© OECD/IEA 2015 © OECD/IEA 2015

Renewables: Critical Success Factors

What is needed for renewables to contribute to peak emissions?

Dr. Paolo Frankl

Head Renewable Energy Division International Energy Agency

IEA Day, COP-21, Paris, 3 December 2015

© OECD/IEA 2015

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

Renewables becoming the largest source of new power generation capacity

World net additions to power capacity

Analysis from the IEA Medium-Term Renewable Energy Market Report 2015 and the New Policies Scenario of the World Energy Outlook 2015.

0

200

400

600

800

1 000

1 200

1 400

1 600

2008-2014 2014-20

GW

Fossil fuels Nuclear Hydropower Non-hydro renewables

© OECD/IEA 2015

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

Growth shifting to emerging markets and developing countries

Shares of net additional renewable power capacity, 2014-20

EU

13%

USA

9%

Japan

5%

Rest OECD

8%

China

38%

India

9%

Brazil

5%

Rest non - OECD

13%

© OECD/IEA 2015

Wind and solar PV reach new lows

Price competition, long-term contracts, good resources and financial de-risking measures create lower-cost deployment opportunities in newer markets

Long-term contract prices for new renewable power to be commissioned in 2016-2019

Utility-scale solar PV Onshore wind

Chile USD 65-70/MWh

Brazil USD 81/MWh

United States USD 65-70/MWh

India USD 88-116/MWh

United Arab Emirates USD 58/MWh

South Africa USD 65/MWh

United States USD 47/MWh

Brazil USD 49/MWh

South Africa USD 51/MWh Australia

USD 69/MWh

Turkey USD 73/MWh

China USD 80–91/MWh

Germany USD 67-100/MWh

Egypt USD 41-50/MWh

Jordan USD 61-77/MWh

Uruguay USD 90/MWh

Germany USD 96 /MWh

Canada USD 66/MWh

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

© OECD/IEA 2015

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100

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2006 2008 2010 2012 2014 2016 2018 2020

USD

2014

/MWh

Brazil PPA Egypt PPA US PPA South Africa Round 4

How quickly can RE costs converge towards best world benchmarks?

Typical onshore wind levelised costs of electricity generation (2006-2020)

Medium-Term Benchmark cost 60-80$/MWh

Great difference in generation costs persist due to different system prices and cost of financing

© OECD/IEA 2015

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Capacity growth Capacity growth New investment New investment

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

GW / U

SD 2

014

billion

Ocean Geothermal STE Solar PV Offshore wind Onshore wind Bioenergy Hydropower

More renewables for less money But how much is needed?

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

Renewable power capacity – net additions versus new investment

USD 2014 GW

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Enhanced policies can get RE growth back on track to meet climate goals

Policy enhancements can accelerate renewables growth by 25% vs. the main case and increase annual investment to over USD 315 billion by 2020

World renewable power annual capacity additions, main vs. accelerated case

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20

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180

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

GW

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

Historical Forecast

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180

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

GW

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

Historical Accelerated case

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VRE share of total annual electricity output

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

Towards high shares of variable renewables

Share of variable electricity generation in 2014 and 2020

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High Capex: Cost of Capital matters

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

Impact of weighted average cost of capital on the levelised cost of solar PV

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Policy implications: Enabling environment is crucial

Providing financial

support

Cost reduction through

• Technology

development

• Scale up

• Learning

before 2013

Enabling policy and

market framework which

allows low cost financing

and generation

• Competition

• Predictable long-term

income streams

• Short-term market value

signals

• Portfolio development

• System Integration

Cost reduction through

• Technology innovation

• Financial innovation

• New markets with best resources

2014-2020

Main Policy

Key Characteristics

Cost reduction

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A decisive moment for the future of renewables

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

The effect of the lower oil price environment on global renewable growth is more perception than reality, though biofuels and heat sectors are exceptions in some circumstances.

Yet, wavering policy commitments risk undermining investor confidence and are dampening growth

Further policy action is needed for heat and biofuel sectors, in the face of structural challenges.

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