Despite rising panel prices, the IEA said solar capacity additions are set to grow 17%, or 160 GW, this year. The EU and China are among the key markets raising ambitions. Source: Wera Rodsawang/Moments via Getty Images

2021 is set to be another record year for renewable energy installations, with 290 GW of new capacity expected to be built globally, the International Energy Agency said Dec. 1 in its annual Renewables Market Report.

Despite volatile energy markets and the rising cost of key raw materials used to make solar panels and wind turbines, the record additions are "yet another sign that a new global energy economy is emerging," Fatih Birol, executive director at the agency, or IEA, said in a statement.

By 2026, global renewables capacity is forecast to grow more than 60% compared to 2020 levels, surpassing 4,800 GW, the IEA projects. That equates to 1,830 GW of new additions in five years, or up to 380 GW annually.

More than half of the growth to 2026 will come from solar. Dubbed the king of renewables, the technology will see 160 GW of fresh capacity installed this year, the agency said.

"Solar [photovoltaic] remains the powerhouse of growth in renewable electricity, with its capacity additions forecast to increase by 17% in 2021 to a new record," the IEA said.

Policy backing

Higher installation projections, particularly in key regions Europe and China, came on the back of stronger support from government policies and more ambitious clean energy goals set out before and during the COP26 climate conference in Glasgow, Scotland, in November, the IEA said.

At COP26, countries across the developing and developed world agreed to phase out coal and increased their renewables deployment pledges in a bid to halve emissions by 2030. Ambitious net-zero emissions goals are now in place in nations accounting for nearly 90% of global GDP, which is driving deployment along with falling technology costs.

China remains the global leader in the volume of renewables capacity additions, the IEA said. The world's largest economy is expected to reach 1,200 GW of total wind and solar capacity in 2026, four years earlier than its existing target of 2030. The EU is also likely to be ahead of its capacity targets. China, Europe, the U.S. and India account for 80% of global growth.

A large part of the IEA's higher renewables projections stems from China's new net-zero target for 2060, which also involves a goal to have 40% of electricity consumption met by non-fossil generation by the end of this decade. Europe's installation forecast was increased 19% compared to 2020, with revisions driven by increased policy support for utility-scale wind and solar auctions in the EU as the bloc targets a 55% emissions reduction by 2030.

Concerns over commodity prices

Renewables growth will happen despite rising raw material prices, the IEA said. Yet, the surge in costs is also cause for concern.

The price of photovoltaic-grade polysilicon has more than quadrupled since early 2020, while steel has increased by 50%, copper by 60% and aluminum by 80%, the agency noted. Freight costs have increased almost sixfold. These factors together are putting pressure on equipment makers, and cost inflation will feed into the power price of final projects.

If commodity prices remain high through the end of 2022, the cost of wind investments would revert back up to levels last seen in 2015, the IEA said. For solar, three years of cost reductions for would be wiped out. However, renewables remain competitive against fossil fuels during this period of high commodity and energy prices, the agency added.

The exception to cost inflation is China, where turbine costs have continued to fall this year as demand dwindled following 2020's rush to build projects in time to meet subsidy deadlines.

Focus on implementation

Despite the IEA's revised outlook for renewables and the expected installation record this year, the world is not aligned with the agency's net-zero scenario, meaning the energy sector falls short of limiting global warming to 1.5 degrees C as laid out in the Paris Agreement on climate change.

"Targets are a first step, but taking these targets to an implementation plan will result in higher growth rates," Heymi Bahar, senior analyst at the IEA and co-author of the report, said during a press briefing Dec. 1.

Permitting challenges remain a key factor slowing down the growth of new capacity, alongside limitations of electricity grids that have not adapted to renewables fast enough. In the U.S., for instance, limited availability of transmission and distribution infrastructure are causing longer connection wait times for projects. While the recently passed Infrastructure Investment and Jobs Act includes funding for grid upgrades, it is not yet clear how much progress can be made in the next five years, the IEA said.

Wind power also continues to struggle with social acceptance challenges, Bahar said. Meanwhile, in the developing world, financing clean energy projects continues to be "a major obstacle," the IEA said.