Tracking global energy transition in turbulent times: solar stutters, coal keeps growing
As the extent of the impact of the coronavirus outbreak on economic activity and power demand emerges, newbuild activity in global power faces old and new sets of challenges.
The short-term focus has been shifting due to coronavirus-related disruption of manufacturing activity and logistics, but delays will most likely be short-lived.
The global power capacity mix has already been shifting toward renewables. S&P Global Platts Analytics estimates that solar photovoltaic, wind and hydro made up almost 67% of total power capacity additions over the past year. The question is whether renewables investments will accelerate, but so far we do not see major signs that this could happen soon.
Solar PV now accounts for about a third of the total incremental power capacity additions annually, but as presented in our latest Global Solar PV Outlook, 2019 marked an inflection point for the technology.
Solar additions were 4% lower year on year in 2019 and near-term challenges emerged for solar PV development, as policy support is being withdrawn across key markets and it is unclear at this time if stimulus packages that are being proposed across the globe could boost solar.
China’s PV capacity growth declined by over a third, with lingering concerns around delays of subsidy payments for plants already commissioned in prior years, which are straining developers’ finances. Platts Analytics expects a stabilization in the Chinese market in the second half of the year, under the assumption that the coronavirus is successfully contained
Although logistics concerns are dampening short-term additions, down the road we see an acceleration of solar installations in a number of markets in Europe, the Middle East and emerging Asia, but as projects are becoming more exposed to wholesale markets, the current low and volatile fuel pricing environment poses further bearish risks for developers.
Commissioning of wind projects has been increasing more significantly due to some pockets of policy support that will be ending soon. Wind additions were up by 22% year on year across the globe during 2019, or around 62 GW. Over 40% of this capacity was added in China (25.7 GW, an increase of about 25% year on year). The current supporting mechanism with feed-in tariffs (FiT) for onshore wind will be phased out by 2021, so an incentive remains in place to bring projects online by then.
The US is the other region where wind capacity additions remain robust, with policy support through the Production Tax Credit further extended through 2020. According to EIA data, about 10 GW came online in 2019, compared to about 8.6 GW added in 2018. S&P Global Platts Analytics expects up to 15 GW to come online in 2020, the highest annual increment in history.
Europe’s wind capacity growth has been above expectations in 2019, with almost 15 GW installed, of which over 3.6 GW offshore plants. A lack of suitable space and growing local opposition have now become a major bottleneck to new onshore projects, especially in Germany.
Growth for onshore wind has been driven by Spain and Nordic markets, representing over 20% of the total, with Sweden in particular among the largest (+1.6 GW). But Europe’s wind development is now shifting offshore, with 80 GW of offshore capacity targeted by 2030, which compares to 22 GW currently installed.
The pipeline of offshore projects has also become large in the US. In spite of a levelized cost of electricity (LCOE) for US offshore wind projects estimated to be in the mid $80s/MWh (moving down to the mid $60/MWh assuming Investment Tax Credit), offshore wind is being developed to meet state-driven mandates, with some 27 GW of combined offshore capacity targeted by 2030 across the Northeast. Energy mix diversification and emissions reductions are the main drivers of these procurements, while proximity to load centers is an additional attraction.
Coal fleet continues to grow
As investments in renewables dominate, it’s remarkable that the coal fleet continues to expand globally. About 48 GW of coal capacity was commissioned in 2019, similar to the level seen in the prior year. China accounts for over 60% of these additions, followed by India with about 7.8 GW of coal newbuild (about 16% of the total).
The amount of coal capacity commissioned remains well above the approximately 20 GW of capacity retired across Europe and US. Retirements are set to increase across these major markets, as loads contract and gas prices move lower, while Germany and a number of countries in Europe are moving ahead with plans to exit from coal.