Highlights

The 2017 edition of the REN21 Renewables Global Status Report (GSR) reveals a global energy transition well under way, with record new additions of installed renewable energy capacity, rapidly falling costs, particularly for solar PV and wind power, and the decoupling of economic growth and energy-related carbon dioxide (CO2) emissions for the third year running. Innovative and more sustainable ways of meeting our energy needs – through better-integrated sectoral planning, the adoption of exciting new business models and the more creative use of enabling technologies – are accelerating the paradigm shift away from a world run on fossil fuels.

■ Newly installed renewable power capacity set new records in 2016, with 161 gigawatts (GW) added, increasing the global total by almost 9% relative to 2015. Solar PV was the star performer in 2016, accounting for around 47% of the total additions, followed by wind power at 34% and hydropower at 15.5%. For the fifth consecutive year, investment in new renewable power capacity (including all hydropower) was roughly double the investment in fossil fuel generating capacity, reaching USD 249.8 billion. The world now adds more renewable power capacity annually than it adds in net new capacity from all fossil fuels combined.

■ Cost for electricity from solar PV and wind is rapidly falling. Record-breaking tenders for solar PV occurred in Argentina, Chile, India, Jordan, Saudi Arabia and the United Arab Emirates, with bids in some markets below USD 0.03 per kilowatt-hour (kWh). Parallel developments in the wind power sector saw record low bids in several countries, including Chile, India, Mexico and Morocco. Record lows in offshore wind power tenders in Denmark and the Netherlands brought Europe’s industry closer to its goal to produce offshore wind power more cheaply than coal by 2025.

“In 2016 investors were able to acquire more renewable energy capacity for less money.“

■ 2016 was the third year in a row where global energy-related CO2 emissions from fossil fuels and industry remained stable despite a 3% growth in the global economy and an increased demand for energy. This can be attributed primarily to the decline in coal consumption, but also to the growth in renewable energy capacity and to improvements in energy efficiency. The decoupling of economic growth and CO2 emissions is an important first step towards achieving the steep decline in emissions necessary for holding global temperature rise well below 2 degrees Celsius (°C).

■ The myth that fossil and nuclear power are needed to provide “baseload” electricity supply when the sun isn’t shining or the wind isn’t blowing has been shown to be false. In 2016, Denmark and Germany successfully managed peaks of 140% and 86.3%, respectively, of electricity generation from renewable sources, and in several countries (Portugal, Ireland and Cyprus, for example), achieving annual shares of 20-30% electricity from variable renewables without additional storage is becoming feasible. The key lesson for integrating large shares of variable renewable generation is to ensure maximum flexibility in the power system.

■ There has been an upsurge in cities, states, countries and major corporations committing to 100% renewable energy targets because it makes economic and business sense, quite apart from climate, environment and public health benefits. In 2016, 34 additional businesses joined RE100, a global initiative of businesses committed to sourcing their operations with 100% renewable electricity. Throughout 2016, the number of cities across the globe committed to transitioning to 100% renewable energy – in total energy use or in the electricity sector – continued to grow, and some cities and communities already have succeeded in this goal (for example, in more than 100 communities in Japan). Under the Covenant of Mayors for Climate & Energy, more than 7,200 communities with a combined population of 225 million people are committed to reducing emissions 40% by 2030, by increasing energy efficiency and renewable energy deployment. And it is not only corporations and sub-national actors that are looking to go 100% renewable. At the climate conference in Marrakesh, Morocco in November 2016, the leaders of 48 developing nations committed to work towards achieving 100% renewable energy supply in their respective nations.

