17 October 2017: A shift towards renewable energy sources and increasing energy efficiency are two pillars of the global transition towards low carbon energy systems. Two recent publications by the International Energy Agency (IEA) take stock of progress in these two areas with encouraging as well as mixed results.

Another Record Year for Renewables

The report titled, ‘Renewables 2017,’ provides the latest market analysis of renewable electricity, biofuels and heat. It finds that, in 2016, installations of renewable power capacity reached a new record of 165 gigawatts (GW), accounting for two-thirds of all new capacity. For the first time, solar photovoltaic (PV) installations had the highest share of all energy sources, surpassing coal and accounting for 50% of all new installations. The rise of solar PV was driven by record low prices determined in auctions reaching US$0.03 per kilowatt hour (KWh) in countries like India, United Arab Emirates, Mexico and Chile.

IEA’s five-year forecast provides for continued expansion of renewable energies of more than 920 GW by 2022, which is equal to half of all existing coal-fired capacity. The estimate increased 12% compared to the last forecast period, due to a more optimistic outlook for solar PV in China and India. The study further predicts that wind and solar will account for 80% of renewable growth by 2022. This trend will make it increasingly important to invest in system integration and flexibility through measures such as grid reinforcement, interconnections, storage, demand-side response to stabilize supply and retain market value of renewable electricity, the report notes.

Other findings include: an increasing share of the price of renewable capacity growth is set through competitive policies, rather than subsidies; a surge in electric vehicles will complement biofuels as low carbon alternative in transport; and renewable energy sources for heating will grow by 25% until 2022. [IEA Press Release][Key findings of ‘Renewables 2017’]

The Need for New Policies for Energy Efficiency

Despite the rapid growth of renewables, emissions reductions are likely to fall short of the reductions required to avert catastrophic climate change. Improvements in energy efficiency are therefore an important strategy to close the gap. IEA’s latest update on the state of energy efficiency around the world titled, ‘Energy Efficiency 2017,’ provides mixed conclusions. While energy intensity of the global economy continued to decline, the downward trend has slowed to 1.8% compared to 2.1% in 2016. Energy efficiency made the largest contribution to offsetting the increase in GHG emissions resulting from global growth in GDP making 2017 the third consecutive year in which global GHG emissions remained stable.

On the other hand, the study finds energy efficiency policies address only 32% of global energy use, an increase of 1.4% since 2016. Most of the increase was due to the expansion of existing policies. New policies, which often support deeper reductions in energy intensity, were responsible for only 1% of the increase in coverage, a historic low as the report states. China continues to be the leader in implementation of new mandatory energy efficiency policies accounting for 70% of all new policies globally.

Other findings include: increasing use of energy management systems is driving energy efficiency in industry; energy efficiency of buildings is improving, but falls short of potential improvements enabled through innovative technologies, such as LED lighting; and fuel economy standards are driving rapid change in the motor vehicle market, including accelerating growth in the sale of electric vehicles.

Regarding the future of energy efficiency, the study states that investments grew by 9% to a total US$231 billion, dominated by investments in the building sector. In addition, two trends are expected to support improvements in energy efficiency in the next years: the rise of energy services companies that support turning energy efficiency into a tradable commodity; and the deployment of connected devices, such as smart meters, that allow for more accurate control of consumption. [IEA Press Release][Energy Efficiency 2017][Key Findings]

Concerns About Decline in Energy Research Budgets

While overall investments in renewable energy and energy efficiency continue to rise, investments in energy research and innovation have declined since 2012. In a blog post based on data from the IEA R&D Database and the reports titled, ‘World Energy Investment 2017’ and ‘Tracking Clean Energy Progress,’ IEA experts warn that shrinking research budgets could affect the dynamic of the ongoing energy transition. The authors identify two historic shifts in energy research: from nuclear to fossil fuel research around 1990; and towards more funding for research in renewables and “cross-cutting” technologies since 2000. While the reduction in research spending can be to some extent explained by lower corporate R&D expenditures in oil and gas caused by a reduction in fossil fuel prices, the authors note that this drop has not been fully compensated by increases in research spending on renewable energies. They recommend that governments and the private sector explore ways to improve coordination, target research gaps and build capacity to ensure that the outputs of innovation policies and investments support better policy making. [Commentary: Declining energy research budgets are a cause for concern][IEA R&D Database][World Energy Investment 2017][Tracking Clean Energy Progress 2017]