Elsewhere in the electricity sector, the IEA's central STEPS sees renewables surging and overtaking coal as the largest source of power by the mid-2020s. By 2040, low-carbon sources would be supplying more than half of the world's electricity needs – rising to 85% in the SDS.
(It is worth reiterating, however, that electricity accounts for only a fifth of final energy consumption today, a figure that rises to 24% by 2040 in the STEPS or 31% in the SDS. This is one of the many reasons why renewables alone cannot solve the climate challenge.)
Notably, this year's STEPS has significantly increased the prospects for renewables, raising the solar total for 2040 by 23% and that for wind by 11%. This revision, adding 8% to the total for non-hydro renewables (red lines in the chart, below), sees them overtaking coal in the late 2030s.
The increase in expected renewable output is mostly absorbed by higher demand, meaning that generation from other sources is relatively unaffected. Carbon Brief analysis suggests the increase in 2040 demand relative to last year's outlook is mainly due to higher demand in the base year 2018, which gets compounded by 2% annual growth.
The WEO explains:
"As a result of continued cost reductions, solar PV becomes the most competitive source of electricity in 2020 in China and India, and largely closes the gap with other sources by 2030 in the European Union and United States. In the Stated Policies Scenario, the global average [levelised cost] of solar PV declines by about 50% from 2018 to 2030."
It adds that cost declines for wind and solar are "bolstering the economic case for switching directly from coal to renewables", rather than using gas as a "bridge" to low-carbon sources.
The IEA recently published an in-depth review of the prospects for offshore wind, which it says "has the technical potential to meet today's electricity demand many times over" at costs set to be competitive with fossil fuels within a decade.
Offshore wind has "near limitless" potential & is "set to be competitive with fossil fuels within the next decade", as costs fall 60% by 2040.
Turbines will soon be as large as the Eiffel Tower.
— Simon Evans (@DrSimEvans) October 25, 2019
The IEA says there will be an increasing need to address challenges posed by variable wind and solar as they take hold of the electricity sector: "Policy makers and regulators will have to move fast to keep up with the pace of technological change and the rising need for flexible operation of power systems."
Despite the large upwards revision in solar output in 2040 under this year's STEPS, noted above, the IEA's outlook for the technology remains relatively conservative compared with some others.
The IEA's outlooks for solar have become something of a lightning rod for critics of the agency's work. It has made upwards revisions for solar capacity growth in each successive edition of the outlook, shown in shades of blue in the chart, below.
(Note that the chart shows additions net of retirements. These are initially negligible as the vast majority of solar capacity growth has been recent. The IEA assumes 298GW of solar retirements to 2040, suggesting it expects capacity to switch off after around 25 years. This means that actual additions rise in the 2030s and beyond, rather than apparently remaining relatively flat as in the net additions chart below.)
The IEA attributes these successive upwards revisions largely to shifts in government policy over time, in particular pointing to changes in China, which is the world's largest market for solar.
Myth 2: #WEO underestimates renewables growth.
-False. Additions of renewables lead all sources in all scenarios. Track back and China's policy changes accelerated global growth. Unfortunately, in the rest of the world, renewables are behind (!) the STEPS equivalent from WEO2009 pic.twitter.com/NAs2jyemFe
— Brent Wanner (@WannerBrent) November 17, 2019
The IEA argues that following slightly weaker solar growth in 2018, "a renewed acceleration in annual solar PV deployment, alongside enhanced efforts to ensure smooth integration of the resulting solar generation into power systems, is essential to reach climate targets and other sustainable development goals".
The IEA's relatively conservative outlook for solar appears to rest partly on its use of a standard weighted average cost of capital for all electricity generation technologies, set at 7-8% depending on each country's stage of development.
This can have a very large impact on the levelised cost of electricity (LCOE) for a given project, as the IEA illustrates with reference to offshore wind. (Actual costs of capital for offshore wind in Europe have been closer to 4%, enough to cut its LCOE from around $140 per megawatt hour to $100/MWh.)
The agency says that cost reductions do not guarantee continued competitiveness "because the system value of solar PV tends to decline relative to the system average as its share of generation rises".
This is because solar output is concentrated in the middle of the day, with additional capacity adding to supply and so partially eroding the price commanded by already-built solar panels.
Despite also considering these sorts of issues, some other outlooks are much more bullish on solar capacity growth. Whereas the IEA's STEPS has solar additions of less than 140GW each year by 2040, the BloombergNEF new energy outlook sees solar additions topping 300GW by then. This higher figure is in line with deployment in the IEA's target-focused SDS.
BloombergNEF is also more bullish on wind capacity growth, with the result that its outlook has electricity output from coal falling by half in 2050, rather than holding steady as in the IEA's STEPS.