Having stalled in 2018, solar PV capacity additions surged again by almost 14% in 2019, reaching a record of 109 GW of newly installed capacity globally. This is despite Chinese PV additions declining by almost a third, as annual installations elsewhere grew by 50% last year.

Covid-19 has led to construction delays and weaker than anticipated investment, requiring us to revise capacity addition projections down by over 15% for 2020. While the impact will be across the entire sector, Covid-19 related risks are not spread equally as distributed PV is more affected than utility-scale projects.

Utility-scale projects are more susceptible to supply chain concerns, labour constraints and construction delays, all leading to delays in project commissioning. The distributed PV sector is more at risk as it relies on both individuals and SMEs, who are more severely affected by lockdown measures and any economic downturn resulting from Covid-19; they will be reluctant to invest in such systems as they look to save money or reduce capital spending. Given recent precautionary measures, such as social distancing and lockdowns, project development challenges could last through the end of Q3 2020. Our updated forecast expects a rebound for utility-scale projects in 2021, but with total PV installations remaining below 2019 levels due to much slower recovery of distributed PV applications.

All PV sectors are at risk of prolonged supply chain delays associated with Covid-19. With China accounting for 70% of global PV module manufacturing, the country’s factory shutdowns in February and the first two weeks of March drastically lowered the availability of equipment. After the easing of these shutdowns, manufacturing in China has ramped up production and the solar PV supply chain is rapidly resuming activity, despite some lingering shipment delays. Other major supply markets such as South East Asia saw slowdowns in production, but for the most part maintained a similar volume of output throughout the pandemic.

Even with any production slowdown, there remains significant manufacturing overcapacity in the PV market. The global manufacturing capacity for cells is 150 GW, while 120 GW worth of solar PV cells were shipped in 2019 and 109 GW were installed. As a result, the market had 30 GW of unused manufacturing capacity and 10 GW of cells stored for later use. In addition, since 2018 manufacturers, developers and traders have built inventories, taking advantage of low prices.

Existing stocks helped most developers withstand supply chain issues and logistical delays due to Covid-19, and thus our updated forecast reflects limited supply chain-related delays. With the completion of additional manufacturing facilities in China in 2020, the supply glut is expected to reach its highest level ever globally, fostering competition and increasing downward pressure on module prices.

The major risks for solar PV are installation and at the point of sale. For utility-scale projects, lockdown measures are slowing construction activity, increasing the risk of commissioning delays. These delays will reduce the total amount of capacity installed in 2020, causing projects to slip into 2021 and resulting in a 12% rebound next year. Developers in mature markets such as the United States, China and Europe are likely to recover rapidly from delays after the easing of lockdown measures, as most have experience in increasing the pace of construction. As an example, developers in China installed over 10 GW in November and December 2019 to meet end-of-year policy deadlines.

Before the Covid-19 breakout, developers were also financing additional project pipelines for commissioning in 2021. These projects will be hit by the economic downturn, especially those being built outside a regulated environment. We expect some to be put on hold or cancelled in China, Europe and the United States.

Distributed PV has been immediately impacted by Covid-19 measures, while a longer-term economic downturn is likely to have a potentially devastating impact on overall investment in the distributed sector if new and stronger policies are not introduced. Major markets such as the United States, Europe and Brazil have seen installations of distributed PV drop following stay-at-home orders and face-to-face sales have understandably slowed drastically. This results in a dip in installed capacity growth in 2020. The rapid recovery of the distributed PV sector will depend on the pace of and the nature of any stimulus packages.

The annual increase in solar PV capacity in the United States topped 13 GW in 2019, the second-highest recorded to date, due to the increasing economic attractiveness of both utility-scale projects and residential PV systems. However, annual growth is seen slowing in 2020 as the impacts of Covid-19 dampen distributed PV prospects. New installations of both residential and commercial systems are expected to decrease as social‑distancing measures affect new customer acquisition and self-consumption becomes less attractive amid a period of economic uncertainty. Distributed PV growth rebounds in 2021 in the residential segment as consumers rush to take advantage of the solar investment tax credit (ITC) before it expires at the end of 2021. California’s new housing mandate, which started in 2020, is also expected to bolster some growth.

