International Energy Agency: Fossil fuel prices have increased the competitiveness of renewable energy

According to the International Energy Agency, new capacity for photovoltaic, wind and other renewable energy generation will increase to record levels
globally in 2021.
This number will grow
further in 2022 as governments increasingly seek to harness renewable energy to improve energy security and climate efficiency.

According to the International Energy Agency's latest renewable energy market update report, the global installed capacity of renewable energy generation reached a record 295 GW in 2021, overcoming supply chain challenges, construction delays and rising
raw material prices.
The report expects new global capacity to increase to 320 GW this year – equivalent to nearly all of Germany's electricity needs or all of the EU's natural gas capacity
.
Photovoltaic power generation is expected to account for 60% of global renewable energy growth in 2022, followed by wind power and hydropower
.

In the EU, new installations of renewable energy generation in 2021 soared nearly 30 percent to 36 GW, surpassing the EU's record
of 35 GW a decade ago.
New renewable energy capacity in 2022 and 2023 has the potential to significantly reduce the EU's dependence on
imported natural gas in the power sector.
However, the actual contribution will depend on the success of the energy efficiency measures introduced at the same time to control the energy demand
in the region.

So far in 2022, thanks to strong policies in China, the European Union and Latin America, renewable energy is growing much faster than initially expected
.
This is enough to compensate for the impact of lower-than-expected growth in the United States, where the outlook for the renewable energy market is overshadowed
by uncertainty over new incentives and its protectionist actions against imports of PV products from China and Southeast Asia.

Since the beginning of 2021, many raw material prices and freight costs have been on an upward trend
.
By March 2022, solar-grade polysilicon prices have more than quadrupled, steel prices have risen by 50 percent, copper has risen 70 percent, aluminum has doubled, and freight rates have risen nearly fivefold
.
For the first time in a decade, the continuous decline in the cost of photovoltaic power generation and wind power has been reversed, which is due to the rising prices of wind turbines and photovoltaic modules, and manufacturers to pass on the increase
in equipment costs downstream.
Compared to 2020, the report expects the overall investment cost of new utility-scale PV and onshore wind power to increase by 15% to 25%
in 2022.
Soaring freight costs are the biggest contributor to the overall price increase of onshore wind power, and for photovoltaics, the impact of rising prices for freight, polysilicon and metals is more balanced
.

Since fossil fuels are used in both the industrial sector and the power generation sector, the high prices of oil, gas and coal have also led to an increase
in the cost of producing renewable power generation materials.
While such price increases are significant in absolute terms, the increase in the cost of renewables has not reduced their competitiveness as the prices of fossil fuels and electricity have risen faster and more sharply
since the fourth quarter of 2021.

Globally, electricity prices have broken records in many regions, especially those countries that
use natural gas as the final tick tariff and daily price "anchor of pricing" in wholesale electricity markets.
This is particularly prevalent in EU countries, where wholesale electricity prices in Germany, France, Italy and Spain have risen by an average of more than
6 times compared to the average from 2016 to 2020.
Historically, long-term contract prices for PV and wind auctions have been higher than wholesale prices in many large EU markets
.
However, even the highest-priced onshore wind and utility-scale PV contracts signed in the past five years are only half
of the average wholesale electricity price in the EU today.

For newly signed projects, long-term contracts offered by onshore wind and photovoltaic power generation companies are well below the average wholesale electricity prices for the past six months
, despite the increased costs.
For example, in the Spanish electricity market auction held in December 2021, the price of electricity for utility-scale photovoltaic power generation and onshore wind power rose by 15-25% respectively, reaching $37/MWh and $35/MWh
, respectively.
Today, these results are one-tenth
of the average wholesale electricity price in Spain over the past 14 months.

In the large renewable energy market, the report has lowered its forecast
for the US market due to uncertainty about new incentives for wind power and photovoltaic power generation.
The authors argue that a number of policy proposals, including extending long-term tax incentives, have yet to be approved by the House and Senate, and that PV trade protection policies for China and Southeast Asia have increased challenges for the U.
S.
PV market, particularly reducing the accessibility of PV modules
.

According to the report, this year and next year, the world's new photovoltaic power generation installed capacity is expected to set a new record, and by 2023, the new increase will reach 200 GW
.
The growth of photovoltaic power generation in the Chinese and Indian markets is accelerating, thanks to strong policy support for large-scale projects, which can achieve lower costs
than fossil fuel alternatives.
In the European Union, as electricity bills rise, home and company rooftop solar installations are expected to help consumers save money
.

Due to incentives introduced by several provinces in China and the expansion of the EU market, global offshore wind capacity will double
in 2022 compared to 2020.
China is expected to overtake Europe by the end of 2022 to become the world's largest offshore wind market
.