SustainaWeekly - The coming global boom in solar and wind

Economist

Wind and solar combined reached 10.5% of global power generation last year. Indeed, solar and wind contributed 75% of the global new power generation capacity installed. Growth is expected to even accelerate further during the coming years given policy initiatives in China, the US and Europe.

Strategist

With the growing importance of ESG, we take a closer look whether indeed investors are incorporating ESG considerations into investment strategies. We show that while the majority of investors incorporate ESG, that is not true when looking at assets under management.

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In a regular section of our weekly, we present a chart book on some of the key indicators for ESG financing and the energy transition.

Solar and wind: steady growth so far and there is more to come

• Wind and solar combined reached 10.5% of global power generation

• Solar and wind contributed 75% of the global new power generation capacity installed in 2021

• Growth is expected to even accelerate further during the coming years

Several weeks ago, we wrote about the implications of the war on the energy transition. We showed that the impact could be a negative in the near term but that we expect a positive effect in the medium term. The partial replacement of gas with coal triggered more carbon emissions in the near term. A trend which was not only noted within Europe but also in other regions like Asia. However, Europe’s dependence on Russia for fossil fuel imports also made politicians and businesses even more convinced about the need for further investments in renewable energy sources. In this article we look into global trends in power generation.

Solar and wind growing rapidly

In 2021 around 27.300 TWh of power was produced globally. With this rise in global power generation, the trend of the last decade has picked up again after the temporary pause in growth in the 2020 COVID-19 year. By far the biggest growth in power generation was seen in China, followed by other Asian countries. China alone is now responsible for 30% of global electricity generation. This does not come as a surprise as also half of global electricity demand comes from Asia.

The share of coal in the mix has declined to 35% from around 40% a decade ago. But recent developments have halted this trend. In fact, the contribution to the electricity mix of coal and natural gas remained relatively stable in the last three years (respectively 35% and 23%). A trend that has continued is the rise of renewable energy, especially solar and wind. In 2021, with a level of nearly 3.000 TWh, wind and solar accounted for a combined 10.5% of the global power generation according to a Bloomberg New Energy Finance (BNEF) trend report.

Solar and wind are getting traction in more and more countries

Global power generating capacity has grown rapidly in recent years. In 2021, total global installed capacity has reached a new record high of 7.9 TW (BNEF). This is almost twice as much as 15 years earlier (4 TW in 2006). Although the majority of solar power generation was still in a selective number of countries, more and more growth is noted in other countries too. While a decade ago, most solar production was seen in developed countries, emerging markets – especially in Asia – have picked up in growth. In fact, the biggest solar capacity producers currently are Asian: China (33% of global capacity), Japan (9%) and India (7%). From outside of Asia, only the US (11%) is able to join in this group of solar leaders. Nevertheless, there is a strong growth visible in the number of countries, which install more than 1 MW of solar energy per year. In 2021, 112 countries had installed more than 1 MW of solar, compared to 55 countries in 2012.

China is also dominant in capacity additions in wind power generation (+270 GW in the last 10 years). The US (+92 GW) and Germany (+35 GW) are following, but these countries do not even come close to the additions recorded in China. It also became clear again that wind installations are concentrated in a small number of countries. As a result, almost 90% of the wind capacity is located in just 10 countries. Unlike with solar, the number of countries with more than 1 MW of installed wind capacity per year rose only marginally.

Of the new power generating capacity installed in 2021 (> 300 GW), 75% was added by solar (50%) and wind (25%). According to estimates from SolarPower Europe, the combined installed capacity of solar and wind was even more than 80%. Hydro, another renewable energy source, also added another 7% to the total percentage of newly capacity installed. Coal (4%) and natural gas (11%) were just a fraction of the additions seen a decade ago (combined 50% at a minimum), although it was 25% of the capacity additions in emerging markets.

Growth expected to accelerate even further in the coming years

The installed capacity of solar PV increased again by around 20% in 2021, similar to the growth in 2020 according to SolarPower Europe. This brings the installed capacity of solar at 167.8 GW in 2021. For PV growth during the coming years, BNEF provides three scenario’s (see graph below). In the low case, the current growth of global PV new build will continue to grow at a similar pace. However, in a high case, a strong acceleration can be expected in the coming years. With European politicians searching for the Russian gas dependence (see article in the Sustainaweekly of 10 October) and other global policy initiatives, we judge that the investments in solar and will get an extra boost, which makes the medium or even the high case more likely. In the mid-scenario, BNEF expects new-build PV to rise to 460 GW annually in 2030.

For wind energy, a similar picture can be drawn. BNEF expects the cumulative installations to grow from 53 GW in 2021 to 504GW in 2035. Also here, China will play the biggest role. But the UK, the US and Germany will follow. The Netherlands is expect to follow at 6th place with regards to the biggest investors in wind energy. Such an accelerated growth is necessary to keep track with the Net Zero Scenarios of the International Energy Agency (IEA). In order to reach net zero emissions, 7.900 GW of installed wind capacity is necessary in 2030, versus 1.870 GW in 2021. Although more than 90% of the current global capacity is onshore at this moment, the biggest growth can be expected for offshore wind. On top of that, especially after 2030, the number of projects in floating wind is also expected to pick up. This should lead to a cumulative 5.9 GW by 2030 and 25.2 GW in 2035.

All in all, policy support is still the biggest driver for investments in renewables, even though direct subsidies in some countries have dropped significantly. Support is not only seen here in Europe, where the EU Fit-for-55 and the RePowerEU plans stimulate more investments in renewable energy. But also in the Chinese Five-Year Plan (June 2022) and the US Inflation Reduction Act (August 2022), ambitions for large investments in renewable energy were set out. These ambitions make us believe that the acceleration of the build of renewable energy sources – mainly solar and wind – will not run out of steam in the coming years.