REthinking Energy - Promethium Carbon

Copyright © IRENA 2014
Unless otherwise indicated, material in this publication may be used freely, shared or reprinted, so long
as IRENA is acknowledged as the source. This publication should be cited as: IRENA (2014), ‘REthinking
Energy: Towards a new power system’.
The International Renewable Energy Agency (IRENA) is an intergovernmental organisation
that supports countries in their transition to a sustainable energy future, and serves as the
principal platform for international co-operation, a centre of excellence, and a repository
of policy, technology, resource and financial knowledge on renewable energy. IRENA
promotes the widespread adoption and sustainable use of all forms of renewable energy,
including bioenergy, geothermal, hydropower, ocean, solar and wind energy, in the pursuit of
sustainable development, energy access, energy security and low-carbon economic growth
and prosperity.
Principal authors: Rabia Ferroukhi, Dolf Gielen, Ghislaine Kieffer, Michael Taylor, Divyam
Nagpal and Arslan Khalid (IRENA). Special thanks are due to Douglas Cook, Gus Schellekens
and Hannes Reinisch (PwC). The report also benefited from the assistance of Mark Turner
(communications consultant) and from Agency-wide contributions by IRENA staff.
Reviewers: Jamie Brown (independent consultant), Paolo Frankl (IEA), Martine KublerMamlouk (French MFA), Georgina Lahdo (Cyprus Institute of Energy), Christine Lins (REN21),
Giacomo Luciani (The Graduate Institute Geneva), Lisa Lundmark (Swedish Energy Agency),
Daniel Magallón (BASE), Eric Martinot (ISEP), Dane McQueen (MOFA UAE), Mostafa Rabiee
(SUNA Iran), Martin Schöpe (BMWi Germany) and Riccardo Toxiri (GSE Italy).
IRENA would like to extend its gratitude to the Government of Japan for supporting the
publication of this first edition of REthinking Energy.
For further information or for provision of feedback, please contact Rabia Ferroukhi, IRENA,
Knowledge, Policy and Finance Centre (KPFC), P.O. Box 236, Abu Dhabi, United Arab Emirates;
Email: [email protected]
This report is available for download from
While this publication promotes the adoption and use of renewable energy, the International Renewable
Energy Agency does not endorse any particular project, product or service provider.
The designations employed and the presentation of materials herein do not imply the expression of any
opinion whatsoever on the part of the International Renewable Energy Agency concerning the legal status
of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or
REthinking Energy
The global energy system is undergoing a transformation. Around the
world, renewable energy has gone mainstream and is advancing
at extraordinary speed. Costs are plummeting, millions of jobs
are being created, and growth in clean power is outpacing all
competitors. Combined with international efforts to curb climate
change, calls for universal access, and a growing demand for
energy security, I believe it is no longer a matter of whether but
of when a systematic switch to renewable energy takes place – and
how well we manage the transition.
That is why I am delighted to launch the 2014 edition of IRENA’s new series, REthinking
Energy. It is the first instalment of what I hope will become a definitive series exploring
the changes that are transforming the way we produce and use energy, and how they
will affect governments, businesses and individual citizens alike.
The first edition of REthinking Energy focuses on the power sector. While progress
is being made across the spectrum of energy use, it is electric power that has driven
much of the current transformation, and which continues to make the headlines.
The power sector is changing so fast that policy makers are finding it hard to keep up.
Solar photovoltaic costs alone fell by two thirds between the end of 2009 and 2013:
a speed of change comparable to that seen in the IT revolution. In Denmark, wind
recently became the cheapest energy source of all, beating out even coal. In Germany,
almost half of all renewable generation is now owned by households and farmers,
marking a profound shift in control.
This report offers a chance for opinion leaders to take stock of the state of play, to
explore the drivers of this transformation, and to ask important questions about its
impact. Let us make no mistake: this is no business-as-usual evolution. A world in
which power generation is distributed, in which a billion more people gain access to
affordable electricity, in which countries shed their dependence on imported fossil
fuels, and in which harmful emissions are made a thing of the past, is a very different
world to the one we have today.
It is an exciting time to be in energy. If this publication can open more eyes to the
moment at hand, and give a sense of the magnitude of the transformation, it will have
Adnan Z. Amin
International Renewable Energy Agency
Executive Summary����������������������������������������������������������������������������������� 12
THE WORLD OF ENERGY IS TRANSFORMING����������������������������������������������������� 21
Drivers of electricity sector transformation����������������������������������������������� 21
The increasing role of renewable energy��������������������������������������������������� 25
The falling costs of renewables ������������������������������������������������������������������� 34
Increasing deployment opportunities��������������������������������������������������������� 41
Recommendations for policy makers��������������������������������������������������������� 44
EASIER AND CHEAPER – BUT VARIATIONS REMAIN���������������������������������������� 47
Addressing risks to reduce the cost of capital����������������������������������������� 49
Growing sophistication of financial products������������������������������������������� 54
3.3Adapting support to changing market conditions ��������������������������������� 56
Transforming utility business models��������������������������������������������������������� 58
Recommendations for policy makers �������������������������������������������������������� 60
ENVIRONMENTAL GOALS������������������������������������������������������������������������������63
Improving the balance of trade . . . . . . ������������������������������������������������������� 63
Adding local value. . . . . . . . . . . . . . . . . . ������������������������������������������������������� 64
Increasing gross domestic product������������������������������������������������������������� 66
Creating jobs����������������������������������������������������������������������������������������������������� 67
Expanding energy access ����������������������������������������������������������������������������� 72
Reducing environmental impacts ��������������������������������������������������������������� 73
Recommendations for policy makers��������������������������������������������������������� 75
ACCELERATING THE ENERGY TRANSFORMATION����������������������������������������������79
5.1The climate change imperative ������������������������������������������������������������������� 80
5.2Supporting the transformation ������������������������������������������������������������������� 81
5.3Adopting a system-level approach to policy-making ��������������������������� 82
5.4Improving market conditions ����������������������������������������������������������������������� 84
5.5Facilitating the integration of renewable energy �����������������������������������84
5.6Forging a joint vision for a secure, prosperous planet ������������������������� 85
Glossary ������������������������������������������������������������������������������������������������������������� 88
Bibliography ������������������������������������������������������������������������������������������������������� 91
Figure 1 Electricity generation and population growth ����������������������������������������� 21
Figure 2
Developing countries – 2030 outlook ������������������������������������������������������� 22
Figure 3
Direct electricity emission intensity (1990-2010) ����������������������������������� 24
Figure 4
Renewables as a share of global capacity additions (2001–2013) ����� 25
Figure 5
Annual renewables capacity addition by technology (2001-2013)����� 26
Figure 6
LCOE for utility and off-grid power – OECD countries
(ranges and averages) ����������������������������������������������������������������������������������� 27
Figure 7
Rural populations lacking energy and their access profiles in 2010 ��� 29
Figure 8
New power capacity additions (2001 and 2013) ������������������������������������� 33
Figure 9
Projected solar PV system deployment cost (2010-2020) ������������������� 35
Figure 10
Solar PV system costs by country (2010-2014) ��������������������������������������� 35
Figure 11
esidential solar PV cost breakdown in Germany and the
United States ��������������������������������������������������������������������������������������������������� 37
Figure 12
LCOE for recently commissioned and proposed onshore
wind farms in non-OECD countries������������������������������������������������������������� 38
Figure 13
Smart grids and renewables������������������������������������������������������������������������� 42
Figure 14
Total investment in renewable energy and cumulative
installed capacity for solar PV and wind (2004-2013)����������������������������47
Figure 15
Sample national renewable energy finance strategy ����������������������������� 48
Figure 16
Cost breakdown of a utility-scale PV plant over its productive life ����������������������������������������������������������������������������������� 49
Figure 17
Investment progression through technology and market
development stages ��������������������������������������������������������������������������������������� 51
Figure 18
German feed-in-tariff and capex (systems <10kW), (2006-2013)������� 57
Figure 19
Germany’s ownership distribution for installed renewable
energy capacity (2012)����������������������������������������������������������������������������������� 59
Figure 20
Potential jobs per megawatt by technology ������������������������������������������� 65
Figure 21
Renewable energy jobs in selected countries (excluding large hydro) ��������������������������������������������������������������������������������� 68
Figure 22
Renewable energy jobs by technology������������������������������������������������������� 70
Figure 23
New jobs created in construction, operation and maintenance of power assets ��������������������������������������������������������������������� 71
Figure 24
Life-cycle emission intensity of electricity generation
by technology��������������������������������������������������������������������������������������������������� 75
Figure 25
CO2 emissions intensity per kWh – 2030 outlook����������������������������������� 80
Box 1
The power of hydro����������������������������������������������������������������������������������������� 27
Box 2
Sustainable Energy for All initiative������������������������������������������������������������� 30
Box 3
IRENA’s Costing Alliance ������������������������������������������������������������������������������� 34
Box 4
Less mature renewable technologies��������������������������������������������������������� 36
Box 5
Partnering new and old: hybrid applications using CSP ����������������������� 40
Box 6
New corporate players in the renewables market����������������������������������� 50
Box 7
International finance institutions and development banks������������������� 51
Box 8
Green bonds: writing rules to attract new players����������������������������������� 55
Box 9
Community-sourced capital drives wind deployment in Denmark����� 55
Box 10
Challenges to traditional utility business models������������������������������������� 59
Box 11
Net metering to support decentralised renewables������������������������������� 60
Box 12
Local content requirements: creating an industry in Brazil������������������� 65
Box 13
Local content requirements: focus on socio-economic goals in South Africa ������������������������������������������������������������������������������������� 66
Economic impact of renewables: new insights����������������������������������������� 67
Box 14
Box 15
Renewable energy provides jobs and energy access in Bangladesh� 69
Box 16
Developing skills for the sector ������������������������������������������������������������������� 71
Box 17
Off-grid solutions: key to universal electricity access by 2030 ����������� 72
Box 18
Supporting electricity sector transformation: recent policy trends from Germany ����������������������������������������������������������� 83
German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety
Bloomberg New Energy Finance
Balance of Systems
Brazilian Real
CIFClimate Investment Fund
Carbon dioxide
Concentrated Solar Power
Electricité de France
Energias de Portugal
European Investment Bank
Frankfurt School
Green Climate Fund
Gross Domestic Product
General Electric
Global Wind Energy Council
Infrastructure Development Company Limited
International Energy Agency
IEA-ETSAP International Energy Agency - Energy Technology Systems Analysis Program
International Monetary Fund
International Off-Grid Renewable Energy Conference
IPCCIntergovernmental Panel on Climate Change
IRENA Renewable Energy Learning Partnership
International Renewable Energy Agency
Levelised Cost of Electricity
Local Content Requirement
LNGLiquefied Natural Gas
Ministry of New and Renewable Energy (India)
Organisation for Economic Co-operation and Development
Power Purchasing Agreement
Parts per million
Renewable Energy Independent Power Producer Procurement Programme (South Africa)
Renewable Energy Policy Network for the 21st Century
SE4ALLUnited Nations’ Sustainable Energy for All initiative
Solar Home System
United Nations
United Nations Department of Economic and Social Affairs
United Nations Development Programme
United Nations Environment Programme
United Nations Framework Convention on Climate Change
U.S. Agency for International Development
U.S. Dollar
Weighted Average Cost of Capital
World Health Organization
World Resources Institute
World Wind Energy Association
An alignment of economics, demographics, climate change and technology has set in
motion an ongoing transformation of the global energy system.
Growing populations, with improved living standards and increasingly concentrated in
urban centres, have dramatically raised the demand for energy services. At the same
time, a growing consensus over the dangers posed by climate change has prompted
people and governments worldwide to seek ways to generate that energy while
minimising greenhouse gas emissions and other environmental impacts.
Rapid technological progress, combined with falling costs, a better understanding
of financial risk and a growing appreciation of wider benefits, means that renewable
energy is increasingly seen as the answer. REmap 2030, a global roadmap developed
by the International Renewable Energy Agency (IRENA), shows that not only can
renewable energy meet the world’s rising demand, but it can do so more cheaply, while
contributing to limiting global warming to under 2 degrees Celsius – the widely cited
tipping point for climate change.
A technology once considered as niche is becoming mainstream. What remains unclear
is how long this transition will take, and how well policy makers will handle the change.
As this transformation gets underway, it will affect every aspect of society. REthinking
Energy, a new series by IRENA, will explore how renewable energy is financed, produced,
distributed and consumed, and will chart the changing relationships it is bringing about
between states, corporations and individuals.
This first volume focuses upon the power sector. It tells a story – about the trends
driving this change, how the technology is evolving, who is financing it, and the wider
benefits it will bring. Finally, it examines what an energy system powered by renewables
might look like and how policy makers can further support the transformation.
Why the world of energy is transforming
At the heart of the energy transformation lies demand, the aim to strengthen energy
security and the imperative of a sustainable future.
Over the past 40 years the world’s population grew from 4 billion to 7 billion people.
An increasing proportion is middle class and living in cities. During the same period,
electricity generation grew by more than 250%.
This growth will continue. In 2030 there will be more than 8 billion people, with 5 billion in
urban conglomerations. Global spending by the middle classes is expected to more than
double, from USD 21 trillion in 2010 to USD 56 trillion in 2030. World electricity generation
is forecast to grow by 70% from 22,126 terawatt-hour (TWh) in 2011 to 37,000 in 2030.
But this energy is coming at a cost. There is growing consensus on the threat of climate
change brought on by increasing atmospheric concentrations of greenhouse gases,
prompting worldwide efforts to reduce emissions.
If business continues as usual, these efforts will not succeed. The average emissions
intensity of electricity production has barely changed over the past 20 years. Gains from the
increasing deployment of renewables, and less intensive fossil fuels such as natural gas, have
been offset by less efficient power plants and the rising use of coal. Without a substantial
increase in the share of renewables in the mix, climate change mitigation will remain elusive.
REmap 2030 shows that under current policies and national plans (business as usual
case), average carbon dioxide (CO2) emissions will only fall to 498 g/kWh by 2030.
That is insufficient to keep atmospheric CO2 levels below 450 parts per million (ppm),
beyond which severe climate change is expected to occur. A doubling in the share
of renewables could help mitigate climate change by reducing the global average
emissions of CO2 to 349 g/kWh – equivalent to a 40% intensity reduction compared to
1990 levels, as seen in the figure below.
CO2 emissions intensity per kWh – 2030 outlook
World average
Natural Gas
Coal 960
Oil 800
CO2 intensity per kWh
(2010 world average)
World 565
Natural Gas 450
REmap 2030 doubling share of renewables
Renewables and nuclear
Source: International Energy Agency (2010) and IRENA (2014a)
There is also increasing concern about the direct health impact of burning fossil fuels
as fast-growing economies confront rapidly declining air quality and a sharp rise in
respiratory disease. The United States Environmental Protection Agency recently
found that ill health caused by fossil fuels nationally costs between USD 362 billion
and USD 887 billion annually. The European Union’s Health and Environment
Alliance found that emissions from coal-fired power plants cost its citizens up to
EUR 42.8 billion in yearly health costs. Localised catastrophes, such as the Deepwater
Horizon oil spill in the United States, or the Fukushima nuclear accident in Japan, are
becoming global news with profound implications. Governments have taken note.
Countries are increasingly looking to reduce their dependence on imported fossil fuels.
By reducing energy imports, countries are striving for greater energy independence;
avoiding potential supply disruptions (for example, in case of conflicts or disasters), high
energy prices and price fluctuations.
There is growing pressure, meanwhile, to bring electricity to the 1.3 billion people
currently without electricity access, many in remote areas, for whom traditional
large-scale power plants and transmission systems have not yet provided an answer.
Also, 2.6 billion people rely on traditional biomass and cook using traditional stoves that
cause severe health impacts.
These trends have prompted a widespread conviction that something has to change.
Fossil fuels powered the first industrial revolution, but even in the new era of shale
oil and gas, questions remain about their compatibility with sustainable human wellbeing. The stage is set for the era of modern renewable energy that is cost competitive,
mainstream and sustainable.
The cost of renewable energy plummets as deployment increases
Large-scale hydro, geothermal and biomass power have been competitive for some
time, but for many years wind and solar power struggled to compete with coal, oil and
natural gas. Over the past decade, however, and in particular over the last five years,
that picture has changed dramatically.
Renewable energy technologies have grown more robust and more efficient and are
increasingly able to generate power even in suboptimal conditions such as low wind
speeds and low solar irradiation. Energy storage technologies are improving fast.
Buoyed by state support in Europe and the United States, and boosted by the rise of
new manufacturing powerhouses such as China, costs have plummeted. These trends
are illustrated in the graphic below which charts the levelised cost of electricity (LCOE)
for different forms of utility and off-grid power.
Solar photovoltaic (PV) prices have fallen by 80% since 2008 and are expected to keep
dropping. In 2013, commercial solar power reached grid parity in Italy, Germany and
Spain and will do so soon in Mexico and France. Increasingly, solar PV can compete
without subsidies: power from a new 70 megawatt (MW) solar farm under construction
in Chile, for example, is anticipated to sell on the national spot market, competing
directly with fossil fuel-based electricity. The cost of onshore wind electricity has
fallen 18% since 2009, with turbine costs falling nearly 30% since 2008, making it the
cheapest source of new electricity in a wide and growing range of markets. More than
100 countries now use wind power. Offshore wind is also expected to grow rapidly
as costs fall, with the United Kingdom leading the market with 4.2 gigawatts (GW) of
installed capacity as of mid 2014.