■ A paradigm shift is under way in the developing world, where billions of people still live without access to electricity (around 1.2 billion) and/or clean cooking facilities (around 2.7 billion). The cumbersome process of providing electricity access through grid extension alone is becoming obsolete as new business models and technologies enable the development of off-grid markets. Markets for both mini-grids and stand-alone systems are evolving rapidly. Bangladesh, with 4 million units installed, has the largest solar home system market using mainly microcredit schemes. Pay-As-You-Go (PAYG) business models, supported by mobile technology (for example, the use of mobile phones for bill paying), are exploding. In 2012, investments in PAYG solar companies amounted to only USD 3 million; by 2016 that figure had risen to USD 223 million (up from USD 158 million just one year before). This trend started in East Africa and is quickly spreading to West Africa, as well as to South Asia. The mini-grid market now exceeds USD 200 billion annually. In 2016, more than 23 MW of solar PV and wind power based mini-grid projects were announced.

■ The notion that renewable energy is something that only rich countries can afford is not valid. Most new renewable energy capacity is being installed in developing countries, mainly in China, which has been the single largest developer of new renewable power and heat for the past eight years. With a solar revolution taking off in India, and with 48 developing countries now committed to 100% renewable energy goals, the developing country share of total global renewable energy capacity is likely to increase further. Moreover, in 2015 developing and emerging economies overtook industrialised countries in renewable energy investment for the first time (although industrialised countries retook the lead in 2016, despite the fact that China remained the single largest investor). The myth that renewable energy is too expensive, or that only a handful of rich countries continue to lead the way, has been discredited. In many cases, renewable power is now the least-cost option.

■ Even in the transport sector, which arguably faces the greatest challenges in transitioning to a renewable energy future, major changes are under way. Although policy support for renewable energy use in the transport sector continues to focus primarily on biofuel blends, policies to encourage the purchase of electric vehicles (EVs) are emerging. This is starting to pay off: global deployment of EVs for road transport, and particularly passenger vehicles, has grown rapidly in recent years. In 2016, global passenger EV sales reached an estimated 775,000 vehicles, and more than 2 million of the vehicles were on the world’s roads by year’s end.

Direct links between renewable energy and EVs, however, remain limited; many, if not most, EVs are still powered by nuclear and fossil fuel-generated electricity, with the exception of Norway where EVs run on hydropower. There are promising signs nonetheless. Car sharing companies in the United Kingdom and the Netherlands, for example, have begun offering provisions to charge vehicles with renewable electricity. And as the share of renewables in grid power increases, so will the share of renewables in electrified transport, illustrating that systemic planning and policy design is needed to link the power and transport sectors.

With regard to rail transport, which accounts for about 2% of the total energy used in the transport sector, renewables also are starting to enter the game. A number of railways implemented new projects in 2016 to generate their own electricity from renewables (e.g., wind turbines on railway land and solar panels on railway stations), notably in India and Morocco.

■ Despite slow progress in the heating and cooling sector, there have been some positive developments. The use of solar process heat continued to increase in the food and beverage industry as well as in the mining industries, and has expanded into other industries as well. Solar thermal is being incorporated into district heating systems at significant scales, with several large projects in some European countries, with Denmark currently in the lead. Several European Union (EU) countries also have expanded use of geothermal district heating plants, and interest is growing in the use of district heating to provide flexibility to power systems, by converting renewable electricity into heat.

■ Finally, enabling technologies are facilitating and advancing the deployment of renewable energy (and are discussed in the GSR for the first time in 2017 given their increasingly important role). ICT (information and communication technology), storage systems, EVs and heat pumps – to name a few – are facilitating and advancing the deployment of renewable energy. Even though these technologies were not developed for this purpose originally, they are showing tremendous capacity to facilitate greater system integration and more effective demand response.

Storage, in particular, is starting to receive a lot of attention, given its potential for providing additional flexibility to the power system. It is taking off in a limited number of markets, but it is still small in scale. In 2016, approximately 0.8 GW of new non-pumped energy storage capacity became operational – mostly consisting of battery (electrochemical) storage but also some CSP thermal storage capacity – bringing the year-end total to an estimated 6.4 GW. This amount complements an estimated 150 GW of pumped storage capacity in operation worldwide. Most of the growth took place in battery (electro-chemical) storage, with innovations being driven largely by the EV industry. Storage systems increasingly are being integrated into large-scale utility projects, and are being used by homeowners to store electricity generated by rooftop solar PV systems.

