Why have the IEA’s projections of renewables growth been so much lower than the out-turn?

The IEA has greatly underestimated the growth of renewables for some years now.  This illustrates how important it is to allow for unexpected outcomes if policy design is to be robust, as even well informed projections can be very different from the subsequent out-turn.

(For an update on the IEA’s projections of renewables see also this post.)

The International Energy Agency’s (IEA’s) annual World Energy Outlook (WEO) is a thorough and well researched analysis of the outlook for the world’s energy systems[1].  Over the years it has become the standard view of the world’s energy use now and in the coming decades.  However it has had an extraordinarily poor track record in projecting the growth of solar and wind power in recent years.  The charts below compare the IEA’s projections over the last few years with the out-turn for both wind and solar.  Projections have been revised upwards each year.  But they have still been consistently too low, by a very large amount in most instances, with the pattern persisting over many years for two different groups of technologies, wind and solar PV.   As recently as 2006 it was expected to take until the 2020s to reach current levels of wind capacity, and until the 2030s to reach current levels of solar capacity, with current solar PV capacity almost an order of magnitude greater than expected in just seven years ago.

The IEA’s projections have consistently increased over the years, but still fallen short of actual deployment ….

It would, of course, be wrong to suggest that because past projections have been underestimates the current projections will also be too low.  However the most recent projections continue to show rates of deployment that appear very cautious.  The graphs below show the IEA’s projected rate of installation in the most recent WEO (for 2012) under its central New Policies scenario compared with past and current growth rates.  For both wind and solar projected installation rates start below 2012 levels and remain roughly constant or fall over time.

IEA’s projection show declining rates of deployment for both wind and solar …

Decreases in installation rates are of course possible.  Wind installation seems likely to be lower this year than last, although the rate of solar deployment continues to grow.  However, projecting flat or slowly declining installation rates over the next couple of decades suggests either that current rates are a spike, or that installation is moving towards saturation.  Neither of these possibilities seems likely.  Costs are continuing to fall, especially for solar, renewables still account for a very small share of total generation, and drivers towards deployment of low carbon technologies seem likely to strengthen rather than weaken over the period.  One does not need to be an advocate of renewables to expect that these industries are more likely to grow than shrink over the next couple of decades, even if growth of annual deployment may be much slower than in the past.  It would seem more plausible if a central case scenario were projecting some continuing growth in annual installation, with decreases very much a low case.   It will be interesting to see how these projections are adjusted in the next edition of the WEO due out in a few weeks.

So what has led to this persistent underestimation of growth?  There may have been a reliance on individual jurisdictions’ plans, with more caution than seems with hindsight to have been warranted about the rate at which policy might move.  This seems to have led to linear extrapolation of capacities when technologies were in a phase of exponential growth.  Projections for wind have improved in recently years as growth appears to have become more linear (at least temporarily), and following a large upward revision in the projected rate of addition between the 2009 and 2010 editions of the WEO.  It may also be that there is some inherent caution about new technologies.  However the IEA – along with many others – has tended, if anything, to be somewhat optimistic about CCS, so this cannot be a complete explanation.  There are also specific circumstances that have played a role, notably being somewhat slow to recognise the falling costs of solar PV, with even the costs from the 2012 edition being well above actual values[2].

There may also be a deeper explanation rooted in institutional conservatism.  Taking a conservative view of future prospects in the energy sector can be necessary to avoid being swayed by the latest fad.  A conservative view recognises the realities of the long time horizons and vast scale of the world’s energy systems.  However it can carry the risk of missing the role of genuinely transformative technologies, as appears to be the case here.  The IEA’s current caution may still prove justified.  But  Eurelectric, the European power industry association, noted in a recent report that the European power sector is already undergoing one of the largest transformations in its history[3].  Such changes seem likely to be a global phenomenon.  Wind and (especially) solar PV seem likely to form part of the largest transformation of the energy sector at least since the growth of oil consumption in the middle decades of the 20^th century, and perhaps since the invention of the steam engine.  The IEA seems to be slow to recognise this.

Whichever way the future turns out, the IEA’s past projections show how different actual out-turns can be from even well-informed projections.  This provides and important reminder that none of us can be sure about future changes to the energy sector, and policy design must always be robust against things turning out to be different from expectations.

Adam Whitmore – 8th October 2013

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[1] See http://www.worldenergyoutlook.org/ Data used here is from New Policies scenarios and Reference case for earlier projections.

[2] See www.worldenergyoutlook.org/weomodel.

[3] http://www.eurelectric.org/media/79178/utilties_powerhouse_of_innovation_full_report_final-2013-104-0001-01-e.pdf