These and other developments have made renewables increasingly attractive in many
more markets. In 2013, for the first time, new renewable capacity installations were
higher in countries not members of the Organisation for Economic Co-operation and
Development (OECD). China’s deployment of solar PV and wind in 2013 was estimated
at 27.4 GW: nearly four times more than the next largest, Japan.
Worldwide, renewable power capacity has grown 85% over the past 10 years, reaching
1,700 GW in 2013, and renewables today constitute 30% of all installed power capacity.
The challenge has moved on from whether renewable energy can power modern
lifestyles at a reasonable cost – which we now know it can – to how best to finance
and accelerate its deployment.
LCOE for utility and off-grid power – OECD countries (ranges and average)
2011 USD/kWh
Diesel (off-grid)
Solar PV:small
Hydro Small
Coal (incl. CCS)
LNG ($16/MMBtu, Peaking)
LNG ($16/MMBtu)
Natural Gas
($8/MMBtu, Peaking)
Natural Gas ($8/MMBtu)
Natural Gas
($3/MMBtu, Peaking)
Natural Gas ($3/MMBtu)
Hydro Large
Solar PV Large
Offshore wind
Onshore wind
The black bar illustrates the average
Source: IRENA Costing Alliance (n.d.) for renewable energy technologies and PwC database for non-renewable
energy technologies.
Financing renewables is getting cheaper, and easier
Renewable energy is competitive on a cost per kilowatt-hour basis. As most renewable
technologies have a relatively high ratio of upfront to operating costs, their viability is
particularly sensitive to the cost of capital. That is why government financial support
has traditionally been critical for promoting renewables. However, as the technology
has grown more competitive and pressure on budgets has increased, governments
have been reducing their support.
The good news is that private finance is increasingly ready to step in. Due to growing
experience, developers are getting better at forecasting cash flow and financiers are
more able to accurately assess risk. The cost of capital is falling and products are
being tailored for a wider range of investors, from small-scale communities to large
institutions. Crowdfunding initiatives can also be used to attract capital, especially
in developing countries where cost of capital is traditionally high. The figure below
shows how sources of renewable energy investments evolve with increasing maturity
of technologies and markets.
Investment progression through technology and market development stages
Time, technology scale and project volume
Project developers, venture capital, government grants
Early-stage funding
for small-scale
projects, including
(returns 8% +)
Target: < USD 50m
Commercial banks, multi-lateral insitutions
Increasing scale of
proven technologies,
including new settings
and larger scales
(returns 4%-10%)
Target: USD 50-500m
Institutional investors
Refinancing of
installed assets,
focus on lowest risk
(accepting very low
Target: USD 100m+
At the other end of the scale, institutional investors are also starting to get interested.
They are increasingly taking into account the risk attached to fossil fuels and new
long-term, low-risk instruments are being created to encourage them to invest in
renewables. Early-mover private developers in this space attracted USD 11 billion in
2013, up 200% in 12 months.
Large non-energy corporates are also becoming involved. For example, IKEA’s
turbines and solar panels now produce 37% of its energy consumption, and Google has
invested over USD 1.4 billion in wind and solar – in most cases because of attractive
financial returns.
But these positive trends are not yet enough. Total investment in renewable energy rose
from USD 40 billion in 2004 to USD 214 billion in 2013 (excluding large hydropower).
This falls short of the USD 550 billion needed annually until 2030 to double the global
share of renewable energy and avert catastrophic climate change.
Policy makers have an important role to play. If they make it clear that renewable
energy will be a larger part of their national energy mix, and commit to long-term,
non-financial support mechanisms, they could reduce uncertainty and attract more
investors. In emerging markets, public financing will remain important as domestic
structures to support the deployment of renewables are developed. In this context,
international cooperation and financial flows play an increasingly prominent role. With
increasing competitiveness, financial support can gradually and predictably be scaled
back, focusing instead on grid improvements, education and industry standards,
which strengthen the market as a whole.
There is also an opportunity for traditional power utilities to do more. Joint projects
between large utilities, small developers and clients could be a way forward, as
business models adapt to the changing market conditions.
The wider benefits of renewable energy
There is growing evidence that renewable energy has a positive ripple effect
throughout society, simultaneously advancing economic, social and environmental
goals. Its costs and benefits are best understood not within traditional policy silos,
but as part of a holistic strategy to promote economic prosperity, well-being and a
healthy environment.
Renewables are good for a country’s economy. A recent Japanese study, looking
at a 2030 target of 14%-16% renewables, found the benefits were 2-3 times
higher than the costs – including savings in fossil fuel imports, CO2 emissions
reductions and economic ripple effects. Spain’s use of renewables avoided
USD 2.8 billion of fossil fuel imports in 2010, while Germany saved USD 13.5 billion in
2012. For fossil fuel-exporting countries, deploying renewables at home makes more
resources available for sale overseas.
The benefits are felt through the value chain as renewable energy stimulates
domestic economic activities and creates employment. In 2013, it supported
6.5 million direct and indirect jobs – including 2.6 million in China, as illustrated in the
figure below.
Renewables can also bring electric power to people currently left off the grid, promoting
productive uses, spurring education, allowing access to modern communications and
offering a host of new opportunities.
The environmental benefits are just as compelling, on both local and global levels. Most
renewables do not deplete finite resources (although water may be needed for cleaning
and cooling, which can be a challenge in arid countries). Renewables also reduce the
risk of ecological disasters.
Crucially, they offer a route to reducing greenhouse gas emissions, a major cause of global
warming. Electricity alone accounts for more than 40% of man-made CO2 emissions
today. Solar, wind, nuclear, hydroelectric, geothermal and bioenergy are, across their
lifetime, 10-120 times less carbon intensive than the cleanest fossil fuel (natural gas)
Renewable energy employment by technology
J o b s (t h o u s a n d s)
Solar PV
Liquid Biofuels
Wind Power
Solar Heating/
Small Hydropower
Solar Power
Source: IRENA (2014e)
million jobs
in 2013
and up to 250 times lower in carbon than coal. REmap 2030 estimates that doubling
the share of renewables in the energy mix, coupled with greater energy efficiency, can
keep atmospheric CO2 below 450 ppm – the level beyond which catastrophic climate
change would occur.
A new industrial paradigm?
As the share of renewable energy grows, the structure of the industry and the nature
and role of power producers are undergoing change. A sector once dominated by large
utilities is becoming more decentralised, diverse and distributed. In Germany, almost
half of all renewable energy is now in the hands of households and farmers, and only
12% of renewable assets are owned directly by utilities.
New storage technologies, and smart technologies to support better demand-side
management, will grow in importance – creating a whole new ancillary industry of smart
appliances. In many emerging markets, renewables are already the most economic
power source for off-grid and mini-grid systems. As with the shift from fixed telephony
to mobile phones, many countries have an opportunity to leapfrog the development of
a fixed network by moving to a flexible system of multiple, interconnected mini-grids.
These and other trends require a different way of thinking about energy, shifting from a
system dominated by a few centralised utilities, to a diverse, distributed system, where
consumers are also producers, with far more control over how and when they use
Policy makers can do much to either promote or hinder this vision. Renewable energy
investors need stable and predictable policy frameworks, which recognise the systemlevel benefits renewable energy can bring. They need a level playing field, including
cutting back on the substantial subsidies currently enjoyed by fossil fuels worldwide. And
they need a supportive grid infrastructure, including more regional interconnections to
take advantage of synergies between different forms of renewable power.
Rethinking energy means policy makers need to consider the benefits of renewable
energy as a whole, linking areas previously considered unrelated – such as healthcare,
rural development and governance. Herein lies the biggest change: adopting a truly
holistic approach, which not only takes into account the interests of short-term growth,
but provides the opportunity of sustainable prosperity for all.
The changes at hand offer the potential for a new industrial revolution – creating a
renewables-based system, which enhances access, health and security, creates jobs
and safeguards the environment. The technology is ready to deploy. People, businesses
and governments must now embrace its potential.
Projected increase
in demand by 2030
Renewable electricity
in 2013
RE share of total power
capacity in 2013
RE share of total
power capacity additions
120 GW
New RE capacity
added in 2013
1 The world of energy is transforming
Burgeoning populations, increasing urbanisation and sustained economic growth
have led to an exponential rise in the demand for energy services, particularly in
developing countries. At the same time, growing concerns over climate change
and the environmental impact of fossil fuels are causing many governments and
communities to seek lower-impact options. Rapid technological progress means that
renewable energy has become an increasingly viable and cost-effective option, while
contributing to energy security.
These changes are prompting a fundamental rethink of how energy is managed, most
visibly in the electricity sector. This chapter lays out the main socio-economic drivers
behind the change, provides evidence of the transformation to date and explains the
increasing role that renewables must play.
Rapidly increasing electricity demand
Over the past 40 years, demand for electricity has grown rapidly and greatly exceeded
expectations, particularly due to rapid industrialisation in emerging economies
(see Figure 1). The drivers of increasing electricity demand included an expanding
world economy, growing demographics, a rising middle class1, expanding urbanisation,
and the widespread electrification of society.
Figure 1: Electricity generation and population growth
Electricity 250%
Electricity 67%
Population 75%
Natural Gas
Population 17%
billion people
Other Renewables
TWh electricity
Source: World Bank (2014), IEA (2014a), IRENA (2014a)
Middle class households have daily expenditures of USD 10-100 in purchasing power parity terms (OECD, 2010)
These trends are set to continue. The world’s population is forecast to grow to around 8.2 billion in 2030 from 7 billion today, and density will increase as cities continue to expand. By
2030, municipal conglomerations will house approximately 5 billion people, 67% more than
today (United Nations Department of Economic and Social Affairs (UN DESA), 2013). The
middle class will grow to 4.9 billion, from just 2 billion in 2010 (OECD, 2010).
The impact of this growth on energy demand will be tremendous, as a swelling middle
class aspire to more comfortable and energy-intensive lifestyles. Global middle-class
spending is likely to grow from USD 21 trillion to USD 56 trillion between 2010 and
2030, of which Asia-Pacific could make up as much as 59% (OECD, 2010).
By 2030, the World Bank forecasts that today’s developing countries will hold half
of the global capital stock (a third in 2010), generate half of gross domestic product
(30% in 2010), receive two thirds of global investment and represent 90% of annual
economic growth (see Figure 2) (World Bank, 2013). With these shifting patterns of
growth, the geographic spread of energy demand will change as well.
Figure 2: Developing countries – 2030 outlook
Global Economic Growth
Global Capital Stock
of Global
Capital Stock
of Global
Economic Growth
Global GDP
Global Investment
of Global
of Global
Source: World Bank (2013)
Under current consumption patterns, global electricity demand is projected to increase
by 60% by 2030 and its distribution will change significantly (International Energy Agency
(IEA), 2013). In developed countries energy consumption has largely plateaued and
may decrease depending on population growth and energy efficiency improvements.
Developing countries will make up the bulk of the energy demand increase and much
of the investment in these countries will be ‘new build’, rather than grid and capacity
replacements or improvements.
Improving energy efficiency could create a marked difference in demand increases.
Energy efficiency measures could contain the increase in global electricity demand
closer to 40%, instead of the projected 60% by 2030 (IEA, 2012). In emerging economies
electricity demand will grow significantly even with efficiency measures, while demand
in the United States, the European Union and other advanced economies might
slightly decline. However, even allowing for the most ambitious energy efficiency
gains, significant levels of new energy supply will be needed globally.
The local and global environmental impact of conventional generation
Since the industrial revolution, the generation of electricity from fossil fuels has
enabled dramatic economic growth, but has come at significant environmental costs
and, for many countries, dependency on imported fuels. Today’s consumers are
increasingly aware of these costs and governments are keen to mitigate them.
High-profile catastrophes, such as Japan’s Fukushima nuclear accident and the United
States Deepwater Horizon oil spill, have heightened opposition, and consumers –
while still price sensitive – are increasingly supportive of renewable energy options.
Climate change is increasingly becoming a major concern – as is apparent in national
and international policy efforts such as the United Nations Framework Convention on
Climate Change (UNFCCC).
These trends have led to a growing consensus that the world must move to
a lower-impact energy mix as soon as possible. Yet the global CO2 emissions
intensity of electricity generation has changed little in 20 years. A kilowatthour generated in 1990 emitted roughly 586 gCO2 on average. 20 years later, by
2010, the average emissions intensity was reduced by just 3.5% to 565 gCO2/kWh
(see Figure 3).
The reasons behind this are simple, although difficult to address. There is systemic
inertia given the long lifetimes of the plants involved. The effect of the installation
of renewables and other lower-carbon technologies (nuclear and natural gas), and
improvements in efficiency of electricity production have been neutralised by the
operation of existing and new installations of carbon-intensive technologies.
Highly efficient coal plants in Western European markets have been offset by less
efficient coal plants in some developing countries. Natural gas has always emitted
relatively less CO2, and has remained fairly constant. Gains here come largely from
a shift to closed-cycle plants. Oil plants actually emit more CO2 per kilowatt-hour
now, as they have become almost exclusively ‘peaking’ plants, and are therefore not
running as efficiently as they could. Renewables and nuclear emit close to zero CO2,
but their net contribution to the world average is counteracted by coal.
Figure 3: Direct electricity emission intensity (1990-2010)*
Natural Gas
World average
CO2 intensity per kWh (world average)
Natural Gas
Renewables and nuclear
Source: Based on IEA (2010)
*Renewables excludes combustible renewables, gCO2 /kWh are generation emission estimates – for review
of life-cycle emissions across all technologies refer to Section 4
The health impact of fossil fuels
Localised pollution from electricity generation also has a direct impact on human
health. In March 2014, the World Health Organization (WHO) reported that 7 million
premature deaths annually were linked to air pollution; by comparison, the AIDS
pandemic killed 2.3 million people globally in 2005, its worst year (WHO, 2014).
Asthma and other respiratory ailments now affect over 40% of Delhi residents, with
air quality amongst the worst in the world. In March 2014, Chinese Premier Li Keqiang
declared a ‘war on pollution’, in recognition of the increasing concern about its impact
on air, water and soil. Beijing's mayor promised 15 billion Yuan (USD 2.4 billion) to
improve air quality, while the Chinese National Centre for Climate Change Strategy
and International Cooperation called for the country to decisively cut its reliance on
coal. In August 2014, Beijing announced a ban on coal use beyond 2020 to cut air
pollution (Xinhua, 2014).
The health impact of global energy use is significant, but its economic cost is difficult
to quantify. A 2013 study conducted by experts from the United States Environmental
Protection Agency found that the national economic health cost caused by fossil
fuels was between USD 361.7 billion and USD 886.5 billion annually (Machol and
Rizk, 2013). The European Health and Environment Alliance found that emissions
from Europe’s coal-fired power plants cost its citizens up to EUR 42.8 billion in health
every year. Were these costs factored into policymaking, fossil fuel generation would
become considerably more expensive.
Moving to the majority – investment and new capacity
Worldwide, well over 100 GW of new renewable capacity has been added every year
since 2011. That is equivalent to the total installed generation capacity of Brazil, or twice
that of Saudi Arabia. Renewables have accounted for more than half of net capacity
additions in the global power sector since 2011 – meaning more new renewables
capacity is being installed than new capacity in fossil and nuclear power combined
(see Figure 4). As a result of these additions, by 2013 the share of renewables in total
electricity production exceeded a record 22%, of which 16.4% was hydro and 3.6% was
solar PV and wind.
Renewable energy deployment in emerging countries is supporting growth globally.
New renewable capacity installations outside the OECD exceeded deployment within
the OECD for the first time in 2013, with China dominating new capacity additions of
both solar PV and wind. In fact, 2013 marked the first time that new renewable power
capacity surpassed new fossil fuel and nuclear additions in China (Renewable Energy
Policy Network for the 21st Century (REN21), 2014).
Figure 4: Renewables as a share of global capacity additions (2001–2013)
(Coal, Gas, Nuclear and Oil)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total net capacity
added per year
2012 2013
Non-renewables 84
Source: IRENA database
Solar deployment outpaced wind for the first time in 2013. Solar PV deployment
reached around 38 GW for the year. Hydropower was also estimated to have had a
strong year, with around 40 GW of new capacity (see Box 1). New wind deployment
was slightly disappointing at 35.5 GW, as policy uncertainty delayed projects (Global
Wind Energy Council (GWEC), 2014 and World Wind Energy Association (WWEA),
2014). However, wind is set to bounce back following a revision of public support in
certain countries, and 2014 is expected to be a record year for both solar PV and
wind power. Figure 5 illustrates the annual capacity additions of renewable energy
Investment in new renewable capacity has also exceeded investment in new fossilbased power-generation capacity for three years running. Global investment in
renewable generating capacity has increased five-fold over the last decade (excluding
large hydro), from USD 40 billion to USD 214 billion between 2004 and 2013. A further
USD 35 billion was spent on large hydropower projects in 2013 (United Nations
Environment Programme (UNEP); Bloomberg New Energy Finance (BNEF); and
Frankfurt School (FS), 2014).
The rapid expansion in deployment is spurred by declining costs of renewable energy
technologies. As Figure 6 demonstrates, renewable energy is often competitive with
fossil fuel power at utility scale, and is generally cheaper in decentralised settings.
