Renewable energy supplies 17 percent of the world’s primary energy, counting traditional biomass, large hydropower and "new" renewables (small hydro, modern biomass, wind, solar, geothermal, and biofuels). (See Figure 1.) *1 *2



Traditional biomass, primarily for cooking and heating, represents about 9 percent and is growing slowly or even declining in some regions as biomass is used more efficiently or replaced by more modern energy forms. Large hydropower is slightly less than 6 percent and growing slowly, primarily in developing countries.*3 New renewables are 2 percent and growing very rapidly in developed countries and in some developing countries. Clearly, each of these three forms of renewable energy is unique in its characteristics and trends. This report focuses primarily on new renewables because of their large future potential and the critical need for market and policy support in accelerating their commercial use.*5[N1, N2]*4

Renewable energy competes with conventional fuels in four distinct markets: power generation, hot water and space heating, transport fuels, and rural (off-grid) energy. (See Table 1) In power generation, renewable energy comprises about 4 percent of power-generating capacity and supplies about 3 percent of global electricity production (excluding large hydropower). Hot water and space heating for tens of millions of buildings is supplied by solar, biomass, and geothermal. Solar thermal collectors alone are now used by an estimated 40 million households worldwide. Biomass and geothermal also supply heat for industry, homes, and agriculture. Biomass transport fuels make small but growing contributions in some countries and a very large contribution in Brazil, where ethanol from sugar cane now supplies 44 percent of automotive (non-diesel) fuel consumption for the entire country. In developing countries, 16 million households cook and light their homes from biogas, displacing kerosene and other cooking fuel; more than 2 million households light their homes with solar PV; and a growing number of small industries, including agro-processing, obtain process heat and motive power from small-scale biogas digesters.*6[N3]

The fastest growing energy technology in the world has been grid-connected solar PV, with total existing capacity increasing from 0.16 GW at the start of 2000 to 1.8 GW by the end of 2004, for a 60 percent average annual growth rate during the five-year period. (See Figures 2 and 3)



During the same period, other renewable energy technologies grew rapidly (annual average) as well: wind power 28 percent (see Figure 4),



biodiesel 25 percent, solar hot water/heating 17 percent, off-grid solar PV 17 percent, geothermal heat capacity 13 percent, and ethanol 11 percent. Other renewable energy power generation technologies, including biomass, geothermal, and small hydro, are more mature and growing by more traditional rates of 2–4 percent per year. Biomass heat supply is likely growing by similar amounts, although data are not available. These growth rates compare with annual growth rates of fossil fuel-based electric power capacity of typically 3–4 percent (higher in some developing countries), a 2 percent annual growth rate for large hydropower, and a 1.6 percent annual growth rate for nuclear capacity during the three year period 2000–2002.[N3]

Existing renewable electricity capacity worldwide totaled 160 GW in 2004, excluding large hydro. (See Figure 5)



Small hydro and wind power account for two-thirds of this capacity. This 160 GW compares to 3,800 GW installed capacity worldwide for all power generation. Developing countries as a group, including China, have 70 GW (44 percent) of the 160 GW total, primarily biomass and small hydro power. The European Union has 57 GW (36 percent), a majority of which is wind power. The top five individual countries are China (37 GW), Germany (20 GW), the United States (20 GW), Spain (10 GW), and Japan (6 GW).[N4, N5]

Large hydropower remains one of the lowest-cost energy technologies, although environmental constraints, resettlement impacts, and the availability of sites have limited further growth in many countries. Large hydro supplied 16 percent of global electricity production in 2004, down from 19 percent a decade ago. Large hydro totaled about 720 GW worldwide in 2004 and has grown historically at slightly more than 2 percent per year (half that rate in developed countries). Norway is one of several countries that obtain virtually all of their electricity from hydro. The top five hydropower producers in 2004 were Canada (12 percent of world production), China (11.7 percent), Brazil (11.4 percent), the United States (9.4 percent), and Russia (6.3 percent). China’s hydro growth has kept pace with its rapidly growing power sector. China installed nearly 8 GW of large hydro in 2004 to become number one in terms of installed capacity (74 GW). Other developing countries also invest significantly in large hydro, with a number of plants under construction.

Small hydropower has developed worldwide for more than a century.More than half of the world’s small hydropower capacity exists in China, where an ongoing boom in small hydro construction added nearly 4 GW of capacity in 2004. Other countries with active efforts include Australia, Canada, India, Nepal, and New Zealand. Small hydro is often used in autonomous (not grid-connected) village- power applications to replace diesel generators or other small-scale power plants or to provide electricity for the first time to rural populations. In the last few years, more emphasis has been put on the environmental integration of small hydro plants into river systems in order to minimize environmental impacts, incorporating new technology and operating methods.

