the phase out of incentives for all renewables last year.
The expansion is due to multiple government and market factors. First, thegeneration costs of solar PV and onshore wind are lower than coal benchmark
prices in the majority of provinces. Second, the government announced 450 GW ofadditional large-scale onshore wind and solar PV megaprojects in the Xinjiang andInner Mongolia provinces, known as “mega-hubs”, with 100 GW starting
development at the beginning of 2022. Third, China’s Ministry of Finance confirmed
the payment of outstanding renewable energy subsidies worth USD 60 billion to be
paid through 2022, improving the balance sheet of developers and unlocking
additional funds for new projects. Fourth, in the absence of national subsidies,
provincial governments are still providing tax incentives and low-cost financing to
renewable energy projects.

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In the European Union, solar PV accounts for the majority of upward revisions, withfaster policy implementation driving growth in Germany, the Netherlands, Poland,
Italy and France. However, the European Union’s onshore wind growth was revised
down due to ongoing permitting challenges slowing deployment in Germany,
Poland and Italy. Brazil’s generous net metering scheme results in a distributed PV
market boom, supporting upward revisions to the Latin America forecast. In India,
delayed projects in 2021 leads to higher growth in 2022, with increased distributed
solar PV capacity supporting the overall upward revisions.

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

Policy uncertainties and trade measures challenge shortterm wind and solar PV growth in the United States
Among large renewable energy markets, the forecast is revised down in the UnitedStates due to uncertainty over new incentives for both wind and solar PV. Multiple
policy proposals, including long-term tax incentive extensions, have yet to beapproved by the House of Representatives and Senate.
New trade policies on solar PV have also increased challenges for developers in
the United States. In June 2021, the government banned imports from several
polysilicon producers located in Xinjiang, China following the indication from the US
Customs and Border Protection agency that these companies use forced labour intheir manufacturing. In addition, at the end of March 2022, the US Department ofCommerce launched a new investigation to assess whether solar cells produced inSoutheast Asia are made with parts manufactured in China that are subject to an
import tariff imposed in 2018. Since the introduction of tariffs in 2018, Southeast
Asian countries such as Viet Nam, Malaysia, and Indonesia replaced imports from
China, supplying over 80% of the country’s cell and module imports. The newinvestigation and the possibility of additional tariffs compounding procurement
challenges in the short term, reducing the availability of solar PV modules. As aresult, we have lowered our forecast for solar PV by 17% in 2022 and 9% in 2023.
Japan’s renewable capacity additions in 2022-2023 are also revised down from lastyear, mainly due to lower FIT approval for solar PV. The new feed-in premium (FIP)
scheme just started in April 2022. This could lead to additional capacity growth forsolar PV and onshore wind in the longer term, but forecast uncertainty remains inthe short term.
2022 and 2023 renewable capacity forecast revisions, December 2021 vs May 2022
China
Latin America
EU
World
ASEAN
Japan
United States
-5%

0%

5%

10%

15%

20%

IEA. All rights reserved.

PAGE | 11

IEA. All rights reserved.

-10%Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

Faster implementation of policies expedite deployment
in the European Union and India, while China maintains
lead
China accounts for 45% of global renewable capacity additions in 2022-2023, withthe commissioning of over 140 GW on average per year driven mostly by largescale solar PV deployment. The expansion trend in China is fully in-line with thegovernment’s 1 200 GW wind and solar PV target by 2030. Annual additions are
expected to remain slightly higher compared with 2020-2021, when the country saw
multiple deployment rushes due to incentive phase-out schedules for onshore windand utility-scale PV in 2020, and offshore wind and residential PV in 2021.

200
180

Other countries

160

Middle East &Africa140
120

Latin America

100

India

80
60

United States

40
20
0

Europe2016-17 2018-19 2020-21 2022-23 2016-17 2018-19 2020-21 2022-23
China

Beyond China
IEA. All rights reserved.

In the European Union, rapid implementation of previously announced ambitious
policy targets and already awarded auctions, combined with continuous incentives
for distributed solar PV, drive the expansion. In response to the Russian invasionof Ukraine, many European Union countries announced plans to accelerate
renewables deployment aimed at reducing their dependence on Russian natural
gas imports. Germany, the Netherlands and Portugal either increased theirrenewable energy ambitions or moved their initial targets to an earlier date. We
expect that the impact of these new policies will be limited by 2023, especially forlarge-scale projects that require development timelines of more than 18 months.
However, our forecast sees some upside on distributed PV as residential andcommercial installations enable consumers to reduce their electricity bills throughself-consumption.