As this becomes more widely recognised, markets will expand and costs are expected to
fall further. Moreover, renewables are sheltered from volatile global fossil fuel costs, and
have a proven technological viability that ensures long-term cash flows for investors.
Figure 5: Annual renewables capacity addition by technology (2001-2013)
Solar PV
Share of renewables
in capacity additions
Source: IRENA database
Share of Power Capacity Additions (%)
Renewables Power Capacity Additions (GW)
In locations with good resources, hydropower offers tremendous potential: a mature
technology which in many cases is the least cost option. Furthermore, it is highly
effective because it is instantaneously dispatchable, even more if it includes pumped
storage capability. In 2013, the 1,140 GW of installed hydropower capacity produced
3,405 terawatt-hour of renewable electricity, or 16% of estimated global power
Brazil is one of the world’s leading hydropowered nations. The Itaipu Dam alone
produced 98 TWh of electricity in 2013, almost 20 times Germany’s total solar output
in the same year (5.7 TWh). Indeed, over 75% of Brazil’s electrical energy comes from
large hydro installations and several more are in the pipeline, alongside a portfolio
of other options – particularly wind, solar and natural gas. Brazil is pioneering
more sustainable approaches for the development of new large hydropower plants,
integrating river basin management within the country’s integrated energy planning.
New decision tools and operation procedures are taking a holistic approach to integrate
economic, social and environmental impacts from the onset.
Figure 6: LCOE for utility and off-grid power – OECD countries (ranges and averages)
2011 USD/kWh
Diesel (off-grid)
Solar PV:small
Hydro Small
Coal (incl. CCS)
LNG ($16/MMBtu, Peaking)
LNG ($16/MMBtu)
Natural Gas
($8/MMBtu, Peaking)
Natural Gas ($8/MMBtu)
Natural Gas
($3/MMBtu, Peaking)
Natural Gas ($3/MMBtu)
Hydro Large
Solar PV Large
Offshore wind
Onshore wind
The black bar illustrates the average
Source: IRENA Costing Alliance (n.d.) for renewable energy technologies and PwC database for nonrenewable energy technologies.
Financial support for renewable energy provided by early adopters translated into
a scale-up in deployment, thereby leading to a substantial decrease in technology
costs and the development of the renewable energy industry. These countries
recognised the long-term benefits brought on by renewables from an environmental,
economic and social standpoint.
Renewable energy can increase energy security and reduce risks. Scaling up
renewable energy diversifies countries’ energy mixes, mitigating the impact of price
volatility and helping to allay geopolitical risks. Financial and economic risks for
government and business are reduced through a more predictable cost base for
energy supply (since renewable energy technologies have lower recurring costs and
lower fuel-cost volatility) and an improvement in the balance of trade for fossil fuelimporting countries.
By minimising domestic fossil fuel consumption through renewable energy
deployment, fossil fuel-exporting countries can maximise their exports to the
global market. Several Gulf Cooperation Council countries, for example, have set
renewable energy targets in recent years which could save an estimated 3.9 billion
barrels of oil equivalent between 2012 and 2030. This could result in cumulative
savings of approximately USD 200 billion (Ferroukhi et al., 2013).
Developing countries are well placed to exploit the rapidly decreasing costs of
renewable energy technologies, and this is where the greatest net increases in
power capacity are needed. Many are blessed with significant renewable energy
The way forward
Renewable energy plays an important role today, and can play an even more
crucial role in the future of the energy sector. REmap 2030, the global roadmap
from IRENA, highlights possible pathways and priority action areas to accelerate
the deployment of renewable energy (IRENA, 2014a). It presents ways to double
the share of renewable energy to 36% by 2030. REmap analyses all aspects of the
energy system in 26 countries representing 75% of global energy consumption and
provides recommendations to reach the goal.
REmap 2030 also demonstrates that renewable energy presents an affordable,
reachable and established conduit to a sustainable energy future for all. Renewable
energy is increasingly the most cost-effective solution for expanding rural electricity
access in developing countries. This can improve living conditions for 1.3 billion
people worldwide who currently lack access to electricity, and for 2.6 billion people
without access to clean cooking equipment, mostly concentrated in sub-Saharan
Africa and Asia (IEA, 2013) as shown in Figure 7.
Figure 7: Rural populations lacking energy and their access profiles in 2010
Latin America and
the Caribbean
No access to
Clean cooking
100 million
500 million
1 billion
Source: IRENA based on IEA (2012), UN DESA (2011) and WHO (2010)
Net global population growth may almost offset current efforts to expand access
to modern energy services. Without significant efforts to increase access, the IEA
projects that almost 1 billion people will still be without access to electricity and
2.5 billion people will lack access to clean cooking facilities in 2030 (IEA, 2013). As
recognised by the United Nations’ Sustainable Energy for All initiative (SE4ALL) (see
Box 2), ensuring sufficient cost-effective energy supply is pivotal to maintaining a
broad basis for economic growth and improving human living standards.
While impressive, business-as-usual renewables expansion will deliver neither
the economic nor environmental outcomes needed for sustainable development.
IRENA’s REmap 2030 analysis emphasises that doubling the share of renewable
energy in the global energy mix is achievable, but significant new efforts are
required in the power, transport, buildings and industrial sectors. Current national
plans would only result in an increase to 21% of the renewable energy share in 2030,
compared to 18% in 2010.
In addition to the electricity sector, heat and transport present significant
opportunities for renewable energy. While not the focus of this report, these sectors
could make real inroads into the cost and environmental impact of primary energy
demand. At present only a few countries utilise renewable energy sources to meet
a sizable share of these sectors.
SE4ALL is a global initiative led by the Secretary-General of the United Nations (UN)
to achieve universal energy access, improve energy efficiency and increase the use
of renewable energy. It was launched to coincide with the designation of 2012 as
the International Year of Sustainable Energy for All by the UN General Assembly, in
recognition of the growing importance of energy for economic development, climate
change mitigation and improving modern energy access. Subsequently, 2014-2024
was named the Decade of Sustainable Energy for All, underscoring the importance of
energy issues for sustainable development and for the elaboration of the post-2015
development agenda.
The widespread use of sustainable energy is essential to alleviate poverty. The
SE4ALL initiative highlights the role sustainable energy plays in creating new forms of
employment, decreasing the indoor air pollution caused by burning traditional fuels,
reducing school truancy (exacerbated by the need to gather traditional biomass) and
ensuring learning can happen after dark. Women and children typically bear the burden
of inadequate energy access.
SE4ALL’s objectives are to ensure universal access to modern energy services, double
the global rate of improvement in energy efficiency and double the share of renewable
energy in the global energy mix by 2030. IRENA has joined this global effort and taken
the lead as the SE4ALL hub for renewable energy.
The status and trends described in this chapter clearly point to the important role
renewable energy plays in the transformation. This report adopts an analytical
approach centred on three key dimensions of renewable energy that will support their
growing inclusion as the transformation gathers pace.
»» Technology deployment is expanding as costs decrease (Chapter 2)
»» Financing for renewable energy has come to scale for certain technologies and is
becoming more accessible and affordable – but there are still significant regional
variations (Chapter 3)
»» Economic, social and environmental goals can be achieved through renewable
energy (Chapter 4)
In all of these areas, this report analyses some of the drivers and activities that have
initiated the transformation, and identifies related challenges and opportunities. The
report concludes with a synopsis of some key focus areas in the short to mid-term
that need to be addressed to further support the transformation.
Reduction in PV
module costs (2009-13)
Increase in capacity
factor in last decade
Reduction in
wind turbine costs
since 2008
Annual increase
in module efficiency
Increase in cumulative wind deployment
in three years (2011-13)
Increase in cumulative solar deployment
in three years (2011-13)
2 Renewable energy deployment
is accelerating as costs fall
Developments in renewable electricity generation have long been recognised as a
promising trend. However in 2013 and 2014, a number of major milestones marked
its arrival in the mainstream. This chapter describes how technology innovation and
related cost reductions are driving deployment and unlocking new opportunities
within the power sector.
Increased efficiencies and decreasing technology costs, against a backdrop of rising
electricity prices, have allowed solar PV and onshore-wind to reach new levels of cost
competitiveness. Both have reached grid parity with electricity generation from fossil
sources in a variety of countries and settings. Most other renewable technologies also
continue to become cheaper. Despite a 22% decline in global renewables investments
in 2013, falling costs allowed renewables to be deployed at unparalleled scale.
Total installed capacity of renewable power reached 1,700 GW in 2013, or 30% of
total global power capacity. The renewable share of electricity generation exceeded
22% for the first time: with 16.4% hydro, 2.9% wind, 1.8% bio-power and 1.1% solar PV,
concentrated solar power (CSP), geothermal and ocean (REN21, 2014). The scale of
uptake has expanded greatly over the past decade, rising from under 20% to 58% of
net additions to global power capacity in 2013 (see Figure 8).
Figure 8: New power capacity additions (2001 and 2013)
< 20%
Source: IRENA database
The scope of renewable power has also grown, far beyond the traditional model of
centralised, utility-scale generation. Renewables have become the technology of
choice for off-grid applications: cheaper than alternatives reliant on fossil fuels (e.g.,
diesel, oil, etc.) in virtually any power system. In many mature markets, a rapid growth
in decentralised grid-connected renewables is transforming traditional ownership
structures within the energy sector. Over 46% of current renewable capacity in
Germany, for instance, is owned by households and farmers (Agentur für Erneuerbare
Energien, 2013). Renewable technologies can also be combined with fossil fuel plants
to increase efficiency, such as CSP-natural gas or CSP-coal hybrid plants. Renewables
are increasingly being considered for different applications, ranging from water
desalination and stand-alone street lighting to remote device charging.
Solar PV and onshore wind power have undergone an industry-wide revolution in just
a few years, and are at or approaching grid parity – where electricity is equal to the
price of power from the grid – in a wide variety of settings.
Between 2009 and 2013, prices for solar PV modules declined by 65%-70%,
despite module prices stabilising in 2013.2 The technology reached new levels of
competitiveness at both distributed and utility scale. The cost of residential solar
PV systems in Germany declined by 53% during the same period, and commercial
solar power reached grid parity in countries including Germany, Italy and Spain, with
France and Mexico due to attain parity soon (IRENA, 2014b and Eclareon, 2014).
Onshore wind is increasingly the least-cost option for new grid supply. The levelised cost of
onshore wind electricity has fallen 18% since 2009 on the strength of cheaper construction
costs and higher efficiency levels, with turbine costs falling nearly 30% since 2008.
When coupled with maturing market structures, falling costs have stimulated rapid
year-on-year growth in both the scale and the scope of renewable energy deployment.
IRENA’s analysis of more than 9,000 utility-scale renewable projects, 150,000 smallscale PV projects and a range of literature sources confirms that the rapid deployment
of renewables, along with the high learning rates3 for some technologies, has produced
a virtuous cycle that will continue to drive down costs (IRENA Costing Alliance, n.d;
see Box 3).
The IRENA Renewable Costing Alliance ( was launched in early
2014. Alliance members recognise that a lack of accurate, transparent and reliable
data on the cost and performance of renewable technologies is a significant barrier
to accelerated uptake. To this end, they agree to share with IRENA, confidentially,
real-world project cost and performance data, facilitating analysis based on the latest
and best possible information.
PV module prices were stable in 2013 as manufacturers consolidated and in many cases, returned to positive
margins, after a period of manufacturing overcapacity and severe competitive pressures.
The learning rate is the percentage reduction in costs for a technology that occurs with every doubling of
cumulative installed capacity. For solar PV modules, the rate is between 18% and 22%, while for wind turbines
it is around 10%.
Local environmental conditions and their impact on power generation continue to
affect renewable energy capacity factors. However, improvements in technology
mean that the amount of wind or solar radiation needed to generate power is falling.
Meanwhile, significant investments in electricity storage technologies mean these are
likely to become more widely available soon. Increased penetration of renewables
has also created a wider geographic spread, meaning less favourable resource
conditions in one area can be offset by more favourable conditions in another. Further
interconnections and grid development will help tap into renewable resources across
larger geographical areas.
Renewable energy technologies have significant potential for further improvement,
depending on their maturity. Delivered costs of renewable energy decline significantly
as markets grow, learning accumulates and economies of scale are achieved. These
dynamics are more prominent in the case of solar PV, as indicated in Figure 9, and
onshore wind. This is in contrast to less mature technologies, such as ocean energy,
that are still approaching the commercialisation stage (see Box 4).
Figure 9: Projected solar PV system deployment cost (2010-2020)
Balance of Plant
Engineering, Procurement and Construction
U S D/ Wa t t
Source: IRENA (2014c)
Solar PV
Solar PV systems are the most accessible renewable energy technology, as their
modularity means that they are within reach of individuals, co-operatives and
small‑scale businesses. With recent cost decreases and innovative business models,
they represent the economic off-grid solution for the more than 1.3 billion people
worldwide without access to electricity.
Beyond hydro, geothermal, solar and wind power, there are noteworthy emerging
technologies that are only just beginning to be exploited at commercial scale. These either
offer greater efficiency than their more mature predecessors or present opportunities to
exploit new renewable resources.
Enhanced geothermal systems adapt existing technologies for use in a wider range of
locations, using deeper drilling to target hotter temperatures closer to the earth’s core.
As technical and economic challenges are overcome, these could greatly expand the use
of geothermal energy to provide baseload heat and power.
Ocean energy technologies are advancing quickly and the outlook for commercialisation
is good. Five main wave power technologies and 5-10 tidal current power technologies
are close to market readiness, while numerous concepts are in earlier development
stages. However, tidal energy is among the least deployed of renewable energy sources,
with around 500 MW installed worldwide, of which more than 90% comes from two tidal
Recent cost reductions have meant that at least a third of new, small to mid-size solar
energy projects in Europe are being developed without direct subsidies (Parkinson,
2014). In Chile, a new 70 MW solar farm under construction is anticipated to sell on
the national spot market, competing directly with electricity from fossil fuel-based
sources. Technology cost reductions have been driven by:
»» Efficiency improvements: The efficiency of solar PV modules in converting sunlight
into electricity has improved by around 3%-4.5% per year for the last 10 years; 4
»» Economies of scale: Integrated factories are scaling up processes, providing
competitive equipment prices and amortising fixed costs over larger output;
»» Production optimisation: More efficient production processes and improvements
in supply chain management continue to provide cost reduction opportunities.
The combination of reductions in PV module prices and balance of systems (BoS)
costs has allowed the LCOE to fall rapidly. Assuming a weighted average cost of
capital of 10%, LCOE for solar PV has declined to as low as USD 0.11/kWh and is
typically in the range of USD 0.15 to 0.35/kWh for utility-scale projects (Fraunhofer
ISE, 2013). The cost of deployment and the LCOE, however, differ from market to
market. Figure 10 demonstrates these differences for installed costs of PV systems in
certain key markets. The primary reason for such differentials is that BoS costs include
soft or non-hardware costs, which are highly market-specific.
BoS costs now make up a larger proportion of project costs, alongside the capital costs.
Improving the competiveness of PV will therefore increasingly depend on the extent
Silicon input costs have been falling, and the amount of silicon required for a panel has fallen by 30% to just
6 grams per watt-peak in 2013 on average. These help reduce capital costs.
Figure 10: Solar PV system costs by country (2010-2014)
Residential Annual
U S D/ Wa t t 2 013
US residential
US non-residential
US utility
Source: IRENA Costing Alliance (n.d.)
that BoS costs can be reduced. While the trend in BoS costs is downwards at present,
this is a diverse area with significant national variance. It is much cheaper to install
the same solar panel in Germany than in the United States or Japan, for instance – as
indicated in Figure 11. This can be a function of regulation, the availability of skilled
Figure 11: Residential solar PV cost breakdown in Germany and the United States
U S D/ Wa t t 2 0 1 3
Balance of system
United States
Source: IRENA Costing Alliance (n.d.)
installation professionals and other factors. More analysis is required to examine the
reasons behind cost differentials, identify future cost reduction opportunities and
formulate policy recommendations to enable success in different countries.
Onshore wind power
Solar PV has not been the only beneficiary of falling technology costs. Onshore
wind power is also fast approaching grid parity in purely financial terms. Technical
innovation and cost reductions are combining to make onshore wind the cheapest
source of new electricity in a wide and growing range of markets. The LCOE for wind
power is approaching wholesale electricity prices in China, Germany, Italy, Spain and
the United Kingdom and has already attained parity in Brazil and Denmark. Developers
of Brazilian wind farms have won 55% of contracts in electricity auctions since 2011,
as prices for wind energy have fallen 41% to BRL 88 (USD 45) per megawatt-hour
(IRENA, 2014c). Electricity from wind is already cheaper than nuclear power and would
also be cost competitive with natural gas and coal globally if health and environmental
costs were included in prices.
The range of levelised costs of wind-generated electricity is wide, but wind is increasingly
the most competitive source of new generation capacity for the grid. Energias de
Portugal (EDP) now reports that the LCOE for onshore wind across Europe is 20%
cheaper than for natural gas and one-third cheaper than for coal (EDP, 2014). Figure 12
demonstrates the range of LCOE for wind farms in non-OECD countries.
Most of wind’s competitiveness has been driven by the incredible pace of technological
evolution among the world’s largest turbine manufacturers. Growth in the scale of the
wind market has encouraged competition, driving down costs. The capital costs of
wind turbines have also declined since 2008/2009. The turbine is the single largest cost
component of a wind farm (64%-84% of total cost), so this has had a material impact
U S D/ k W h
Figure 12: LCOE for recently commissioned and proposed onshore wind farms in non-OECD countries
Source: IRENA Costing Alliance (n.d.)