In contrast, utility-scale PV growth accelerates in both 2020 and 2021 because of increasing economic attractiveness and raised renewable energy targets across several states. Compared to our previous forecast, utility-scale growth across 2020-21 is more optimistic due to an increase in the pipeline of contracted projects (40 GW) at the end of 4Q 2019.1 The surge in development activity is driven by increased policy support in some states as well as the increasing economic attractiveness of both corporate PPAs and utility-led procurement to meet long-term planning needs and satisfy demand for renewable electricity from large consumers. 

However, the impact of Covid-19 on the business case of early-stage projects, meaning those still subject to contract and yet to start construction, is a forecast uncertainty. While the government plans to modify the rules to qualify for support under the ITC, monetising this support may be a challenge if less tax equity is available in a weaker economy.

India’s PV deployment is forecast to decrease by 23% in 2020 compared to 2019, with the largest drop anticipated in distributed PV installations. Challenges concerning the financial health of state-owned companies responsible for the distribution and sale of electricity (DISCOMs) persist, hampering faster growth of renewables. The Covid-19 crisis has put additional pressure on DISCOMs and therefore on solar PV and wind development. A rebound is expected in 2021, with capacity additions exceeding 2019 levels.

Despite government efforts to strengthen the performance of DISCOMs, the pending payments due to all electricity generators increased by 48% in 2019, and almost doubled in the case of renewables generators, a trend that continued in Q1 2020. The weak financial health of DISCOMs has already resulted in slowing development of distributed PV, delays in signing new PPAs with solar developers and contract renegotiations.

During the lockdown, India’s electricity demand declined by 25%, mostly in industrial and commercial segments, which account for the majority of DISCOMs’ revenues in most states. Initial IEA estimates indicate a possible 6% year-on-year decline in demand in 2020, further worsening DISCOMs’ already challenging finances. This situation has been compounded by supply chain disruptions and the strict lockdown measures that forced many workers to return to their hometowns. As a result, our forecast expects a slowdown in the construction of utility-scale projects. In addition, macroeconomic challenges may lessen the willingness of electricity consumers to invest in distributed PV. Overall, our combined PV capacity additions in 2020 and 2021 are 19% below our previous forecast, as growing challenges hamper faster growth.

Global onshore wind capacity additions jumped by 20% in 2019 compared to 2018, thanks to increasing expansion in China and the European Union. 2020 was expected to be another year of acceleration in deployment. However, the unprecedented global crisis caused by Covid-19 has pushed our onshore wind growth forecast for 2020 down by 12% compared to 2019 additions. This decline is mainly driven by project delays rather than cancellations, thus leading to a recovery in 2021. Despite a rebound in 2021, combined expected onshore wind growth in 2020 and 2021 is still lower than in our October 2019 forecast by 9%.

The wind energy sector has developed a globally interconnected supply chain, with manufacturing dispersed across all continents. China, Europe, the United States and India are major manufacturing hubs for various wind turbine parts. The assembly of a complete wind turbine usually requires inputs from multiple countries, seamless logistics and timely delivery. However, recent lockdowns in major manufacturing hubs have disrupted wind turbine supply chains.

In February, China’s wind manufacturing plants mostly paused production, followed by shutdowns in Italy and Spain in March due to strict confinement measures. In late March lockdown in India required wind turbine component manufacturers to halt production. Although production is gradually restarting in Europe, China and India, the effects of supply chain disruptions are being felt in almost all markets, with multiple projects receiving force majeure notices from suppliers warning developers about possible delivery delays.

In addition to equipment supply disruption, lockdown measures slowed construction activity, as they often require workers to stay at home or developers to implement social‑distancing rules at construction sites. The majority of onshore wind projects due to come online in 2020 and 2021 are under construction. However, some still need to complete the necessary permitting with multiple government institutions before financial closure. These processes may require human interaction, which may not be as efficient while officials work from home. While permitting processes can be partly moved online, community outreach cannot. Social acceptance of wind has already been a major challenge in many countries and reduced social interaction due to Covid-19 increases the risk of onshore wind project delays.