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GW

Annual average capacity additions by country and region

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

140
120
100
80
60
40
20
0

2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023
China

EU
Solar PV

Wind

India

United States
Hydropower

Other renewables

IEA. All rights reserved.

In India, new records for renewable capacity expansion are expected to be set in2022 and 2023 as delayed projects from previous competitive auctions arecommissioned, especially for solar PV. Nonetheless, the financial health of
distribution companies (DISCOMs) remains the primary challenge to renewableenergy deployment in India, with potential project cancellations and protracted
contract renegotiations.
In the United States, annual capacity additions are expected to slow over 2022 and2023. Wind and solar PV sectors face two key challenges to achieve faster growthin the short term. First, the lack of long-term visibility on future incentive schemes
has reduced the project pipeline for onshore wind developments and the PTCs
phased down from the initial rate of USD 19/MWh for projects beginning
construction in in 2016 to USD 10/MWh for construction starting in 2019, reducing
economic attractiveness. While subsequent extensions of the PTC in 2020 and
2021 have been at higher rates, those years fall outside of our forecast period given
development timelines. Second, potential solar PV trade measures against
Southeast Asian countries, in addition to China, are reducing the availability of solar
modules in the short term and leading to higher prices, which were already inflated
due to elevated commodity prices. Current production of modules in the UnitedStates can only meet less than 20% of last year’s annual demand and there arelimited manufacturers outside of Viet Nam, Indonesia, Cambodia, Malaysia andChina that can provide PV products to the US market.

PAGE | 13

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GW

Renewable capacity additions in China, European Union, the US and India, 2019-2023

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

GW

Renewable capacity additions in Brazil, ASEAN, Middle East and Africa, 2019-2023
16
14
12
10
8
6
4
2
0

2019

2020

2021

2022

2023

2019

Brazil

2020

2021

2022

2023

2019

ASEAN
Solar PV

Wind

Hydropower

2020

2021

2022

2023

Middle East and Africa
Other renewables

IEA. All rights reserved.

While smaller in absolute terms, significant growth occurs and accelerates in otherworld regions, notably Latin America, the Middle East and North Africa. In Brazil,
we expect renewable capacity additions to break another record in 2022 due to thegenerous net metering scheme supporting distributed solar PV expansion.
However, net metering incentives begin to phase down in 2023, resulting in slightly
lower capacity additions in 2023.
The varying commissioning deadlines of competitive auctions and bilateralcontracts in ASEAN can lead to fluctuating utility-scale wind and PV capacity
expansion. Viet Nam’s policy boom and bust cycles have led to significantly lower
capacity additions compared with 2020. Following the solar PV boom in 2020 andonshore wind in 2021, Viet Nam’s renewable capacity additions are forecast to
decline from 17 GW over 2020-2021 to just 6 GW for 2022-2023.
In the Middle East and Africa, the push for solar PV drives annual capacity
additions. Falling system costs, good resource potential, favourable financing
conditions and economies of scale make solar PV projects in the Middle East
economically attractive. In sub-Saharan Africa, government guarantees or backing
from development banks for utility-scale solar PV, wind and hydropower projects
are fuelling growth.

Wind and solar PV have the potential to reduce theEuropean power sector dependence on Russian gas by2023

PAGE | 14

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Russia supplies around 45% of the European Union’s gas imports for industry,homes and electricity generation. For electricity generation, natural gas accounts
for around 16% of the group’s total power demand. Over the last decade, natural

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

gas-fuelled electricity generation annually ranged from 340 TWh to 600 TWh,depending on the price environment, wind and solar PV penetration, and winterdemand.
Considering country-level supply dependencies, we estimate that between
100 TWh to 200 TWh of European Union natural gas-based electricity is provided
by Russia. On the other hand, our forecasts indicate incremental growth ofrenewable electricity generation up to 180 TWh from 2021-2023, almost equal tothe highest value of Russia dependent gas-fired generation. With current
deployment trends, wind and solar PV expansion in the European Union has thepotential to reduce the dependence on Russian gas use in electricity significantly.
However, the contribution of variable renewables will also depend on policies onenergy efficiency measures keeping demand in check and the phase-out or phasedown policies for coal and nuclear energy in several member states.