Europe and
Central Asia
on total project costs. Innovations allow today’s turbines to harvest significantly more
wind at a given site. Higher hub heights, larger swept areas and improvements in
blade design and wind turbine operation have increased the capacity factors of new
installations. Data for the United States and Denmark shows that the capacity factors
for wind turbines (at a given wind speed) have increased by 20% or more in a decade
(Islam et. al., 2013)
Offshore wind
Offshore wind is an emerging field which is expected to grow rapidly as costs fall.
Unlike onshore wind farms, which can be as small as a single turbine, offshore wind
farms tend to be as large as possible. The average size of offshore wind farms is
currently around 200 MW. At the end of 2013, over 7 GW of world wind power
capacity was installed offshore, with the largest market in the United Kingdom.
The offshore sector is interesting as it benefits from higher social acceptance, has less
visual or noise impact and can reach significantly higher capacity factors (40%-50%)
than onshore due to stronger and more consistent winds, enhancing the ability of
offshore wind to provide baseload reliability. Where densely populated areas border
the sea, the proximity of load centres can make offshore wind especially attractive.
While capital costs are higher than those of a comparable onshore wind project, the
investment cost for offshore wind turbines with fixed-bed foundations is projected to
decline 17%-27% by 2023 (Fichtner and Prognos, 2013).5 The expectation is that this
will result in a fall in the LCOE from approximately USD 0.17-0.20 per kWh in 2013 to
USD 0.10-0.13 per kWh in 2023.
Offshore wind farms are more complicated than onshore, as grids need to be expanded
further. The average distance from shore to turbine is projected to increase to 100
kilometres by 2020 (Roland Berger, 2013). As a result, the search for sites with great wind
resources may provide a cheaper kilowatt-hour on site only to entail higher transmission
costs. Commercial offshore turbines available today have a capacity of 5-7 MW, and
turbines with a capacity up to 10 MW are being developed, which reduce overall LCOE.
There is major growth potential in the offshore wind market. In Europe alone, offshore
wind capacity is projected to grow to 40 GW by 2020. Power generation giants, such
as General Electric (GE) and Siemens, entering the market around 2000, introduced
innovation and intense industry rivalry, resulting in advancements that few experts
had thought feasible so quickly. All offshore turbines currently built have fixed-bed
foundations, although floating platforms are being tested in Denmark, Japan, Norway
and the Republic of Korea.
At the same time, operation and maintenance costs are projected to decline 19%-33%, the nominal weighted
average cost of capital (WACC) will decline from 9.9% to 7.7%, and electricity generation per kilowatt installed
will increase by around 10%.
Concentrated Solar Power
CSP uses a series of mirrors to concentrate solar energy onto a heat transfer medium,
which is then used to drive a traditional turbine. Global installed capacity is nearly
3.4 GW worldwide. The LCOE of utility-scale PV is now around two-thirds that of CSP,
but CSP’s storage capacity is often not properly valued. Thermal storage in the form
of heat, for example as molten salt, can be used to generate steam which in turn can
be used to generate electricity. Today such storage is cheaper than battery storage,
but it is only applicable on utility scale (IRENA and IEA-ETSAP, 2013).
CSP still faces challenges. CSP plants need capacities over 50 MW to achieve efficiencies
of scale, hence the amount of land needed can be a limitation, whereas PV is evidently
more scalable. CSP will therefore only be appropriate for utility–scale deployment
and will likely miss out on the democratisation that has driven PV uptake. Adopting
a hybrid approach by coupling fossil-fuel plants with CSP is increasingly being seen
as an opportunity to overcome limitations associated with CSP development and
improve efficiencies of fossil-fuel plants (see Box 5).
Developments in grid technology and energy storage
The temporal and spatial divergence of supply and demand is one of the biggest
challenges facing the transformation of the energy sector.
Controllable energy storage at scale would allow renewable energy generated at
one moment to be used later and greatly increase the level of penetration of variable
renewables at least cost. Intelligent, utility-scale storage would significantly reduce the
need for peaking provision and backup by conventional power plants, along with their
impact on the environment. From a technical and economic point of view, however,
the number of available grid-scale storage options remain limited. Pumped storage
constitutes almost 99% of global energy storage capacity, in the range of 135-140 GW
(REN21, 2014; USAID and MNRE, 2014). Battery storage technologies have developed
Hybrid CSP plants are a promising, reliable power generating technology. Hybrid plants
using heat generated in CSP systems to increase the efficiency of fossil-fuel generating
technologies could allow for 24-hour lower-carbon co-generation. A coal plant retrofit is
being installed in Australia, and various natural gas hybrid plants are operating in North
Africa, all of which incorporate CSP to improve steam cycles. Algeria’s first solar-tower
power plant will also be solar-gas hybrid, with a total capacity of up to 7 MW, and there
are hopes to replicate this elsewhere in North Africa. CSP steam production can also
supplement enhanced oil recovery operations, with CSP facilities being considered or in
operation in the United States and Oman. Retrofit hybrids create many new opportunities
in countries with the right climatic conditions.
over the last couple of years, and the industry can deliver operational solutions for
a variety of grid and off-grid applications (IRENA, 2014d). Technical developments
are expected to transform the market for energy storage from approximately
USD 200 million last year to USD 19 billion by 2017 (IMS Research, 2013).
Grid upgrades will mean that low carbon generation at a decentralised level can be
collected and redistributed among demand centres. Investments to do this are likely to
include long-distance technical upgrades and reinforced local cables, energy imbalance
markets (allowing for the trading of imbalances), technologies that increase dispatch
speeds (to match the variability of renewables) and integrated forecasting tools.
Upgrading grid and storage used to cost more than generating electricity in a peaking
plant. Since around 2005 though, technologies have been developed that can provide
utility scale load-levelling and frequency regulation capabilities at a tolerable cost – and
prices are falling fast. The benefits can include wind/solar curtailment avoidance, grid
congestion avoidance, price arbitrage and carbon free energy delivery.
Renewable technologies are effective at a variety of scales and are modular and diverse
– with applications in heating, cooling and transport as well as electricity generation.
Within the power sector, renewable energy is driving a shift from centralised utilities
to more diverse localised production.
High rates of decentralised power generation are feasible in mature markets
The future of many power grids involves a broad mix of fossil fuels and renewables,
decentralised generation, expanded storage capacity and improved demand and
supply planning through smart, real-time data flows, as illustrated in Figure 13. This is
commonly described as a smart grid.
A more distributed generation model is emerging in markets with higher renewable energy
penetration, enabled by the modular nature of wind turbines and solar panels. Germany
already exhibits significantly decentralised ownership of grid-connected renewables, with
over 46% of capacity owned by households and farmers. Only 12% of renewable assets
are owned directly by utilities (see Figure 19; Agentur für Erneuerbare Energien, 2013).
Decentralised mini-grids are seen as a way to improve grid reliability, by localising
generation and reducing the risk of transmission faults – particularly during natural
calamities. In the United States, for instance, weather caused 80% of all outages from
2003 to 2012, affecting around 15 million customers each year. Most of these outages
come from damage to large transmission lines or substations, as opposed to smaller
residential distribution networks (Climate Central, 2014). North America is the world’s
Figure 13: Smart grids and renewables
End users
End users
Distributed generation
Demand response
Energy storage
Source: Based on IRENA (2013a)
leading market for mini-grids, with a planned, proposed and deployed capacity of
2,874 MW, or 66% of the global total (Navigant, 2014a).
Overall, the market is much more robust than five years ago. In the second quarter
of 2014, global mini-grid capacity rose to 4,393 MW, marking an increase of over
6% in the previous two quarters (Navigant, 2014a). By 2022, global installed minigrid capacity is forecast to rise above 15 GW. While these projected capacities need
not be entirely renewables-based and only represent a fraction of global installed
capacity, they demonstrate an emerging demand for decentralised technologies in
mature markets, along with other niche applications in telecommunications, defence
and mining.
Renewables are the technology of choice for rural off-grid applications
Off-grid renewable energy technologies, including stand-alone and mini-grid systems,
are also emerging as a cost-effective alternative to centralised solutions in developing
regions, where access to electricity is non-existent or unreliable (IRENA, 2013c). Their
distributed nature allows them to be tailored to local conditions and deployed closer
to centres of demand. This can reduce (or in some cases eliminate) the need for a
centralised grid infrastructure.
Stand-alone solutions, such as pico lighting and solar home systems (SHSs), are
being rapidly deployed to provide basic lighting and mobile charging services. SHSs,
for instance, have experienced sustained growth with more than 5 million systems
installed (IRENA, 2013b). Bangladesh has been at the forefront of this development,
deploying almost 3 million SHSs (as of April 2014) at a pace of 65,000 systems per
month. Nearly 9% of Bangladesh’s population, or 13 million people, now benefit from
electricity access through solar solutions (IDCOL, 2014).
The global annual market for solar PV consumer products, including off-grid solar
lighting, is forecast to grow from USD 551 million to USD 2.4 billion between 2014
and 2024, with unit sales of pico solar and SHSs growing from 8.2 million annually in
2014 to 64.3 million in 2024 (Navigant, 2014b and 2014c). Some of the challenges in
benefiting from this opportunity are presented in Chapter 4.
Stand-alone solutions represent only a first step in meeting the aspirations of rural
households and enterprises. Mini-grids – which can range from a few kilowatts to
several megawatts of capacity, tapping into a single or multiple resources – will play
an increasingly important role, as they cater to basic and productive uses of energy.
They can also be integrated into the central grid when it arrives (subject to enabling
regulatory conditions).
Falling costs and increasing maturity make renewable energy the most appropriate
option both for new mini-grids and for hybridising existing fossil fuel-based minigrids (IRENA, 2013c). Since the 1950s, China has pursued the development of small
hydropower plants, first in stand-alone configurations and later integrated into the
national grid. Today, China has roughly 60,000 diesel and hydro mini-grid systems.
From 2003 to 2005, China’s Township Electrification Programme constructed
721 solar PV and PV/wind hybrid systems, along with 146 small hydro stations, to
provide electricity to 1.3 million people. The 2005 to 2010 Village Electrification
Programme connected another 3.5 million people with renewable sources. By the
end of 2015, China aims to provide power to another 2.7 million people without
electricity, including 1.5 million by grid extension and 1.2 million by independent
solar PV.
The case for renewable energy is also strong for islands. In fact, virtually all off-grid
electricity systems based on fossil-fuels will see generation costs fall by integrating
renewables (IRENA, 2012a). There are several hundred island mini-grids, usually
powered by diesel or oil-fired generators, typically in the 1-20 MW range. Increasingly,
solar PV is being added, as are wind, geothermal, biomass and ocean energy.
Hybridising mini-grids reduces generation costs in all diesel systems without affecting
the reliability of supply. Tokelau, for instance, has installed 4,032 solar panels and
1,344 batteries to generate 90% of its electricity from PV. The remaining 10% comes
from diesel, which can be substituted by coconut oil. As storage technologies mature
and costs decrease, more remote communities will be able to receive grid-quality
supply through decentralised solutions.
Past and current policies have helped trigger a global expansion of wind and solar,
allowing costs to decrease rapidly. Further cost reductions will be driven by a similar
cycle of technology improvements and increased deployment driven by long-term
policy support.
Reduced costs increase the scope, scale and competiveness of renewables, driving
more projects, leading to more technology improvements and even lower costs. This
does not mean, however, markets will deliver a sustainable, cost-effective energy
mix by themselves. To ensure the future growth of the sector, policy makers should
consider the following:
»» Public policies can support, and even accelerate, renewable energy cost
reductions. The technical and economic feasibility of renewable energy projects
is highly dependent on the markets where they are being deployed. Renewable
energy deployment can incur significant costs associated with policy, regulatory
and deployment risks specific to local markets. Governments can address these
risks by ensuring stability and predictability in policies, streamlining permitting
and grid-connection processes, promoting capacity building to meet skills needs
and introducing financial risk mitigation tools.
»» Renewable energy technologies require tailored support along some of
the stages of their life cycle, from basic science, research and development
to commercial deployment. Less mature technologies, for instance, might be
supported financially for research, development and demonstration as well as
innovation-support mechanisms (such as intellectual property protection) and
market readiness measures (such as capacity building).
»» A new electricity market paradigm, driven by technology advances, creates
policy challenges. Especially high shares of variable distributed electricity
generation in combination with information technology and storage allow for a
new way of operation. The role of centralised grids will reduce in favour of minigrids and other off-grid solutions, especially in rural areas and remote locations,
where centralised grids are uneconomic. The optimal system design and policy
response is not yet evident. An informed and systematic “trial-and-error” approach
with regular evaluations or lessons learned is recommended.
»» Policies need to adapt to changing market dynamics. The renewables sector
is developing quickly. Governments need to consider new types and levels of
support as it evolves. In the case of solar PV, for instance, once grid parity has
been attained, non-financial support may be necessary in the form of policies
such as net metering, or reducing market-induced barriers (and costs) for further
deployment. In general, the impact on various stakeholders, including incumbents,
needs to be adequately considered (see Section 3.4).
»» Grid integration and management of variable renewable energy require
attention. Adequate planning is necessary for the timely development of grid
infrastructure, investment in smart infrastructure and storage technologies and
the formulation of enabling regulatory frameworks.
»» Technology innovation is a key driver for broadening the renewables base,
raising the resource potentials and reducing the cost of energy supply. This
is the basis for a seminal renewables transition. Therefore fostering innovation
should be a key objective of the policy framework. Moreover, rapid progress in
technology can impact policy strategy choice and policy makers should ensure
that their decision making is based on the latest information.
USD 214 billion
(excluding large hydro 2013)
USD 550 billion
annually to double the share
of renewables in the global
energy mix by 2030 (REmap)
wind turbines owned by
coopertives in Denmark
RE capacity
owned by
individuals and
farmers in Germany
of total investment
in developing countries
(29% in 2007)
3 Financing renewable energy
projects is becoming easier and
cheaper – but variations remain
Investments in renewable energy have risen significantly over the past decade, from
USD 40 billion to USD 214 billion between 2004 and 2013 (excluding large hydropower).
Despite investments in renewable energy dipping 11% (in monetary terms) in 2013,
renewable energy deployment hit record levels, with solar PV and wind capacity
growing 37% and 12.5% respectively, reflecting decreasing costs (see Figure 14).
Global investment in renewables is increasingly shifting to developing countries.
These countries installed around USD 107 billion of renewables in 2012, compared to
developed countries’ USD 142 billion. This was a dramatic change from 2006, when
developed economies invested 2.5 times more than developing countries.
The investment community has gained a vast amount of experience in financing
renewable energy. This has come with the increase in the absolute volume of
investment over time, combined with an underlying increase in the number and type
of transactions, more accurate local resource data and increasing experience with
different stages of project delivery.
Figure 14: Total investment in renewable energy and cumulative installed capacity for solar PV
and wind (2004-2013)
Developed countries
(USD billion)
Developing countries
(USD billion)
Solar (GW)
USD billion
Wind (GW)
Source: IRENA based on (UNEP, BNEF and FS, 2014) and (REN21, 2014)
USD 550 billion is needed per year to scale up renewable energy to 36% or more of the
total energy mix by 2030 and keep the global temperature increase at an acceptable
threshold, according to IRENA’s REmap 2030 analysis (IRENA, 2014f).
The bulk of future investment in renewable energy is likely to continue to come from
the private sector. Attracting investments will depend on the cost competitiveness
of renewables in target markets, which is strongly influenced by: i) the cost of
deploying the technology (procurement, installation and operation) and ii) market
risks for financing renewable energy projects. Creating the right market conditions
for attracting private investment requires coordinated efforts by governments,
international financing institutions and other stakeholders.
Governments have an important role to play in fostering investment in renewables.
Figure 15 suggests features of a renewable energy investment strategy: a combination
of clearly stated objectives, enabling regulations and targeted financial and nonfinancial interventions (IRENA, 2012b). Creating an investment-friendly environment
involves reducing risks, designing innovative financial products, adapting government
support to changing market conditions and transforming utility business models.
Figure 15: Sample national renewable energy finance strategy
Incorporate externalities into the price of energy
(i.e. align market price with true cost)
Remove perverse incentives
Incorporate sustainability considerations into the financial sector
Reduce the cost of RE technologies
Overcome niche barriers to RE investment
Fill financing gaps that the private sector cannot address
Targeted Intervention
Energy Policy
Feed-in tariffs
Tax incentives
Quotas and targets
Public finance programmes
Tailored package of financing
instruments (with flexible design)
Independent governance
structure, public-private
Finance Policy
Green Bonds
Differentiated interest rates
Public banking
Non-financial interventions
Capacity building
Knowledge management
Source: IRENA (2012b)
The viability of renewable energy projects is greatly affected by a market’s risk profile.
Risks, actual or perceived, stem from regulatory and policy frameworks, and limited
experience with new technologies. These can impact the viability of projects by
increasing the cost of capital that developers are able to raise.
Traditional factors that determine energy-sector financing apply to renewable energy,
only in a different manner. Compared with fossil power generation, most renewable
energy technologies have a high ratio of upfront capital costs to operating costs,
making their viability particularly sensitive to the cost of capital. For instance, IRENA
estimates that the LCOE on a wind farm project is around 60% higher when the cost
of capital is 14.5% rather than 5.5% (IRENA, 2012a). The relative impact of the cost of
asset finance will continue to increase as technology costs decline. An example of the
cost breakdown of a utility-scale PV plant is provided in Figure 16.