The impact of Covid-19 on offshore deployment in 2020 and 2021 remains limited, causing negligible changes to the updated forecast. Offshore projects have longer construction periods than do onshore projects. Most projects in our forecast for 2020 and 2021 are either partially commissioned or at an advanced stage of development, particularly in Europe, which is the largest offshore market. China is a growing market with many projects in the pipeline, but our forecast expects that Chinese developers will make up for any delays. The Covid-19 crisis may impact offshore wind deployment beyond 2021, as some pre-development work such as permitting and environmental approval is being delayed.

In 2019 the United States deployed 9.1 GW of wind capacity, a third higher than in 2018. In 2020 additions are expected to outpace 2019 deployment, driven by the first production tax credit (PTC) deadline at the end of calendar year 2020. 2021 is also projected to be a strong year due to the next tranche of PTC projects coming online. This growth is despite the risk of delays related to Covid‑19, as underlying market fundamentals remain strong, with few areas of concern.

In states accounting for over 35% of projected US wind growth in 2020, such as Texas, Oklahoma and South Dakota, wind workers are allowed to continue construction with social‑distancing guidelines. However, adhering to these guidelines could lead to projects being delayed, as the US wind sector is on a tight schedule to commission 10-14 GW by the end of the year. Since 2014, 60‑80% of capacity added annually has come online in Q4 and, given this schedule, any delay in the supply chain or build at any point during the year will put projects at risk of not commissioning before the end of the year.

In response to Covid-19 delays, the US Department of the Treasury has signalled that they may grant an extension of the PTC safe harbour provision, allowing projects that started construction in 2016 or 2017 extra time to complete, alleviating pressure on an already compressed construction schedule. These risks have led to a slight revision down of installed capacity in 2020, with some projects slipping into 2021. Even with 2019 capacity additions being lower than our previous forecast, the longer-term outlook is potentially strong, with the extension of the PTC to 2021.

Even with the PTC extension, the lasting impact of a wider economic recession could have a dramatic impact on the US wind market as a whole, with the availability of capital and the use of that capital, especially tax equity, being reduced.

In addition to the short-term impacts on current and announced projects, Covid‑19 also presents a longer-term planning challenge. For example, a 2.5 GW offshore wind auction in New York State has been postponed, which could have a negative effect on the nascent offshore wind market in the United States.

India added 2.4 GW of wind capacity in 2019. However, our forecast expects capacity additions to slow in 2020. The increasing undersubscription of wind tenders and the limited improvement in the financial condition of DISCOMs is leading to a slowdown in wind deployment, while the Covid-19 crisis has worsened these existing challenges.

In 2019 India could only allocate half of its planned wind capacity through auctions, with undersubscription increasing to 55% from 22% in 2018. In addition, several tenders were cancelled or postponed due to lack of interest in auctions. Low tariff ceilings, combined with risks associated with payment delays and contract negotiations, are bound to increase the financing costs of wind projects.

Furthermore, land acquisition and grid access challenges remain. In addition to pre-existing challenges, the impact of the Covid-19 crisis on wind deployment in India is much more profound than in the case of other utility-scale technologies. Lockdowns have slowed the progress of wind plants during the main construction season. Projects that cannot be finished before the start of the monsoon season risk further delays. As a result, compared to our previous forecast published in October 2019, combined capacity additions in 2021 and 2022 are down by about 50%.

Global bioenergy capacity increased by almost 8 GW in 2019, a stable level of deployment compared to 2018. China’s share of global bioenergy additions, primarily driven by energy-from-waste projects, increased from a third in 2018 to 60% last year. Japan and Turkey were the next largest markets in terms of new additions, although one tenth of the size. China’s increased deployment offset lower 2019 capacity additions in Brazil, India and the European Union.

