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Renewables

2023

Analysis and forecast to 2028

The IEA examines the

full spectrum

of energy issues

including oil, gas and

coal supply and

demand, renewable

energy technologies,

electricity markets,

energy efficiency,

access to energy,

demand side

management and

much more. Through

its work, the IEA

advocates policies that

will enhance the

reliability, affordability

and sustainability of

energy in its

31 member countries,

13 association

countries and beyond.

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.

Source: IEA.

International Energy Agency

Website: www.iea.org

IEA member

countries:

Australia

Austria

Belgium

Canada

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Japan

Korea

Lithuania

Luxembourg

Mexico

Netherlands

New Zealand

Norway

Poland

Portugal

Slovak Republic

Spain

Sweden

Switzerland

Republic of Türkiye

United Kingdom

United States

The European

Commission also

participates in the

work of the IEA

IEA association

countries:

Argentina

Brazil

China

Egypt

India

Indonesia

Kenya

Morocco

Senegal

Singapore

South Africa

Thailand

Ukraine

INTERNATIONAL ENERGY

AGENCY

Renewables 2023 Abstract

Analysis and forecasts to 2028

PAGE | 3

IEA. CC BY 4.0.

Abstract

Renewables 2023 is the IEA’s primary analysis on the sector, based on current

policies and market developments. It forecasts the deployment of renewable

energy technologies in electricity, transport and heat to 2028 while also exploring

key challenges to the industry and identifying barriers to faster growth.

At the COP28 climate change conference in Dubai, more than 130 national

governments including the European Union agreed to work together to triple the

world’s installed renewable energy capacity to at least 11 000 GW by 2030.

Renewables 2023 provides detailed country-level analysis on the progress

towards the global tripling target. Alongside the report, an online dashboard is also

available, which maps all the relevant data to measure renewable energy

deployment through 2028.

In addition to its detailed market analysis and forecasts, Renewables 2023 also

examines key developments for the sector including policy trends driving

deployment; solar PV manufacturing; competitiveness of renewable technologies;

energy storage; renewable energy capacity for hydrogen production; the

prospects for renewable energy companies; system integration and a special

section on biogas and biomethane forecast.

