Policy uncertainty and grid integration risks are driving a slowdown in global renewable energy deployment, especially in OECD economies, according to a new International Energy Agency (IEA) report published today (28 August).

Clean energy capacity investment will still rise to $1.61 trillion by 2020. But in its first global investment outlook, the agency predicted a $20 billion drop in yearly new clean energy funding by the decade’s end to $230 billion.   

The IEA’s 2014 medium-term forecast for renewable electricity generation predicts annual 5.4% growth rates to total 7,310 TWh by 2020 – a 0.6% drop on last year’s forecast.

The new 2018 estimation is for only total 5,505 TWh, compared to last year’s 6,850 TWh.

Growth forecasts were lowered for all renewables, except solar PV, which should benefit from technology cost declines and rapidly scaled-up deployment in non-OECD markets.

As a result, “renewable power is increasingly at risk of falling short of global climate change objectives” the IEA says, as policy uncertainty and grid integration problems hamper its development.

While the IEA has launched similar warnings in the past, last year’s report predicted that renewable energy growth rates were broadly on track to meet climate goals.

After a decade of rapid clean energy expansion, the OECD region is now expected to enter a transitional period of slower but stable annual renewable generation capacity growth until 2020.

In Europe, the Agency sees a challenge in maintaining regulatory frameworks that offer remuneration certainty, while shifting to lower incentive schemes and integrating greater levels of variable renewables into the grid system.

Non-OECD countries will continue to drive the sector and are expected to account for about 70% of new power capacity from 2013 to 2020 thanks in part to long-term policies.

“Combined with good resources and the falling costs of some technologies… these conditions should support increasing levels of deployment with reduced financial incentives”, the report says.

In transport, the IEA notes that global biofuels output must triple and advanced biofuels need to increase 22-fold to meet climate goals by 2025. However, policy support is declining due to the need for securing sustainable feedstock sources. The industry is currently in limbo, ahead of EU adoption of a proposal on indirect land use change (ILUC) that may cap conventional biofuels use.

“Governments must distinguish more clearly between the past, present and future, as costs are falling over time. Many renewables no longer need high incentive levels. Rather, given their capital-intensive nature, renewables require a market context that assures a reasonable and predictable return for investors. This calls for a serious reflection on market design needed to achieve a more sustainable world energy mix,” said the IEA’s executive director, Maria van der Hoeven.

Thumbs up from the wind lobby

The wind energy association EWEA agreed. “Without regulatory stability, long-term plans for support mechanisms at national level and a strong commitment to a renewables target from Europe’s leaders on 2030, then investors will not get the visibility they need,” a statement from the group said.  

It continued: “The technology is there and it will become cheaper but the question remains, under what conditions and at what risk. Providing certainty is key and for that we need frameworks that will give guidance not just over five years but over the next 20 years.”    

Meanwhile, “a significant proportion of Europe’s current energy generation capacity is due to be phased out in the coming years,” added Imke Lübbeke, a senior policy officer for WWF Europe. “This is raising the question of what will replace it. Only a clear and stable policy framework for greenhouse gas emissions, renewables and efficiency beyond 2020 can build up investor’s confidence in clean energy investment.”

For the first time, the IEA also provided a global investment outlook for renewables power generation in the new report. Global new investment topped an estimated $250 billion in 2013 - slightly below 2012 levels - but is projected to decline to an annual average of about $230 billion by 2020.

The forecast is lower because of slowing capacity growth and lower costs for select technologies.