Bioenergy capacity additions are anticipated to decline in 2020. This is to an extent related to Covid-19. Major deployment of biomass power projects is concentrated in relatively few countries. In 2019 just ten countries accounted for 90% of new capacity. Of these, China, Brazil, Japan and the United Kingdom have been among those most disrupted by the crisis, with lockdown measures stalling or slowing project construction. Consequently, capacity additions are anticipated to be 9% lower than our previous forecast from October 2019. However, significant disruption to biomass fuel supply chains for existing projects (e.g. wood chips and pellets) is not anticipated, with forestry activity ongoing and ports operational.

Reduced policy support also contributes to lower anticipated bioenergy deployment in 2020 and 2021. While many countries have undertaken technology-specific auctions for wind and solar PV, these are less widespread for bioenergy. Furthermore, bioenergy deployment has fallen in countries that have replaced FIT and certificate schemes with technology-neutral auction frameworks due to generally higher generation costs than wind or utility solar PV. 

Policies that had previously delivered higher levels of bioenergy deployment have now closed, or will shortly close, to new applicants in Germany, Japan and the United Kingdom, with these countries seeing lower deployment in 2020 and 2021 than in previous years. In addition, China and India have already achieved their stated bioenergy targets.

Global net additions of hydropower fell to 12.7 GW in 2019, the lowest level recorded since 2001. This is due to the continued slowdown in China, the country that has led global hydropower growth since 1996. Development has slowed significantly in China since 2013, as costs have increased due to resource availability and social acceptance issues. As a result, for the first time since 1996, in 2019 hydropower capacity growth was not led by China, but by Brazil, where close to 5 GW were commissioned as several large projects came online.

Annual additions are expected to increase in 2020 and further in 2021 largely due to the development of two mega projects in China: Wudongde (10 GW) and Bhaetan (16 GW). One-third of global growth over 2020-21 (45 GW) is expected to come from these two projects alone; therefore the timing of turbine commissioning will have a considerable impact on global annual growth. Turbine commissioning is likely to start in 2020, with developers targeting completion dates of 2021 and 2022 respectively.

Outside these two projects, global growth in 2020 remains stable as development in Asia offsets declines in Latin America, and as increases in 2021 are driven by investment in pumped storage in Switzerland and China as well as by large hydropower plants in Canada, Turkey, and sub-Saharan Africa. Although, annual additions over 2020-21 correspond to projects currently under construction, some projects may be delayed due to Covid-19 lockdown measures. A number of projects in Southeast Asia have halted construction due to a shortage of staff as a result of lockdown measures and travel bans on cross-border workers.

For CSP (concentrated solar power), our forecast is not subject to major revisions in most countries and any delays in the period analysed have not been due to Covid-19. In 2019 Israel commissioned two CSP projects (230 MW), while four projects came online in China (200 MW).

China leads future global CSP growth, but this is lower than our previous forecast for 2020-21, as planned projects are being delayed due to material cost increases and financing challenges. Outside China, financing challenges were the main reason for the cancellation of a CSP project in Australia. This year, the Cerro Dominador project in Chile is expected to come online after the salt melting process was announced as completed in April. This project will bring 110 MW with 17.5 hours of storage in molten salts. Projects in the United Arab Emirates are expected to come online on schedule, bringing 300 MW of capacity in 2021.

In 2019 global geothermal capacity additions amounted to almost 0.8 GW, the highest level ever recorded. Turkey, Indonesia and Kenya were by far the largest contributors to this increase, together accounting for three-quarters of global additions. These three countries are expected to continue leading geothermal growth over 2020-21. However, in Turkey and various other countries, the Covid-19 crisis is causing delays in project development due to hold-ups in strategic decisions needed for projects to proceed, and disruption of the global supply chain for machinery and materials. In Turkey, unless current support mechanisms scheduled to finish at the end of the year are extended, delayed projects originally scheduled to come online at the end of 2020 may face financial challenges.

