Renewable energy sector set to expand faster even with rising commodity costs

Global electricity generation capacity from renewable sources such as solar and wind is set to soar in the coming five years, with new capacity to hit an all-time record this year, the International Energy Agency (IEA) said in a report released last week.

The intergovernmental agency quoted strong government policies, ambitious climate targets announced during COP26, and companies' willingness to commit to long-term renewable energy contracts to shelter their operations from oil price volatility as major driving factors for growth in the renewable energy sector. This latest forecast is an upward revision from the IEA's predictions last year.

By 2026, global renewable electricity capacity will rise to over 4,800 gigawatts, equivalent to today's global power capacity of fossil fuels and nuclear combined. Electricity generated by solar panels alone will provide more than half of the growth in global power capacity in the next five years.  

At the report's launching event, Fatih Birol, executive director of the IEA, called solar "the new king of global power markets" and added that solar will play the most important role in the coming growth of renewable energy.

One-fifth of the world's largest public companies — representing nearly $14 trillion in revenue — and 13% of cities with more than 500,000 in population have already committed to become net-zero, according to a report by the UK-based research firm Energy and Climate Intelligence Unit. The expansion of the renewable energy sector will offer businesses and the public sector more options for green energy.

But the surge in the renewable energy sector faces strong headwinds. Rising costs of commodities and transportation to move solar panels and wind turbines are risks that could wipe out the price competitiveness of renewable energy.

Still, Birol is confident that the current elevated fossil fuel prices will make renewables competitive.

China is expected to remain the global leader for the rise in renewable energy capacity over the next five years, accounting for 43% of global renewable capacity increase, followed by Europe, the US, and India. The four markets make up 80% of renewable capacity growth globally.

While it's good news that there will be more renewable energy capacity, the report stressed that the projected surge in the renewables market is still not fast enough to meet net-zero levels by 2050. Solar and wind annual additional capacity would need to be double what's forecast for the next five years for the world to be on track to be net-zero emissions by mid-century.

But Birol added that the growth in renewables, lower costs for batteries, a rise in electric car penetration globally, and the growing capacity of electrolysers for green hydrogen are all indicators of an evolving energy system.

"All these elements … give us one important hint … a new global energy system is emerging," he said.

— Alexis See Tho (Alexis.SeeTho@aicpa-cima.com) is an FM magazine associate editor.