What you should know about the IEA's market forecast
By Ted Leonard, VP Market Operations - August 03, 2022
Renewables are still cheaper than fossil fuels despite economic instability and inflation.
New renewables capacity hit a record high in 2021, with more growth expected in 2022.
Renewables are benefitting from record coal and natural gas prices, further outcompeting legacy generation.
Solar and wind markets continue to grow despite instability, although uncertainty surrounds government legislation.
Renewable energy is poised to continue its expansion, according to the International Energy Agency’s (IEA) latest market forecast.
Clean energy investments are continuing to increase—and record fossil fuel prices are influencing this trend. Meanwhile, U.S. legislation is impacting wind and solar growth forecasts.
2022 hasn’t been kind to energy markets or energy budgets. Yet despite a host of issues—inflation, logistics bottlenecks, COVID-19, war, and climate change—the renewable energy sector’s outlook remains strong. As businesses navigate recession worries and record energy costs, energy efficiency solutions will help ease the strain.
The war in Ukraine has generated unprecedented policy momentum on energy security and efficiency. Proactive companies are responding to soaring energy costs by investing in energy efficiency solutions to cut costs and emissions, as well as counter geopolitical and economic risks.
As a result, renewable energy investment is not only stable—it’s growing. This growth is being primarily driven by wind and solar, although both sectors face unique challenges heading into 2023.
A leading energy organization and policy advisor, the IEA has provided guidance and data to businesses since the 1973 oil crisis forced businesses to explore energy alternatives. Here are some key findings from the organization’s most recent report, Renewable Energy Market Update: Outlook for 2022 & 2023.
Renewables are still more cost-effective
Global instability did little to slow the pace of renewable expansion in 2021, with a record increase in new generation (295 GW) occuring last year. And the IEA forecasts an eight-percent increase (320 GW) in global renewable capacity this year.
These numbers are even more impressive when we look at the impact of rising commodity costs. Polysilicon—a key component for solar panels—more than quadrupled between last year and Q1 2022, with steel and copper prices up 50 and 70 percent, respectively.
Interestingly, freight costs are the main driver of higher wind costs: freight is almost five times more expensive than a year ago. Overall, utility-scale solar and wind projects now cost 15-25 percent more, but still outcompete fossil fuels.
Electricity prices are breaking records, especially in wholesale markets where natural gas is the marginal technology setting the final hourly or daily price.
According to the IEA, “While significant in absolute terms, the increase in renewables costs have not hampered their competitiveness because prices of fossil fuels and electricity have risen at a much faster pace.”
Fossil fuels have become less appealing as coal and gas prices have climbed. Coal has increased from $50 per tonne in 2020 to over $400 today, while natural gas has jumped from under $2 per million British thermal units (MMBTUs) to over $8.
Consequently, electricity prices are breaking records, especially in wholesale markets where natural gas is the marginal technology setting the final hourly or daily price. Renewables benefit as a result (especially solar). That said, these trends aren’t uniform, and different regions face different hurdles, particularly from government legislation.
Challenges for solar and wind in the United States
Uncertainty over government legislation and tax credits is causing wind and solar forecasts to be revised down in the United States. While both sectors are still growing, new onshore wind projects in the U.S. dropped by 25 percent after the U.S. stopped issuing production tax credits
Solar is less impacted, as investment tax credits are still available through 2023-24, helping take some of the sting out of rising costs and supply challenges. Demand for solar is strong, but American manufacturers can currently only supply less than 20 percent of domestic demand. The U.S. solar sector is also dealing with supply shortages caused by international trends.
Washington has banned imports of Chinese solar components from Xinjiang, due to concerns about forced labor. The White House is also investigating whether Southeast Asian manufacturers are using banned Chinese parts in their U.S. exports.
New renewables incentives are tied up in Congress, triggering companies to pause and scale back investments as the recession looms.
As such, the IEA notes that, “Despite their potential, an acceleration in new renewables capacity is highly dependent upon a stable policy environment providing long-term revenue certainty and faster permitting.”
New renewables incentives are tied up in Congress, triggering companies to pause and scale back investments as the recession looms. Businesses are less willing to part with capital, opting instead to save money.
This hesitation is stalling projects, and leaving energy plans unfulfilled.
Counter-intuitively, hesitating actually costs money, as companies continue to incur record energy costs while missing out on lost savings. Energy customers need more support to access the flexible funding they need to keep their clean technology plans on track.
How EnPowered helps companies fulfill their energy plans
Companies need to move their energy projects forward in 2022 and 2023. Specifically, businesses need to view clean technology solutions as savings opportunities, rather than costs. Accepting the status quo only leads to higher costs and missed savings. Minimizing risk and providing access to an on-bill payments solution is vital to unlocking these stalled projects.
EnPowered Payments helps clean technology solution providers close deals that might otherwise have stalled, enabling customers to pay for their projects through their future savings, with no upfront costs.
Interested in learning more? Reach out today to discover how EnPowered can help you close more deals and empower customers to meet their energy goals in 2023.