Record Growth

Developing countries lead renewable expansion

With significant capacity additions, global and regional policy initiatives, and rapid growth leading to its inclusion in the mainstream, 2015 was a successful year for the renewable energy sector. The industry also witnessed increasing cost competitiveness and a remarkable decline in fossil fuel prices. Climate change, energy efficiency and increased energy access remained the core focus areas of the industry at the global, regional and local levels. The total installed renewable capacity addition including hydropower stood at 147 GW during the year, the highest so far. Of the total renewable additions, wind and solar power accounted for 77 per cent owing to technological advances and capital cost reduction in the segments. Meanwhile, the total non-hydro capacity reached 784 GW, up from 665 GW in 2014, with renewable energy accounting for 28.9 per cent of the global power capacity.

While China led the world in capacity additions, India ranked among the top few countries. Meanwhile, emerging countries in Asia, Africa and Latin America continued their spirited pursuit of renewable energy. The Middle East remained a low-growth region this year as well; however, the region’s interest in solar power generation is rapidly increasing.

High-profile engagements in renewable energy highlighted the fact that climate change mitigation has brought the world together. Notable among these are the first G20 Energy Ministers meeting in Istanbul in October 2015, a dedicated sustainable energy objective among the 17 sustainable development goals (SDGs) adopted by the United Nations; the UN Climate Change Conference of Parties held in Paris over the common goal of reducing global warming to below 2 degrees, which was supported by 195 countries and ratified by countries like the US, China and India; the International Solar Alliance launched by India and France to help encourage solar energy development further; the African Renewable Energy Initiative launched with a regional goal of achieving 300 GW of renewable energy capacity by 2030.

Renewable Watch takes a look at the sector’s key trends and highlights during the year 2015…

Wind

Wind power witnessed remarkable growth in 2015, with a record 63 GW added during the year to bring the total wind installed capacity to 433 GW. Increased cost competitiveness was a major factor behind the growth in most countries. Asia led the global wind capacity additions for the eighth consecutive year with 53 per cent of the total capacity, while the European Union (EU) and North America contributed 20.1 per cent and 16 per cent respectively.

In Asia, China added a significant 30.8 GW of capacity; however, distribution remained a key issue as bringing this energy to the inner Chinese territories was a challenge. The US ranked second with 8.6 GW of additions in 2015 while Canada added 1.5 GW. Germany followed with 6 GW, accounting for about half of the EU’s wind power installations of 12.8 GW. India added only 2.6 GW of wind power, falling short of expectations despite low costs, due to poor transmission capacity.

In the EU, Poland, France and the UK were the largest contributors after Germany, adding 1.3 GW, 1.1 GW and 1 GW of wind capacity respectively. Meanwhile, Latin America added 4.4 GW with Brazil accounting for 57 per cent of this addition at 2.8 GW. Africa also managed to achieve the 3 GW mark despite slow growth due to financial issues in South Africa, which installed only 0.5 GW. The Africa and Middle East regions together contributed 953 MW to the global wind capacity.

Offshore capacity installation almost doubled in 2015 with an estimated 3.4 GW, taking the global offshore capacity to 12 GW. At about 3 GW, Europe accounted for 89 per cent of the total capacity addition. Of this, Germany added 2.2 GW, followed by the UK (571 MW) and the Netherlands (180 MW). In the rest of the world, China added the highest capacity at 361 MW. India also took a significant step towards offshore wind power technology by approving a comprehensive policy. In the US, the construction of the first offshore wind farm is under way and is expected to come online by end-2016.

Manufacturers and developers saw a surge in business from private purchasers, in addition to independent power producers and energy utilities that remain the largest clients. Strong sales of nearly 63 GW helped manufacturers that were earlier struggling with losses to revive the wind power business. China’s Goldwind, with 12.5 per cent market share, surpassed Danish company Vestas, which held 11.8 per cent market share in 2015, followed by GE and Siemens at 9.5 per cent and 8 per cent respectively. Market consolidation remained strong with GE’s acquisition of Alstom’s power generation business, while Nordex (Germany) acquired Acciona Windpower (Spain). The industry moved towards larger turbines with longer blades, higher hub heights and larger rotors. Meanwhile, low speed turbines were introduced by top manufacturers. The size of turbines also increased, with an average size of 2 MW globally. The average turbine size was the highest in Europe at 2.8 MW, followed by Africa with 2.4 MW, the US with about 2.1 MW and Asia with 1.8 MW, while 7-8 MW turbines are already on order and 10-20 MW are under research for offshore installation.

