European power prices went through the roof, averaging close to $500 per MWh in August, almost six times the level in 2021.

Energy markets were disrupted in 2022 after Russia cut off gas exports to Europe, nuclear outages hit France and water reservoirs were running low across several regions for hydropower generation. European power prices went through the roof, averaging close to $500 per MWh in August, almost six times the level in 2021. Other regions also saw large increases. Asia had to compete with Europe for liquefied natural gas (LNG) to ensure enough supply for power plants, while extreme weather events in the US strained the gas infrastructure system on several occasions. Even so, a very strong growth in global renewable energy capacity through 2023 and a better-balanced international LNG market have led to a normalization of power markets, with prices in Europe currently trading at $70 per MWh, and below $30 per MWh in the US. But will the market continue to be balanced in 2024?

More than 500 GW of solar PV and wind capacity will come online in 2024

Rystad Energy’s PowerCube, an asset-level database, shows that 2023 will be a record year for new renewable energy capacity installations. Global solar PV capacity will grow by 300 gigawatts (GW) and wind capacity by 150 GW, with more than 50% of this new capacity coming online in China, 15% in Europe and 10% in the US. Even when most of the growth has been from renewable energy sources, fossil-fueled power generation has continued to grow, with close to 190 GW being added this year. All this new capacity, combined with more comfortable reservoir levels for hydro power generation in Europe, China and the Americas, and higher nuclear availability in Europe all signal a well-balanced end of the year market for most regions, which should help keep power prices in check.

For renewable energy installations, 2024 is expected to be another record year. According to our project data, the amount of solar PV capacity expected to come online next year will be close to 330 GW and 180 GW for wind. These two sources of supply alone will add 911 terawatt-hours (TWh) of new generation, representing an increase of 3% in total supply, which should be enough to cover the forecast growth in demand. Other sources like hydro, nuclear, gas and coal could add 315 TWh of supply, signaling another year of well-balanced markets. But the growing number of extreme weather events and continued geopolitical tensions mean that there could be short-lived periods of higher prices.

Better economic incentives needed for renewable energy developers

Despite the continued addition of renewable energy capacity, the growth rate of new announced projects has slowed down over the last few months as developers in some countries are not receiving the right economic incentives. According to Rystad Energy’s Wind Supply Chain Analysis, the price inflation for wind components over the last two years has been around 20% in both the US and Europe, increasing the development costs for wind projects in general, and offshore wind projects specifically. Escalating costs mean developers need to achieve a higher strike price in renewable energy auctions or secure stronger Power Purchase Agreements (PPA) in order to make the projects economically feasible. Offshore wind developers in the UK - one of the most attractive offshore wind markets in the world – stood on the sidelines of an auction recently due to the low administrative strike price of around $67 per MWh (real 2023) set by the government. According to our Renewable Economic Model, the clearing price could have been closer to $82 per MWh. Similarly, there has been an uptick in the prices agreed in PPAs by solar PV developers. In the US, for example, average PPA prices for solar PV projects dropped to $30 per MWh in 2019 and have recently increased closer to $45 per MWh. Despite the increase in costs, renewable energy technologies continue to be competitive as they have on average a lower levelized cost of energy than conventional sources such as gas, coal and nuclear.

At least 18 TW of new solar PV and wind capacity needed by 2050

To see the required growth in renewable energy capacity over the next thirty years to ensure sufficient supply and to decarbonize the power sector, governments will need to do more to incentivize projects to move forward. Our Power Sector Scenarios suggest that 18 TW of solar PV and wind capacity would need to be operational in the world by 2050 to help global warming remain below 1.9 DG Celsius. To keep global warming below 1.6 DG Celsius, twice as much renewable energy capacity would be needed. This means that developers will require the right tax incentives or attractive prices in order to achieve the exponential growth.

The supply chain for renewable energy components has been growing fast enough to help enable the exponential deployment of new capacity. Our Solar Solution tracks manufacturing capacity for polysilicon, ingots and wafers, cells, inverters and trackers. Data shows that currently there is more than 800 GW of manufacturing capacity, which is more than 60% higher than the yearly installation rate. This should ensure enough capacity in the long-term to help meet the ambitious climate objectives being set by governments around the world.