/143

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Renewables2023Analysisandforecastto2028INTERNATIONALENERGYAGENCYTheIEAexaminestheIEAmemberIEAassociationfullspectrumcountries:countries:ofenergyissuesincludingoil,gasandAustraliaArgentinacoalsupplyandAustriaBrazildemand,renewableBelgiumChinaenergytechnologies,CanadaEgyptelectricitymarkets,CzechRepublicIndiaenergyefficiency,DenmarkIndonesiaaccesstoenergy,EstoniaKenyademandsideFinlandMoroccomanagementandFranceSenegalmuchmore.ThroughGermanySingaporeitswork,theIEAGreeceSouthAfricaadvocatespoliciesthatHungaryThailandwillenhancetheIrelandUkrainereliability,affordabilityItalyandsustainabilityofJapanenergyinitsKorea31membercountries,Lithuania13associationLuxembourgcountriesandbeyond.MexicoNetherlandsThispublicationandanyNewZealandmapincludedhereinareNorwaywithoutprejudicetothePolandstatusoforsovereigntyoverPortugalanyterritory,totheSlovakRepublicdelimitationofinternationalSpainfrontiersandboundariesandSwedentothenameofanyterritory,Switzerlandcityorarea.RepublicofTürkiyeUnitedKingdomUnitedStatesTheEuropeanCommissionalsoparticipatesintheworkoftheIEASource:IEA.InternationalEnergyAgencyWebsite:www.iea.orgRenewables2023AbstractAnalysisandforecaststo2028AbstractRenewables2023istheIEA’sprimaryanalysisonthesector,basedoncurrentpoliciesandmarketdevelopments.Itforecaststhedeploymentofrenewableenergytechnologiesinelectricity,transportandheatto2028whilealsoexploringkeychallengestotheindustryandidentifyingbarrierstofastergrowth.AttheCOP28climatechangeconferenceinDubai,morethan130nationalgovernmentsincludingtheEuropeanUnionagreedtoworktogethertotripletheworld’sinstalledrenewableenergycapacitytoatleast11000GWby2030.Renewables2023providesdetailedcountry-levelanalysisontheprogresstowardstheglobaltriplingtarget.Alongsidethereport,anonlinedashboardisalsoavailable,whichmapsalltherelevantdatatomeasurerenewableenergydeploymentthrough2028.Inadditiontoitsdetailedmarketanalysisandforecasts,Renewables2023alsoexamineskeydevelopmentsforthesectorincludingpolicytrendsdrivingdeployment;solarPVmanufacturing;competitivenessofrenewabletechnologies;energystorage;renewableenergycapacityforhydrogenproduction;theprospectsforrenewableenergycompanies;systemintegrationandaspecialsectiononbiogasandbiomethaneforecast.PAGE3IEA.CCBY4.0.Renewables2023AcknowledgementsAnalysisandforecaststo2028Acknowledgements,contributorsandcreditsThisstudywaspreparedbytheRenewableEnergyDivisionintheDirectorateofEnergyMarketsandSecurity.ItwasdesignedanddirectedbyHeymiBahar,SeniorAnalyst.Thereportbenefitedfromanalysis,draftingandinputfrommultiplecolleagues.Theleadauthorsofthereportwere,YasminaAbdelilah,AnaAlcaldeBásconesHeymiBahar,PiotrBojek,FrançoisBriens,TrevorCriswell,JeremyMoorhouse,andLauraMariMartinez,whowasalsoresponsiblefordatamanagement.ThereportalsobenefitedfromanalysisanddraftingfromKartikVeerakumar.PaoloFrankl,HeadoftheRenewableEnergyDivision,providedstrategicguidanceandinputtothiswork.Valuablecomments,feedbackandguidancewereprovidedbyotherseniormanagementandnumerousothercolleagueswithintheIEA,inparticular,KeisukeSadamori,LauraCozzi,TimGould,TimurGül,BrianMotherway,DanDornerandDennisHesslingOtherIEAcolleagueswhohavemadeimportantcontributionstothisworkinclude:NadimAbillama,SylviaBeyer,ErenCam,HanaChambers,ChiaraDelmastro,SyrineElAbed,PabloHevia-Koch,Zoe,Hungerford,LucaLorenzoni,YannickMonschauer,TaylorMorrison,BrianMotherway,ThomasSpencer,BrentWanner,BiqingYangandPeterZeniewski.TimelydatafromtheIEAEnergyDataCentrewerefundamentaltothereport,withparticularassistanceprovidedbyPedroCarvalho,LucaLorenzoni,TaylorMorrison,NickJohnstone,JulianPrimeandRobertaQuadrelli.ThisworkbenefitedfromextensivereviewandcommentsfromtheIEAStandingGrouponLong-TermCo-operation,IEARenewableEnergyWorkingParty,membersoftheRenewableIndustryAdvisoryBoard(RIAB)andexpertsfromIEApartnercountriesandotherinternationalinstitutions.TheworkalsobenefitedfromfeedbackbytheIEACommitteeonEnergyResearchandTechnology,IEATechnologyCollaborationProgrammes(IEATCPs).ManyexpertsfromoutsideoftheIEAprovidedvaluableinput,commentedandreviewedthisreport.Theyinclude:PAGE4IEA.CCBY4.0.Renewables2023AcknowledgementsAnalysisandforecaststo2028CountriesCanada(NaturalResourcesCanada),China(EnergyResearchInstitute–ERI),Denmark(MinistryofClimate,EnergyandUtilities),EuropeanUnion(EuropeanCommission–DGEnergy),Finland(MinistryofEconomicAffairsandEmployment),Germany(FederalMinistryforEconomicAffairsandClimateActionofGermany),Japan(MinistryofEconomy,TradeandIndustry–METI),Spain(InstituteforEnergyDiversificationandEnergySaving–IDAE),andtheUnitedStatesofAmerica(DepartmentofEnergy).TechnologyCollaborationProgrammes(TCPs)BioenergyTCP,HeatPumpingTechnologies(HPT)TCP,GeothermalTCP,HydrogenTCPHydropowerTCP,OceanTCP,PhotovoltaicPowerSystems(PVPS)TCP,SolarHeatingandCooling(SHC)TCP,SolarPACESTCP,WindEnergyTCP.OtherOrganisationsArcherDanielsMidlandCompany(ADM),BP,Enel,EuropeanCommission,EuropeanHeatPumpAssociation(EHPA),EuropeanRenewableEthanolAssociation(EPURE),EuropeanSolarThermalIndustryFederation(ESTIF),EUEthanolIndustryAssociation,GlobalWindEnergyCouncil(GWEC),Iberdrola,InternationalAirTransportAssociation(IATA),J-Power,NationalRenewableEnergyLaboratory(NREL),Neste,Ørsted,RNGCoalition,SiemensGamesaRenewableEnergy,SolarPowerEurope,Solrico,SPVMarketResearch,TheEnergyandResourcesInsitute(TERI),USGrainsCouncil,Vestas,WindEurope,WorldBioenergyAssociation,WorldBiogasAssociationandYangtzeInstituteforSolarTechnologies(YIST).TheauthorswouldalsoliketothankKristineDouaudforskilfullyeditingthemanuscriptandtheIEACommunicationandDigitalOffice,inparticularJonCuster,AstridDumond,GraceGordon,JethroMullen,IsabelleNonain-SemelinRobertStone,SamTarling,ClaraVallois,LucileWallandThereseWalshfortheirassistance.Inaddition,IvoLetrafromtheOfficeofManagementandAdministrationsupporteddatamanagement.Questionsorcomments?PleasewritetousatIEA-REMR@iea.orgPAGE5IEA.CCBY4.0.Renewables2023TableofcontentsAnalysisandforecaststo2028TableofcontentsExecutiveSummary.................................................................................................................7Chapter1.Electricity..............................................................................................................14Globalforecastsummary......................................................................................................14NetZeroEmissionsby2050Scenariotracking....................................................................25Regionalforecasttrends.......................................................................................................28Technology,marketandpolicytrends..................................................................................48Chapter2.Transportbiofuels...............................................................................................94Globalforecastsummary......................................................................................................94NetZeroEmissionsby2050Scenariotracking..................................................................102Technology,marketandpolicytrends................................................................................107Chapter3.Heat.....................................................................................................................114Globalforecastsummary....................................................................................................114NetZeroEmissionsby2050Scenariotracking..................................................................122Technology,marketandpolicytrends................................................................................123Specialsection:Biogasandbiomethane..........................................................................131Introduction.........................................................................................................................131Biogastoday.......................................................................................................................132Biogasandbiomethaneforecast........................................................................................137NetZeroEmissionsby2050Scenariotracking..................................................................140PAGE6IEA.CCBY4.0.Renewables2023ExecutivesummaryAnalysisandforecaststo2028ExecutiveSummary2023sawastepchangeinrenewablecapacityadditions,drivenbyChina’ssolarPVmarketGlobalannualrenewablecapacityadditionsincreasedbyalmost50%tonearly510gigawatts(GW)in2023,thefastestgrowthrateinthepasttwodecades.Thisisthe22ndyearinarowthatrenewablecapacityadditionssetanewrecord.WhiletheincreasesinrenewablecapacityinEurope,theUnitedStatesandBrazilhitall-timehighs,China’saccelerationwasextraordinary.In2023,ChinacommissionedasmuchsolarPVastheentireworlddidin2022,whileitswindadditionsalsogrewby66%year-on-year.Globally,solarPValoneaccountedforthree-quartersofrenewablecapacityadditionsworldwide.AchievingtheCOP28targetoftriplingglobalrenewablecapacityby2030hingesonpolicyimplementationPriortotheCOP28climatechangeconferenceinDubai,theInternationalEnergyAgency(IEA)urgedgovernmentstosupportfivepillarsforactionby2030,amongthemthegoaloftriplingglobalrenewablepowercapacity.SeveraloftheIEAprioritieswerereflectedintheGlobalStocktaketextagreedbythe198governmentsatCOP28,includingthegoalsoftriplingrenewablesanddoublingtheannualrateofenergyefficiencyimprovementseveryyearto2030.Triplingglobalrenewablecapacityinthepowersectorfrom2022levelsby2030wouldtakeitabove11000GW,inlinewithIEA’sNetZeroEmissionsby2050(NZE)Scenario.Underexistingpoliciesandmarketconditions,globalrenewablecapacityisforecasttoreach7300GWby2028.Thisgrowthtrajectorywouldseeglobalcapacityincreaseto2.5timesitscurrentlevelby2030,fallingshortofthetriplinggoal.Governmentscanclosethegaptoreachover11000GWby2030byovercomingcurrentchallengesandimplementingexistingpoliciesmorequickly.Thesechallengesfallintofourmaincategoriesanddifferbycountry:1)policyuncertaintiesanddelayedpolicyresponsestothenewmacroeconomicenvironment;2)insufficientinvestmentingridinfrastructurepreventingfasterexpansionofrenewables;3)cumbersomeadministrativebarriersandpermittingproceduresandsocialacceptanceissues;4)insufficientfinancinginemerginganddevelopingeconomies.Thisreport’sacceleratedcaseshowsthataddressingthosechallengescanleadtoalmost21%highergrowthofrenewables,pushingtheworldtowardsbeingontracktomeettheglobaltriplingpledge.PAGE7IEA.CCBY4.0.Renewables2023ExecutivesummaryAnalysisandforecaststo2028Whatisneededtoreachthecollectivetargettotriplerenewablesby2030variessignificantlybycountryandregion.G20countriesaccountforalmost90%ofglobalrenewablepowercapacitytoday.Intheacceleratedcase,whichassumesenhancedimplementationofexistingpoliciesandtargets,theG20couldtripletheircollectiveinstalledcapacityby2030.Assuch,theyhavethepotentialtocontributesignificantlytotriplingrenewablesglobally.However,toachievetheglobalgoal,therateofnewinstallationsneedstoaccelerateinothercountries,too,includingmanyemerginganddevelopingeconomiesoutsidetheG20,someofwhichdonothaverenewabletargetsand/orsupportivepoliciestoday.Theglobalpowermixwillbetransformedby2028Theworldisoncoursetoaddmorerenewablecapacityinthenextfiveyearsthanhasbeeninstalledsincethefirstcommercialrenewableenergypowerplantwasbuiltmorethan100yearsago.Inthemaincaseforecastinthisreport,almost3700GWofnewrenewablecapacitycomesonlineoverthe2023-2028period,drivenbysupportivepoliciesinmorethan130countries.SolarPVandwindwillaccountfor95%ofglobalrenewableexpansion,benefitingfromlowergenerationcoststhanbothfossilandnon-fossilfuelalternatives.Overthecomingfiveyears,severalrenewableenergymilestonesareexpectedtobeachieved:In2024,windandsolarPVtogethergeneratemoreelectricitythanhydropower.In2025,renewablessurpasscoaltobecomethelargestsourceofelectricitygeneration.WindandsolarPVeachsurpassnuclearelectricitygenerationin2025and2026respectively.In2028,renewableenergysourcesaccountforover42%ofglobalelectricitygeneration,withtheshareofwindandsolarPVdoublingto25%.Chinaistheworld’srenewablespowerhouseChinaaccountsforalmost60%ofnewrenewablecapacityexpectedtobecomeoperationalgloballyby2028.Despitethephasingoutofnationalsubsidiesin2020and2021,deploymentofonshorewindandsolarPVinChinaisaccelerating,drivenbythetechnologies’economicattractivenessaswellassupportivepolicyenvironmentsprovidinglong-termcontracts.OurforecastshowsthatChinaisexpectedtoreachitsnational2030targetforwindandsolarPVinstallationsthisyear,sixyearsaheadofschedule.China’sroleiscriticalinreachingtheglobalgoaloftriplingrenewablesbecausethecountryisexpectedtoinstallmorethanhalfofthenewcapacityrequiredgloballyby2030.Attheendoftheforecastperiod,almosthalfofChina’selectricitygenerationwillcomefromrenewableenergysources.PAGE8IEA.CCBY4.0.Renewables2023ExecutivesummaryAnalysisandforecaststo2028TheUS,theEU,IndiaandBrazilremainbrightspotsforonshorewindandsolarPVgrowthSolarPVandonshorewindadditionsthrough2028isexpectedtomorethandoubleintheUnitedStates,theEuropeanUnion,IndiaandBrazilcomparedwiththelastfiveyears.SupportivepolicyenvironmentsandtheimprovingeconomicattractivenessofsolarPVandonshorewindaretheprimarydriversbehindthisacceleration.IntheEuropeanUnionandBrazil,growthinrooftopsolarPVisexpectedtooutpacelarge-scaleplantsasresidentialandcommercialconsumersseektoreducetheirelectricitybillsamidhigherprices.IntheUnitedStates,theInflationReductionActhasactedasacatalystforacceleratedadditionsdespitesupplychainissuesandtradeconcernsinthenearterm.InIndia,anexpeditedauctionscheduleforutility-scaleonshorewindandsolarPValongwithimprovedfinancialhealthofdistributioncompaniesisexpectedtodeliveracceleratedgrowth.Renewableenergyexpansionalsostartsacceleratinginotherregionsoftheworld,notablytheMiddleEastandNorthAfrica,owingmostlytopolicyincentivesthattakeadvantageofthecost-competitivenessofsolarPVandonshorewindpower.Althoughrenewablecapacitygrowthpicksupinsub-SaharanAfrica,theregionstillunderperformsconsideringitsresourcepotentialandelectrificationneeds.SolarPVpricesplummetamidgrowingsupplyglutIn2023,spotpricesforsolarPVmodulesdeclinedbyalmost50%year-on-year,withmanufacturingcapacityreachingthreetimes2021levels.ThecurrentmanufacturingcapacityunderconstructionindicatesthattheglobalsupplyofsolarPVwillreach1100GWattheendof2024,withpotentialoutputexpectedtobethreetimesthecurrentforecastfordemand.DespiteunprecedentedPVmanufacturingexpansionintheUnitedStatesandIndiadrivenbypolicysupport,Chinaisexpectedtomaintainits80-95%shareofglobalsupplychains(dependingonthemanufacturingsegment).AlthoughdevelopingdomesticPVmanufacturingwillincreasethesecurityofsupplyandbringeconomicbenefitstolocalcommunities,replacingimportswithmoreexpensiveproductionintheUnitedStates,IndiaandtheEuropeanUnionwillincreasethecostofoverallPVdeploymentinthesemarkets.OnshorewindandsolarPVarecheaperthanbothnewandexistingfossilfuelplantsIn2023,anestimated96%ofnewlyinstalled,utility-scalesolarPVandonshorewindcapacityhadlowergenerationcoststhannewcoalandnaturalgasplants.Inaddition,three-quartersofnewwindandsolarPVplantsofferedcheaperpowerthanexistingfossilfuelfacilities.WindandsolarPVsystemswillPAGE9IEA.CCBY4.0.Renewables2023ExecutivesummaryAnalysisandforecaststo2028becomemorecost-competitiveduringtheforecastperiod.Despitetheincreasingcontributionneedsforflexibilityandreliabilitytointegratevariablerenewables,theoverallcompetitivenessofonshorewindandsolarPVchangesonlyslightlyby2028inEurope,China,IndiaandtheUnitedStates.ThenewmacroeconomicenvironmentpresentsfurtherchallengesthatpolicymakersneedtoaddressIn2023,newrenewableenergycapacityfinancedinadvancedeconomieswasexposedtohigherbaseinterestratesthaninChinaandtheglobalaverageforthefirsttime.Since2022,centralbankbaseinterestrateshaveincreasedfrombelow1%toalmost5%.Inemerginganddevelopingeconomies,renewablesdevelopershavebeenexposedtohigherinterestratessince2021,resultinginhighercostshamperingfasterexpansionofrenewables.Theimplicationsofthisnewmacroeconomicenvironmentaremanifoldforbothgovernmentsandindustry.First,inflationhasincreasedequipmentcostsforonshoreandoffshorewindandpartlyforsolarPV(excludingmodulecosts).Second,higherinterestratesareincreasingthefinancingcostsofcapital-intensivevariablerenewabletechnologies.Third,policyhasbeenrelativelyslowtoadjusttothenewmacroeconomicenvironmentdueinparttoexpectationsthatcostreductionswouldcontinuetogetherwithpermittingchallenges.Thishasleftseveralauctionsinadvancedeconomiesundersubscribed,particularlyinEurope.Additionally,somedeveloperswhosepowerpurchasecontractsweresignedpriortothesemacroeconomicchangeshavehadtocanceltheirprojects.EffortstoimproveauctiondesignandcontractindexationmethodologiesareneededtoresolvethesechallengesandunlockadditionalwindandsolarPVdeployment.Therenewableenergyindustry,particularlywind,isgrapplingwithmacroeconomicchallengesaffectingitsfinancialhealth–despiteahistoryoffinancialresilience.ThewindindustryhasexperiencedasignificantdeclineinmarketvalueasEuropeanandNorthAmericanwindturbinemanufacturershaveseennegativenetmarginsforsevenconsecutivequartersduetovolatiledemand,limitedrawmaterialaccess,economicchallenges,andrisinginterestrates.Toaddresstheseissues,theEuropeanUnionlaunchedaWindPowerActionPlaninOctober2023,aimingtoenhancecompetitiveness,improveauctiondesign,boostcleantechnologyinvestment,streamlinepermitting,andensurefaircompetition.Chinesewindturbinemanufacturers,benefitingfromstrongdomesticdemandandverticalintegration,remainrelativelystableamidglobalchallenges.PAGE10IEA.CCBY4.0.Renewables2023ExecutivesummaryAnalysisandforecaststo2028TheforecastforwindcapacityadditionsislessoptimisticoutsideChina,especiallyforoffshoreThewindindustry,especiallyinEuropeandNorthAmericaisfacingchallengesduetoacombinationofongoingsupplychaindisruptions,highercostsandlongpermittingtimelines.Asaresultofthesechallenges,theforecastforonshorewindoutsideofChinahasbeenreviseddownwardsasoverallprojectdevelopmenthasbeenslowerthanexpected.Offshorewindhasbeenhithardestbythenewmacroeconomicenvironment,withitsexpansionthrough2028reviseddownby15%outsideChina.Thechallengesfacingtheindustryparticularlyaffectoffshorewind,withinvestmentcoststodaymorethan20%higherthanonlyafewyearsago.In2023,developershavecancelledorpostponed15GWofoffshorewindprojectsintheUnitedStatesandtheUnitedKingdom.Forsomedevelopers,pricingforpreviouslyawardedcapacitydoesnotreflecttheincreasedcostsfacingprojectdevelopmenttoday,whichreducesprojectbankability.FasterdeploymentofvariablerenewablesincreasesintegrationandinfrastructurechallengesTheshareofsolarPVandwindinglobalelectricitygenerationisforecasttodoubleto25%in2028inourmaincase.Thisrapidexpansioninthenextfiveyearswillhaveimplicationsforpowersystemsworldwide.IntheEuropeanUnion,annualvariablerenewablespenetrationin2028isexpectedtoreachmorethan50%insevencountries,withDenmarkhavingaround90%ofwindandsolarPVinitselectricitysystembythattime.AlthoughEUinterconnectionshelpintegratesolarPVandwindgeneration,gridbottleneckswillposesignificantchallengesandleadtoincreasedcurtailmentinmanycountriesasgridexpansioncannotkeeppacewithacceleratedinstallationofvariablerenewables.Currenthydrogenplansandimplementationdon’tmatchRenewablepowercapacitydedicatedtohydrogen-basedfuelproductionisforecasttogrowby45GWbetween2023and2028,representingonlyanestimated7%ofannouncedprojectcapacityfortheperiod.China,SaudiArabiaandtheUnitedStatesaccountformorethan75%ofrenewablecapacityforhydrogenproductionby2028.Despiteannouncementsofnewprojectsandpipelines,theprogressinplannedprojectshasbeenslow.WehavereviseddownourforecastsforallregionsexceptChina.Themainreasonistheslowpaceofbringingplannedprojectstofinalinvestmentdecisionsduetoalackofoff-takersandtheimpactofhigherpricesonproductioncosts.Thedevelopmentofaninternationalhydrogenmarketisakeyuncertaintyaffectingtheforecast,particularlyformarketsthathavelimiteddomesticdemandforhydrogen.PAGE11IEA.CCBY4.0.Renewables2023ExecutivesummaryAnalysisandforecaststo2028BiofueldeploymentisacceleratinganddiversifyingmoreintorenewabledieselandbiojetfuelEmergingeconomies,ledbyBrazil,dominateglobalbiofuelexpansion,whichissettogrow30%fasterthanoverthelastfiveyears.Supportedbyrobustbiofuelpolicies,increasingtransportfueldemandandabundantfeedstockpotential,emergingeconomiesareforecasttodrive70%ofglobalbiofueldemandgrowthovertheforecastperiod.Brazilaloneaccountsfor40%ofbiofuelexpansionto2028.Strongerpoliciesaretheprimarydriverofthisgrowthasgovernmentsexpandeffortstoprovideaffordable,secureandlow-emissionenergysupplies.Biofuelsusedintheroadtransportsectorremaintheprimarysourceofnewsupply,accountingfornearly90%oftheexpansion.Electricvehicles(EVs)andbiofuelsareprovingtobeapowerfulcomplementarycombinationforreducingoildemand.Globally,biofuelsandrenewableelectricityusedinEVsareforecasttooffset4millionbarrelsofoil-equivalentperdayby2028,whichismorethan7%offorecastoildemandfortransport.Biofuelsremainthedominantpathwayforavoidingoildemandinthedieselandjetfuelsegments.EVsoutpacebiofuelsinthegasolinesegment,especiallyintheUnitedStates,EuropeandChina.AligningbiofuelswithanetzeropathwayrequiresahugeincreaseinthepaceofdeploymentThisreport’smaincaseforecastisnotinlinewiththeneartriplingofbiofuelsdemandby2030seenintheIEA’sNetZeroEmissionsby2050(NZE)Scenario.Intheaviationsectorforinstance,theNZEScenariowouldrequire8%offuelsupplycomingfrombiojetfuelby2030,whileexistingpoliciesinthisforecastwillonlybringbiojetfuel’sshareto1%by2028.Bridgingthisgaprequiresnewandstrongerpolicies,aswellasdiversificationoffeedstocks.Muchfasterbiofueldeploymentispossiblethroughnewpoliciesandaddressingsupplychainchallenges.Inthisreport’sacceleratedcase,biofuelsupplygrowthisnearlytriplethatofthemaincase,closingthegapwiththeNZEScenariobynearly40%.Nearlyhalfofthisadditionalgrowth,almost30billionlitres,isdrivenbystrengthenedpoliciesinexistingmarketssuchastheUnitedStates,EuropeandIndia.Another20billionlitrescomesmainlyfrombiodieselinIndiaandethanolinIndonesia.Biojetfueloffersathirdgrowthavenue,expandingtocovernearly3.5%ofglobalaviationfuels,upfrom1%inthemaincase.Fuelsmadefromwasteandresiduesalsogrowfourtimesfasterintheacceleratedcase.PAGE12IEA.CCBY4.0.Renewables2023ExecutivesummaryAnalysisandforecaststo2028Renewableheatacceleratesamidhighenergypricesandpolicymomentum–butnotenoughtocurbemissionsModernrenewableheatconsumptionexpandsby40%globallyduringtheoutlookperiod,risingfrom13%to17%oftotalheatconsumption.Thesedevelopmentscomepredominantlyfromthegrowingrelianceonelectricityforprocessheat–notablywiththeadoptionofheatpumpsinnon-energy-intensiveindustries–andthedeploymentofelectricheatpumpsandboilersinbuildings,increasinglypoweredbyrenewableelectricity.China,theEuropeanUnionandtheUnitedStatesleadthesetrends,owingtosupportivepolicyenvironments;updatedtargetsintheEuropeanUnionandChina;strongfinancialincentivesinmanymarkets;theadoptionofrenewableheatobligations;andfossilfuelbansinthebuildingssector.However,thetrendsto2028arestilllargelyinsufficienttotackletheuseoffossilfuelsforheatandputtheworldontracktomeetParisAgreementgoals.Withoutstrongerpolicyaction,theglobalheatsectoralonebetween2023and2028couldconsumemorethanone-fifthoftheremainingcarbonbudgetforapathwayalignedwithlimitingglobalwarmingto1.5°C.Globalrenewableheatconsumptionwouldhavetorise2.2timesasquicklyandbecombinedwithwide-scaledemand-sidemeasuresandmuchlargerenergyandmaterialefficiencyimprovementstoalignwiththeNZEScenario.PAGE13IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Chapter1.ElectricityGlobalforecastsummary2023marksastepchangeforrenewablepowergrowthoverthenextfiveyearsRenewableelectricitycapacityadditionsreachedanestimated507GWin2023,almost50%higherthanin2022,withcontinuouspolicysupportinmorethan130countriesspurringasignificantchangeintheglobalgrowthtrend.Thisworldwideaccelerationin2023wasdrivenmainlybyyear-on-yearexpansioninthePeople’sRepublicofChina’s(hereafter“China”)boomingmarketforsolarPV(+116%)andwind(+66%).Renewablepowercapacityadditionswillcontinuetoincreaseinthenextfiveyears,withsolarPVandwindaccountingforarecord96%ofitbecausetheirgenerationcostsarelowerthanforbothfossilandnon-fossilalternativesinmostcountriesandpoliciescontinuetosupportthem.Renewableelectricitycapacityadditionsbytechnologyandsegment1000GW100%Ocean900201690%CSP800201780%Geothermal700201870%Bioenergy600201960%Hydropower500202050%Wind400202140%SolarPV300202230%%ofwind2002023e20%andPV100202410%020250%2026202720282023e20242025202620272028HistoricalMaincaseAcc.caseIEA.CCBY4.0.Notes:CSP=concentratedsolarpower.Capacityadditionsrefertonetadditions.HistoricalandforecastsolarPVcapacitymaydifferfrompreviouseditionsoftherenewableenergymarketreport.Thisyear,PVdataforallcountrieshavebeenconvertedtoDC(directcurrent),increasingcapacityforcountriesreportinginAC(alternatingcurrent).ConversionsarebasedonanIEAsurveyofmorethan80countriesandinterviewswithPVindustryassociations.SolarPVsystemsworkbycapturingsunlightusingphotovoltaiccellsandconvertingitintoDCelectricity.TheDCelectricityisthenusuallyconvertedusinganinverter,asmostelectricaldevicesandpowersystemsuseAC.Untilabout2010,ACandDCcapacityinmostPVsystemsweresimilar,butwithdevelopmentsinPVsystemsizing,thesetwovaluesmaynowdifferbyupto40%,especiallyinutility-scaleinstallations.SolarPVandwindadditionsincludecapacitydedicatedtohydrogenproduction.PAGE14IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028SolarPVandwindadditionsareforecasttomorethandoubleby2028comparedwith2022,continuouslybreakingrecordsovertheforecastperiodtoreachalmost710GW.Atthesametime,hydropowerandbioenergycapacityadditionswillbelowerthanduringthelastfiveyearsasdevelopmentinemergingeconomiesdecelerates,especiallyinChina.Renewablesovertakecoalinearly-2025tobecomethelargestenergysourceforelectricitygenerationgloballyBy2028,potentialrenewableelectricitygenerationisexpectedtoreacharound14400TWh,anincreaseofalmost70%from2022.Overthenextfiveyears,severalrenewableenergymilestonescouldbeachieved:In2024,variablerenewablegenerationsurpasseshydropower.In2025,renewablessurpasscoal-firedelectricitygeneration.In2025,windsurpassesnuclearelectricitygeneration.In2026,solarPVsurpassesnuclearelectricitygeneration.In2028,solarPVsurpasseswindelectricitygeneration.Electricitygenerationbytechnology,2000-202845%SolarPV40%35%Wind30%Variable25%renewables20%Hydropower15%10%Otherrenewables5%Allrenewables0%200020022004200620082010201220142016201820202022202420262028IEA.CCBY4.0.Notes:ElectricitygenerationfromwindandsolarPVindicatepotentialgenerationincludingcurrentcurtailmentrates.However,itdoesnotprojectfuturecurtailmentofwindandsolarPV,whichmaybesignificantinafewcountriesby2028.TheCurtailmentsectionbelowdiscussessomeoftheserecenttrends.Overtheforecastperiod,potentialrenewableelectricitygenerationgrowthexceedsglobaldemandgrowth,indicatingaslowdeclineincoal-basedgenerationwhilenaturalgasremainsstable.In2028,renewableenergysourcesaccountfor42%ofglobalelectricitygeneration,withthewindandsolarPVsharemakingup25%.In2028,hydropowerremainsthelargestrenewableelectricitysource.However,renewableelectricitygenerationneedstoexpandmorequicklyinmanyPAGE15IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028countries(seeNetZeroEmissionsby2050Scenariotrackingsectioninthischapter).Whilerenewablesarecurrentlythelargestenergysourceforelectricitygenerationin57countries,mostlythankstohydropower,thesecountriesrepresentjust14%ofglobalpowerdemand.By2028,68countrieswillhaverenewablesastheirmainpowergenerationsourcebutstillonlyaccountfor17%ofglobaldemand.Chinaisinthedriver’sseatChina’srenewableelectricitycapacitygrowthttriplesinthenextfiveyearscomparedwiththepreviousfive,withthecountryaccountingforanunprecedented56%ofglobalexpansion.Over2023-2028,ChinawilldeployalmostfourtimesmorerenewablecapacitythantheEuropeanUnionandfivetimesmorethantheUnitedStates,whichwillremainthesecond-andthird-largestgrowthmarkets.TheChinesegovernment’sNetZeroby2060target,supportedbyincentivesunderthe14thFive-YearPlan(2021-2025)andtheampleavailabilityoflocallymanufacturedequipmentandlow-costfinancing,stimulatethecountry’srenewablepowerexpansionovertheforecastperiod.Renewableelectricitycapacitygrowthbycountry/region,maincase250060020005002005-20102011-20162017-20222023-20284001500300100020050010000ChinaIEA.CCBY4.0.IEA.CCBY4.0.Notes:ASEAN=AssociationofSoutheastAsianNations.MENA=MiddleEastandNorthAfrica.Capacityadditionsrefertonetadditions.Meanwhile,expansionacceleratesintheUnitedStatesandtheEuropeanUnionthankstotheUSInflationReductionAct(IRA)andcountry-levelpolicyincentivessupportingEUdecarbonisationandenergysecuritytargets.InIndia,progressivepolicyimprovementstoremedyauctionparticipation,financinganddistributedsolarPVchallengespayoffwithfasterrenewablepowergrowththrough2028.InPAGE16Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028LatinAmerica,higherretailpricesspurdistributedsolarPVsystembuildouts,andsupportivepoliciesforutility-scaleinstallationsinBrazilboostrenewableenergygrowthtonewhighs.RenewableenergyexpansionalsoacceleratesintheMiddleEastandNorthAfrica,owingmostlytopolicyincentivesthattakeadvantageofthecost-competitivenessofsolarPVandonshorewindpower.Althoughrenewablecapacityincreasesmorequicklyinsub-SaharanAfrica,theregionstillunderperformsconsideringitsresourcepotentialandelectrificationneeds.Theforecasthasbeenrevisedupwards,butcountryandtechnologytrendsvaryWehaverevisedtheglobalRenewables2023forecastupby33%(or728GW)fromourDecember2022publication.Formostcountriesandregions,thisrevisionreflectspolicychangesandimprovedeconomicsforlarge-scalewindandsolarPVprojects,butalsofasterconsumeradoptionofdistributedPVsystemsinresponsetohigherelectricityprices.Overall,Chinaaccountsforthemostsignificantupwardrevisionsforalltechnologiesexceptbioenergyforpower,forwhichreducedgovernmentsupport,feedstocklimitationsandcomplicatedlogisticsremainchallenging.Renewableelectricitycapacityforecastrevisionsbycountry,2023-2027,Renewables2023vsRenewables20223500100%GWRevisions300075%2500200050%150025%10005000%UpwardrevisionsDownwardrevisions0DownwardRenewablesChinaBrazilGermanyRenewablesUpwardIndiaUnitedStatesOthersKoreaSpainAustralia2022revisonsrevisions2023OmanASEANforecastforecastIEA.CCBY4.0.Notes:ASEAN=AssociationofSoutheastAsianNations.Capacityadditionsrefertonetadditions.Comparisonperiodsaretheforecastsfor2023to2027.Despiteregulatorychangestoitsnetmeteringscheme,Brazil’sdistributedPVcapacitygrowthisexceedingourexpectations,leadingtonoticeableupwardrevisions.Forothercountries,amoreoptimisticoutlookresultfrompolicyPAGE17IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028improvementsforauctiondesignandpermitting,andagrowingcorporatePPAmarketinGermany;positiveimpactsofIRAincentivesintheUnitedStates;andspeedierstreamlinedrenewableenergyauctioninginIndia.Conversely,wehavereviseddowntheforecastforKoreabecausethegovernment’spolicyfocushasshiftedfromrenewablestonuclearenergy,reducingsolarPVtargets.Wehavealsoreinedinforecastgrowthforothermarketscomparedwithlastyear’soutlook:forSpainbecauserenewableenergyauctionshavebeensignificantlyundersubscribed;forAustraliaduetocontinuedpolicyuncertaintyfollowingearlyachievementofitsLarge-scaleRenewableEnergyTarget(LRET);forOmanbecausedevelopmenttimeframesforlarge-scalerenewableenergyprojectshavebeenlongerthanexpected,includingforgreenhydrogen;andformultipleASEANcountriesasaresultofsustainedpolicyuncertaintyaswellasoverallpowersupplyglutslimitingadditionalrenewabledeploymentintheshortterm.China’ssubstantialupwardforecastrevisionforPVhidesslowerprogressinothercountriesOverall,China’sforecasthasbeenrevisedupby64%thankstothecountry’simprovedpolicyenvironmentandthegrowingeconomicattractivenessofsolarPVandwindsystems.Forothercountries,however,thisyear’sforecastisalmost7%higherthanourDecember2022outlook.Chinaaccountsforalmost90%oftheglobalupwardforecastrevision,consistingmainlyofsolarPV.Infact,itssolarPVmanufacturingcapabilitieshavealmostdoubledsincelastyear,creatingaglobalsupplyglut.Thishasreducedlocalmodulepricesbynearly50%fromJanuarytoDecember2023,increasingtheeconomicattractivenessofbothutility-scaleanddistributedsolarPVprojects.Thus,evenwiththephaseoutofsubsidies,developershavebeenacceleratingthedeploymentofutility-scaleandcommercialsolarPVapplicationstomeetgrowingpowerdemandbecauseitismoreaffordablethaninvestinginnewandexistingcoal-andgas-firedgeneration.Inaddition,China’sgovernmenthasclarifieditsgreencertificaterules,providingadditionalrevenuesforrenewableenergyprojects.Similarpolicyimprovementsalsosupportahigherwindforecast,butlongerprojectleadtimes,especiallyforthegrowingoffshorewindmarket,limitsupwardrevision.PAGE18IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Renewableelectricitycapacityforecastrevisions,Renewables2023vsRenewables2022AllrenewablesGlobalChinaOthersGlobalSolarPVChinaOthersGlobalWindChinaOthers-1000100200300400500600700800Forecastrevision(GW)IEA.CCBY4.0.Notes:Capacityadditionsrefertonetadditions.Comparisonperiodsaretheforecastsfor2023to2027.SolarPVandwindadditionsincludecapacitydedicatedtohydrogenproduction.ThewindforecastislessoptimisticoutsideofChinaOverall,thewindindustryisfacingfinancialchallengestheworldover(seetheFinancialHealthsection),withmostlargeWesternmanufacturershavingreportedlossesoverthepasttwoyears.AsoverallprojectdevelopmentoutsideofChinahasbeenslowerthanexpectedformostcountriesanalysed,wehaverevisedtheonshorewindforecastdownwards.OutsideofChina,onshorewindadditionsarenotadvancingconsiderablyinotherlargemarketssuchasIndiaandAustralia,andtheforecasthasbeenreviseddownfortheASEANregion,AfricaandtheMiddleEastduetoslowprojectprogressandongoingpolicyuncertainties.IntheEuropeanUnion,longpermittingwaittimes,supplychainchallengesandhigherequipmentandfinancialcostsalsoreduceanticipatedonshorewinddeployment.However,costsforoffshorewinddevelopmenthaverisenthemost,causingustorevisethisyear’sforecastdownby16%outsideofChina.TheoffshoreindustryisfacingheadwindsFollowingthecapacitygrowthresultingfromfavourablepoliciesanddecliningcostsoverthelastdecade,thecostofmaterialsusedtomakeoffshorewindPAGE19IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028componentshasbeenrisingsinceearly2020duetosupplychainconstraintsandinflation,leadingtoamorethan20%increaseinoffshorewindinvestmentcosts.Inaddition,higherfinancingcostsareputtingadditionalpressureondevelopersthatsignedpowerpurchaseagreementsunderlowequipmentandborrowingcostsbeforetheglobalenergycrisishit.TwoofthelargestcountriesforoffshorewindadditionsoutsideofChina–theUnitedStatesandtheUnitedKingdom–arebeingacutelyimpactedbythechangingeconomicconditions.IntheUnitedStates,over10GWofcapacitypreviouslyawardedinstatetendershavebeendelayedorareatriskofbeingdelayedorcancelled,resultinginadownwardrevisionofmorethan60%toourUSoffshorewindforecast.Projecteconomicsarethemainfactor,withdeveloperstryingtorenegotiatetheircontractpricesbecausebidswereawardedinaneconomiccontextoflowinterest,inflationandcommoditypricerates.Somedeveloperswhocancelledawardedprojectsareplanningtobidforthecapacityagaininfutureauctions,presumablyatahigherprice.Indeed,thestateofNewYorkplanstoholdnewtenderstoreplacecancelledprojects,withpricesindexedtoinflation.Auctionandtenderparticipationhavealsobeenimpacted,withthelatesttenderinRhodeIslandattractingonlyonebid,whileafederalleaseauctionintheGulfofMexicoalsoresultedinonlyonebid,withtwoleaseareasreceivingnobidsatall.OffshorewindcapacityforecastrevisionsexcludingChina,andwindcomponentcommoditypriceincreases60800000GWUSD/MW507000006000004050000030400000203000002000001010000000Renewables2022Renewables20232020priceQ12023priceCopperAluminiumUKUSChineseTaipeiSteel(US)CastIronGermanyNetherlandsVietNamFranceDenmarkKoreaIEA.CCBY4.0.RisingoffshorewinddevelopmentcostshavealsoaffectedtheUnitedKingdomintwoways.Thefirstislowauctionparticipation,withthemostrecentrenewableenergyauctionattractingnobidsforthe4GWofoffshorewindcapacityavailablebecausethemaximumbidpriceofGBP44/MWh(in2022GBP)wasnothighenoughtocoverthecostofbuildingnewcapacity(GBP53/MWh).PAGE20IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Thesecondisprojectcancellation,withhighercostsmakingituneconomictobuildpreviouslyawardedcapacity:forinstance,VattenfallcancelledtheNorforkBoreas1.4-GWoffshorewindprojectbecausecostshaverisen40%.WhilepricesawardedinUKcontract-for-difference(CfD)auctionsdonotadjustforrisinginflationbetweencontractawardingandprojectcommissioning,themaximumpriceforauctionsannouncedinNovember2023wasincreased66%(fromGBP44/MWhtoGBP73/MWh).ThenewmacroeconomicenvironmentpresentsadditionalrenewableenergychallengesExponentialrenewableelectricityexpansion,alongwithstrongpolicysupport,hasreducedwindandsolarPVgenerationcostsbymorethan80%since2010.However,asignificantmajorityofthisgrowthinadvancedeconomiestookplaceduringthequantitativeeasingperiodwhencentralbankbaseinterestrates(excludingprojectandcompanyriskpremiums)werebelow1%intheEuropeanUnion,theUnitedKingdomandtheUnitedStates.Inemergingeconomies,interestrateswereconsiderablyhigherduringthesameperiod,butthiswaspartiallycounterbalancedbymuchlowerinvestmentcosts,especiallyinChinaandIndia.Theavailabilityoflow-costfinancingsupportedbygovernmentsandinternationalfinancialinstitutions,alsoboostedgrowth.Quarterlyinterestratesandinflationinselectedcountries,2019-2023InterestrateInflation%United1416States14IEA.CCBY4.0.121210UnitedKingdom1086Eurozone842Brazil604China2India0-2IEA.CCBY4.0.Source:BloombergLP.Since2022,centralbankbaseinterestrateshaveincreasedfrombelow1%toalmost5%,andannualinflationhasreachedaround10%inmanyadvancedeconomiesinmid-2022.In2023,newrenewableenergycapacityfinancedinadvancedeconomieswasexposedtohigherbaseinterestratesthaninChinaandPAGE21Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028globalaverageforthefirsttime,mainlybecausetheChinesegovernmentdecidedtocutinterestratesratherthanfollowtheglobaltrend.Inemergingmarketsanddevelopingeconomies(EMDEs),renewabledevelopershavealwaysexposedtohigherinterestedrates,resultinginhighercostshamperingfasterexpansionofrenewablecapacity.ThelackofaffordablefinancingremainsthemostimportantchallengetorenewableprojectdevelopmentinmostEMDEs,especiallyincountrieswhererenewablepolicyuncertaintiesalsoincreaseprojectriskpremiums.Averagecentralbankbaseinterestratesweightedbyrenewableenergydeployment,2010-202310987654321020102011201220132014201520162017201820192020202120222023%AdvancedeconomiesEmergingeconomiesIEA.CCBY4.0.ChinaWorldIEA.CCBY4.0.Notes:Weightedaveragesarebasedonrenewablecapacitydeployedforeachcountry/region.Countrieswithlimitedinformationonofficialinterestratesareexcludedfromthisanalysis.Theimplicationsofthisnewmacroeconomicenvironmentaremulti-fold.First,inflationhasraisedequipmentcostsforonshoreandoffshorewindand,partly,forsolarPV(excludingmodulecosts1).Second,higherinterestratesareincreasingthefinancingcostsofcapital-intensivevariablerenewabletechnologies.Third,delayedpolicyresponses(becausegovernmentshavebeenexpectingthepastdecade’scostreductionstocontinue)andpermittingchallengeshaveleftseveralauctionsinadvancedeconomies,especiallyinEurope,undersubscribed.Additionally,developerswhosepowerpurchasecontractsweresignedpriortothesemacroeconomicchangeshavehadtocanceltheirprojects.GovernmentpoliciestoimproveauctiondesignandcontractindexationmethodologieswouldhelpresolvethesenewchallengestounlockadditionalwindandsolarPVcapacitydeployment.1Modulecostshavenotdeclinedworldwide.CountrieswithtrademeasuresagainstChinesecellsandmodulesarenotexperiencingpricereductions.PAGE22Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Rapidgovernmentresponsestogridconnection,permitting,policyandfinancingchallengescanacceleraterenewableenergygrowthInthemaincase,takingcountry-specificchallengesthathamperfasterrenewableenergyexpansionintoaccount,weforecastthatalmost3700GWofnewrenewablecapacitywillbecomeoperationalworldwideoverthenextfiveyears.Incontrast,inouracceleratedcase,weassumethatgovernmentsovercomethesechallengesandimplementexistingpoliciesmorequickly.Thesechallengesfallintofourmaincategories.Firstarepolicyuncertaintiesanddelayedpolicyresponsestothenewmacroeconomicenvironment,encompassinginflexibleauctiondesign.Duringtheenergycrisis,governmentsintervenedinenergymarketstoprotectconsumersfromhighprices.Whiletheseinterventionswerejustified,theyalsocreateduncertaintyforinvestorsoverthefutureinvestmentenvironmentintheelectricitysector.ThemacroeconomicchangesalsodroveupcostsandcontractpricesforwindandsolarPVprojects,andalackofreferencepriceadjustmentsandcontractpriceindexationmethodologiesreducedthebankabilityofprojects,mostlyinadvancedeconomies.Meanwhile,emergingeconomieshavebeenslowtodevelopstrongrenewableenergytargetsandclearincentiveschemes.Whilerenewableenergyprojects(especiallysolarPVandwind)arealreadymoreaffordablethanfossilfuel-basedalternatives,slower-than-expecteddemandgrowthhasresultedinovercapacityofyoungcoalandgasfleetsinmanyemergingeconomies,creatinglittleneedforadditionalcapacity.Thesecondproblemisinsufficientinvestmentingridinfrastructure,whichhasbeenpreventingfasterexpansion.Today,morethan3000GWofrenewablegenerationcapacityareingridqueues,andhalfoftheseprojectsareinadvancedstagesofdevelopment.2Thischallengeholdstrueforbothadvancedeconomiesandemerginganddevelopingcountries.DevelopmentleadtimesforgridinfrastructureimprovementsaresignificantlylongerthanforwindandsolarPVprojects.Thethirdchallengeinvolvespermitting.Theamountoftimerequiredtoobtainpermitscanrangefromonetofiveyearsforground-mountedsolarPVprojects,twotonineyearsforonshorewind,andnineyearsonaverageforoffshorewindprojects.Delaysresultingfromcomplexandlengthyauthorisationproceduresareslowingprojectpipelinegrowth,limitingparticipationinrenewableenergy2ConnectionqueuedatabasedonpubliclyavailableinformationfromtheUnitedStates,Brazil,Colombia,Spain,France,IEA.CCBY4.0.Italy,theUnitedKingdom,India,Japan,Chile,Germany,AustraliaandMexico.PAGE23Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028