250
200
Solar PV
150
Wind

100

Natural gas

50
0

Low

High

EU natural gas power generation associated with Russiangas (2011-2021)

Renewables generation
growth (2021-2023)
IEA. All rights reserved.

European Union countries have varying levels of dependency on Russia for theirnatural gas supply. Among member states, Germany and Italy have the highest
dependency on Russia in terms of absolute electricity generation. However, thepotential for renewables to reduce dependency in Germany is significantly higher
than in Italy based on our wind and solar expectations by 2023 – unless new andstronger policies are introduced and the pace of implementation picks up. France
and the Netherlands’ dependency on Russia gas is relatively low, enabling a higher
potential for renewables to displace natural gas. Conversely, in Austria, Hungary
and Greece renewables expansion remains limited to reduce the countries’
dependency on Russia.

PAGE | 15

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TWhEuropean Union natural gas-fired electricity generation for 2011-2021 and renewableelectricity generation growth for 2021-2023

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

Average annual natural gas-fired electricity generation in 2016-2021 and renewableelectricity generation growth for 2021-2023 in selected EU member states
Germany
Italy

Average annual natural
gas electricity generation
dependent on Russiangas, 2016-2021

Austria
FinlandFranceHungary
The Netherlands

Renewable generation
growth over 2021-2023

GreecePolandRest of EU
TWh

0

10

20

30

40

50

60

70
IEA. All rights reserved.

The global energy crisis has introduced more forecast
uncertainties and is testing the resilience of renewableelectricity
The Russian invasion of Ukraine has added new urgency to accelerate clean
energy transitions in order to reduce the dependency of imported fossil fuels from
Russia, with deployment of more renewables now a strategic imperative for many
countries, especially in the European Union. Indeed, since Renewables 2021 waspublished last December, the global energy crisis has moved the goal posts for the
deployment of solar, wind and other renewable energy sources, and we haveupdated our forecasts in this new report in response. Many European Union
countries have announced plans to advance development of renewables, with windand solar PV holding the greatest potential to reduce the European Union’s power
sector dependence on Russia by 2023.
The high fossil fuel price environment has improved the cost competitiveness ofrenewable electricity technologies against coal and natural gas-fuelled power
plants. Meanwhile, residential and commercial solar PV applications are helping
consumers reduce their electricity bills. However, despite their potential, an
acceleration in new renewables capacity is highly dependent upon a stable policy
environment providing long-term revenue certainty and faster permitting.

PAGE | 16

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In our forecast, government-led competitive wind and solar PV auctions in 2019 and2020 remain a key driver for renewables expansion through 2023. Auction volumes
slightly declined in 2021 due to lower awarded capacity in China and India while
they increased in the European Union and Latin America.

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Renewable electricity

However, geopolitical and macroeconomic challenges increase uncertainties overrenewable electricity forecasts beyond 2023. Higher wind and solar PV investment
costs due to elevated commodity prices in the wake of Russia’s invasion andpermitting delays resulted in the lowest first-quarter auction volumes globally in
2022 since 2016. In addition, volatility in electricity markets due to sharply higher
gas prices has complicated contract negotiations for corporate power purchaseagreements (PPA), especially in the European Union, while rising interest rates arecompounding challenges for renewable developers.

25

Onshore wind

Utility-scale PV

Corporate PPAs

Annual auction volumes (right axis)

90
80

20

70
60

15

50
40

10

30
20

5

10
0

Q1 2016

Q1 2017

Q1 2018

Q1 2019

Q1 2020

0Q1 2021
Q1 2022
IEA. All rights reserved.

Source: For corporate PPAs: Bloomberg New Energy Finance.

While some of these difficulties will likely remain in the coming months and into nextyear, causing looming market uncertainties, the new focus on energy security – inparticular in the European Union – is also triggering an unprecedented policy
momentum towards accelerating energy efficiency and renewables. Ultimately, theforecast of renewable markets for 2023 and beyond will depend on whether new
and stronger policies will be introduced and implemented in the next six months.

