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Power generation from renewable sources worldwide will exceed that from natural gas and be twice that from nuclear by 2016, making renewables the second-largest source of electricity after coal, according to a new report from the International Energy Agency (IEA).

Despite a difficult economic context, renewable power is expected to increase by 40% by 2016. In fact, the report says renewables are now the fastest-growing power generation sector and will make up almost a quarter of the global power mix by 2018, up from an estimated 20% in 2011.

The share of non-hydro sources such as wind, solar, bioenergy and geothermal in total power generation are expected to double, reaching 8% by 2018, up from 4% in 2011 and just 2% in 2006.

“As their costs continue to fall, renewable power sources are increasingly standing on their own merits versus new fossil-fuel generation,” says IEA Executive Director Maria van der Hoeven. “This is good news for a global energy system that needs to become cleaner and more diversified, but it should not be an excuse for government complacency, especially among [Organisation for Economic Co-operation and Development (OECD)] countries.”

Even as the role of renewables increases across all sectors, the report cautions that renewable development is becoming more complex and faces challenges - especially in the policy arena. In several European countries with stagnating economies and energy demand, for example, debate about the costs of renewable support policies is mounting.

Van der Hoeven warns that “policy uncertainty is public enemy number one” for investors: “Many renewables no longer require high economic incentives. But they do still need long-term policies that provide a predictable and reliable market and regulatory framework compatible with societal goals,” she states. “And worldwide subsidies for fossil fuels remain six times higher than economic incentives for renewables.”

The IEA says its forecasts build on the impressive growth registered in 2012, when global renewable generation rose by over 8% despite a challenging investment, policy and industry context in some areas. In absolute terms, the report says global renewable generation in 2012 - at 4,860 TWh - exceeded the total estimated electricity consumption of China.

According to the report, two main factors are driving the positive outlook for renewable power generation. First, investment and deployment are accelerating in emerging markets, where the IEA says renewables help to address fast-rising electricity demand, energy diversification needs and local pollution concerns while contributing to climate change mitigation.

Led by China, non-OECD countries are expected to account for two-thirds of the global increase in renewable power generation between now and 2018. The report says such rapid deployment will more than compensate for slower growth and smooth out volatility in other areas, notably in Europe and the U.S.

Second, in addition to the well-established competitiveness of hydropower, geothermal and bioenergy, the report says renewables are becoming cost-competitive in a wider set of circumstances. For example, wind competes well with new fossil-fuel power plants in several markets, including Brazil, Turkey and New Zealand. The report adds that solar is attractive in markets with high peak prices for electricity, and decentralized solar photovoltaic generation costs can be lower than retail electricity prices in a number of countries.

For more information about the IEA’s Medium-Term Renewable Energy Market Report, click here.





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