auctions,raisingprojectrisksandcosts,andultimatelyweakeningprojecteconomics.Thefourthobstacleisinsufficientfinancingindevelopingcountries.Mitigatingrisksinhigh-riskcountriesthroughconcessionalfinancingcontinuestobechallengingbecauseofongoingpolicyuncertaintiesandimplementationchallenges,forinstanceinKenya,SouthAfrica,andNigeria.Inmanydevelopingcountries,government-ownedutilitiesareunderfinancialstressandtheweightedaveragecostofcapital(WACC)canbetwotothreetimeshigherthaninmaturerenewableenergymarkets,reducingprojectbankability.EverypercentagepointdeclineintheWACCreduceswindandsolarPVgenerationcostsbyatleast8%.Renewablecapacitygrowthbytechnology,2005-2028GW5000Ocean4500CSP4000Geothermal3500Bioenergy3000Hydropower2500PVandwindforH22000Offshorewind1500Onshorewind1000PV-distributedPV-utility5000IEA.CCBY4.0.2005-20102011-20162017-20222023-20282023-2028MaincaseAcccaseNotes:CSP=concentratedsolarpower.Capacityadditionsrefertonetadditions.Governmentshavemultipleoptionstoaddressthesechallengesintheshorttermtounlock21%morerenewablecapacityintheacceleratedcase,withalmost4500GWbecomingoperationalinthenextfiveyears.Inouracceleratedcaseforecast,governmentscanachieveimportantpolicyimprovementsby:Simplifyingpermittingproceduresand/orsettingclearpermittingtimelines;identifyingpreferentialareasforrenewableenergyprojectstofast-trackpermitting;andremovingcertainpermittingrequirementsforsmallrenewablepowerprojectsorincreasingtheminimumcapacityrequirementforenvironmentalimpactassessmentswithoutcompromisingstrongsustainabilitymeasures.Consideringthatnewgridinfrastructureoftentakes5-15yearstoplan,comparedwith1-5yearsfornewrenewableenergyprojects;aligningandintegratingplanningandexecutionoftransmissionanddistributiongridprojectswithbroadlong-termenergyplanningprocesses,andensuringthatregulatoryriskassessmentsallowforanticipatoryinvestments.PAGE24IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Standardisingpowerpurchasecontractsandbackingthemupwithgovernmentguarantees,especiallyforpubliclyownedutilities,toreducefinancialrisksforoff-takers.Adaptingauctiondesignstothenewmacroeconomicenvironmentbyindexingcontractpricestovariousmacroeconomicindicatorsspecifictoeachrenewabletechnology,suchasrelevantcommodityprices,inflationandinterestratesfordifferentstagesofprojectdevelopment.Implementingpoliciesandregulatoryreformstode-riskrenewableenergyinvestmentsandreducingthecostoffinancing,especiallyinEMDEs.Inouracceleratedcase,onshorewindandutility-scalesolarPVtogetherhavethelargestupsidepotential.Simplifyingpermittingandadaptingauctiondesignswouldleadtohigherauctionsubscriptions,andthusfasterdeploymentofutility-scalesolarPVandwindpowerplants,aswouldhigherinvestmentintransmissionanddistributiongrids.FordistributedsolarPV,althoughwehavealreadyrevisedourforecastupwardstoreflectpolicyimprovementsandhigherretailpricesforelectricity,thepaceofconsumeradoptionisalwaysaforecastuncertainty,especiallyinahigh-interest-rateenvironment.OuracceleratedcasethereforeassumesfasteradoptionofresidentialandcommercialsolarPVthankstotheprolongationofhighretailelectricitypricesandgovernmentsupportforlow-costfinancing.NetZeroEmissionsby2050ScenariotrackingThetriplinggoaliswithinreach,butmoreeffortisneededPriortotheCOP28climatechangeconferenceinDubai,theInternationalEnergyAgency(IEA)urgedgovernmentstosupportfivepillarsforactionby2030,amongthemthegoaloftriplingglobalrenewablepowercapacity.SeveraloftheIEAprioritieswerereflectedintheGlobalStocktaketextagreedbythe198governmentsatCOP28,includingthetriplingrenewablesgoal.Triplingglobalrenewablecapacityfrom2022levelsby2030wouldtakeitto11000GW,inlinewiththeIEANetZeroEmissionsby2050Scenario.Underexistingpoliciesandmarketconditions,globalrenewablecapacityisforecasttoreach7300GWby2028inourmaincase.Althoughthisgrowthmeansthatrenewablesaccountforalmostallnewlyaddedpowercapacityworldwide,itstrajectorywouldseeglobalcapacityincreaseto2.5timesitscurrentlevelby2030,fallingshortofthetriplinggoal.Inouracceleratedcaseforecast,globalcumulativecapacitymorethandoublestoreachover8130GWby2028,puttingtheworldnearlyontracktomeettheglobaltriplingpledge.PAGE25IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Renewablecapacitygrowthfrom2022to2030andthegaptoglobaltriplingrenewablesgoalIEA.CCBY4.0.In2023,G20countriescollectivelyaccountedforalmost90%ofglobalcumulativerenewablepowercapacity.InSeptember2023,G20leadersdeclaredtheirwillingnessto“…pursueandencourageeffortstotriplerenewableenergycapacitygloballythroughexistingtargetsandpolicies,[…],inlinewithnationalcircumstancesby2030”.Accordingly,theyhavethepotentialtosignificantlycontributetoaglobaltriplingofrenewables,throughfullandfasterimplementationofexistingpoliciesandtargets.However,strongerpolicyeffortsareneededinmanyothercountries.Renewableenergyexpansionin2023washeavilyconcentratedinjusttencountries,responsiblefor80%ofglobalannualadditions.Toachieveatriplingofglobalrenewablecapacity,amuchfasterdeploymentrateisnecessaryinnumerousothernations.Moreover,manyemerginganddevelopingeconomiesrelyprimarilyonhydropower.ThisimpliesthatsolarPVandwindmustgrowsignificantlymorethanthreefoldby2030tomeettheglobaltriplinggoal.Achievingthiswilldemandnewpoliciestailoredtotheuniquecircumstancesandrequirementsofemerginganddevelopingnations.Relativetoouracceleratedcaseprojectionsforrenewablecapacityin2028,reachingthetriplingofrenewablesby2030wouldnecessitatethecommissioningofalmost3000GWofnewrenewablecapacityin2029and2030.Averageannualrenewablecapacityadditionsin2029-2030wouldthereforehavetobe165%higherthanin2027-2028,thelasttwoyearsofouracceleratedcaseforecast.PAGE26IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Cumulativerenewableelectricitycapacityintheacceleratedcase(2022-2028)andNetZeroScenario(2030)120001200010000100008000800060006000400040002000200000202220232024202520262027202820292030NZE202220232024202520262027202820292030NZEPVWindHydropowerBioenergyOtherrenewablesRestoftheworldG20G7IEA.CCBY4.0.Note:NZE=IEANetZeroEmissionsby2050Scenario.G7andG20aggregatesincludeallEUcountries.SolarPVandwindincludecapacitydedicatedtohydrogenproduction.Source:FortheNetZeroScenario,IEA(2023),WorldEnergyOutlook2023.Gapsalsovarysignificantlybytechnology.ForsolarPV,additionsneedtoincreasejust35%in2029and2030whileforwindtheywouldneedtodouble.Forhydropowerandotherrenewables,annualadditionsneedtotriplecomparedwith2027and2028.AverageannualrenewableelectricitycapacityadditionsandgaptoIEANZEScenarioAverageannualcapacityadditionsNZEgap2029-2030SolarPV2027-2028AcceleratedcaseWind2025-262023-24Hydropower2021-2022Otherrenewables050010001500GWIEA.CCBY4.0.Notes:NZE=IEANetZeroEmissionsby2050Scenario.Capacityadditionsrefertonetadditions.SolarPVandwindadditionsincludecapacitydedicatedtohydrogenproduction.Source:IEA(2023),WorldEnergyOutlook2023.PAGE27IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028RegionalforecasttrendsChinaIncreasingsolarPVandwindcompetitivenessspursastepchangeinrenewableenergygrowthChina’srenewableenergycapacityisexpectedtoexpandbyover2TWover2023-2028,triplinggrowthofthelastfive-yearperiod,withsolarPVmakingupthree-quartersoftheincrease.Owingtonewinvestmentssincemid-2022,China’ssolarPVmanufacturingcapacitynowstronglyexceedsbothlocalandglobaldemand,whichhasdrivenmodulepricesdownsignificantlyandmadesolarinstallationsmorecompetitivewithregulatedpowerprices.Withthephaseoutofcentral-governmentsubsidies,windandPVdevelopersaresigning15-to20-yearpowerpurchasecontractsatadministrativelysetprovincialbenchmarkelectricityprices,mostlydefinedbycoalgeneration.Today,generationcostsfornewutility-scalesolarPVandonshorewindsystemsarelowerthanforcoalinalmostallprovinces,creatingamoreoptimisticoutlookastheyhelpprovincesachievelowerelectricityprices.OurforecastexpectsthatChinawillreachits1200GWofcumulativesolarPVandwindcapacitytargetby2030thisyear.Chinarenewablecapacityadditionsbytechnology,mainandacceleratedcases,2011-2028500GW25002016450201720184002000201920203502021202230020232024250150020252026200202720281501000202320241002025202650500202720280IEA.CCBY4.0.HistoricalMaincaseAccelerated02017-222023-282023-28HydropowerBioenergycase2011-16MaincaseAcc.caseWindonshoreWindoffshoreUtility-scalePVDistributedPVOtherrenewablesHydrogenIEA.CCBY4.0.Note:Hydrogenreferstorenewablecapacitydedicatedtohydrogenproduction.OtherrenewablesrefersgeothermalandCSP.WithseveralpolicyandmarkettrendsdoublingChina’srenewablecapacityexpansioninthenextfiveyears,wehavereviseditsrenewableenergyforecastup64%fromlastyear.First,solarPVmodulecostshaveplummeteddrasticallyPAGE28Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028becauseofthegrowingsupplyglutwhileinterestrateshavebeenindeclinesinceJanuary2023,makingsolarPVpowermorecompetitivewithcoal-firedgeneration.Second,recentpowermarketreformsandgreencertificatesystemshaveallowedsomeutility-scalesolarPVandwinddeveloperstotapintobetterpricesthanunderregulatedcontracts.Electricitypricesarehigherinseveralprovinceswheremorepoweristradedinlocalwholesalemarkets.Inaddition,theenergyregulatorhasclarifieditsrulesforgreenenergycertificates,forwhichdemandisincreasing,anddevelopersinresource-richareascangainadditionalrevenuesbysellinggreenpowertootherprovinces.Third,provincialfinancialsupportforsmall-scaleresidentialsolarPVsystemsandrisingretailpricesthisyearintheindustrysectorhavebeenstimulatingfastercommercialandindustrialdeployment.However,China’srapidsolarPVandonshorewindgrowthisexpectedtopresentgridintegrationchallengesfornewutility-scaleanddistributedPVprojectsandimpactprojecteconomicsinthemediumterm.InNorthandNortheastprovinces,curtailmentisexpectedtoincreaseandreduceprojectbankability,especiallygiventhelargenumberofplantsbeingdeployedinthesegridareas.Inouracceleratedcase,quickerimplementationofpowermarketreformsandinterprovincialgreenenergycertificatetradingcouldalleviatesystemintegrationissuesandunlockadditionalcapacityof13%.Overall,though,theupsidepotentialoftheacceleratedcasecomparedwiththemaincaseisratherlimitedbecauseChina’scurrentgrowthtrajectoryindicatesitwilloverachieveonmostofitsannouncedrenewableenergytargets.UnitedStatesWhiletheInflationReductionActspurssolarPV-ledgrowth,theoffshorewindforecastisreviseddownTheUnitedStatesisforecasttoaddnearly340GWofrenewableenergycapacityover2023-2028,almostallinsolarPVandwindinstallations.Whilesupplychainissuesandtradeconcernsstilllingerinthemarketinthenearterm,theInflationReductionAct(IRA)hasacceleratedthepaceofadditionsfromlastyear’sforecast.Growthisstrongerespeciallyforthelateryearsoftheforecastperiod,asfinalcreditguidancefromtheInternalRevenueServicedoublesannualinvestmentsinrenewableelectricityfromfiveyearsago.Nevertheless,theoffshorewindforecasthasbeenreviseddownbymorethan60%becauseprojectdevelopersarecancellingordelayingplannedorcontractedcapacityduetocurrentmacroeconomicconditions.PAGE29IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Forutility-scalesolarPVandonshorewind,growthisdrivenbytheIRA’scleanenergytaxcreditsavailableforbothtechnologiesbeginningin2024.Projectscanqualifyforeithertheinvestmentortheproductiontaxcredit,withadditionalcreditsfordomesticcontent;forsitingaprojectinanenergycommunity,alow-incomecommunityoraqualifyinglow-incomeresidentialbuildingprojectofeconomicbenefit;andforpayingprevailingwagesandusingregisteredapprentices.SolarPVleadsadditions,withutility-scalecapacityincreasingsteadilythroughouttheforecastperiod,thoughacontractioninresidentialgrowthisexpectedin2024duetonet-meteringrulechangesinCalifornia,thecountry’slargestresidentialmarket.DistributedsolarPVgrowthisencouragedbythefederaltaxinvestmentcredit,alongwithstate-andutility-levelincentivesfornetmetering.Meanwhile,onshorewindadditionsremainrelativelystableinthefirsthalfoftheforecastperiodasprojectsthatqualifiedforpreviousincentivescomeonline.Additionsaccelerateinthesecondhalf,however,asthecreditcertaintyprovidedbytheIRAboostsdevelopment.Offshorewindgrowthisenabledbyfederalleaseauctionsandstate-leveltenders.WhilethefirstmajoroffshorewindprojectintheUnitedStatesbegandeliveringpowertothegridin2023,additionalprojectsthatalreadyreceivedfederalapprovalcreatehigheradditionsinthesecondhalfoftheforecastperiod.UnitedStatesrenewablecapacityadditionsbytechnology,mainandacceleratedcases,2011-2028100GWMaincaseAccelerated450802016case400602017350402018300202019250020202002021150-202022100Historical2023202450202502017-222023-282023-282026MaincaseAcc.case2027-5020282011-16202320242025202620272028IEA.CCBY4.0.HydropowerBioenergyWindonshoreWindoffshoreUtility-scalePVDistributedPVOtherrenewablesHydrogenIEA.CCBY4.0.Note:Hydrogenreferstorenewablecapacitydedicatedtohydrogenproduction.OtherrenewablesincludesgeothermalandCSP.Negativenetadditionsrefertoretirements.WhiletheIRAprovideslong-termincentivesforgrowth,somemarketchallengespersist.Firstaresupplychainconstraints,whichhaveledtoprojectdelaysforbothwindandsolarPV.Whilelogisticalandpricingchallengeshaveeased,thecompoundingeffectsofpreviousdelaysarestillbeingfelt,especiallyintheshortterm.PAGE30Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Second,gridconstraintsandconnectionqueuebacklogsareagrowingconcern.TheFederalEnergyRegulatoryCommitteehasthereforeissuednewrulestoreduceconnectionqueues,andsomeregionalTSOshavereconfiguredtheirprojectassessmentpolicytomeetrisingdemand.TwoadditionalchallengesforsolarPVarethepotentialformodulestobedelayedatportswhilecustomsofficialsverifycompliancewithtraderegulations,andconsumerhesitancytoinstalldistributedPVduetoinflationandrisinginterestrates.Asimilarchallengeexistsforoffshorewind,withmultipleprojectsbeingcancelled,delayedorrequestingcontractpricerenegotiationsbecauserisingcostsandinterestrateshavechangedtheprojecteconomics.Intheacceleratedcase,addressingtheseconcernsormitigatingtheireffectsresultsinover17%highergrowththaninthemaincase.AsiaPacificRenewablecapacityisexpectedtoincreasebyalmost430GWover2023-2028–73%growthfrom2022.SolarPVmakesupovertwo-thirdsoftheexpansion,mostlyfromutility-scaleapplications.Indiawillaccountforhalfoftheregion'sgrowth,withtheAssociationofSoutheastAsianNations(ASEAN)contributing14%andJapan11%.By2028,annualAsia-Pacificrenewableenergycapacitygrowthisexpectedtoalmostdoublefromthe2022level,butitscontributiontoglobalexpansionremainsthesame.Overall,ourforecastismostlyunchangedfromlastyear,asdownwardrevisionsforKoreaandAustraliaareoffsetbyamorepositiveoutlookforIndiaandJapan.Indiaisforecasttoadd205GWover2023-2028,doubling2022’scumulativeinstalledcapacity,makingittheworld’sthird-largestmarketforrenewables.Theannouncementofhigherauctionvolumes,theintroductionofaclosed-envelopebiddingprocessforwind,improvementsingrid-accessrulesforcommercialdistributedPV,thesettlementofmajorityofoverduepaymentstothegeneratorsledto3%upwardforecastrevision.UndertakenactionsareexpectedtohelpIndiaadvancetowardsitsgoalofinstalling500GWofnon-fossil-basedcapacityby2030.InJapan,renewableenergydeploymentisfuelledprimarilybyprojectsawardedunderthepreviousfeed-in-tariffschemeandthenewlyintroducedfeed-in-premium(FIP)mechanism.OversubscriptioninthefirstFIPauctionin2022,coupledwithfaster-than-expectedgrowthofthecorporatePPAmarket,hasresultedinaforecastrevisionofcloseto15%.PAGE31IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028AsiaPacificrenewablecapacityadditions,2011-2028GW70070%GW7000.0%60060%600-1.0%500-2.0%50050%400-3.0%300-4.0%40040%200-5.0%10030030%020020%2011-162017-22Historical10010%Hydropower2023-282023-280INDASEANJPN0%BioenergyAPACAUSOtherAPACPV-distributedMainAcc.caseForecastrevision%caseMainAcc.caseupsidepotentialvsmaincaseAcc.casecaseWindPV-utilityIndiaASEANOtherJapanAustraliaOtherAPACAcc.caseupsidepotential%IEA.CCBY4.0.Notes:Otherincludesgeothermalandrenewablecapacitydedicatedtohydrogen.APAC=AsiaPacific.IND=India.ASEAN=AssociationofSoutheastAsianNations.JPN=Japan.AUS=Australia.Conversely,wearerevisingKorea’sforecastdownbyover40%andAustralia’sdownbyover10%.InKorea,thisrevisionresultsmainlyfromthegovernment'sdecisiontolowertherenewableenergytargetfor2030from30%to22%.Thisshiftreflectsastrategicdecisiontoenlargetheroleofnuclearpowerinthecountry’senergytransition.Inaddition,auctions,whicharetheprimarymechanismtosupportrenewableenergygrowth,continuedtobesignificantlyundersubscribedin2023.InAustralia,alackofnewfederalincentivesandrisinginvestmentcostshavedelayedthedevelopmentofnewprojects.Notably,thedistributedPVsegment,whichhasbeentheprimarysourceofgrowthinAustraliainrecentyears,isforecasttoexperienceafaster-than-anticipateddeclineininstallationsduetosaturationofthepowersystemandincreasinggridintegrationchallenges.FortheASEANregion,ourforecastismostlyunchangedfromlastyear.InIndonesia,thegovernmentissuedadecreein2022toestablishapolicyframeworkforanewauction-basedrenewableenergysupportsystem.However,thedetailedregulationsnecessaryforprocurementandprojectdevelopmentwerestillpendingasofOctober2023,whichhasdelayedtheexpectedpositiveimpactofthenewpolicy.InVietNam,themuch-anticipatednewNationalElectricityDevelopmentPlan,whichincludesrenewablecapacitytargetsfor2030,hasbeenadopted.Theplanassumessignificantdeploymentofwindcapacity;however,thegovernmenthasnotaddressedagapinpolicysupportpresentsince2021,whichisimpedingprojectdevelopment.PAGE32IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Meanwhile,thePhilippinesintroducedanauctionprogrammein2022thatisexpectedtosignificantlyboostutility-scalePVandonshorewindgrowth.Althoughthegovernmenthasannouncedambitiousauctionvolumetargets,rapiddeploymentisbeinghamperedbydelaysindevelopingthetransmissionsystem.InThailand,thecontinuedabsenceofsubstantialpolicysupporthaslimitedthepaceofrenewableenergygrowth,withonlymodestadditionsexpectedforthedistributedPVsegment.Intheacceleratedcase,Asia-Pacificrenewableenergygrowthin2023-2028couldsurpassmaincaseprojectionsbymorethan40%,whichisnearlydoubletheglobalaverage.TheASEANregionandIndiahavethegreatestpotentialforacceleration.ForIndia,itsalready-dynamicdevelopmentcouldjumpalmost45%ifpolicymakersaddressthepoorfinancialperformanceofutilitycompanies(DISCOMs)andsluggishdistributedPVdeployment,andfacilitatewindprojectdevelopment.UpsidepotentialfortheASEANregionisevenmoresignificant,closeto60%andgivingitoneofthehighestgrowthpossibilitiesglobally.However,realisingthispotentialwillrequiremoreambitiousrenewableenergytargetsandtheswiftimplementationoflong-term,transparentandcompetitivesupportpolicies.InthedevelopedcountriesoftheAsiaPacificregion,i.e.Japan,KoreaandAustralia,overcominggridbottlenecks,streamlininglengthypermittingprocessesandenhancingsystemflexibilityshouldbeprioritisedtoacceleratedeployment.Fossilfuel-basedovercapacityisasignificantimpedimenttoASEANrenewableenergydeployment,whilesystemintegrationchallengesremainlimitedExistingcoal-andgas-firedpowerplantovercapacityinsomeASEANcountries,includingIndonesia,thePhilippines,ThailandandMalaysia,remainsamajorobstacletofasterrenewableenergydeployment.Overthelastdecade,manycountriesintheregionoverinvestedinconventionalgenerationassets,mainlycoal-fired,basedonoptimisticpowerdemandprojectionsandconservativesafetymarginsforinstalledcapacity.Asaresult,todayreservemargins(excessofdispatchablecapacityoverpeakdemand)intheregionoftenexceed50%andreachover90%inIndonesia.Theregionalsohasaveryyoungfossilfuel-firedfleetcapableofmeetingelectricitydemandevenin2028,withmoreunderdevelopment.Manyoftheseassetshaveenteredfixedortake-or-paycontractswithutilitycompaniestosecurefinancing.Utilitiesboundbylegacysupplycontractsforthenext10-15yearshavelittlefinancialincentivetocontractnewrenewablepower,astheyareobligatedtocompensatefossilfuelplantoperatorsforanydisplacedgeneration.ThiswouldPAGE33IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028createadditionalfinancialstressformultipleutilitiesintheregion.VietNamremainsanexception,havingdynamicdemandgrowththatallowsthepublicutilitytoprocurepowerfromallsources,withcostbeingtheprimarycriterion.Findingsolutionstothiscomplexissuerequiresamultidimensionalapproachaimingacoordinatedandorderlytransition.Itisnecessarytoacceleraterenewableenergygrowthtoachieveclimategoalswhileatthesametimeacknowledgingthelimitedprocurementcapabilitiesofutilitycompaniesandalleviatingtheriskofmanynewfossilfuelplantsbecomingstrandedassets.ShareofVREgenerationinthemaincaseforecast,2016-2028(left),installeddispatchablecapacityandpeakpowerdemand,2022(right)20%2016902022202880201615%202270202820166020222028201620222028201620222028GW5010%40305%20100%0VietNamPhilippinesThailandIndonesiaMalaysiaDispatchablecapacityPeakdemandVREshareSafetymarginrange-upperSafetymarginrange-lowerNotes:VRE=variablerenewableenergy.IEA.CCBY4.0.Governmentinterventionisthusrequiredtointroducemoreflexibilityintoexistingfixedcontractsandenablelowerannualcapacityfactorsforfossilfuel-firedpowerplants,whileensuringthatgeneratorsreceivefairreturnsontheirinvestments.Governmentsshouldalsore-evaluatetheneedfornewconventionalplantsandexploreoptionsforearlyretirementoftheoldestassetsthroughagreementswithplantoperators.Furthermore,theuseofinternationalfinancialsupport,throughinitiativessuchastheJustEnergyTransitionProgramme,couldbeconsideredtoreducefinancialpressureongovernmentbudgets.VietNamandIndonesiaarealreadytakingadvantageofthisopportunity,havingsignedtheirJETPagreementsin2023.ConsideringtherelativelylowpenetrationofwindandsolarPVsystemsinmanyASEANeconomies,theupsidepotentialinouracceleratedcasecomparedwiththemaincaseisoneofthelargestofallregions.Until2028,variablerenewableenergy(VRE)generationinthePhilippines,Thailand,IndonesiaandMalaysiaisPAGE34IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028expectedtoremainbelow10%–inintegrationphase2inmostcases,accordingtoIEAcategorisation(seethesectiononVREshareslaterinthischapterforanexplanationofsystemintegrationphases).Inotherwords,adjustingpowersystemoperationstoaccommodateadditionalVREcapacityisexpectedtorequirerelativelystraightforwardflexibilitymeasuresandlimitedinvestments.Existingdispatchableassets,primarilyfossilfuelandhydropowerplants,shouldprovidetheflexibilitynecessarytoaccommodatePVandwindcapacity,evenintheacceleratedcase.Nevertheless,totakeadvantageofthisaffordableandrelativelyeasy-to-integratevariablerenewableenergy,governmentsupportwillberequiredtoaddressthechallengesofconventionalpowerplantovercapacityandinflexiblelegacycontracts.VietNamremainsanexceptioninthisregardbecausethecountryisalreadyexperiencingsystemintegrationchallengesfollowingthesolarPVboominwhichinstallationsreached20GWin2019and2020.ThisrapidexpansionofsolarPVinsuchashorttimeinconcentratedareasresultedingenerationcurtailmentandtheneedtoenlargeinvestmentsintransmissionanddistributioninfrastructurequickly.EuropeThepaceofrenewablecapacitygrowthinEuropewillmorethandoublein2023-2028comparedwiththeprevioussixyears,withadditionstotalling532GW.SolarPVaccountsforover70%oftheexpansion,ledbydistributedsystems,whichisone-thirdmorethanutility-scale.Windaccountsforanother26%ledbyonshoreprojects.Themaindriversforutility-scalegrowthare:1)supportivepolicies,intheformofgovernmentauctionstoachievelong-termrenewableenergytargets;and2)attractivemarketconditionsforunsubsidisedprojectsthroughbilateralcontractsbetweenIPPsandcorporateconsumersorutilities,insomecasessupportedbyrevenuesfromthewholesalemarket.Owingtohighretailelectricitypricesandpoliciesthatremunerateexcessgeneration,thebusinesscaseforself-consumptionisamajorattractionfordistributedsolarPVuptake.WhilewehaverevisedtheforecastforEuropeupby12%fromlastyear,thisreflectssolelyamoreoptimisticoutlookforsolarPV.DistributedsolarPVcontinuestobethemainsourceofexpansion,andthemainreasonfortheupwardrevisionbecausehighelectricitypricesandbetterpolicysupportaremakingself-consumptionmoreeconomicallyattractive.SixtypercentoftheadditionaldistributedPVcapacityrevisioncomesfromGermany,Italy,Spain,Sweden,theUnitedKingdom,France,theNetherlands,andBelgium,wheregovernmentshaveintroducednewfeed-intariffsandtaxexemptionsandextendedexistingsupportschemesin2022toacceleratedistributedPVuptake.Thisresultedinrecord-PAGE35IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028breakinggrowthin2022andinsomemarkets,higherthanexpectedgrowthin2023,promptingourupwardforecastrevision.SincetheRenewables2022forecast,otherEuropeancountries’outlookshavealsobeenrevisedupwardsastheycontinuedtoimplementnewpoliciesin2023.Forinstance,FinlandmandatednetmeteringforallDSOsstartinginJanuarywhileIrelandincreaseditssizeeligibilityfrom6kWto1MW.Inthefirstfivemonthsof2023,Switzerland,SloveniaandBulgariaintroducedrebateschemes,whilefundingforexistingrebateschemeswasincreasedinCzechiaandRomania.RomaniaalsoreduceditsVATforPVsystemsfrom19%to5%inJanuary,whileIrelandslasheditto0%inAprilandAustriafollowedsuitinOctober.Europerenewablecapacityadditionsbytechnology,mainandacceleratedcases,2011-2028(left)andforecastrevisions(right)8008080%GWGW6006046%60%4040%4002020%5%20000%0-20-7%-7%-20%2011-162017-2220M2a3i-n2820A2c3c-.28-40-51%-43%-40%HydrogencaseCase-60%Otherrenewables-60Distrib.Utility-WindHydrogenOthersWindDistributedPVUtility-scalePVPVscalePVoffshoreonshoreWindoffshoreWindonshoreBioenergyHydropowerRevisionPercentchangeIEA.CCBY4.0.Note:Hydrogenreferstorenewablecapacitydedicatedtohydrogenproduction.OtherrenewablesrefersgeothermalandCSP.Utility-scalesolarPVgrowthisalsobeingrevisedupby5%owingtoimprovementsinauctionschemestoaccountforrisingdevelopercostsinthefirsthalfof2023inGermany,wherepriceceilingswereincreased,andinFrance,wherecontractswereindexedtoinflation-relatedcostsduringconstruction.FastercorporatePPAgrowthinDenmarkalsosupportstheupwardsrevision.Theseincreasesovershadowdownwardrevisionsforothermarkets,stemmingfrompoorauctionperformance.Forinstance,lesscapacitywasawardedthanexpectedintheNovember2023auctioninSpainbecausemostofproposedbidsexceededtheceilingprices,intheNetherlandsbecauseofmorecompetitivelow-carbontechnologies,andinPolandasaresultoflandconstraintsandpermittingchallenges.PAGE36IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028ContrarytosolarPV,thisyear’sforecastislessoptimisticaboutthegrowthofwindandrenewablecapacityforhydrogenproductioncomparedwithRenewables2022.Onshorewindhasthelargestdownwardrevision,5.4GWlowergrowth(-7%)thaninthepreviousforecastbecausedeploymentinsomemarketswasmoresluggishthanexpectedin2022(permittingandgridconstraintsledtoundersubscribedauctionsandlengthyprojectdevelopmenttimes).Alsoin2022,Spain,ItalyandGreeceawardedlesscapacitythantheyofferedduetodevelopers’inabilitytoobtainpermitsand/ormoreattractivebusinesscasesthroughotherroutestomarketsuchascorporatePPAsormerchanttails.UncertaintyovertheintroductionofnewsupportintheRepublicofTürkiye(hereafter“Türkiye”)andextensionoftheSDE++programmeintheNetherlandsafter2022havealsoledtolullsintheprojectpipeline.However,thesedownwardrevisionsovershadowotherEuropeanmarketswheretherehavebeenpositivemarketandpolicydevelopments.GrowthinGermanyandFranceisexpectedtobestablethankstopromptpolicyactionthatresultedinmorecapacitybeingawardedin2023thanpreviouslyexpected.InGermany,thegovernmentintroducedreformsin2022tostreamlinepermittingandraisedtheceilingpricesin2023toaccountforhigherinvestmentcosts.Asaresult,arecord1.9GWofonshorewindwasawardedinDecember2023,thehighestsinceauctionsbeganin2017.Francealsoupdatedcontractindexationtoprovidedevelopersabetterhedgeagainstinflation,aswellasclarifiedauctionspecificationsin2023.Asaresult,2GWofonshorewindwasawardedinthelasttwoauctionrounds,sixtimethevolumeawardedintheprevioustworounds.Inaddition,heforecastforonshorewinduptakeinSwedenishigherowingtoincreasedcorporatePPAactivity.Theforecastforoffshorewindhasbeenreviseddown7%becauseofpersistentlylongleadtimesandconcernsovertheeconomicattractivenessoffutureprojects.PostponementsareexpectedforprojectsinBelgiumandFranceafterannouncedcommissioningdateswerepushedback;inPolandduetofundingdelaysforportinfrastructure;andinSwedenowingtoapermittingdenial.IntheUnitedKingdom,fewerprojectsareexpectedtobedevelopedbecausedevelopersarenotfindingthembankable.NooffshorewindcapacitywasawardedintheOctober2023auctionbecausetheceilingsweretoolow,whileanotherdeveloperhashaltedaprojectduetorisingcosts.Forhydrogen,financialclosureforelectrolyserprojectsinSweden,theNetherlands,SpainandGermanyareprogressingmoreslowlythanexpected,causingtheforecastforrenewablecapacitydedicatedtohydrogenproductiontobereviseddownbyover50%.Despitethesedownwardrevisions,inthemaincasetheshareofrenewableelectricitygenerationinEuropeincreasesfrom41%in2022to61%in2028.PAGE37IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028However,itisuncertainfortworeasonswhetherthispacewillbefastenoughtomeet2030ambitions.ThefirstisthatforEUcountries,2030targetsareinastateoftransition.InJuly2023,theEuropeanUnionformallydecidedtoincreasetheshareofrenewableenergyinfinalenergyconsumptionfrom32%to42.5%by2030toacceleratedecarbonisationandreinforceenergysecurity.Asaresult,memberstatesarenowintheprocessofredesigningtheirNationalEnergyandClimatePlans(NECPs),whereintheyassesstheircontributiontothenewEUtargetandsetnewindividualgoalswhennecessary.Atthetimeofwriting,only21ofthe27countrieshadsubmitteddrafts,ofwhichonly14explicitlysetrenewableelectricitytargets.FinaltargetsforallcountrieswilllikelybeknownonlyafterthereviewprocessendsinJune2024.EuropeanUnionrenewableenergyshareinelectricitygenerationbycountry,2022and2028,andNECPtargets(2019and2023draft)100%90%80%70%60%50%40%30%20%10%0%Shareofrenewableelectricity(%)202820222030-NECP20192030-NECPdraft2023IEA.CCBY4.0.IEA.CCBY4.0.Notes:NECP=NationalEnergyandClimatePlan.DataforLuxembourgandMaltaareunavailable.NotebyTürkiye:Theinformationinthisdocumentwithreferenceto«Cyprus»relatestothesouthernpartoftheIsland.ThereisnosingleauthorityrepresentingbothTurkishandGreekCypriotpeopleontheIsland.TürkiyerecognisestheTurkishRepublicofNorthernCyprus(TRNC).UntilalastingandequitablesolutionisfoundwithinthecontextoftheUnitedNations,Türkiyeshallpreserveitspositionconcerningthe“Cyprusissue”.NotebyalltheEuropeanUnionmemberstatesoftheOECDandtheEuropeanUnion:TheRepublicofCyprusisrecognisedbyallmembersoftheUnitedNationswiththeexceptionofTürkiye.TheinformationinthisdocumentrelatestotheareaundertheeffectivecontroloftheeGovernmentofGovernmentoftheRepublicofCyprus.Sources:IEAanalysisbasedonNECPdatafromEMBER(2023),LiveEUNECPTracker.Thesecondsourceofuncertaintyisthepersistentobstaclesthatcountriesfacetoacceleraterenewableenergydeployment:slowandcomplexpermittingprocedures;gridcongestion;andinadequatepolicysupportintoday’seconomicclimate.Theextenttowhichtheseobstaclesaffecteachcountryvaries:forsome,theimpactissizableenoughthattheyrisknotmeetingtheiroriginal2030targetsassociatedwiththeformerEUtargetof32%setin2019(i.e.FranceandtheNetherlands).FasterpolicyimplementationwouldbeneededtoreachhigherPAGE38Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028NECPambitions.Whiletheseimpedimentsarealsopresentinothercountries,theextentoftheirimpactonprogresstowardsmeetinganynewgoalsremainstobeseenwhentheirnewtargetsaredefinedinJune2024.Nonetheless,Europe’schallengesarenotinsurmountable,governmentscanovercomethemwithpromptpolicyactionsasoutlinedbelow.Shouldcountriesactwecouldseegrowthaccelerateby32%;higher(701GW)by2028.Gridcongestionandlengthyconnectionqueues:Longgridqueuesduetocomplexapplicationprocessesandinadequatenetworkcapacityareincreasingprojectleadtimesinmanycountriesanddrivingupcostsfordevelopersastheyawaitlicensing.Forexample,developersinItaly,Germany,theNetherlands,andBulgariahavecitedlonggridconnectionqueuesasanissue,whilegridoperatorsinGreeceandHungaryhavestoppedacceptingapplicationsforlarge-scalesystemsaltogether.Somecountrieshavetakenstepsinthepastyeartoshortengridqueues.Forexample,somegovernmentshavepublishedmapsofavailablelocationsfordevelopers(e.g.AustriaandDenmark),simplifiedgridconnectionrequirementsforresidentialsystems(e.g.Germany),andpublishedguidelinestoclarifyprocesses(e.g.Portugal).Toaddresscongestion,Spainhasmandatedthatgridoperatorsincludeaminimumamountofdistributedgenerationintheirnetworkinvestmentplans,whileothercountrieshaveincreasedtheirbudgetsfortransmissioninvestment.Incentivisingstoragebysubsidisingbehind-the-meterbatteriesandholdingauctionsforlarge-scalestorage(Greece)arealsobeingusedtoincreasesystemflexibilityandaccommodatemorevariablegeneration.Inaddition,theEUGridActionPlanreleasedinNovember2023identifiesactionsthatkeystakeholderscantaketoacceleratethepaceofgridinvestment.Policyactionstoshortengridqueuesincludestreamlininggridconnectionprocedures;ensuringadequatenetworkplanningandinvestment;andtacklinggridintegrationchallenges.Economicattractivenessofauctions:Severalauctionshavebeenundersubscribedinthepastyear,partlybecausetheireconomicattractivenessisquestionableinanincreasinglyuncertainpriceenvironment.Developersfacingrisinglabour,equipmentandfinancingcostshaverefrainedfrombiddinginauctionsduetouncertaintyovertheabilityofcontractstoaccountforinflation-relatedcostincreases.Insomecases,thebusinesscasesthroughotherroutestomarkethaveprovidedmoreattractivereturns.Forinstance,inSpainonly46MWofthe3.3GWofcapacityavailablehadbeenawardedintheauctioninNovember2022,partlybecausetheeconomicsofunsubsidisedprojectsweremoreappealing,andintheUnitedKingdomnoneof4GWofoffshorewindonofferintheUKtechnology-neutralauctionwasPAGE39IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028contractedbecausebiddersfoundmaximumbidpricestoolow.InadequateceilingpriceshavealsobeenresponsiblefortheawardingoflowvolumesinFrance,GreeceandPoland.However,policyresponseshaveprovensuccessfulinattractingdevelopersinothercases.InJanuary2023,GermanyraiseditssolarPVceilingpricesto25%higherthaninDecember2022,boostingthesubscriptionrateforutility-scaleground-mountedsolarPVfrom68%inDecember2022to100%inJanuary2023.Meanwhile,Ireland’sfirstoffshorewindauctionfor3GWin2023withinflation-linkedcontractsfor20yearsatamaximumceilingpriceofEUR150/MWhwasfullyawarded(averagecontractpriceatUSD93.5/MWh),andinFrancethegovernmentchangeditsauctiondesigntoindexcontractpricestomaterialcostincreasesincurredduringtheconstructionphase.Policyactionstomakeauctionsmoreeconomicallyattractiveincludeadjustingauctionceilingstoaccountforrisingdevelopercosts;incorporatinginflationintocontractprices;orallowinggeneratorstogainrevenuesfromthespotmarket.Implementationofpermittingreforms:Obtainingpermitsandlicencesforprojectshasbeenalongandnotalwayssuccessfulendeavourinmanycountriesduetocomplexprocesses;limitationsonareaavailablefordevelopment;administrativestaffshortages;andsocialopposition.Thishaspreventeddevelopersfromenteringauctions,ledtoprojectabandonment,anddelayedconstructionandcommissioning.However,sincetheEuropeanCommissionreleasedrecommendationsonpermittinginMay2022tohelpcountriesstreamlinetheirprocesses,manyhavesimplifiedtheirpermittingprocedures;setclearpermittingtimelines;identifiedgo-toareas;andremovedsomerequirementsforsmallprojects(seetheJune2023RenewableEnergyMarketUpdatefordetailedexamples).Inaddition,thenewREDIIIpublishedinJuly2023assignedrenewablesthestatusofoverridingpublicinterestandintroducedmeasuresrequiringcertainpermitstobeissuedwithintwoyears.TheCommissionalsoendorsedtotheEuropeanWindCharterwhichaimstostreamlinepermitting.Atanationallevel,somecountrieshavestartedtomakechangestothepermittingregulations.However,theeffectivenessofthesereformshasbeenmixed.Insomecountries,theimpacthasbeenvisible:inGermany,forinstance,permitsfor6.6GWofonshorewindweregrantedinthefirstelevenmonthsof2023–almost70%thanthe3.9GWissuedin2022–owingtoregulatoryreformsin2022.Meanwhile,Spaingranted25GWofsolarPVenvironmentalassessmentsinJanuary2023tomeetnewdeadlinestomaintaingridconnectionpermits.Yetinothercountries,translatinglegislationintoactionhasbeenmorechallenging.IntheUnitedKingdom,thegovernmentannouncedplanstoremoveadefactobanPAGE40IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028onwindpermitsbuthasyettomakeprogress,whileinRomanianewpermittingreformsarebeingmisinterpreted,resultingintherejectionofprojectapplications.Policyactionstohelpovercomepermittingchallengesincludesimplifyingprocedures,identifyingpriorityareas,andallocatingmoreresourcestoadministrativeprocesses.LatinAmericaBilateralcontractsanddistributedsolarPVinBrazildriveregionalgrowthLatinAmericawilladdover165GWofrenewableenergycapacityfrom2023to2028.Fourmarketsrepresent90%oftheregion’sadditions:Brazil(108GW),Chile(25GW),Mexico(10GW)andArgentina(4GW).SolarPVleadscapacityadditions,followedbywindpower.Large-scalehydropowerdevelopmentintheregionhasslowed,asmosteconomicallyviablelocationshavebeendevelopedandsomelargeprojectshavebeendelayedbypermittingorfinancingconcerns.CapacityadditionsdeclinethroughouttheforecastperiodduetoslowergrowthinBrazil,theregion’slargestmarket.Hydropowermadeupoverhalfofadditionsin2011-2016buthassincedroppedsignificantlyandwillrepresentonly5%ofalladditionsintheforecastperiod.LatinAmericacapacityadditionsbytechnology,andcountryadditionsbytechnologyGW3580IEA.CCBY4.0.307060255020401530102051000BrazilChileMexicoArgentinaColombiaOtherLatinAmericaandCaribbeanNote:“Other”inrightgraphincludesCSP,geothermalandcapacitydedicatedtohydrogenproduction.IEA.CCBY4.0.Auctionsarenolongertheprimarystimulantforutility-scalesolarPVandwindadditions,asdevelopmentinmajormarketssuchasBrazil,Chile,ArgentinaandMexicoarenowincreasinglytakingplaceoutsideofgovernment-runauctionPAGE41Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028schemes.InBrazil,bilateralagreementsinthefreemarketenableover85%ofutility-scalesolarPVandwindadditionsintheforecastperiod.InArgentinaupto80%ofadditionsarefromcorporatePPAs,whileChile’smajorityofadditionsarethroughcorporatePPAsormerchantprojects.CorporationsarecontractingmorecapacitythroughPPAsforgreaterpricecertaintyandtoreachcorporatedecarbonisationgoals.However,smallermarketssuchasEcuador,GuatemalaandHondurashavebeenusingcompetitiveauctionstospursolarPVandwinddeployment.Brazilrepresentsnearly90%oftheregion’salmost50GWofdistributedsolarPVadditions.AgenerousnetmeteringschemeledtoaboomindistributedsolarPVcapacity,withthecountryaddingover15GWsince2015.InJanuary2023,Brazil’snetmeteringlawwaschangedtograduallyreducegenerousremuneration.Whileinmanymarketsdrasticpolicyorcompensationchangesoftenleadtodramaticdeclinesinnewcapacity,Brazil’sdistributedsolarPVsectorisexpectedtoremainstrong,withadditionsaveragingmorethan7GWperyearthrough2028.TherearetworeasonsforcontinueddistributedsolarPVexpansioninBrazildespitelowerincentives.Thefirstisthatresidentialelectricityrateshavebeenrisingsince2019duetolowhydropoweroutputandincreaseddemand.Thesecondisthatsystemcostsremainlow.Thus,thecombinationofthesefactorsmeansthatthepaybackperiodforresidentialsystemshasincreasedonlymoderately,fromanaverageofjustunderfiveyearstoaroundfiveandahalfyears,helpingdrivegrowth.Brazildistribution-indexedretailelectricityratesforresidentialcustomers,2018-2023,andrenewableenergyauctionvolumesbycountry,2016-202317012108642020162017201820192020202120222023BrazilChileMexicoArgentinaOtherLAMRateindex2018=100160GW150IEA.CCBY4.0.1401301201101009080201920202021202220232018MinasGeraisSantaCatarinaSãoPaulo(2)SãoPaulo(1)BahiaMatoGrossodoSulEspíritoSantoIEA.CCBY4.0.Sources:IEAanalysisbasedontariffadjustmentdatafromCelesc,Cemig,CFPLPaulista,ENELSaoPaulo,NeoenergiaElektro,NeoenergiaCoeblaandEDPBrasil(left).PAGE42Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Intheacceleratedcase,improvingsystemintegration,raisingauctiondemandandminimisingmacroeconomicriskscouldproduce14%higheradditionsforLatinAmerica.WhileauctionsarenolongeraprimarygrowthdriverinBrazilandChile,increaseddemandandadjustedpricingcouldleadtohigherparticipation,acceleratingexpansioninbothcountries.InArgentina,macroeconomicchallengeshampergrowth.Inaddition,highersharesofutility-scalerenewablesanddistributedsolarPVhavecreatedsystemintegrationchallenges.Forinstance,Chilehasstartedincentivisingenergystoragesystemstobalancenewvariablerenewableenergyandreducecurtailment.Toaddresstransmissionsystemconstraints,Brazilrecentlyheldanauctionfortransmissiondevelopment,connectingareasofhighresourcepotentialwithdemandcentres.Theseeffortscanacceleratedeploymentifincorporatingenergystoragesystemsisnotcost-prohibitiveinChile,andiftransmissiongridupgradesarebuiltonscheduleinBrazil.Sub-SaharanAfricaOvernearly64GWofnewrenewablecapacityisforecastforsub-SaharanAfricafrom2023to2028,morethandoublingtheregion’scurrentinstalledcapacity.Theforecasthasbeenrevisedupnearly20%becauseofstrongexpansioninSouthAfrica,whichaccountsfornearly50%ofadditionsintheregion.OutsideofSouthAfrica,hydropowerdrivesover6GWofadditionsinEthiopia,distributedsolarPVenables5GWofadditionsinNigeria,andAngolaandKenyaaddover2GWofnewrenewablecapacityeach.WhilesolarPVandwindmakeupnearly80%ofnewadditionsacrossthemarket,thismainlyreflectsadditionsinSouthAfrica,whichisresponsibleforthevastmajority.SouthAfrica’sauctionprogrammeandtheexpansionofindustrialandresidentialsolarPVapplicationsremainthekeyregionalgrowthdrivers.Thus,whenSouthAfricaisexcluded,theregionalforecastisreviseddownover5%duetothelackofsupportprogrammesandlimitedprojectpipelines.WindandsolarPVinstallationsmakeupjust40%ofadditions,asmanycountriesareheavilyreliantonlarge-scalehydropower.Forinstance,asinglehydropowerprojectinAngolaisresponsiblefornearly90%ofthecountry’stotalrenewableenergyexpansionovertheforecastperiod,whiletwoprojectsinEthiopiacontributenearly85%andTanzania’srenewableenergymarketexpansionoverthenextfiveyearsis80%dependantonhydropower.Whilelarge-scalehydropowerprojectscancost-effectivelyimproveelectricityaccess,theycantakeadecadeormoretoplanandbuild.Asaresult,annualadditionscanfluctuatefollowinghydropowerinvestmentcycles.Whilemanysub-SaharanAfricancountrieshavepoliciesinplacetoacceleratesolarPVandwindgrowth,theyhavemetwithvaryingdegreesofsuccess.ForPAGE43IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028example,Kenya’sfeed-in-tariffprogrammespurredmultiplenewsolarPVandwindprojectannouncements,butPPArenegotiationsandland-rightsissuesledtoprojectcancellations.AndinSouthAfrica,althoughauctionshavebeenakeystimulant,delaysinsigningPPAshaveledtoprojectpostponements.Asaresult,utility-scalesolarPVandwindadditionsareheavilyproject-reliantinmanymarkets,withdevelopmentdriveneitherbydirectgovernmentinvestment(e.g.Ethiopia)orbyone-offnegotiationsbetweenanIPPandagovernmentorutility(e.g.KenyaandSenegal).Sub-SaharanAfricacapacityadditionsandshareofvariablerenewableenergyinforecastadditionsGW16100%1490%1280%1070%60%850%640%430%220%010%0%202320242025202620272028SouthAfricaEthiopiaOtherrenewablesVREAngolaNigeriaTanzaniaKenyaOthersub-SaharanAfricaIEA.CCBY4.0.Notes:SS=sub-Saharan.VRE=variablerenewableenergy.Capacityadditionsrefertonetadditions.SlowgridexpansioninruralareasalsocreatesopportunitiesforsolarPVexpansion,withoff-gridsolarPVadditionstotallingover1GWinourforecast.Inmanymarkets,ruralelectrificationagenciesareincreasingtheintegrationofthesesystems.Forexample,Nigeria’sRuralElectrificationAgencyhasleveragedboththepublicandprivatesectorstobuildminigridsacrossthecountry,electrifyingcommunities,schoolsandhospitalswithsolarPVsystems.Internationaldevelopmentbanksandforeigngovernmentssupplementnationalprogrammes,providingadditionalfinancingandtechnicalexpertise.Thesecombinedeffortshelpincreaseelectrification,especiallyinareasnotservedbyanationalgrid.Beyondstop-and-gopolicies,additionalchallengesintheregionincludeoff-takerrisks,landaccessissues,currencyrisksandalackofenablinginfrastructure.Intheacceleratedcase,effectivepolicies,coupledwithadditionaldevelopmentbankandinternationalaidagency-enabledprogrammes,couldproducenearly30%higheradditionsthanthemaincase.Ouracceleratedcaseincludespolicyimprovementssuchasholdingtendersthatgrantlandrights;buildingprojectsPAGE44IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028adjacenttoexistinggridinfrastructure;andprovidingadditionalfinancingmechanismstoenablemoreindependentpowerproducerprojects.Smooth,swiftpolicytransitionscanalsofacilitatehigheradditions.Forexample,Kenyaisplanningtotransitionfromasystembasedonfeed-intariffstoanauctionscheme.Whiletheinitialauctionshaveyettobeannounced,firmpricingstructurescoupledwithareliableschedulewouldaccelerateadditions.InSouthAfrica,pendinglegislationcouldenableadditionalIPPprojects,furtherincreasinginvestment.Developmentfinancingcouldhelpde-riskwindandsolarprojectsinsub-SaharanAfricaAcceleratingrenewableenergycapacitygrowthinsub-SaharanAfricawillrequireinvestmentnotonlyinnewprojects,butininfrastructure.Untilnow,programmestoincreaserenewablecapacityhavefoundcreativesolutionstoworkaroundtheregion’slowamountoftransmissionanddistributioninfrastructure,suchastheFrenchDevelopmentAgency’sproposaltodevelopsolarPVinstallationsalongexistingtransmissionlines.Whilethiswillallowforgreaterrenewableenergycapacity,itdoesnotaddressthedearthoftransmissionanddistributioninfrastructure.Lownetworkcapacityisthusamajorforecastchallenge,asprojectsmayneedtowaityearsforgridconnectionormaybeforcedtocancelduetolackofnetworkaccess.EnablingandfinancingbothgenerationandnetworkdevelopmentisthereforecrucialtoraisecapacityadditionsinAfrica,requiringhighercollaborationbetweenfinanciersandgovernments.Thus,tobetteraligndevelopmentofbothgenerationandcriticalinfrastructure,AfricangovernmentsandinternationalactorssignedtheNairobiDeclarationin2023.Thedeclarationcreatesaframeworktorestructuredebtandissuenewfinancingfor,amongotheractivities,renewableenergydevelopment.Italsoproposesbetteralignmentofconcessionalfinancingandgovernmentpoliciestoenablerenewableenergydeployment.Aswithgenerationprojects,thesetypesoffinancingarrangementscanaddressprojectrisks,leadingtomorecost-effectivepricing.Fordevelopmentoraidorganisation-backedprojects,contractpricescanbe40-50%lowerthanforPPAswithgovernmentsorutilitiesbecausetheyaddresssomerisksassociatedwithprojectdevelopmentintheregion,includingcurrencyandoff-takerconcerns.However,whiletheseprojectsdoincreaserenewableenergycapacity,theyareoftennonrecurring,leadingtoboom-bustdevelopmentcycles.Inaddition,theymaydolittletoaddresslargersystemneeds,leadingtounintendedconsequencesbypotentiallyputtingstrainonanexistingsystem.PAGE45IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Sub-SaharanAfricacontractpricesforsolarPVinstallations,withandwithoutDFIsupportUSD/kWh0.140.122017USD/kWh0.1020230.0820230.062019201920190.040.020.00KenyaMalawiSenegalZambiaZambia(GetBotswana(ScalingSolar)FiT)WithoutDFIsupportWithDFIsupportIEA.CCBY4.0.Costestimatedbasedonpubliclyavailableinformation.Note:DFI=developmentfinanceinstitution.Theco-ordinatedplanningandpairingofdevelopmentandaidorganisationfinancingwithgriddevelopmentcanhavenotonlyashort-termimpact(i.e.immediatesystemupgradesforreliabilityandsecurityofsupply),butalsoalastingeffectontheregion(i.e.preparingenablinginfrastructureforlonger-terminvestment).Insteadofprojectsneedingtobestrategicallylocatedtoconnecttothegrid,expandednetworkswouldenlargedevelopmentareas,boostingavailability.Guaranteesandconcessionalfinancingprovidedbyinternationalorganisationscanaddresstwoforecastuncertainties.First,theycanreducetheriskpremiumsassociatedwithdevelopmentinsub-SaharanAfrica.Byaligningpolicyprioritieswithinternationalfinancing,thereducedriskcouldtransfertogovernment-ledprojects,helpingcreateasustainablepolicyenvironment.Thiswouldenabletheachievementofpolicygoalsandestablishtheskilledworkforceneededforcontinuedrenewableenergydevelopmentwhilealsodevelopingexistingmarkets,leadingtobettersystemplanning.Second,increasingconcessionalfinancingtosupporttransmissionanddistributiongriddevelopmentcanlowerconnectionrisks.Shouldfinancing,gridconnectionandotheradditionalriskssuchaslandaccessbeaddressed,ouracceleratedcaseseesover30%highergrowthcomparedtoourmaincase.MiddleEastandNorthAfricaRenewablecapacityexpansionintheMiddleEastandNorthAfricaisexpectedtoincrease62GWin2023-2028.Overthenextfiveyears,thepaceofgrowthisPAGE46IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028expectedtoacceleratetomorethanthreetimesthepreviousfive-yearperiod,withsolarPVmakingupover85%oftheincrease.Onshorewindandconcentratedsolarpoweralsocontribute.Morethanone-thirdofthegrowthwillbeinSaudiArabiaalone,followedbytheUnitedArabEmirates,Morocco,Oman,Egypt,Israel3andJordan.Thesesevencountriesaccountforover90%oftheregion’sgrowth.Competitiveauctionsaretheleadingstimulusforrenewablecapacityexpansionintheregion,accountingfor35%ofgrowth.Almostallcountrieshaveimplementedgovernmenttenderstoprocureprivateinvestmentforutility-scalePV,onshorewindorCSP.Owingtotheregion’srichsolarresources,attractiveeconomiesofscaleforlargeprojectsandadvantageousfinancingconditions,thesetendershaveproducedsomeofthelowestbidpricesintheworldforsolarPV.However,openingtheauctions,qualifyingbidders,selectingwinnersandsigningPPAscansometimestakeseveralyears,impedingfastergrowth.Asaresult,expansionthroughmechanismsotherthancompetitiveauctions(i.e.unsolicitedbilateralcontractswithutilities,andcorporatePPAsinthemarketsthatallowthem)hasbeenincreasing.MiddleEastandNorthAfricacapacityadditions,andprimarydriversofutility-scalegrowthbycountry12025GWGW100208015601040205002011-162017-222023-282023-28SaudiUnitedMoroccoOmanEgyptIsraelJordanArabiaArabMaincaseAcc.caseUnsolicitedUtilty-CorporateEmiratesbilateralownedPPAHydrogenCSPDistributedPVcontractsUtility-scalePVWindoffshoreWindonshoreAuctionsHydrogenBioenergyHydropowerIEA.CCBY4.0.StatisticaldataforIsraelaresuppliedbyandundertheresponsibilityoftherelevantIsraeliauthorities.TheuseofsuchdatabytheOECDiswithoutprejudicetothestatusoftheGolanHeights,EastJerusalemandIsraelisettlementsintheWestBankunderthetermsofinternationallaw.Notes:Procurementreferstothemechanismbywhichelectricitygenerationisboughtandsold.Thisanalysisonlycoversprocurementmethodsforthesaleofelectricitygeneration;itexcludesanyadditionalsubsidiesoncapitalcosts,suchastaxcredits,accelerateddepreciation,rebates,grants,etc.Hydrogenreferstorenewablecapacitydedicatedtohydrogenproduction.3StatisticaldataforIsraelaresuppliedbyandundertheresponsibilityoftherelevantIsraeliauthorities.TheuseofsuchdataIEA.CCBY4.0.bytheOECDiswithoutprejudicetothestatusoftheGolanHeights,EastJerusalemandIsraelisettlementsintheWestBankunderthetermsofinternationallaw.PAGE47Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028sourceofgrowthintheregionowingtolargeprojectsearmarkedforexportinSaudiArabia,OmanandtheUnitedArabEmirates.Infact,hydrogenaccountsformorethan13%oftheregion’srenewablecapacitygrowththankstogovernmentpoliciestostimulatedevelopmentfortrade.Goodsolarresources,landavailabilityandexistingportinfrastructurecreatefavourableconditionsforeconomicallyattractiverenewablehydrogentobeshippedtodemandcentresinEuropeandAsia.Nevertheless,growthcouldbe70%higherwiththreemainimprovementsintheregion.Thefirstisfasterprocurementofutility-scalecapacitythroughcompetitiveauctions.Announcingfutureauctionswithkeydatesfortheselectionprocess,andimplementingtheminatimelymanner,wouldaccelerateprojectdevelopmentaswellasincreaseinvestorconfidence.Publishinglong-termauctionschedulesdetailingplannedvolumesanddateswouldalsoprovidelonger-termvisibilityforinvestors.Second,introducingcost-reflectiveend-usertariffswouldmakedistributedsolarPVinstallationsmorefinanciallyattractive.Finally,boostingsystemflexibilitythroughstorageandincreasingthecontractualflexibilityofexistingfossilfuelassetswouldallowforincreaseddeploymentofvariablerenewables.Technology,marketandpolicytrendsCosts,economicattractivenessandcompetitivenessThecompetitivenessofonshorewindandsolarPVwillcontinueimprovingDespiteinvestmentcostshavingrisenduetoelevatedcommodityprices,thegenerationcostsofnewsolarPVandonshorewindinstallations(excludingsystemcosts)aremostlylowerthanfornewfossilfuel-firedplants.In2022,anestimated96%ofnewlyinstalledutility-scalesolarPVandonshorewindcapacityhadlowergenerationcoststhancoalandnaturalgasfacilities.However,offshorewindoutsidetheEuropeanUnioniscurrentlynotcompetitivewithfossilfuelalternatives.Overtheforecastperiod,windandsolarPVcostsareexpectedtocontinuedeclining.Inthesecondquarterof2023,thepriceofPVmodulesfromChinawasalmost40%lowerthanin2022(seewindandsolarPVmanufacturingsection),andsupply-demanddynamicsindicatefurtherdropsinthenextfiveyears.Forwind,investmentcostsareexpectedtoremainhighintheshorttermduetosupplychainchallengesandtheweakfinancialhealthofmajorWesternmanufacturers.However,thistranslatesintoonlya10-15%increaseingenerationcostsforPAGE48IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028onshorewindpowerplantsanddoesnotreallychangetheircompetitivenesswithfossilfuelalternatives,astheircostshavealsorisen.WindandsolarPVsystemswillbecomemorecost-competitiveduringtheforecastperiod.Infact,weestimatethatby2028almostallwindandsolarPVcapacitydeployedwillprovidelowergenerationcoststhancoalandnaturalgasalternativesfornewplants.CurrentcostdeclinetrendsinChinaindicatethatinthenextfiveyears,newoffshorewindplantscouldbemoreeconomicallyattractivethannewcoalplants,helpingChinameetitsofficialnetzerogoal.Generationcostsofnewonshorewindandutility-scalesolarPVarealsobecomingincreasinglylowercomparedwithexistingfossilfuel-firedplants.In2023,three-quartersofnewlyinstalledsolarPVandonshorewindcapacityofferedcheaperpowergenerationthanexistingfossilfuelfacilities.InChina,IndiaandtheEuropeanUnion,thelevelisedcostofenergy(LCOE)fromsolarPVplantsisbelowthemarginalcostofgeneratingelectricityfromexistingcoal-andnaturalgas-firedplants.Itisestimatedthatby2028,over80%ofnewlyinstalledvariablecapacitywillprovideelectricitymoreaffordablythanexistingfossilfuelalternatives.Shareofutility-scalewindandPVwithlowerlevelisedcostofenergythannewcoalandnaturalgaspowerplants(left)andexistingplants(right),2022-2028NewPVandwindvsnewfossilfuelplantsNewPVandwindvsexistingfossilfuelplants100%100%%ofnewwindandPVcapacity75%75%competitiveness50%50%IEA.CCBY4.0.25%25%0%0%2023202320282028WindandPVcostslowerthanfossilfuelsWindandPVcostshigherthanfossilfuelsValue-adjustedwindandPVcostslowerthanfossilfuelsIEA.CCBY4.0.Notes:Theanalysisinthisfigurerepresentsaround85%ofglobalrenewablecapacityadditionsin2023and2028.ThecostcomparisonconsiderstheWorldEnergyOutlook’sSTEPSscenariopublishedinOctober2023.Source:IEA(2023),WorldEnergyOutlook2023.However,assessingcompetitivenessbasedongenerationcostsforbothnewandexistingplantscanbemisleadingforvariablerenewableenergytechnologies,astheyneedtobeaccompaniedbydispatchableandflexiblepowerplantsorcoupledwithstorageathigherpenetrationlevels.Whileexistingdispatchablecapacity(e.g.naturalgas-firedandhydropower)alreadyofferampleflexibilityinmanyPAGE49Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028countries,short-andlong-termelectricitystoragealongwithdemand-sidemanagementandgridswillbecriticaltocost-effectivelyintegratewindandPV.TheIEAusesthevalue-adjustedLCOE(VALCOE),whichisamorecompletemetricofcompetitivenessforpowergenerationtechnologiesthantheLCOEalone,asitcombinesatechnology’sLCOEwiththesimulatedvalueofthreesystemservices:energy,flexibilityandcapacity.AccordingtotheIEAanalysis,thevalueofvariabletechnologieswillfallastheirusebecomesmorewidespread,especiallyforsolarPV.Accordingly,theVALCOEofutility-scalePVcouldbeasmuchasdoubletheLCOEcalculationsdependingonthecountry’stechnologymixandrenewablespenetration.Arisingshareofvariablerenewablesleadstohighercannibalisationeffects,whichtendtomakevariablerenewableslesscompetitivethantheLCOEalonewouldsuggest.TheseeffectsarereflectedinahigherVALCOEforsolarPVandwind(comparedwiththeLCOE)andalowerorstableVALCOEfordispatchablesourcesofelectricityinthefuture.Evenwhenconsideringincreasingflexibilityandreliabilityrequirements,newutility-scalesolarandonshorewindpowerplants’intheUnitedStates,EuropeanUnion,ChinaandIndiawillstillbelowerthanfossilfuelalternativesattheendoftheforecastperiod.AlthoughVOLCOEisafullerandmoreaccuratemeasureofcompetitiveness,itisnotallencompassing:itdoesnotyetaccountfornetworkintegrationsuchastransmissionanddistributiongridenhancements.GlobalsupportforwindandsolarPVissettodeclinesignificantlydespiteacceleratingdeploymentTheincreasingcompetitivenessofsolarPVandwindhasimplicationsforbothgovernmentsandconsumersbecauseitleadstoreductionofpublicsupportusedtoacceleratedeploymentofrenewables.Typically,governmentshaveprovidedsuchsupportbasedonrenewableelectricitycostdifferentialagainstareferenceprice,usuallyrelatedtofossilfuelgenerationcosts.Forinstance,manyEUmemberstates’supportpolicieswerefocusedoncoveringthegapbetweenrenewables’contracttariffsandwholesaleelectricityprice.InChina,thegovernmentcalculatedsubsidiesconsideringthedifferencebetweenfixedrenewabletariffsandprovincialbenchmarkpowerprices.PAGE50IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028TheanalysispresentedinthissectionisaimedatestimatingtheimpliedsupportrequiredbysolarPVandwindpower,calculatedasadifferencebetweengenerationcostsfromthesetechnologiesandfromfossilfuels4.Globalannualnetvalueofthatsupportforallcapacityinstalledsince2005morethanquintupledbetween2010and2020.Itwasaresultofacceleratingrenewablesdeploymentandstillhighshareofgenerationfromolder,moreexpensiveinstallations.However,globalsupportlevelsdeclinedfromaboutUSD125billion5in2020toaboutUSD80billionofsavingsin2022markingachangeinthelong-termtrend.Thereweretwomainreasonsbehindthis:(1)theenergycrisiscausedbytheRussianFederation’s(hereafter“Russia”)invasionofUkraineleadtoanunprecedentedsurgeinnaturalgasandcoalprices,especiallyinEurope;(2)astepincreaseinlow-costVREgenerationduetorecordcapacityadditions.GlobalestimatednetannualsupportforsolarPVandwindelectricitygeneration,2010-2028USDbillion150120USD/MWh1251001008075605040252000-252010201120122013201420152016201720182019202020212022202320242025202620272028-20-50-40-75-60-100-80Totalsupport(LCOE)Totalsupport(VALCOE)SupportperMWh(LCOE)SupportperMWh(VALCOE)IEA.CCBY4.0.Notes:LCOE=levelizedcostofelectricity.VALCOE=value-adjustedLCOE.Source:IEAanalysisbasedonIRENA,EIA,Argus,BloombergLP,WorldEnergyOutlook2023.4AnalysispresentedinthissectionfocusesonestimatingthedifferencebetweenaverageelectricitygenerationcostsfromwindandPVplantsandfromfossilfuelpowerplants.AnalysiswasconductedforChina,theUnitedStates,EuropeanUnionmembercountries,UnitedKingdomandIndia,whereaveragespotpricesofhardcoal,naturalgasandCO2emissionallowanceswereusedtoestimatethevariablegenerationcostsofdisplacedfossilfuelgeneration.Thesecountriesrepresentabout77%oftotalVREgenerationin2023and81%in2028.CostsofenergyfromPVandwindwereestimatedintwoways.LCOEapproachassumedthatVREgenerationcostsareequaltoLevelizedCostsofElectricity,thereforeassumingsimplereplacementofonetypeofelectricitywithanother.InVALCOEapproach,VREcostswerecalculatedbasedonValue-AdjustedLCOE,whereavalueofelectricitytothepowersystemisconsidered.ThisapproachhasthehighestimpactonsolarPVgenerationcostsinthepowersystemswithhighVREpenetrationandamoderateimpactonwindcosts.Conductedanalysisisanestimatewithmultiplesensitivities.Followingfactors,whichwerenottakenintoaccountcouldhaveresultedinoverestimationofsupportvaluebyassuminglowerreferencefossilfuelgenerationcosts:(1)possibleincreaseddemandforfossilfuelsleadingtohigherpricesinascenariooflowerVREgeneration;(2)possiblecaseswhenVREexpansionremovesaneedfordeploymentofnewfossilfuelpowerplants;(3)subsidiesreceivedbyfossilfuelminingindustryandgenerators;(4)prioritizingdisplacementofgenerationfromthemostexpensivefossilfuelpowerplantsfollowingthemeritorder.5Allmonetaryvaluesareexpressedin2022USD.PAGE51IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028In2023fuelpricesreturnedtopre-crisislevelsintheUnitedStates,ChinaandIndiabutremainedelevatedintheEuropeanUnion.Asaresult,globalnetsupportreturnedtopositivevaluebutonly30-40%ofthe2020level.Inascenarioassumingcontinuationofcostsdeclinetrendfornewrenewablesandthepriceenvironmentforfossilfuelsbasedonthesecondhalfof2023,globalsupportforPVandwindpowercouldturnintosavingsstartingin2027.EveninananalysisapproachconsideringthechangingvalueofVREforthepowersystem(VALCOEapproach),therequiredglobalsupportwilldeclinetoaroundUSD50billionby2028,halfoftheestimatedannualaverageover2015-2020.ThistranslatestoaveragecostsdifferencebetweenelectricitygenerationfromfossilfuelplantsandVREdecreasingfromcloseto70USD/MWhin2020to-3USD/MWh(savings)inLCOEapproachorabout10USD/MWhinVALCOEapproachby2028.AverageglobalLCOEdecreasedfromUSD105/MWhtoUSD35/MWhforonshorewindandfromUSD450/MWhtoUSD50/MWhforutility-scalePVbetween2010and2022.Startingfrom2019,generationcostsfornewVREplantsstartedtobecomecheaperthanexistingfossilfuelplantsinmanycountries,especiallywhenfossilfuelgenerationcostsincreaseddrasticallyattheendof2021andin2022.Inthehighfossilfuelpriceenvironmentof2022,inEuropeanUnionalmostallinstalledwindcapacityandmostofutility-scalePVdeployedsince2013hadprovidedcheaperelectricitythancoalandnaturalgasplants.NetglobalsupportforsolarPVandwindelectricitygeneration,total(left)andperMWhofrenewableelectricitygeneration(right),2015-202860TotalsupportUSDbillion450SupportperMWhUSD/Mwh40400203503000250-20200-40150-60100-802015502016020172018-502019-10020202021202220232024202520262027202820152016201720182019202020212022202320242025202620272028PVutility(LCOE)PVutility(VALCOE)PVcomm.(LCOE)PVcomm.(VALCOE)PVres.(LCOE)PVres.(VALCOE)Windon.(LCOE)Windon.(VALCOE)Windoff.(LCOE)Windoff.(VALCOE)IEA.CCBY4.0.Notes:LCOE=levelizedcostofelectricity.VALCOE=value-adjustedLCOE.Windon.=Windonshore.Windoff.=Windoffshore.PVcomm.=PVcommercial.PVres.=PVresidential.Source:IEAanalysisbasedonIRENA,EIA,Argus,BloombergLP,WorldEnergyOutlook2023.PAGE52IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Over2011-2020,onshorewindwasresponsibleforabout40%ofglobalnetsupportforVRE,mostlyduetoitslargeshareinwindandPVelectricitygeneration.Atthesametime,onshorewindsupportperMWhofgeneratedelectricityremainedthelowestcomparedtosolarPV.In2022,onshorewindprovidedoverUSD70billionofnetsavingsglobally,mostlyinEurope.Technology’slowgenerationcostsandhighersystemvalue(comparedwithsolarPV)areexpectedtoprovidesavingsthroughouttheforecastperiodbothinLCOEandVALCOEanalysisapproach.Utility-scalePVisexpectedtostartgeneratingnetsavingsin2027inLCOEapproach.However,solarPV’svaluetothesystemfallsdrasticallyatincreasinggenerationshares,whichisexpectedtobethecaseinmanymarkets,especiallyinEuropeandChina.Basedonthislowervalue,utility-scaleprojectsmayonaverageneedUSD10/MWhofsupportin2028.FordistributedsolarPV,generationcostsarehigherthanlarge-scaleapplications.Asaresult,itisestimatedtoaccountformostoftheglobalsupporttorenewablesin2023-2028.ShareofglobalPVandwindelectricityproductionbygenerationcosts,LCOE(left)andVALCOE(right)approach,2010-2028100%LCOE200VALCOE20090%180USd/MWh100%80%160USD/MWh90%18070%14080%60%12070%16050%10060%40%8050%14030%6040%20%4030%12010%2020%0%010%10020280%8060402020102016202220102016202202028<40USD/MWh40-60USD/MWh60-80USD/MWh80-100USD/MWh>100USD/MWhAveragecostIEA.CCBY4.0.Notes:LCOE=levelizedcostofelectricity.VALCOE=value-adjustedLCOE.Source:IEAanalysisbasedonIRENA,WorldEnergyOutlook2023.RenewablegenerationcostsanalysisdescribedaboveincludesallPVandwindsystemscommissionedsince2005andassumesthattheirgenerationcostsremainunchangedthroughoutplants’lifetime.ThetrendofdecreasingcostsofnewwindandPVandacceleratingcapacityadditions,leadstoincreasingshareoflow-costgenerationintotalVREmix.TheaveragecostofVREgenerationisexpectedtodecreasefromaboutUSD155/MWhin2010toUSD60/MWhincaseofLCOEandUSD75/MWhwhenconsideringVALCOEin2028.PAGE53IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028In2022,about20%ofallwindandPVhadgenerationcostsbelowUSD40/MWh,lowerthanvariablegenerationcostofmosthardcoalandnaturalgaspowerplantsinEurope,ChinaandIndia.Thisshareisexpectedtoreach40%in2028withanincreasingnumberofVREplantsgeneratingsavings.However,thesharedeclinestoabout15%whenconsideringtheirvaluetothesystem.AveragecostofVREanddisplacedfossilfuelgeneration(LCOEapproach),totalVREgeneration,2015-2028ChinaUSACost(USD/MWh)35040003501400Generation(GWh)120030035003001000USD/MWh800GWh2503000250600400200250020020020000150150015010010001005050050000USD/MWhEUandUK20152016201720182019202020212022202320242025202620272028GWhUS/MWh20152016201720182019202020212022202320242025202620272028GWh6001600200India500500140045040012001503503004001000250200300800100150100200600500400501002000002015201620172018201920202021202220232024202520262027202820152016201720182019202020212022202320242025202620272028Generation-PVGeneration-windon.Generation-windoff.LCOE-PVutilityLCOE-PVcomm.LCOE-PVres.LCOE-windon.LCOE-windoff.FossilfuelcostsIEA.CCBY4.0.Notes:LCOE=levelizedcostofelectricity.Windon.=Windonshore.Windoff.=Windoffshore.PVcomm.=PVcommercial.PVres.=PVresidential.Source:IEAanalysisbasedonIRENA,EIA,Argus,BloombergLP,WorldEnergyOutlook2023.Until2020,theEuropeanUnionandtheUnitedKingdomwereresponsibleforoverhalfoftotalsupportforwindandPVgeneration,mostlyduetoearlydeployment(especiallysmallscaleresidentialandcommercialPV)athighergenerationcosts.However,duringtheenergycrisisin2021-2022VREhasallowedtoachieveanestimatedUSD85billionofsavings,becauseofsharpincreaseinfossilfuelprices.Iffossilpricesremainatlevelsobservedinthesecondhalfof2023,onshorewindandsolarPVareexpectedtoprovidesavingsevenwhentheirlowervaluetothepowersystemisconsidered.PAGE54IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028InChina,recordlowwindandsolarPVgenerationcostsinrecentyearsandtheexpectedcontinuationofacceleratingcapacityadditionsleadtosignificantdecreaseinoverallannualsupportovertheforecastperiod.However,consideringit’sVALCOE,solarPVcouldneedsomesupportdependingonprovincialVREpenetrationlevels.InIndia,acceleratingdeploymentofVREatlowgenerationcostsisoffsettingmoreexpensivedeploymentfrompastyears,keepingtheoverallsupportatrelativelylowlevel.TheUnitedStates,ontheotherhand,hasoneofthelowestfossilfuelgenerationcostsamonganalysedgeographies,thereforeVREdeploymentwillcontinuetodependonincreasingpublicsupportintheformoftaxincentivesovertheforecastperiod.NetglobalsupportforsolarPVandwindelectricitygenerationbycountryorregion,LCOE(left)andVALCOE(right)approach,2010-2028USDbillion150LCOE150VALCOE0.20%1000.15%1000.10%50500.05%000.00%-50-0.05%-50-0.10%-100-100-0.15%-150-150-0.20%2015201620172018201920202021202220232024202520262027202820152016201720182019202020212022202320242025202620272028EUandUKUSAChinaIndiaShareofglobalGDP(%)IEA.CCBY4.0.Notes:LCOE=levelizedcostofelectricity.VALCOE=value-adjustedLCOE.Source:IEAanalysisbasedonIRENA,EIA,Argus,BloombergLP,WorldEnergyOutlook2023.Beyondtheforecastperiod,thesupportrequiredforwindandPVislikelytodecline,withmanycountriesseeingsavingsdrivenbylowcostrenewablesandthereplacementofolderinstallations.Thiswilldrivetheaveragecostofrenewableelectricitydown.Atthesametime,inclusionofgreenhousegasemissionsinfossilfuelgenerationcostsplannedinmanycountriesislikelytofurtherincreasethecompetitivenessofVRE.PolicyandmarketsAlthoughrenewableenergytechnologiesarebecomingmorecost-competitive,policiesremainkeyforattractinginvestmentandenablingdeployment.RoughlyPAGE55IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo202887%ofglobalrenewableutility-scalecapacitygrowthin2023-2028isexpectedtobestimulatedbypolicyschemes.Policy-drivendeploymentreferstocapacityforwhichagovernmentpolicyistheprimarydriverfortheinvestmentdecision,forexample,apolicythataffectsremunerationforpowerorreducestaxliabilityorintroducesapurchasingobligationtomeetgovernmenttargets.Thetwomostprominentpolicieshavebeenadministrativelysettariffsforremuneration(whereinthegovernmentoffersdevelopersafixedtarifforpremium)andcompetitiveauctions(whereinthegovernmentputsasetamountofcapacityupforbidandsetsalimitonwhatitwillpayforthecontractedpower).Theleadingsourceofauction-drivengrowtharetwo-wayfixedcontractsfordifference,entirelydrivenbyEuropewheretheyaccountformorethanone-thirdoftheregion’sutility-scalerenewablesgrowth.Taxcredits,athirdpolicyoption,raisetheeconomicattractivenessofaprojectsignificantlybyreducingthedeveloper’staxliability.Utility-ownedprojectsinregulatedmarketsareafourthformofpolicy-baseddeployment,astheinvestmentdecisionislikelyinfluencedbytheregulatoryenvironmentbydefault.IEARenewableenergyprocurementandpolicycategoriesTypeNamePrimarydriverPolicy-drivenUtility-ownedprojectState-ownedutilityinvestmentsforcostMarket-drivenrecoveryorobligationtomeettargetsFixedtariffsandAdministrativelysettariffsofferedtopremiumsCompetitivedevelopersauctionsGovernmentsolicitationsforpowerusingTaxcreditstenderswithcompetitivelysettariffsUnsolicitedbilateralcontractReducedtaxliabilityMerchantBilaterallynegotiatedcontractbetweenaCorporatePPAdeveloperandutilityGreencertificatesRevenuesfromthewholesalemarketBilaterallynegotiatedcontractbetweenadeveloperandenduserRevenuesfromthewholesaleandgreencertificatesmarketConversely,market-drivenprocurementisexpectedtoaccountforjust13%ofglobalrenewablecapacitygrowth.Market-drivendeploymentreferstothatforwhichgovernmentpolicydoesnotdirectlyinfluencetheinvestmentdecision,suchasbilaterallynegotiatedcontracts(PPAs)betweenIPPsandcorporateconsumers(CPPAs)(7%ofmarket-drivenexpansion),unsolicitedbilateralPPAswithutilities(2%),andmerchantprojectsandremunerationfromcertificateschemes(4%).PAGE56IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Thehighglobalshareofpolicy-drivendeploymentcomeslargelyfromChina,wherepoliciesunderpin95%ofthecountry’sgrowth.Forinstance,Chinaisforecasttodeployaround1285GWofcapacityalmostentirelyfromadministrativelysetfixedtariffsfor15-20yearsbasedontheprovincialbenchmarkelectricityprice,mostlydefinedbycoalgeneration.Competitiveauctionswithabudgetcapatthenationallevelwereheldin2020buthavesincebeenstoppedasthegovernmentphasedoutsubsidiesforutility-scalewindandsolarPV.However,market-baseddeployment,accountingfor5%oftheexpansion,isexpectedtogrow,thankstothenewgreencertificateregulationsintroducedinboth2022and2023tofacilitateinterprovincialtradeandtrackprogressinmeetingprovincialrenewableenergytargets.Utility-scalerenewableelectricitycapacitybyprimarydriver,2023-2028CorporateGW160074%80%PPAs1400Auctions19%7%120070%Taxcredits11%60%Utility-owned1%100039%50%80040%Market-Unsolicited60021%24%30%drivenbilateral4004%13%contracts5%20%2%200China10%0FixedtariffsandMerchantandGCsNorthAsia-0%premiums4%PacificEuropeAfrica,Latin56%AmericaMiddleAmericaFixedtariffsandpremiumsAuctionsEast,Utility-ownedCorporatePPAsEurasiaMerchantandGCs%Market-drivenTaxcreditsUnsolicitedbilateralcontractsIEA.CCBY4.0.Notes:GC=Greencertificate.Primarydriversrefertothefinancialincentiveorrevenuestreambywhichtheinvestmentdecisionismade.Insomemarkets,projectscanbenefitfrommultiplefinancialincentivesand/orstackdifferentrevenuestreams,butdatainthisanalysisareclassifiedbasedonassumptionsofwhichincentiveorrevenuestreammostaffectsthebusinesscaseforinvestment.Forexample,ifaprojectisawardedthroughagovernment-heldcontract-for-difference(CfD)auction,theentireprojectisassignedtothatcategoryregardlessofithavingotherrevenuestreamssuchasacorporatePPAsormerchanttail.Forecastreferstoutility-scaleprojectsforprimarymarketsequivalentto95%ofglobalrenewableelectricitycapacitygrowth.WhenChinaisexcluded,market-drivenprocurementplaysalargerroleinglobalrenewablecapacityexpansion,accountingfor23%.ThisshareisevenlargerinAfricaandtheMiddleEast(39%)andLatinAmerica(74%).InLatinAmerica,thisresultslargelyfromstrongdemandforcorporatePPAsinBrazil(wherehighelectricitypricesandcompanysustainabilitygoalsareboostingdemandfromlargeconsumers)andmerchantprojectsinChile.Thehighshareofmarket-drivengrowthintherestoftheworldisledbySouthAfrica’scorporatePPAmarket,owinginparttotheneedtoreduceimpactsofloadshedding,andunsolicitedbilateralcontractsinSaudiArabiaandEgyptalsoPAGE57IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028contribute.BothcountrieshaveauctionsystemsforsolarPVandwind,butPPAsarebeingsignedmorequicklythroughbilateralnegotiationsthanthroughpublicprocurementprocesses.Renewableelectricitycapacitybytechnologyandprimarydriver,excludingChina,2023-2028100%Shareofutilitygrowth100%75%CSP75%50%Pumped50%25%storage25%0%Offshore0%windOnshorewindSolarPVGeothermalBioenergyHydropowerCSPPumpedstorageOffshorewindOnshorewindSolarPVGeothermalBioenergyHydropowerMarket-drivenPolicy-drivenMerchantandGCsUnsolicitedbilateralcontractsCorporatePPAsUtility-ownedTaxcreditsFeed-intariffs/premiumsAuctionsIEA.CCBY4.0.Notes:CSP=concentratedsolarpower,GC=greencertificate.Hydropowerreferstoconventionalhydropower.DatarepresentglobalmarketgrowthbyprocurementtypeexcludingChina.However,inNorthAmerica,EuropeandAsia-Pacific,mostrenewablecapacitygrowthoverthenextfiveyearswillstillbepolicy-based.InNorthAmerica,themajorityofadditionsareintheUnitedStates,wheretaxcreditsforinvestmentorelectricityproductionaretheprimarycatalyst.Whileotherpolicies(suchascompetitiveauctionsorobligatedpurchases)mayalsostrengthenthebusinesscase,thetaxcreditisexpectedtobethemainenablerforinvestment.InEurope,almostthree-quartersofutility-scalegrowthisfromcompetitiveauctions,mostlyforsolarPVandwind.However,elevatedwholesaleelectricitypricesinEuropearemakingcorporatePPAsandmerchantprojectsmoreattractiveintheregion,ledbySpain,Germany,Sweden,theUnitedKingdom,andDenmark.CompetitiveauctionsarealsothedominantprocurementmethodinAsiaPacific,ledbyIndia,VietNamandKorea,whilefeed-intariffsalsoboostexpansioninJapanandChineseTaipei.Mostmarket-drivengrowthintheAsia-PacificregioncomesfromunsolicitedcontractsforhydropowerprojectsinIndiaandPakistan,andcorporatePPAsinAustraliaforonshorewindandPV.ExcludingChina,competitiveauctionsarethesinglelargestcatalystofutility-scalerenewablecapacityadditionsbetween2023and2028.However,thisislargelyduetotheirimportanceinsolarandwinddeployment,whichaccountfor93%ofPAGE58IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028theutility-scaleforecast.Forothertechnologies,differentpolicyandmarketdriversaremoreimportant.CSPandpumpedstoragehydropower(PSH)havethehighestsharesofpolicy-drivengrowthin2023-2028duetothehighupfrontinvestmentsandchallengingbusinesscasesofbothtechnologies.ForCSP,growthcomesentirelyfromcompetitiveauctionsinMorocco,theUnitedArabEmiratesandSouthAfrica,mostofwhichhavestate-backedfinancingtoimproveprojectbankability.Forpumpedstorage,over80%oftheexpansionisdrivenbystate-ownedutilities,mostlyinsingle-buyermarketsbecausepricesignalsinliberalisedmarketsdonotprovideastrongenoughbusinesscase.GrowthisledbyIndia,Indonesia,Australia,VietNam,MoroccoandtheUnitedArabEmiratesbecauseoftheirneedtoincreasestoragecapabilitiesandminimiseoverallsystemcoststointegraterisingsharesofvariablerenewableenergy.Despitehavingsimilarflexibilityneeds,EuropeandtheUnitedStatesaccountforonly10%ofPSHcapacitygrowth.Securinginvestmentinthesemarketsischallengingbecauserevenuesarelimitedduetoshrinkingarbitrageopportunitiesandrestrictedaccesstocapacityorancillaryservicemarkets.Althoughcompetitiveauctionsarethemaincatalystofgrowthforvariablerenewables,theyplayalargerroleinoffshorewindprocurementthanforonshorewindandsolarPV,whichhaveslightlyhighersharesofmarket-drivengrowth.Conversely,onlyahandfulofoffshorewindprojectscommissionedby2028areexpectedtohavemostoftheirbusinessmodelbasedoncorporatePPAsormerchantrevenues–namelyprojectsintheNetherlandsandVietNam.WhileoffshorewindprojectsinothermarketshaveannouncedthattheirbusinessmodelswillbebasedonCPPAsandmerchantrevenues,itislikelytheywillalsorelyonrevenuesfromcompetitiveauctions.However,CPPAscouldbecomemoreimportantintheoffshorewindmarketaswaytofinancenewprojectsawardedthroughnon-pricecriteria.Forconventionalhydropowerandgeothermalprojects,highersharesofstate-ownedutilityprocurementresultfromtheirhighupfrontcostsandtheneedtode-riskinvestment.Forhydropower,halfofthegrowthisstimulatedbybilateralcontractsinIndia,PakistanandIndonesia,followedbystate-ownedutilities’investmentsinsub-SaharanAfricaandSoutheastAsia,andfeed-intariffsforlargehydropowerinTürkiye.Forgeothermal,halfofthegrowthiscoveredbyunsolicitedcontractsinIndonesiaandKenya,followedbystate-ownedutilityinvestmentsinTanzania,EthiopiaandthePhilippines.PAGE59IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Meanwhile,justoverhalfofbioenergydeploymentresultsfrompolicystimulus,mostlyfeed-intariffsinTürkiyeandJapanandcompetitiveauctionsinGermanyandtheNetherlands.Market-basedprocurementisexpectedfromunsolicitedbilateralcontractsinIndiaandSweden,andsomemerchantprojectsintheUnitedKingdom,GermanyandArgentina.HighpowerpricesandweakbusinesscasesinauctionsspurunsubsidisedgrowthinEuropeCompetitiveauctionswillaccountforover70%ofEurope’srenewablecapacitygrowthbetween2023and2028,ledbyGermany,theUnitedKingdom,France,Türkiye,andItaly.However,higherwholesaleelectricitypricesindicatethatmarket-basedprocurementcouldbeincreasinglyimportant.Inourforecast,one-fifth(53GW)ofEurope’srenewableenergycapacityin2023-2028isdevelopedundercorporatePPAsandprojectswithamerchanttail.ThismarketdrivengrowthwillbeledbytraditionalmarketssuchassolarPVinSpain,andonshorewindinSwedenandtheUnitedKingdom(withcontributionsfromtheemergingItalianandPolishmarkets).HoweveradditionaldeploymentwillalsocomefromnewermarketssuchassolarPVinGermanyandDenmark.Severalfactorsexplaintheriseinmarket-drivenprocurementinEurope.ThefirstisincreaseddemandforcorporatePPAsfromlargeconsumerstolockinlow-costpowerasahedgeagainsthigh,volatilepowerpricesandtomeetsustainabilitygoals.RetailelectricityratesinEuropehaveincreased15-20%onaveragesinceRussia’sinvasionofUkraine,boostingcorporateconsumerappetiteforrenewableenergy.Inparallel,corporatePPApricesjumped50%fromEUR72/MWhinFebruary2022toEUR108/MWhbySeptember2022.Althoughpriceshavefallen50%sincetheirpeakinSeptember2022toEUR52.2/MWhbyNovember2023,theyneverthelessremainhigherthanpre-warlevelsandarestillwellbelowwholesaleprices,thustheyareexpectedtoremainattractivetolargeconsumers.Inthefirstninemonthsof2023,over7GWofcapacitywerecontracted,inlinewith2021and2022,signallingsustainedgrowth.PAGE60IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Europerenewableelectricitycapacityprocurementbytype,2023-2028(left)andweightedaverageEuropeanwholesaleelectricityprice,PPAindexandauctionceilingpricesGermany500EUR/MWhUnitedKingdom400300Jan2021Spain200Mar2021Türkiye100May2021FranceJul20210Sep2021ItalyNov2021Poland100Jan2022NetherlandsMar2022SwedenWholesaleMay2022DenmarkJul2022BelgiumSep2022Nov20220255075Jan2023Mar2023GWMay2023Jul2023Sep2023Nov2023FixedtariffsandpremiumsAuctionsCorporatePPAsUtility-ownedMerchantandGCsPPAAuctionceilingindex(PV)UnsolicitedbilateralcontractsIEA.CCBY4.0.Note:GC=Greencertificates.Source:ForPPAindex,Pexapark(2023),PPATimes.Thesecondreasonfortheincreaseincorporateandmerchantactivityisthat,insomemarkets,developersarefindingtheeconomicsmoreattractivethancontractsofferedincompetitiveauctions.Lowceilingpricesandalackofinflation-indexedcontractshavebeenlinkedtoauctionundersubscriptioninseveralmarketsbecausedeveloperswereabletoobtainhigherpriceswithcorporatePPAs.Forexample,solarPVceilingpricesinGermany’sundersubscribedauctionsin2022wereintherangeofEUR56-59/MWh,atleast26%belowtheEuropeanaverageCPPAandone-fifththeaveragewholesaleprice.AssoonastheceilingwasraisedtoEUR73/MWhin2023,theauctionsreturnedtofullsubscription.However,someuncertaintiesareassociatedwithmarket-drivengrowth.OneiswhethercorporatePPApriceswillremainattractivetodevelopers.Contractpriceshavefallen50%sincethepeakin2022andsomecountrieshavethereforeraisedauctionceilingsandadjustedcontractstoaccountforrisingcosts,potentiallymakingauctionsmoreattractivetodevelopers.Anotheruncertaintyforprojectswithmerchantofftakeistheriskofpricecannibalisation-i.e.whenwholesalemarginalpricesgotozeroornegativevaluesinperiodsofexcesssolarandwindgeneration-andcurtailmentinmarketswithhighrenewableenergypenetration.Inaddition,futuredemandcannotbeguaranteed,asthenumberofverylargeconsumersislimitedandsmallercompanieswithlessdemandareconsideredhigher-riskoff-takers.However,thisbarriermaybeaddressedbytheEuropeanCommission’selectricitymarketreform,whichcouldenablethepoolingofdemandandstate-backedguaranteeschemes.PAGE61IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028AuctiontrendsAwardedrenewablecapacityincompetitiveauctionsin2023wasthesamelevelasin2022.InAsia-Pacific,EuropeandEurasiaawardedauctionvolumesincreasedoffsettinglowercontractedcapacityinotherregions.Fromatechnologyperspective,thetenderedoffshorewindcapacitydroppedbymorethanone-thirdworldwidefollowingtherecordlevelachievedin2022,thelargestdeclineofallrenewabletechnologies.Awardedonshorewindcapacityslightlyincreasedby2%,andutility-scalesolarPVgrewby7%.Globalrenewableenergyauctionresultsbyregion(left)andbytechnology(right)GW100GW1008080606040402020020202021202220230202020212022202320192019AfricaAsia-PacificChinaSolarPVutility-scaleWindonshoreEurasiaEuropeLatinAmericaWindoffshoreRestoftechnologiesMiddleEastNorthAmericaCapacityauctionedIEA.CCBY4.0.Note:ForChina,thesegraphscoveronlycentrallyheldcompetitiveauctions;provincialauctionsareexcludedbecausecapacityandpricedataforthemarelimited.TheregionAsia-PacificdoesnotincludeChina.Thecombinationofhighcommodityprices,escalatinginvestmentcostsandinflationhasresultedinhighercontractpricesforsolarPVandonshorewind.Inseveralauctions,developersfoundtheceilingorreferencepricestoolow,leadingtoundersubscriptions,withsometendershavingnoparticipantsatall.Theoffshorewindsectorhasalsobeenaffectedbyemergingmacroeconomicandsupplychainchallenges,althoughauctionperformancevariessignificantlyfromonecountrytoanother.PAGE62IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028AverageauctionpricesbyregionforsolarPV(left)andonshorewind(right)USD/MWh180180160160140201320152017201920212023140201320152017201920212023120120NorthAmericaWorld100100IEA.CCBY4.0.80806060404020200020112011AfricaAsiaPacificChinaEurasiaEuropeLatinAmericaMiddleEastNote:AsiaPacificexcludesChina.Globally,theoverallsubscriptionrateslightlyimprovedin2023comparedwith2022,with77%ofofferedcapacitybeingallocated.Auctionsuccessdependson:Volumesoffered:theamountofcapacity,energy,orbudgetmadeavailableintheauction,reflectingthecountry’scommitmentandambitiontodevelopthesetechnologiesorachievespecifictargets.Policycertainty:encompassesfactorssuchaspermittingtimesandtheclarityofparticipationrequirementsfortenders.Clearandpredictablepoliciesarecrucialtoattractdevelopers.Priceceiling:themaximumpricelimitanditsrelationshiptoprojectcosts.Anappropriatebalanceisnecessarytoensuretheeconomicfeasibilityofprojects.Indexationtoinflation:reducesriskfordevelopersbyaccountingforthepotentialerosionofprojectreturnsovertime.Auctionfocus:canemphasisecapacity,energyoutput,developmentofaspecificproject,landorseabedallocationforprojectdevelopment,orbudgetallocation.Severalcountrieshavesettargetsforrenewableenergy,andauctionsareonemechanismtoachievethesegoals.Successfulauctiondesignsthereforetakeintoconsideration(inadditiontothepointsraisedabove)acountry’srenewableenergytargets,thespecificcharacteristicsofthetechnologiesinvolved,andthecurrentmacroeconomicenvironment.Afterusingafeed-in-tariffprogrammeformorethanadecade,Chinaterminateditssubsidiesforutility-scalesolarPVin2020.Sincethen,afeed-in-tariffprogrammestillexists,buttherenewable-specificratesnolongerapply;instead,renewableenergytechnologiesareeligibletoreceivethecoal-firedpowerpriceineachmarket/provincefor15-20years.In2023,Chinaintroducednation-wideimplementationofitsgreencertificateprogrammetopromotepowertradingtoreducegridcongestionandhelpseveralPAGE63IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028provincesmeettheirrenewableenergytargets.Regardingprovincialauctions,procurementexercisesarecarriedoutforwindequipment,butnodataareavailableonanypowerpurchaseauctionorganisedbyregionalauthorities.InIndia,in2023thegovernmentunveileditsambitiousobjectivetoconductannualauctionsfor50GWofrenewableenergycapacity.Infact,thecountry’stendervolumemorethandoubledfrom2022to2023,withalmost90%oftheofferedcapacitybeingallocated,reflectingthegovernment’sdedicationtofosteringsolarPVandwindtechnologygrowth.Incontrast,othercountriesacrosstheAsia-Pacificregiondisplayedtheoppositetrend.Policyuncertaintieswereprevalentinmultiplenations,resultinginundersubscriptioninJapan.Moreover,ChineseTaipeiandthePhilippinesdidnotinitiateanynewrenewableenergyauctionsduringtheyear.Meanwhile,twocontrastingsituationsunfoldedinLatinAmerica.Ontheonehand,theregion’stwolargesteconomies,BrazilandChile,didnotconductanycapacityauctionsin2023.AuctionsinBrazilareopenaccordingtodemandfromdistributioncompanies,butin2023therewasnoneedtoopenanypublictendersbecausehigheramountsofdemandweremetthroughthefreemarket.InChile,anewauctionmechanismwillbeusedinJanuary2024becauseofundersubscriptioninits2022auction.Itaimstobuildaportfolioofprojectsthatcouldprovidepowerinnon-solarhours,includesnewincentivesforenergystorageandnon-variablerenewablesinthreegeographicalzones(north,centralandsouth)andintroducesthepossibilityoftransferringsystemintegrationcostsfromtheshort-termmarket.Ontheotherhand,Argentinaconducteditsfirstauctionsince2018andallocatedtheentiretargetedvolume.EcuadorandGuatemalaalsohadsuccessfulrenewableenergyauctionsin2023.IntheMiddleEastandNorthAfricaregion,severalcountriesinitiatedcompetitiveauctionsforrenewableenergyprojectsin2023,includingsolarPVtendersinAlgeria,IsraelandMorocco,andtheUnitedArabEmiratesincreasedcapacityinitsexistingprojects.However,noauctionswereconcluded,withjustonecontractawardedinSaudiArabia,twoyearsafterinitialbiddingin2021.Instead,mostcontractsweresignedthroughunsolicitedbilateralagreements.Lengthyprocessestoselectbidders,determinewinnersandnegotiatecontractswerecommon,contributingtoprojectimplementationdelays.In2023,Europeoffered9%morecapacityincompetitiveauctionthanin2022,awardingagainmorethan70%ofit,withcountriespresentingawidevarietyofsituationsacrossthecontinent.Awardedutility-scalesolarPVdecreasedbyalmostone-fifth.Onthecontrary,bothonshoreandoffshoretechnologiesincreased,25%and33%respectively.PAGE64IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Offshorewindtechnologyhasbeenparticularlysensitivetoinflationanddisruptionsinthesupplychain,givenitsdependenceonenergy-intensivematerialsandthelargesizeofitsplants.Furthermore,thechallengesofconstructingwindfarmsintheoceanandconnectingthemtothepowergridintroduceanadditionallayerofcomplexity.WhencomparedwithsolarPVandonshorewind,offshoreentailsalongerinstallationperiodandhigherexpenses,althoughwhenthistechnologyparticipatesinauctions,ittypicallysecuressignificantcapacity,surpassingthatofothervariableenergytechnologies.However,thedynamicsofoffshorewindinauctionsvaryconsiderablyacrosscountriesandfromoneyeartothenext.ResultsofoffshorewindauctionsinselectedEuropeancountries8180GWEUR/MWh7160614051201004803602401200201602018202020222016201820202022201620182020202220162018202020222016201820202022201620182020202220162018202020222016201820202022DenmarkUKGermanyFranceIrelandLithuaniaNetherlandsPolandAwarededcapacityAwardedpriceCeilingpriceIEA.CCBY4.0.In2023,almost11GWofoffshorewindcapacitywereawardedinEurope,withGermanyaccountingfortwo-thirdsofit.Thisprocurementwasthefirstdynamicbiddingprocessinthecountry,andafterafirstroundwithallbidsatzerocents,thetenderendedwiththedevelopers(twomajorcompaniesfromtheoilandgassector)beingrequiredtopayfortheseabed–afinalcombinedamountofUSD14billionthatwillgototheGermangovernment.Thisnegativepricingresultraisedconcernsintheindustry,assomefearthatthesecostswillbetransferredtothecustomer.Meanwhile,Irelandhelditsfirstoffshorewindauctionin2023,awardingallthe3GWonofferatanaveragewinningbidpriceofEUR86/MWh–closetohalfthetender’sceilingprice.Conversely,theUnitedKingdomhadzerobiddersforitsoffshorewindCfDauctionfollowingaverysuccessful2022allocation,withdevelopersclaimingtheauctionceilingpricewastoolowrelativetocostincreases.InEurope,Germanyemergedastheleaderforalltechnologies,settingarecordbyawarding18GWofrenewableenergyprojectsthroughtendersin2023,almostPAGE65IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028tripling2022results.Atthebeginningoftheyear,Germanyincreaseditsceilingpricesby25%foronshorewindandsolarPV,andintheauctionsheldthereafter,thefirstdoubledandthesecondincreasedbyalmost80%.Theoffshorewindindustryhadasuccessful7-GWtender,withanotherof1.8GWonthehorizon.CompetitiverenewableenergyauctionresultsinselectedEuropeancountries25GW20212020222023152021202210202320215202220230202120222023202120222023202120222023202120222023GermanyUKFranceSpainItalyPolandIrelandSolarPVOthersOnshorewindOffshorewindUnawardedcapacityIEA.CCBY4.0.Incontrast,theUnitedKingdomawardedonlyone-thirdofthepreviousyear’scapacity.WhiletherewasaslightdecreaseinPVvolumesandamodestgaininonshorewind,thecombinedtotalremainedonparwith2022forthesetwotechnologiestogether.Notably,therewasasignificantabsenceofbiddersforoffshorewindprojects,astheyfoundthemaximumbidpricestoolow,resultinginnocapacitybeingawarded.France’sfirstroundsofauctionsin2023werealsostronglyunder-awarded,withwinningprojectsamountingtoonly10%ofthemorethan2GWoffered.Therewasnoclarityonthefinancialguaranteesrequiredforthisprocurementround,somostofthebidswererejected.Inaddition,keymaterialpriceshadriseninmanymarketsandtheceilingpricewasnotannounced.Duringtherestoftheyearnewtenderswereheldwithvariouschanges,includingmoreclarityonparticipationrequirementsandadjustedprojectindexation(inpreviousrounds,indexingstartedontheconstructiondate,andwiththenewschemeitbeginsfromtheawarddate).Theseroundstotallingmorethan4GWweremuchmoresuccessfulandallocatedalltargetedonshorewindandutility-scalesolarPVcapacity(3.4GWcombined),aswellasmorethan40%ofthebuildings-integratedsolarPVcapacityPAGE66IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028SpainandGreecehadpreviouslyannouncedauctionsfor2023,buttherehavebeennofurtherupdatesorannouncementsregardingtheseauctions,whicharenowexpectedfor2024.WindandsolarPVmanufacturingPVmarketoversupplywillresultinrecord-lowmodulepricesandfiercecompetitionGlobalsolarPVmanufacturingcapacity6increasedby80%oralmost200GWin2022.Plantsunderconstructionindicateanincreaseof330GWin2023toalmost800GW–triplethe2021level.Asresult,capacityisexpectedtomorethandoubleforecastinstallationsin2023,pushingthemarketintoasignificantsupplyglut.Basedonthemanufacturingprojectspipeline,itwillexpandtoover1100GWin2024and1300GWin2028,stayingatmorethandoubleannualPVinstallationsovertheforecastperiod.GlobalnameplatePVmanufacturingcapacityatyear-end,annualinstallationsandmoduledemand,2019-20281800GW1600IEA.CCBY4.0.14001200100080060040020002020202120222023202420252026202720282019ModulesCellsWafersPolysiliconMaincaseinstallationsMaincasedemandAcc.casedemandIEA.CCBY4.0.Note:Acc.Case=acceleratedcase.Sources:IEAanalysisbasedonBNEF;IEAPVPS;SPVMarketResearch;RTSCorporation;PVInfoLink.Since2017,theunavailabilityofPV-gradepolysiliconmanufacturingcapacityhasbeenthemainbottleneckinthePVsupplychain.Itwasespeciallyobviousin2021,whenlagginginvestmentsandafireinoneofthelargestmanufacturingplantsledtoaglobalpolysiliconshortageandtriplingofitsprice–oneofthemainreasonsfortheunprecedentedPVmodulepriceincreasethatyear.6Theleastdevelopedpartofthesupplychain,creatingaproductionbottleneck.PAGE67Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028However,in2023polysiliconproductioncapacityinChinawillbeoverthreetimesthe2021level,puttingtheglobalcapacityonparwithotherPVmanufacturingsegmentssuchaswafers,cellsandmodules.Wafermanufacturingisexpectedtobetheleastdevelopedpartoftheglobalsupplychainin2024,althoughshortagesarehighlyunlikelybecausecapacitywillstillsignificantlyoutweighexpecteddemand.MostPVmanufacturingcapacityexpansionto2028isexpectedtotakeplaceinChina,rangingfrom85%formodulesto95%forpolysilicon.Chinesecompanieshaveexpandedtheirinvestmentplansconsiderablyinthepasttwoyears,countingondynamicglobalPVdemandgrowth(resultingfromenergysecurityconcernssinceRussia’sinvasionofUkraine)andgrowingcleanenergyambitionsinanincreasingnumberofcountries.RemaininginvestmentswillbesplitamongtheUnitedStates,IndiaandASEANcountries.DeploymentoutsideofChinaispropelledmostlybyvariousdedicatedpolicymeasuressupportingdomesticmanufacturing,withtheexemptionoftheASEANregion,whereChinesecompaniesinvesttogeographicallydiversifytheirproduction.SolarPVmanufacturingcapacityandannualinstallationsinNorthAmerica,IndiaandEurope,2022-2028(left),andChina’sshareinPVproductionandinstallations,2022-2028(right)100%80GW70IEA.CCBY4.0.80%605060%403040%2020%1002022202820222028202220280%NorthAmericaIndiaEuropeModulesCellsWafers20222028PolysiliconInstallationsIEA.CCBY4.0.Sources:IEAanalysisbasedonBNEF;IEAPVPS;SPVMarketResearch;RTSCorporation;PVInfoLink.ManyPVmanufacturingprojectswereannouncedin2022-2023outsideofChinaandtheASEANregion,thankstopolicysupportofferedthroughtheIRAintheUnitedStatesandtheProduction-LinkedIncentiveinIndia.IntheUnitedStates,roughlyhalfofallprojectsfocusonmoduleassemblyonly,andtherestaredistributedevenlyamongtheothersegments.PAGE68Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Asaresultofplannedinvestments,PVmanufacturingcapacityinNorthAmericathroughoutthesupplychainisexpectedtocoverabout35%oftheregion’ssolarPVdemandin2028.InIndia,cellandmodulemanufacturingcapacityshouldsurpasslocaldemandsignificantlyin2028,creatingexportopportunities.However,duetolaggingpolysiliconinvestments,thecountry’sPVself-sufficiencywillreachonlyabout50%.IntheEuropeanUnion,insufficientpolicysupportfordomesticPVmanufacturersandalackofdemand-sidepoliciespromotingtheuptakeofEU-manufacturedproductsresultedinalimitednumberofprojectannouncements.Indeed,TürkiyeisexpectedtogarnerthemajorityofinvestmentsinEuropeowingtoitslocal-contentincentivesandrelativelylowmanufacturingcosts.In2028,despiteitsgrowingmanufacturingambitions,Europeisexpectedtobejust10%self-sufficientandremainthelargestPVimportmarket,withChinalikelybeingitsmainsupplier.USandIndianPVmanufacturingdevelopmentplansareunprecedentedforthesecountriesandshouldreducetheirPVimportdependenceconsiderably.However,globalgeographicaldiversificationofPVmanufacturingisnotexpectedtoimprovesignificantlyintheforecastperiodduetoChina’smassiveinvestmentplans.Thus,Chinaisstillexpectedtoproduce90%ofwafers,85%ofpolysiliconandcellsand75%ofmodulesin2028.USandEUannualPVinstallations,PVmodulesuppliesandcumulativemodulestockpiles,2019-2028140GW120IEA.CCBY4.0.1008060402002020202120222023202420252026202720282019InstallationsModulesupplyCumulativestockpilesIEA.CCBY4.0.Sources:IEAanalysisbasedonBNEF;IEAPVPS;SPVMarketResearch;RTSCorporation;PVInfoLink.IntheEuropeanUnionin2022and2023andintheUnitedStatesin2023,PVmoduleimportsrosesignificantlymorethanPVinstallations.IntheEuropeanUnion,highPVcapacitygrowthexpectationsandthepossibilityofimportPAGE69Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028restrictionsintheshorttermhaveledtoconsiderablestockpilingofmodulesfromChina.DistributorsarealsobuildingupstockpilesintheUnitedStatesaheadofJune2024,whencircumventiontariffsgointoeffect.Alsocontributingtostockpilingisthelow-priceenvironmentresultingfromthesupplyglut.Asaresult,modulestockpilesattheendof2023wereanestimated90GWintheEuropeanUnionand45GWintheUnitedStates,closetodoubletheinstallationsforecastfor2024.However,distributorsareexpectedtostartdiminishingtheirstockpilesin2024toreducetheirstoragecosts,whichshouldresultinlowerdemandfornewmodules.DuetostockpilingintheUnitedStatesandtheEuropeanUnion,globaldemandforPVmoduleswashigherthanexpectedbasedonthedeploymentforecast,byabout40GWin2022and80GWin2023.ThisallowedglobalPVmanufacturerstomaintain75%averagecapacityutilisationin2022,evenwithanalmost200GWincreaseinnameplatemanufacturingcapacity.In2023,however,thisadditionaldemandwillnottobeenoughtooffsetfurthersupplychainexpansion,andtheresultingglobalaverageutilisationratelikelyfelltoabout60%.TheongoingoversupplyinthesolarPVmarkethasalsoledtofiercecompetitionamongmanufacturers,resultinginamodulespotpricedropofroughly50%betweenJanuaryandDecember2023.AveragemanufacturingcapacityutilisationandglobalPVmoduleprices,2019-20280.50USD/W100%0.4590%0.40IEA.CCBY4.0.80%0.3570%0.3060%0.2550%0.2040%0.1530%0.1020%0.0510%0.000%2019202020212022202320242025202620272028Averagemoduleprice(USD/W)Worldaverage(%)Chinaaverage(%)RoWaverage(%)IEA.CCBY4.0.Note:RoW=restofworld.Sources:IEAanalysisbasedonBNEF;IEAPVPS;SPVMarketResearch;RTSCorporation;PVInfoLink.Meanwhile,manufacturersoutsideofChinashouldbeabletomaintainhigherutilisationratesbecausetheyareoftenprotectedbyvarioussupportpoliciesandtrademeasures.Takinglowmanufacturingutilisationratesandlong-termtrendsPAGE70Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028inproductioncostreductionsintoconsideration,PVmodulepricesareexpectedtocontinuefallingthroughouttheforecastperiod.Tosurviveinsuchacompetitivemarket,manufacturersarefocusingoncost-cuttingandinnovation.Large,verticallyintegratedcompanieswillhaveanadvantage,astheyareabletocontrolcostsacrosstheentirevaluechain.Intermsofinnovation,sharesofmoreefficientTOPCon(tunneloxidepassivatedcontact)solarcelltechnologyareincreasing,eventhoughthemarketiscurrentlydominatedbyPERC(passivatedemitterrearcontact)cells.In2022,about25%ofPVmodulesproducedusedTOPConcells,withtheproportionexpectedtoexpandfurtherinupcomingyears.IntheirmanufacturingplantsinChinaandASEANcountries,Chinesecompaniesareleadersinupgradingtheirmanufacturinglines.Nevertheless,manufacturingovercapacityandconsequentlylowPVmodulepricesareexpectedtoincreasefinancialchallengesforlessefficientmanufacturers,inadditiontomanufacturingprojectcancellationsandoverallmarketconsolidation.PVsupplycostincreasesduetoimportdisplacementbydomesticUS,EUandIndianmanufacturing,2023-2028Annual(mlnUSD)600030000Cumulative(mlnUSD)5000250004000200003000150002000100001000500002024202520262027020232028UScumulativeEUcumulativeIndiacumulativeUSannualEUannualIndiaannualIEA.CCBY4.0.Sources:IEAanalysisbasedonBNEF;IEAPVPS;SPVMarketResearch;RTSCorporation;PVInfoLink.EstablishedChinesemanufacturers(oftenverticallyintegratedcompaniesbenefitingfromvariouspublicincentives)arelargelyresponsibleformodulepricedrops.Suchcompaniesenjoyhighproductioncostefficienciesthankstotheeconomiesofscaletheycanachieve,whichwillremainunmatchedbyanyothercountryinthemediumterm.However,manygovernments,includingthoseoftheUnitedStates,theEuropeanUnion,TürkiyeandIndia,haveintroduceddirectsubsidies,taxcredits,local-PAGE71IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028contentrequirementsandtrademeasurestosupportdomesticPVequipmentmanufacturing.Thesepoliciesaimtoattractmanufacturinginvestment,createjobsandimprovecleanenergysupplychainsecurity.WhilesolarPVsupplychaindiversificationisneededtodiluteoverlyhighconcentrationsinsomeareas,italsoentailsadditionalcostsforgovernmentsandconsumers.Forinstance,thecostofmanufacturingaPVmodulefrompolysilicontofinishedpanelin2023,comparedtoChina,wasestimatedtobeabout10%higherinIndia,30%higherintheUnitedStatesand60%higherintheEuropeanUnion.Thesedifferencesresultfromhigherinvestment,labourandenergycosts,aswellaslowerscalesofproductionandalackofverticalintegration.By2028,thesedifferencescouldgrowto70%inIndia,100%intheUnitedStatesand140%intheEuropeanUnion.Thus,thecosttoreplaceChinesePVimportswithmoreexpensivedomesticmanufacturingover2023-2028isexpectedtoreachUSD12billionintheUnitedStates,USD8billioninEuropeanUnionandIndia.Theseestimatesassumecapacityutilisationfactorsofover70%forplannedmanufacturingplantsacrossthesecountries,whichshouldallowthemtooperateefficiently.Highinvestmentcostsnotwithstanding,localmanufacturingbenefitsacountry’seconomyinvariousways(e.g.bycreatingemployment,spurringinnovationandstrengtheningsecurityofsupply),whichshouldalsobetakenintoconsiderationinpolicyplanning.WindturbinemanufacturersoutsideofChinaarewitholdingexpansionplansinanticipationofgreaterpolicyclarityIncontrastwithsolarPV,windsupplychaindevelopmentinthemediumtermisexpectedtoremaincloselyalignedwithdemand.Manufacturingcapacityforthemainwindturbinecomponents(nacelles,bladesandtowers)remainedmostlyunchangedin2023,atabout110-125GWperyear.Announcedexpansionprojectsindicatethatby2025itwillincreasetoabout120-140GW,withtwo-thirdsoftheexpansionhappeninginChina,inlinewiththecountry’sgrowingdemand.InChina,localOEMs(originalequipmentmanufacturers)suppliedover95%ofturbinesinthelastfiveyears.However,Chinesemanufacturershavenotyetbeenabletopenetratemarketsabroad,whereroughly95%ofdemandin2023wasexpectedtobecoveredbyEuropeanandAmericancompanies–eventhoughtheaveragepriceofturbinesinChinaisonlyone-thirdofthoseinEuropeandtheUnitedStates.PAGE72IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Windequipmentmanufacturingcapacitybyregionandcomponent,2023-2025(left),andwindturbinemarketsharesinChinaandtherestoftheworldbyOEMheadquarters,2018-2023(right)GW100ChinaRestofworld100%8080%6060%402040%0'22'25'22'25'22'25'22'25'22'2520%ChinaAPACNorthEuropeRoW0%AmericaDemandNacellesTowersBladesEUUSChinaIndiaIEA.CCBY4.0.Note:OEM=originalequipmentmanufacturer.APAC=AsiaPacific.RoW=restofworld.Sources:IEAanalysisbasedonBNEF;WoodMackenzie.PricesofturbinesfromChinesemanufacturersfirstbegantodivergefromthoseofWesterncompetitorsin2020.First,logisticalchallengesresultingfromlockdownsandotherdisruptionscausedbytheCovid-19pandemicbegantoinflateEUandUSturbinemanufacturercosts.Next,rawmaterialandshippingcostinflationin2021-2022exacerbatedthesituation,resultinginanaverageturbinepriceincreaseof20%perMWbetweenthefirsthalvesof2020and2023.InthesameperiodinChina,pricesdecreasedmorethan50%thankstolocalsupplychainconcentration,dynamicmarketgrowth,accesstoattractivelypricedrawmaterials,lower-costfinancingandfiercecompetitionamongdomesticmanufacturers.Westernmanufacturersthusrecordednegativefinancialresultsinrecentyearsduetocostinflation,whichcouldnotbereflectedinequipmentsellingprices.Inaddition,technicalissuesfoundinoneoftheleadingsupplier’sturbines(possiblynecessitatinglarge-scalerepairs)addedtotheindustry’sfinancialstrain.Manufacturersarealsoonthevergeofamassiverolloutofnew-generationoffshorewindturbineswithacapacityratingofover10MW.Mostoffshorewindfarmscommissionedafter2023willuseequipmentofthissize,with15-MWmodelsalreadycontractedfordeliveryin2025.Whilewindturbinemanufacturersaredevelopingnew,largerturbinesatafastpacetostaycompetitive,switchingtoanewproductalwaysentailsincreasedrisk,makingcompaniesmorecautiousaboutinvesting.ThesedevelopmentsaremakingOEMssignificantlylesseagertoexpandtheirmanufacturingbase.PAGE73IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028CompaniesarealsowithholdinginvestmentduetouncertaintyaboutdemandgrowthinthecoreEUandUSmarkets,wherepersistentlylongpermittingwaittimesandlengtheninggridconnectionqueueshinderfasterwindcapacitydeployment.RecentoffshorewindprojectcancellationsintheUnitedStatesandtheUnitedKingdomareanindicationofperceivedinvestmentrisk.Consequently,nacellemanufacturingcapacityinEuropeandtheUnitedStatesisexpectedtoincreasejust3GWby2025.However,themanufacturingoutlookshouldimproveinthelongertermasfuturewinddemandgrowthbecomesmorecertain,includingbecauseoftheUSInflationReductionActandthenewlyannouncedEUWindPowerActionPlan.AnnouncedbytheEuropeanCommissioninOctober2023,theWindPowerActionPlanaimstoaccelerateinstallationgrowthandsupportlocalmanufacturersbystreamliningpermitting,improvingauctiondesign,facilitatingaccesstofinancingandexpandingworkforcetrainingprogrammes.Proposedauctionimprovementsincludeprovidinglong-termvolumevisibilityandintroducingqualitativecriteriaandinflationcompensationmechanisms.Governmentsarealsosupposedtobetterhelpmanufacturersaccessnon-EUmarketsandsecurecriticalmineralsuppliesthroughtradeagreementsandensureequalitywithforeigncompetitors.Althoughimplementationisplannedfor2024,thebroaderimpactsofthesepoliciesonwindmanufacturingcapacitywillnotbevisibleuntilafter2025.GridconnectionqueuesGridqueuesaregrowingandinvestmentislagging,leadingtolongerleadtimesandhighercostsPolicysupportandlowercostshaveconsiderablyenlargedtheprojectpipelineworldwide,resultinginlongerconnectionqueues.Currently,over3000GWofrenewableenergyprojectsareinconnectionqueuesglobally,withnearly1500GWofwindandsolarPVprojectsinadvancedstagesofdevelopment–enoughtonearlydoublecurrentinstalledglobalcapacityforthesetechnologies.However,gridinvestmenthasnotkeptpacewithrenewableenergydevelopment:outsideofChinaandIndia,transmissionanddistributioninvestmentshavegrownjust1%peryearsince2010.Thus,lower-than-neededgridinvestments,coupledwithlowbarrierstoqueueentry,haveledtoincreasesinbothconnectioncostsandprojectleadtimes,puttingeconomicpressureondevelopersandcausingprojectdelaysandcancellations.PAGE74IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Renewableenergycapacityinconnectionqueuesbyprojectstage(left),andadvanced-stagesolarPVandwindprojectsbyregion(right)548GW10009009761505800SolarPVWindEarlystage/unlikely(GW)700APACLatestage(GW)600Underreview(GW)5004003002001000USEuropeLAMIEA.CCBY4.0.Notes:APAC=AsiaPacific.LAM=LatinAmerica.Allcapacitypresentedissourcedfrompubliclyavailablecountry-levelconnectionqueueinformation.USdatafromCAISO;ERCOT;MISO;PJM;NYISO;ISO-NEandSPPinterconnections;AppalachianElectricCooperative;ArizonaPublicService;BlackHillsColoradoElectric;BonnevillePowerDistrict;CheyenneLight,Fuel&Power;CityofLosAngelesDepartmentofWaterandPower;DukeCarolinas;DukeFlorida;DukeProgress;ElPasoElectric;FloridaLightandPower;GeorgiaTransmissionCompany;ImperialIrrigationDistrict;IdahoPower;JacksonvilleElectricDepartment;LouisvilleGasandElectricCompanyandKentuckyUtilitiesCompany;NVEnergy;PortlandGeneralElectric;PublicServiceCompanyofNewMexico;PlatteRiverPowerAuthority;SanteeCooper;SouthernElectricCorporationofMississippi;SouthernCompany;SaltRiverProject;TucsonElectricPower;Tri-StateGenerationandTransmission;TennesseeValleyAuthority;andWesternPowerAdministration.SpaindatafromRedEléctricadeEspana.JapandatafromHokkaidoElectricPowerNetwork,Gridconnectionstatusofrenewableenergyprojects;TohokuElectricPowerNetwork,Gridconnectionstatusofrenewableenergyprojects;TEPCOPowerGrid,Gridconnectionstatusofrenewableenergyprojects;ChubuElectricPowerGrid,Gridconnectionstatusofrenewableenergyprojects;HokurikuElectricPowerTransmission&Distribution,Gridconnectionstatusofrenewableenergyprojects;KansaiTransmissionandDistribution,Gridconnectionstatusofrenewableenergyprojects;ChugokuElectricPowerTransmission&Distribution,Gridconnectionstatusofrenewableenergyprojects;ShikokuElectricPowerTransmission&Distribution,Gridconnectionstatusofrenewableenergyprojects;KyushuElectricPowerTransmissionandDistribution,Gridconnectionstatusofrenewableenergyprojects;OkinawaElectricPower,Gridconnectionstatusofrenewableenergyprojects.BrazildatafromANEEL.ItalydatafromTERNA.UKdatafromOfgem.GermanydatafromBundesnetzagentur.AustraliadatafromAEMO.MexicodatafromCENACE.ChiledatafromCEN.ColombiadatafromUPME.IndiadataestimatedbasedonCEAtransmissionbuildoutplanning.SolarPVvaluesareamixofACandDC,dependingonthesource.Since2010,entriesintointerconnectionqueuesacrosstheUnitedStateshaveincreasedbyatleast20times,whileinvestmentintransmissionanddistributiongridshasonlydoubled.InFrance,theamountofsolarPVandonshorewindcapacitywaitingforconnectionhasnearlydoubledsince2018,andnewapplicationsforconnectionintheUnitedKingdomhaverisen80%since2022.Theincreaseinconnectionrequestshaslengthenedprojectleadtimes.IntheUnitedStates,averagequeueleadtimesrosefromthreeyearsin2015tofiveyearsin2022,whileintheUnitedKingdom120GWofprojectsawaitingconnectionhavebeenofferedconnectionin2030orlater.Meanwhile,France’sbacklogofprojectshasledtoconnectiondelaysof22months.InBrazil,increaseddevelopmentofsolarPVandonshorewindhasincreasedgridconnectionqueuesPAGE75IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028andprojectlead-times.Evenprojectsnearingcompletioncanstillbesubjecttodelays:InAustraliaforinstance,commissioningprocessescanbeayearorlonger.UnitedStatesconnectionqueuegrowthandgridinvestment(left),andwindandsolarPVconnectioncostincreases(right)GW120billionUSDUSD/kW2007018016060100140120508010040608060304040202001020USqueuegrowth(GW)UStransmissioninvestment00USdistributioninvestment2010StudyStudyStudyStudy20112012period1period2period1period22013201420152016201720182019202020212022SolarPVOnshorewindPJMIEA.CCBY4.0.Notes:“Studyperiod1”coversprojectswithcompletedinterconnectionstudiesfrom2000-2016;“studyperiod2”coversprojectswithcompletedinterconnectionstudiesfrom2017-2022.Sources:(left)IEAanalysisandIEA(2023),WorldEnergyInvestment2023;(right)IEAanalysisbasedonLawrenceBerkeleyNationalLabInterconnectionCostAnalysisinthePJMTerritory.Inadditiontolongerwaittimes,projectsarealsofacinghighergridconnectioncosts.IntheUnitedStates,forprojectswithcompletedinterconnectionstudiesinthePJMinterconnectionregion,costsforinterconnectiondoubledfromUSD42/kWbefore2020toUSD84/kWafter,andthesepotentialcostsareevenhigherforonshorewind(USD136/kW)andsolarPV(USD253/kW).IntheNYISOregion,costsforinterconnectionhavedoubledsince2017,primarilyduetotheneedfornetworkupgrades.Additionally,inmanymarkets,connectioncostsaresharedamongdevelopers,utilitiesandconsumers.InFrance,forexample,developersorconsumersinstallingrenewablecapacityareresponsiblefor40-100%oftheconnectioncosts,withincreasedcostspotentiallyimpactingdevelopment.LonggridconnectionqueuesandinadequateinvestmentcouldslowwindandsolarPVdevelopmentgrowth.InvestmentsingridsmustdoubletooverUSD600billionperyearby2030tomeetclimatetargets,whilequeuesneedtobereformedtoaddresslongleadtimesandprojectspeculation.Policiesarealreadybeingdeployedtoresolvebothconcerns.In2023,Brazilheldauctionsforsixnewtransmissionlinesconnectingresource-richareastodemandcentres,whiletoshortenconnectionqueuebacklogsintheUnitedStates,thePAGE76IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028FederalEnergyRegulatoryCommissionproposednewguidelinestoprioritisestudyprocessesandreducespeculativeconnectionrequests.Inaddition,theEuropeanUnion’sactionplanforgridswillincludemeasurestoreinforceandexpandgridsmorequickly.Thesepolicyeffortswillbecriticalforcountriestoachievetheirclimatetargets.RenewableenergyintegrationIntegratinghigherVREshareswillhaveimplicationsforpowersystemsgloballyTheshareofwindandsolarPVgenerationincreasedfrom7%in2018toanestimated13%in2023.Overthenextfiveyears,potentialVREgenerationisforecasttodoubleagainto25%in2028owingtoacceleratedwindandsolarPVcapacitygrowth.Thisrapidexpansioninthenextfiveyearswillhaveimplicationsinpowersystemsworldwide.TheIEAcategorisesVREintegrationintosixphasesbasedonthechallengespowersystemsfacewithincreasingVREshares.Currently,mostpowersystemsfallintoPhase1,whereinVREhasnosignificantimpactatthesystemlevel.However,anincreasingnumberofregionsareenteringhigherphases,andDenmarkhasreachedPhase5,withgrowingamountsofVREsurplus.Countriesinphasesofrenewablesintegration,202270%60%50%40%30%20%10%0%VREinannualelectricitygeneration(%)IEA.CCBY4.0.Phase5-GrowingamountsofVREsurplus(dayormore)Phase4-VREmeetsalmostalldemandinsomeperiodsPhase3-VREdeterminestheoperationpatternofthesystemPhase2-MinortomoderateimpactonsystemoperationPhase1-NorelevantimpactonsystemIEA.CCBY4.0.Note:Capacityadditionsrefertonetadditions.By2028,therewillbemorecountrieswithVREsharesof5-15%thanbelow5%forthefirsttime.AsVREstartstocontributeatthesehighershares,itislikelythatmanyofthesecountrieswillreachthephase-2stageandbegintoexperiencePAGE77Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028minortomoderateimpactsofVREpenetrationintheirsystems.However,thespecificphaseclassificationofeachcountrywilldependontherelativeshareofwindandsolarPV,theircomplementaritytooneanother,andthecorrelationbetweenVREproductionandelectricitydemand.Countriesinphase2,willhavetouseexistingflexibilitysourcesmoreeffectivelytointegratewindandsolarPVpowercost-effectively.Inthenextfiveyears,around30countriesareforecasttohaveVREpenetrationof15-30%,notonlyinEuropeandtheUnitedStatesbutalsoinlargeemergingeconomies,includingChina,Brazil,IndiaandTürkiye.Theywilllikelybegintoexperiencegreaternetloadvariabilityandchangesinpowerflowpatterns,withVREincreasinglydetermininghowthesystemoperates.Thesecountriesmayalsobesubjecttosubregionalchallengesdependingontheirinterconnectioncapacitieswithothergridareas.Forinstance,acceleratingwindandsolarPVdeploymentinChina’sNorthernandNortheasternregionscouldresultinrisingcurtailmentthrough2028–despiterecentinvestmentsingridinfrastructure–duetothehighconcentrationofVREcapacityinthesegridareas.NumberofcountriesbypotentialrangeofVREshareinannualelectricitygeneration.Numberofcountries100LikelyPhase2and3LikelyPhase1LikelyPhase4201890202380LikelyPhase5&620287060504030201000%-5%5%-10%10%-15%15%-20%20%-30%30%-40%40%-50%50%-70%70%-100%IEA.CCBY4.0.Note:Capacityadditionsrefertonetadditions.IntheEuropeanUnion,potentialVREpenetrationin2028isexpectedtoreachmorethan50%inninecountries,withover90%ofDenmark’spowergenerationforecasttocomefromwindandsolarPVsystems.Thesecountrieswilllikelybeinphase5or6,withVREmakingupalmostallgenerationinsomeperiodswhilealsoproducinggrowingamountsofsurplus.AlthoughEUmarketinterconnectionshelpintegratesolarPVandwindgeneration,gridbottleneckswillincreasinglyposechallengesandleadtocurtailment.Forinstance,VREsharesareexpectedtoreachalmost65%inSpainandover70%PAGE78IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028inPortugalby2028.WhiletheIberianPeninsulaiswellinterconnected,Spain’sconnectionswithFrancearecurrentlylimited.In2023,thecurtailmentofPVandwindgenerationinSpainmorethantripledfrom2022foreconomicreasons(i.e.becauseoflowprices).CurtailmentisalsoexpectedincreaseinGermany,Ireland,theUnitedKingdomandGreecebecausegridexpansioncannotkeeppacewithvariablerenewableenergygrowth.Sharesofpotentialvariableelectricitygenerationforselectedcountriesaboveglobalaveragein2028World2018Israel2018-23USA2023-28TurkeyChina10%20%30%40%50%60%70%80%90%SwedenItalyFinlandBrazilPolandAustraliaBelgiumGreeceNetherlandsUKSpainIrelandUkChileGermanyDenmark0%%ofvariablerenewablesintotalgenerationIEA.CCBY4.0.Note:Capacityadditionsrefertonetadditions.MorestoragesystemsarecrucialforintegratinghigherVREgenerationElectricitystoragesolutionscanamelioratethegridintegrationchallengesthatcomewithrisingVREshares,especiallyincountrieswithhighwindandsolarPVpenetration.Today,twocomplementarytechnologiesareabletocost-effectivelyprovidestorage:stationarybatteriesfor1-4hours,andpumped-storagehydropowerplantsfor4-15hours,dependingonthereservoirsize.SupportpoliciesandfallingstationarybatterycostsoverthelastdecadehavestimulatedinvestmentinthepastfiveyearsinEurope,theUnitedStates,ChinaandAustralia,whereregional-levelgridbottlenecksaremakingshort-termstoragenecessarytoprovideelectricitysecurityincountrieswithlimitedwholesaleelectricitymarketsandbalancingandancillaryservicesinliberalisedpowermarkets.StationarybatteriesinEurope,theUnitedStatesandAustraliacantapintobalancingmarketsthrougharbitrageopportunitiesatpeakhours.Overtheforecastperiod,risingVREdeploymentisexpectedtoacceleratetheinstallationPAGE79IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028ofstoragesystems,withover400GWtobedeployedbetween2023and2028.China,theUnitedStates,theEuropeanUnionandIndialeadthisexpansion.Short-andlong-termstoragecapacitygrowth,2011-20282011-152017-222023-28Long-termstorageEuropeShort-termstorageNorthAmericaLong-termstorageChinaShort-termstorageAsiaPacificLong-termstorageLatinAmericaMENAShort-termstorageOthers0100200300400500GWIEA.CCBY4.0.Notes:MENA=MiddleEastandNorthAfrica.Short-termstoragereferstostationarybatteriesproviding1-4hoursofstorage.Long-termstorageincludespumped-storagehydropowerandconcentratedsolarplantswithlong-termstoragecapabilities.Source:IEA(2023),WorldEnergyOutlook2023.Forlong-termstorage,deploymentremainslimitedcomparedwithstationarybatteries,especiallywhereitismostneededinmarketswithVREsharesforecasttoreachover50%in2028.Challengesincludelengthydevelopmentandpermittingtimelines,alackofincentivesandincompatiblemarketdesignsthatoftendonotsupportthebusinesscaseforpumpedstorageplantsinadvancedeconomies,aswellaslimitedorexhaustednaturalresourcesinsomeareas.Whileexistinglong-termstoragecapabilitiesinEurope,theUnitedStatesandJapanwillcontributetosystemintegration,long-termstorageneedsareincreasingrapidly,soinvestmentdecisionsmustbemadetodayforplantsthatwillberequired6-10yearsfromnow.Whilelong-termstorageisconsideredastrategicgridassetforelectricitysecurityinanincreasingnumberofcountries,pumped-storagehydropowerdeploymentisexpectedtotakeplacemostlyinChina,thankstostrongandconsistentpublicsupportfacilitatinginvestment..PolicymeasuresareneededtomeetrisingVREcurtailmentchallengesAsVREuptakecontinuestogrow,theshareofcurtailedwindandsolarPVgenerationisalsoontheriseinnumerousmarkets.However,whileVREcurtailmentisrisingoverallinanincreasingnumberofcountries,thepercentagePAGE80IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028ofwindandsolarPVgenerationgoingunusedremainsrelativelylow,typicallyrangingfrom1.5%to4%inmostmajorrenewableenergymarkets.Naturally,curtailmentratesarehigherinregionsthatneedsubstantialgridinfrastructureexpansiontoconnectrenewableenergyinstallationstoconsumptioncentres.Effectivesystemplanningisthuscrucialforwell-integratedwindandsolarPVgrowthandshouldencompassconsiderationssuchastheregionaldistributionofgenerationandthedevelopmentofpoliciestoencouragesystemflexibility.Additionally,powermarketsmustevolvebeyondthetraditionaldesignandregulationmodelstocreateamoreaccommodatingenvironmentforhigherrenewableenergyintegration.VREgenerationsharesandtechnicalcurtailmentratesforselectedcounties80%16%70%14%VREgenerationshare(%)60%12%VREcurtailmentrate(%)50%10%40%8%30%6%20%4%10%2%0%20170%201920212023202820172019202120232028201720192021202320282017201920212023202820172019202120232028201720192021202320282017201920212023202820172019202120232028AustraliaChileChinaGermanyIrelandItalySpainUKVREshare(leftaxis)Curtailment(rightaxis)IEA.CCBY4.0.Notes:Datapointsrepresentofficiallyreportedcurtailedorconstrainedenergyandcombinevariousschemes,dependingonthecountry.VREreferstosolarPVandwindunlessotherwisespecified.Italyincludesonlywind.SpainincludesPV,wind,CSPandbiomasstechnologies.TheUnitedKingdomincludesonlywind.“Technicalcurtailment”referstothedispatch-downofrenewableenergyfornetworkorsystemreasons.Dispatched-downenergyduetoeconomicormarketconditionsisnotincluded.Sources:IEAanalysisbasedonAustralianEnergyMarketOperator(AEMO),QuarterlyEnergyDynamics(multiplereleases);CoordinadorEléctricoNacionaldeChile(CEN),ReduccionesdeenergíaeólicaysolarenelSEN(multiplereleases);NationalBureauofStatisticsofChina(NBS),ChinaEnergyDatasheet2000-2021;Bundesnetzagentur,MonitoringReport2022;GestoreServiziEnergetici(GSE),Rapportoattivita2021;EirGrid,RenewableDispatch-Down(ConstraintandCurtailment)reports(multiplereleases);HokkaidoElectricPowerNetwork,areasupplyanddemanddata(multiplereleases);TohokuElectricPowerNetwork,areasupplyanddemanddata(multiplereleases);TEPCOPowerGrid,areasupplyanddemanddata(multiplereleases);ChubuElectricPowerGrid,areasupplyanddemanddata(multiplereleases);HokurikuElectricPowerTransmission&Distribution,areasupplyanddemanddata(multiplereleases);KansaiTransmissionandDistribution,areasupplyanddemanddata(multiplereleases);ChugokuElectricPowerTransmission&Distribution,areasupplyanddemanddata(multiplereleases);ShikokuElectricPowerTransmission&Distribution,areasupplyanddemanddata(multiplereleases);KyushuElectricPowerTransmissionandDistribution,areasupplyanddemanddata(multiplereleases);OkinawaElectricPower,areasupplyanddemanddata(multiplereleases;RedEléctricadeEspaña(REE),I3DIA(multiplereleases).Theimpactofcurtailmentonenergytechnologiesiscontingentonvariousfactorsandscenarios.Plantsizedetermineswhethertheconnectionistotransmissionordistributionlines,whichnormallyhavedifferentcongestionlevels.Alsorelatedtocongestion,thedistributionofresources(e.g.widespreadsolarradiationandPAGE81IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028discreethigh-wind-resourcelocations)helpsdetermineplantconcentrationsforeachtechnology,alleviatinghighercongestionlevelsatcertainnodes.Hourlygenerationprofilesareacriticalfactor,especiallyintheabsenceofstorage,asenergyproductioncansometimessurpassdemand.Fromtheperspectiveoftransmissionsystemoperators(TSOs),asystem’sloadprofileiskeyandcanbeinfluencedbyahighpenetrationofdistributedgeneration.DistributedPVinparticularhasthepotentialtoreducedemandduringspecifichours,therebyintensifyingthemismatchbetweengenerationanddemand.TechnicalcurtailmentratespertechnologyforselectedcountriesChileChinaGermany20%Curtailmentrate20152019202320%20152019202320%20152019202318%18%18%16%IEA.CCBY4.0.16%16%14%14%14%12%12%12%10%10%10%8%8%8%6%6%6%4%4%4%2%2%2%0%0%0%201120112011VREOnshorewindOffshorewindSolarPVIEA.CCBY4.0.Notes:VRE=variablerenewableenergy.The2023curtailmentrateforChilein2023comprisestheperiodfromJanuarytoSeptember.Datapointsrepresentofficiallyreportedcurtailedorconstrainedenergyandcombinevariousschemes,dependingonthecountry.VREreferstosolarPVandwindunlessotherwisespecified.“Technicalcurtailment”referstothedispatch-downofrenewableenergyfornetworkorsystemreasons.Dispatched-downenergyduetoeconomicormarketconditionsisnotincluded.Sources:IEAanalysisbasedonCoordinadorEléctricoNacionaldeChile(CEN),ReduccionesdeenergíaeólicaysolarenelSEN(multiplereleases);NationalBureauofStatisticsofChina(NBS),ChinaEnergyDatasheet2000-2021;Bundesnetzagentur,MonitoringReport2022.Overthepasttenyears,windenergyhasconsistentlyconstitutedthelargestportionofcurtailedVREinChina,accountingfor75-85%oftotalannualcurtailment.However,thecurtailmentrateforwindpeakedat17%in2016andithasfallensteadilysincethentoaround3%in2022.SolarPVexpansioninChinahasbeenrapidandisanticipatedtocontinue.Itscurtailmentrateshavebeenlowerthanforwind-basedgeneration,reachingapeakof11%andsubsequentlydecreasingtolessthan2%.China’ssubstantialannualinvestmentsofapproximatelyUSD75billioningridinfrastructuresince2010havebeenpivotalinreducingVREcurtailment.Adjustmentstothefeed-in-tariffscheme(toprovidestrongerincentivesinprovinceswithlimitedsystemintegrationchallenges)havealsocontributedtothispositivetrend.PAGE82Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028InGermany,VREcurtailmentroseatthebeginningofthelastdecade.Whilemajorgridinvestmentdecisionstostrengthenthenorth-southcorridorarestillpending,Germanyhasimplementedsmaller-scalegridexpansionsthathavestabilisedthetrendfrom2015.Windisthemostcurtailedenergysource,withonshorewindaccountingfor60%ofcurtailedenergy,whilesolarPVmakesuplessthan5%annually.Onshorewindcurtailmenthasbeentrendingdownwardssince2020,thankstonetworkexpansionprojectsinSchleswig-Holstein.However,offshorewindcurtailmenthashadbothabsoluteincreases,correspondingtonewcommissionedcapacity,andariseincurtailmentratesfromnegligiblein2015to8%in2021,withfurtherincreasesexpectedfor2023.Meanwhile,repercussionsofonshorewindbottlenecksinnorthwesternGermanyarealsobeingfeltintheoffshorewindsector,reflectingtheinterconnectednessofrenewableenergychallenges.InChile,highcurtailmentratesresultfromarapidincreaseinVREgeneration,ageographicalmismatchbetweenrenewablegenerationandenergydemand,andinsufficientdeploymentofthetransmissiongridtokeeppacewiththesedevelopments.ThemergerofChile’scentralandnorthernelectricitysystemsin2017initiallyreducedcurtailmentfrom14%to2%,butthispositivetrendwasnotsustained,causingVREcurtailmenttoriseto6%in2022.SolarPVplantswereprimarilyaffected,withtheircurtailmentreaching13%inOctober2022and14%inNovember,coincidingwithpeaksolarirradiation.Anticipatingrecordlevels,Chile’senergycurtailmentinthefirstthreequartersof2023alreadymatchedthetotalfor2022.Inthelastquarter,whichregisteredthehighestsolarradiationandcompletionoftheyear’scapacityadditions,curtailmentwasequivalenttoalmosthalfoftotalcurtailedgenerationin2022.Comparingthefirstthreequartersof2023withthesameperiodin2022,windcurtailmenthadincreased20%,withanaveragemonthlycurtailmentrateof5%–onepointhigherthanin2022.Meanwhile,solarPVgenerationwascurtailedatanevenhigherrate,with1TWhdispatcheddowninthefirstthreequartersof2023,2.4timestheamountinthesameperiodin2022.SolarPVcurtailmentratesalsorosetoa8%monthlyaverageinthisperiodof2023,peakingat18%inSeptember2023.FinancialperformanceGrowingmacroeconomcchallengesforrenewableenergyequipmentmanufacturersandprojectdeveloperstesttheirfinancialhealthTherenewableenergyindustryhasshownstrongfinancialresilienceinthefaceofmultiplechallengessuchasvolatilecommodityprices,supplychainconstraintsandtraderestrictions.Whilegrowingdemand,continuousgovernmentsupportandpositiveoutlooksforsolarPVandwindhavemaderenewableenergyPAGE83IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028companiesattractivetoinvestors,theongoingenergycrisisandcurrentmacroeconomicenvironmentaretestingtheirfinancialresilienceyetagain.BeforetheonsetoftheCovid-19pandemic,therenewableenergyindustry(specificallysolar,windandrenewableenergyIPPs)hadbeenoutperforminginmostmajormarketindices,andthebroaderenergysectorinequitymarkets.However,duringthefirsthalfof2020,windturbineandsolarPVequipmentmanufacturersexperiencednegativeEBITDA(earningsbeforeinterest,taxes,depreciation,andamortisation)duetotemporaryrevenuedeclinescausedbythepandemic’simpact.Remarkably,renewableenergycompaniesrecoveredrapidlyfromtheCovid-19crisisanddemonstratedfinancialresiliencetotheendof2022.In2021,risingcommoditypricesincreasedmanufacturingcostsforsolarPVmodulesandwindturbines.Then,in2022,Russia’sinvasionofUkrainetriggeredaglobalenergycrisis,leadingtofurthercostincreasesforinputssuchaselectricity,rawmaterialsandtransportation,alongwithelevatedinterestratesandpersistentsupplychaindisruptions.Indexedstockmarketpricesforglobalindicesandtradedenergycompanies,2020-2023GlobalindicesIndustryindices2.55WeightedaverageindustrystockindexJan-2024Apr-20Jul-201.53Oct-20Jan-2112Apr-21Jul-210.51Oct-21Jan-2200Apr-22Jul-22Oct-22Jan-23Apr-23Jul-23Oct-23Jan-20Apr-20Jul-20Oct-20Jan-21Apr-21Jul-21Oct-21Jan-22Apr-22Jul-22Oct-22Jan-23Apr-23Jul-23Oct-23USNDXindexJapanNKYindexOilandgasmajorsREIPPHongKongHSIindexGermanyDAXindexSolarWindUKUKXindexUtilitiesIEA.CCBY4.0.Notes:REIPP=renewableenergyindependentpowerproducer.Solarcompanies(17):JinkoSolarHoldingCoLtd;SunPower;FirstSolarInc;CanadianSolarInc;XinyiSolar;TrinaSolar;JASolar;LONGiGreenEnergyTechnology;GCLSI;RisenEnergy;EnphaseEnergy;SolariaEnergiayMedioAmbiente;DaqoNewEnergyCorp;SolarEdgeTechnologies;SunrunInc;VivintSolar;SMASolarTechnology.Wind(10):SiemensGamesaRenewableEnergy;Acciona;VestasWindSystems;XinjiangGoldwindScience&TechnologyCoLtd;SuzlonEnergyLtd;ChinaLongyuanPowerGroupCorpLtd;Boralex;TransAltaRenewablesInc;NordexSE;TPIComposites.REIPPs(15):NextEraEnergyInc;Orsted;MVVEnergie;InnergexRenewableEnergy;BrookfieldRenewableEnergyPartnersLP;AdaniGreenEnergyLtd;NeoenSA;CPFLEnergia;AlgonquinPower&UtilitiesCorp;ERGSpA;FalckRenewables;TernaEnergySA;BCPGPCL;InfigenEnergy;EnlightRenewableEnergyLtd.Utilities(16):EnelSpA;IberdrolaSA;ElectricitedeFranceSA;E.ONSE;EDP;Engie;SSEPLC;DraxGroupPLC;ACSActividadesde84onstrucciónyServicios;TataPower;RWEAG;AESCorporation;DukeEnergyCorporation;SempraEnergy;NationalGridPLC;XcelEnergyInc.Source:IEAanalysisbasedonBloombergLP(2023),Markets:Stocks(database).PAGE84IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Duringthesecondhalfof2022,theIEA’ssolarPVmanufacturersandindependentrenewableenergydevelopers(REIPP)indexwasoutperformingmajorindices.However,sincethebeginningof2023,globalequitymarketshavebeenpickingupwhiletheoppositeholdstruefortherenewableenergyindustry.Forinstance,solarPVmanufacturingcompanieslostmorethanhalfoftheirmarketvaluefromJanuarytoOctober2023,whilethestockmarketvalueofREIPPsandwindindustrydeclinedbyover25%.WindandREIPPindexesreboundedinNovember,howeverstillremained5-10%belowtheJanuarylevels.RenewableenergyIPPsshowedstrongfinancialperformancein2022owingtothestablerevenuestreamstheyreceivedfromexistingprojectswithlong-term(10-25year)fixed-pricecontracts.InEurope,manyREIPPsandmajorutilitiesreportedsignificantlyhigherearningsthroughout2022thanin2021duetohigherrevenuesfromelectricityprices.Thisalsoledmanycompaniesinthisenergysubsectortosecurehigherprofitsin2022usinghedgingstrategiesandlong-termcontracts.Incontrast,in2023thesamecompaniesfacedchallengessuchasahighercostofdebt,gridinfrastructureinadequacyandintegrationdifficulties,andlongerleadtimes.Forthesereasons,investorsareincreasinglylimitinginvestmentstomainlylow-riskprojectsthathavesecuredeitherpermittingoraninterconnectionagreement.Theseoverallconservativeinvestorsentiments,highinterestratesandhighercostshavecausedsharpdropsintheindicesforREIPPs.Asforutilitiesincludedinourcategorisation,2023wasasteadyyearfollowingthetrendpriortotheCovid-19pandemic.SolarPVmarketchallengesemergeduetofiercecompetition,impendingovercapacityandsupplyglutsThesolarPVindustrydemonstratedremarkablefinancialresiliencebymaintainingstableprofitsthroughout2022,largelyowingtotheincreasedmarketshareofintegratedChinesecompanies(rangingfrom50%to80%acrossthevaluechain)andtheireffectivecost-savingstrategies.PAGE85IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Weightedaveragenetmarginsofrenewableenergycompanies,largeutilitiesandoilmajors,2022and2023(Q1,Q2andQ3)30%UtilitiesWeightedaveragenetmargin20%Oilmajors10%Polysilicon0%-10%SolarPVintegrated-20%Windmanufg.China-30%Q1Q2Q3Q4Q1Q2Q3Windmanufg.non-20222023ChinaIEA.CCBY4.0.Note:Windmanufg.