INTRODUCTION AND HIGH-LEVEL TRENDS
In 2021, renewable energy continued to be impacted by the COVID-19 pandemic and was further influenced by economic and geopolitical developments. Aftershocks from the pandemic and a rise in commodity prices upset renewable energy supply chains and delayed projects. Additionally, a sharp increase in energy prices in late 2021 and the Russian Federation's invasion of Ukraine in early 2022 sparked rising discussion on the role of renewables in improving energy security and sovereignty by replacing fossil fuels. Meanwhile, international organisations laid out achievable pathways to a global net zero emission energy system, and a record number of countries had net zero targets by year's end.
Amid these events, renewables experienced yet another year of record growth in power capacity. Investment in renewable power and fuels rose for the fourth consecutive year, and the record increase in global electricity generation led to solar and wind power providing more than 10% of the world's electricity for the first time ever. Following a decline in 2020, a strong market rebound in solar thermal and biofuels improved the outlook for renewables in heating and transport. Strengthened political commitments and rapid growth in heat pump and electric vehicle sales also pointed to increased renewable electricity use in these sectors.
At the same time, diverse factors continued to slow the global shift to renewable-based energy systems. A rebound in worldwide energy demand in 2021, met largely with coal and natural gas, led to record carbon dioxide (CO2) emissions. Large sums also continued to be invested in and to subsidise fossil fuels.
Developments in 2021
As in previous years, the greatest success for renewables was in the power sector. After largely withstanding the impacts of the COVID-19 pandemic, growth in global renewable power capacity accelerated in 2021, adding more than 314 gigawatts (GW).1 (→ See Table 1.) The market also diversified geographically, with the top five countries accounting for 71% of all capacity added (down from 75% in 2020, but still less diverse than in 2019 and 2018).2 (→ See Table 2.) Overall, the renewable power capacity additions reflected market growth of 11%; however, they still represented only a third of the additions needed annually to achieve the world's major goals for net zero carbon emissions.3
Renewable energy comprised 28.3% of the global electricity mix in 2021, roughly on par with 2020 levels.4 The growth in renewable energy penetration was mitigated by the overall rise in electricity demand and by drought conditions that greatly reduced global hydropower generation.5 (→ See Figure 1.) As economic activity rebounded in 2021, worldwide energy demand increased an estimated 4%, while CO2 emissions rose 6% to record levels (adding 2 gigatonnes (Gt), after falling by 5% in 2020).6 Despite the progress of renewables in the power sector, the surge in global energy demand was met mostly with fossil fuels.7
Prices for some fossil fuels, notably natural gas, increased sharply in 2021, reflecting a combination of supply, demand and investment factors.8 These included a resurgence in natural gas demand during the year and a supply crunch that was worsened by low gas stocks in Europe and a reluctance among international suppliers to increase exports.9 Natural gas prices rose more than 400% in most markets, leading to a spike in wholesale electricity prices in major markets by year's end.10 Governments responded by freezing prices, reducing energy sales taxes, and providing financial assistance to low income households, among others.11 High energy prices (further exacerbated by the Russian invasion of Ukraine) and increased climate ambitions prompted efforts to speed the shift to renewables.12 (→ See Sidebar 1.)
The International Energy Agency's (IEA) Net Zero by 2050 scenario, released in May 2021, set the tone for a new norm, stimulating higher ambition among governments and corporations.13 In the lead-up to the 26th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26), held in Glasgow, Scotland in November, 17 countries pledged to achieve net zero emissions by 2050 or a later date, with some countries targeting 2025.14 The European Commission raised its 2030 target for renewables in total final energy consumption (TFEC) first to 40% in 2021, then to 45% in early 2022.15 Also in the lead-up to COP26, 151 countries submitted new or updated Nationally Determined Contributions (NDCs) towards reducing their greenhouse gas emissions under the Paris Agreement.16
Renewable power additions
need to triple
to be on track with major net zero scenarios.
