trending Market Intelligence /marketintelligence/en/news-insights/trending/dulsxepwh1fv1wbnpflnuq2 content esgSubNav
In This List

Solar to power past coal by 2040, but policy critical for renewables, IEA says

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


Solar to power past coal by 2040, but policy critical for renewables, IEA says

Renewable capacity additions will on average double those of fossil fuels over the next two decades if current policy goals for emissions reductions are maintained, leading solar photovoltaic capacity to overtake coal before 2040.

But additional investment in renewables will depend on a continued push from governments, setting the pace for demand growth from the electrification of sectors like transport and heating, the phase-out of thermal capacity and the introduction of measures to ensure system integration of variable power sources, the International Energy Agency said in its World Energy Outlook on Nov. 13.

"Renewables and coal essentially swap places" in the coming decades, said Tim Gould, who heads the IEA's division for energy supply and investment outlook. "That has implications for how power systems need to operate."

Under its new policies scenario, which takes into account announced policy ambitions, the IEA sees investment in renewables-based electricity rise from $300 billion in 2017 to around $410 billion in 2040, with solar PV accounting for approximately 35% of power generation investment. The agency recently said that it expected supportive government policies to boost solar PV capacity by 575 GW to 2023, more than half of all renewable capacity expansion in that period.

Driven by ongoing cost reductions, "solar PV emerges as the most deployed power generation technology, with installed capacity overtaking wind in the next few years, hydropower within 15 years and coal soon before 2040," the agency said in its latest release.

But although new solar PV is "well placed to outcompete new coal" in most places, it struggles to undercut existing thermal plants without favorable policy, according to the IEA's projections.

SNL Image

The majority of solar growth is utility-scale but distributed generation plays an important part as well, the agency said. China and India will be the main drivers of solar PV growth and account for over half of global capacity additions over the period, a similar share as in wind additions.

But, propelled by solar and wind installations, renewables will constitute two thirds of gross capacity additions in most regions over the period to 2040, including in the U.S. and Europe, and by 2035 will make up half of global power generation capacity, the IEA said. In the new policies scenario, around 220 GW of battery storage is also deployed to add flexibility to power systems, reducing the need for new thermal capacity and especially gas-fired peaking plants, according to the report.

Wind power reaches around 1,710 GW by 2040, about 14% of global capacity. Nuclear's generation share stays at around 10% globally, but with generation in China overtaking the U.S. and the EU before 2030. While the latter face difficult choices regarding lifetime extensions for existing plants, investments in new nuclear is seen also growing strongly in India and, to a lesser extent, Russia.

Meanwhile, natural gas is the only fossil fuel technology to increase market share in all regions, overtaking coal just after 2025 as the leading source of electrical power. Under the scenario, natural-gas fired capacity climbs to 2,740 GW in 2040, retaining its lead over other power generating technologies.

SNL Image

Since wind and solar capacity will grow four times faster than electricity demand overall, flexibility will become ever more important, said Laura Cozzi, the IEA's chief energy modeler. "We will be asking the electricity system to operate in a very different way," she said. "All countries will have to unlock more flexibility ... to ensure supply security."

This will require market reforms, grid investments, as well as improving demand-response technologies such as smart meters and battery storage, the agency said.

"As the costs of renewables fall rapidly and they become competitive in an increasing number of markets ... additional investment in renewable capacity essentially depends on the pace of electricity demand growth; the pace at which existing thermal capacity is phased out; and the extent to which other deployment hurdles can be overcome, including access to project financing and measures to ensure system integration of renewables," the report said.

As a result, policymakers will continue to play a critical role in ensuring energy supply remains reliable. More than 70% of the $2 trillion annual investment required for global energy supply will come from state-directed entities or have a full or partial revenue guarantee established by regulation, the report said.