© OECD/IEA 2015 © OECD/IEA 2015

Medium-Term Renewable Energy Market Report 2015: Renewables poised to lead world power market growth

Dr. Paolo Frankl

Renewable Energy Division

International Energy Agency

© OECD/IEA 2015

Profound changes underway in energy markets

Signs of decoupling of energy-related CO2 emissions and global economic growth

Fossil-fuel prices at multi-year lows; emerging market economic growth slowing; uncertainty over monetary policy and interest rates in US

But overarching policy drivers for renewable electricity – energy diversification, local pollution and decarbonisation – remain robust

Renewables are key to the unprecedented pledges ahead of COP 21

Renewables to become first source for electricity in the longer term, but addressing policy uncertainty in the next five years is crucial

© OECD/IEA 2015

IEA strategy to raise climate ambition Peak in emissions (Bridge Scenario)

Global energy-related GHG emissions

20

25

30

35

40

2000 2014 2020 2025 2030

Gt

CO

2-e

q

Bridge Scenario

INDC Scenario

Energy efficiency

49%

Reducing inefficient coal

Renewables investment

Upstream methane reductions

Fossil-fuel subsidy reform

17%

15%

10%

Savings by measure, 2030

9%

Five measures – shown in a “Bridge Scenario” – achieve a peak in emissions around 2020, using only proven technologies & without harming economic growth

© OECD/IEA 2015

The share of renewables in net additions to power capacity continues to rise with non-hydro sources reaching nearly half of the total

Renewables are becoming the largest source of new power generation capacity

World net additions to power capacity

Analysis from the IEA Medium-Term

Renewable Energy Market Report

2015 and the New Policies Scenario

of the World Energy Outlook 2015.

0

200

400

600

800

1 000

1 200

1 400

1 600

2008-2014 2014-20

GW

Fossil fuels Nuclear Hydropower Non-hydro renewables

© OECD/IEA 2015

Share of non-hydropower in renewable electricity generation is expected to increase significantly, but an acceleration is needed to meet climate change objectives

Strong momentum for renewable generation growth

Renewable generation by technology, main case forecast and scenario analysis

0

2 000

4 000

6 000

8 000

10 000

12 000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025

Gene

ratio

n (TWh)

Hydropower Bioenergy Onshore wind Offshore wind Solar PV Geothermal STE Ocean

Scenario analysis 2DS

targets (IEA

ETP 2015)

Forecast Historical 34%

18%

22%

Share of renewables in total generation 26%

© OECD/IEA 2015

Renewables generation costs will decrease further

High levels of incentives are no longer necessary for solar PV and onshore wind, but their economic attractiveness still depends on the regulatory framework and market design

Historical and forecast global weighted average generation costs for new plants

0

50

100

150

200

250

300

350

400

2010 2015 2020 2010 2015 2020 2010 2015 2020

Onshore wind Solar PV - utility scale Offshore wind

USD

2014

/MWh

© OECD/IEA 2015

Evidence of lower costs on the horizon

A combination of price competition, long-term contracts, good resources and financial de-risking measures is creating deployment opportunities in newer markets and at lower costs

Recent announced long-term contract prices for new renewable power

Utility-scale solar PV Onshore wind

Chile USD 85-89/MWh

Brazil USD 81/MWh

United States USD 65-70/MWh

India USD 88-116/MWh

United Arab Emirates USD 58/MWh

South Africa USD 65/MWh

United States USD 47/MWh

Brazil USD 49/MWh

South Africa USD 51/MWh Australia

USD 69/MWh

Turkey USD 73/MWh

China USD 80–91/MWh

Germany USD 67-100/MWh

Egypt USD 41-50/MWh

Jordan USD 61-77/MWh

Uruguay USD 90/MWh

Germany USD 96 /MWh

Canada USD 66/MWh

This map is without prejudice to the status or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area

© OECD/IEA 2015

As the OECD slows, non-OECD countries account for two-thirds of renewable growth, driven by fast-growing power demand, diversification needs and local pollution concerns

Growth shifting to emerging markets and developing countries

Shares of net additional renewable power capacity, 2014-20

EU

13%

USA

9%

Japan

5%

Rest OECD

8%

China

38%

India

9%

Brazil

5%

Rest non - OECD

13%

© OECD/IEA 2015

Europe transitioning to slower renewable growth profile

OECD Europe annual net additions to renewable capacity

Weak power demand growth, overcapacity, incentive reductions in a number of markets

Uncertainties over policy frameworks (e.g. EU, UK) and integration of high levels of VRE

Still, offshore wind deployment triples by 2020 and decarbonisation drivers remain robust

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Annu

al Add

ition

s (GW)

Bioenergy PV Onshore Wind Offshore wind

© OECD/IEA 2015

Forecast progress towards indicative 2020 targets varies by market

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Austria

Belgium

Bulgaria

Czech

Rep.