The Glasgow Climate Pact that emerged calls on countries to raise their ambition annually instead of every five years, and, for the first time in the history of UN climate agreements, it explicitly acknowledges the need to reduce fossil fuel use.17 During the meetings, 140 countries agreed to “phase down” unabated coal power, while numerous companies, countries and public finance institutions committed to ending public support and funding for unabated fossil fuels.18
In total, more than 40 countries agreed to stop financing new coal plants, although commitments to shut down existing capacity were notably absent in Australia, China, India, and the United States, which as of 2021 together owned two-thirds of the world's operatingi coal plants.19 During the UN High-Level Dialogue on Energy in September 2021, the UN Secretary-General announced a roadmap for “global clean energy for all”, for which governments and the private sector committed more than USD 400 billion.20
Source: Based on IEA data.
See endnote 5 for this chapter.
Sidebar 1. Renewables to Support Energy Security
Global prices for oil and natural gas began rising rapidly in late 2020 as demand recovered following the easing of COVID-19 restrictions. This trend was exacerbated in early 2022 by the Russian Federation's invasion of Ukraine, with prices fluctuating daily. Between 2020 and early 2022, oil prices rose by a factor of three – returning to pre-2014 levels of more than USD 100 per barrel – while natural gas prices in Europe and Asia rose by a factor of six. Global coal prices doubled in the weeks between late February and early March 2022, with demand rising as coal was used to substitute gas-fired electricity generation. Price spikes and variability have major impacts for industry and for domestic consumers and give rise to strong inflationary pressures.
Most countries depend heavily on imported oil and gas from relatively few exporting countries. The main oil importers traditionally have been China, India, the United States, Japan, and the Republic of Korea, while the main exporters are Saudi Arabia, the Russian Federation and Iraq. China is the major importer of natural gas, along with Japan, Germany, and Italy, while the Russian Federation is the dominant exporter, along with Qatar, Norway and Australia.
However, import dependence has evolved in the past decade as some countries have sought to improve domestic energy production and to electrify their consumption. For example, Spain and the United Kingdom have increased the share of renewables in their total final energy consumption, and other countries have positioned themselves as exporters of renewable hydrogen. (→ See Snapshot: South Australia in Executive Summary.) At the same time, many European countries have greatly increased their dependency on fossil fuel imports, making them more vulnerable to price and supply variations.
In 2020, China imported around 73% of its crude oil and 60% of its natural gas. India imported nearly 90% of its crude oil requirements, while Japan and the Republic of Korea produced only a tiny share of their oil and gas needs. The European Union (EU-27) imported 97% of its oil and petroleum needs and 84% of its gas needs. The Russian Federation was the largest supplier to the EU of both fuels, providing 44% of gas and 25% of oil imports. In addition, many small and developing nations are highly dependent on imported oil, and their economies are especially vulnerable to volatile prices and risks of supply disruptions.
Heightened concerns about energy security and prices present both challenges and opportunities for the energy transition. The recent price hikes have created pressure on governments to compromise their ambitions to reduce greenhouse gas emissions in the short and long-term. High natural gas prices have favoured a return to coal-based generation and have increased pressure to develop local fossil fuel resources, including calls to restart fracking for shale gas (for example, in the United Kingdom). Emissions rebounded heavily in 2021 due in part to these developments, and additional investments in fossil fuel infrastructure will severely impact emission levels for decades to come. Several countries have opted to scale up production: China plans to increase coal production by 300 million tonnes (equivalent to 7% of current levels), while the United States has seen a boom in new fracking and drilling projects.
On the other hand, a strong synergy exists between measures needed to improve energy security and those associated with the energy transition, and especially the shift to renewables. High levels of locally produced renewable energy, coupled with energy saving and better energy efficiency, improve energy security, sovereignty and diversity. This helps to reduce exposure to energy price fluctuations while at the same time reducing emissions and providing other economic benefits.
Higher fossil fuel prices make renewable solutions more attractive in the short term, with wind and solar now highly competitive with gas-fired power generation. Rising fossil fuel prices also have narrowed the cost gap between biofuels and biomethane and fossil-based transport fuels, and have improved the cost competitiveness of bioenergy, solar, geothermal and heat pumps powered by renewable electricity. Renewable energy solutions can be implemented quickly – in as little as a year for wind and solar photovoltaics (PV) where permitting policies and regulatory regimes are streamlined. Although the risk of overdependence on imported components (such as PV modules) could lead to supply insecurity if production is overconcentrated in a few countries, some countries and regions have supported the development of domestic or regional manufacturing value chains. Domestic production of renewable energy components, or at least a diversified supply base, have become increasingly important aspects of energy security policy.
