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IEA says renewable power installations are set for a record year, warns of net-zero uncertainty - CNBC

Wind turbines and solar panels in Kayseri, Turkey.
temizyurek | E+ | Getty Images

The world is set to add nearly 290 gigawatts of renewable power capacity this year, according to the International Energy Agency, with the Paris-based organization expecting 2021 to "set a fresh all-time record for new installations."

Published on Wednesday, the IEA's Renewables Market Report forecasts that the planet's renewable electricity capacity will jump to more than 4,800 GW by the year 2026, an increase of over 60% compared with 2020 levels.

Capacity refers to the maximum amount of energy that installations can produce, not what they're necessarily generating.

China is set to be the main driver of renewable capacity growth in the coming years, according to the IEA, with Europe, the U.S. and India following on behind.

Looking at the bigger picture, the IEA said renewables are expected to account for "almost 95% of the increase in global power capacity through 2026."

"We have revised up our forecast from a year earlier," the report said, "as stronger policy support and ambitious climate targets announced for COP26 outweigh the current record commodity prices that have increased the costs of building new wind and solar PV installations."

Solar PV refers to solar photovoltaic, a way of directly converting sunlight into electricity.

The IEA's executive director, Fatih Birol, said 2021's record renewable electricity additions were "yet another sign that a new global energy economy is emerging."

"The high commodity and energy prices we are seeing today pose new challenges for the renewable industry, but elevated fossil fuel prices also make renewables even more competitive," Birol said.

While the headline figures from Wednesday's report appear promising, a multitude of headwinds could buffet the sector.

The IEA's report acknowledged this, noting that renewables face a "range of policy uncertainties and implementation challenges." These include everything from permitting and financing to grid integration and social acceptance.  

"Current increases in commodity prices have put upward pressure on investment costs, while the availability of raw materials and rising electricity prices in some markets pose additional challenges for wind and solar PV manufacturers in the short term," the IEA said.

Nevertheless, the effects of "volatile commodity and transport prices on demand are expected to be limited," with high prices for fossil fuels further boosting the competitiveness of both solar PV and wind.

When it comes to net-zero goals, the picture is perhaps even more challenging.

While capacity additions for renewables are on course to "grow faster than ever in the next five years," this would not be enough to meet the IEA's scenario for net-zero emissions by 2050.

Even the IEA's "accelerated case," in which governments tackle challenges related to regulation, policy and implementation, would not be enough.

"Annual capacity growth under the IEA Net Zero Scenario during 2021-2026 needs to be 80% faster than in our accelerated case, implying that governments need to not only address policy and implementation challenges, but also to increase their ambition," the report said.

This sobering tone echoes previous statements from the IEA. In October, it claimed that clean energy progress remained "far too slow to put global emissions into sustained decline towards net zero."

In a sign of how much work needs to be done, the IEA's World Energy Outlook described how a "rapid but uneven economic recovery from last year's Covid‐induced recession" had put significant strains on the energy system. This had sparked "sharp price rises in natural gas, coal and electricity markets."

"For all the advances being made by renewables and electric mobility, 2021 is seeing a large rebound in coal and oil use," the report continued. "Largely for this reason, it is also seeing the second‐largest annual increase in CO2 emissions in history."

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