But the Transition Is Not Happening Fast Enough

Despite these positive trends, the pace of the transition is not on track to achieve the goals established in the ground-breaking Paris Agreement adopted in December 2015. The Paris Agreement commits governments collectively to keep global temperature rise well below 2°C compared with pre-industrial levels, with the aim of holding it to a safer limit of 1.5°C. To this end, during 2016, 117 countries adopted Nationally Determined Contributions (NDCs), 55 of which featured renewable energy targets and 107 of which featured energy efficiency targets. Yet the sum total of national pledges would take us well over the 2°C threshold, with best estimates ranging between 2.3°C and 3.5°C.

With the right policies in place, the power sector could be emissions-free by mid-century. But the distinction between “electricity” and “energy” often is confused in the public discourse; the energy market actually comprises three major segments: electricity, transport, and heating and cooling. And progress in the transport and heating and cooling sectors lags well behind the tremendous growth of renewables in the power sector.

Figure 2. Growth in Global Renewable Energy Compared to Total Final Energy Consumption, 2004-2014

The Sustainable Energy for All (SEforALL) initiative aims at providing sustainable energy access for all people, doubling the share of renewables (from 18% in 2010 to 36% by 2030) and doubling the global rate of improvement in energy efficiency by 2030 (over 2010 levels). Put simply, a renewable energy future will not be achievable in the absence of dramatic improvements in energy efficiency. Fortunately, energy efficiency measures implemented over the last 25 years have saved an amount of energy equivalent to the total current demand of China, India and Europe combined. From 1990 to 2014, global primary energy intensity declined at an average annual rate of 1.5%, and by 2015 energy intensity was more than 30% lower than it was in 1990.

In 2015 – the latest year for which data were available at the time of GSR publication – global primary energy intensity improved 2.6% over the previous year, bringing the average annual rate of improvement between 2010 and 2015 to 2.1%. This was an important achievement, but energy intensity will need to be improved by 2.6% annually (on average) starting in 2017 if the SEforALL energy efficiency goal is to be met. For every year we lag behind this average rate, we will need to compensate with even higher rates of improvement in future years.

RENEWABLE ENERGY INDICATORS 2016

And Not as Fast as Is Possible

Investments Were Down

Although global investment in new renewable power and fuel capacity was roughly double that in fossil fuels, investments in new renewable energy installations (not including hydropower larger than 50 MW) were down 23% compared to 2015. Among developing and emerging countries, renewable energy investment fell 30%, to USD 116.6 billion, while that of developed countries fell 14% to USD 125 billion. The overall lower level of investment in 2016 was due largely to the slowdowns in the Chinese and Japanese markets and in other emerging economies, notably India and South Africa (the latter due mainly to a delay in renewable energy auctions).

China is still responsible for the largest level of investment (32% of all financing of renewable energy worldwide, excluding hydropower projects larger than 50 MW). But following a record level of investment in 2015, investments in 2016 were diverted in part to grid improvements and to reforms in the power market in order to better utilise existing renewable energy resources. In January 2017 the Chinese government announced that it would spend USD 360 billion through 2020, reinforcing its position as the world leader in renewable energy investments.

In Japan, there was a push to develop renewable power in the wake of the 2011 Fukushima nuclear disaster. In practice, however, utilities showed resistance to this transition, and in the case of wind power, procedural delays were put into place which prevented the market from developing. A shift in policy from a generous feed-in tariff to tendering led to a nearly 70% decline in investment in small-scale, renewable power capacity in 2016.