Solar

The solar segment continued to grow with increased investments in both emerging and developed countries. The solar photovoltaic market grew by nearly 25 per cent over 2014 with an addition of 50 GW of capacity globally, thus reaching a cumulative capacity of 227 GW. China, Japan and the US remained the top three countries in 2015, adding 15.2 GW, 11 GW and 7.3 GW respectively. India ranked fifth with 2 GW of installed capacity additions. The focus of the solar industry moved to emerging economies in Asia, Africa and Latin America, while solar power penetration in the Middle East also picked up considerably.

Rapid development in countries like India and China and the lack of proper infrastructure led to roadblocks and curtailment, resulting in less-than-expected growth in solar capacity. China suffered from poor grid availability while India saw project delays in multiple states. Given their ambitious targets and the increasing adoption of the technology owing to its cost effectiveness, grid congestion is expected to be a significant hurdle in the growth in these countries.

In the US, solar capacity additions exceeded the new natural gas capacity for the first time. After a three-year decline, the European solar market picked up with an addition of 7.5 GW of capacity, of which the UK (3.7 GW), Germany (1.5 GW) and France (0.9 GW) added nearly 75 per cent. Latin America’s cumulative capacity grew by 100 per cent with 1.1 GW added in 2015. Honduras and Chile were in the lead, installing 0.4 GW each, while growth in Brazil and Mexico struggled due to poor economic conditions.

The Middle East and Africa also recorded rapid growth in the solar power space. While the installed capacity remained low, tenders were floated in the UAE and Jordan with record low bids. Israel installed 0.2 GW of solar capacity to take the country’s cumulative solar capacity to 0.9 GW. Africa added 1.1 GW to the global capacity with Algeria (0.3 GW) and South Africa (0.2 GW) emerging as the regional leaders. The solar PV market remained focused on large-scale plants with nearly 120 plants of over 50 MW each operating in 23 countries.

China continued to dominate the module manufacturing segment, producing more than 65 per cent of the global modules. Trina Solar, Jinko Solar, JA Solar and Yingli were the top manufacturers. Apart from the Chinese companies, Canadian Solar, Hanhwa Q-Cells (Korea), and First Solar and SunPower Corporation (both USA) were the largest manufacturers. Consolidation continued in the solar PV industry with some of the top manufacturers even going out of business due to large production capacity and debt.

Notable among these were US-based SunEdison, which had to file for bankruptcy in April 2016; US-based Recurrent Energy, which was acquired by Canadian Solar; and Conegra, which was acquired by SunPower. Engineering, procurement and construction companies continued their vertical integration in the operations and maintenance business even as new financing options emerged in the form of solar leases, power purchase agreements (PPA) and green bonds.

The concentrating solar power (CSP) market faced multiple challenges in 2015, leading to a considerable decline in its growth with 420 MW being installed to reach the global cumulative capacity of 4.8 GW. CSP moved away from the traditional markets of Spain (2.3 GW) and the US (1.7 GW) to newer territories such as Australia, China, India, Chile and Saudi Arabia. In terms of CSP capacity additions, Morocco (160 MW) and South Africa (150 MW) surpassed the US (110 MW). The move was marked largely by stagnation in the CSP market in Spain and a poor economic environment in the US leading to a slowdown in industry growth.

Spain-based Abengoa narrowly avoided bankruptcy, and yet remained the industry leader along with Saudi Arabia’s ACWA Power. Consolidation continued as Germany-based Schott Solar sold its CSP receiver business unit to the largest CSP mirror manufacturer, Rioglass, and GE became the owner of Alstom’s CSP business with the acquisition of the latter’s power unit.