Denm

ark

Estonia

Finlan

d

Fran

ce

Germ

any

Greece

Hung

ary

Ireland

Italy

Latvia

Lithua

nia

Luxembo

urg

Malta

The Ne

therland

s

Poland

Portug

al

Roman

ia

Slovakia

Slovenia

Spain

Swed

en UK

Forecast %

of 20

20 N

REAP

Comparison of MTRMR total renewable electricity forecast with NREAPs in 2020

© OECD/IEA 2015

VRE share of total annual electricity output

Source: IEA estimates derived in part from IEA Medium-Term Renewable Energy Market Report 2015.

European countries to reach high shares of variable renewables

Share of variable electricity generation in 2014 and 2020

© OECD/IEA 2015

Mixed policy signals in EU countries

France: New law with ambitious targets and improvement in administrative procedures

Germany: RE policy in transition, uncertainty over the new auction structure for onshore wind

Spain: Retroactive policies for renewables and new taxes for distributed solar PV

UK: Uncertainty over the future policy framework for renewables with plans to cut support

Italy:

?

© OECD/IEA 2015

Federal tax incentive uncertainty drives irregular US renewable growth

US annual net additions to renewable capacity

0

2

4

6

8

10

12

14

16

18

20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Annu

al a

ddition

s (GW)

Hydropower Bioenergy Onshore wind Offshore wind Solar PV Geothermal STE Ocean

After China and Europe, the US is the third largest market for new renewable generation, but federal and state-level policy uncertainties create volatile deployment pattern

Impact of federal tax

incentive policy

uncertainty Forecast

© OECD/IEA 2015

Renewables can power Africa’s economic growth

With huge resources, improving cost-effectiveness and policy momentum, renewables account for almost two-thirds of demand growth in Sub-Saharan Africa

Sub-Saharan Africa power demand growth versus supply sources

0

20

40

60

80

100

120

2008-14 2014-20

TWh

Other renewables Hydropower Fossil fuels

0

20

40

60

80

100

120

2008-14 2014-20

TWh

Power demand growth

© OECD/IEA 2015

More renewables for less money

Wind and solar PV comprise two thirds, or USD 900 billion, of new investment needs to 2020 and capacity increases are being made at lower cost than in the past

Renewable power capacity – net additions versus new investment

USD 2014 GW

0

200

400

600

800

1 000

1 200

1 400

1 600

Capacity growth Capacity growth New investment New investment

2008-14 2014-20 2008-14 2014-20

GW / U

SD 2

014

billion

Ocean Geothermal STE Solar PV Offshore wind Onshore wind Bioenergy Hydropower

© OECD/IEA 2015

Can renewables get back on track to meet climate change goals?

With policy enhancements renewables can be back on track to meet long-term climate change goals

World renewable power capacity growth, main versus accelerated case

0

20

40

60

80

100

120

140

160

180

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GW

United States Japan EU-28 Other OECD India China Brazil Other non-OECD

Historical Forecast

0

20

40

60

80

100

120

140

160

180

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GW

United States Japan EU-28 Other OECD India China Brazil Other non-OECD Main case

Historical Accelerated case

© OECD/IEA 2015

Persistent challenges slow growth in heat and transport

Historical and forecast share of renewables in electricity, heat and

transport sectors 2005-20

Growth of renewable electricity generation is increasing, while renewable heat and transport are falling behind.

0%

5%

10%

15%

20%

25%

30%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Share of ren

ewab

les in sector de

man

d Renewable

electricity

Renewable heat

Biofuels in road

transport

Forecast

© OECD/IEA 2015

Early signs of commercialisation in the advanced biofuels sector

Commissioned commercial scale advanced biofuel plants

Advanced biofuels – needed for long-term decarbonisation of the transport sector – are starting to scale up, but development requires further policy support.

© OECD/IEA 2015

A decisive moment for the future of renewables

Increasingly affordable renewables are set to dominate the growing power systems of the world

The impact of the lower oil price environment on global deployment of renewables is limited – in particular for the power sector

While variability of renewables is a challenge energy systems can learn to adapt to, variability of policies poses a far greater risk

Accelerated growth of renewables to meet energy security, local pollution and climate protection goals is feasible

Developing countries can now leapfrog to development based on affordable clean power by addressing persistent barriers; improving financing conditions; clear and predictable policies and good governance

© OECD/IEA 2015

IEA work on renewables

The MTRM 2015 can be purchased at: www.iea.org/bookshop/

Renewables analysis a crucial part of IEA long-term scenario analysis: e.g. World Energy Outlook, Energy Technology Perspectives, Tracking Clean Energy Progress

IEA renewables website: http://www.iea.org/topics/renewables/

Renewable Policies and Measures Database: http://www.iea.org/topics/renewables/renewablesiea/policiesmeasuresdatabasepams/

© OECD/IEA 2015

Reserve Slides

© OECD/IEA 2015

Onshore wind leads growth as deployment spreads

Onshore wind annual additions (GW) 2014-20

OECD Americas

Non-OECD Americas

OECD Europe

Non-OECD Europe

and Eurasia

AfricaMiddle East

Asia

China

OECD Asia Oceania

0

7.5

15

2914

2017

2020

0

4

8

2014

2017

2020

0

0.75

1.5

2014

2017

2020

0

0.75

1.5

2014

2017

2020

0

0.15

0.3

2014

2017

2020

0

5

10

2014

2017

2020

16

18

20

2014

2017

2020

0

10

20

2014

2017

2020

0

0.75

1.5

2014

2017

2020

© OECD/IEA 2015

Generation cost profile of alternatives vary with fossil fuel prices

Note: LCOE for CCGT is calculated using a ~65% capacity factor and 7% discount rate. No carbon pricing is included in LCOEs.

