Global capex spending on renewables is poised to bounce back in 2021, rising 8.5 per cent to $255 billion—in line with 2019 levels, according to Roger Diwan, vice president, financial services and the IHS Markit Energy Advisory Service.
Annual spending is expected to remain at those levels through 2025. This adds up to a $1.3 trillion cumulative 2021-2025 spend—a 9 per cent increase over cumulative capex in 2015-2019.
At the same time, sharply declining capital costs across renewable technologies mean that just a 9 per cent increase in spending will be associated with a 45% increase in cumulative gross renewable capacity additions in 2021-2025 vs. 2015-2019.
The findings are part of the new IHS Markit Energyview – Climate and Cleantech and Climate and Cleantech Advisory Briefing services.
The expected recovery follows a 2020 that saw the renewables sector hit by supply chain disruptions and construction delays stemming from COVID-19 lockdowns and mobility restrictions, among other factors. IHS Markit expects 2020 global non-hydro renewables capex will be $235 billion, down 7 per cent from 2019 levels.
Diwan said “When it comes to renewables, we may likely look back on 2020 not so much for the COVID-induced contraction in spending but for the sprightly return to growth. The recovery of capital investment to pre-pandemic levels, coupled with falling costs that will give added weight to every dollar invested, is bringing renewed momentum as we head into the New Year.”
Falling costs
IHS Markit expects the global benchmark capital cost for solar PV (both utility scale and distributed generation) in 2025 to be roughly 40 per cent below 2017 levels. Meanwhile, global benchmark capital costs for onshore wind and offshore wind in 2025 are forecast to be 20 per cent and 15 per cent below 2017 levels, respectively.
Capacity additions
Solar photovoltaic (PV) will continue to account for the majority of cumulative global new investment and gross capacity additions in 2021-2025. IHS Markit expects solar PV to account for approximately 54 per cent (nearly $700 billion) of global cumulative investment in the renewables sector.
Global offshore wind investment will accelerate swiftly during the 2021-2025 period. Cumulative investment of $170 billion is expected—a nearly threefold increase from cumulative 2015-2019 levels.
Meanwhile, onshore wind capex is forecast to slow, reflecting a deceleration in onshore wind installations globally post-2021. Cumulative investment in offshore wind is expected to be $320 billion for 2021-2025, down from the 2015-2019 level of nearly $365 billion.
Expanding share of electricity generation
The overall growth in capex and capacity additions is expected to push combined global wind and solar PV installed capacity beyond that of global installed natural gas-fired capacity in 2023 and installed coal-fired capacity in 2024.
In terms of global electricity generation, renewables will rise to an 18 per cent share in 2025, up from 11 per cent in 2019.
“There is a chance that this new surge in capital spending for renewables could still exceed expectations. Countries and companies are accelerating their renewables ambitions, often anchored in net-zero emission targets, and a number of key countries are likely to focus post-COVID crisis spending on new green initiatives. The momentum behind these numbers definitely leans towards the upside.” Diwan concludes.