Figure 16: Cost breakdown of a utility-scale PV plant over its productive life
Balance of system
PV modules
Operational expenditure
Source: First Solar (2013)
The cost of capital for renewable energy projects is decreasing because perceived
risks are being more accurately quantified. It is likely to fall further as the investment
community understands yet more about renewable technologies and the opportunities
they present. Depending on the expected cash flow outputs of the project and the
risks involved, market finance can currently be obtained for an average return of
about 6%-10% for most renewable energy projects in developed markets, with higher
returns expected in developing countries.
Globally, the cost of capital is decreasing as the volume of investment and the
cumulative experience of the financing community with renewable energy projects
increase. In parallel, sophisticated and tailored products (discussed in the next section)
that suit a wider range of investment profiles – from small-scale community financing
to large institutional investments – are reducing investment risks and bringing in new
investors. In this context, large businesses from outside the traditional energy sector
are increasingly investing in renewables (Box 6).
As markets and technology mature, renewable energy projects are attracting a
progressively wider range of investors, from private equity firms, project developers
and governments, to commercial banks and institutional investors (see Figure 17).
Box 7 charts the growing importance of multi-lateral institutions in spurring the
international flow of finance.
Institutional investors are more comfortable with low-risk, long-term investment
opportunities, of which there are an increasing number in the renewables sector. Of the
USD 71 trillion in assets under management worldwide, approximately USD 45 trillion
are invested in long-term, low-risk obligations – similar to the profile of the largest
demonstrated, installed renewable energy assets. Indeed, in a choice between 10year government securities yielding 2.5%-3%, and deployed solar and wind assets in a
domestic market returning 4%-6% with Power Purchasing Agreement (PPA) backing,
renewables should look increasingly attractive.6 However, these projects first have to
meet the strict criteria of institutional investors.
Some large non-energy companies are now major players in the renewables market. They
are looking to reduce their risk in long-term operating costs, diversify their energy supply,
and hedge against volatility in fossil fuel markets, while also earning a market-based
return on investment. This is increasing technology demand, demonstrating new business
models, and lowering the cost of capital for project developers.
At the end of 2013, IKEA had invested in 206 wind turbines and 550,000 solar panels in
eight countries, as well as in energy efficiency. In the course of the year, IKEA renewables
produced 1,425 gigawatt-hour (GWh) of electricity, equivalent to 37% of the company’s
total energy needs. The company aims to be 100% renewable by 2020.
Google has invested over USD 1.4 billion in wind and solar projects. Some of this was for inhouse use, some for social good and some because it “generates attractive financial returns”.
Walmart is working towards 100% renewable power. This includes generating energy at
stores and facilities, reducing emissions and making the vehicle fleet more efficient. At the
end of 2013, Walmart had 335 active renewable projects across its global portfolio.
More than two-thirds of Fortune’s Global 100 companies have renewable energy
commitments, greenhouse gas emissions reduction commitments or both, and the
remainder are likely to follow suit.
A 4%-6% return for an institutional investor does not represent the cost of financing to the project developer,
which is significantly higher – especially in emerging economies.
Figure 17: Investment progression through technology and market development stages
Time, technology scale and project volume
Project developers, venture capital, government grants
Early-stage funding
for small-scale
projects, including
(returns 8% +)
Target: < USD 50m
Commercial banks, multi-lateral insitutions
Increasing scale of
proven technologies,
including new settings
and larger scales
(returns 4%-10%)
Target: USD 50-500m
Institutional investors
Refinancing of
installed assets,
focus on lowest risk
(accepting very low
Target: USD 100m+
The bulk of renewable energy finance comes from private investors, including developers,
commercial banks and institutional investors, and this will increase as markets mature.
However, public financing will remain important in new and emerging renewable energy
markets and international cooperation will play a prominent role.
International financial institutions and development banks have steadily increased their
funding of renewable energy projects, to about USD 60 billion in 2012 (UNEP, BNEF
and FS, 2013). Much of this came from national, sub-regional and bilateral development
finance institutions, coordinated within the International Development Finance Club.
Greater funding of renewable energy has also stemmed from the climate finance activities
of multilateral development banks. Regional development banks and the World Bank
have been cooperating within the framework of the Climate Investment Funds (CIFs);
and the Green Climate Fund (GCF), intended to be at the centre of international climate
finance flows, is becoming operational. The GCF’s initial resource mobilisation of around
USD 5-10 billion will have been completed by the end of 2014 and some of these funds
will be used to support renewable energy investments.
Both the CIFs and the GCF place emphasis on stimulating additional private investment.
It is important to ensure that public funds, which can be disbursed on concessional terms,
do not crowd out private investments. One key objective is to develop structured deals
and devise financial instruments so that concessional public finance can address some of
the risks that hinder investment in renewable energy. This will be a prominent part of the
strategy to incentivise large institutional investors to enter the renewables sector at scale.
Investment thresholds and risk perceptions are significant barriers. Institutional
investors traditionally like refinancing proven, long-term, low-risk opportunities
with values well over USD 100 million. While many renewables projects are under
construction that might eventually satisfy this, few of these projects are seeking
finance today. Potential future candidates might include large-scale wind farms in
Brazil, China, the United States and the North Sea plus certain large solar arrays, as
well as some biofuel plants. As the total number of renewable projects increases, and
their scale expands, more opportunities will arise.
Anticipation helps. Developers and governments should make sure that institutional
investors’ requirements regarding quality, security and resilience are taken into
consideration in project design. Early, sustained engagement can ensure that when
these projects do seek refinancing, institutional investors will be able to reclassify
them away from alternative investments (always a smaller pool of money) into broader
energy investments, and will have developed the necessary human capital to properly
appraise each opportunity. Greater familiarity will result in the acceptance of lower
rates of return.
Institutional investors are increasingly concerned about the longer-term risks of
fossil fuel energy investments. In late 2013, a coalition of 70 investors collectively
responsible for USD 3 trillion called on the world’s largest fossil fuel and electricity
companies to assess risks under climate action and business as usual scenarios, and
specifically demonstrate how their business plans fare in the low-carbon future (Ceres
and Carbon Disclosure, 2013). If climate policy tightens, renewables become more
attractive relative to fossil fuels. Ceres investors7 say they are finding upstream fossil
energy investments increasingly difficult to justify. If historical fossil investments
eventually become stranded assets, policy makers will face difficult decisions around
the assets held by today’s biggest energy companies, particularly given their ongoing
pension liabilities.
Institutional investment has a two-fold effect. More renewable energy asset finance
not only ensures more projects are developed, but the increased supply also helps
lower the cost of capital more generally, making other clean energy projects feasible
too. Refinancing also liberates project finance from long-term assets, allowing
developers and multilateral organisations to initiate new projects.
Where government financial support initiates renewables projects and commercial
debt is available, the national debt rating becomes an indicator of stability and
growth for a country. Institutional investors use this to help define the risk level for
lending to and within the country. In short, the debt rating becomes the market’s
de facto evaluation of the country’s ability to sustain the renewable energy support
mechanism. Stable, dependable and long-term frameworks for the national energy
Ceres ( is a non-profit organisation advocating for sustainability leadership mobilising a network of investors, companies and public interest groups to accelerate and expand the adoption of sustainable
business practices and solutions.
mix, and national financial credibility, are crucial to risk reduction efforts. Morocco’s
Ouarzazate CSP plant offers a successful example. Upon completion, the plant
is expected to be the largest in the world at 500 MW, with the first 120-160 MW
expected to be commissioned by 2015. The project is unique in that seven lenders
were involved after the government and international finance institutions partnered
to reduce the project risk and demonstrate the long term future of CSP in Morocco
(Climate Policy Initiative, 2012).
If project developers can meet major investors on their terms, capital is available.
The European Investment Bank (EIB) reported in 2012 that there was a dearth of
investment-worthy renewable energy projects available and that funding was not the
problem (EIB, 2013).
There is also an issue in the type of finance sought: historically, projects were financed
on a one-off basis using complex structures. Institutional investors generally don’t
invest directly into small projects. If bundled and structured into a portfolio of deployed
assets, individual renewable energy projects’ high initial costs and variable cash flows
can aggregate into one steady, low-risk, long-term cash flow – approximating a bond,
with which institutional investors are very familiar. Early-mover private renewable
energy developers in this space attracted USD 11 billion in equity investments in
2013, up 200% in 12 months (UNEP, BNEF and FS, 2014).
If policy makers, along with other stakeholders, can foster a market that demonstrates
realistic projects with appropriate levels of risk and return and makes clear that
fossil fuel-powered energy will form a decreasing part of their national energy mix,
many investors will be interested. Engaging the financial sector to innovate suitable
investment vehicles will mean that institutional investors have significant investment
opportunities. Policy makers also have the possibility to integrate environmental
sustainability into monetary and financial policy, thereby stimulating additional financial
resources for renewables. This has been done at national and international levels:
The Bank of Japan established lower interest rates for lending into environmentally
strategic sectors across the entire Japanese banking sector. At the global level, the
addition of ‘sustainability requirements’ alongside the capital requirements in the
Basel Accords8 could help shift new liquidity towards the renewables sector.
The financing of renewable energy projects has also changed in developing countries,
shifting from development bank funding from 1990 to 2000, through state-led financing
from the start of millennium up to the financial crisis, onto more commercial sources
of funding today. While previously, a developer would have sought out anchor funders
such as the World Bank, the EIB or the Asian Development Bank, in economies with
significant renewable energy experience, project developers are more likely to obtain
independent commercial (and often local) finance.
Basel Accords refer to a set of agreements set by the Basel Committee on Bank Supervision, which provides
recommendations on banking regulations in regards to capital, market and operational risks.
In less experienced markets, even with coherent renewable energy strategies and
low political risk, smaller-scale, decentralised projects still struggle. Scale is certainly
a challenge, with a clear gap between the micro-scale of most proposals and the
lowest investment thresholds of most private investors. However, there is also an
issue around the project proponent’s ability to satisfy investors’ reporting criteria, plus
concerns by investors around the difficulty of aggregating small projects.
Familiarity reduces perceived risk. The cost of capital can be reduced if investors
are offered products they understand. New entrants to the renewable asset finance
market are attracting more investors with innovative adaptations of financing tools
from other sectors. These include financial hybrid instruments at a variety of scales
– from local community projects to EIB’s Renewable Energy Platform for Institutional
Investors, and Bloomberg’s Big Green Bucket concept9.
New aggregate products allow for the distribution of project and technology risk,
integrate climate impact, or link to particular phases in renewables project development
(such as early-stage technology funds). Aggregating investment opportunities can
address key investment barriers such as projects being deemed too small for large
investors, a lack of quality information and developers being seen as too small to
warrant stable credit ratings.
The renewables sector has been highly fragmented, due to its decentralised nature,
as well as the relative novelty of renewable energy technologies and the speed of
progress. Project developers have traditionally had to contribute the largest share of
capital, particularly in developing countries. Aggregating and reclassifying projects
into products or vehicles allows developers to raise capital on the international markets
and be more widely traded. Three further areas of renewables finance demonstrate
particular promise: green infrastructure bonds, crowdfunding and solar leasing.
Green bonds allow investors to tap into fixed income markets and finance clean
energy. In short, they are asset-backed corporate bonds issued to refinance operating
renewable energy infrastructure, such as a wind farm and its grid connections, freeing
the developer’s capital for the next project. They are issued in sufficient quantities to
be easily tradable and appraised by ratings agencies to ensure investment quality.
The idea has existed for years, and there were many types of green bonds on the
market, but investors struggled to differentiate. Recent developments have injected
the concept with new vigour (see Box 8). The number of projects eligible to fit inside
such a bond, along with the number of organisations considering issuing them, is
likely to increase in the short to mid-term.
The Big Green Bucket mechanism proposes to introduce a securitisation facility, which would package the
more than USD 100 billion of development bank finance currently going into projects in clean energy, transmission and power distribution globally, into high-rated bonds for sale onto to private institutional investors
and sovereign wealth funds.
In January 2014, a coalition of major global banks devised a common set of principles
– Green Bond Principles – to catalyse and clarify the market. By mid-2014, private
green bonds had already been issued for over USD 16 billion to finance renewable
energy projects, surpassing the USD 14 billion issued in all of 2013. However, this still
only represents about 1% of the USD 1.4 trillion corporate bond market, so there is
considerable room for growth.
At the other end of the spectrum, decentralised, co-operative renewable projects based
on small-scale investment opportunities are proving highly successful, as demonstrated
by US-market leader Mosaic. Crowdfunding was initially developed to finance creative
projects without delivering financial returns, but innovative companies adapted the idea
to allow volumes of investors to buy small stakes in renewable energy projects, usually
in developed markets (see Box 9). Investments are tradable in a secondary market and
have demonstrated risk/return profiles.
Crowdfunding is growing quickly, tapping into individual investors’ desire to see
where their investment is going and how it is benefitting a community. Specifically, in
conjunction with decentralised technology, crowdfunding allows individuals and local
communities to be the driving force behind the global energy transformation and to
simultaneously benefit from the change. Investors own a tangible slice of a bigger
project they would have been unwilling or unable to fund otherwise, usually in their
own geographic area.
Crowdfunding could be adopted to lower the cost of capital for investments in
developing countries too. Crowdfunding pioneer Kiva has already channelled over
USD 600 million in loans to micro-entrepreneurs in 78 countries, largely without engaging
the investment potential of domestic private capital in recipient countries (Kiva, n.d.).
Through crowdfunding investment models, the entrepreneurial spirit in developing
countries could be tapped and huge growth potential unleashed. Such platforms could
The Danish Renewable Energy Act has ensured that over 100 wind turbine co-operatives
own roughly 75% of the country’s turbines, with a portion of each project owned by local
For instance, the Hvide Sande wind co-operative is 20% owned by 400 local stakeholders,
provides an annual return to shareholders, pays rent to the local landowner and is
expected to pay off its turbines in 7 to 10 years.
It has very high levels of local support and thanks to a law that ensures electricity generation
projects must be not for profit, the price per kilowatt-hour from these community-owned
wind farms is roughly half the price of electricity from offshore wind farms.
also source investment funding globally to finance specific projects in markets facing
financial access challenges, helping to achieve the UN’s SE4ALL objectives.
Solar leasing allows rooftop panels to be owned, installed and operated by a third
party on a rooftop, with the property owner receiving payment either through a bill
reduction or by direct payment. This provides cheaper and cleaner electricity to the
property owner, without the need for significant initial capital outlay. Panel owners earn
their returns via policy-incentive mechanisms and the sale of electricity. This financing
mechanism has proved particularly successful in the United States, including SolarCity’s
business, Honda/Acura’s partnership with FirstSolar and SunPower’s alliance with Bank
of America to deliver solar leasing schemes. This concept has also been successfully
implemented in Italy and Bangladesh.
Governments can reduce public financing while increasing renewable energy
deployment, especially in advanced markets. This is primarily due to rapidly falling
technology costs requiring less financial support for the same volume of deployment,
and also because deployment experience has reduced political and policy risk and
other barriers. Financial support to encourage new renewables projects needs to
fall in line with these underlying factors to minimise the burden on taxpayers and
limit the scope for windfall profits for developers. However, as discussed earlier, in
energy markets with a lower penetration of renewable energy, public funding remains
critical to bring forward renewable projects in their very early stages – particularly if
the funding can be used to de-risk bigger projects and entice non-energy financiers
(UNDP, 2014).
At the outset, government financial support was designed to encourage early-stage
technologies through to large-scale deployment. This led to a rapid expansion in
renewable deployment in many markets and falling project costs. Costs fell far more
quickly than anticipated and policy makers had to move swiftly to re-evaluate support
programmes. But they struggled with long lead times in policy adaptation and political
decision-making. Some developed-market governments reacted with sharp subsidy
cuts or revoked subsidies and tax credits altogether, sometimes with retroactive
effect. This had a highly destabilising effect on local markets, as private investors
rushed to complete projects before the rules changed, and on international markets,
as developers wondered whether other governments would follow suit. International
investors contemplating new projects shifted their attention to lower-risk locations.
As costs fall, a gradual reduction in direct financial support benefits the industry. If
government finance is scaled back in a planned, predictable and clearly communicated
manner, it can ensure that a stable market is maintained and deployment costs continue
to fall. Degression mechanisms, wherein feed-in-tariff rates are reduced based on the
connected megawatts in the previous period, have been adopted in France, Germany
and the United Kingdom. The German feed-in-tariff system as shown in Figure 18
provides a good example of decreasing government support – while still supporting
growth of installed PV from 17 GW new installed capacity in 2010 to 36.6 GW in early
2014 (Bundesnetzagentur, 2014).
As renewable energy becomes more competitive, long-term and stable nonfinancial policies gain prominence. Non-financial policies can support purely marketdriven growth of renewable energy. These include specific measures for de-risking
investments, intellectual property protection, priority connection to the grid, tax
legislation, education programmes and industry standards. They tend to be longterm and system-wide, harder to revoke and less susceptible to the instability of
budgets. As such, these policies are pre-requisites for renewable energy deployment
in any market. The National Renewable Energy Policy and Action Plan of Malaysia,
for example, emphasised research and human capital development, in addition to
deployment policies such as feed-in tariffs.