Historical natural gas prices by region vs price range for LCOE of new CCGT at USD 60-80/MWh

More robust competitiveness assessments would account for:

Value of electricity generated – when and where

Flexibility needs from high shares of variable renewable generation

Fossil fuel and carbon price volatility, hedging costs

System Transformation and Market Design Reform

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gen-05

lug-05

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lug-15

gen-16

lug-16

gen-17

lug-17

gen-18

lug-18

gen-19

lug-19

gen-20

USD/

MBtu

US Henry Hub Europe - UK NBP Asian LNG price (average contracted import price) Asian LNG (spot)

Gas prices at which

new CCGT today

has LCOE at USD

60-80/MWh

?

?

© OECD/IEA 2015

Market and regulatory risks can increase weighted average cost of capital and undermine competitiveness of PV and wind power

Dubai

Central

Africa X

2X

Impact of cost of capital (WACC) on the levelised generation cost of

solar PV (for equivalent resource and investment cost)

Reducing financing costs key to more cost-effective deployment

© OECD/IEA 2015

China to be market leader in both wind and solar PV by 2020

0

50

100

150

200

250

2014 2020 2020 accelerated

GW

Cumulative grid - connected wind capacity

Onshoe wind Offshore wind Solar PV

0

50

100

150

200

250

2014 2020 2020 accelerated

Cumulative grid - connected solar capacity

China’s cumulative wind capacity to more than double while solar PV to quadruple in 2020 but further growth is possible if higher targets are set

© OECD/IEA 2015

Grid and system integration main constraint to Japan PV deployment

Japan annual solar PV capacity additions, historical and forecast

0

2

4

6

8

10

12

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GW

Power diversification needs and generous incentives support Japan’s PV growth, but greater progress is needed in variable renewable integration and power sector reform

© OECD/IEA 2015

Improving cost effectiveness supports stronger renewable growth in India

India weighted average PPA bid prices in PV auctions, state and JNNSM

Ambitious target of 100 GW solar PV by 2022, but MTRMR sees < 30 GW by 2020

Auctions for utility-scale PV reducing costs, though they remain higher than coal

Clear and credible implementation of supporting regulations needed to reduce offtaker risks, promote net metering and reduce administrative barriers

Significant grid expansion, strengthening and management needed

0.00

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0.20

0.25

0.30

0.35

07-2010 03-2011 11-2011 07-2012 03-2013 12-2013 08-2014 04-2015 12-2015

USD/

kWh

Telangana

Punjab

Karnatka

Madhya Pradesh

Uttar Pradesh

Andhra Pradesh

Rajasthan

Tamil Nadu

JNNSM

JNNSM

500 MW

© OECD/IEA 2015

Renewables are powering Latin America’s economic growth

Excellent resources have underpinned hydropower’s strong role. Now, with policy momentum, attractive economics and diversification needs, other renewable sources grow more rapidly

Latin America power demand growth versus new renewable generation

0

50

100

150

200

250

300

350

2002-08 2008-14 2014-20

TWh

Hydropower Other renewables Fossil fuels and nuclear

© OECD/IEA 2015

More widespread policy support required in the renewable heat sector

Consumption of modern renewable energy for heat 2008-20

Challenges persist to increasing the contribution of renewables and decarbonising the heat sector, however established renewable heat policies have proved successful.

0

2

4

6

8

10

12

14

16

18

20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

EJ

Geothermal Solar thermal Modern bioenergy

© OECD/IEA 2014

3) Increase flexibility of other power system

components

Grids Generation

Storage Demand Side

1) Foster System-friendly

RE

Three pillars of system transformation

2) Better market design & operation

© OECD/IEA 2014

Importance of grids

4 000 km 4 000 km 4 000 km

Continental Dimension

BRAZIL EUROPE

Interconnected continental-scale balancing areas smoothen out variability and allow to exploit seasonal complementarities

© OECD/IEA 2014

* Compound annual average growth rate 2012-20 , slow <2%, dynamic ≥2%; region average used where country data unavailable This map is 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.

Transformation depends on context

© OECD/IEA 2014 32

Stable Power Systems

• Little general investment need short term

Dynamic Power Systems

• Large general investment need short term

Slow demand growth*

Dynamic demand growth*

Maximise the contribution from existing flexible assets

Decommission or mothball inflexible polluting surplus capacity to foster system transformation

Implement holistic, long-term transformation from onset

Use proper long-term planning instruments to capture VRE’s contribution at system level

© OECD/IEA 2015

For further insights and analysis

The Medium-Term Renewable Energy Market Report 2015 can be purchased at:

www.iea.org/bookshop/

Thank you for your attention!