Wind power markets are concentrated in a few primary countries, with Spain, Germany, India, the United States, and Italy leading expansion in 2004. (See Figure 6)



Several countries are now taking their first steps to develop large-scale commercial markets, including Russia and other transition countries, China, South Africa, Brazil, and Mexico. In the case of China, most wind power investments historically have been donor- or government- supported, but a shift to private investment has been underway in recent years. Several other countries are at the stage of demonstrating wind farm installations, looking to develop commercial markets in the future.[N6]

Biomass electricity and heat production is slowly expanding in Europe, driven mainly by developments in Austria, Finland, Germany, and the United Kingdom. A boom in recent years in converting waste wood in Germany is now levelling off, as the resource base is mostly used. The United Kingdom has seen recent growth in "co-firing" (burning small shares of biomass in coal-fired power plants). Continuing investments are occurring in Denmark, Finland, Sweden, the United States, and several other OECD countries. The use of biomass for district heating and combined heat-and-power has been expanding in some countries, including Austria and Germany. In Sweden, biomass supplies more than 50 percent of district heating needs. Among developing countries, small-scale power and heat production from agricultural waste is common, for example from rice or coconut husks. The use of sugar cane waste (bagasse) for power and heat production is significant in countries with a large sugar industry, including Brazil, Columbia, Cuba, India, the Philippines, and Thailand. Increasing numbers of small-scale biomass gasifiers are finding application in rural areas (and there are also demonstrations of biomass gasification for use in highefficiency combined-cycle power plants in developed countries). Interest in bioenergy "coproduction," in which both energy and non-energy outputs (for example, animal feed or industrial fiber) are produced in an integrated process, is also growing.[N6]

Like small hydro, geothermal energy has been used for electricity generation and heat for a century. There are at least 76 countries with geothermal heating capacity and 24 countries with geothermal electricity.More than 1 GW of geothermal power was added between 2000 and 2004, including significant increases in France, Iceland, Indonesia, Kenya,Mexico, the Philippines, and Russia.Most of the geothermal power capacity in developed countries exists in Italy, Japan, New Zealand, and the United States.[N6]

Geothermal direct-heat utilization capacity nearly doubled from 2000 to 2005, an increase of 13 GWth, with at least 13 new countries using geothermal heat for the first time. Iceland leads the world in direct heating, supplying some 85 percent of its total space-heating needs from geothermal. Turkey has increased its geothermal direct-heating capacity by 50 percent since 2000, which now supplies heat equivalent to the needs of 70,000 homes. About half of the existing geothermal heat capacity exists as geothermal heat pumps, also called ground source heat pumps. These are increasingly used for heating and cooling buildings, with nearly 2 million heat pumps used in over 30 countries, mostly in Europe and the United States.

Grid-connected solar PV installations are concentrated in three countries: Japan, Germany, and the United States, driven by supportive policies. By 2004, more than 400,000 homes in these countries had rooftop solar PV feeding power into the grid. This market grew by about 0.7 GW in 2004, from 1.1 GW to 1.8 GW cumulative installed capacity. Around the world, there are also a growing number of commercial and public demonstrations of building integrated solar PV. Typical examples include a subway station (100 kW), gas station (30kW), solar PV manufacturing plant (200kW), fire station (100kW), city hall (50kW), exhibition hall (1000 kW), museum (10kW), university building (10kW), and prison (70kW).[N7]

The concentrating solar thermal power market has remained stagnant since the early 1990s, when 350 MW was constructed in California due to favorable tax credits. Recently, commercial plans in Israel, Spain, and the United States have led a resurgence of interest, technology evolution, and potential investment. In 2004, construction started on a 1 MW parabolic trough in Arizona, the first new plant anywhere in the world since the early 1990s. Spain’s market is emerging, with investors considering two 50 MW projects in 2005. Some developing countries, including India, Egypt, Mexico, and Morocco, have planned projects with multilateral assistance, although the status of some of these projects remains uncertain.

Solar hot water/heating technologies are becoming widespread and contribute significantly to the hot water/heating markets in China, Europe, Israel, Turkey, and Japan. Dozens of other countries have smaller markets. China accounts for 60 percent of total installed capacity worldwide. (See Figure 7 and Figure 8).





The European Union accounts for 11 percent, followed by Turkey with 9 percent and Japan with 7 percent (all figures are for glazed collectors only). Total sales volume in 2004 in China was 13.5 million square meters, a 26-percent increase in existing capacity. Vacuum tube solar water heaters now dominate the Chinese market, with an 88-percent share in 2003. In Japan, existing solar hot capacity continues to decline, as new installations fall short of retirements. In Europe, about 1.6 million square meters was installed in 2004, partly offset by retirements of older existing systems. The 110 million square meters of installed collector area (77 GWth of heat production capacity) worldwide translates into almost 40 million households worldwide now using solar hot water. This is 2.5 percent of the roughly 1,600 million households that exist worldwide.*7[N8]

Space heating from solar is gaining ground in several countries, although the primary application remains hot water. In Sweden and Austria, more than 50 percent of the annually-installed collector area is for combined hot water and space heating systems. In Germany, the share of combined systems is 25–30 percent of the annual installed capacity. Less than 5 percent of systems in China provide space heating in addition to hot water.