Figure 18: German feed-in-tariff and capex (systems <10kW), (2006-2013)
Capex (EUR/W)
Electricity (EUR/MWh)
Feed-in tariff <10kW
Residential power price
Commercial power price
Source: IRENA (2014c)
Reducing or eliminating fossil fuel subsidies for power generation would significantly
lower the costs of financing renewable energy projects, both by sending strong market
signals and by improving the competitiveness of renewables. Moreover, subsidy reform
frees up more public funding for renewable energy. IRENA’s REmap 2030 analysis
indicates that doubling the share of renewables in the global energy mix will require
annual financial support of USD 315 billion in 2030. In comparison, global fossil energy
consumption subsidies amounted to USD 544 billion in 2012, at least five times that of
renewables (IEA, 2013). When considered, energy pricing reforms may need to account
for the impacts on low income groups and growing economic sectors.
Carbon pricing can boost domestic renewable energy markets. The fact that
conventional producers of energy are not forced to cover the externalities they cause
is also a hidden subsidy. In the case of fossil fuels, this includes emissions of carbon
dioxide and their climate change impact, which can be offset through effective
carbon pricing policies. The reduction in carbon-emissions prices during and after
the financial crisis undermined a potentially valuable source of support for renewable
energy. The price of carbon fell significantly due to declining industrial output and
corresponding decreases in energy demand, exacerbating the oversupply of permits
as well as regulatory failures. Going forward, concerted international policy is needed
to ensure that carbon is adequately priced. This would improve the overall cash-flow
forecasts for renewable energy, facilitating access to capital for developers.
The speed of innovation in the renewable electricity sector is driving the reform of
the regulatory process and utility business models. Decentralisation, net demand
reduction and the need to apportion the costs of back-up generation are challenging
utilities in many developed markets (see Box 10).
The centralised utility business model, whereby companies make profits by delivering
power through a centralised grid, is shifting towards a distributed local model
with increasing penetration of small-scale renewable energy. This is transforming
traditional consumers into producers. In Germany, for instance, utilities own under
12% of renewable energy capacity, with nearly half owned by individuals and farmers
(see Figure 19).
Many advanced markets are characterised by stable or decreasing electricity demand.
In such contexts, utilities’ most profitable customers are likely to reduce their power
consumption as energy efficiency measures are introduced and locally produced
power is promoted through policies such as net metering (see Box 11). However, these
customers will probably still depend on the central grid for periods of peak demand,
so utilities may be obliged to maintain costly infrastructure and power-generating
capabilities even as revenues from consumption decline. In some cases this is already
resulting in higher fees being charged to customers for grid access and use.
These developments do not have to mean the end for proactive utilities. There are
major opportunities for utilities to build on their existing relationships with consumers,
by shifting towards the provision of retail services (such as smart meter installation,
The rising deployment of renewable energy and its impact on wholesale power prices
is affecting the profitability of generation assets across the portfolios of energy utilities.
Smart meters, energy storage and transforming ownership structures are shaking up
the utility industry, changing customer expectations and obliging regulatory models to
New utility strategies require thorough organisational changes within the utilities, which
have been operating under their traditional business models for decades without the
need for significant business innovation.
The relationship between utilities and customers is becoming more complex, creating
opportunities for an array of non-utility companies to enter the market. Utilities are
reacting by expanding their offering to include demand-side management (industrial
and residential), smart-home management, distributed generation packages, the sale or
loan of energy efficiency products, etc.
Some utilities have started expanding their geographical focus and retained their existing
business models (providing power generation from fossil and renewable sources)
abroad. They are targeting primarily markets with high (or growing) electricity demand,
to invest in thermal or large-scale renewable generation.
energy efficiency advice and other services) as well as the direct sale of grid-tied
renewable infrastructure and the provision of grid-scale storage. Utilities can help
renewables with relatively low-cost capital, their expertise, their existing infrastructure
and their access to homes and businesses.
Utilities can form partnerships to raise capital for renewables. Developers can reduce
cash flow risks and volatility by piggybacking on utility balance sheets and credit
ratings, while utilities can benefit from new business opportunities identified by smaller
developers. Nationalised utilities can partner with renewable energy developers to
co-finance projects at scale.
Figure 19: Germany’s ownership distribution for installed renewable energy capacity (2012)
Private individuals
Project developers
Investment funds/banks
Source: Agentur für Erneuerbare Energien, 2013
Net metering is a mechanism which allows individuals and other generators to export any
excess production to the grid and to be compensated for their net output based on fixed
or market-based prices. This enables the transformation of consumers into customers
who both produce and consume electricity, and makes small-to medium-scale renewable
energy investment more attractive. Policy makers like it because it can be adjusted to
reflect the underlying costs of renewables, even beyond parity with the grid.
Net metering is already in place in at least 43 countries, up from just 10 in 2009. Over
1.5 GW of solar PV capacity deployed in the United States in 2012 was net metered,
representing 99% of the total solar installations that year. The challenge is to distribute
costs and benefits between desentralised generators, network operators and nonproducing consumers in a way that sets the right incentives. Various measures are being
proposed to address this, from assessing the “value of solar” (in Texas) to the imposition
of surcharges on generators (in Arizona).
IRENA’s ‘Adapting Renewable Energy Policies to Dynamic Market Conditions’ examines
net metering policies in more depth.
Utilities can also access cheaper capital directly. French utility Electricité de France’s
(EDF) 2013 green bond issue raised EUR 1.4 billion (25% into solar, 75% into wind, with
an annual coupon of 2.25% and a maturity of 7.5 years). It was described by industry
analysts as twice oversubscribed, with the bulk of potential investment coming from
institutional investors (The Economist, 2014). With part of this capital, EDF entered
into a joint venture with Indian solar company Acme to develop an initial portfolio of
200 MW in India.
With a better understanding of the opportunities and risks within asset finance,
governments can develop more effective policies to reduce risks and attract
investments into the sector.
Staying the political course is the best way to reduce financial risk. A continued
reduction in the cost of capital partly depends on governments’ ability to make policies
transparent, credible, long-term and predictable. This can be achieved by laying out
long-term statements of intent, including financial support and review windows.
To attract institutional investors in particular, policies must ensure that projects satisfy
their minimum investment requirements: long-term, low-risk and demonstrated,
proven technologies, ideally backed by purchase agreements.
Set out below are some ways to implement this:
»» Policy makers are well placed to address the upfront cost of renewable
energy projects. Traditional options include revising tax credit structures or
permitting accelerated depreciation, but policy makers must signpost these to
market participants carefully, so as not to create boom-bust markets. Innovative
approaches to financing – such as green bonds, risk sharing and aggregation – can
attract further investments into the sector to bridge the funding gap.
»» Policy makers need to ensure that policy mechanisms keep pace with the falling costs
of renewable energy technologies. This requires monitoring the market frequently,
communicating regularly with industry and clearly signposting future policies. These
minimise windfall profits, and avoid disproportionate liabilities for either government
or consumers. The objective should be to phase out financial support for renewable
energy as technologies drop under parity with fossil fuel-powered generation and
the underlying conditions warranting subsidies are addressed. Without the additional
stimulus of a sufficiently high carbon price, governments are likely to continue in a
direct financial support role in the short term.
»» Policy makers should continue to implement wider structural policies (e.g.
enabling infrastructure, energy pricing reform, education and training programmes,
and research and development) and specific enabling measures (e.g. updating
planning and permitting regimes, standardising Environmental Impact Assessment
requirements) to facilitate renewable energy deployment.
»» Policy makers need to be transparent and up-front on the cost of renewable energy
to rate-and tax-payers. Renewable energy support has in the past inflated bills to
taxpayers, consumers and business. It may also be prudent to implement spending
caps on renewable energy support, particularly for feed-in-tariff mechanisms, as
has been done in the United Kingdom, Italy, Germany, the Netherlands and Malaysia.
»» Policy makers could consider targeted fossil-fuel subsidy reforms. Reducing
fossil-fuel subsidies can significantly level the playing field for renewables, improve
a country’s balance of payments and ensure government finance is on hand for
other initiatives. When considered, energy pricing reforms may need to focus on
low-income groups and growing economic sectors.
»» Policy makers should utilise international finance effectively to encourage, rather
than displace, private investments in renewable energy. An intelligent use of
public finance would help address some of the risks that are specific to developing
countries and help create the policy environment needed for private investors
to scale up their engagements. International cooperation could also address the
international financial rules and introduce sustainability as an additional criterion.
USD 52 billion
generated by
Chinese PV industry
in 2013
up to
less CO2 than coal
average increase
in GDP expected from
20GW wind in Mexico
of Bangladesh’s
population is electrified
by solar
6.5 million
jobs in 2013
4 Renewables can address economic,
social and environmental goals
Policies that promote renewable energy can simultaneously address economic, social
and environmental objectives. A key part of rethinking energy is for policy makers to
take a more holistic approach to charting the world’s energy future.
There is a common view that while renewables are more environment-friendly, they
are too expensive. As demonstrated earlier in this report, declining costs mean
the perceived economic trade-off of ‘cheap vs. clean’ is becoming less important.
This false dichotomy becomes even more apparent as economists develop tools to
measure the broader impact of power generation, such as the cost of pollution and
fuel price volatility.
Effective analysis of the costs and benefits of different forms of energy should take
into account a much wider view of economic development than is now the case,
including the balance of trade, industrial development, growth in gross domestic
product (GDP), employment, energy access and health.
Solar, wind, hydro, geothermal and ocean energy are domestic resource endowments.
Increasing the use of renewable energy can enable positive structural change in
a country’s balance of trade, if the reduction of fossil fuel imports, or an increase in
exports, outweighs renewable technology imports. Spain’s use of renewables is
estimated to have avoided USD 2.8 billion of fossil fuel imports in 2010, while Germany
saved an estimated USD 13.5 billion in 2012 (Deloitte and APPA, 2011; BMU, 2013; IEA,
2012; International Monetary Fund (IMF), 2013).
For fuel-exporting countries with subsidised domestic fuel prices, renewable energy
deploy­ment can minimise domestic fuel consumption and maximise the amount
available for exports. The Middle East and North Africa region’s endowment with
abundant sunshine means that afternoon peak electricity demand, driven by airconditioning requirements, is roughly aligned to peaking solar yields. Evening peak
demand could be addressed through CSP plants with storage. At present, peak
power is usually supplied by expensive back-up generation from oil or liquefied
natural gas (LNG), making solar power commercially viable without any subsidy
support (PricewaterhouseCoopers (PwC), Robin Mills and Emirates Solar Industry
Association, 2012).
The deployment of renewable energy may not impact the trade balance positively in
the short term. A deployment policy that reduces imports of fossil fuels may increase
imports of renew­able energy equipment (for example, solar panels produced abroad),
which could initially result in a negative impact on the trade balance. However,
the imported renewable energy technologies would enable the reduction of fossil
fuel imports for a significant period of time (e.g., 20 years), so that the long-term
effect on the trade bal­ance is likely to be positive. Furthermore, the development of
local renewable energy industries can help localise value-adding activities such as
equipment manufacturing and services for project development and operation – thus
improving the trade balance.
A number of countries require that investments in renewable energy projects include
local content (project development and design, construction and installation, operations
and maintenance) to maximise value to their economies. While countries differ
substantially in their level of industrial development and expertise, many can contribute
a significant share of the manufacturing. All countries can provide significant local value
added through the installation and maintenance of renewable energy systems.
Policy decisions aim to balance benefits which are narrower but immediate (importing
lowest cost technology) with those that are broader but longer term (localising). A
country’s potential to produce renewable energy products or services domestically
depends on several factors, including its natural resource endowment, its stage of
economic and industrial development, and the size of domestic renewable energy
market. While some elements of advanced technology will likely need to be imported,
localising content can create jobs and develop domestic capacity.
An accurate assessment of domestic capabilities and international market potential
supports good policy-making. Some countries have developed local content
requirements (LCRs) as an instrument to support nascent domestic renewable energy
industries (see Boxes 12 and 13 for country examples). To ensure the full-fledged
development of an infant industry, LCRs should be time-bound, closely linked to a
learning-by-doing process, and support the creation of an internationally-competitive
domestic industry with a skilled workforce.
The full effects of LCRs are dynamic and depend to a large extent on the policies that
govern deployment, industry and education; on the stage and level of deployment
of a given technology domestically; and on the cost of technology. Supporting
research and development and export-oriented manufacturing, as well as enhancing
the business-friendliness of the country in general, may yield wider benefits when
combined with policies designed to support specific renewable energy technologies.
There are also risks to LCRs. If the conditions are too stringent, there may be no
interest from developers or investors.
Countries do not necessarily have to produce end-product renewable energy
equipment themselves in order to benefit. They may export raw materials (e.g., rare
In 2009, Brazil established a requirement for bidders participating in auctions to get
40% of components from Brazilian suppliers, rising to 60% in 2012, in order to qualify
for subsidised loans by the Brazilian National Bank for Development. From 2013,
manufacturers have to produce or assemble at least three of the four main wind-farm
elements (i.e., towers, blades, nacelles and hubs) in Brazil.
As a result, international wind companies have set up local assembly plants including
Alstom, GE Wind, Vestas, Suzlon and Gamesa. In addition to establishing a domestic
wind industry, these auctions have resulted in deploying 370 MW in 12 months to
January 2014, and taking the total to over 2.2 GW. In fact, wind power was excluded
from one of Brazil’s national auctions in 2013 as it would price other renewable electricity
generation technologies out of the market.
earth elements, biomass), intermediate goods or capital equipment such as machine
tools, which are used to produce renewable energy components.
As Figure 20 demonstrates, renewable energy technology manufacturing is more
labour intensive (per MW of new installation) than coal, natural gas or nuclear. When
creating energy policies, policy makers should consider the number of jobs their policies
will create and how many of these can be localised. However, before deciding on local
manufacturing, they may also consider the potential market size in order to avoid
overcapacities and employment boom-bust cycles. Other factors to consider are the
competitiveness of the market and the need to develop the necessary technological
capabilities required for learning and for improving efficiency and quality.
Po rm
w al
J o b - ye a r s / M W n ew i n s t a l l a t i o n
Figure 20: Potential jobs per megawatt by technology
Source: Rutovitz and Harris (2012)
The South African Renewable Energy Independent Power Producer Procurement
Programme (REIPPPP) is a competitive bidding mechanism with long term PPAs
for developers. Socio-economic benefits from renewable energy deployment
are maximised through the use of weighted development criteria during bid
Job creation and local content, for instance, both have a 25% weight while
assessing bids. Similarly, local ownership and development each have a 15%
weight. Other criteria include preferential procurement (10%), management
control (5%) and enterprise development (5%).
Early evidence suggests that REIPPPP has been successful in bringing forward
the cost efficient deployment of renewable energy. Renewable energy job
opportunities are increasing and local economic development impacts are being
realised. South Africa’s Energy Ministry estimates REIPPPP’s third window will
contribute approximately USD 4.4 billion towards national socio-economic
A growing number of studies show that the impact of renewable energy on GDP is
positive, particularly if renewable energy is cheaper than alternatives, or creates local
industries that are competitive (see Box 14).
A comprehensive study on renewable energy deployment in Japan, assuming a 2030
target of 14%-16% renewables in the energy mix (including geothermal and hydro),
concluded that the realised benefits are approximately double to triple the costs. The
benefits are categorised into: 1) savings of fossil fuel imports; 2) quantified economic
value of reduced CO2 emissions and 3) indirect and induced economic ripple effects.
Of these categories, the economic ripple effects are expected to account for 75%-90%
of the total benefits (Japanese Ministry of Environment, 2008).
A recent analysis of the macroeconomic effects of the European Energy Roadmap 2050
shows that the transition to a more sustainable energy system could result in net
job creation and positive economic impacts, alongside decreasing renewable energy
technology costs.
In Malaysia, the current feed-in-tariff for selected renewable energy technologies is
expected to generate cumulative income of about USD 22 billion by 2020. In China,
the PV industry generated about USD 52 billion in 2013 alone and the latest job
estimates indicate that it employed around 1.6 million people (IRENA, 2014e).
IRENA has examined the effect of renewables on the economy. Selected case studies
included China, Italy, Japan and Mexico, all of which were found to display positive net
impacts from renewables deployment: lower costs, development of an export-oriented
industry and increased investment
CHINA: China’s solar photovoltaic industry generated national income of USD 52 billion
in 2013.
ITALY: The USD 16 billion invested in renewable electricity technologies in Italy in
2011 contributed USD 23 billion to GDP.
JAPAN: Including 14-16% renewables in Japan’s energy mix would deliver double to
triple the installation cost in net benefits by 2030, of which 75-90% would be purely
MEXICO: Developing 20 GW of wind in Mexico is projected to increase cumulative
GDP by USD 7-28.5 billion by 2020, representing between 0.6% and 2.4% of 2012’s
GDP (depending on the level of domestic manufacturing).
The study provides further analysis on the socio-economic benefits of renewables.
As the slow recovery in the global economy fails to invigorate labour markets, renewable
energy deployment provides an opportunity to alleviate some of the employment
concerns. Job creation is gaining increasing prominence in the global renewable energy
debate. However, specific analytical work and empirical evidence on this important
subject remain limited. IRENA’s work on renewable energy jobs (IRENA, 2012c, 2013b
and 2014e) contributes to bridging the knowledge gap and provides a com­prehensive
view of the various dimensions of renewable energy employment.