PAGE | 17

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GW

Utility-scale solar PV and onshore wind auction capacity and corporate PPAs for firstquarters, 2016 to 2022

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Transport biofuels

Transport biofuels
A brief look back at 2021
An uneven recovery as exceptionally higher prices andlower GDP undermine previous growth projections
Biofuel demand recovered in 2021 from Covid lows, to near 2019 levels. However,in 2022 we expect higher prices for oil and biofuels, combined with lower GDP
expectations, to slow demand growth by 20% compared to our previous forecast.
Growth in transportation fuels, albeit at more modest levels, and strengthening
biofuel policies still drive year-on-year biofuel demand higher by 5% in 2022 and
3% in 2023.
Biofuel demand in 2021 reached 155 400 million litres, returning to near 2019 levels.
Demand rose 8 700 million litres year-on-year, which is similar to our Renewables
2021 estimate from December 2021. The recovery across fuel types was uneven,however. Ethanol demand rose 6% year-on-year in 2021 but remained 7% below
2019 levels. By contrast, renewable diesel use expanded by around 70% from 2019and biodiesel demand rose 0.2% from 2019.
Biofuel demand in 2019-2021 by fuel type compared with Renewables 2021 forecast
180 0002019

140 0002020

120 000
100 000
80 0002021

60 00040 000

Renewables
2021

20 0000Total Demand

Ethanol

Biodiesel

Renewable Diesel

IEA. All rights reserved.

PAGE | 18

IEA. All rights reserved.

Volume (million litres / year)

160 000

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Transport biofuels

2022 and 2023 forecast summaryHigh prices slow biofuels demand growth
Russia’s invasion of Ukraine is sending shocks through energy and agriculture
markets, worsening already high prices. As a result, biofuel demand growth is now
forecast to slow by 20% in 2022, equivalent to 2 200 million litres, compared with
our previous forecast of a higher increase of 11 000 million litres. Weaker demand
growth for transportation fuels largely underpins our downward revision. As of 4
April 2022, the IEA expects global oil demand growth will be 1.2% lower this year
compared to our January forecast. The downward revision is due to a combinationof Covid-related mobility restrictions in China and weaker GDP growth. Since
biofuels are blended with gasoline and diesel, slower growth in transportation
demand directly impacts biofuel demand, with declines deepest in important biofuel
markets such as Europe, the United States and Brazil.
The agricultural industry is struggling with its own price shocks, which in turn have
driven up biofuel prices in most markets. Increases vary by region and by fuel. For
example, Brazil’s ethanol prices are up 20% while in the United States they are up
30% since January 2022. Globally, biodiesel prices have risen between 20-30%
this year alone. Price increases are on top of already lofty levels reported in
December’s Renewables 2021. In response, several governments are relaxing ordelaying policies, which also contribute to slowing demand growth.
To estimate the impact on biofuels since Russia invaded Ukraine, we compared ourcurrent forecast against a pre-invasion January assessment. This forecast
incorporated changing oil demand and price developments since the annual
Renewables 2021 was published in December 2021. The update led to a slight
0.5% downward revision to our new 2022 forecast.
Price and policy impacts on the 2022 forecast
170 000

Rest of World

165 000
Asia & Pacific

160 000
155 000

Europe150 000
Brazil

145 000
140 000

GlobalDemand2021

Renewables January 2022 Demand
2021
UpdateDeclines
Forecast
2022

PAGE | 19

Current
Forecast

Current
Forecast
2023

United States

IEA. All rights reserved.

IEA. All rights reserved.

Volume (Million litres per year)

175 000

Transport biofuels

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Brazil accounts for the majority of the decline in global biofuel demand growth.
Demand has been revised lower across all transport fuels from pre-invasion
January estimates, with gasoline now -0.2% and diesel at -0.7% in 2022 versus
2021 levels. Lower transport fuel use slows 2022 Brazilian biofuel demand growthby 40% compared to January projections.
In the United States, we have revised down our 2022 biofuels growth by 15% fromJanuary’s forecast. In 2022, gasoline and diesel demand are expected to be 1.5%
and 2% respectively, lower than forecasted in January of this year, which in turndrives down ethanol, biodiesel and renewable diesel blending. It is unclear how
rapidly changing market dynamics will influence the US Environmental Protection
Agency’s (EPA) decision on renewable volume obligations (RVO) set to be releasedin June. The EPA shared proposed requirements earlier this year, but since thentransport fuel demand has declined and biofuel prices have increased, which may
influence the EPA’s final recommendation On the upside, the US government
expanded the right to blend 15% ethanol during summer months to help lower
gasoline bills. However, only 2% of fuelling stations provide 15% blending and so
we expect this policy change will only slightly increase ethanol demand in 2022.
In Europe, 2022 gasoline and diesel demand are expected to be 1.5% and 1.1%,
respectively, lower than forecasted in January of this year. Several governments
are also proposing, or have already, reduced blending obligations because of highbiofuel prices. At the time of writing, Belgium, Croatia, the Czech Republic, Finland,
Germany and Sweden had all announced changes that, if implemented, willcontribute to reduced biofuel demand in 2022 and 2023. For instance, Finland will
lower blending obligations by 7.5 percentage points, on an energy basis, in 2022
and 2023. The impact of these changes in various regions remains unclear,
however, as states will still have to comply with other policies like the EU’s Fuel
Quality Directive (FQD), which mandates greenhouse gas reduction targets. In our
forecast, we estimate Finland and Sweden’s plans lead to lower biofuel demand
equal to 320 million litres in 2022. Combined, biofuel demand growth expectations
are reduced by 16% compared to January levels.