Energy security concerns also have prompted reviews of energy policies. For example, the EU aims to reduce its reliance on Russian gas 60% by the end of 2022 and entirely by 2030, based on measures that include doubling the level of renewable hydrogen production and ramping up its use. The newly released REPowerEU plan aims to double the EU's solar PV and wind capacities by 2025 and to triple them by 2030.
Germany aims to accelerate its shift to renewable power – now labelled “freedom energy” – and is seeking a 100% renewable electricity supply by 2035. It is targeting 80% wind and solar power by 2030, including a tripling of solar energy capacity to 200 GW, a doubling of onshore wind energy capacity to 110 GW and offshore wind energy capacity of 30 GW. The United Kingdom has considered relaxing planning constraints on onshore wind farms to facilitate rapid growth in renewable power and to reduce dependence on gas imports. Spain is accelerating the approval of up to 7 megawatts (MW) of wind power projects and up to 150 MW of solar PV projects, and will also permit floating solar PV systems and facilitate self-consumption.
Japan aims to accelerate its efforts to develop offshore wind power projects, in response to the potential long-term increase in oil prices due to the Russian invasion of Ukraine. Japan's tender process for wind farms will be revised to take into account not only the price but also how quickly the projects can be developed. Globally, the added emphasis on energy security amplifies the imperative to move as swiftly as possible to an efficient, renewable-based energy system that is compatible with ambitious climate goals while also avoiding dependency on fossil fuels that exposes consumers and industry to price volatility and political pressures.
Source: See endnote 12 for this chapter.
Frameworks also emerged aimed at shifting energy investment towards low-emission technologies, some of which support the development of nuclear energy, carbon capture and storage, and fossil-based hydrogen. The new EU Taxonomyii, which defines the terms under which economic activities may be considered “sustainable”, covers renewable technologies as well as nuclear and natural gas.21 The Association of Southeast Asian Nations (ASEAN) – which aligned its environmental objectives with the EU Taxonomy – also delivered its first version of a joint taxonomy.22 The EU's proposed carbon border adjustment mechanism (CBAM) would place a carbon price on goods imported from outside the EU.23 The rising regulatory and financial pressure to shift investment to clean technologies highlights the considerable risk of stranded assets in the fossil fuel sector.24 (→ See Box 11 in Investment chapter.)
In Europe, the increase in coal generation and related emissions during 2021 led to a sharp rise in the price of carbon emission allowances, which were established under the EU Emissions Trading System (ETS) to encourage companies to reduce emissions through mitigation efforts and trading of allowances. The ETS hit record highs of more than EUR 89 (USD 100) per allowance in 2021 and nearly EUR 100 (USD 113) in early 2022.25 The European Commission proposed extending the scheme and also introduced a new ETS covering fuel use in road transport and buildingsiii.26 In mid-2021, China began operating the world's largest emission trading systemiv, regulating more than 2,200 power sector companies.27
With the increased attention to targeting net zero emissions, by year's end nearly 85% of the world's population and 90% of its gross domestic product (GDP) were covered by some form of net zero target.28 These targets vary widely in their application (target date, status, greenhouse gas and scope) and in the governance indicatorsv used for tracking progress.29Despite this worldwide coverage, less than a third of the national governments with net zero targets had targets for 100% renewable energy, although 60% of the governments had economy-wide targets for renewables.30
Pushback against the oil and gas industry accelerated during 2021. Courts, executive boards and shareholders increasingly demanded that companies reduce their emissions and become more accountable for the environmental, social and climate impacts of their activities.31 Public opinion continued to shift, affecting the advertising and marketing industry, as more than 120 agencies in Europe and the United States pledged to not work with fossil fuel companies due to the apparent conflict between companies' climate-friendly advertising campaigns and their actual strategic alignments.32 (→ See Box 1.)