The renewable energy sector has already become a major employer, supporting around
6.5 million direct and indirect jobs in 2013 (IRENA, 2014e). These figures exclude large
hydropower (due to data limitations) which, if accounted for, would significantly boost
the total employment estimate. These jobs span across solar (the largest renewables
employer in 2013), bioenergy, geothermal, hydropower, wind and small hydro. The
6.5 million figure represents a 14% increase over 2012’s estimate. Growth has been
driven by increasing capacity additions (one-off jobs in manufacturing, construction
and installation) and growing cumulative capacity (operation and maintenance jobs
over project lifetime).
Employment trends mirror the regional shifts apparent in installation and investment,
with significant growth outside OECD countries and a major focus on China. Other
factors affecting employment include structural changes in industry, growing
competition, advances in technologies and manufacturing processes, the impacts
of austerity and policy uncertainty to name a few. Although declining prices of
solar PV and wind equipment are introducing new challenges for suppliers and are
shifting manufacturing jobs, they are also driving employment growth. This comes
as a result of more installations being completed and the subsequent operations and
maintenance requirements.
By 2014, 144 countries had defined renewable energy targets (REN21, 2014). As
renewable energy spreads, so does employment in the sector – trending in line
with the pace of installations. The top renewable energy employers are also the
leading nations in local technology deployment – China, Brazil, the United States,
India, Germany, Spain and Bangladesh (a notable success story for small solar home
systems). Employment in solar PV in particular is showing substantial growth in other
countries including Japan, Malaysia and Australia. Figure 21 shows where the majority
of jobs in the renewable energy sector are located.
China and Brazil are leading employers in renewable energy
China is the largest renewable energy employer, with 2.6 million jobs. The Chinese
PV industry alone employs 1.6 million people, a significant increase over 2011
(0.3 to 0.5 million jobs) – largely due to a 5-fold increase in annual installations. Brazil
Figure 21: Renewable energy jobs in selected countries (excluding large hydro)
6.5 million jobs in 2013
Germany Rest
of EU
Jobs (Thousands)
Source: IRENA (2014e)
391 Bangladesh
is the second largest employer, mostly associated with liquid biofuels. Employment in
Brazilian wind power is also growing, but remains a distant second.
In the United States, employment in the solar energy sector has been rising rapidly,
mostly in solar PV. In the wind industry, manufacturing capacity has grown strongly,
but the stop-and-go nature of the national support mechanism triggers periodic
fluctuations in employment.
Job developments in Europe in 2012 were mixed, with significant gains in wind and
bioenergy, and a decrease in solar PV. European pioneers in renewable energy,
Germany and Spain, have suffered job losses. Decreasing employment was likely
driven by the economic slow-down and austerity as well as uncertainty from policy
revisions (e.g., Germany’s solar feed-in tariffs) or retroactive changes reducing
investor confidence (e.g., Greece, Romania, Spain) (IEA, 2014b).
Several Asian countries other than China posted significant gains in renewable
energy employment in 2013. Bangladesh has generated 100,000 jobs (Box 15),
while Japanese support mechanisms created 60,000 solar jobs, and Malaysia created
10,000 jobs in solar manufacturing.
Solar, biofuels and wind are leading employers
Employment trends vary widely across renewable energy technologies. Jobs in solar
PV have outpaced those in wind in the last three to four years and have tripled since
Bangladesh faces the twin challenge of unemployment and limited energy access.
With a rapid expansion of solar home systems (SHSs), the number of people involved
in the solar industry has nearly doubled in two years to reach 100,000 in 2013. Jobs
are primarily for field assistants with basic technical and vocational skills to sell, install,
provide maintenance and collect solar loan payments for SHSs. This success can be
attributed to the following factors:
Training: Vocational education and on-the-job training have built strong local
capacity. The Infrastructure Development Company has trained 410,000 technicians
and consumers.
Microfinance: Schemes tailored to the cash flow of rural households have unlocked
their buying power.
Local manufacturing: Bangladesh initially imported SHS components from Singapore,
India and China, but has now localised most of manufacturing.
Quality-control: System standards, physical inspections, training programmes and
consumers have ensured quality installations.
Domestic research has reduced costs and adapted technology to local requirements.
2011. Employment in bioenergy is led by liquid biofuels despite a trend of increasing
mechanisation of feedstock operations in major producing countries such as Brazil.
Data are lacking for other renewable energy technologies, but expanding capacity in
both geothermal and small hydro should translate into rising employment (IRENA,
2013b and 2014e). Figure 22 gives an indication of which technologies currently
generate the most jobs.
Figure 22: Renewable energy jobs by technology
J o b s (t h o u s a n d s)
Solar PV
Liquid Biofuels
Wind Power
Solar Heating/
Small Hydropower
Solar Power
million jobs
in 2013
Source: IRENA (2014e)
Figure 23 demonstrates the significant potential of job creation in the construction
and operation and maintenance segments of the renewable energy value chain. Jobs
in the construction and installation are created at the beginning of a project whereas
those in operation and maintenance are created throughout the operational lifetime
of a project. Data collected from various renewable energy projects indicates that,
in general, renewable energy technologies create more installation jobs per MW of
new installations and more operation and maintenance jobs per MW of cumulative
installed capacity than their conventional energy counterparts. It should also be
noted that jobs in these segments (installation, operation and maintenance) are
inherently localised, compared to manufacturing jobs which require development of
local industries (see Box 16).
Figure 23: New jobs created in construction, operation and maintenance of power assets
0.2 0.2
Solar Thermal
Solar PV
0.9 1.85
Wind Onshore
Solar Thermal
Solar PV
Wind Onshore
Wind Offshore
Jobs/MW installed
Wind Offshore
Job-years/MW new installation
Source: Based on Rutovitz and Harris (2012)
Note: Construction/Installation jobs are created at the beginning of a project. Their jobs factors are expressed
in job-years (a unit of effort much like human hours) per megawatt of new installation because the actual
jobs can be created over a span of multiple year depending upon the construction period. Operations jobs are
created every year during the life time of the project; therefore the unit is jobs per megawatt total installed
capacity in the given year
The renewable energy sector faces a skills shortage. A limited supply of education and
training means high level skills aren’t available where they are needed most.
The IRENA Renewable Energy Learning Partnership (IRELP) aims to address this by
providing a one-stop-shop online for renewable energy education and training. It offers
over 2,700 courses, degree programmes, training guides, internship opportunities and
webinars in multiple languages. IRELP has been accessed by over 90,000 unique users
since its launch in April 2012, with 7,000 visitors and 24,000 page views per month.
Coordination between policy makers and national education and training institutions is
also an issue. IRELP is identifying gaps in capacity needed to meet REmap’s 2030 targets.
For more information on IRELP, please visit
Access to modern energy is essential for economic development, yet over 1.3 billion
people remain without electricity access, and 2.6 billion rely on traditional biomass
for cooking and heating. In order to achieve universal access to electricity by 2030,
the pace of expansion needs to double – using both on-grid and off-grid solutions
(World Bank, 2013b).
The modular, scalable and decentralised nature of renewables means they can be
adapted to local conditions and provide a broad range of energy services depending
on the needs and purchasing power of end users. There is growing evidence that
off-grid renewables can increase household income and employment opportunities
both in the energy supply chain and in downstream enterprises. IRENA estimates
that attaining universal access to modern energy services by 2030 could create
4.5 million jobs in the off grid renewables-based electricity sector alone (IRENA,
2013b). Many of these jobs can be created within rural communities, as most skills
can be developed locally. Focusing on local capacity enhances sustainability by
reducing reliance on external expertise. However, challenges remain to realising the
opportunity presented by off-grid renewables and achieving the scale necessary to
meet the objective of universal electricity access (see Box 17).
Off-grid solutions will play a major part in expanding electricity access, but scaling-up
deployment is a challenge. Decentralised electrification is complex. Off-grid markets
have varying demand and affordability, based on the remoteness of locations, levels of
awareness, access to finance and skills. Innovative business and financing models can
overcome barriers, but development has been on a project-by-project basis. A marketbased approach is necessary, but requires enabling policy and regulations, customised
technologies and easier access to capital. Given the large number of stakeholders,
addressing these issues often requires coordination and collective action.
IRENA’s International Off-Grid Renewable Energy Conference (IOREC) (
raises the profile of these issues and brings together practitioners and policy makers to
design and deliver effective off-grid solutions. Following the first conference in Accra
(Ghana) in 2012, IRENA organised the 2014 edition in Manila, the Philippines, in collaboration
with the Asian Development Bank and the Alliance for Rural Electrification. Ahead of the
conference, IRENA surveyed over 400 regional stakeholders to identify challenges and
opportunities in the sector. Field practitioners reported a lack in clarity on grid expansion
plans and high transaction costs. While governments reported high technology costs,
private sector developers have not found this a major issue, instead highlighting the need
for appropriate financing and supportive policies to bring these technologies into play.
IRENA published key findings and recommendations from the first IOREC conference.
Considerable value can be created by improved electricity access for local businesses,
gains in agricultural productivity and food preservation. Mobile phone charging, for
instance, is an increasingly important local business in rural areas of developing
countries (IRENA, 2012c). Nearly 500 million subscribers (as of 2010) live in off-grid
areas (GSM Association, 2011), but phone charging can be difficult or expensive.
This has led to a stream of rural enterprises providing affordable mobile charging
services using off-grid renewable energy technologies. Although quantifying these
benefits is not easy, efforts should be made to account for them when assessing the
value of access to energy.
The nexus between energy, health, education and water presents important
opportunities for renewable energy. Over a billion people globally are served
by unelectrified health facilities. In 2010, an estimated 287,000 women died of
complications from pregnancy and childbirth; many of which could have been
averted with minimal lighting and appliance operating services (SE4ALL, n.d.).
Modern energy access is also needed to refrigerate vaccines and other medicines
in rural villages. Similar potential exists in education. More than 50% of children
in developing countries go to primary schools without access to electricity. A
more holistic approach to energy access is needed to look beyond households to
community-based institutions, including healthcare and education.
Consumers are increasingly aware of the energy supply’s impact on the environment,
and governments are keen to mitigate their concerns. Environmental effects can be
divided into two broad categories: local and global.
Local effects concern the immediate surroundings of a power asset, including the
depletion of natural resources, pollution (air, noise, water and waste), changes to land
use – which include habitat or community displacement, land-value degradation and
visual impact. They also include the risk of accidents. Global issues centre primarily
on the emission of greenhouse gases, climate change and ocean acidification.
All forms of energy supply, including renewable energy, have an impact on the
environment. However, the impact is on aggregate far lower for renewable than
for non-renewable energy – from manufacturing to operation and end-of-life
decommissioning, air pollution, detrimental land-use change and on ecosystems.
Most renewables do not consume fuels during the course of their operation and
don’t deplete finite natural resources. Bioenergy does consume feedstock which,
while renewable, can be depleted if land is not properly managed. Geothermal sites
can be depleted over time. Noise pollution and light strobing from onshore wind can
be a local environmental issue.
While most renewables consume significantly less water compared to fossil or
nuclear plants, water needs for cleaning must be considered. Solar PV and CSP
installations rely on clean surfaces (glass or metal), and CSP requires cooling. This
can become an environmental concern in arid regions – making it critically important
to use water-efficient or waterless technologies.
Furthermore, renewable energy is associated with the lowest risk of disaster
potential, especially when compared to coal mining, oil spills (such as Deepwater
Horizon in 2010) or nuclear accidents (Fukushima in 2011).
The most critical global environmental impact of energy – and electricity generation
in particular – is its contribution to climate change. Electricity accounts for over
40% of man-made (combustion related) CO2 emissions. Just as the economic
costs of electricity can be compared, so can the environmental impact of different
technologies in terms of carbon intensity. Using grams of carbon dioxide emitted
per kilowatt-hour allows for an interesting comparison between technologies. CO2
intensity across technologies differ vastly according to components, plant lifetimes,
fuel-types and waste intensity, and can be difficult to compare.
Life-cycle emissions
Greenhouse gas emissions sources span the entire life cycle of electricity
generation technology – from the manufacturing of a power plant’s components
and its construction, to electricity generation, to the handling of waste and the
decommissioning of a power plant. Where fuels are used (biofuels, fossil fuels and
nuclear) the fuel supply chain has to be considered as well as fugitive emissions during
extraction and combustion (not only CO2 but also methane and nitrogen oxides,
both powerful greenhouse gases), manufacturing of equipment for exploration and
production, and infrastructure and fuel transport emissions. Significant sources
of greenhouse gases may come from energy – heat and electricity – required in
the manufacturing process (itself depending on the source of that energy), from
embodied emissions in materials (particularly steel, cement/concrete, aluminium;
and fertilisers for biomass/biofuels) and from land-use change and reclamation.
The vast diversity of factors across renewable, fossil and nuclear technologies
requires a more detailed look into where emissions come from. Building on
approaches to life-cycle analysis used in the retail and manufacturing industries,
it is clear that the carbon footprint from manufacturing solar panels needs to be
considered; so does transporting natural gas from a field to the power plant; and
the emissions associated with decommissioning a nuclear reactor and managing
radioactive waste. Figure 24 depicts the lifetime emissions per kWh for a variety of
common renewable and conventional technologies.
Figure 24: Life-cycle emission intensity of electricity generation by technology*
Grams of CO 2 equivalent per kWh
Hydro Geothermal Wind
Solar CSP Solar PV Nuclear Natural gas
The black bar illustrates the median
Source: IPCC (2011)
* Estimates of total life-cycle greenhouse gas emissions do not account for contributions from either land use
change or heat production (in cases of cogeneration).
Solar, wind, nuclear, hydroelectric and geothermal are, across their lifetime, 10-120
times less emitting than the cleanest fossil fuel (natural gas) and up to 250 times
lower than coal. The benefits offered by renewables in reducing carbon emissions
means that their expansion must be part of any pragmatic scenario that can avoid
catastrophic climate change.
The primary focus of policy makers has been on the cost of delivered electricity.
However, broader issues are starting to drive the debate, including local and global
environmental impact and socio-economic benefits. As policy choices across
generation technologies address environmental impact, planning can take place in a
more integrated manner – a much needed recognition of the energy, water and food
nexus which governs the long-term sustainability of economies and quality of life.
Maximising the socio-economic benefits of renewable energy deployment, and job
creation in particular, relies on a combination of policies that stimulate investment,
promote education and training, support industrial development and encourage
research and innovation. These policies can only be successful if they are stable over
time, tailored to country-specific conditions and supported by stakeholders. Policy
makers should consider:
»» The long-term impact of renewable energy deployment on the balance of
trade. For fuel-importing countries, renewable energy can reduce the fossil fuel
bill, while reducing the risks associated with price volatility. For fuel-exporting
countries, renewable energy can free up valuable resources for export. Renewables
deployment can increase imports of renewable energy equipment – initially
resulting in a negative impact on trade balance. In the longer term, however, the
resulting reduction of fossil fuel imports should improve the balance of trade.
»» The adoption of mechanisms that support the development of a local industry,
tailored to the country’s particular strengths and weaknesses. For instance, the
design of local content requirements should consider existing areas of expertise
along different segments of the value chain and be directed at those with the highest
development potential. Such policies should be time-bound, closely linked to a
learning-by-doing process, and accompanied by measures to enhance local firmlevel capabilities, develop relevant skills and support research and development.
»» The impact of renewable energy on income and employment along all segments
of the value chain. In addition to manufacturing, considerable potential for value
creation exists in the installation, operation and maintenance of renewable energy
projects. To ensure stability and continued growth in employment, steadiness and
predictability in governmental policies are necessary. In addition, policy makers
and other stakeholders should anticipate the skill requirements and promote the
provision of adequate education and training in the sector.
»» The potential of off-grid renewable energy deployment for significantly
improving rural economies in a cost-effective manner. An integrated
programmatic approach is needed, that is based on innovative business and
financing models, enabling policy and regulations, customised technologies and
easy access to capital.
»» The emissions intensity of power generation, measured in gCO2e per kilowatthour, to compare global environmental impact across technologies. Policies and
regulations integrating emissions-intensity measures can contribute to mitigating
climate change. The benefits offered by renewables in reducing emissions means
that their expansion must be part of any strategy to avoid catastrophic climate
5 Accelerating the energy
Over the span of a single decade, a virtuous circle of technological progress, falling
costs and rising investment has moved renewable energy from niche to mainstream
all over the world. In a growing number of countries it has even emerged as the
clear market leader in new capacity additions to the energy mix.
The speed of this advance has invited comparisons with the advent of mobile
telephony and heralds changes every bit as significant. It is due in no small part
to the vision of a few governments, which made a long-term commitment to safe,
secure and sustainable power, and backed that with financial support. Through
feed-in tariffs and other forms of support, they drove a transformation, faster than
many expected or would have predicted.
As a result of these efforts, the world is standing on the brink of a new industrial
revolution, in which polluting and scarce, finite fuels are replaced by clean sources
of abundant energy. Renewables have accounted for the majority of global capacity
additions for the last 3 to 4 years in a row, and their market share is projected to
grow further.
But this ascent, while outstripping all predictions, must be further accelerated if it
is to enable the world to achieve the doubling of renewable energy in the global
energy mix by 2030 as championed by the SE4ALL Initiative of the United Nations.