PAGE | 20

IEA. All rights reserved.

In the Asia and Pacific region we estimate biofuel demand growth is down 36% in2022 compared to our January forecast. Indonesia accounts for almost all of thisdecline. In January, we had expected Indonesia would begin implementing its 40%
blending mandate this year. Given higher prices and uncertainty surrounding thestarting date for its new blending requirements, we have pushed increases in biofuel
demand well into 2023.

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Transport biofuels

Biofuel demand grows in 2022 and 2023 despite
disruptions
While growing more slowly than previously forecast for 2022, global biofuels
demand is still expected to increase year-on-year by 5%, or 8 500 million litres, andrise by a further 3%, or 5 200 million litres, in 2023. Transport fuel demand growth,
although at a slower pace, and government policies continue to drive demandhigher for global biofuels.
Year-on-year biofuels demand growth and percentage of global market share
Demand growth 2022-2023

5 000

50%

4 000

40%

3 000

30%

2 000

20%

1 000

10%

0

0%

-1 000US

Brazil Europe Asia Rest ofPacific World-10%

Volume (Million litres per year)

5 000

50%

4 000

40%

3 000

30%

2 000

20%

1 000

10%

0

0%

-1 000-10%-2 000-20%-3 0002021-2022

Ethanol

Biodiesel

US

Brazil Europe Asia Rest ofPacific World-30%

2022-2023

Renewable Diesel

BiojetPercent share of global demand

IEA all rights reserved.

The United States leads global biofuels growth, with demand expected to increaseby 6% in 2022 compared to 2021 despite our downward revision from January. The
recovery in gasoline and diesel use to pre-Covid levels, California’s low carbon fuelstandards (LCFS), implementation of renewable fuel standards (RFS) and thefederal biodiesel blenders’ tax credits will all combine to drive this expansion. We
expect US biofuel demand in 2023 to remain near 2022 levels as ethanol demand
declines slightly due to stable blending levels and lower gasoline demand growth.
Lower ethanol use is offset by continued policy driven growth in renewable diesel
demand.
In Brazil, we forecast 1% growth in biofuels demand in 2022 relative to 2021.
Ethanol use expands slightly, despite weaker gasoline demand over the time
period. Ethanol prices remain more attractive than gasoline, which should lead to ahigher blending share. This growth is partially offset by lower biodiesel demand
driven by a 0.7% decline in diesel use in 2022. Biofuels demand is expected to riseby a sharper 8% in 2023, led higher by stronger gasoline and diesel consumption
and expectations that Brazil will reach its 15% biodiesel blending target by the endof 2023.

PAGE | 21

IEA. All rights reserved.

Volume (Million litres per year)

Demand growth 2021-2022

Transport biofuels

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Europe biofuel demand is expected to expand by 6% or 1 600 million litres in 2022
relative to 2021. Growth is supported by stronger state-level policies and risinggasoline and diesel demand recovering from Covid lows, albeit at a slower rate thanforecast earlier in the year. Biofuel demand growth slows in 2023, however, as
gasoline and diesel demand ease on energy efficiency gains and expanding electricvehicle fleets, which outpace demand growth from strengthening policies.
In the Asia and Pacific region biofuel demand continues to grow, at 9% in 2022
and 12% in 2023, due to robust gasoline and diesel growth, strengthening
government policies in India and higher biodiesel blending requirements inIndonesia. India continues to raise ethanol blending, reporting a 9.7% blending rate
for ethanol in gasoline in April 2022. China contributes little to demand growth since
there is no visibility on new support policies. China’s 14th Five-Year Plan provided
little insight on its biofuel plans other than reiterating its intent to “vigorously support
advanced biofuels”.