Bioenergy

Biofuels have the distinction of being one of the most diverse fuels among renewable sources of energy, with uses ranging from power and heat generation to transportation. In 2015, the market was driven significantly by the rapid increase in local demand for energy and ambitious renewable energy targets. However, falling oil, solar and wind power prices continued to challenge the adoption of bioenergy technologies. Industries using heating applications remained the largest consumer of biofuels, followed by the transportation and electricity generation sectors.

Bio-heat accounted for nearly 10 per cent of global industrial heat consumption as its use in the industry continued to grow at 1.3 per cent in 2015. Europe, Asia and Latin America remained the largest users of bioenergy for heating while North America continued to slowly move away from the technology due to structural changes in the industries.

The installed bioenergy capacity grew at an estimated 5 per cent in 2015 to reach a cumulative global capacity of 106.4 GW, of which the US accounted for 14.8 per cent, Germany 10.7 per cent and China 10.3 per cent. The US added 4 per cent to its total bioenergy generation capacity in 2015 to reach 16.7 GW cumulatively. Germany was the largest bioenergy producer in Europe with 7.1 GW of cumulative capacity by end-2015.

Meanwhile, China added 0.8 GW to reach a total bioenergy capacity of 10.3 GW, while Japan’s cumulative capacity reached 4.8 GW and Brazil’s was at 9.7 GW. In Asia and Latin America, positive policy initiatives were the key driver of bioenergy growth. The use of biofuels in transportation witnessed an increase of 3 per cent in 2015 over 2014, to reach 133 billion litres cumulatively. Global production of biofuels was dominated by the US and Brazil, producing 72 per cent of all biofuels.

Hydropower

The hydropower industry added 28 GW of capacity in 2015 to reach a cumulative capacity of 1,064 GW. China remained the largest contributor of hydropower with 16.1 GW of capacity added in 2015, followed by Brazil with 2.5 GW, Turkey with 2.2 GW, India with 1.9 GW and Vietnam with 1 GW. However, in terms of cumulative capacity, China, Brazil, the US, Canada and Russia were the top five countries, accounting for 55.9 per cent of the total global capacity. Africa was one of the newer market for large hydropower installations, with Ethiopia nearing the completion of its 1.87 GW plant, Guinea adding 240 MW in 2015 and Zambia adding 120 MW with the commissioning of its Itezhi Tezhi plant.

The largest equipment providers in the sector were GE (USA), which completed the acquisition of Alstom; Andritz Hydro (Austria), which reported a decline of 5.4 per cent in new orders; and Voith Hydro (Germany), which reported strong sales in North and South America. These three companies control about 50 per cent of the market with almost equal share. China’s Harbin and Dongfang and Russia’s Power Machines are the other notable names in the industry.

While the hydropower segment has witnessed capacity additions, generation has been a challenge from this source owing to droughts in several regions. Modernisation and retrofitting continued to gain popularity as ageing facilities led to a slowdown in power generation. As developers are now focusing on replacing obsolete machines with new turbines, the industry has diversified its revenues  to meet the demand for enhanced efficiency, increased storage capacity for backup, reduced vulnerability to climate change and improved systems.

Other segments

Geothermal: About 315 MW of geothermal power capacity was added in 2015, nearly half of what was added in 2014 at 640 MW, to take the global total to about 13.2 GW. Turkey was the largest contributor to geothermal capacity (159 MW), followed by the US (71 MW), Mexico (53 MW), Kenya (20 MW) and Japan (7 MW); the rest of the world added the remaining 6 MW. The industry witnessed a wave of consolidation in 2015. Ormat Technologies and Toshiba Corporation collaborated to provide innovative solutions to the industry. Meanwhile, Engie and Reykjyavik Geothermal partnered to develop projects in Mexico where the latter was awarded two projects.

The geothermal market struggled due to low natural gas prices, which reduced its market share in the power generation and heating segments. On the other hand, low oil prices increased the availability of drilling rigs and reduced costs for the development of new areas. Risk and safety continued to remain the biggest concerns of the industry with appeals to policymakers to formulate favourable policies  to support the emerging technologies.