Slow Progress in Heating and Cooling

As noted earlier, the heating and cooling sector lags far behind the power sector in the renewable energy transition. Energy used for heat (water and space heating, cooking and industrial processes) accounted for more than one-half of total world final energy consumption in 2016, of which renewables comprised around 25%. But more than two-thirds of the renewable share consists of traditional biomass (used predominantly in the developing world for cooking and heating), which often is harvested unsustainably and is highly polluting and damaging to health when burned inefficiently. More than 4 million people die prematurely from illness attributable to household air pollution from cooking with solid fuels. Heat supplied by modern renewable energy sources is used largely for industrial purposes (56%).

Figure 41. Global New Investment in Renewable Power and Fuels, Developed, Emerging and Developing Countries, 2006-2016

Space cooling, most of which is supplied by electrical appliances, accounts for only about 2% of total world final energy consumption. The demand for thermal renewable energy-based cooling technologies generally has not kept pace with the rising demand for cooling.

The deployment of renewable technologies in the heating and cooling sector remains a challenge in light of the unique and distributed nature of this market. High up-front investment costs and competition with low-cost (subsidised) fossil fuels continue to impede the deployment of renewable heat. Lack of effective policies and political will contribute to slow renewable energy uptake.

Progress also is constrained by additional factors which could be overcome with effective policy support and political will, including limited awareness of the technologies, and fossil fuel subsidies which keep fossil fuel prices artificially low. In developing countries in particular, despite significant potential for the use of renewables in heating, the lack of installation know-how remains an important barrier, particularly for industrial-scale heat.

Transport – Especially Aviation and Shipping – Lags Behind in the Renewable Energy Transition

The scaling-up of renewables in the transport sector is slow. Despite some progress – in particular rapid development of the EV market – oil products still account for around 93% of final energy consumption in transport. The international community focused increased attention on decarbonisation of the transport sector following the adoption of the Paris Agreement, but only 22 of the NDCs refer specifically to renewable energy in the transport sector, and only 2 of these (Niue and New Zealand) reference the need for EVs to be powered by renewable energy.

Efficiency, optimisation and switching modes of transport – i.e., from individual cars to mass transit – are key levers for decarbonising the transport sector. Renewables-based decarbonisation of the transport sector, however, is not yet being seriously considered, or seen as a priority.

Barriers to electrification in the road transport sector continue to include relatively high EV vehicle costs, perceived limits to range and battery life, and a lack of charging infrastructure. In the developing world, additional barriers relate to the lack of a robust electricity supply. Moreover, the focus in developing countries often is to establish basic transport infrastructure. While this is clearly a genuine need, renewable energy-based solutions should be integrated in planning processes (which often is not the case currently).

With regard to rail transport, the renewable electricity share in the total energy mix of the world’s railways increased from 3.4% in 1990 to around 9% in 2013, with some countries reaching much higher penetrations. While urban rail infrastructure and service are already largely electrified, the electrification of long-distance rail requires major infrastructure change and related financing.

Biofuels will be needed increasingly not only for road transport, but also for shipping and aviation, as these sectors are difficult to electrify. Fuels need to be adapted for each of these applications and for different types of engines. Despite continued strong interest in the development of aviation biofuels, the quantities produced in 2016 remained relatively small and mostly for demonstration use. Likewise, biofuel production for maritime use is in its infancy.

At the international level, the International Civil Aviation Organization agreed in 2016 to establish a global market-based measure to reduce CO2 emissions from aviation, including specifications for advances in the production and use of sustainable aviation fuel; however, progress in decarbonising the aviation sector is moving very slowly. The shipping sector also has yet to address its emissions. Even with lower carbon intensity of individual ships, global emissions will keep increasing with growing global trade and transport services.

Nonetheless, a number of significant developments emerged in 2016. Some governments, mostly in Europe, began looking at medium- to long-term strategies to decarbonise the transport sector, often involving long-term structural changes; many also considered or developed strategies to more closely link the transport and electricity sectors. Germany’s climate action plan, developed in 2016, aims to reduce emissions in transport 40-42% by 2030, with a longer-term objective of fully decarbonising the sector.

