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Overview | September 2016

Closing the COP21 Gap by Going Solar

Embarking on the process to mitigate climate change impacts, 195 countries agreed to reduce/curb greenhouse gas emissions at the COP21 UNCCC in Paris, but there is little analysis on the missing renewable capacity required to achieve these targets.

At the COP21 UN Climate Change Conference (UNCCC) in Paris in December 2015, 195 countries agreed to reduce or curb greenhouse gas emissions so as to limit global warming to well below 2°C, ideally to 1.5°C above pre-industrial levels. With a joint agreement to achieve net zero emissions between 2050 and 2100, countries are now embarking on the process to mitigate climate change impacts. Despite the many general statements that COP21 will have a significant impact for renewable energy (RE), including solar, there is as yet little detailed analysis on how much capacity seems to be missing.

This study therefore investigates the impact of the COP21 agreement on the solar industry and determines the cumulative additional solar PV capacity that will be required on a global scale and for some key countries, over and above the current forecasts and trends. It concludes that the forecast, although ambitious, is not impossible. However, the calculations of required capacities are a first step in planning a global power transition. This should be the starting point for further elaborations, discussions and implementing country specific mechanisms for incentivising this transition.

Global Outlook
Limiting the global temperature rise to below 1.5°C will require a sharp ramp-up of additional solar capacity. By 2025, REC has calculated that up to 4,800 GW will be needed in addition to the current trend. Just three years from now, in 2019, there will need to be roughly double the new PV installations than currently forecast. In 2025, the study calculates that nine times the forecast solar capacity will be needed. This ramp-up will meet the contribution of solar energy to closing the CO2-eq emissions gap and limiting the global temperature rise to below 1.5°C compared to pre-industrial levels.

With the target of limiting the rise in global temperatures to below 1.5°C, solar installations will have to generate 17,250 TWh of clean electricity between 2016 and 2025. By doing this, solar PV will save 12 Gt of CO2-eq (equivalent to taking 6 billion cars off the road in Germany) over this timeframe. Solar would then have a 20 per cent share in the global electricity mix, assuming higher electrification rates in future. This is in line with other analysts´ forecasts that solar could be the largest source of electricity by 2050, accounting for around 40 per cent of the world´s electricity. Taking the more modest target of limiting the temperature rise worldwide to below 2°C, the study calculates that a cumulative 98 Gt of CO2-eq needs to be saved by 2025. This will require additional cumulative PV capacity of 3,300 GW above the current forecast.

This sharp growth in capacity will limit the climate change impacts that are already visible today, such as drought, flooding, extreme weather and reduced crop yields. REC´s calculations clearly demonstrate that an early start is imperative. Because of the cumulative effect of the ramp-up on abated emissions, postponing additional efforts will increase the cumulative capacity required by the end of the period under investigation (see the US case in the next section). If a longer-term view were to be taken for adding required capacity, with a timeframe to 2040, this of course reduces the additional capacity that will be required by 2025.

By 2025, 1.5 times the currently forecast solar capacities will have to be added û 89 GW on top of 188 GW to keep the world on track for a 2040 target. However, the additional capacities then have to rise at a steeper rate to 2040 in order to meet the target of limiting the temperature rise to below 1.5°C.

Limiting emissions is a huge collaborative effort on a global scale, requiring every country to play its part. The study investigated RE commitments in various countries, however, focusing exclusively on the big players - those with the highest emissions in absolute quantities - will inevitably detract from the shared understanding of the COP21 commitment as a truly global, collaborative effort.

Accounting for approximately 6.5 per cent of global CO2-eq emissions, India is a relatively large emitter on a global scale, and ranks fourth after China, the US and the 28-member European Union. This is mitigated if one considers figures on a per capita basis: at 1.8 tonnes per person, India has one of the lowest rates worldwide. Although a developing country with limited historical CO2 emissions, India can still help to close its share of the global CO2 gap through greater use of renewable energy to meet its growing power requirements. At present, however, India´s emissions are rising, not falling: 2014 saw an increase by 7.8 per cent in emissions, mainly due to an increase in coal consumption. These increases will have to be abated if India is to deliver the contribution stated in its INDC at the COP21 Summit in December 2015. According to its INDC, India aims to generate 40 per cent of its power from non-fossil sources by 2030. At present, non-fossil sources, including nuclear, account for just 19 per cent of the country´s power.