Biofuels production of 33 billion liters in 2004 compares with about 1,200 billion liters annually of gasoline production worldwide. (See Figure 9)



Brazil has been the world’s leader (and primary user) of fuel ethanol for more than 25 years. It produced about 15 billion liters of fuel ethanol in 2004, contributing slightly less than half the world’s total. All fueling stations in Brazil sell both pure ethanol (E95) and gasohol, a 25-percent ethanol/75-percent gasoline blend (E25). In 2004, almost as much ethanol as gasoline was used for automobile (non-diesel) fuel in Brazil; that is, ethanol blended into gasohol or sold as pure ethanol accounted for 44 percent of total automobile fuel sold in Brazil. Demand for ethanol fuels, compared to gasoline, was very strong in 2005. In recent years, significant global trade in fuel ethanol has emerged, with Brazil being the leading exporter. Brazil’s 2.5 billion liters of ethanol exports accounted for more than half of global trade in 2004.[N9]

Brazil’s transport fuels and vehicle markets have evolved together. After a sharp decline in the sales of pure-ethanol vehicles during the 1990s, sales were climbing again in the early 2000s, due to a significant decline in ethanol prices, rising gasoline prices, and the introduction of so-called "flexible fuel" cars by automakers in Brazil. These cars can operate on either pure ethanol or ethanol/gasoline blends. By 2003, these cars were being offered by most auto manufacturers at comparable prices to pure ethanol or gasohol cars. Flexible-fuel cars have been widely embraced by drivers, some out of concern for fuel-supply uncertainties (such as an ethanol shortage that happened in 1989 or future oil shocks). Sales increased rapidly, and by 2005 more than half of all new cars sold in Brazil were flex-fuel cars.[N10]

The United States is the world’s second-largest consumer and producer of fuel ethanol. The growth of the U.S. market is a relatively recent trend; ethanol production capacity increased from 4 billion liters per year in 1996 to 14 billion liters per year in 2004. Recent annual growth has been in the 15–20 percent range. By 2005, there were nearly 400 fueling stations (mostly in the upper Midwest) that sold E85, an 85-percent ethanol/15-percent gasoline blend, and many more selling gasohol (E10). By 2005, about 3 percent of the 140 billion gallons of vehicle fuel (non-diesel) consumed annually in the U.S. was ethanol. In addition, 30 percent of all gasoline sold in the United States was being blended with ethanol (E10) as a substitute oxygenator for MTBE (methyl tertiary-butyl ether), which more and more states were requiring be discontinued. Other countries producing fuel ethanol include Australia, Canada, China, Columbia, the Dominican Republic, France, Germany, India, Jamaica,Malawi, Poland, South Africa, Spain, Sweden, Thailand, and Zambia.[N9]

Biodiesel production grew by 50 percent in Germany in 2004, bringing total world production to more than 2 billion liters. Pure biodiesel (B100) in Germany enjoys a 100- percent fuel-tax exemption, and the country now has over 1,500 fueling stations selling B100. Other primary biodiesel producers are France and Italy, with several other countries producing smaller amounts, including Austria, Belgium, the Czech Republic, Denmark, Indonesia,Malaysia, and the United States. Several countries are planning to begin biodiesel production or to expand their existing capacity in the coming few years.[N9]

Costs of the most common renewable energy applications are shown in Table 2.

Many of these costs are still higher than conventional energy technologies. (Typical conventional power generation costs are in the US$ 2–5 cents/kWh range for baseload power, but can be considerably higher for peak power and higher still for off-grid diesel generators.*8) Higher costs and other market barriers mean that most renewables continue to require policy support. However, economic competitiveness is not static: just as renewables’ costs are declining, conventional technology costs are declining as well (for example with improvements in gas turbine technology). The fundamental uncertainty about future competitiveness relates to future fossil fuel prices, which affect conventional power costs but not the costs of renewables.

For the present, the International Energy Agency has portrayed the cost-competitiveness of renewables in this way: "Except for large hydropower and combustible renewables and waste plants, the average costs of renewable electricity are not widely competitive with wholesale electricity prices. However, depending on the technology, application and site, costs are competitive with grid [retail] electricity or commercial heat production. Under best conditions— optimized system design, site and resource availability—electricity from biomass, small hydropower, wind and geothermal plants can produce electricity at costs ranging from 2–5 cents/kWh. Some biomass applications are competitive as well as geothermal heat production in specific sites." In regions where the technology is well-established, solar water heaters are fully competitive with conventional water heaters, although less so in cooler climates where the solar resource is poorer and heating demand is higher. Grid-connected solar PV is not yet competitive, except in locations with extremely high retail power rates (i.e., exceeding 20–25 cents/kWh). Ethanol in Brazil is now fully competitive with gasoline.*9[N11]