In Indonesia, while the commissioning of some small projects has been postponed to 2021, so far development remains almost unaffected for the largest projects due to come online in 2020 (i.e. 90 MW at the Rantau Dedap plant, which we previously expected to be commissioned in 2021, and 45 MW at the Sorik Marapi plant). Overall, our outlook for global cumulative additions of geothermal power over 2020-21 is revised down by about 20% compared to our October 2019 estimates.

Global transport biofuel production reached a record 162 billion litres (L) in 2019, or 2.8 million barrels per day. This represented a 7% year-on-year (y‑o‑y) increase. The primary cause of growth was a surge of ethanol production in Brazil and expansion of biodiesel production in the ASEAN region.

However, the Covid-19 crisis has radically changed the global context for biofuels, and we anticipate production to contract by 20 billion L (13%) in 2020, returning to 2017 output levels. By comparison, prior to the start of the Covid‑19 crisis, output was anticipated to increase by a further 5 billion L (3% y-o-y) in 2020. On the assumption that the pandemic is brought under control, transport fuel demand could rebound in 2021 and facilitate a return to 2019 biofuel production levels. However, this would still be 5% lower than the output anticipated in our forecast for 2021 prior to the Covid-19 crisis emerging.

The widespread application of containment measures saw mobility grind almost to a halt in many countries towards the end of the first quarter of 2020, strongly reducing transport fuel demand. This in turn limited biofuel consumption from mandate policies that require a set percentage of biofuels to be blended with fossil transport fuels.

Overall, global gasoline demand in 2020 is forecast to fall by 9% and diesel demand by around 6%. Diesel is less affected as a substantial share of consumption is for the transport of goods, which the crisis is affecting less than personal mobility. Consequently, the Covid-19 pandemic is forecast to impact ethanol output (15% contraction) more than biodiesel and HVO output (6% contraction) in 2020.

The sharp reduction in crude oil prices puts further pressure on the biofuels industry, as lower petroleum product prices drag down biofuel prices. This compounds the effect of lower biofuel demand driving stocks higher in many markets, which also depresses prices and compromises the profitability of production.

The upheaval from the crisis also extends to markets integrated with biofuels by affecting demand and prices for agricultural commodities, and the availability of co-products (e.g. animal feeds and CO₂ for beverages and cooling). Ethanol plants in many countries have ventured into production of much-needed hand sanitiser, although this does not compensate for lost transport fuel demand.

While heat accounted for half of global final energy consumption in 2019, modern renewable energy2 met only 10% of global heat demand. This share is increasing slowly, with very few new policy developments in the last two years. The number of countries with national targets for renewable heat is less than a third of the number with national targets for renewable electricity, and fewer than half of those have nationwide regulatory heat policies in force.

Overall support for the uptake of renewables in the heating and cooling sector therefore remains limited. In this context, increasing the share of renewable heat has been challenging, and current economic impacts of Covid-19 measures could potentially slow its growth beyond the short term. Both the industrial sector and the buildings sector are likely to be affected, although impacts will differ in nature, extent and timescale, and across regions.

In industry, bioenergy accounts for the large majority of renewable heat consumption (more than 85% in 2019), and in our October 2019 forecast was expected to comprise more than half of the growth in renewable heat for industry. Bioenergy is used mostly in industries that produce biomass waste and residues, such as food and tobacco, sugar and ethanol (Brazil and India), and most of all in the pulp and paper industry (mainly in North America, Europe and Brazil). Thanks to the increasing use of municipal waste in China and the European Union, the cement industry was also expected to contribute significantly to the growth in industrial bioenergy consumption.

The Covid-19 crisis has reduced commercial and construction activity, meaning lower demand for print paper, cement and lumber from the wood products industry. This demand shock is likely to translate into a temporary decline in the consumption of bioenergy from these sectors. Yet, cement plants with waste management contracts may have to keep on processing municipal waste since it is still being produced and requires disposal.