Unless governments create the enabling conditions for growth in a dynamic market
setting, renewables will reach only 26% of the global power generation mix and 21%
of total final energy consumption by 2030. That is far short of the levels needed
to avert catastrophic climate change and bring power to millions of people living
without electricity access. The technology to support this transition exists today
and pathways have been identified for up to 44% renewable power globally in 2030
and much higher percentages that are technically feasible and economically viable
in certain systems.
The outlook for renewable power is bright. But the mechanisms which brought
renewables into the mainstream are not necessarily appropriate for the next phase
of their move to the majority. Recognising the profound differences of a world run on
renewables will provide the rationale and impetus for future investment supported
by strong policy frameworks. To take the renewable transformation to this next
level requires a different approach in terms of electricity systems planning, market
design, policy frameworks, innovative funding, and providing adequate education
and training.
This report is evidence for what has been achieved, a reminder of what is at stake, a
roadmap for the future and an appeal to governments to grasp the opportunity at hand.
On offer is a paradigm shift, but to make it work requires a new way of doing business.
Policy makers need to rethink the way they approach energy altogether.
In any discussion of the future of energy, it is crucial to be clear about what is at
stake. The electricity sector accounts for more than 40% of man-made (combustion
related) CO2 emissions today. Climate scientists have come to a stark conclusion: that
substantial new approaches are needed to decarbonise the global economy and that
in this regard, a systematic global shift to renewable power generation is urgently
needed to avoid catastrophic climate change.
This presents policy makers with a choice. On the one hand, they can introduce
measures to promote the rapid uptake of renewables, and in so doing, can generate
new growth and employment while giving the world a realistic chance of keeping
global temperature rise to below the critical 2 degree Celsius threshold. On the other,
they can choose to carry on as usual, and lock in the existing power system for
multiple generations with all that implies for carbon emissions.
REmap 2030, IRENA’s roadmap for doubling the share of renewable energy in the
global mix, shows that current policies and national plans will result in average CO2
Figure 25: CO2 emissions intensity per kWh – 2030 outlook
World average
Natural Gas
Coal 960
Oil 800
CO2 intensity per kWh
(2010 world average)
World 565
Natural Gas 450
REmap 2030 doubling share of renewables
Renewables and nuclear
Source: IEA (2010) and IRENA (2014a)
emissions only falling to 498 g/kWh by 2030 (from the current 565 g/kWh). That is
insufficient to keep atmospheric CO2 levels below 450 ppm, beyond which severe
climate change is expected to occur.
By contrast, if stakeholders double the share of renewable energy by 2030, global
average emissions could be reduced to 349 g/kWh – equivalent to a 40% intensity
reduction from 1990 levels (see Figure 25). Coupled with improvements in energy
efficiency, this would be enough to avert disastrous climate change. In other words,
there is an affordable solution on offer, but it will require proactive policy efforts to
make it happen.
The good news is that the technology is sufficiently mature, and the economics
sufficiently favourable, that the solution is entirely within countries’ grasp. Even better
news: the renewables solution will also improve energy access, enhance health,
create jobs, promote more sustainable and equitable development, and offer greater
Forward thinking will play a crucial part in how this story unfolds. There is an intrinsic
inertia in the energy sector, due to the scale of investments and the long lifetimes of
generating assets. Even in the most progressive scenarios, a significant proportion of
generation will continue to be powered by fossil fuels. The transformation will also be
impacted by dynamics within the fossil fuel industry itself, such as the rapid expansion
of shale gas in some markets.
In this environment, policy makers must make a firm and long-term commitment to the
creation of an energy system that is diverse, resilient and environmentally sustainable
and that is based on the best emerging technological and economic innovations.
As the share of renewables in the energy mix rises, a structural transformation is
beginning to take place. The global energy system based predominantly on renewable
energy will look very different – a more decentralised, flexible and smarter system.
Flexibility and adaptability lie at the heart of the next phase of renewables
development. An increasing share of variable power requires systems that can ensure
consistent and predictable supply; a network of producers and consumers which can
switch the direction of electricity flow in an instant, storing energy when in excess,
releasing it momentarily when needed. This transformation is already taking place in
a number of markets; advances in demand management and in storage technologies
are likely to accelerate the shift.
New policies are urgently needed to accommodate this change. Markets, business
models and technologies need to adapt, informed by clear up-to-date information. In
a fast moving market, reference data need continuous updating. The plummeting cost
of solar power over the past three years serves as a potent reminder of how quickly
things can change; today’s emerging technology can become tomorrow’s market
leader. A new flexible policy framework is needed to take account of that. Arguably,
the current disillusionment in many countries over renewable energy subsidies is a
consequence of policies insufficiently able to react to changing circumstances rather
than an inherent limit to renewables penetration.
The ongoing transformation will present challenges and opportunities. To ensure that
those are adequately dealt with and that renewables play an ever-greater part in the
world’s energy mix, there are specific areas that warrant careful focus by policy makers.
Renewable energy costs will continue to fall and grid parity will be reached in more
markets. More renewable energy technologies will be viable without subsidy support,
so policy frameworks need to adapt accordingly. Support measures in a ‘post-parity’
era will need to shift from being purely financial-based to being integrated with the
overall framework of renewables promotion and the general structure of the electricity
market. A system-level approach to renewable energy will also need to consider the
interests of different stakeholders in the sector. Box 18 illustrates the latest regulatory
developments in Germany which are addressing some of these issues.
»» Renewable energy deployment requires stable, transparent and predictable
policy frameworks that anchor investor confidence. National renewable energy
policy choices need to be combined carefully with an eye towards the country’s
particular strengths and weaknesses. To ensure effectiveness and efficiency,
policies need to adapt to changing market conditions in a timely manner. In doing
so, it is important to avoid abrupt policy reversals which may hinder market
development. Active engagement with stakeholders within the sector is necessary
to clearly communicate the intended policy objectives and to better calibrate
specific policy elements, such as tariff revision frequency, digression rates, etc.
»» A forward-looking approach to electricity markets is necessary to ensure
renewables can be expanded. A restructuring of power markets may be required
to support the on-going transformation as decentralised generation grows, and
regulations surrounding generation, transmission, distribution and consumption
of electricity need to adapt. To enable this, new power market designs will need
to more closely consider demand response and storage, system flexibility options
and distribution of costs for all such measures.
»» The increase in decentralised renewable energy generation brings challenges
and opportunities for incumbent stakeholders. Decreasing profitability for
traditional utilities, due to decreasing wholesale electricity prices and rising
decentralisation, is already influencing decisions over the management of
existing assets, and investments in new energy infrastructure. Many utilities see
opportunities here as well as threats, and are exploring new ways to leverage
their expertise. These include becoming project enablers, operators and system
integrators. It is essential that policy makers balance the ambitions of these
established players against those of new entrants and other stakeholders in order
to ensure the long-term reliability of the electricity system.
An early-adopter of renewable energy, Germany continues to calibrate its policies
and regulations to ensure that renewables become the dominant source of electricity
towards a more secure and environmentally friendly energy mix. Policy makers have
been tasked with further expanding renewables whilst ensuring supply remains
affordable and manufacturing industry competitive. In doing so, the Federal Ministry
for Economic Affairs and Energy identified some focus areas for 2014-2016, which
include: rethinking renewables support policies, evaluating new electricity market
designs, and planning for transmission and distribution infrastructure.
Increasing maturity of renewables and markets is prompting the adoption of
competition-based promotion schemes, such as technology-specific auctions, to
help identify the optimal support level for different renewable energy technologies.
As the share of renewables increases, new electricity market designs are being
considered to ensure efficient deployment of power capacity and long-term
energy security. At a regional level, common solutions for local markets could
offer cost advantages, thus necessitating increased coordination and engagement
between governments.
Transmission and distribution infrastructure developments are being synchronised
with planned expansion scenarios for renewable energy, future market design and
management of renewables generation. Robust grid planning in line with scenarios
for the development of the energy system is critical for the growth of renewables.
Any such planning depends on assumptions for rate of construction of additional
renewables-based facilities, their geographical distribution and development of
conventional power plants.
Other complementary focus areas include reform of the European Emissions
Trading Scheme, strategies for energy efficiency and the buildings sector, setting
up mechanisms to monitor progress of the transition and establishing platforms to
facilitate stakeholder participation in policy development.
For more details, see The energy transition: key projects of the 18th legislative term.,property=
Against the backdrop of falling cost of technologies, policy makers are best placed
to create an enabling environment by addressing other market-related aspects such
as access to finance, permitting, grid connection, energy pricing structures and
capacity building. This would further reduce the cost of renewable energy projects
and accelerate the transformation. Furthermore, such an environment would support
the development of local industries and bring accompanying socio-economic benefits
such as jobs and income generation.
The market will enter a virtuous cycle of increasing deployment if:
»» Government intervention is targeted at ‘soft’ or non-hardware costs. With
decreasing technology costs, soft costs now make up a large proportion of project
costs. Therefore, the continued competitiveness of renewable energy technologies
will depend on the reduction in soft costs. This can be achieved, among other
ways, through streamlining permitting processes, supporting grid integration,
facilitating access to finance, establishing standards and ensuring quality control
as well as anticipating the skills requirements to support a growing market.
»» The investments currently attracted by the sector can be scaled up. The
accessibility and cost of financing remains a challenge, particularly in emerging
markets. This can be addressed through measures targeting the upfront cost of
renewables, closing the funding gap (through green bonds, aggregation, etc.)
and reducing risks to attract private capital. In this context, public financing and
international climate funds will continue to play an important role. As markets and
technology mature, renewable energy projects can attract a progressively wider
range of investors, from private equity firms, project developers and governments,
to commercial banks and institutional investors.
»» Private sector participation is encouraged by reducing barriers to entry
through appropriate regulatory frameworks. The private sector will continue to
play a crucial role in driving renewable energy deployment. The participation of
the private sector is necessary for markets to achieve scale, improve competition
and further drive down costs. The sector can also benefit from public private
partnerships and measures to enhance firm-level capabilities and increase the
level of competiveness of domestic firms.
The integration of variable generation can become a pressing challenge for the
sector, particularly in markets or regions with higher shares of renewable penetration.
Addressing this challenge requires integration measures – in terms of physical
connection and network management. These include planning for and investing in
physical grid development and enhancement, promoting grid-scale storage and smart
infrastructure, and defining new market designs that consider the broad market-wide
impacts of integrating variable renewables.
Effective and efficient integration can be supported through specific technical and
regulatory measures such as:
»» Timely planning for grid infrastructure development. The lead time associated
with infrastructure development can be long, and needs to be accounted for in
the planning process. Lack of planning can lead to stranded generation assets,
increased costs and the loss of investor confidence. Regional interconnections,
where possible, can be pivotal to overcoming intermittency and integrating higher
shares of renewable energy.
»» Support for emerging technology solutions, such as smart metering and grids,
storage infrastructure and demand side management that can enhance network
management capabilities and improve system flexibility. Together with enabling
regulatory measures, such as mandatory forecasting, these technology solutions
can reduce the overall system cost and significantly contribute to network stability.
»» Close coordination and engagement of different stakeholders, including regulators,
governments, developers, transmission and distribution system operators, and
consumers. This is vital for a steady transition towards a renewable energy-based
power sector. It will also ensure the integration of different solutions, including offgrid applications which are now the most cost-effective solution for expanding
electricity access in rural areas.
The potential prize for getting this right is spectacular. Renewables provide an
answer not only to climate change, but to many of the most pressing socio-economic
challenges faced by governments today.
A world run on renewables offers the prospect of abundant low-cost electricity,
with lower levels of price volatility, less reliance on insecure trade flows and a raft
of new educational opportunities and jobs. Doubling the global share of renewable
energy – a goal well within reach by 2030 – could see global health costs fall by up to
USD 200 billion, and unleash the potential of billions of people currently denied access
to affordable, reliable power.
Renewables offer many countries an unprecedented opportunity to reduce their
dependence on imports from regions experiencing political and economic uncertainty,
an issue of growing concern for many.
The rapid progress of the past decade means this is no longer a utopian scenario.
It is within reach, using proven, tested technologies, which already exist today and
which continue to improve every year.
But technology alone will not be enough. This transformation requires the collective
long-term commitment of all stakeholders, including governments, citizens,
financiers, private companies and international agencies. International cooperation
can further strengthen global efforts to accelerate the transformation by catalysing
change through national renewable energy plans.
The transformation involves sweeping changes to a system that has for decades
driven economic growth and prosperity. Resistance from vested interests can be
expected, requiring committed advocacy and smart public information, as well as
the widespread dissemination of transparent, up-to-date information.
Policy makers also need to recognise that the power sector – the focus of this first
edition of REthinking Energy – is only one part of this picture. Huge efforts are also
needed to promote the uptake of renewables in the heat and transport sectors.
The transformation has already begun, creating benefits across the globe. But in
order to embrace its full potential, with sufficient speed to stave off climate change,
governments need to embrace a new way of thinking, and to do so immediately.
If countries choose this path, a renewable energy future is possible. It will be cost
effective and will have dramatic additional benefits for the whole of society. With
sufficient commitment, a new, clean, industrial revolution lies ahead.
Balance of System (BoS) costs: all components of a photovoltaic system other than
the actual panels, including wiring, switches, support racks, inverter, installation
costs, planning costs, design costs, etc. This can include batteries in the case of offgrid systems and land in some instances.
Capacity factor: the ratio of a power plant’s actual output over a period of time to
its potential output if it were possible for the plant to operate at nameplate capacity
Dispatchable generation: sources of electricity that can be dispatched at the request
of power grid operators; i.e., generating assets that can be either switched on or off
or can adjust their power output on demand.
Enhanced oil recovery: a stage of hydrocarbon production that involves use of
sophisticated techniques to recover more oil than would be possible by utilising only
primary production or waterflooding.
Final energy: Energy in the form that it reaches consumers (such as electricity from
a wall socket).
Generation capacity: an asset’s technical power output.
Gigawatt: one billion (109) watts.
Grid parity: when a technology can produce electricity at a cost roughly equal to
the price of wholesale power from the grid, on a levelised basis. Whether or not
this includes the cost of backup for intermittent renewables is controversial. [NB:
hydropower projects and some geothermal technologies have been at grid parity for
Kilowatt: One thousand (103) watts.
Kilowatt-hours (kWh): A measure of electricity defined as a unit of work or energy,
measured as 1 kilowatt (1,000 watts) of power expended for 1 hour.
Learning rates: Defined as the percentage reduction in costs for a technology that
occurs with every doubling of cumulative installed capacity.
Levelised cost of electricity (LCOE): the price at which electricity is generated from a
specific source over the lifetime of the project. It is therefore an economic assessment
of a technology’s or project’s cost which includes the full span of its lifetime: initial
investment, operations and maintenance, cost of fuel, cost of capital, etc.
Megawatt: One million (106) watts.
Micro grid: A highly localised, low voltage grouping of generation, storage, and
demand, normally only for residential and potentially light commercial purposes. This
can operate in connection with a traditional centralised grid, but can also function
autonomously, in remote areas.
Mini grid: An integrated local generation, transmission and distribution system serving
more customers than a micro-grid, but not large enough to be considered full-sized.
Mini-grids often have more generation (in terms of volume and diversity) as well as
more demand (usually residential and light commercial).
Non-financial policies: A broad term for any government policy that does not
require direct financial support. For instance the creation of intellectual property
rights legislation, a minimum efficiency standard for wind turbines or the rules of a
renewable energy auction.
Off grid: not being connected to a central grid, specifically used in terms of not being
connected to a national electrical grid.
Pico solar lighting systems: Refers to small PV systems rated at capacities below 10 Wp.
Power generated: an asset’s generation capacity multiplied by the time it runs. A
generator with a rated capacity of 1 megawatt produces 1 megawatt-hour if it runs at
full capacity for an hour. It then has a capacity factor of 100%. If it lies idle for the next
hour, its capacity factor is 0% for that hour and 50% for the two together.
Power Purchase Agreement (PPA): a forward contract between two parties, one who
generates electricity (the seller) and one who is looking to purchase electricity (the
buyer). PPAs are the principal agreements that define the revenue and credit quality
of a generating project and are thus a key instrument of project finance. PPAs define
the terms for the sale of electricity, including when the project will begin commercial
operation, delivery schedule, penalties for under delivery, payment terms, and
Primary energy: A source of energy before any conversion has taken place, such as
crude oil, natural gas, rays of sunshine and lumps of coal.
Pumped hydro: A plant that usually generates electric energy during peak load periods
by using water previously pumped into an elevated storage reservoir during off-peak
periods when excess generating capacity is available to do so. When additional
generating capacity is needed, the water can be released from the reservoir through
a conduit to turbine generators located in a power plant at a lower level.
REmap 2030: IRENA’s 2014 roadmap for doubling the global share of renewable
energy by 2030.
SE4ALL: Sustainable Energy for All, the UN Secretary General’s initiative for global
access to sustainable energy.
Smart grid: an electricity supply network that uses digital communications technology
to detect and react to local changes in usage.
Socket parity: when a decentralised renewable energy technology can compete
with the retail (delivered) price of electricity through the grid to the end user. This is
particularly applicable for solar PV and micro-wind installations that power end-users
Solar home systems (SHS): are stand-alone photovoltaic systems that offer a costeffective mode of supplying amenity power for lighting and appliances to remote
off-grid households. They are typically in the range of 10-200 Wp.
Super grid: a large, often very long-distance transmission network that makes it
possible to trade significant volumes of electricity across great distances. Technically
more complicated than normal grids due to the need to minimise power losses over
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