Capacity for renewable energy is on the rise, but higher interest rates and a lack of financing for developing economies is hampering overall progress, according to a report from the International Energy Agency (IEA).

The IEA’s latest analysis of renewables deployment in electricity, transport and heat finds the world added 50% more renewable capacity in 2023 compared to the previous year, with the next five years set to see the fastest growth yet.

But current projections are not yet enough to meet the target of tripling installed renewable energy capacity to at least 11,000 gigawatts (GW) by 2030, a pledge made by 130 governments – the EU included – at last year’s Cop28 climate summit.

The IEA’s projection to 2028 takes existing policies and market conditions into account and forecasts global growth to 7,300 GW, up from almost 510 GW at the end of 2023. Wind and solar make up 95% of this total.

But progress on green hydrogen projects – many of which will target the export market – has been slow, the IEA says, due to sluggish investment decisions and higher production costs.

“Of all the projects announced worldwide to use renewables to produce hydrogen this decade, only 7% of the proposed capacity is expected to come online by 2030,” the IEA says. That total amounts to just 45 GW.

Green hydrogen is created by passing an electrical current from a renewable source through water, which can then be used in fuels for planes or ships.

The slow rate of development represents an opportunity for export credit agencies (ECAs) to get involved, according to Daniel Bembennek, head of finance at thyssenkruppp Uhde.

Bembennek tells GTR the report shows “the global community is on the right track, but the speed is still far from sufficient”, with access to “direct financial aid and favourable financing for projects to produce hydrogen and its derivatives” requiring improvement.

“Here, ECAs in particular can facilitate financing with increased flexibility and increase the speed of global expansion. This combines the benefits in emerging countries through investments and in developed countries through empowering the export industry and potential off-takers,” he says.

Anise Ganbold, head of research for global energy markets and hydrogen at Aurora Energy Research, says the current pipeline for electrolyser projects would produce around 1.2 terawatts of capacity.

“According to our analysis, 182 GW is under development, meaning that progress has been made beyond the planning stage. Half of these projects aim to produce hydrogen specifically for the export market,” she tells GTR.

“Out of this 182 GW, however, around 7 GW have reached a final investment decision, less than 4%.”

At the end of last year, the World Trade Organization and International Renewable Energy Agency urged governments to bring in trade policies that support increased green hydrogen production.

Renewable capacity for hydrogen production is concentrated in China, Saudi Arabia and the US, which together are expected to account for more than 75% of renewable capacity for hydrogen production by 2028.


Macroeconomic impacts

Higher base interest rates in advanced western economies affected renewable energy capacity for the first time in 2023, the IEA notes, ramping up financing costs and increasing outlays for wind and solar photovoltaic (PV) equipment.

Although wind and solar PV generation costs have dropped by more than 80% since 2010, the IEA points out that this happened at a time when central bank base interest rates were below 1% in the EU, the UK and the US.

Renewables are set to overtake coal “to become the largest source of global electricity generation by early 2025”.

Solar PV made up the bulk of renewable energy capacity added last year, making up three-quarters of additions worldwide and driven by China, dubbed a “renewables powerhouse”, which “commissioned as much solar PV in 2023 as the entire world did in 2022”.

Between 2023 and 2028, China is due to deploy almost four times more renewable capacity than the EU and five times more than the US, the IEA says.

Access to finance is also a major barrier for emerging and developing economies, where policy uncertainties drive up risks. The IEA suggests stronger regulatory frameworks and incentive schemes are needed to attract investment in emerging economies.

Another solution is further use of initiatives like Just Energy Transition Programmes (JETPs), the first of which was announced for South Africa in 2021, with others now in place in countries including Vietnam and Indonesia.

JETPs bring together public and private sector finance to help coal-dependent emerging economies make an equitable transition away from fossil fuels.

“The new IEA report shows that under current policies and market conditions, global renewable capacity is already on course to increase by two-and-a-half times by 2030,” says IEA executive director Fatih Birol.

“It’s not enough yet to reach the Cop28 goal of tripling renewables, but we’re moving closer – and governments have the tools needed to close the gap,” Birol says.

Birol says meeting the 2030 tripling goal will hinge on “rapidly scaling up financing and deployment of renewables in most emerging and developing economies”.

The IEA adds that the renewable energy industry has shown “strong financial resilience in the face of multiple challenges such as volatile commodity prices, supply chain constraints and trade restrictions”, but it remains tested by the energy crisis and macroeconomic environment.