In other heat-intensive industries such as chemicals and petrochemicals, iron and steel and non-ferrous metals, the global contraction in economic activity following lockdown measures entails reduced overall heat demand. However, renewable consumption in these sectors – essentially supplied indirectly through electricity and district heat – remains limited. On the supply side, the fall in electricity demand tends to lift the share of renewables in the electricity supply, which increases the indirect contribution of electric heating and heat pumps to renewable heat consumption, albeit the effect remains marginal. Should a prolonged economic slowdown occur, such effects on industrial renewable heat consumption would be felt beyond 2020.

In buildings, direct impacts of Covid-19 measures on renewable heat consumption are likely to remain limited in the short term. First, Covid-19 impacts have so far occurred during a period of lower demand for heat in buildings due to the exceptionally high winter temperatures in the northern hemisphere, where 2019/20 was the warmest winter ever recorded. Furthermore, the timing of Covid-19 lockdown measures came towards the end of the heating season in most northern hemisphere countries (with the exception of China), especially in Europe and North America which are major heat consumers. This has also contributed to limiting the effect on buildings heat demand so far. Should lockdowns be maintained or reinstated later in the year, the impact could be higher.

In many countries, during periods of full lockdown, reduced space and water heating demand in the commercial sector counterbalances the slight uptick in residential buildings. This may somewhat modify the composition of global buildings renewable heat consumption in 2020, as renewable electricity, used by heat pumps and electric heaters and boilers, is the largest renewable heat source in the commercial sector globally, whereas biomass is dominant in the residential sector.

Beyond these direct short-term impacts, the Covid-19 crisis further compromises the already slow penetration of renewables in heat supply. First, lockdown measures and labour restrictions may induce delays in the manufacture, sale and installation of renewable heating equipment. This may affect projects due to install solar thermal panels, heat pumps, biomass stoves or boilers, and renewable district heating networks. In France, for instance, heat pump sales during the lockdown (from mid-March to the end of April) were 70% lower than during the same period in 2019, and annual sales for 2020 are expected to remain almost 20% below 2019 levels.

Work on new and retrofit bioenergy CHP plants and boilers is suspended during lockdown in many countries. The high season for district network construction is typically summer, but site preparation and equipment supply are required beforehand and could be subject to disruption. Depending on lockdown duration, delays may accumulate, which would need to be partly recovered after lockdown, putting more strain on workforce and equipment capacity and potentially leading to longer project lead times.

Second, and perhaps more importantly, current low oil and gas prices are affecting the cost-competitiveness of renewable heat fuels and technologies relative to fossil options. For instance, low fossil fuel prices have made oil boilers for residential heating more attractive in Germany in the past. Besides, the evolution of wood pellet prices in the short term remains uncertain: on the supply side, lower availability of sawmill residues may lead to a shift to alternative feedstocks that could push pellet prices up, while lower industrial demand could push prices downward.

In addition, the Covid-19 crisis is weakening the financial situation of companies and households. As a result, planned investments in switching from fossil fuel use to renewable or electric heating solutions may be postponed or cancelled in the absence of stronger policies. Policy support, however, could dampen the effect of this crisis. In China, for instance, the “Coal to Electricity” programme may benefit from additional fiscal support, which would help maintain heat pump demand.

Third, without strong government intervention, the uncertain global macroeconomic impacts of the pandemic in the longer term may affect the building construction sector for a long period of time, given that it is particularly sensitive to the macroeconomic situation, as confirmed by the 2008 crisis. This could significantly slow down renewable heat deployment, since building energy codes used to mandate energy efficiency standards and renewable heat technologies often target new construction and retrofits.

Considering these elements, the IEA outlook for renewable heat consumption over 2020 and 2021 is likely to be revised down compared to the October 2019 forecast, with the largest changes relating to industry.

While our previous projections were already not in line with global climate change targets, recent evolutions sharpen the need for strong and ambitious policy support to reduce non-renewable energy uses for heat, through a combination of energy efficiency and fuel switching to renewables. With multiple benefits for local job creation, environmental sustainability, energy security and resilience, governments should view such policies as a critical ingredient in their stimulus packages.