=windequipmentmanufacturingcompanies.Source:IEAanalysisbasedoncompanies’annualandquarterlyfinancialreportsHowever,anextensivesupplyglutduetomanufacturingcapacityexpansionwithinandoutsideofChinaisreducingtheprofitabilityofallcompaniesthroughoutthesupplychain.Fiercecompetitioniscuttingtheprofitsofverticallyintegratedmanufacturers,whilenon-integratedfirmsmaystruggletoattainanyprofitabilityatall.Thisheavypricecompetitionislikelytointensifyinthenearfuture,withsmallmanufacturersstrugglingfinanciallyduetheirhigherpricescomparedtolargercompanyproducts.Around30GWofpolysilicon,60GWofwafers,80GWofcellsand100GWofPVmodulesmanufacturingcapacityiscurrentlyunderdevelopmentoutsideofChina,andthemajorityofthesenewinvestmentsareincountrieswithtrademeasuresagainstChina.Whilethesemeasurescanhelplocalmanufacturerscompletetheirprojects,makingthesenewfacilitiesprofitablecouldbequitechallenginginthelongterm.Asforthepolysiliconindustry,risingPVdemandandlimitedpolysiliconcapacityavailabilityraisedpolysiliconpricessignificantlytoUSD40/kginNovember2022,whichbenefitedbothmanufacturersandproducersbyincreasingtheirnetmargins,astheircostsdidnotriseproportionally.Thistrendwastransitory,however,asglobalpolysiliconcapacityalmostdoubledin2023(to800GW)anditspriceplummetedtoUSD10/kg.Historically,suchimbalancesbetweensupplyanddemandhaveledtonegativemargins,signsofwhichwereevidentinQ32023.ThishascausedmanyChinesecompaniestoeitherstalltheirplansfornewfactoriesorevensuspendoperationsduetolossesfromhighproductioncosts.PAGE86IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028ThewindindustryisfacingprolongedstrugglesamidfinancialchallengesWindsystemmanufacturersinEuropeandtheUnitedStateshavepostednegativenetmarginsforsevenconsecutivequartersoverthelasttwoyears.Multipleobstaclesareresponsiblefortheirfinancialunderperformance.First,volatiledemandiscausingmanufacturingfacilitiestooperateatlessthanfullcapacity.Limitedaccesstorawmaterials,risingmacroeconomicchallenges,fluctuatingcommodityprices,higherinterestratesandrestrictedaccesstofinancinghaveimpactedtheirprofitability.Forinstance,USoffshorewinddevelopersarecancellingagreements,delayingprojectsorrequestingpricerenegotiationsbecausecurrentprojecteconomicsdonotallowthemtomeetrisinginterestratesandincreasedcommoditycosts.InEurope,negativebiddinginsomeoffshorewindauctions(andtheresultinguncertaintyregardingeconomicviability)isalsochallengingprojectcompletion,therebyaffectingoverallprojecteconomics.Inresponsetothesechallenges,theEuropeanCommissionlauncheditsWindPowerActionPlaninOctober2023tomakeEuropeanwindsystemmanufacturingmorecompetitive.TheWindPowerActionPlanplacesstrongemphasisonenhancingauctiondesignbyimplementingprequalificationandnon-pricecriteriaforwindenergyprojectsandencouragingmemberstatestoindextheirauctionpricesandtariffs.ItalsointendstoboostinvestmentincleantechnologymanufacturingbydoublingfundingfromtheEUInnovationFundtoEUR1.4billionandinvolvestheEuropeanInvestmentBank(EIB)inmitigatingrisksforprivatebankslendingtothewindindustry.Additionally,theplanaimstoimprovetransparencyinwindenergydeployment,streamlinepermittingprocessesthroughdigitaltools,andemploytrademeasurestoensurefaircompetitionintheindustry.Incontrast,Chinesewindturbinemanufacturershaveexperiencedlessdisruptionfromcommoditypricefluctuations,withstrongdomesticdemandbolsteringtheirfinancialstability.TheirresilienceresultspartlyfromverticallyintegratedlargeChinesewindequipmentmanufacturersalsoservingassignificantprojectdevelopers,allowingthembettercontroloverprojectcostsandtheabilitytoabsorbpriceshocksmoreeffectively.Forinstance,inamajorChinesewindcompany’sfinancialstatementforthefirsthalfof2023,windfarmdevelopmentwasthemostprofitablebusinesssegmentandmanufacturingwastheleast.Inaddition,fiercelocalcompetitioninChinaispushinglocalturbinepricesdown,resultinginlowprofitmarginsdespitepersistentlyhighcommodityprices.PAGE87IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028RenewablecapacityforhydrogenRenewablepowercapacitydedicatedtohydrogenandhydrogen-basedfuelproductionisforecasttogrow45GWbetween2023and2028,roughlyequaltoSweden’stotalinstalledelectricitygenerationcapacity.GrowthisledbyChina,followedbySaudiArabia,andtheUnitedStates.Thesethreemarketsaccountformorethan75%ofrenewablecapacityforhydrogenproductionby2028.Globally,thisgrowthmakesuparound1%oftotalrenewableenergycapacitydeploymentin2023-2028.However,hydrogenplaysalargerroleintotalsolarandwindinvestmentsinindividualmarketsfocusedonexportingit–from4%inAustraliatoover30%inOman.By2028,potentialexportcountriescouldaccountforoverone-fifthofhydrogen-drivenrenewablecapacitydeployment,ledbySaudiArabia,Australia,OmanandtheUnitedArabEmirates.WiththeprospectofproducingeconomicallyattractiverenewablehydrogentoshiptopotentialdemandcentresinEuropeandAsia,thesecountriesaimtobecomemajorexportersofrenewablehydrogenandhydrogen-basedfuels.Whilegoodsolarandwindresources,landavailabilityandlocationalongexistingshippingroutesstrengthenthebusinesscaseforhydrogenproductioninthesecountries,governmentsupportisalsocrucialtodevelopprojectsinthesemarkets.Forexample,SaudiArabia’s2-GWNeomelectrolyserprojectispartiallyownedbythestateandhasreceivedfundingfromtheNationalDevelopmentFundandSaudiIndustrialDevelopmentFund.InOman,thegovernmentisofferinglandleasesatareducedcostthroughauctions,whileAustraliaisprovidingmorethanAUS500millioningrantstodevelophydrogenhubs.However,thedevelopmentofaninternationalhydrogenmarketisakeyuncertaintyaffectingtheforecast,particularlyinmarketsthathavelimiteddomesticdemandforhydrogen.Foreignofftakersstillneedtobesecuredforprojectsunderdevelopmentandcertificationschemesstillneedtobedevelopedtodemonstrateregulatorycompliancewithimporters.Additionalforecastuncertaintiesincludealackofclarityondefinitionsforlow-emissionhydrogen,andwhetherinfrastructureforinternationalrenewablehydrogenandhydrogen-basedfueltradingwillbeoperationalby2028.PAGE88IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Renewablecapacityadditionsdedicatedtohydrogenproduction,cumulative(left)andnet(right),2023-2028GW2575%65%EUUnitedStates60%11%9%Rest2046%50%ofworldSaudiArabia45%13%4%15Potential30%export1025%30%countriesAustralia19%21%3%515%Oman00%202420252026202720283%2023USChinaUnitedArab55%EmiratesRestEUPotentialChinaShareof2%ofworldexportnon-China(%)countriesrightaxisIEA.CCBY4.0.Note:Theforecastforrenewablecapacitydedicatedforhydrogenproductionusesasimilarmethodastheforecastforrenewablecapacitydedicatedforpower.TheforecastusestheIEAHydrogenProjectsDatabaseasaprimaryinputandestimatesacommissioningdateofelectrolyserprojectsdependingonthestageofdevelopmentandtheoverallmarketenvironment.Inaddition,anassessmentofthegovernment’ssupportpoliciesforrenewablehydrogenarealsousedasinputtotheforecast.Anassumptionfortheinstalledrenewablecapacityneededfortheelectrolyserismadedependingonwhetherthefinalproductishydrogenorammonia.GlobalannualgrowthisinitiallydrivenbyChina,whichaccountsformorethan70%ofnetadditionsbetween2023and2024.Earlyelectrolyserdeploymentinthiscountrywillbemostlyfromstate-ownedenterprisesdevelopingprojectstomeetprovincialandnationalhydrogenproductiontargets,estimatedtotrigger2GWofrenewableelectricitycapacitygrowthin2023and4GWin2024.Whilethepaceofannualgrowthacceleratestoover6GWby2028,itisconstrainedbytheriskofuncertaintyoverhydrogendemand.Despitethisuncertainty,however,Chinaisexpectedtoremainthesinglelargestmarketovertheforecastperiod,eventhoughitssharerelativetotherestoftheworlddecreasesby2028asprojectsfromothermarketsbegintobecommissioned.By2025,projectsinpotentialexportcountriesbecomeoperational(notablySaudiArabia’sNeomproject),andnewEUcapacitycouldemergeby2026,ledbySpain,DenmarkandGermany.By2028,half(50%)ofglobalannualhydrogen-drivenrenewablecapacitygrowthisexpectedtocomefromoutsideofChina.Between2023-2028,60%ofglobalrenewablepowercapacitydedicatedtohydrogenproductionisexpectedtobesolarPV.OutsideofChina,solarPVclaimsanevenhighershareofrenewablecapacityintheAsia-Pacificregion(inAustralia)andintheMiddleEastandNorthAfrica.Globally,onshorewindisexpectedtoaccountforalmost40%whileoffshorewindcapacityforhydrogenproductionisforecasttobelessthan2GW(4%)by2028–fromprojectsinKorea,AustraliaandDenmark.WhilemanycountriesinNorthernEuropeareannouncingplanstoPAGE89IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028producehydrogenwithoffshorewindenergy,commissioningwouldnotoccuruntilafter2028duetoEurope’slongprojectdevelopmentleadtimes.Renewablecapacitydedicatedtohydrogenproductionbyregionandtechnology,2023-2028(left)andforecastrevisions(right)GW3020251520151010550Asia-Rest0ChinaMENAEuropeNorthChinaEuropeAsia-MENALatinNorthRestAmericaPacificofPacificAmericaAmericaofworldworldSolarPVOnshorewindOffshorewindRenewables2022Renewables2023IEA.CCBY4.0.Note:MENA=MiddleEastandNorthAfrica.Whilealmostallregionsarestillexpectedtoincreasetheamountofrenewableenergycapacitydedicatedtohydrogenproductionby2028,thepaceofgrowthisnowlessoptimisticthaninRenewables2022.Infact,thisyear’sforecastis35%lowerthanin2022duetodownwardsrevisionsforallregionsexceptChina.Themainreasonistheslowpaceofbringingplannedprojectstofinancialcloseduetoalackofoff-takersandtheimpactofinflationonproductioncosts.Overall,theamountofrenewableenergycapacityforhydrogenproductiongrowthrepresentsonlyanestimated7%ofannouncedprojectcapacity.AccordingtotheIEAHydrogenProjectsDatabase,thereareover360GWofelectrolyserprojectsusingdedicatedtorenewableelectricitycapacitywithannouncedstartdatesbefore2030inthedevelopmentpipelineatvariousstages.Theserangefromearly-stageannouncements,tofeasibilityassessments,tolaterstageswhereintheprojecthasreachedfinancialcloseorisunderconstruction.Howeveratthetimeofwriting,only3%(12GW)ofthemhadreachedfinancialcloseorstartedconstruction,asmalleramountthanexpectedinourRenewables2022forecast.Inadditiontochallengesinsecuringoff-takers,projectdevelopmentinseveralmarketshasbeenaffectedbydelaysinelectrolysershipmentsduetobacklogsinmanufacturingplantordersand,insomecases,bymalfunctioningequipment.SomeoftheplannedprojectsintheRenewables2022forecasthavehadnoupdatesoverthelastyearorhavebeencancelledcompletely.ThelargestdownwardrevisionisfortheLatinAmericaregion,duetoslowerthanexpectedPAGE90IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028developmentofprojectpipelinesinChileandBrazil.TheforecastisalsolessoptimisticforAsia-Pacific,mostlyduetouncertaintyinAustraliaoverthefutureofstalledprojects.Oneproject’senvironmentalpermithadlapsedbeforeitreachedfinancialclose,andplansforprojectsinBellBayhavebeenputonholdduetohighwaterandtransmissioncongestion.Renewableenergycapacityexpansionforhydrogenproductionneedstoaccelerateifgovernmentswishtomeettheir2030targetsforlow-emissionhydrogenproductionwithnewinvestmentsinrenewablecapacity.Inalmostallmarkets,maincasegrowthisinsufficienttoprovidetheminimumamountofcapacityneededtoachievegovernmenttargetsforlow-emissionhydrogenproductionorelectrolysercapacity.Chinaistheonlymarketwherethepaceofgrowthislikelytocomewithinreachofannouncedgoals.Inthemaincase,renewableenergycapacityforhydrogeninChinaexceeds24GWby2028,farabovetheestimated1GWneededtoproducethecentralgovernment’sannouncedtargetof100000-200000tonnes/yearofrenewablehydrogen.ThemaincaseforecastisinlinewithChina’scurrentlyannouncedprovincialambitionsfor2025and2030,whereinamajorityofgrowthcomesfromstate-ownedenterprisesbuildingprojectstomeetprovincial-leveltargetsandincreasesystemflexibility.Intheremainderofthemarkets,severalimpedimentspreventfasterhydrogen-drivenrenewablecapacitygrowth.Forinstance,manyofthemareexperiencinggeneralpermittingandgridconnectionchallengesfornewrenewableelectricityprojects,whichalsoapplytoanycapacitybuiltspecificallyforhydrogenproduction.Anothermajorchallengeisthelackofdemandforhydrogenandhydrogen-basedfuelsbecauseofthecostbarrier.Renewablehydrogencostsmorethanunabatedfossilfuels-basedproductioncurrentlymeetingdemandinexistinguses(i.e.ammoniaproductionandrefining),andotheraffordabletechnologiesareavailablefornewuses(i.e.otherindustrialandtransportuses).Therefore,governmentsupportisstillneededtomakerenewablehydrogenanditsderivativesappealingtoendusers.However,muchoftheexistingpolicysupportisfocusedonprovidingsupporttodeveloperswhosupplyhydrogenratherthantheconsumers.PAGE91IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028Globalannouncedelectrolyserprojectswith2030commissioningdates(left),andrenewablecapacitydedicatedtohydrogenproductioninthemainandacceleratedcases(2023-2028)vsamountsneededtomeet2030nationaltargetsforhydrogenandelectrolysers(right)Electrolysercapacity(GW)240Upperrange=165GWRenewablecapacity(GW)10020080160601204080402000EUUnitedIndiaChileSouthJapanUAEOmanNamibiaChinaConceptFeasibilityConstruction/StatesAfricaChinaFIDNorthAmericaAcc.caseMaincaseEstimaterangeAsia-PacificEurope&EurasiafortargetLatinAmericaMiddleEast&AfricaIEA.CCBY4.0.Notes:FID=finalinvestmentdecision.UAE=UnitedArabEmirates.Forleftgraph,onlyprojectswithanannouncedstartyearof2030orearlierareincluded.Forrightgraph,theminimumrangeofrenewablecapacityneededfornationalelectrolysertargetswascalculatedassuminga1:1sizingratiobetweenelectrolysercapacityandrenewabletechnology,andthemaximumassumedanoversizingratioof1:2.5.NationaltargetsgiveninMtH2/yearwereconvertedtoanelectrolyserequivalentusingproductioncapacityassumptionsforthedifferentelectrolysertechnologies.Fortheminimumelectrolysercapacityrange,assumedproductioncapacityisbasedonsolidoxideelectrolysiscells(0.0038MW/nm³H₂/hour)andformaximumelectrolysercapacityitisbasedonprotonexchangemembraneelectrolysis(0.0052MW/nm³H₂/hour).ForChina,thenational2025targetisconsideredthelowerboundforthe2030targetrange,andthesumofannouncedprovincialtargetsistheupperbound.Fortheannouncedprovinceswithout2030targets,2025targetswereassumedasaproxyforthepurposesofbenchmarkinginthisexercise.Sources:(left)IEA(2023),HydrogenProductionandInfrastructureProjects(database);(right)IEAanalysisbasedonBloombergNewEnergyFinance(2023),HydrogenStrategyTracker,accessedOctober2023,andEnergyIceberg(2023),HydrogenPolicyNavigator.Nonetheless,progresshasbeenmadeindemand-sidepolicymakinginthelastyear,withsomegovernmentspassinglegislationorannouncingintentionstodoso.Theacceleratedcaseforgrowthduring2023-2028assumesthatthesepolicyactionscanhelpbringsomeprojectsinthelaterdevelopmentstagestofinancialclose.InGermany,renewablecapacitygrowthcouldbefourtimeshigher–topping3GW–iftheEuropeanUnionapprovesthestateaidproposedundertheCfDschemeanditsuccessfullyawardsbidders.TheacceleratedcasealsoforecastshigherEUgrowthwithintroductionofthenewHydrogenBank’sauctionstoawardcontractstosupplierstobridgethepricegapwithalternativesourcesofhydrogen.AlsosupportingEUacceleratedcasegrowthisthenewmandatorytargetfornon-renewablefuelsofnon-biologicalorigininindustryandtransport.InJuly2023,theEuropeanUnionpassedtheworld’sfirstend-usemandatorytargetforhydrogen:42%ofhydrogenusedmustbemadefromrenewablesourcesby2030(complyingwithcertainadditionalcriteriaonadditionality,geographicalcorrelationandtemporalcorrelation)andatleast1%oftransportfuel.However,uncertaintiesstillPAGE92IEA.CCBY4.0.Renewables2023Chapter1.ElectricityAnalysisandforecaststo2028surroundthepotentialforthisregulationtospurnewrenewablecapacitygrowthbefore2028,aseachMemberStateisatlibertytodecidewhichpolicyinstrument(s)itwillemploy(e.g.mandates,incentives,etc.).IntheUnitedStates,fastergrowthcouldhappeniftaxincentivesundertheIRAmakerenewablehydrogenmoreeconomicallyattractivethanitsalternativesforexistinguses,andinKorea,additionalprojectscouldcomeonlinefromitsnewauctionsforclean-hydrogenelectricity.Intotal,theacceleratedcaseforecaststhatrenewableenergycapacitydedicatedtohydrogencouldreach85GW–almosttwiceasmuchasinthemaincase–ifgovernmentsupportcanhelpbringplannedprojectstofinancialclose.However,thispaceisstillinsufficienttoachievethegrowthneededtomeetnational2030low-emissionhydrogentargets.Moreeffortwillberequiredtoensurethatadequateinfrastructuretostoreandtransporthydrogenisinplace,toclarifyregulatoryuncertainty,andtoboostinvestmentinR&Dtoimprovetechnologiesfornewandexistinguses.PAGE93IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028Chapter2.TransportbiofuelsGlobalforecastsummaryEmergingeconomiesleadacceleratinggrowthinbiofueluseBiofueldemandissettoexpand38billionlitresover2023-2028,anear30%increasefromthelastfive-yearperiod.Infact,totalbiofueldemandrises23%to200billionlitresby2028,withrenewabledieselandethanolaccountingfortwothirdsofthisgrowth,andbiodieselandbiojetfuelmakinguptheremainder.Mostnewbiofueldemandcomesfromemergingeconomies,especiallyBrazil,IndonesiaandIndia.Allthreecountrieshaverobustbiofuelpolicies,risingtransportfueldemandandabundantfeedstockpotential.Ethanolandbiodieseluseexpandthemostintheseregions.AlthoughadvancedeconomiesincludingtheEuropeanUnion,theUnitedStates,CanadaandJapanarealsostrengtheningtheirtransportpolicies,volumegrowthisconstrainedbyfactorssuchasrisingelectricvehicleadoption,vehicleefficiencyimprovements,highbiofuelcostsandtechnicallimitations.Renewabledieselandbiojetfuelaretheprimarygrowthsegmentsintheseregions.Intheacceleratedcase,demandgrowthisnearlytriplethemaincaseovertheforecastasexistingpoliciesarestrengthenedandbiofueldemandexpandsinnewmarkets(seeNetZeroEmissionsby2050Scenariotrackingsectioninthischapter).Five-yearbiofueldemandgrowthbyfuel(left)andeconomytype(right),maincase,2011-20284030Demand(billionlitresperyear)Demand(billionlitresperyear)3525IEA.CCBY4.0.3020251520101510550Emer.Adv.Emer.Adv.Emer.Adv.2017-222023-2802011-162011-162017-222023-28EthanolBiodieselBrazilIndonesiaIndiaOtheremergingUnitedStatesEuropeOtheradvancedRenewabledieselBiojetfuelIEA.CCBY4.0.Notes:Adv.=advancedeconomies.Emer.=emergingeconomies.PAGE94Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028Renewabledieselandbiojetfuelconsumptionexpand18billionlitresovertheforecastperiod,withtheUnitedStatesandEuropeaccountingfornear80%ofthisincrease.IntheUnitedStates,keydriversincludetheInflationReductionAct(IRA),state-levellow-carbonfuelstandards,andRenewableFuelStandard(RFS)blendingobligations.TheUnitedStatesalsolaunchedaSustainableAviationFuelGrandChallengein2021,targeting11billionlitresofnewsustainableaviationfuel(SAF)productionby2030.Whilethegoalisnotbinding,ithasbeenaccompaniedbyfunding,researchandco-ordinationefforts.InEurope,theEuropeanUnionhasapproveditslatestRenewableEnergyDirective(REDIII),whichaimstodoublerenewableenergysharesby2030.Memberstatesarerequiredtoaligntheirdomesticpoliciesby2025witheithera29%renewableenergytargetora14.5%GHGemissionsreductiontarget.However,weforecastonlymodestgrowthinbiofueldemandbecauseofthedirective’sdouble-countingprovision,decliningtransportfueldemandandincreasesinelectricvehicleandrenewableelectricityshares,whichcancounttowardsthetarget.Inaddition,Swedenhasproposeda34-percentage-pointdroptoitstransportsectorGHGemissionsreductiontargetfordiesel,loweringEurope’srenewabledieseldemandbyover20%.Atthesametime,biojetfueluseexpandstoaccommodatecountry-levelpoliciesinFrance,SwedenandNorwayaswellasReFuelEUAviationtargetsof2%SAFblendingby2025and6%by2030,witha1.2%sub-targetfore-fuels.Meanwhile,ethanolandbiodieselexpandby13%overtheforecastperiod,withgrowthinemergingeconomiesoffsettingdeclinesinadvancedones.WhileBrazilaimstoincreasemaximumethanolblendingto30%from27.5%in2023inadditiontousingpureethanolinflex-fuelvehicles,Indiasupportsethanolexpansionthroughablendingtargetof20%by2025/26,guaranteedethanolblendingandfinancialsupportfornewfacilities.AlthoughEuropeanethanoldemandrisesslightlyovertheforecastperiod,itismorethanoffsetbydeclinesintheUnitedStates,wheregasolineuseisexpectedtoshrinkandtherehasbeenlittleincreaseinethanolblendingsharesabove10%.BiodieselconsumptionexpandsprimarilyinBrazil,IndonesiaandBrazilfollowingincreasestoblendingrequirementsandclimbingdieseldemand.Allthreeregionsplantoallowforandencouragerenewabledieseluse,butweforecastlittleuptakeinthemaincase.TheUnitedStatesandEuroperemainmajormarketswithmorethanone-thirdofglobalbiodieseldemandin2028,butrenewabledieselcapturesallnewgrowthbecauseofitssuperiorblendingproperties.PAGE95IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028Amongemergingeconomies,Brazil,Indonesia,IndiaandMalaysiademonstratethemostgrowthOver60%ofglobalbiofueldemandandproductiongrowthovertheforecastperiodtakesplaceinBrazil,Indonesia,IndiaandMalaysia.Acrossthesecountries,ethanoluseincreasesby13billionlitresandbiodieselby8billionlitres,accountingforalmostallexpansioninemergingeconomies.Allfourcountriessharekeygrowthdrivers–comprehensivepolicies,abundantfeedstocks,highoilandoilproductimportdependenceandrisingtransportdemand–andbiofuelsfeatureprominentlyintheirGHGemissionsreductionplans.Weexpectthesefactorstoboostbiofuelexpansionthroughouttheforecastperiod.Five-yearbiofueldemandgrowth(left)androadtransportdemandgrowth(right)inemergingeconomies,maincase,2023-2028BiofueldemandRoadtransportfueldemand40Demand(billionlitresperyear)4025%Demand(billionltiresperyear)35353020%30252515%2020151510%10105%5500%0EthanolBiodieselBiojetfuelEthanolBiodieselBiojetfuelGasolineDieselpoolpool2017to20222023to20282023to2028BrazilIndonesiaIndiaMalaysiaOtheremergingPercentgrowthIEA.CCBY4.0.Asdemandfortransportfuelssurges,Brazil,Indonesia,IndiaandMalaysiawillcontinuetorelyonbiofuelstohelpreduceoilimportdependence.Acrossallfourcountries,thegasolinepool(gasolineandethanol)isexpectedtoexpandmorethan15%andthedieselpool(dieselandbiodiesel)bynearly20%overtheforecastperiod.Whilethesecountrieswillrelyonimportstodifferingdegreestosatisfyrisingdemand(forinstance,Indiareliesnear90%oncrudeimports),allfourarestrengtheningexistingmandates.Globally,transportfueldemandexpandsonly2%by2028.Biofuelsare,however,moreexpensiveinallfourcountries,withaverageprices15-80%higherthanforfossilfuelsonanenergybasisoverthelast10years.Thus,directfuelsubsidiesaccompanydemandtargetsinIndonesia,MalaysiaandIndiatoreducethecostimpactforprivateconsumersandcompanies.Indonesiahasplacedalevyonpalmoilexportstocoverthecostdifferencebetweenpalmoil-basedbiodieselanddiesel,andMalaysiausesasimilarPAGE96IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028approach,butIndiahassetguaranteedpricesforindividualethanolfeedstocksandupdatesthemregularlytoreflectchangingpricesandhasalsomodifieditsethanoltaxrates.InBrazil,ethanolblendingofupto27.5%(climbingto30%overtheforecastperiod)hasbeenmandated,andthecountryalsoofferslowertaxationonethanolandcountsittowardscarbonreductioncredits.Theseinitiativeshelpkeepethanolpricescompetitive,althoughsugar,cornandgasolinepricesalsoplayarole.Historically,allfourcountrieshavealsosubsidisedgasolineanddieselfuels.Moreover,allfourcountrieshaveampledomesticfeedstocks,althoughthescaleofgrowthwillcommandincreasingshares.Whilebiodieseldemandalreadyclaimed19%ofpalmoilproductioninMalaysiaandIndonesiain2022,inourmaincasethisshareclimbsto30%,evenwithrisingpalmoilproduction.InBrazil,theshareofethanolproductionderivedfromsugarcaneisexpectedtoremainnear50%,despitesignificantgrowth.Similarly,inIndiainthemaincase,ethanoldemandasashareofsugarcaneproductionexpandsto7%by2028from5%in2022.Existingandplannedbiofuelproductioncapacityinallfourcountriesissufficienttosupportdomesticdemand.IntheUnitedStates,EuropeandChina,electricvehiclesaccountforthemostgrowthinavoidedoildemandBiofuelsandrenewableelectricityaresettoreducetransportsectoroildemandbynear4mboe/dby2028,morethan7%offorecasttransportoildemand,andwhenelectricityfromnon-renewablesourcessuchasnuclear,naturalgasandcoalistakenintoaccount,thisvaluerisestonearly9%.Renewableelectricityleadsgrowthbyavoidinganadditional1.3mboe/dofoilconsumptionovertheforecastperiod,whilebiofuelsavoidanother0.7mboe/d.By2028,biofuelsaccountfornear60%ofavoidedoildemandandrenewableelectricityfortheremainder.Bothbiofuelsandrenewableelectricityhelpmeetthetargetsofdomestictransportpoliciessuchaslow-carbonfuelstandardsintheUnitedStatesandtheREDintheEuropeanUnion.Historically,biofuelshavereducedoildemandthemost,butduringtheforecastperiod,electricvehiclesclaimalargershareofreductionsinthegasolinesegment.Nevertheless,biofuelscontinuetobethedominantoptionforreducingoildemandinthedieselandjetfuelsegments.PAGE97IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028Biofuelsandrenewableelectricityintransport(left)andavoidedoildemand(right),maincase,2022-20286.02.5Renewableenergy(EJ)Avoidedoildemand(mboe/d)5.02.04.0Renewableelectricity1.53.01.02.01.00.5Biofuels0.00.0BiofuelsR-elecBiofuelsR-elec20222028202220282022202820222028GasolineDieselJetfuelChinaUnitedStatesEuropeIndiaRoWIEA.CCBY4.0.Notes:(Right)R-elec=renewableelectricityusedbyelectricvehicles.Electricvehiclerenewableelectricityuseisconsistentwithourmaincaserenewableelectricityforecast.Avoidedoildemandforelectricvehiclesaccountsforthehigherenergyefficiencyofelectricvehiclescomparedwithcombustionvehicles.Electricityuseforcars,trucks,vansandbusesisincluded,butrailtransportisnot.(Left)RoW=restofworld.Mboe/d=millionbarrelsofoilequivalentperday.Oildisplacementestimatesexcludebiofueluseineachregionandassumeelectricvehiclessubstituteforvehiclesinthesameclass(i.e.anelectricSUVreplacesanequivalentinternalcombustionvehicleorhybrid).ThefullmethodologyisavailableintheGlobalEVOutlook.Source:IEA(2023),GlobalEVOutlook2023.IntheUnitedStates,EuropeandChina,renewableelectricityuseintransportisforecasttoexpandeightfoldovertheforecastperiod,albeitfromasmallbase.Intotal,electricvehiclesusingrenewableelectricitywillavoid1.3mboe/dofoilconsumptionin2028intheseregions,aboutthesameasbiofuels.IntheUnitedStatesandEurope,large-scaleelectricvehiclegrowthcontributestodeclininggasolinedemandovertheforecastperiod.Meanwhile,lowergasolinedemand,combinedwithfewhigh-ethanol-blendpumps,islimitingethanolgrowthprospectsinbothregions.Moreover,intheEuropeanUnion,usingrenewableelectricityforelectricvehicleswilllikelybethedominantcompliancepathwaytomeettherevisedRED’snewrenewableenergygoals,sincerenewableelectricityusedinelectricvehicles,whicharemoreefficientthaninternal-combustionvehicles,countsfourtimestowardsthedirective.Inmuchoftherestoftheworld,however,biofuelsremaintheprimarydecarbonisationoption,accountingfornear90%ofavoidedoildemandin2028.InBrazil,IndiaandIndonesia,electricvehiclesandefficiencyimprovementsposelittlethreattoliquidfueldemand,giventhehighgrowthprospectsforoveralltransportdemand.Theseregionsalsomandatebiofuelshares,avoidingdirectcompetitionwithelectricvehicles.PAGE98IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028Nevertheless,Brazil,IndonesiaandIndiaallhaveelectricvehicleplansinplace.Indonesialaunchedpurchaseincentivesin2023,BrazilprovidestaxexemptionsforelectricvehicleimportsandIndiahasamixtureofnationalandstate-levelpurchaseandmanufacturingincentives.Thesepolicieswillhelpexpandelectricvehiclesalesbuthavelittleimpactonoildemandovertheforecastperiod,astotalvehiclestockwillremainprimarilycombustionvehicles.BiojetfueldemandisexpectedtosoarwithfulfilmentofpolicypromisesGlobally,biojetfueluseisexpectedtoexpandbynearly5billionlitres,makingupalmost1%ofglobaljetfuelsuppliesby2028.Wehaverevisedtheforecastupwards20%inthemaincaseand40%intheacceleratedcasetoreflectnewpolicyannouncementsandarobustprojectpipeline.TheUnitedStates,EuropeandJapanareattheforefrontofthisgrowth,propelledbystrongpolicysupport.OngoingpolicydiscussionsinBrazil,India,Indonesia,Singapore,theUnitedArabEmirates,MalaysiaandtheUnitedKingdom,coupledwithsignificantcapacitypotentialintheUnitedStates,couldboostdemandto15billionlitres,orto3.5%ofglobaljetfueldemandin2028inouracceleratedcase.However,realisingthisgrowthwillhingeonpolicyimplementationandfeedstockdiversification.Biojetfuelfive-yeargrowthindemandandcapacityadditions(left)andfeedstocks(right),mainandacceleratedcases,2023-202820Billionlitresperyear20Billionlitresperyear15151010550CapacityDemandCapacity0DemandAcceleratedcaseMaincaseAcceleratedcaseMaincaseVegetableoilsResidueFOGEthanolOtherNorthAmericaEuropeAPACLatinAmericaRoWIEA.CCBY4.0.Notes:APAC=Asia-Pacificregion.RoW=restofworld.FOG=fats,oilsandgrease.Capacitypotentialisbasedonprojectannouncements.Maincasepotentialcapacityincludesprojectsunderconstruction,havingobtainedafinalinvestmentdecisionorhighlylikelytobeconstructed.Theacceleratedcaseincludesallproposedprojectsthathaveaplannedproductiondate.“Vegetableoils”indicatessoybeanoil,rapeseedoil,palmoilandcornoil;“ResidueFOG”includesusedcookingoil,animalfatsandpalmoilmilleffluent;and“Other”coverswoodwastes,municipalsolidwasteandunknownfeedstocks.Sources:CapacityestimatesadaptedfromArgusandS&Pdata,andcompanyannouncements.PAGE99IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028Inthemaincase,incentivessuchasIRAcredits,theRenewableFuelStandard’sRenewableIdentificationNumbers(RINs),andLowCarbonFuelStandard(LCFS)creditshelpraiseUSbiojetfueldemandtonearly2billionlitresby2028.Thesecredits,potentiallyworthnearUSD1/litre,1narrowthepricegapwithfossiljetfuel.Meanwhile,EUReFuelEUAviationlegislation,whichsetsblendingobligationsof2%for2025and6%for2030,isforecasttoincreasethebiojetfuelshareto4%ofEurope’sjetfueldemandby2028.IntheAsia-Pacificregion,Japanisthemainsourceofdemandgrowthwithitsgoalof10%sustainableaviationfuelby2030.Theacceleratedcaseispredicatedontheimplementationofplannedpoliciesandfeedstockdiversification.ActivepolicydiscussionsinSingapore,Malaysia,Indonesia,India,theUnitedArabEmirates,BrazilandtheUnitedKingdomwouldhelptriggeranadditional30%increaseinbiojetfueldemandto2028(seethetablebelowinNetZeroEmissionsby2050Scenariotrackingsection,inthischapter,foradetailedpolicylist).However,theUnitedStateshasthemostsignificantupsidepotentialintheacceleratedcase.UnderamorestringentRenewableFuelStandard,higherstate-levelLCFSsandextendedIRAcredits,biojetfuelproductioncouldtriple,advancingthecountrytwo-thirdsofthewaytoachievingitsSAFGrandChallengegoal.Beyondimplementingnewpolicies,itiscriticaltoestablishnewfeedstocksources,asresiduefat,oilandgreasesuppliesarelimitedandEUpoliciesrequirenon-food/-feedfeedstocks.Intheacceleratedcase,plannedalcohol-to-jetprojectsdeliveralmost2billionlitresofnewcapacity,andthegasificationofwoodyresiduesandmunicipalsolidwasteofferanother2billionlitresofpotential.Theappetiteforlow-emissionse-fuelsisgrowingintheaviationandmarinesubsectorsDemandforlow-emissionse-fuels,2particularlyforaviationandmarinetransport,isforecasttoclimbtoover3billionlitresby2030owingtoEUtransportpoliciesandindustryofftakeagreements.Whilehighcosts,apaucityofdemandpoliciesandfewfirmprojectcommitmentslimitgrowthprospectsfore-fuels,declininghydrogenandrenewableelectricitycosts,coupledwithproductionadvances,couldmakee-fuelscompetitivewithbiojetandbiodieselorrenewabledieselbiofuelsby2030.However,thispotentialcompetitivitydoesnotnecessarily1AssumingaGHGintensityof18gCO2/MJforbiojetfuel,anLCFScreditpriceofUSD60/tonne,aD4RINpriceofIEA.CCBY4.0.USD1/gallonandanIRASAFtaxcreditofUSD0.41/litre.2Low-emissionse-fuelsarefuelsobtainedfromelectrolytichydrogen.CombininghydrogenwitheithernitrogenorCO₂producesdifferentfuelproductssuchase-kerosene,e-gasoline,e-diesel,e-methanolande-ammonia.E-kerosene,e-gasolineande-dieselcanbeblendedwithfossilfuelsrelativelyeasily,butusinge-ammoniaande-methanolfortransportfuelrequiresinvestmentstoadaptdistributioninfrastructureandend-useequipment.PAGE100Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028threatenbiofuelproduction,asnetzerotargetsrequiretheaccelerateddeploymentofbothtypesoffuels.E-fuelsalsoserveasalow-emissionscomplementtobiofuels,astheyprovideamarketforutilisingCO2frombiofuelfacilities,primarilyethanolplants,whichoffersomeofthelowest-costpointsourcesforCO2potentialglobally.Infact,totalCO2fromethanolfacilitiescouldsupporttheproductionof26billionlitresofe-keroseneperyear,equivalentto6%ofglobaljetfueldemand.Moreover,manyethanolfacilitiesarelocatedincountriesthatalsohavestrongSAFgoals(e.g.theUnitedStatesandEurope)orambitionstoadoptSAFtargets(e.g.Brazil).E-fueldemandandplannedcapacityadditionsto2030(left)andlevelisedcostranges(right)3.090140BillionlitresperyearFossilfuelsBillionlitresperyearBiofuelsCost(USD/GJ)2.57800120E-fuels2.060100Costdeclinepotentialto1.545008020301.030600.52040100.0DemandPlannedDemandPlannedPlanned020capacitycapacitycapacity0(rightaxis)AviationandroadMarineDemandOperationalFID/constructionFeasibilityEarlystageIEA.CCBY4.0.Notes:FID=finalinvestmentdecision.Aviationandroaddemandestimatesarebasedonofftakeagreementsfore-fuelsandEUpolicycommitmentsto2030.Marinedemandestimatesarebasedonofftakeagreementsfore-ammoniaande-methanolto2030.PlannedcapacityisbasedontheIEAHydrogenProjectDatabase.Plannedmarinecapacityincludesmethanolandammoniaspecificallyfortransportationpurposes.Fuelcostestimatesarebasedonthelevelisedcostofproductionfore-fuelsandbiofuels.Fossilfuelpricesaremarketaverages.Sources:ForSAFofftakeagreementsandglobalhydrogenofftakeagreementsforgreenammonia:Argus(2023),TheRoleofLow-Emissionse-fuelsinDecarbonisingTransport.Intheaviationsector,e-fueluseispromotedprimarilybytheRefuelEUAviationprogramme(whichrequiresane-keroseneminimumof0.7%andanaverageof1.2%by2030/31),REDIII(a1%sub-targetfore-fuelsby2030)andGermany’sSAFmandate(2%e-kerosenefuelby2030).ThereisalsosomegrowthintheroadtransportmarkettomeettheREDIIIcommitment,butitwouldlikelybemetwithe-gasolineproducedasabyproductduringe-keroseneproduction.Meanwhile,offtakeagreementsbetweenfuelproducersandconsumersboostmarinesectordemandfore-ammoniaande-methanol.Offtakeagreementswithfirme-fuelvolumecommitmentscoverjustunder1billionlitresperyearto2030,andallwereannouncedinthelasttwoyears.Upsidepotentialinthisareaisconsiderable,astheInternationalMaritimeOrganizationaimstohave5-10%ofPAGE101IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028marinefuelscomefromnetzeroornearlynetzerosourcesby2030,althoughnewpoliciestosupportthistargetarenotexpecteduntil2027.TheEuropeanUnionhasalsoapprovedReFuelEUMaritimelegislation,bute-fuelrequirementsarenotreflectedinthisanalysisbecausetheywillnotbeintroduceduntil2034.Inaddition,whiletheUnitedStateshasnoe-fuelmandate,thecombinedvalueofIRAcreditsforhydrogen,SAFandcarboncapture,inadditiontoRFScreditsandstate-levelLCFScredits,couldreachUSD80/EJdependingoncreditmarketprices.However,theseincentiveshavenotyetsecuredfirmprojectcommitmentsfore-kerosenefuel.Forecastdemandthusfarexceedsfirmprojectcommitmentsto2030.However,sinceEUe-fuelmandateswerejustintroducedin2023,asweremostofftakeagreements,weassumetherewillbemorefinalinvestmentdecisionsinupcomingyears.Foraviation,thealmost2.5billionlitresofplannedcapacityadditionswoulddirectlysupplye-kerosenetomeetmandatesandofftakeagreements.However,e-ammonia,whichcanbeusedinshipping,canalsoserveagriculturalmarketsandbeusedinpowergenerationapplications.Havingaccesstomultiplepotentialmarketshelpsreduceinvestmentrisksforthisfuelandexplainswhytherearemorefirmandplannede-ammoniaprojectcommitments.NetZeroEmissionsby2050ScenariotrackingBiofuelproductionfallsshortofIEANetZeroobjectivesInouracceleratedcase,biofuelproductionfallsshortofNetZeroScenariogoals.Strengtheningexistingpolicies,establishingnewtargets,expandingfeedstocksuppliesandraisingbiojetfueluseareessentialtoclosethegap.Whilethemaincaseachievesonly15%ofthegrowthneeded,theacceleratedcasestillraisesglobalbiofuelproductiontoonlynear40%ofNetZeroambitions.Intheacceleratedcase,compoundannualgrowthcouldreachover8%overtheforecastperiod,morethandoublehistoricalrates.Nearlyhalfofthisadditionalgrowth,29billionlitresofnewdemand,resultsfromstrengthenedpoliciesinexistingmarketssuchastheUnitedStates,EuropeandIndia(forethanol),andanadditional21billionlitrescomesfromnewmarkets(biodieselinIndiaandethanolinIndonesia).Biojetfueloffersathirdgrowthavenue,expandingtocovernearly3.5%ofglobalaviationfuels–upfrom1%inthemaincase.Eachpillarfacesitsownsetofchallenges,however.PAGE102IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028ForecastvsNetZeroScenariodemandgrowth,2017-2030(left)andadditionaldemandgrowthintheacceleratedcase,2023-2028(right)30030Demand(billionlitresperyear)Demand(billionlitresperyear)2502520020150151001050500RenewableBiojetfuel2017-20222023-20282023-20282023-2030EthanolBiodieseldieselBrazilUnitedStatesEuropeIndiaHistoricalMaincaseAcceleratedcaseNZEIndonesiaChinaOtherIEA.CCBY4.0.Note:NZE=IEANetZeroEmissionsby2050Scenario.Source:IEA(2023),NetZeroRoadmap:AGlobalPathwaytoKeepthe1.5°CGoalinReach.IntheUnitedStates,EuropeandIndia,expandingsupplydependsinpartonstrengtheningexistingpolicies,promotinghigh-ethanolblendsanddiversifyingfeedstocksupplies.Intheacceleratedcase,theEuropeanUnionaimsforastrongertransporttargetof32%by2030,upfrom29%inthemaincase.Asmostnewgrowthisexpectedtocomefromnon-food/-feedcrops,newfeedstocksuppliesandprocessingtechnologieswillbeneeded.IntheUnitedStates,additionalgrowthispremisedonaquickerrolloutofE15ethanolpumpsandapermanentallowanceforE15blending,bringingaverageethanolblendingtonearly13%.AswithEurope,acceleratingrenewabledieselproductionwillrequirequickerdeploymentofprocessingtechnologiesthatcanmakeuseofwastesandresidues,andinnovativeagriculturalpracticestoproduceplantfeedstocksthatdonotcompetewithfoodorfeedproduction.Intheacceleratedcase,high-ethanolblendsandincreasedfeedstockavailabilityallowforhigherRFSrequirementspost-2025.Indiameetsits20%blendingtargetbyexpandingethanolproduction,increasingthenumberofE20pumpsanddiversifyingfeedstocksbeyondsugarcaneandmolasses.New,comprehensivepolicypackageswillbenecessarytoexpandbiodieselproductioninIndia,ethanolinIndonesiaandrenewabledieselinBrazilandIndonesia.DevelopingbiodieselproductioninIndia,forinstance,willrequirecapacityexpansion,closingofthecostgapwithdiesel,andfeedstockmobilisation.SinceIndiaimports60%ofitsvegetableoils,feedstockgrowthshouldbebasedonusedcookingoilsandanimalfats,orvegetableoilsgrownascovercropsoronPAGE103IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028marginalland.InAfricaaswell,eightcountrieshavebiofuelblendingtargetsatvariouslevelsofdevelopment,whichcouldraisethecontinent’sdemandmorethan2billionlitresby2028.Meanwhile,Indonesiawillneedcleartargets,sustainabilityguidance,expandedsugarcaneproductionandfinancialsupporttoincreaseitsethanolproduction.Likewise,forBrazilandIndonesiatoexpandtheirrenewabledieselsupplies,theywillhavetoestablishtechnicalspecifications,pricingsupportandguidanceonhowrenewabledieselproductionwillcomplementexistingbiodieselproduction.Biojetfueluseexpandsconsiderablyintheacceleratedcase,climbingto3.5%ofglobalaviationdemandby2028.AchievingthismarketsharehingesprimarilyontheUnitedStates–butalsoEuropeandJapan–meetingtheirbiojetfuelgoals