Ongoing Challenges Towards a Renewable-Based World
The share of renewables in a country's total final energy consumption (TFEC) varies depending on the energy mix. The average renewable share in TFEC among selected countries in 2019 was 17%, up from 15% in 2009.33 During this period, the renewable share fell in 18 countries, although 9 countries, mostly in Europe, have achieved high growth and large net increases in their renewable shares in TFEC.34 (→ See Figure 2.) Only 3 countries out of 80 – Iceland, Norway and Sweden – had renewable shares above 50% in 2019, and 20 countries, mostly in Europe and Latin America, met at least a quarter of their total final energy consumption with renewables.35
The main structural reasons for the slow uptake of renewables in meeting global energy demand include:
consistent increases in energy demand, despite the temporary decline in 2020 related to the COVID-19 pandemic;
continued use of and investment in new fossil fuels, particularly coal; and
the adoption of mainly fossil fuels to replace the declining use of traditional biomass in developing economies.
Modernvi renewable energy accounted for an estimated 12.6% of TFEC in 2020 (latest data availablevii), up modestly from 8.7% in 2009.36 (→ See Figure 1.) This share was nearly one percentage point higher than in 2019 (11.7%), as the temporary reduction in energy demand during 2020 favoured higher shares of renewables.37 Also for this reason, the share of fossil fuels in TFEC fell temporarily in 2020, to 78.5%.38
BOX 1. Public Communications Around Fossil Fuel Disinformation
Fossil fuel companies allocate billions of dollars each year to marketing and advertising campaigns that seek to rebrand their corporate identity as “climate-friendly”, mask their impact on climate change and position their products as crucial for local development, small businesses and consumers. In 2020 alone, industry players spent nearly USD 10 million on Facebook ads to promote their self-proclaimed climate actions. Yet oil and gas companies' investments in renewables correspond to only around 1% of their total capital investments, while these companies remain responsible for around three-quarters of global greenhouse gas emissions.
Some players in the communications field, including agencies, creatives, and the media, are taking a stand against these disinformation campaigns. By early 2022, the Clean Creatives Pledge had brought together a coalition of 265 communication agencies and 700 creatives that refuse to accept contracts with clients from the fossil fuel industry. Some major news outlets, such as The Guardian (UK) have stopped publishing fossil fuel ads in their newspapers. In the United States, several sub-national governments, including New York City and the states of Delaware and Minnesota, have filed legal action against fossil fuel companies on the grounds of misleading the public. The city of Amsterdam (Netherlands) aims to ban oil and gas ads from its metro stations and other public spaces.
Source: See endnote 32 for this chapter.
Overall, renewable energy use grew 4.6% annually on average (a total of 17.6 exajoules, EJ) between 2009 and 2020, outpacing growth in both total energy demand (1.2% annually; 41.8 EJ) and fossil fuels (0.9%; 26.6 EJ).39 As in recent years, renewable electricity accounted for the largest share of TFEC (6.8%), followed by renewable heat (4.8%) and transport biofuels (1.0%).40
However, consistent growth in energy demand reduces the penetration of renewables in TFEC. Although energy efficiency helps to mitigate this growth, efficiency efforts are not on track to meet global decarbonisation goals.41 Global energy intensity improved slightly in 2020 (up 0.5%) and again in 2021 (1.9%), but this remains far from the 4% improvement that international experts say is needed.42
In 2021, the renewable energy sector continued to receive COVID-19 recovery funding, mostly targeting renewable power and transport. Recovery spending on renewables nearly doubled between April and December, to USD 677 billion; however, this represented only 21% of the total amount that governments allocated to be spent, and was well below the annual support that fossil fuels receive in subsidies.43 Between 2018 and 2020, more than USD 18 trillionviii in subsidies was dedicated to fossil fuels, with the 2020 spending of around USD 5.9 trillion equivalent to roughly 7% of global GDP.44
Meanwhile, incentives for renewables have remained low and are less tracked.45 Despite strengthened commitments to climate change and net zero, many countries have lessened their support for renewables while bolstering fossil fuel finance. Between 2017 and 2020, India reduced its financial support for renewable energy nearly 45% while continuing to increase fossil fuel subsidies.46
A shortage in renewable energy skills has been identified as a possible bottleneck in the deployment of infrastructure and technologies, including renewable power, batteries and heat pumps.47 For example, meeting the labour needs in the offshore wind sector in a few of the leadingix markets is estimated to require more than 70,000 workers.48 Although in many cases fossil fuel workers can be re-skilled to support the changing energy industry, challenges persist in some places due to salary differences, relocation needs and insufficient funding for vocational training.49 In 2021, some governments began dedicating funds and launching programmes to re-skill and train workers for new “clean energy” jobs, including renewables.50 (→ See Sidebar 5 in Policy chapter.)