Ocean energy: The installed capacity of ocean energy projects remained stagnant at the 2014 levels, as the 320 MW Swansea Tidal Bay Lagoon in Wales failed to move forward. The year saw the launch of multiple pilot and demonstration projects, primarily in Europe. Progress was seen in tidal power generation, wave energy technologies and ocean thermal energy conversion during 2015. However, the high risk to marine life associated with ocean energy development remains a major concern for the industry. The year also witnessed the consolidation of the market with Atlantis acquiring Marine Current Turbines from Siemens AG, while ScottishPower Renewables became a shareholder in Tidal Power Scotland Limited along with Atlantis.

Investments

The renewable energy sector, excluding hydropower projects of more than 50 MW capacity, witnessed record investments of $285.9 billion, an increase of 5 per cent over 2014, thus surpassing the record of $278.5 billion in 2011. Including hydropower projects of more than 50 MW capacity, the investments in new projects stood at $328.9 billion.

At $156 billion, investments in the developing countries exceeded those in the developed countries ($130 billion) for the first time. China was in the lead, investing $102.9 billion or 36 per cent of the global total, an increase of 17 per cent over the previous year, while the US saw an increase of 19 per cent over 2014 with investments of $44.1 billion. The increase in investments in developing countries was driven largely by the rising demand for energy and the falling cost of technology. The BRICS countries, with the exception of Russia, were among the top 10 investors, while in the developed world, the US ($44.1 billion), Japan ($36.2 billion), the UK ($22.2 billion) and Germany ($8.5 billion) invested the majority amount in the industry. Meanwhile, the investment in Europe decreased sharply by 21.1 per cent to $48.8 billion, including Germany where financing fell by 46 per cent.

Wind and solar dominated the investments, accounting for 94.3 per cent of the total investments. Solar retained its top spot with 56 per cent, or $161 billion, an increase of 12 per cent over 2014. Meanwhile, wind saw an investment of $109.6 billion or 38.3 per cent, an increase of 4 per cent over 2014. Of the remaining 5.7 per cent, biomass and waste-to-energy saw investments of $6 billion, a decline of 42 per cent. This was followed by biofuels with $3.1 billion of investments, which decreased by 35 per cent; small-scale hydropower ($3.9 billion), which fell by 29 per cent; geothermal power ($2 billion), which reduced by 23 per cent; and ocean energy ($215 million); which fell by 42 per cent.

Asset finance provided the majority of the funding in the sector with $199 billion in 2015, an increase of 6 per cent over 2014. Given the falling costs of solar PV and rooftop technologies, small-scale distributed capacity was the second largest mode of finance for the industry. Yieldcos’ investments fell to $12.8 billion as they came under the scrutiny of investors, which doubted their status as growth stocks. Meanwhile, acquisition activity rose by 7 per cent over 2014 to touch $93.9 billion, indicating strong consolidation during the year.

Future outlook

The unprecedented growth and investments in the renewable energy sector can be attributed to a favourable business ecosystem and national policies, driven by ambitious targets. A key highlight of 2015 was the Paris Agreement, which brought the world together on a single platform, with nearly 200 signatories and 81 ratifications so far. Notably, the US, China and India, the world’s largest greenhouse gas emitters, have all ratified the agreement, which translates into emission caps and trading mechanisms to ensure proper mitigation of the negative effects of climate change.

While the adoption of renewable energy technologies is increasing in regions like Africa and the Middle East, the degree of penetration is still low. Thus, there is a huge growth potential for the industry. Since the developing world has taken cognizance of its role in climate change, the renewable energy industry in developed countries is expected to expand. High cost competitiveness and increased technology awareness have made the technology more affordable. Innovative financing options such as PPAs, community-led programmes and off-site options, as well as reduced costs will ensure renewable energy growth in even the remote parts of the world. With dedicated goals for climate change and energy in place under SDG 7 of the United Nations, the future of renewable energy seems promising.

On a cautionary note however, rapid expansion in China, India and Africa has led to grid congestion, a significant roadblock in the expansion of the industry. Increased infrastructure planning can help remove this hurdle. In addition, there is a need to focus on innovation, research and development in order to address the climate change issue more efficiently.

Based on the Global Status Report 2016 by REN21 and the Global Wind Energy Outlook 2016

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