Blueprints with fine prints: 2030 targets and renewables deployment

In May 2024, Spain’s EDP Renewables announced that its joint venture with French firm Engie will develop a 1.3 GW offshore wind project in Australia. The JV, aptly christened ‘Ocean Winds’, was granted a license by the Australian government. In its statement, the company lists the driving factors. Amongst them is the renewable energy target of the state of Victoria, where the project is based.

The “education state” as it is locally known, has a target of 95% renewable energy by 2035. Such targets are now common practice. At COP 28, nearly 200 countries came together to commit to tripling renewable energy capacity by 2030 - 11,000 GW of renewable energy by the end of the decade.

This could shape investment outcomes. Theoretically, capital should follow the path that targets illuminate. If that’s true, more capital would be deployed in renewable energy assets backed up by political ambition. New research from the IEA shows that sometimes that is the case, but not always.

Dual track

Both targets and investment have accelerated in recent years. A reasonable proxy for ambition is a country’s nationally determined contribution (NDC). According to the IEA’s research, domestic ambitions often exceed what countries have pledged in their NDCs.

At the same time, investment in deploying and integrating renewable energy into grids has also increased. “For every dollar going to fossil fuels today, almost two dollars are invested in clean energy,” said IEA Executive Director Fatih Birol.

Investments in clean energy (renewables plus nuclear) could reach $2 trillion in 2024, according to IEA estimates.

Ambitiously deployed

There is some truth to the claim that capital has followed ambition. Consider the case of solar energy. According to the IEA, 32% of total global renewable energy ambition is targeted at solar energy. By 2030, this would imply that solar energy emerges as the largest source of renewable energy generation worldwide.

The IEA’s flagship report, the World Energy Investment 2024 suggests that is the case. The latest figures show that $503 bn is invested in solar PV technology each year. This is higher than all other generation technologies combined. For reference, in 2021 annual investment into solar PV was $251 bn.

Granted, ambition is not the only thing driving these trends. Solar panels are a lot cheaper now – they cost nearly 30% less than they did two years ago. Additionally, the return on investment is higher now in countries such as the US. The expected international rate of return for utility-scale solar PV in the US was around 9% in 2023.

Mismatch

What is true for solar energy in the US, might not hold true elsewhere and for other technologies. “For some technologies, there are mismatches between the technology-specific ambitions and current installed capacity”, reads the IEA’s report.

Bioenergy is one such case. 124 countries have installed capacity, of which only 31 have an announced target in their national renewable energy plans. Hydropower is another example – despite its significant global installed capacity, only 39% of surveyed countries mention a specific ambition.

The IEA suspects that the choice to not include such sources of renewables in plans reflects on-going operational challenges in deployment.

“Hydropower projects can have long lead times, with complicated environmental impact assessments and social acceptance challenges, while bioenergy requires the development of sustainable feedstock supply chains”, the report says citing evidence from Asia.

All blueprints have fine prints. The tripling pledge is no exception. The target of getting global renewable energy generation capacity to 11,000 GW by 2030 leaves much to be unpacked. Which source does capacity come from? Which countries deploy how much? In which direction is investment headed? Political ambition could very well shape investment outcomes, but it is far from the only explanatory factor at play.