.Theseregionswillalsoneedtoemploynewfeedstocksources(e.g.vegetableoilsgrownonmarginalland)andprocessingtechnologies(suchasalcohol-to-jetconversion)toavoidfeedstocklimitations.TheacceleratedcasealsoincludesbiojetfueldevelopmentinBrazil,Indonesia,ChinaandIndia,assumingthatexistingpolicyplansareimplemented.InitialgrowthinBrazilianprojectswouldlikelyfocusonsoybeanoilandinIndonesiaonpalmoil,whileIndiaandChinawouldneedtorelyonadvancedfuels.By2028,2%biojetfuelblendingwouldresultinairlineticketpriceincreasesofnearly1.5%,equivalenttoanadditionalcostofUSD1foraflightbetweenNewDelhiandChennai,forinstance.ToalignbiofuelproductionwiththeIEANetZeroScenario,itwillbenecessarytoenternewmarkets;increasefeedstocksupplies;acceleratetechnologydeployment;andreduceGHGemissionsintensity.IntheNetZeroScenario,biofuelsmakeup8%ofshippingfueland10%ofaviationfuelby2030,upfromnearlyzeroin2022andwellaboveacceleratedcaseprojections.Asover80%ofbiofueldemandisconcentratedinjustfourmarkets–theUnitedStates,Brazil,EuropeandIndonesia–whichaccountforonlyhalfofglobaltransportfueldemand,policylessonsfromthesemarketscanbeusedtoexpandproductioninotherregions.Atthesametime,conventionalandwaste-basedfeedstocksupplieswillhavetobeenlargedthroughenhancedlandproductivityandresiduecollection,underpinnedbyrobustsustainabilityframeworks.Newprocessingtechnologiestoaccessalargeagriculturalandforestryresiduebasemustalsoquintupleby2030,necessitatingsignificantdevelopmentalsupport,asmostremainpre-commercial.Finally,toaddressGHGemissionsintensity,technologiessuchasCCUSappliedtobiofuelprojectscanveryeffectivelyreduceGHGemissions,withlowerfeedstockdemand.Inallcases,predictablelong-termpoliciesarecrucialtominimiseuncertaintyandstimulateinvestment.PAGE104IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028Policiesandassumptions,mainandacceleratedcasesCountryorMain-andaccelerated-casepolicies,assumptionsandblendinglevelsregionMaincase:ExistingRenewableFuelStandardcommitmentsremaininplace.IRAprovisionsUnitedareimplementedaspresentedintheact.Ethanolblendingreaches10.7%andexportsclimbStatesto2018recordlevelsof7billionlitresby2028.Renewabledieselexpandsaccordingtoplannedcapacityadditionsfromprojectsinadvanceddevelopmentstages.Renewabledieselblendingreaches9%in2028.Biodieselblendingdeclinesto2.7%whilebiojetfuelsupplyanddemandexpandtoaccommodate2%blendingforalljetuse.Biojetfuelmakesupalmost15%ofrenewabledieselproductionin2028.Acceleratedcase:AstrengthenedversionoftheRenewableFuelStandardboostsdomesticbiofueldemand,combinedwithextendedIRAcredits,deploymentofE15blendingpumpsandstrongerstate-levelLCFSs.Combined,thesepolicieshelpachieveblendingratesof13%forethanoland4%forbiodiesel.Renewabledieselblendingincreasesto10%,requiringadditionalproductioncapacitybeyondprojectsinadvanceddevelopmentstages.Biojetfuelblendingexpandsto8%,nearlytwo-thirdsofthewaytoachievingtheSAFGrandChallengegoal.Ethanolproductionincreasestomeetbothdomesticandnetexportdemandusingexistingethanolmanufacturingcapacity.Maincase:Brazilincreasesmandatoryethanolblendingto30%,andhydrousethanolpurchasesexpandsothattotalblendingreaches58%by2028.ThebiodieselgradereachesB11in2023,climbingtoB15by2025.Thereisasmallamountofrenewabledieselblending(0.8%)by2028basedonplannedprojectadditions.Theforecastassumessoybeanoilpricesdeclinefrom2021/22recordsbutremainhighcomparedwithhistoricallevels.BrazilAcceleratedcase:BrazilachievesitsB15blendingtargetasinthemaincasebutalsoacceptsrenewabledieselandco-processingsothatadditionalrenewabledieselgrowthresultsin3%blendingin2028.Ethanolblendingexpandsmarginallybutmorequickly,to62%in2028.Partoftotalethanolblendingisacontinuationofblendingrequirementsof30%.Hydrousethanolsales(100%ethanol)makeuptheremainderofethanoldemand.TheproposedaviationGHGemissionsreductiontargetisimplemented,requiring2%biojetfuelblendingby2028.Enoughethanol,biodiesel,renewabledieselandbiojetfuelareproducedtoservedomesticconsumption,andethanolproductionincreasesfurthertomeetexportdemand.Maincase:Indiaachieves13%ethanolblendingonaverageacrossthecountryby2028andallfuelethanolisproduceddomestically.E20isavailablestartingin2023,althoughtheforecastassumesthatvehicleincompatibilitylimitsethanoluptake.Biodieselblendingremainsaround0.25%.IndiaAcceleratedcase:Indiaachievesits20%ethanolblendingmandatein2026andadvancestowardsits5%biodieselblendinggoal,reaching4.5%by2028,assumingitresolvesvehiclecompatibilityissuesandestablishesusedcookingoilcollection.Itcontinuestosupportdomesticproductionandallowsfuelethanolimportsofupto20%ofdemand.Indiaalsofollowsthroughonambitionsforbiojetfuelblending,reaching2%by2028forinternationalflights.Thiswouldrequirededicatedpolicysupportandthedevelopmentofnewfeedstockpathwaysforresiduefats,oilsandgreases;vegetableoilsgrownonmarginalland/covercrops;andalcohol-to-jetcapacity.Maincase:Nosignificantchangesaffectethanolorbiodieselpolicies.Ethanolblendingremainsnear2%andbiodieselat0.5%.Ethanolimportsholdsteadyaround2020/21levels.Biodieselexportsremainnear2022levelsandrenewabledieselexportsexpandaccordingtoplannedprojectadditionsinadvanceddevelopmentstages.ChinaAcceleratedcase:Chinaimplementspoliciesalignedwithitsbioeconomyplan,includingblendingtargetsof4.5%forethanol,3.5%forbiodieselandrenewablediesel,and1.3%forSAFsindomesticaviationby2028.Itcontinuestoallowethanolimportsofupto10%ofdemandfromtheUnitedStatesandothercountries.Exportscontinueforbiodieselbutdroptozeroforrenewabledieselandbiojetfuel.Productionofbothfuelsisusedtosatisfydomesticdemandfollowingplanstoscaleupbiofueluseindieselvehiclesandshipping.PAGE105IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028CountryorMain-andaccelerated-casepolicies,assumptionsandblendinglevelsregionIndonesiaMaincase:Biodieselblendingincreasesto35%by2028fortransportandnearly35%fornon-transportuses.Themainblendingsourceisbiodieselat34%,followedbyrenewableEuropedieselat3%.Biodieseluseremainsbelow35%becauseofcompatibilityissues,andrenewabledieselislimitedtoplannedprojects.Ethanoldemandexpandstopermit0.8%forOtherblending,reflectingfueldistributortargetsandIndonesia’sintentiontoblendmorediesel.countriesBiojetfuelproductionanduseclimbbasedonplannedprojects,reaching2%ofjetfueldemandby2028.Acceleratedcase:IndonesiameetstheB40mandatefortransportandnon-transportfuelconsumptionandaimsforB45.Thisrequiresadditionalrenewabledieselmanufacturingcapacity.IndonesiaalsoenforcesSAFblendingof2%by2025and4%by2028.Exportsremainsmall,asmostproductionisdedicatedtodomesticdemand.Ethanolblendingreaches10%by2028.Maincase:EUmembercountriesimplementtheRenewableEnergyDirectiveIIIortheirowndomestictargetsifmorestringent,andnon-EUcountriesachievedomestictargets.BiojetfueluseexpandstomeettheReFuelEU2%-by-2025targetand6%by2030,reaching4%by2028.AspertheReFuelEUproposal,feed/foodcrop-basedfuelsarenoteligible,andfuelsmustotherwisemeettherequirementsofREDII,AnnexIX,PartAorPartB.•Germany’sGHGemissionsreductiontargetclimbsto18%by2028,upfrom7%.Biodieselandethanolblendingremainsteady,whilerenewabledieselexpandsto3.5%.•Francemeetsits9%ethanoland9.9%biodieselblendingtargets(onanenergybasis).Ethanolblendingincreasesto15%assumingongoingsupportforE85;biodieselblendingremainsflat;renewabledieselblendingexpandsto3.5%;andbiojetfuelreaches4%by2028.•InSpain,ethanolblendingclimbsto6%whilebiodieselblendingremainsflat,butrenewabledieselblendingexpandsto6%andbiojetfuelto3.5%.•Finland,theNetherlandsandtheUnitedKingdomallachievenear-10%ethanolblending.Swedenreducesitsblendingobligationsfrom58%to8%by2030forbiodiesel/renewablediesel,andfrom24%to8%by2028forethanol;italsoreaches3%biojetfuelblending.Finlandreducesitsblendingrequirementsto22.5%by2027,downfroma34%targetby2030.InItaly,renewabledieselblendingexpandsto5%.•TheUnitedKingdommakesprogresstowardsitstargetof10%SAFblendingby2030,withthemandatestartingin2025.Norwaycontinuesworkingtowardsits0.5%SAFtarget.•PolandimplementsE10reachingnear10%ethanolblendingby2028.Acceleratedcase:SwedenandFinlandreinstitutetheirGHGintensityandblendingrequirements.TheEuropeanCommissionstrengthenstheREDtoa32%renewableenergysharefortransport.TheEuropeanUnionmaintainsandstrengthenssustainabilityrequirementsforbiofuels,whichlimitssomeimports.TheUnitedKingdomestablishesa10%-by-2030SAFtarget,reaching6%blendingby2028.Maincase:CanadacontinueswithitsCleanFuelStandardin2023,andMalaysia’sB20mandateisimplemented.ThailandmakesprogressonitsE20target,reaching15%blendingby2028,whilebiodieseluseexpandsto10%basedongovernmentsupportplans.Singapore’srenewabledieselandbiojetfuelproductionexpandtofilldomesticshortfallsintherestoftheworld.Argentina’sbiodieselblendingclimbsto10%andethanolto12%.Colombiareaches10%ethanolblendingby2028,whilebiodieselblendingrisesto12%overtheforecastperiod.Japanpursues10%SAFuseby2030.Acceleratedcase:CanadafollowstheUnitedStatesinsupportingSAFs.Malaysiaexpandsbiodieselblendingto20%fortheindustrysectorandsupportsanHVO/SAFrefineryanddomesticbiojetfueluse.Singaporepursues5%SAFsby2030andtheUnitedArabEmiratesachievesits0.7-billion-litreSAFtarget,with0.4billioncomingfrombiojetfuel.BrazilimplementsitsGHGemissionsintensitytargetforaviation,achieving2%biojetfuelblendingby2028,whileColombiapursues13%biodieselblending.Thailandachieves20%ethanolblendingby2026andallows10%ethanolimports.Egypt,Ghana,Kenya,Nigeria,Mozambique,SouthAfrica,Uganda,ZambiaandZimbabweallfollowthroughonbiofuelmandatesofupto10%ethanolblendingand5%biodieselblendingthrough2028.PAGE106IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028Technology,marketandpolicytrendsBiofuelsubsidieshavebeencostingcountries1to4UScentsperlitreBiofuelstypicallycostmorethanthefossilfuelstheyareblendedwith.However,theimpactonfuelpricesisrelativelysmall,intherangeof1-4UScentsperlitre-eqofblendedfuel(onanenergy-equivalencybasis)3overthepast13yearsintheUnitedStates,Brazil,Europe,IndonesiaandIndia.Thishasequatedtoa2-7%increaseinpre-taxgasolineanddieselprices.Countrieswithcheaperbiofuels,suchasBrazil,achievehigherblendingrateswithsimilarfinancialsupport.Forinstance,onelitreof34%ethanol-blendedfuel(onanenergybasis)inBrazilhascostanextra4UScentsperlitre-eqonaverageoverthepast13years.IntheUnitedStates,a6%blend(onanenergybasis)hasraisedpricesbyabout2UScentsperlitre.Governmentsaccepttheseadditionalcoststomeetenergysecurity,GHGemissionsreductionandagriculturalsupportobjectives.However,variablessuchasfeedstockcostsandfluctuatingoilpricescandisrupttheseaverages,requiringflexiblesupportmechanismsthatcanadapttochangingpricesandmitigatehighcosts.Implicitsubsidyrangesforbiofuelblends,andaverageblendingsharesonanenergybasisbyfuel,2010-20230.1212%0.10USD/litreenergyequivalentAverageblendingshare0.080.06IEA.CCBY4.0.34%6%0.040.025%0.00-0.027%3%3%-0.046%EthanolBiodieselEthanolBiodieselEthanolBiodieselBiodieselEthanolUnitedStatesBrazilEuropeIndonesiaIndiaEthanolpriceimpact-gasolineBiodieselpriceimpact-dieselAveragepricedifference-gasolineAveragepricedifference-dieselIEA.CCBY4.0.Notes:Theblendedcostisthetotalvalueofthegasolinewithethanol,orthebiodiesel/renewabledieselwithconventionaldiesel.Implicitsubsidiesarecalculatedbysubtractingthegasolineordieselpricefromtheblendedcost.TheoctanebenefitofethanolisestimatedatUSD0.02-0.05/litredependingontheyearandcountry,anditisincorporatedintorangesandaverages.Pricedifferencesarebasedonenergyequivalents,notvolumes,andrangesreflectannualaveragesbetween2010and2023.Averageblendingsharesindicateeachregion’sbiofuelenergyshareintotaltransportenergydemand.ForBrazil,anhydrousandhydrouscostswereestimatedseparatelyandthencombinedforanaveragecost.Sources:Pre-taxmarketpricesforgasoline,diesel,ethanol,biodieselandrenewabledieselarefromArgusandS&PGlobal.Pricesincludeproductionanddistribution.3Notethatallblendingratesandcostestimatesarequotedonaper-litre,energy-equivalentbasis,notonaper-volumebasis.Forinstance,ethanolblendingintheUnitedStatesisnearly10%onavolumebasis,butonanenergybasisitiscloserto6%.PAGE107Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028Governmentsdeployvarioustoolstobridgebiofuelcostgaps,stimulateproductionandshieldconsumersfromcostincreases.InIndonesia,palmoilexportleviessubsidisebiodieselcosts,whiletheUnitedStatesoffersabiodieselblendingtaxcreditofUSD0.26perlitre.ItplanstoextendthetaxcreditthroughtheIRA,withaddedincentivesforlowerGHGemissions.Indiahassetethanolpurchasepricesatalevelthatenablesethanolproducerstocovertheircostsandhasloweredtaxratesforethanolandethanol-blendedfuels.Meanwhile,policyapproachesacrossEuropediffer,withsomecountriesprovidingtaxbenefits(suchasFrance’staxbreakson85%ethanolblends)andmanyotherspassingthecostsontoconsumers.Theleveloffinancialsupportneededforbiofuelscanchangequickly,however.InIndonesia,risingpalmoilpricesandhigherbiodieselmandatespushedsubsidycostsfrom1UScentin2019to10UScentsperlitre-eqin2021,leadingtosubsidyadjustmentsandahaltinblendingincreases.Brazilfacedasimilarsituation,withthecostofblendeddieselfuelrisingfromalmostnothingto4UScentsperlitre-eqin2021duetohighersoybeanoilprices,promptingaslowdowninbiodieselmandateincreases.However,favourableconditionssuchashighgasolineandlowsugarpriceshaveoccasionallymadeethanolblendingfinanciallybeneficialinBrazil.Whilethecostgapforbiodieselblendswidensovertheforecastperiod,ethanolremainssteadyBiodiesel-blendfuelcostsareforecasttorisewithhigherblendinglevelsandincreasingfeedstockprices,particularlyintheUnitedStatesandIndonesia.Conversely,ethanol-blendfuelcostsarelikelytoremainsteadyorevendeclineinsomeregionsthankstostableordecreasingpricesfordominantfeedstockssuchassugarcaneandcorn.Theseestimatesareindicativeonly,however,astheyarebasedonmacro-trendssuchasglobalpopulationgrowth,dietarypatterns,plantingratesandyieldimprovementswithimpactsonglobalsupplyanddemand.Agriculturalcommoditypricescanvaryconsiderablyyearoveryearandaretheprimarydeterminantofbiofuelproductioncosts.Ethanol-blendfuelpricesarelikelytoremainwithinhistoricalbounds,asbothblendingrateandfeedstockpriceincreasesareexpectedtobemoderate.InBrazil,forinstance,ethanolblendingratesclimb10percentagepointsovertheforecastperiod,butthecostdifferencewithpuregasolinefallsfrom6to4UScentsperlitre.Costsdeclinebecausesugarandcornpriceswerenearpeaklevelsin2023duetoweather-relatedsupplydisruptionsandongoingupwardpressureongrainpricesfromsupplyrisksafterRussia’sinvasionofUkraine.PAGE108IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028InEuropeandtheUnitedStates,modestblendingincreasesareanticipated,withfeedstockpricesremainingaroundhistoricallevels.InIndia,feedstockpricesremainflat,butincreasingethanolblendingmeansblended-fuelcostsincreasetoneartheupperhistoricalrange.Forecastimplicitsubsidyrangesinthemaincase,andhistoricalaverages,2010-2028EthanolblendsBiodieselblends0.250.10USD/litreenergyequivalent0.08USD/litreenergyequivalent0.200.060.040.150.020.000.10-0.02-0.040.05202320282023202820232028202320280.0020232028202320282023202820232028UnitedBrazilEuropeIndiaUnitedBrazilEuropeIndonesiaStatesStatesBlended-fuelcost/savingsBlended-fuelcost/savingsatUSD50/tcarbonpriceHistoricalrangeIEA.CCBY4.0.Notes:Theblendedcostisthetotalvalueofthegasolinewithethanol(left)andthebiodiesel/renewabledieselwithconventionaldiesel(right).Implicitsubsidiesarecalculatedbysubtractingthegasolineordieselpricefromtheblendedcost.Historicalrangesarebasedonaverageannualmaximumandminimumimplicitsubsidiesbetween2010and2023.Futuregasolineanddieselpricesareequaltoaveragepricesbetween2010to2023,whereasfuturebiofuelpricesarebasedonestimatedproductioncostsusingforecastfeedstockpricesfromtheOECD-FAOAgriculturalOutlook2023-2032.Theconsumptionofbiodieselblendsisexpectedtoriseinmajormarketsasblendingsharesandfeedstockpricesincrease.IntheUnitedStates,forinstance,theblendingshareforbiodieselandrenewabledieselcombinedclimbsnear20%overtheforecastperiod.Pricesforvegetableoilfeedstockssuchassoybeanoilandpalmoilarealsoexpectedtoremainabovehistoricallevelsasdemandincreasesgloballywhileproductionremainsconstrained.AcceleratinggrowthintheconsumptionofmoreexpensiverenewabledieselintheUnitedStatesandEuropealsocontributestocostincreases,withthebetterblendingpropertiesofrenewabledieseljustifyingitshigherprice.Mitigatingthesepriceincreasescouldinvolveseveralstrategies,suchasexpandinganddiversifyingfeedstocksuppliesthroughagriculturalproductivityimprovementsandnewprocessingtechnologies.Loweringthecarbonintensityoffuelscanalsocontributetomoreefficientfeedstockuse,andimplementingcarbonpricingcouldreducetherelativecostofbiodieselblends.Cropssupportmostbiofuelgrowth,butdemandforwasteandresiduesisincreasingNearly75%ofnewbiofueldemandovertheforecastperiodismetbyconventionalcrops,particularlysugarcaneinBrazilandvegetableoilsintheUnitedStates.PAGE109IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028However,theshareofvegetableoilsusedinbiofuelproductionisexpectedtorisefrom19%in2022to24%in2028,puttingpressureonglobalsupplies.Theuseofresiduefats,oilsandgreases,suchasusedcookingoilandanimalfats,expandsthemostintheUnitedStatesandEurope,wheretheyreceivepreferentialpolicytreatment.Meanwhile,agriculturalandforestryresiduesandmunicipalwastesusedtoproduceethanol,renewabledieselandbiojetmorethandoubleby2028.Biofuelfeedstockdemandgrowthbyfuelandregion,maincase,2023-2028EthanolBiodieselandrenewabledieselBiojetfuel7094.560Feedstockdemand(Mt/yr)5084.040IEA.CCBY4.0.3073.5201063.0052.5-1042.031.521.010.500.0-0.5SugarsStarchesVegetableoilsUCOandanimalfatsOtherresiduesEthanolIEA.CCBY4.0.Notes:RoW=restofworld.UCO=usedcookingoil.Forecastfeedstockdemandisbasedontheproductionforecast,plannedcapacityadditions(withstatedfeedstockpreferences)andpolicy-imposedfeedstocklimits.Crops,primarilysugarcaneandcorn,supportmorethan95%ofnewethanolproductionovertheforecastperiod.Globally,theportionofsugarsandstarchesdesignatedforbiofuelproductionclimbsjustonepercentagepointto14%ofglobalproduction.EveninBrazil,theshareofsugarcanededicatedtoethanolremainsflatdespitea40%increaseinethanolproduction,thankstoanexpansioninsugarsuppliesandgrowingcorn-basedethanolproduction.IntheUnitedStates,corndemandforethanolisdownslightlyduetoamarginaldeclineinethanolproductionovertheforecastperiod.Otherregionsshowminimalnewdemandforethanolfeedstocks.TheUnitedStatesaccountsforoverhalfofnewdemandforrenewabledieselfeedstocks,primarilyvegetableoilsandresiduefats,oilsandgreases.Globally,vegetableoildemandexpandsmorethan40%by2028,drivingincreasedvegetableoilproductionintheUnitedStatesandCanada.Nevertheless,biofueldemandincreasesmorequicklythanvegetableoilproduction,puttingpressureonsupplies.Althoughtaxcreditsandloanprogrammesaresupportingfeedstockexpansionthroughseveralprojectstoconvertwoodwastesintorenewablediesel,plannedPAGE110Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028volumesremainsmall.InEurope,theREDandnationalpoliciesaresteeringproductiontowardswastesandresidues,butelsewhere,palmoilinIndonesiaandsoybeanoilinBrazilfeedmostadditionalproduction.Wastesandresiduesareanticipatedtoaccountforabout60%ofbiojetfuelgrowthovertheforecastperiod.IntheUnitedStates,grantandloanprogrammessuchastheFuellingAviation’sSustainableTransitionloanprogrammesupportnewproductionpathways,andadedicatedtaxcreditforbiojetfuelrewardslower-GHG-emissions-intensityfuels.IntheEuropeanUnion,ReFuelEUAviationlegislationexcludesfoodandfeedcrops,directingbiojetfuelproducerstowardsusedcookingoil,animalfatsandotherresidueoils.AswiththeUnitedStates,afewprojectsrelyingonwoodywastesandotherresidueswilllikelybecommissioned.BiofuelproducerswillneedtofocusmoreonreducingGHGemissionsoverthenextfiveyearsInthenextfiveyears,nearly40%ofroadtransportfueldemandwillbecoveredunderpoliciesincentivisinglifecyclecarbonreductions,markingashiftfromtraditionalbiofuelblendingmandates.Thevalueofthesecreditsdiffersbymarket,withcreditsworthnearlyUSD0.5/litreforbiojetfuelintheUnitedStates,andUSD0.03/litreforethanolinBrazil.ThischangeoftenalsobringsliquidbiofuelsintodirectcompetitionwithotherGHGemissionsreductiontechnologiessuchaselectricvehiclesandbiogas.Low-carbonfuelstandardcreditspertonneofreducedGHGemissionshavebeenworthuptoUSD0.50/litre,althoughaveragecreditpricesareclosertoUSD0.20/litreforbiofuelssubstitutingfordieselorjetfuel.Cleanerfuelsarealsoallocatedahighervalue,withonelitreoflow-GHG-intensityrenewablediesel(15gCO2-eq/MJ)earningUSD0.20/litre,doublethecreditofhigher-intensity(50gCO2-eq/MJ)fuel.TheUnitedStates,CanadaandtheEuropeanUnionwillimplementpoliciesthatdirectlyincentiviseGHGemissionsreductionsovertheforecastperiod,addingtoexistinginitiativessuchasBrazil’sRenovaBioandvariousstateandprovincialpoliciesintheUnitedStatesandCanada.Eachproposedpolicyhasitsownuniquedesign,buttheygenerallyestablishaGHGemissionsreductiontarget,lifecycleemissionfactors,acredittradingmarketandrulesforfueleligibility.Thevalueofthesecreditscanvarysignificantlyacrossregionsandovertime.CreditsinCalifornia,forinstance,haveclimbedtomorethanUSD200/tCO2buttheytradedatanaverageofjustunderUSD75/tCO2in2023.InBrazil,RenovaBiocreditstradedatUSD23/tCO2in2023,nearpeaklevels.PAGE111IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028TheUnitedStatesoffersadifferentapproachwiththeIRA,linkingtaxcreditstoGHGemissionsperformanceandtherebyretainingincentivesforincrementalimprovements.Forinstance,thecleanfuelproductiontaxcreditforSAFoffersUSD0.33/litreforSAFthathasa50%lowerGHGintensitythanfossilfuels.However,anadditionalUSD0.13/litreisavailableforfuelsthatbeattheminimum.Thiscreditcanalsobecombinedwithlow-carbonfuelstandardcreditsinthestatesthathavethem,andpotentiallyotherIRAcreditsforcleanhydrogenproduction.Itdoesnot,however,regulateafinalGHGemissionintensityfortheaviationsector,orotherfueluses.TheInternationalMaritimeOrganizationisalsoconsideringintroducingalow-carbonfuelstandardandacarbonpriceforinternationalmarinefuels,butdetailshavenotbeenpublishedsoitisnotconsideredinourforecast.Valueoflow-carbonfuelstandard-typepoliciesbasedoncarbonintensity,creditvalueandfueltype(left),andcarboncreditvaluebasedonexistingcarbonintensitypolicies(right)0.8040%Creditvalue(USD/litre)0.7035%Creditvalue(USD/litre)0.6030%0.6030%0.5025%0.4020%0.4020%0.3015%0.2010%0.2010%0.105%0.000%0.000%-151550-151550-151550-151550-151550Ethanol(gCO2/MJ)RenewabledieselBiojetfuelUnitedStatesBrazil-(gCO2/MJ)(gCO2/MJ)-BiojetfuelEthanol25USD/tonneCO275USD/tonneCO2LCFSIRA-SEC40B200USD/tonneCO2SharefuelcostIRA-SEC45VRenovaBioIEA.CCBY4.0.Notes:LCFS=low-carbonfuelstandard.IRA=InflationReductionAct.Creditvaluesintheleftgrapharebasedonthedifferencebetweentheexamplebiofuellifecyclecarbonintensities(-15,15and50gCO2/MJ)anddefaultlifecyclecarbonintensitiesforgasoline(85gCO2/MJ),diesel(89gCO2-eq/MJ)andjetfuel(89gCO2/MJ).“Shareoffuelcost”isthevalueofthecarboncreditrelativetotheestimatedlevelisedcostofproductionforethanol,renewabledieselandbiojetfuelin2023.USbiojetcreditsintherightgrapharebasedonanLCFScreditvalueofUSD75/tCO2andthevalueofSec.40B–sustainableaviationfuelcredit–beyondtheminimumthresholdandIRASec.45Vforhydrogenwithacarbonintensitybelow0.45kgCO2-eq/kgH2.BiojetfuelintheUnitedStatesisalsoeligiblefortheRINSundertheRFS(estimatedatUSD0.48/litre)andthebaseSec.40BvalueofUSD0.33/litre.Fuelshareisbasedonthelevelisedcostofproducingbiojetfuelusinglow-GHG-intensityhydrogenandusedcookingoil.Brazil’sethanolvalueisbasedontheaverage2023RenovaBiocreditvalueofUSD23/tCO2andthevalueperlitreofethanolatdifferentlifecycleGHGintensityvalues.TheshareoffuelcostofthesecreditsisbasedontheestimatedlevelisedproductioncostforsugarcaneethanolinBrazilfor2023.AsthefocusshiftstowardsGHGemissions-centricpolicies,biofuelproducersmustrampuptheircarbonintensityreductionefforts.InBritishColumbia,forinstance,GHGemissionsintensitiesdecreased50%forethanolproductionand65%forrenewabledieselovera12-yearperiod.Overthenextfiveyears,similarimprovementswillbenecessaryacrossmostofthebiofuelindustry.PAGE112IEA.CCBY4.0.Renewables2023Chapter2.TransportbiofuelsAnalysisandforecaststo2028Effectivestrategiesforreducingemissionsincludecarefulfeedstockselection;improvingprocessenergyefficiency;reducingthecarbonintensityofbiofuelproductionfacilities;andemployinginnovativeagriculturalpractices.InBrazil,forinstance,sugarcaneethanolproductionutilisesbioenergyfrombagasse,abyproductofsugarproduction,toreducecarbonintensityandenhanceenergyefficiency.Internationally,establishinggloballyrecognisedGHGemissionsintensityvaluescanhelpimprovetrade,allowingregionswithmorelow-carbonfeedstockstosellfueltoregionswithout.Almost2MtCO2arecurrentlycapturedeveryyearfromethanolfacilities,andplansareinplaceforanother20facilitiestocapturenearly15MtCO2.TransportsectorGHGemissionsreductiontargetsandpricesRegionPolicynameTargetImplementationPricerangedate(s)UptoUnitedStatesInflationReductionNotarget2022USD0.46/litreActdependingonGHGemissionsState-levellow-California,OregonCalifornia-20%California-2011carbonfuelandWashingtonlow-reductionby2030Oregon-2016intensitystandardscarbonfuelOregon-20%Washington-2023California-standardsreductionby2030USD22-206/tCO2Washington-Oregon-20%reductionbyUSD47-165/tCO22034BrazilRenovaBio95millioncarbon2020USD7-40/tCO2Canadareductioncredits2023Provincial-levelCleanFuel2013TBDlow-carbonfuelRegulationsby2031standardsGreenhouseGas13%reductionby2025USD15-Reduction2016360/tCO2EuropeanUnion(Renewable&Low-20302018CarbonFuelTBDGermanyRequirements)Act30%reductionby2030USD125-515/tSwedenRenewableEnergyCO2Directive14.5%reductionby2030;optionalMaximumUSD29%renewable670/tCO2formerenergysharepenaltyrate25%reductionby2030Previously66%reductionfordieseluseand28%reductionforgasolineuseby2030PAGE113IEA.CCBY4.0.Renewables2023Chapter3.HeatAnalysisandforecaststo2028Chapter3.HeatGlobalforecastsummaryHeataccountedforalmosthalfoftotalfinalenergyconsumptionand38%ofenergy-relatedCO2emissionsin2022Annualheatconsumptionexpandedby6%globallyover2017-2022.Renewableenergy–excludingtraditionalusesofbiomass–metonlyhalfofthisincrease,withitsshareinglobalheatconsumptionrisingbyonly2percentagepointsto13%in2022.1Morethantwo-thirdsofglobalgrowthinrenewableheatusewasintheformofbioenergy(especiallyinindustry)andrenewableelectricity(mainlyinbuildings).IndustrysectorrenewableheatuseincreasedthemostinIndiaoverthelastsixyears,owingchieflytoexpansionofthesugarandethanolindustrythatusesbiomassresidues,and–toalesserextent–tothedevelopmentofbiomassbriquetteuseinindustrialboilers.Thenext-largestincreaseswereintheEuropeanUnion,thanksmainlytogreatermunicipalwasteandbiomassuse,andinChina,withincreasingrelianceonelectricity(agrowingpartofwhichisrenewables-based)forprocessheat.Inthebuildingssector,three-quartersofrenewableheatdevelopmentsinthepastsixyearstookplaceinChina,theEuropeanUnionandtheUnitedStates.2Heatpumpdeploymenthasplayedamajorroleinallthesemarkets,translatingintorisingconsumptionofbothelectricityandambientheatforspaceandwaterheating.LargeadditionalcontributionsalsocamefromelectricheatingequipmentandsolarthermalandgeothermaldevelopmentsinChina,andincreasedbiomassboilerandstoveuseintheEuropeanUnion.1Forthefirsttime,therenewableheatoutlookinthiseditionoftheIEArenewableenergymarketreportseriesincludesIEA.CCBY4.0.regionalestimatesofambientheatharnessedbyheatpumpsinthebuildingsector.However,ambientheatfromheatpumpsintheindustrysectorisstillnotaccountedfor,duetolimiteddataavailability.DatapresentedinthisreportdifferfromtheIEAWorldEnergyOutlook2023datasetonlybytheinclusionofambientheatestimates.Renewableheatconsumptionthereforeincludesthedirectuseofbioenergyandsolarthermalandgeothermalheat;ambientheatharnessedbyheatpumps;theindirectuseofpowersectorrenewableenergythroughelectricityusedforheatgeneration;andtheindirectuseofrenewableenergysourcesthroughdistrictheatconsumption.Heatpumpcontributionstorenewableheatconsumptionaresplitintotherenewablefractionofelectricitytheyconsume,andtheambientheattheytransfer.2Inthisreport,heatconsumptioninthebuildingssectorcoversspaceheating,waterheatingandcookingapplications.PAGE114Renewables2023Chapter3.HeatAnalysisandforecaststo2028Renewableenergyconsumptionandsharesofheatdemandinselectedregions,2022(left),andglobalincreasesinrenewableenergyconsumption,2017-2028(right)660%728%EJEU550%624%ChinaUnitedStates440%520%CanadaRestofworld330%IndiaBrazil220%416%UnitedStatesEU110%312%ChinaRestofWorld00%EJ28%14%00%2017-222023-282017-222023-28BuildingsIndustryBuidingsIndustryAmbientheatRenewabledistrictheatGeothermal(directuse)SolarthermalModernuseofbioenergyRenewableelectricityShareofmodernrenewablesatperiodend(rightaxis)IEA.CCBY4.0.Notes:EU=EuropeanUnion.AmbientheatfromheatpumpsusedintheindustrysectorisnotaccountedforduetolimiteddataavailabilitySources:IEA(2023),WorldEnergyOutlook2023;IEA(2023),GlobalEnergyandClimateModel.Iffossilfueluseisnotcontained,theheatsectoralonein2023-2028couldconsumemorethanone-fifthoftheremainingcarbonbudgetforanevenchancetolimitglobalwarmingto1.5°CRenewableheatconsumptionisexpectedtoaccelerateslightlyovertheoutlookperiod,risingmorethan40%(+12EJ)globallyduring2023-2028–twicetheincreaseoftheprevioussix-yearperiod.Nonetheless,thisgrowthrepresentsjust70%oftheprojectedglobalincreaseintotalheatdemand,leadingtorisingfossilfuelconsumptionforheatandassociatedCO2emissions(+5%/+0.6GtCO2inannualemissions).Over2023-2028,cumulativeheat-relatedCO2emissionsareanticipatedtototal86GtCO2–morethanone-fifthofthecarbonbudgetremainingfora50%likelihoodoflimitingglobalwarmingto1.5°C.33ThiscalculationisbasedontheIPCCestimatefortheremainingcarbonbudgetof500GtCO2fromthebeginningof2020IEA.CCBY4.0.untilthetimeofnetzeroglobalemissions,consideringcumulativeglobalCO2emissionsof112GtCO2over2020-2022.Pleasenotethattheremainingcarbonbudgetvaluesdependonnon-CO2greenhousegas(GHG)mitigationstrategiesandaresubjecttouncertainty.PAGE115Renewables2023Chapter3.HeatAnalysisandforecaststo2028Globalchangesinheatconsumptioninthebuildingsandindustrysectors,andsharesofrenewablesinheatdemand,2017-20282030%EJ1525%Non-renewableheatIEA.CCBY4.0.1020%Traditionalusesofbiomass515%Modernrenewableheat010%Shareoftraditionaluseofbiomassinheatatperiodend(rightaxis)-55%Shareofmodernrenewablesinheatatperiodend(rightaxis)-100%2017-20222023-20282017-20222023-2028BuildingsIndustryIEA.CCBY4.0.Note:ambientheatfromheatpumpsusedintheindustrysectorisnotaccountedforduetolimiteddataavailability.Sources:IEA(2023),WorldEnergyOutlook2023;IEA(2023),GlobalEnergyandClimateModel.IndustryUsingmoreelectricityforprocessheatexpandsrenewableheatconsumption,butnotenoughtocurbfossilfueluseIndustrialheatdemandisprojectedtoexpand16%(+17.6EJ)globallyduring2023-2028,withChinaandIndiatogetheraccountingformorethanhalfofthegrowth.Overthisperiod,renewableheatdevelopmentsareexpectedtorepresentjustoverone-thirdofadditionalheatdemand,despitenearly50%growthinconsumption.Theshareofrenewableenergysourcesinglobalindustrialheatconsumptionisthereforeanticipatedtocontinuerisingonlyslowly,from12%in2022to15%in2028.Renewableelectricitymakesbyfarthelargestcontributiontoprojectedrenewableheatdevelopmentsinindustry,representing70%ofthegrowthinannualconsumptionovertheforecastperiod.Thistrendresultsfromrisingsharesofrenewablesinelectricitygenerationand,evenmoresignificantly,thetriplingofelectricityconsumptionforprocessheat.Thisgrowingrelianceonelectricityforprocessheat(from4%ofglobalindustrialheatconsumptionin2022toalmost11%in2028)comesmostlyfromnon-energy-intensiveindustries,withindustrialheatpumpsincreasinglymeetingtemperatureneedsofupto200°C,andfromscrapmetalrecyclingandaluminiumindustries,whichuseelectricarcfurnaces.Chinaleadsthistrend,enlargingitsuseofrenewableelectricityforprocessheatmorethanfivefoldovertheoutlookperiod,PAGE116Renewables2023Chapter3.HeatAnalysisandforecaststo2028representingalmosthalfofglobalgrowthwhiletheEuropeanUnion,theUnitedStatesandJapantogetheraccountforone-thirdofit.Industrysectorincreasesinrenewableheatconsumptionandsharesofrenewablesinheatdemand,selectedregions,2017-20282500PJ60%20002017-2215002023-2850%Renewabledistrictheat10002017-222023-2840%Geothermal(directuse)5002017-2202023-2830%Solarthermal2017-222023-2820%Bioenergy2017-222023-2810%2017-22Renewableelectricity2023-282017-220%2023-28Shareofrenewablesatperiodend(rightaxis)ChinaIndiaEUUnitedJapanBrazilRestofStatesworldIEA.CCBY4.0.Notes:EU=EuropeanUnion.Ambientheatfromheatpumpsusedintheindustrysectorisnotaccountedforduetolimiteddataavailability.Source:IEA(2023),WorldEnergyOutlook2023.Remainingindustrysectorgrowthinrenewableheatusecomesessentiallyfromrisingbioenergyconsumption(+1.8EJ/+15%),whichremainsthelargestrenewableenergysourceglobally,meetingaround10%ofglobalindustrialheatdemandovertheoutlookperiod.Morethan60%ofthisprojectedgrowthtakesplaceinIndia,withBrazil,China,sub-SaharanAfrica,Asia,andtheEuropeanUnionresponsibleformostoftheremainder.However,globalbioenergydevelopmentsessentiallyreflectexpandingindustrialactivity–mostlyinnon-energy-intensiveandnon-metallic-mineralindustries(e.g.cement)–ratherthanfuelswitching,sotheshareofbioenergyinindustrialheatconsumptionactuallyremainsflatduringtheoutlookperiod.Meanwhile,higherconsumptionisexpectedforsolarthermalheat(upmorethan160%/+35PJ)andgeothermalheat(upnearly60%/+14PJ)inindustrialprocesses.Theglobalsolarindustrialheatmarketmaintaineditsdynamismin2022,withatleast30MWofnewprojectsstartingoperation,mostlyinEurope,ChinaandtheUnitedStates,leadingtototalcumulativeglobalcapacityofmorethan850MW.Furthermore,morethan300MWofadditionalcapacityareexpectedtostartoperationduring2023-2026.Yet,thecombinedprojectedsolarthermalandgeothermalcontributionremainsmarginaloverall,representinglessthan1%ofindustrysectorgrowthinrenewableheatconsumption.Thestrongpotentialofthesetechnologiestodecarboniselow-andmedium-temperatureprocesses,commonlyfoundinthefoodandbeverage,PAGE117IEA.CCBY4.0.Renewables2023Chapter3.HeatAnalysisandforecaststo2028textile,chemicalandminingindustries,forinstance,remainsmassivelyuntappedinthisoutlookduetolowawarenessandalackoflocalexpertiseandpolicysupport.Energyservicecompanies(ESCOs)areexpectedtoplayanincreasinglyimportantroleinprojecteddevelopments,especiallyforlargeindustrialprocessheatprojects.Industrysectorincreasesinrenewableheatconsumptionbysource,selectedregions,2017-20285000604500PJ4000PJ5035003000IEA.CCBY4.0.402500200030150010002050010002017-222023-282017-222023-28-102017-222023-282017-222023-282017-222023-28RenewableBioenergySolarthermalGeothermalRenewabledistrictelectricity(directuse)heatChinaIndiaEuropeanUnionUnitedStatesJapanBrazilRestofworldIEA.CCBY4.0.Notes:Ambientheatfromheatpumpsusedintheindustrysectorisnotaccountedforduetolimiteddataavailability.Source:IEA(2023),WorldEnergyOutlook2023.BuildingsRisingsharesofrenewablesinelectricityandheatpumpandelectricboilerdeploymentboostrenewableheatconsumptioninChina,theEuropeanUnionandtheUnitedStatesGlobalheatconsumptioninthebuildingssectorisexpectedtoremainflatduring2023-2028,asincreasesinsub-SaharanAfrica,Europe,4theCaspianregionandmostofSoutheastAsia(resultingfrompopulationgrowth,changesinlivingstandardsandgreaterservicesectoractivity)offsetdeclinesintheUnitedStates,India,China,JapanandIndonesia(owingtoenergyefficiencyimprovements).5Modernusesofrenewableenergysourcesforspaceandwaterheating,aswellasforcooking,areprojectedtoexpandnearly40%inthemeantime,raisingthe4TheprogressiveerosionofsomeenergyconservationmeasuresindividualsandenterprisesadoptedduringtheenergycrisisisalsoexpectedtoraisebuildingssectorheatdemandinEurope.5HeatconsumptioncorrespondsmostlytowaterheatingandcookinginIndia,Indonesia,sub-SaharanAfricaandSoutheastAsia,whilespaceheatingrepresentsamajorpartofdemandinotherregions.PAGE118Renewables2023Chapter3.HeatAnalysisandforecaststo2028shareofrenewablesinbuildingssectorheatconsumptionfrom15%in2023to21%in2028,anddisplacing5.7EJoffossilfuelconsumptionin2028.Buildingssectorincreasesinrenewableheatconsumptionandsharesofmodernandtraditionalusesofrenewablesinheatdemand,selectedregions,2017-20282100PJ70%Renewabledistrictheat18002017-2260%Geothermal(directuse)15002023-2850%Solarthermal12002017-2240%Modernuseofbioenergy2023-2830%Ambientheat9002017-2220%Renewableelectricity6002023-2810%3002017-220%2023-28-10%02017-22-3002023-282017-222023-28Shareofmodern2017-22renewablesinheat2023-28ShareoftraditionaluseChinaEUUnitedIndiaSub-MiddleRestofofbiomassStatesSaharanEastworldAfricaIEA.CCBY4.0.Notes:EU=EuropeanUnionSources:IEA(2023),WorldEnergyOutlook2023;IEA(2023),GlobalEnergyandClimateModel.Renewableelectricityremainsthefastest-growingrenewableheatsourceinbuildingsduringtheoutlookperiod,itsuseexpandingbytwo-thirdsglobally(+2.2EJ)andcontributingalmost40%ofthesectoralincreaseinrenewableheatconsumption.China,theEuropeanUnionandtheUnitedStatesleadthistrend,makingup70%ofglobalgrowthinrenewableelectricityuseforheatinbuildings.Incontrastwiththeindustrysector,three-quartersofthisgrowthresultsfromarisingshareofrenewablesinpowergeneration,whiletherestcomesfromthedeploymentofnewelectricheaters,boilersandheatpumps.Boostedbystrongpolicysupportinthecontextofhighenergyprices,globalheatpumpsalesrose11%in2022.TheEuropeanmarketexperiencedrecord39%growthwith3millionnewunitsinstalled,whileintheUnitedStatesheatpumppurchasesexceededthoseofgasfurnaces.TheChinesemarket–theworld’slargestheatpumpmarket–remainedstable,however,duetotheglobaleconomicslowdown.Heatpumpstypicallyusethreetofivetimeslesselectricitythanconventionalresistiveelectricheatersandboilersforagivenheatoutput.Whileheatpumpsconsumedlessthan15%oftheelectricityusedforheatinbuildingsgloballyin2022,theirdeploymentaccountsforone-thirdoftheglobalincreaseinelectricityuseover2023-2028,andnearlyone-quarterofthegrowthinrenewableelectricityuse.PAGE119IEA.CCBY4.0.Renewables2023Chapter3.HeatAnalysisandforecaststo2028Furthermore,heatpumpsparticipateinrenewableheatuptakenotonlybyusingelectricitybutbyharnessingambientheat,whichrepresentsone-quarterofglobalgrowthinrenewableheatconsumptioninbuildingsduring2023-2028–thesecond-largestincrease(+1.4EJ)afterrenewableelectricity.ThisexpandingambientheatcontributioncomesprimarilyfromChina,followedbytheEuropeanUnionandtheUnitedStates,owingtostrongpolicysupport(investmentgrants,fiscalincentivesandloans)introducedin2021.SinceannouncementoftheREPowerEUplan’sheatpumptargets,theheatpumpindustryhasbeenpreparingtoscaleup,withnearlyEUR5billionofinvestmentsinEUmanufacturingcapacityandlogisticsannouncedfor2023-2026.However,bioenergyremainsthelargestrenewableheatsourceinbuildingsgloballyby2028,accountingforone-fifth(1.1EJ)ofmodernrenewableheatdevelopmentsinthesectorovertheoutlookperiod.Modernbioenergyuseinbuildingsexpandsmostnotablyinsub-SaharanAfrica(+0.5EJ),China(+0.3EJ)andIndia(+0.2EJ),whereimprovedbiomasscookstovesandheatingstovesarereplacingtraditionalusesofbiomass.Infact,thelatterdrops17%(-4.2EJ)globallyduring2023-2028,owingessentiallytourbanisationtrendsandpolicyintervention,drivenpartlybyenvironmentalhealthconsiderationsinChinaandIndia.SustainedsalesofwoodchipandpelletstovesandboilersintheEuropeanUnion,especiallyinItaly,FranceandGermany,contributeslightly(+0.07EJ)tothebioenergyoutlook.However,highinvestmentcostsforautomatedsystems,risingbiomassfuelprices,technicalrequirements(e.g.spaceforfuelstorage)andsupplychaintensionshinderfasterdeployment.In2022,theUnitedStatesandEurope–theworld’slargestwoodpelletconsumer–werealreadyfacingasupplycrunchforwoodpelletsasdemandsurged.Solarthermalheatconsumptioninbuildingsisprojectedtoincreasenearly40%(+0.7EJ)during2023-2028.Despitedomesticmarketcontractionsince2020duetoCovid-19lockdowns(salesdeclined12%year-on-yearin2022),Chinacontinuestodominateglobalsolarthermaldevelopments,beingresponsibleforone-thirdofconsumptiongrowthduringtheoutlookperiod,withmarketdynamismshiftingslightlytowardslarge-scalesegments.TheMiddleEastregion(wherewaterdesalinationapplicationsdrivegrowth)andtheEuropeanUnion(wherecapacityadditionsgrew12%year-on-yearin2022)arethenext-largestsolarthermalmarkets,togethercontributingmorethan40%oftheincreaseinsolarthermalheatuse.Meanwhile,developmentsinthedirectuseofgeothermalheatrepresent6%(0.35EJ)ofprojectedgrowthinrenewableheatconsumptioninbuildingsglobally.China,whichwasresponsibleforalmost90%ofglobaldirectgeothermalheatconsumptionin2022,isanticipatedtocontinueleadinggrowthinsimilarproportions,withprogressoutsideofChinacomingmostlyfromtheEuropeanUnion.PAGE120IEA.CCBY4.0.Renewables2023Chapter3.HeatAnalysisandforecaststo2028Buildingssectorincreasesinrenewableheatconsumptionandsharesinheatdemandbysource,selectedregions,2017-20282500PJ7%Restofworld20002017-2215002023-286%10002017-22MiddleEast2023-285002017-225%02023-282017-224%Sub-SaharanAfrica2023-282017-223%India2023-282%1%UnitedStates0%EuropeanUnionRenewableAmbientBioenergySolarGeothermalChinaelectricityheatthermal(directuse)Shareofbuildingsheatdemandatperiodend(rightaxis)IEA.CCBY4.0.Sources:IEA(2023),WorldEnergyOutlook2023;IEA(2023),GlobalEnergyandClimateModel.DistrictheatingdecarbonisationpotentialremainslargelyuntappedDistrictheatingnetworksmetnearly7%ofglobalheatdemandfromthebuildingsandindustrysectorsin2022.Representingthree-quartersofglobaldistrictheatsupplyweretheworld’stwolargestdistrictheatingmarkets,China(relyingessentiallyoncoal)andRussia(usingmainlygas).Theamountofheatsuppliedbydistrictheatingnetworksisprojectedtoexpand9%(+1.3EJ)globallyduringtheoutlookperiod,withmorethan90%ofthegrowthoccurringinChina.Districtheatingnetworksofferconsiderablepotentialforrenewableheatintegration.Forinstance,renewableenergysourcescanbedeployedindistrictheatingthroughwaste-to-heattechnologyandbiomassco-firing,large-scaleheatpumps,andsolarthermalsystems.ThelatterisgarneringrisinginterestinChinaaswellasinanumberofEuropeancountries,with400-500MWthofprojectsindevelopmentin2023.Inaddition,theloweroperatingtemperatures,integratedthermalstorageandadvancedmetering,controlandoptimisationstrategiesoffourth-andfifth-generationdistrictheatingandcoolingnetworksandlocalambientheatloopscanfurtherfacilitaterenewableenergyintegration.Nevertheless,theshareofrenewablesinglobaldistrictheatingsuppliesisprojectedtoremainstableatjustbelow6%during2023-2028,resultinginlessthan0.2EJofadditionalrenewabledistrictheatconsumption.TheEuropeanUnionshowsthemostpromiseinexpandingrenewabledistrictheatuse,especiallyinthebuildingssector,withnewnetworkdevelopmentsaswellasfuelswitchingandtheintegrationofrenewableenergysourcesinexistingplants.PAGE121IEA.CCBY4.0.Renewables2023Chapter3.HeatAnalysisandforecaststo2028NetZeroEmissionsby2050ScenariotrackingExcludingambientheat,theoutlookforrenewableheatdevelopmentsfor2023-2028hasbeenrevisedup17%fromtheRenewables2022projection,withthebuildingsandindustrysectorscontributinginsimilarproportionstothisrevision.Yet,projectedrenewableheatdevelopmentsby2028arestilllargelyinsufficienttodisplacefossilfuelusesignificantlyandputtheworldontracktomeetParisAgreementambitions.ToalignwithIEANetZeroScenariotargets,globalrenewableheatconsumptionwouldhavetoadvance2.2timesmorequickly,whilewide-scalesufficiency-orientedbehaviouralandsocialchange,6andmuchlargerenergyandmaterialefficiencyimprovements,wouldberequiredtoreduceglobalheatdemandbymorethan2%during2023-2028.Increasesinglobalrenewableheatconsumptionandsharesofrenewablesinheatdemand,2017-2028(left),andglobalcumulativeheat-relatedCO2emissions,2023-2028(right)inIEAoutlookandNetZeroScenario1640%100EJGtCO214901230%801070820%6050640410%3022000%102017-222023-282023-282017-222023-282023-280OutlookNZEOutlookNZEOutlookNZEIndustryBuildingsIndustryBuildingsRenewabledistrictheatGeothermalAgricultureSolarthermalModernuseofbioenergyAmbientheatRenewableelectricityShareofmodernrenewablesatperiodend(rightaxis)IEA.CCBY4.0.Notes:NZE=IEANetZeroEmissionsby2050Scenario.Ambientheatfromheatpumpsusedintheindustrysectorisnotaccountedforduetolimiteddataavailability.Heat-relatedcumulativeCO2emissionsover2023-2028intheoutlookandNetZeroScenariocorrespondrespectivelytoapproximately22%and20%oftheremainingcarbonbudget(RCB)fromthebeginningof2023fora50%likelihoodoflimitingwarmingto1.5°C.ThiscalculationisbasedontheIPCCRCBestimateof500GtCO2fromthebeginningof2020untilthetimeofnetzeroglobalemissions,consideringcumulativeglobalCO2emissionsof112GtCO2over2020-2022.Pleasenotethatthesevaluesdependonnon-CO2greenhousegasmitigationstrategiesandaresubjecttouncertainty.Sources:IEA(2023),WorldEnergyOutlook2023;IEA(2023),GlobalEnergyandClimateModel.6Sufficiencycorrespondstothetailoringandscalingofinfrastructure,technologychoicesandbehaviourstofundamentalIEA.CCBY4.0.needswhileselectivelyavoidingnonessentialresource-intensiveservicesandconsumptionpatternstoavoiddemandforenergy,materials,landandwater.Energysufficiencypoliciesandactionsaimtoallowaffordableaccesstoenergytomeeteveryone’sneedsandfairaccesstomeettheirenergywants,whilekeepingtheimpactsofenergyusewithinplanetaryboundaries.PAGE122Renewables2023Chapter3.HeatAnalysisandforecaststo2028IntheIEANetZeroScenario,industrialconsumptionofbioenergyandrenewableelectricityforheatbothincrease2.3timesfasterthaninouroutlook,resultinginthelargestdiscrepancyinabsolutevaluebetweenthetwotrajectories.Meanwhile,solarthermalandgeothermalheatconsumptioninindustryintheNetZeroScenarioexpandsalmost20timesfasterthancurrentlyprojected.Forthebuildingssector,theNetZeroScenariooutlinesasubstantial21%reductioninheatdemandduring2023-2028andreliesonmuchstronger(4.4timesfaster)modernbioenergydevelopment,mostlytoreplacethetraditionaluseofbiomass,whichisassumedtodecline70%(-17EJ).FasterheatpumpdeploymentintheNetZeroScenarioalsopromptsrenewableelectricityuseandambientheatconsumptiontoincreasemorethan40%morequicklythaninouroutlook.Meetingthescenario’strajectorywouldrequirethatheatpumpsmakeupnearly40%ofglobalheatingequipmentsalesby2028–morethandoubleourcurrentoutlookamount,andfourtimesmorethanin2022.Meanwhile,annualsolarthermalheatconsumptionexpandstwiceasquicklyintheNetZeroScenarioasinouroutlook.Inthescenario,theserenewableenergydevelopmentsinthebuildingssectorarepartlystimulatedbyaglobalbanonsalesofnewfossilfuel-firedboilersin2025.Finally,whiletheamountofheatsuppliedbydistrictnetworksisassumedtodeclineslightlyasbuildingstockefficiencyincreases,theshareofrenewablesindistrictheatsuppliesisassumedtoexceed8%by2028.Overall,theshareofrenewablesinheatconsumptionrisesto22%inindustryand34%inbuildingsby2028intheNetZeroScenario,whilecumulativeheat-relatedCO2emissionsover2023-2028are8%lowerthaninouroutlook.Technology,marketandpolicytrendsPolicyGovernmentsareraisingrenewableheattargetsAttheendof2022,46countrieshadarenewableenergytargetforheatingandcooling,with3aimingfor100%renewables.MostofthesecountriesareEUmembers,astheblocupdateditsenergypolicyframeworkssignificantlyin2023inresponsetotheenergycrisis.Buildingonthe2022REPowerEUplan,inSeptember2023theEuropeanParliamentapprovedtherevisedRenewableEnergyDirective(REDIII),whichhadbeenproposedintheFit-for-55packageadoptedbytheEuropeanCommissionin2021.Thereviseddirectiveincludesanewbindingtargetof42.5%renewableenergyinEurope’senergymixby2030,withanindicativecommitmentPAGE123IEA.CCBY4.0.Renewables2023Chapter3.HeatAnalysisandforecaststo2028of45%.Targetsforheatingandcoolinghavebeenrevisedupwardswithbindingrenewableshareincreasesofatleast0.8percentagepointsperyearatthenationalleveluntil2026and1.1%from2026to2030,complementedbyindicativecountry-specifictop-upratestoreachanaverageannualincreaseof1.8percentagepointsattheEUlevel.Thereviseddirectivealsoincludesindicativetargetsofatleast49%renewableenergyinthebuildingssectorby2030aswellas1.6-percentage-pointaverageannualincreasesintheshareofrenewablesintheindustrysectorfor2021-2025and2026-2030,and2.2-percentage-pointaverageannualincreasesduring2021-2030fordistrictheatingandcooling.Inaddition,memberstatesagreedthat42%ofthehydrogenusedinindustryshouldcomefromrenewablefuelsofnonbiologicaloriginby2030.Furthermore,REDIIIstrengthensthesustainabilitycriteriaforusingbiomassforenergyinlinewiththeprincipleofcascadinguseofbiomass,withafocusonadaptingsupportschemestolimittheuseofprimarywoodforenergy.MembercountriesareexpectedtosubmittheirdraftactionplanstoconformwiththeupdateddirectivebyJune2024.TheEuropeanUnionalsostrengtheneditsEnergyEfficiencyDirectivein2023,addinganewbindingtargettoreducefinalenergyconsumptionbyatleast11.7%comparedwiththereferencescenarioby2030.Accordingly,membercountrieswillberequiredtoachieveaverageannualenergysavingsof1.49%from2024to2030,upfromthe2021-2023requirementof0.8%.7Additionally,therevisedEnergyEfficiencyDirectiveextendstheannual3%buildingrenovationobligationtoallpublicbuildings,withtheseenergysavingtargetsandrenovationobligationsalsoexpectedtostimulateheatpumpdeployment.Chinaalsoimplementednewtargetsin2022withenforcementofits14thFive-YearPlanforBuildingEnergyConservationandGreenBuildingDevelopment,whichintroducesthecountry’sfirstbindingnationalenergy-efficiencystandard.Theplan,whichappliestonewbuildings,stipulatesthatonsiterenewablesmeet8%ofenergydemandinbuildingsinurbanareas,andthattheshareofelectricityinbuildingssectorenergydemandexceed55%by2025.Italsoaimsforgeothermalheattocover100millionsquaremetresoffloorspace.Inaddition,thecountry’s2022WorkPlanonEnergySavingandEnvironmentProtectioninGovernmentandPublicBuildingsrequiresthatnewheatpumpinstallationsmeettheheatingneedsof2millionsquaremetresofpublicbuildingfloorspace.7Annualenergysavingsrequirementsformemberstateswillincreasegraduallyto1.3%over2024-2025,1.5%over2026-IEA.CCBY4.0.2027and1.9%for2028onwards,resultingin1.49%averageannualenergysavingsfrom2024to2030.PAGE124Renewables2023Chapter3.HeatAnalysisandforecaststo2028FinancialincentivesandfossilfuelbansareincreasinglysupportingrenewableheatuptakeTherecentsurgeinheatpumpsaleswasdrivennotonlybyamorefavourablegas-to-electricitypriceratioinmanyregionsandtheanticipationthatgaspriceswouldremainhigh,butalsonotablybytheimplementationofstrongfinancialincentives(i.e.grants,taxrebatesandlow-interestloans).Suchincentivesarecurrentlyavailableinmorethan30countriesworldwide,coveringmorethan70%ofglobalheatingdemandforbuildings.Manyoftheseincentiveswereintroducedorstrengthenedin2022.Globalcoverageoffinancialsupportschemesforheatpumps,2022Shareofglobalresidentialheat80%35demand70%60%30IEA.CCBY4.0.50%40%25Shareofglobalresidentialspace30%heatingdemandcoveredby20%20financialincentivesforheatpumps10%Numberofcountries(rightaxis)150%IEA.CCBY4.0.Grants1050IncometaxLow-interestVATrebaterebatesloansSource:IEA(2023),TheFutureofHeatPumps.Sincethebeginningof2023,subsidylevelsforheatpumpsandrenewables-basedheatingsystemshavebeenincreasedinAustria,Ireland,PolandandtheUnitedStates.InEurope,withsalestotallingnearly3millionunitsin2022,theheatpumpsectorbenefitedfrommorethanEUR9billioninpolicysupportthroughsubsidies,taxcreditsandreducedVAT,inadditiontospecificloanschemes.8Assumingsupportschemesremainunchanged,andconsideringprojectedheatpumpdeployment,thisvaluecouldmorethandoubleby2028.Intheinterestofequitability,manyofthesupportschemesavailabletohouseholdsaredesignedtooffergreatersupporttolow-incomegroups.One-stop-shoppolicyapproachesareparticularlyimportanttohelpmakethemosteffectiveuseof8Thisestimatedoesnotaccountforpolicysupportprovidedforbuildingretrofitsandthereplacementofradiatorsandheatdistributionsystems,althoughsuchupgradesalsobenefittheheatpumpsectorindirectlybyimprovingbuildingcompatibilitywiththistechnology.PAGE125Renewables2023Chapter3.HeatAnalysisandforecaststo2028supportbybuildingtrustwithendusers,helpingthemselectthemostappropriaterenewableheattechnologyanddesignfortheirpurpose,financingtheinstallationandensuringitsquality.EstimatedgovernmentsupportintheformofsubsidiesandfiscalincentivesforheatpumpsinselectedEuropeancountries,2022BillionEUR76OtherEuropeancountries5Finland4UnitedKingdom3Poland2Germany1France0ItalyInvestmentgrantsVATreductionsTaxrebates/creditsIEA.CCBY4.0.Notes:“OtherEuropeancountries”includesAustria,Belgium,Switzerland,Czechia,Spain,Hungary,Ireland,Lithuania,theNetherlands,Norway,Portugal,SwedenandSlovakia.Governmentspendingestimatesarebasedonnationalheatpumpsalesin2022bytechnologyandsegment(asperEHPA)andthedesignofavailablenationalsupportschemes,assumingtypicalinvestmentcostswhennecessary.Althoughnotaccountedforhere,variouscountriesalsooffersupportintheformoflow-interestloans(e.g.theNetherlands,Poland).Regulatorymeasuressuchasrenewableheatobligationsandfossilfuelbansarealsodevelopinginthebuildingssector,predominantlyinEuropeandNorthAmerica.Infact,17Europeancountrieshadimplementedorannouncedbansonfossilfuel-firedboilerinstallationsbytheendof2022.Somebanstargetinstallationsinnewbuildingsonly,whileothersalsocoverreplacementsinexistingbuildings.Forinstance,France’snewbuildingcodeintroducedanationalbanongasboilersinnewsingle-familyhomesstartingin2022andinnewmultifamilybuildingsfrom2025,whilearecentdecreelimitingtheCO2intensityofheatingsystemsimplicitlybannedtheinstallationofoil-andcoal-firedboilersinbothnewandexistingbuildingsasof2022.In2023,Germanyannounceda65%renewableheatobligationfornewbuildingsinnewhousingdevelopmentareasfrom2024,effectivelyrulingouttheuseofstandalonefossilfuel-basedboilersinthoseareas.FossilfuelboilerbansarealsogainingmomentumintheUnitedStatesandCanada,althoughtheyarebeingpassedatonlytheregional,stateormunicipallevel(e.g.NewYorkState,Boston,SanFrancisco,Montreal).Suchexplicitorde-factofossilfuelbansandrenewableheatobligationsinthebuildingsandindustrysectorsarepivotaltoacceleratetheconversiontorenewableheatwhilelimitingpublicspendingbymobilisingend-userfunds.PAGE126IEA.CCBY4.0.Renewables2023Chapter3.HeatAnalysisandforecaststo2028Intheindustrysector,however,renewableheatregulationsremainscarce:in2022,only9countrieshadrenewableenergymandatesinplaceforindustryandjust12hadmaderenewableenergyfinancialsupportavailableforthesector.InDecember2022,IndiaamendeditsEnergyConservationActtoprovideforacarboncredittradingscheme.Italsoempoweredthecentralgovernmenttorequiredesignatedconsumers(e.g.themining,steel,cement,textileandchemicalindustries)tosourceaminimumshareoftheirenergyconsumptionfromnon-fossilfuels.IndustrialpoliciesareincreasinglypartofrenewableenergystrategiesWhilemanyrenewableheatpoliciessupportrenewableenergyadoptiononthedemandside,supplychainstrengtheningandmanufacturingcapacityscaleuparealsonecessarytoacceleraterenewableheatuptake.Industrialpoliciesarethereforebecomingessentialcomponentsofrenewableenergystrategiesinsomeregions,astheygenerallyaimtofacilitatepermittingformanufacturingprojects,incentiviseinvestmentandsupporttrainingprogrammesfortechnologydesigners,workersandinstallers.InNovember2022,forinstance,theUnitedStatesannouncedaUSD250-millioninvestmenttoboostdomesticelectricheatpumpmanufacturing,fundedbytheInflationReductionActandleveragingtheDefenseProductionAct.Morerecently,followingthelaunchoftheGreenDealIndustrialPlaninFebruary2023,theEuropeanCommissionproposedtheNet-ZeroIndustryAct(NZIA)inMarchtoincreaseEuropeanmanufacturingcapacitybyfacilitatinginvestmentanddevelopingdedicatedtrainingprogrammesforlow-carbontechnologies,includingheatpumps9andgeothermalandsolarthermaltechnologies.SolarPVcouldbecomeacompetitiverenewableenergyoptionforwaterheatingThetenfolddropinsolarPVmodulecostssince2010hasmadesolarphotovoltaicelectricityaviableenergysourceforwaterheatingapplications.HotwatersystemsusingPV-derivedelectricitycanconsistsimplyofaDC-poweredresistanceheaterinsideahotwatertankconnectedtodedicatedsolarPVpanels(withouttheneedforaninverter).Forbackup,anAC-poweredelementconnectedtothegridcanalsobeinsertedintothetankfortimeswhensolarresourcesareinsufficient.9TheNZIAtargets31GWofannualEUheatpumpmanufacturingcapacityby2030,upfromanestimated22GWin2022.IEA.CCBY4.0.PAGE127Renewables2023Chapter3.HeatAnalysisandforecaststo2028ThesesystemsaregenerallyreferredtoasPV2heat.Amoreadvancedformofthissystemcanintegrateanelectroniccontrolsystem(knownasasolardiverter10)thatredirectsexcessgenerationfromanon-dedicateddomesticsolarPVsystemtoanelectricimmersionwaterheateroranelectricheatpumpwaterheaterforself-consumption.Comparedwithtraditionalsolarthermalinstallations,PV-basedwaterheatingsystemsarerelativelysimpletoinstall,requiringmostlywiringinsteadofinsulatedpipes.Infact,commercialpackagessuchasplug-and-playanddo-it-yourselfkitsarealreadyavailableinsomemarkets.ThesePV-basedhotwatersystemsalsohavelowsensitivitytoexternaltemperaturesand,thankstotheabsenceofmovingparts,requireverylimitedmaintenanceandhavearelativelylonglifetime(solardiverterscanlastmorethan10years,andPVmodulesmorethan25).However,whiletheyoffermoreflexibilitytoinstallthehotwatertankfurtherfromthecollectorswithminimalenergylosses,PV-basedsystemsrequirenearlythreetimesmorecollectorareathantraditionalsolarthermalsystemsforequivalentheatoutput,unlesstheyuseaheatpump.AsPV-basedwaterheatingsystemsarestillrelativelynewtothemarket,researchisongoingtoassesstheenvironmental,socialandeconomicbenefitsassociatedwiththeirdeployment.Ascommercialsolutionshavesimilarinvestmentcostsastraditionalsolarthermalwaterheatersinsomemarkets,verylowoperatingandmaintenancecosts,andarelativelylonglifetime,PV-basedwaterheatinghasthepotentialtobecomecost-competitivewithexistingsanitaryhotwatertechnologies(includingheatpumpsandgasboilers)inmanyregions.FornewPV-basedsystems,installationmakesupalargeportionofthetotalcost,butthisexpensecouldbereducedthroughequipmentstandardisationandthedevelopmentofplug-insolutions.Furthermore,policyschemesforself-consumptionandnetmeteringcansignificantlyinfluencethedesign,sizingandeconomicattractivenessofnewPV-basedwaterheatingsystems.Forinstance,theabsenceofnet-meteringschemesmaysteerconsumerstowardssmallersolarPVinstallationsorlargerhotwaterstoragetomaximiseself-consumption,whilenet-meteringschemesandremunerationforexcessgenerationwouldincentiviselargerPVinstallations,potentiallycoveringagreaterfractionofbothspaceandwaterheatingandelectricitydemand(ifexcessgenerationisremuneratedatalowerratethantheretailelectricityprice).10SolarpowerdivertersaresometimesalsoreferredtoassolarPVoptimisers,immersiondiverters,orimmersionIEA.CCBY4.0.optimisers.TheircostistypicallyintherangeofEUR300-500,andtheycanbeaddedtoexistingsolarPVinstallations.PAGE128Renewables2023Chapter3.HeatAnalysisandforecaststo2028Levelisedcostofheatforsmallsanitaryhotwatersystemsinselectedcountries,2022500450400350300250200150100500LCOH(EUR/MWh)FranceItalyGermanyUnitedKingdomFranceItalyGermanyUnitedKingdomFranceItalyGermanyUnitedKingdomFranceItalyGermanyUnitedKingdom(estimate)SolarthermalwaterElectricheatpumpCondensinggasboilerElectricresistancePV-basedwaterheaterwithelectricwaterheater(standalone)waterheaterheatingwith(standalone)(standalone)electricboilerheaterbackupIEA.CCBY4.0.Notes:LCOH=levelisedcostofheat.Calculationsarebasedonnationalaveragehouseholdgasandelectricitypricesfor2022.Insolationvaluesareforcapitalcities(Paris,Rome,BerlinandLondon).Investmentcostscorrespondtohouseholdsystemsfor3-4people,basedontypicalmarketpricesandexcludingpolicysupport.ForbothsolarthermalandsolarPV-basedsystems,thesolarfractionisassumedtocover50%ofannualsanitaryhotwaterdemand.ThesolarPVcollectorareaisassumedtobesizedaccordingly(2to4modulesof400Wpdependingonthecountry).Thecalculationassumesaseasonalperformancefactorof2.8forheatpumpwaterheaters.Thelevelisedcostofheatingiscalculatedbasedonnationalaveragehouseholdhotwaterdemandovertheassumedlifetimeofeachtechnology(17-30yearsforsolarthermalwaterheaters;20-26yearsforPV2heatsystems,assumingreplacementofthebackupelectricboilerandpowerdiverterafter12years;14-20yearsforstandaloneheatpumpwaterheaters;12-17yearsforstandalonecondensinggasboilers;and9-14yearsforstandaloneelectricwaterheaters).Adiscountrateof2%isapplied.Forthesakeofsimplicity,thiscalculationassumesneithernetmeteringnorremunerationforexcesssolarPVgeneration,althoughsuchschemescouldsignificantlyimprovetheeconomiccaseofsolarPV-basedsystems.TheLCOHrangecalculatedforsolarPV-basedsystemsreflectsapreliminarytheoreticalestimateforthefourcountriesshowninthefigure.Actualvaluescanbesignificantlyinfluencedbyhotwaterconsumptionprofiles,waterstoragecapacityand,whentheyareused,bythecontrolandoptimisationstrategiesofsolardiverters.Inlargeresidentialheatmarkets,however,waterheatingrepresentsarelativelysmallfractionofahousehold’senergybill,andtheeconomicsavingsthatcanpotentiallybeachieved–sometimesonlyafterarelativelylongpaybackperiod–maynotsufficetostimulateconsumerstoswitchtorenewables-basedwaterheatingtechnologies.Informationandawareness-raisingcampaigns,trainingprogrammesforinstallerstobuildlocalexpertise,andthedevelopmentofequipmentcertificationsystemswillthereforealsobekeytoharnesstheenvironmentalandenergysecuritybenefitsofPV-basedwaterheating.ThermalenergystorageprovidedbyhotwatertankshelpsintegraterenewableenergyWaterheatingtechnologieswithbuilt-inorassociatedhotwatertanks,suchasPV-basedsystems,alsoaddvaluefromanenergysystemperspective.Representingabout13%oftotalenergydemandinbuildingsglobally,sanitaryhotwaterpreparationofferssignificantpotentialfordemand-sideflexibilitythankstothestoragecapacityofhotwatertanks.In2022,totalutility-scaleenergystoragePAGE129IEA.CCBY4.0.Renewables2023Chapter3.HeatAnalysisandforecaststo2028intheEuropeanUnionwasestimatedatroughly9GWh–lessthantheusableheatstoredinjustonemillionmedium-sizedhotwatertanks.11Thecostofusinghotwatertanksforstorageisanorderofmagnitudebelowthatoflithiumbatteries,andthecriticalmineralrequirementsarelowincomparison.Suchdistributedthermalstorageunits,alreadyinstalledinmanydwellings,couldalsobedeployedmorewidelywithnewwaterheatingsystemstofacilitateVREintegrationconsiderably.11Assumingthetankshaveacapacityof180litres,andconsideringtheenergyrequiredtoraisethewatertemperaturefromIEA.CCBY4.0.15°Cto60°C.Forcomparison,therewere198millionhouseholdsintheEuropeanUnionin2022.PAGE130Renewables2023Specialsection:BiogasandbiomethaneAnalysisandforecaststo2028Specialsection:BiogasandbiomethaneIntroductionIEA.CCBY4.0.ForthefirsttimeintheIEA’srenewableenergymarketreportseries,wearededicatingaspecialsectiontobiogas.Biogasproductionbegantogrowinthe1990sandhasbeenrisingsincethen,butpolicysupporthassurgedstronglyinthelasttwoyearsowingtoacombinationoffactors.First,withenergysecurityconcernscausedbyRussia’sinvasionofUkraineandthesubsequentenergycrisis,biogasisnowregardedasadomesticenergysourcethatcanreducedependencyonnaturalgasimportsandsupportenergysecurityinmanycountries.Second,inviewoftheurgentneedtolimitglobaltemperatureriseto1.5°C,countrieshavebeguntoviewbiogasasaready-to-usetechnologythatcanhelpacceleratedecarbonisationintheshortterm,andtheyarethereforedevelopingspecificpoliciesthatincludebiogasasakeycomponentintheirenergytransitionstrategies.Alongwithtargetedpolicies,marketconditionsarestimulatingbiogasuse.Whilecombinedheatandpowerunitsgenerallyrunonbiogas,othergasdemandmarkets(e.g.gasutilities,andtheindustryandtransportsectors)willrequiretheuseofbiomethane,apurifiedbiogaswithhighconcentrationsofmethane,similarinqualitytonaturalgasandthusinterchangeablewithit.Biomethaneisalsoknownasrenewablenaturalgas(RNG)intheUnitedStatesandCanada,bio-compressednaturalgasorcompressedbiogas(bio-CNGorCBG)inIndiaandbio-naturalgas(BNG)inChina.Apartfrombeingacleandomesticenergysource,biogases(biogasandbiomethane)provideotherbenefits.Forinstance,biomethanecanbeusedtodecarbonisehard-to-electrifysectorssuchastransportandindustry.BothbiogasandbiomethaneusereducesnotonlyCO2emissionsfromfossilfuelcombustionbutalso,whencorrectlymanaged,methaneemissionsfromthewasteandagriculture/livestocksectors(responsiblefor60%ofanthropogenicglobalmethaneemissions).ThisadvantagealignswellwiththeemissionsreductionobjectivesoftheGlobalMethanePledgelaunchedin2021andsignedby155countries(asofJanuary2024).Thus,usingbiogasandbiomethanehelpsbuildacirculareconomyaroundresidueandwastevalorisation,contributestoruraleconomicdevelopmentandcreatesPAGE131Renewables2023Specialsection:BiogasandbiomethaneAnalysisandforecaststo2028employment.Plus,producingnaturalfertilisersasacoproductofbiogasandbiomethaneproductioncanaugmentfarmers’incomeandhelpre-establishsoilhealthbyeliminatingcertainenvironmentalimpactsrelatedtountreatedmanureuse.Biogascanalsobeusedforcleancookingindevelopingcountries.BiogastodayCombinedglobalbiogasandbiomethaneproductionreachedmorethan1.6EJin2022–a17%increasefrom2017.AlmosthalfoftheproductionisbasedinEurope,withGermanyalonemeetingalmost20%ofglobalconsumption.Another21%isproducedinChina,followedbytheUnitedStates(12%)andIndia(9%).However,regionalandcountryvariationscanbesignificant.Dependingonthecharacteristicsofeachenergysystem,biogas/biomethanedevelopmentissupporteddifferentlybydifferentgovernmentstocomplementtherestoftheirenergymatrix.Mainusesofbiogasesforselectedcountriesandregions,2021800PJ/y700IEA.CCBY4.0.6005004003002001000ChinaUnitedStatesandIndiaOthersCanadaEuropeanUnionandUnitedKingdomResidential,commercialandpublicserviceuseBiogasinjectedintonaturalgasgridIndustryuseAgriculture/forestryuseRoadtransportElectricityandheatIEA.CCBY4.0.InChina,householddigestersweredevelopedsomedecadesagotoprovidecleanenergyforcookingandresidentialuseinruralareas(accountingforaround300000TJ/yearofbiogasproduction).Impressively,thankstoinvestmentsupportfromtheChineseRuralHouseholdBiogasStateDebtProjectbeginningin2003,almost42millionhouseholddigestershadbeeninstalledby2015.In2015,however,governmentpolicyshiftedtowardsengineeredplantsforcombinedheatandpowergeneration,withcapitalaidandfeed-intariffsbeingoffered.Morerecently,since2019theChinesegovernmenthasbeensteeringabiogasindustrytransition,investinginlarge-scale(>10mcm/year)bio-naturalgas(BNG,biomethane)projects.TheseplantswoulduseruralandurbanwastefeedstocksPAGE132Renewables2023Specialsection:BiogasandbiomethaneAnalysisandforecaststo2028inanintegratedmannertoproduceelectricityandgastoinjectintothegrid.TheGuidingOpinionsonPromotingtheIndustrialisationofBNGfrom2019setambitioustargets(10bcmby2025and20bcmby2030).Althoughproductionexpandedmoreslowlythanplannedduring2010-2020,newregulationssupportingbiogasdeploymenthavecomeintoforceinthelasttwoyears.Forinstance,China’s14thFive-YearPlanforRenewableEnergyDevelopment(2021-2025)focusesonlarge-scaleprojectsforgridinjectiontodiversifyapplications,withsubsidiesstillunderdiscussion.Anewnationalstandardforplantconstructionwasreleasedin2022.WhilemostofChina’sbiogas/biomethaneisproducedfrommanure,thereisgrowinginterestinusinglargeruralfacilitiestoalsoincorporateurbanorganicwasteasfeedstock.Indiaalsohasconsiderablesmall-scalehouseholdbiogasproductioninruralareaslackinggridaccess,withbiogasbeinganimportantenergysourceforcleancookingandlighting.ThroughitsOneNationOneGasGridprogramme,Indiaplanstoenlargetheroleofnaturalgasinitseconomybyinvestinginnewgasinfrastructure,aimingtoraisetheshareofnaturalgasintheenergysectorto15%by2030(from6.2%in2022).Indiahasrecentlyannouncedablendingmandateof5%biomethaneincompressednaturalgas(CNG)fortransportandinpipednaturalgasfordomesticusefrom2028,growingeachyearfrom1%inFY2025-2026.TheSustainableAlternativeTowardsAffordableTransportation(SATAT)programme,launchedin2018,hasveryambitiousgoalsforproducingbiomethanefortransportandindustrialfuels.CBGisdeliveredinpressurisedcylinderscalledcascadesinIndia.India’salready-extensiveandgrowingfleetofgas-poweredbuses,trucksandlight-dutyvehicles(12%ofpassengervehiclesin2023),includingtaxisandrickshaws,couldbenefitfromSATATprogrammesupportforCBGproduction,asitwillofferanotherfueltochoosefrom,atagovernment-controlledpriceandwithasmallercarbonfootprint.Meanwhile,otherschemessuchasthe2022NationalBiogasProgrammecovertheuseofbiogasforpowerandthermalenergygeneration.Thispolicyprovidefinancialaid,fixedfeed-intariffsandtaxexemptionsforbioCNG,takingintoaccounttheparticularitiesofruralandremoteareas.Indiahasgreatfeedstockpotential,intheformofagriculturalresidues,manure,municipalorganicwasteandsewagesludge.However,feedstocksupplychains(e.g.forwastecollectionorurbanwastewatertreatment)willrequirefurtherdevelopment.Ontheotherhand,Europehasamaturebiogasandbiomethaneindustrywithgrowingmarkets.InEuropeancountrieswithadevelopedindustry,governmentsareseekingtoencouragecostreductionsandmorecompetitivebusinessmodelsthatrelylessonpublicsupportandmoreonmarketrevenues,forinstancecleanenergycertificatetradingorGuaranteeofOriginschemes.PAGE133IEA.CCBY4.0.Renewables2023Specialsection:BiogasandbiomethaneAnalysisandforecaststo2028Traditionally,biogashasbeenpromotedforpowergenerationatcombinedheatandpowerplants.However,withaccesstocompetitiverenewableelectricitygrowing,governmentsareexploringwaystoapplybiomethaneflexibilitytoindustrialandtransportuses,eitherdirectlyorthroughgasgridinjection.WhiletheGermangovernmentstillprovidessupportforbiogas-firedelectricityproduction,asbiogasisconsideredcriticaltobalanceelectricitynetworksinthesouthofthecountry,theUnitedKingdomincentivisesbothelectricitygenerationandgridinjection.France,whichhasamoredecarbonisedelectricitygenerationmix,haslongexperience(since2001)insupportinggridinjectionofbiomethaneevenfromsmall,ruralfarm-sizedplants–through,amongothermeans,planningandfacilitatinggridconnectionsunderthe2019RighttoInjectiondecree.TSOs/DSOspartlysubsidisegridconnectionsinGermany(75%)andFrance(60%).Meanwhile,biomethaneuseasavehiclefuelstillclaimsonlyasmallshareofbiomethaneproduction(20%in2021),butgrowthisacceleratinginmanyEuropeanstates.Manycountriesalreadyhavelargecompressednaturalgas(CNG)andliquifiednaturalgas(LNG)vehiclefleets,andthenumberofCNG/LNG-specificfillingstationsinthebeginningof2023wasconsiderableinItaly(over1500),Germany(over760),Sweden,FranceandCzechia(over200),andisgrowingquickly.Currently,biomethanemakesuparound20%ofgasconsumedbygas-fuelledvehicles.InEurope,biomethaneproducedfromorganicresiduesandwasteisconsideredanadvancedbiofueltocomplywithspecificEUREDIIrenewablefuelquotas,anddemandforitisrising.Furthermore,advancedbiofuelsalsocountdoubleinthegeneralrenewabletransportquota.WhileenergycropshavesupportednotablebiogasproductiongrowthinGermanyoverthelast10years,policiesnowfavourmoresustainablefeedstockssuchaswasteandresidues.Asaresult,cornandcerealgrainsarelimitedtoonly40%offeedstockuseinbiogasproduction.OthercountriessuchasFrancehaveforbiddentheuseofenergycropsforbiogasproduction,andalotarenowencouragingtheuseofanimalmanure,usuallybyofferingtariffpremiums(e.g.GermanyandFrance).Atthesametime,manycountriesareproducinglessbiomethanefromlandfillgas(UKproductiondroppedfrom84%in2010to38%in2022),duepartiallytothe2018/850EULandfillWasteDirectiveandtheWasteandResourcesStrategyforEnglandthatbanorganicmaterialinmunicipalsolidwastegoingtolandfillsby2030.However,theorganicfractionofmunicipalsolidwastethatcontributestolandfillgas,whencollectedseparately,isstillavalidfeedstocksourceforbiogasplants.Additionally,EUDirective2018/851mandatestheseparatecollectionofbiowastestartingin2024.Moreover,thenewproposedEUUrbanWastewaterTreatmentDirectivewillpushfortreatmentplantstobecomeenergy-neutral,andagoodwaytoachievethisistoproducebiogasfromsewagesludge.PAGE134IEA.CCBY4.0.Renewables2023Specialsection:BiogasandbiomethaneAnalysisandforecaststo2028Combinedbiogasandbiomethanefeedstockshares(left)andfinalend-useshares(right)inselectedEuropeancountries,2021%energybasis100%100%80%80%60%60%40%40%20%20%0%0%AgriculturalfeedstocksSewagesludgeElectricityCHPIndustryLandfillgasIndustrialresiduesTransportResidentialuseGridinjectionOrganicMSWOthersOthersIEA.CCBY4.0.Notes:MSW=municipalsolidwaste.CHP=combinedheatandpower.“Agriculturalfeedstocks”includescropandplantresidues,animalmanure,sequentialcropsandenergycrops.Sources:IEAanalysisbasedonEBAandIEAdataIntheUnitedStates,biomethanedevelopmenthashistoricallybeendrivenbythetransportsectorandsupportschemessuchastheRenewableFuelStandard(RFS)andCalifornia’sLowCarbonFuelsStandard(LCFS)applicabletofuelssoldinCalifornia.TherecentRFSSetRule,releasedinJune2023,establishedspecificannualvolumeobligationsforRNGforthreeyears(2023-2025)thathavetobefulfilledbyfuelretailersbyeitherproducingrenewablefuelsorbuyingtradableRenewableIdentificationNumbers(RINs)fromproducers.RINcreditvaluesvaryinthemarket,andtherearespecificvolumeobligationsforeachrenewablefuelcategory,withbiomethanebeingincludedintheD5(advancedbiofuel)orD3(cellulosicbiofuel)categories.Theinclusionofanewpathwayforbiogas-basedelectricityusedinelectricvehiclesisunderdiscussion.InadditiontoCalifornia,otherstateshavedevelopedtheirownsupportschemes,suchasWashington’sCleanFuelStandardandOregon’sCleanFuelsProgram,toofferadditionalsourcesofincomeforRNGsoldinthestate.TheUnitedStatesiscurrentlytheworld’slargestuserofbiomethanefortransportation(almost1.4bcmin2021),witha48%shareofbiomethaneingaseoustransportfuels(98%inCalifornia).NewpoliciessuchastheInflationReductionAct(IRA),signedinAugust2022,provideextensivefederalsupportfordifferentapplications,forinstancethroughproductiontaxcreditsfornewbiomassgasandlandfillgasfacilitiesproducingrenewableelectricity;investmenttaxcreditsforbiogasupgradingequipmentandqualifiedbiogasproperty;andahydrogentaxcreditthatincludesbiogasasafeedstockforhydrogenproduction.Anotherprogrammethatsupportsnon-PAGE135IEA.CCBY4.0.Renewables2023Specialsection:BiogasandbiomethaneAnalysisandforecaststo2028transportusesofRNGisCalifornia’sRNGProcurementProgram(February2022),whichaimstodivertorganicwastefromlandfills,withthefinalgoalofreducingmethaneemissionsintotheatmosphere.IntheUnitedStates,theprimaryfeedstockforbiogasandbiomethaneproductionhasbeenlandfillgas(72%ofbiomethaneproductionin2021),thelowest-costsourceforbiogas.Inthecountrywiththelowestnaturalgascosts,otherfeedstockshavetraditionallybeenexpensive.Nevertheless,newfacilitiesarenowusingmostlyagriculturalandanimalwastesowingtostrongincentivestousefarm-basedfeedstocks,especiallyinCalifornia.Infact,Californiaisnowallocatingultra-lowcarbonintensitystatustodairyindustryprojectsbecauseoftheirmuchlowerlivestockmethaneemissions,andtoswinefarmsaswell.TheshareofanimalmanureinRNGproductioninCaliforniaevolvedfrom18%inQ12021to50%inQ22023.Althoughbiomethaneproductioncostsareusuallyhigherthanfornaturalgas,itisnotsubjecttothepricevolatilitythatnaturalgassuffersfrom,andduringtheenergycrisisitwasvaluedatalowerpriceinEuropeandAsia.Monetisingclimatebenefitsthroughacarbontaxonfossilfuelscanhelpclosethepricegapbetweenbiomethaneandnaturalgas.Thecostofproducingbiomethanevariesdependingonthefeedstock,productionscaleandoperatingcosts.ForamatureindustrysectorsuchasEurope’s,costsareestimatedatEUR55-90/MWh(USD17-28/MBtu).InjectioncostscanaddanotherEUR3-4/MWh,andliquefactionanadditionalEUR12/MWh.Meanwhile,applyingaCO2costofEUR90/ttofossilfuelscouldincreasethenaturalgaspricebyaroundEUR18/MWh(USD6/MBtu).Biomethaneproductioncostsandnaturalgasprices,2020-202370USD/MBtu60IEA.CCBY4.0.5040Biomethanecostrange3020100HenryHub-UnitedStatesTTF-EuropeJKM-AsiaLNGspotpriceIEA.CCBY4.0.Sources:IEAanalysisbasedonCedigaz.andIEAdata.PAGE136Renewables2023Specialsection:BiogasandbiomethaneAnalysisandforecaststo2028BiogasandbiomethaneforecastComparedwith2017-2022,globalbiogasproductiongrowthisexpectedtoaccelerateover2023-2028thankstotheintroductionofimpactfulnewpoliciesinmorethan13countriesin2022-2023.ThemostgrowthwillbeinEuropeandNorthAmerica,owingpartiallytoestablishedinfrastructureandexperience,anddrivenbypreviouspoliciesthatmakerapiddeploymentinafive-yeartermpossible.ChinaandIndiaalsohaveambitiousexpansionplans,buttheirlackofinfrastructurelimitsgrowthinthenextfiveyears.However,sincebothcountrieshaveconsiderablebiogasproductionpotential,risingenergydemandandambitiousdecarbonisationgoals,theywillbereadyforacceleratedgrowthbeyond2028.Globalhistoricalandforecastproductionofbiogases,2010-20282500200015001000500PJ/yForecastEuropeanUnionandUnitedKingdomUnitedStatesChinaIndiaRestofworldIEA.CCBY4.0.IEA.CCBY4.0.InEurope,electricitygenerationhasbeenthemainimpetusforbiogasexpansionforthelasttwodecades,butrecentpoliciespromotediversificationofbiogasuses,utilisingbiomethane.Thus,themajorityofgrowthinbiogasesinEuropeovertheforecastperiodisexpectedtocomefrombiomethane,frombothnewplantsandupgradedexistingbiogasplants.InsomemajormarketssuchasGermany,transportistheendusethatprovidesthemostrevenueforbiomethaneproducerswhobenefitfromclean-fuelcertificatesforrenewablefuelquotas.Itisalsoastronggrowthdriverincountriesthatalreadyhavegasvehiclefleetsandfillingstations.Inaddition,theEuropeanUnionhasinitiatedtheinclusionofbiogasandbiomethaneinitsGuaranteeofOriginsystemthatindustrycanusetocomplywiththeEUETSorprivatecompaniescanutilisetoachievetheirownemissionsreductiontargets.TheREDIIregulatesbiogasGuaranteesofOrigin.Sofar,somecountriesarealreadykeepingcountwithnationalregistriesandbilateralagreementsthatenablePAGE137Renewables2023Specialsection:BiogasandbiomethaneAnalysisandforecaststo2028cross-borderbiomethanetrading(Denmark,Germany,theNetherlands,Austria,Switzerland,theUnitedKingdomandFrance).Furtherdeploymentofthismechanisminothercountrieswillhelpincreaseinternationaltrade,througheitherphysicalgasexchangesorcertificatetrading.Somecountriesareswitchingfromfixedfeed-intariffstotenderingsystemsforgas(France)orchangingtheconditionsforelectricitytenders(Germany).ThelatestauctionsforelectricityproductionfrombiomethaneinGermanyin2023didnotreceivedanybids.Meanwhile,France’snewauctionsforgasinjectionhavebeendelayedsince2022.InItaly,however,thefirstauctioninthenewtenderschemeforinjectedbiomethanefortransportandotherusesin2023was45%allocatedjustthreemonthsafteritsrelease,providinggoodprospectsfor2023-2028.InseveralEuropeancountries,newpoliciesreducingremunerationremainaforecastuncertaintyasnewconditionscanreducetheeconomicattractivenessandweakeninvestorconfidenceforbiogasprojects.Inits2022REPowerEUplan,theEuropeanUnionsetanon-bindingtargetof35bcmofbiomethaneby2030,butgrowthwillneedtoacceleratetoachievethistarget.Althoughsomecountriesalreadyhavehighsharesofbiomethaneintheirgrids(Denmarkachievedaremarkable37.9%inNovember2023),othersareatearlierdevelopmentstages(Belgium,SpainandPoland).EUhistorical,forecastandtargetedbiomethaneproduction,2010-20301400PJ/yREPowerEU35bcmOtherEUcountries1200biomethanetargetSwedenIEA.CCBY4.0.1000theNetherlands800Denmark600France400Italy200Germany02012201420162018202020222024202620282030EUbiogasand2010biomethaneEUtargetIEA.CCBY4.0.Note:Partofthebiomethaneproductionincreaseisexpectedtocomefromtheupgradeofexistingbiogasfacilities.PAGE138Renewables2023Specialsection:BiogasandbiomethaneAnalysisandforecaststo2028Current,forecastandtargetedbiomethaneproductionforselectedEuropeancountries,PJ/y2022-203025020015010050GermanyFranceItalytheNetherlandsDenmark202220282030targetIEA.CCBY4.0.Note:Germanydoesnothaveaspecificbiomethanetargetfor2030.TheUnitedStateshasfurtheraccelerateditsproductiongrowthforbiomethaneinthelastyears,promptedbynewfederalandstate-levelpolicysupport.ThenewRFSSetRuleaimstodoublebiomethanesuppliesinthenextthreeyears.Giventheobligationvolumesproposed,thepipelineofprojectsunderdevelopmentandCalifornia’stargetsforinjectedbiomethane,biogasandRNGsuppliescombinedareexpectedtoexpand2.1-foldinthenextfiveyears.Generousfinancialsupportfromvariousprogrammesthatpermitadditionalityprovideaveryfavourableframeworkfortheacceleratedgrowth.InChina,thegovernmentactivelydevelopednewpoliciesin2022withits14thFive-YearPlanforRenewableEnergyDevelopment.Althoughthebiogastargetsofpreviousfive-yearplansforrenewableenergywerenotachieved,revitalisationofthesectorisexpectedforthreereasons:nationalandinternationalenergycompanies(PetroChina,ChinaThreeGorgesCorporation,ChinaGeneralNuclearPowerGroup,FrenchcompanyAirLiquideandGermancompanyEnviTecBiogasAG)arebeginningtoinvestinbiogas;policysupporthasbeenstrengthened;andgridaccesshasbeenimproved.Nevertheless,ourforecastexpansionof20%over2023-2028islowcomparedwithChina’sambitiousnationaltargetof20bcmby2030.India’sgovernmenthasalsosetveryambitioustargetsforseveralbiogasenduses,includingintransport,withextensivepolicydevelopmenttosupportthem:theSATATschemefortransportandindustrialfuel;the2022WastetoEnergyProgrammetofinancetherecoveryofurban,industrialandagriculturalwaste;andthe2022NationalBiogasProgrammeforruralandsemi-urbanareas.PAGE139IEA.CCBY4.0.Renewables2023Specialsection:BiogasandbiomethaneAnalysisandforecaststo2028However,thedeploymentofindustrial-scaleproductionfacilitiesisslow.Forinstance,inOctober2023theSATATprogrammehadjust48plantscommissionedofthe5000newplantstargetedfor2024.OngoingchallengesforIndiaaretheestablishmentofsupplychainstomobiliseagriculturalresidue,animalmanureandorganicmunicipalwastecollectionaswellascompletionofthenecessarygasinfrastructureimprovements(throughtheOneNation,OneGasGridprogramme),whichcreateforecastuncertainty.Nonetheless,India’sproductionofbiogasesisforecasttoexpand30%over2023-2028.TheSATATscheme’sveryambitioustargetsfortransport(anadditional15Mt/yearofbiomethaneuseby2023/2024)arestillexpectedtobeachieved,butwithsomedelay.China,USandIndiahistoricalandforecastproductionofbiogases,andChina’s2030target1200000TJ/yChina's100000020bcmIEA.CCBY4.0.target800000600000India400000UnitedStates200000ChinaChina'starget20102012201420162018202020222024202620282030IEA.CCBY4.0.NetZeroEmissionsby2050ScenariotrackingAccordingtotheIEANetZeroScenario,productionofbiogasesshouldquadrupleby2030.Althoughweexpectgrowthtoacceleratefrom19%in2017-2022to32%in2023-2028,anevenhigherpaceisrequiredtomeettheNetZeroobjectivefor2030.Biogasisamaturetechnology.Itisaviableenergysourceforcleancooking,andcanbeemployedasadispatchablesourceoflow-emissionselectricitygeneration,whichwillbeincreasinglyimportantasthedeploymentofvariablerenewablessuchaswindandsolarexpands.Asadrop-insubstitutefornaturalgas,biomethanecanbeusedemployingthesamepipelineandstorageinfrastructure,anditcanprovidealltheenergyservicescurrentlymetbynaturalgas,includinginhard-to-abatesectorssuchasheavyindustry(e.g.chemicalandfertiliserproduction).Plus,thecostofproducingPAGE140Renewables2023Specialsection:BiogasandbiomethaneAnalysisandforecaststo2028biomethaneiscurrentlycompetitivewithotherclean-energysolutionsthatreduceemissionsinthesesectors(e.g.hydrogen,hydrogen-basedfuelsandCCUS).AllcountriesthusneedtomakemajoreffortstosurpassforecastbiogasproductionandachievetheNetZerotrajectory.ChinaandIndiawouldhavetoacceleratethedevelopmentoffeedstocksupplychainsintheagriculture,livestockandcitywastesectorsandoffermoreattractiveincentivestomakebiogasproductioneconomicallyattractive.Thedevelopmentpaceofcriticalgasgridinfrastructureandassociatedend-usefacilitieswillalsodictategrowth.Europeancountrieswillneedtointensifytheireffortstoensurethatincentivesforinvestorsarestillattractiveinthenewtenderingsystems,inviewofincompleteallocationsinsomerecentauctions.Otherregionswithstrongbiogaspotential,suchasLatinAmericaandSoutheastAsia,couldmakesignificantcontributionstoglobalgrowthifenoughpublicsupportisobtainedtolaunchdevelopmentofthesector.GlobalhistoricalandforecastproductionofbiogasesandNetZeroEmissionsScenariotargetfor20307000000600000050000004000000300000020000001000000TJ/yIEA.CCBY4.0.HistoricalForecastNZE2030IEA.CCBY4.0.Note:NZE=IEANetZeroEmissionsby2050Scenario.PAGE141InternationalEnergyAgency(IEA)ThisworkreflectstheviewsoftheIEASecretariatbutdoesnotnecessarilyreflectthoseoftheIEA’sindividualmembercountriesorofanyparticularfunderorcollaborator.Theworkdoesnotconstituteprofessionaladviceonanyspecificissueorsituation.TheIEAmakesnorepresentationorwarranty,expressorimplied,inrespectofthework’scontents(includingitscompletenessoraccuracy)andshallnotberesponsibleforanyuseof,orrelianceon,thework.SubjecttotheIEA’sNoticeforCC-licencedContent,thisworkislicencedunderaCreativeCommonsAttribution4.0InternationalLicence.Thisdocumentandanymapincludedhereinarewithoutprejudicetothestatusoforsovereigntyoveranyterritory,tothedelimitationofinternationalfrontiersandboundariesandtothenameofanyterritory,cityorarea.Unlessotherwiseindicated,allmaterialpresentedinfiguresandtablesisderivedfromIEAdataandanalysis.IEAPublicationsInternationalEnergyAgencyWebsite:www.iea.orgContactinformation:www.iea.org/contactTypesetinFrancebyIEA-January2024Coverdesign:IEAPhotocredits:©Shutterstock

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