Global Renewables surge and supply risks

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The north wind and the sun – Germany harnesses record numbers in wind generation. >> Read here

Rooftop solar installations to almost double by 2025, capacity approaching 95 GW on incentives and friendly policies. >> Read here

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Can renewables support Germany if plug on Russian gas is pulled immediately?

Russian gas continues to play a large role in Germany’s power mix despite the growing share of renewable energy. Amid Russia’s invasion of Ukraine, the German government plans to shift gears on renewables and accelerate capacity expansion. However, Germany has been experiencing serious bottlenecks in permitting procedures and achieving the high-capacity growth rates required to replace Russian gas is a daunting task. Rystad Energy analysis suggests that the immediate substitution of gas with renewables in Germany would require a previously unseen boost in installed capacity. A more moderate phase-out of the Russian supply seems to be more realistic, albeit it would still imply massive capacity additions in the coming years.    

Wind, solar and hydro in Germany currently account for a combined operational capacity of around 130 gigawatts (GW), with an additional 10 GW in the planning stage at the end of 2021. Fossil fuels including natural gas, liquids and coal, meanwhile, account for a larger part of the country’s power mix although their market share has been decreasing over the last few years. Nevertheless, in 2020, natural gas represented about 17% of total generation in Germany, which was a new record high. The increasing trend for gas was broken in 2021, mainly due to high gas prices, which made gas uncompetitive to coal. Coal on the other hand had a large increase, as can be seen in the figure below.

Europe’s unforeseen energy crisis could boost momentum for renewable energy

After two years of volatile energy markets, 2022 seemed to be a year when things would gradually start returning to normal. Instead, Russia’s invasion of Ukraine has brought unprecedented energy prices that will have a huge economic impact on Europe and implications across the world. As gas and coal prices reached new historic highs due to uncertainty surrounding supplies from Russia, electricity prices and power generation costs soared. Unfortunately, Europe has little room to reduce its dependence on Russian energy in the short term. However, the European Union’s REPowerEU framework, published last week, provides some guidelines to strengthen the region’s long-term energy security by diversifying fossil-fuel supply and accelerating the growth in renewable energy capacity. While the details are yet to be worked out, the plan is certain to entail a faster development of renewable energy capacity.

Energy prices surge on supply risks
At the end of 2021, lower-than-normal gas exports from Russia to Europe had already led to a supply crunch that drove the TTF spot contract to a record high of €149/MWh. With gas power being the marginal source of generation, power prices had a similar spike, climbing above €400/MWh in December. However, an inflow of LNG into Europe and mild temperatures helped prices recede during January and February, painting a more optimistic picture for the coming months.

The rosy outlook was short-lived as the Russian invasion of Ukraine disrupted the market, taking prices across the energy sector to unprecedented levels. After the first military attacks on Ukraine on 24 February, European gas spot prices (TTF) reached a new record of €227/MWh, while coal prices (API2) followed a similar trend to a peak of $462/tonne. The surge in generation costs drove the German baseload price to a previously unthinkable level of €530/MWh . So far, the European Union has not imposed any sanctions on Russian gas, coal or oil exports, so the increase in prices is the result of a risk premium rather than a fundamental change in the market. Russian gas imports into Europe have actually increased over the past two weeks, and coal has also continued to arrive. Prices have receded somewhat during the past few days, but volatility persists and shows the nervousness in the market.

No more record-breaking? Over 12 GW of renewables delayed in the US

US developers are reassessing their ability to deliver on proposed project pipelines after more than 12 gigawatts (GW_AC) of renewable energy capacity was delayed by more than six months in the last quarter of 2021. Due to commodity price inflation and unfavorable policy decisions, almost 5 GW_AC of solar PV, onshore wind and battery capacity lined up for installation in the US was delayed in November last year, and almost 7 GW_AC in December. This is a significant trend because while project delays are expected in the industry as installed capacity grows and developers overestimate lead times, in a typical month these delays do not exceed the gigawatt mark (see Figure 1). As polysilicon prices are not expected to ease in the first half of this year, lithium prices continue to soar, and without a clear extension on renewable energy tax credits in sight, US developers are left hoping for a better economic and political environment further down the line. If project delays continue, however, 2022 will be the first year since 2018 not to break the record for renewable energy installations in the country.

China on track for five-year renewables goal with over 50 GW lined up this year

The National Development and Reform Commission of China (NDRC) and its National Energy Administration (NEA) jointly released on 22 March the country’s 14^th Five-Year Modern Energy System Plan, which reemphasized China’s determination to develop non fossil fuel energy sources and identified large-scale wind and solar base projects as key engines for the development of renewable energy. China already released in 2021 its 14^th Five-Year-Plan (FYP) in which, 24 provinces highlighted ambitious renewable energy development goals, to great success so far. Now, moving into the plan’s second year (as the FYP covers the 2021 to 2025 period), Rystad Energy is deep diving into the pace of progress in the country for renewables.  We expect 26 gigawatts (GW) of utility solar PV and 32 GW of onshore wind projects to start operation in 2022, with more than 60% of this additional capacity supported by renewable energy base projects. Looking ahead, state-owned companies are expected to continue to dominate the development of renewable energy bases, but private companies will be key equipment suppliers.

The national 14^th FYP outline, released in March 2021, provided guidance on renewables development for the next five years and planned nine large-scale onshore clean energy bases. In line with the national plan, provincial governments actively released respective plans, and 24 provinces highlighted renewable energy development, 13 provinces set capacity goals for solar and wind, and over 400 GW of renewable bases were proposed, half of which are expected to be commissioned during the 14^th FYP. Stimulated by aggressive renewable planning, 2021 ended with 20.8 GW of utility solar PV and 30.7 GW of onshore wind capacity installed, despite the end of the country’s national subsidy for new projects. Most provinces with 14^th five-year renewable goals are on track to meet their target. Shandong, the province with the highest level of new renewable energy installations last year, has completed 32% of its 14^th five-year renewable goal. Guangdong, meanwhile, completed 33% of its 26-GW new capacity goal with outstanding offshore wind installations (5.5 GW) in 2021. Some provinces, however, are lagging their goals – Xinjiang, for example, completed only 5% of its renewables target, and Shaanxi completed around 10%. These provinces are expected to catch up in the coming years as renewable base projects have now been planned out.  

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The above are samples and extracts from the full commentaries we offer in our Client Portal, which is part of our comprehensive energy intelligence offering. You may also find relevant content of interest in our press releases, freely accessible here.