Forces of uncertainty – fuel, feedstocks and policies
Oil and biofuel prices, energy and food security, and greenhouse gas objectives are
all in flux, introducing multiple uncertainties into our forecast. The main factors that
influence biofuel demand in the coming years are oil prices, biofuel prices and how
governments evaluate the role of biofuels in navigating energy security, foodsecurity and greenhouse gas objectives.

Oil prices, GDP growth and demand

PAGE | 22

IEA. All rights reserved.

In the wake of Russia’s invasion of Ukraine, prices for international benchmark
Brent crude rose to highs of almost USD 140 bbl/d and ranged from USD 100-120
bbl/d from March through April. In addition to high oil prices, the economic fallout
from the escalated Covid crisis in China is undermining the outlook for the global
economy. As a result, GDP growth assumptions have been lowered to 3.4% in April
compared to 4.3% in January. Higher oil prices and weaker GDP growth havecombined to curb transportation demand globally, especially in key biofuel markets
like the United States, Europe and Brazil. If the higher price and lower economic
environment persist, already modest growth in transport demand may weaken
further, which in turn would reduce our current biofuel demand estimates. These
downward pressures may partially be countered by an increase in demand forbiofuels stemming from its lower prices relative to other fuels such as ethanol in the
United States and Brazil.

Transport biofuels

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Biofuel and fossil fuel prices 2019 to April 2022
2.5

Price (USD per litre)

1.0

0.5

2.0
1.5
1.0
0.5
0.0

0.0

Brazil Ethanol
US Gasoline
Europe Gasoline

US Ethanol
Europe Ethanol

US Biodiesel
Europe Biodiesel
Asia and Pacific Biodiesel

Sources: Bloomberg and Argus.

US Diesel
Europe Diesel

IEA all rights reserved

Feedstocks and biofuel prices
Biofuel and feedstock prices continue to climb as well. Biofuels are primarily madefrom corn, sugar, vegetable oils and used cooking oil, which are all near or at alltime highs. However, some feedstocks are more affected than others. For instance,
vegetable oils rose across the board and prices as of April 2022, are up 65-164%
since 2019, which in turn has fuelled higher prices for biodiesel and renewablediesel. Corn prices are also up, putting upward pressure on ethanol prices. On theother hand, sugar, used primarily in Brazil and India, is less impacted.
According to the USDA, a number of factors are propelling global agriculturalcommodity prices to near-record levels, including the potential loss of exports from
Ukraine, increased global demand, weather-related supply disruptions, lofty energy
prices, increased fertilizer costs and countries imposing export restrictions oncertain food crops which exacerbate the impacts on markets. For example,
Indonesia’s decision in April to temporarily ban some components of palm oil put
further upward pressure on biodiesel feedstocks.
It is unclear how or when commodity prices will come down, especially since theimpact on markets are interrelated and widespread. While higher prices should
encourage farmers to grow more crops, equally costly fertilizer supplies could limit
overall yields, undermining the benefits of more planting. Export barriers could also
limit increased production from these countries since farmers would be less able tocapture export benefits.

Policy reactions
Beyond market responses, governments are also considering whether biofuels help
or hinder volatile fuel prices, energy and food security, and GHG reduction policies.

PAGE | 23

IEA. All rights reserved.

Price (USD per litre)

1.5

Transport biofuels

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

These forces are playing out differently in various countries and regions, and byindividual fuels. For instance, in India, ethanol policies are moving ahead asplanned since ethanol helps reduce oil demand, decrease greenhouse gas
emissions and sugar prices have increased less than other crops. In Brazil,
biodiesel blending requirements remain relaxed because of high feedstock prices,
despite higher GHG emissions and the need for more oil to make up for biodiesel
reductions.
To date, ten governments have, or are proposing, relaxed, delayed or postponed
biofuel blending requirements or GHG quotas this year, in addition to actions taken
in 2021 because of already high prices. The stated rationale for these policy
decisions is to reduce additional fuel costs borne either by consumers or by
governments. The two exceptions are a proposal in Belgium which specificallytargets crop-based feedstocks and statements from Germany’s Minister ofEnvironment stating her intention to reduce crop biofuel use in Germany. Shouldhigh prices persist, other governments may also pause or delay mandates.
Biodiesel and renewable diesel will likely be under the most pressure since prices
for these fuels have risen faster than oil prices, and the vegetable oil market, whichmost of these fuels are produced from, continues to see high price increases. Whilesome production may shift to wastes like used cooking oil and tallow, thesefeedstocks are already at high prices and in limited supply. On the other hand, theUnited States will temporarily extend its 15% ethanol blending mandate over thesummer months with the aim of reducing gasoline prices for consumers.
Food security is also top of the agenda for many governments, but to date only
Belgium and Germany are considering relaxing biofuel mandates to address thisissue. This is primarily because there are better and more effective tools to address
food security concerns. The FAO has recommended ten actions to manage current
high prices, including maintaining trade policies, diversifying food supplies andsupporting vulnerable groups. Nevertheless, China has warned ethanol producers
that it will “strictly control processing of fuel ethanol from corn” and the European
Union Commission has noted it will support member states that reduce mandates
in the name of food security.