As in previous years, in 2019 (latest data available) the penetration of renewables was lowest in those sectors that consume the greatest amount of energy. The highest penetration was in the general use of electricity (such as for lighting and appliances but excluding electricity for heating, cooling and transport), which accounted for around 17% of TFECx.51 Energy use for transport represented around 32% of TFEC and had the lowest share of renewables (3.7%).52 The remaining thermalxi energy uses, which include space and water heating, space cooling, and industrial process heat, accounted for more than half (51%) of TFEC; of this, around 11.2% was supplied by renewables.53
Renewables provide a slowly rising share of the energy use in all of the sectors
The renewable share of the “worst-performing” sectors has grown the slowest. Between 2015 and 2019, the renewable share in transport increased only 0.5 percentage points, and in heating and cooling it grew only one percentage point.54 The share of renewables in the power sector, meanwhile, increased more than three percentage points.55 At the same time, these percentage point increases corresponded to larger growth of the share in each sector – 13.5% in power, 9.7% in heating and cooling, 15.1% in transport.56 (→ See Figure 3.)
iData are for operating plants only, totalling 1,250 operating plants in 2021 (9 in Australia, 585 in China, 115 in India and 124 in the United States).i
iiThe Taxonomy is aimed to frame and define sustainable investments that substantially contribute to meeting the EU's environmental objectives. It identifies energy activities under a life-cycle emission threshold, while fulfilling specific conditions and obtaining permits within a defined time frame.ii
iiiThe current ETS covers emissions from power stations, energy-intensive industries and aviation within Europe. With Fit for 55, the new ETS, expected to become operational by 2025, upstream fuel suppliers will be required to monitor and report the fuel amounts they introduce in the market (via greenhouse gas emission certificates), thus incentivising the decarbonisation of fuel products.iii
ivThe Chinese ETS does not clearly promote the shift from coal to renewables; rather, it incentivises running more-efficient coal-fired plants versus less-efficient ones.iv
vDifferent governance indicators – such as reporting mechanisms, published plans, interim targets and leader accountability – are used depending on the type of stakeholder and its net zero indicator.v
viExcludes the traditional use of biomass, i.e., the burning of woody biomass or charcoal, as well as dung and other agricultural residues, in simple and inefficient devices to provide energy for residential cooking and heating in developing and emerging economies.vi
viiThe latest consolidated data available are from 2019. Data from 2020 are based on projections from 2019 data and on 2020 estimates. The unusual energy trends of 2020 make these estimations highly uncertain, although the general trend should be accurate.vii
viiiAll prices and subsidy values are in 2021 constant dollars. This corresponds to the cumulative value of explicit and implicit subsidies during this three-year period. In 2020, just 8% of the subsidies were explicit (reflecting undercharging for supply costs) and 92% were implicit (reflecting undercharging for environmental costs and foregone consumption taxes).viii
ixThese key markets are China, Chinese Taipei, Japan, the Republic of Korea, the United States, and Vietnam, representing projected combined installations of 30 GW of offshore wind power during the 2020-2024 period.ix
xDue to losses during transformation, electrical applications account for a higher portion of primary energy consumption. See Glossary for definitions.x
xiApplications of thermal energy include space and water heating, space cooling, refrigeration, drying, and industrial process heat, as well as any use of energy other than electricity that is used for motive power in any application other than transport. In other words, thermal demand refers to all energy end-uses that cannot be classified as electricity demand or transport.xi