Fossil Fuel Subsidies Continue to Impede Progress Overall

Finally, a major barrier to the rapid uptake of renewables more generally is the continued subsidising of fossil fuels (and nuclear power), despite many international commitments to phase them out. By the end of 2016 more than 50 countries had committed to phasing out fossil fuel subsidies, and some reforms have occurred, but not enough. In 2014 the ratio of fossil fuel subsidies to renewable energy subsidies was 4:1. In other words, for every USD 1 spent on renewables, governments spent USD 4 perpetuating our dependence on fossil fuels. This is distorting the market in very unproductive ways.

TOP FIVE COUNTRIES Annual Investment / Net Capacity Additions / Production in 2016

TOP FIVE COUNTRIES Total Capacity or Generation as of End-2016

How to Speed the Transition

1) Fossil fuels must be left in the ground if the world is serious about meeting its climate commitments.

China announced in January 2017 that it was cancelling more than 100 coal-fired power plants currently in development, and then announced in May that it was suspending the construction of new coal plants in 29 out of 32 provinces. These measures demonstrate how quickly change can happen when there is the political will to do so. Phasing out coal in favour of renewables (combined with increasing energy efficiency) would be the single most cost-effective way to reduce CO2 emissions, with added benefits for health.

As governments get serious about addressing climate change, the risk that coal and other fossil fuel investments could become stranded assets is increasing.

2) Rather than investing in fossil or nuclear “baseload” power, efforts should focus on developing dispatchable renewable energy and mobilising flexibility options to manage higher shares of variable renewables.

How to do this varies depending on local circumstances: whether demand for power is stable and the grid is well-developed (and inter-connected); whether demand is increasing and supply is being augmented with greater shares of wind and solar power; whether there is already a surplus of supply so that on cloudy or windless days the system can continue to operate normally; whether demand is increasing rapidly (as in many developing countries) but the basic system is not yet well developed; and so forth.

In developing countries, with effective planning, a package of complementary measures can be designed for maximum flexibility at the outset. For existing systems, flexibility measures can include: managing shorter trading times; matching demand more carefully with supply; establishing grid interconnections; investing in storage solutions; utilising automation technologies; and planning for sectoral integration (for example, by charging EVs during the day to take advantage of power produced from solar PV and wind power plants that exceeds electricity demand).

In general, policies should be developed that support and integrate coupling among the power, transport, and heating and cooling sectors. This requires that planning be conducted across sectors and across government departments and ministries. Policy design should be done in close dialogue with the public and private sectors, and policies at different levels of government should be complementary and mutually reinforcing.

3) As efforts intensify to provide modern energy services to the billions of people who lack access, it is crucial that renewable energy and enabling technologies aimed at maximum system flexibility are prioritised, and that the most energy-efficient technologies are utilised.

There should be increased support for distributed renewable energy technologies as well as more attention to developing national policies that serve to strengthen local capacity, particularly in the heating and cooling sector given its large reliance on local resources. In 2015, financing for energy access and distributed renewable energy programmes accounted for less than 16% of all energy investments (USD 3.1 billion out of USD 17.4 billion of total investment). Given the urgency of achieving energy access for all, investment in these areas should be increased dramatically.

Moreover, governments should create an enabling environment that allows businesses to seize opportunities, particularly in serving people who otherwise might not gain access. It is essential that governments eliminate a range of barriers that hinder further development, including (among other things): policy and energy planning uncertainty; lack of access to finance for both companies and consumers; subsidies for kerosene and diesel, which disadvantage renewable alternatives; fiscal and import barriers, which serve to increase prices (for example, import tariffs and value-added tax); scarcity of information and assurance for investors; and the lack of product standards to ensure the quality and reliability of products.

4) Policy matters: A system approach is needed across all sectors.