PAGE | 24

IEA. All rights reserved.

Governments are expected to tread carefully when considering reducing mandates,
however. Any reduction in biofuel demand comes with an increase in both oil
deliveries and GHG emissions, which runs counter to priorities for most
governments with biofuel requirements. These policy priorities will likely make anychanges temporary in order to address short-term challenges. Finland for example
relaxed its targets for two years, while also increasing its long-term target blending
target from 30% to 34% by 2030.

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Transport biofuelsCountry

Policy proposal, change or continuation

Argentina

Argentina passed a law to reduce the biodiesel blend rate fromthe original 10% to 5% because of high crop costs. The law
also authorises the government to lower the biodiesel blend
rate to 3%, and to halve the ethanol volume entering the fuelsector from corn ethanol if necessary.

BrazilBrazil will maintain its biodiesel blending mandate at 10% forbiodiesel, from an intended 15% target for 2022. The move to
10% was made in 2021 and then continued this year to reduce
diesel prices.

Belgium

Belgium’s green coalition has shared a proposal to remove
current biofuel mandates temporarily to reduce fuel and foodcosts and then slowly fade out crop-based fuels by 2030.

Colombia

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, inAugust, Colombia extended the 10% increase to January 2022
but is now proposing a 6% target until August 2022.

Czech Republic

The Czech government has proposed removing blending
targets, but this will not be confirmed until the end of the yearand greenhouse gas reduction requirements would still apply.

FinlandFinland will reduce its renewable energy requirement to 12%
from 20% for 2022. It estimates this will reduce fuel prices by
12 cents per litre.

Germany

Germany’s Environment Minister proposed to “further reduce
the use of agro-fuels from food and feed crops," in response tohigh food prices resulting from the Russia/Ukraine war. Thereis of yet no proposal.

SwedenSweden is proposing a pause to its GHG targets for thetransport sector for 2022 and 2023 levels. Increases willcontinue post-2023.

Indonesia

Indonesia still plans on increasing its 40% blending mandate,but this is now not likely until 2023.

Croatia

Croatia will remove penalties on blenders that miss theirtargets.

United States

The United States is allowing 15% ethanol blending during
summer months.

PAGE | 25

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Policy reactions to high biofuel and oil prices

Renewable Energy Market Update 2022
Outlook for 2022 and 2023

Annex

Annex
Abbreviations and acronyms
CSP
DISCOM
FIP
FIT
GHG
ITC
PPA
PTC
ASEAN

concentrated solar power
distribution company
feed-in premium
feed-in tariff
greenhouse gas
investment tax credit
power purchase agreement
production tax credit
Association of Southeast Asian Nations

Units of measurebarrelbarrels 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 hour
kilowatt hourmegawatt hour
terawatt hour

PAGE | 26

IEA. All rights reserved.

bbl
bbl/d
bcm
bcm/yrcm/s
g CO2
g CO2/kWh
GJ
Gt/yr
Gt CO2Gt CO2/yr
GW
GWh
kWh
MWh
TWh

This publication reﬂects the views of the IEA Secretariat but does not necessarily reﬂect those of individual IEA member
countries. The IEA makes no representation or warranty, express or implied, in respect of the publication’s contents(including its completeness or accuracy) and shall not be responsible for any use of, or reliance on, the publication.
Unless otherwise indicated, all material presented in figures and tables is derived from IEA data and analysis.
This publication and any map included herein are without prejudice to the status of or sovereignty over any territory,
to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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