Policy support for renewables in 2016, as in past years, focused mostly on power generation, whereas policies for the heating and cooling and transport sectors has remained virtually stagnant. This has to change: strong policy support for all three pillars of the sustainable energy transition is needed if we are to achieve the goals set out in the Paris Agreement. Policy support can take many forms, at both the national and sub-national levels: targets; feed-in policies; auctions (also called competitive bidding or tenders); regulatory mandates; changes in building codes; fuel efficiency standards; and grants, loans and subsidies. Regardless of the chosen policy framework, transparency and stability are essential.

Several specific policy recommendations should be emphasised:

■ A systemic approach: First and foremost, as the share of renewable energy grows to significant levels in a country or region, a systemic approach will be needed. Conversations about how to integrate high shares of variable renewable energy into the power system clearly benefit from looking beyond the narrow confines of a single grid, a single country, a single city or a single sector – as many have begun to do. In a systemic approach, what constitutes a renewables-based energy system moves beyond the traditional, narrow construct of renewable energy sources (wind, solar, hydropower, etc.) to a broader definition which includes supporting infrastructure such as transmission and distribution networks; supply and demand balancing measures, including through efficiency measures and sector coupling (for example the integration of power and transport networks); and a wide range of enabling technologies. The systemic approach should become the norm in energy and infrastructure planning, financing and policy development.

■ Power: Many countries are shifting away from feed-in policies and replacing them with auctions aimed at deploying large-scale renewable energy projects. This approach has greatly reduced prices of renewable power, although in some cases, due to scheduling delays, it has had negative consequences, such as reducing market continuity and increasing market insecurity. The continuously delayed energy auctions in South Africa, for example, caused serious problems for the national renewables industry. It is crucial to link energy planning, policy design/formulation and industry development if such consequences are to be avoided. By taking a more strategic approach to energy planning, and ensuring the long-term predictability of auction schedules, continuous market opportunities can be created. This will help in developing a strong renewable power industry around which skills can be built and local value can be created. It also is important to support the deployment of distributed and locally owned renewable energy projects.

■ Transport: Policy support for improving the sustainability of transport traditionally has focused on increasing energy efficiency and expanding the use of biofuels (including advanced biofuels for aviation and maritime transport). Governments should set clear policies to: facilitate research and market opportunities for advancing the development of sustainable biofuels; ensure that the rapid expansion of the EV fleet is powered by renewable sources of electricity (including by integrating EVs into the suite of flexible options for incorporating higher shares of variable renewable energy into the grid); expand mandates and financial support for sustainable biofuels; and incorporate the use of advanced biofuels for aviation, rail and maritime transport in broader strategies to advance the use of bioenergy in the transport sector.

■ Heating and cooling: In 2016, policy makers continued to focus on financial incentives in the form of grants, loans or tax incentives as well as mandates and building codes to increase deployment of renewable heating and cooling technologies. Some countries enacted policies designed to advance technological development. In addition, some governments have used FITs and tendering mechanisms, mainly focused on the buildings sector and in many cases including links to energy efficiency. Despite positive developments in a number of countries, the renewable heating and cooling sector faced a great deal of policy uncertainty. The single most important thing that governments can do for this sector is to establish long-term policy certainty to facilitate increased investment.

■ Energy access: As in the power sector, an integrated process that links energy planning, policy formulation and industrial development is essential for ensuring that a range of needs can be met in the most efficient and sustainable way. Developments around distributed renewable energy show that the old paradigm of energy access through grid extension alone is becoming obsolete. To accelerate energy access, it is important that policy makers look to the future so that a stable, off-grid, decentralised market can form and the industry can develop.

A variety of policies can be used to accelerate the paradigm shift: establishing specific distributed renewable energy targets alongside electrification and renewable energy targets to be implemented within a certain time frame; integrating stand-alone solutions, in particular mini-grids, into national electrification plans; establishing a clear policy framework for accessing finance that reflects this newer approach; and measures for upholding quality standards.