The power sector is responsible for approximately 35 per cent of India´s emissions, with coal -as elsewhere in the world - a major contributor, accounting for a 73 per cent share in India´s power generation.

Growth in coal consumption is the main driver of the continued rise in emissions. Despite India´s INDC commitment, it is predicted that coal consumption will increase, not decrease, in the years ahead. In fact, analysts predict coal-powered electricity capacity will increase at 5 per cent per year to 2030 to keep up with growth in electricity demand.

Over a fifth of India´s population still has no access to electricity. Based on this power poverty as well as on the forecast population and economy growth, the country is expected to be the fastest-growing electricity market in the world over the next decade, with predicted growth of 6 per cent per year. Solar and other renewable sources can play a vital role in both delivering power to remote populations and in helping the country close its share of the global emissions gap to be on track by 2015 in limiting the global temperature rise to below 1.5°C.

REC calculations demonstrate that a more aggressive rollout of renewable energy will enable India´s power sector to accomplish this objective. India´s total CO2-eq gap is 9.36 Gt, of which the power sector will need to contribute 3.28 Gt. India´s high radiation levels make solar a highly viable power source and, based on renewable energy targets, REC believes that solar can contribute 40 per cent of the abatement required to reduce the cumulated emissions gap (a total of 1.31 Gt).

This will require cumulative solar installations of 374 GW above the current forecast in India by 2025, which is 2.5 times the current forecast. A 15 per cent CAGR is assumed for the current trend between 2020 and 2025, and 900g/kWh for coal power and a radiation yield of 1,440 kWh/kWp.

The Indian Government has already introduced policies to encourage a shift away from coal power, and in 2010 introduced levies on both home-produced and imported coal (around US$ 3 per metric tonne in 2015-2016 budget).36 While policies such as this certainly acknowledge the impact that coal as a power source has on the country´s overall emissions, India´s fast-growing electricity demand has so far limited the impact of the policy on consumption.

Furthermore, REC calculations demonstrate that although India already targets a significant increase of renewable energy capacity to 175 GW by 2022 (100 GW of which is solar; cumulative installed solar power capacity in India reached 4 GW in July 2015), this will be clearly not enough to make the country´s contribution to fighting climate change. However, the earlier India can ramp-up its renewable energy capacities, the less additional cumulative capacities will be required to be on track by 2025 for closing the emissions gap. And, based on declining costs for solar PV power in India and globally, the greater job creation benefits associated with distributed solar PV, and the cost externalities associated with coal use, solar PV is a better choice for India - from an economic as well as an environmental standpoint.

The F-Word: Funding
REC´s calculations show there is a substantial gap between the COP21 commitment and what is actually targeted by governments under current policies. All the countries investigated need to ramp-up their solar and wind capacity beyond current planning levels if they are to have a chance of delivering on their part of the COP21 promise. None of this extra capacity will appear by itself. It will take increased efforts across all related areas: complementary low carbon energy sources, regulations to incentivise renewable energy, investment security, better storage and smart grids are just some of the factors that will add impetus to this journey. And adequate finance, as always, is key.

Funding is a common reason why commitments all too often end up being watered down or abandoned altogether. Yet examined in detail, the investment in solar looks an extremely good deal. Every year, global annual fossil fuel subsidies total around $500 billion, which is four times the funds that are currently used to subsidize renewable energy. REC has calculated that with a budget amounting to $44 billion per year, solar energy can abate 25 per cent of the emissions gap in the power sector.

If PV system costs continue to decrease as forecast, the levels of global solar capacity that REC has calculated as both possible and necessary can be achieved with total annual investment of up to $157 billion (2025 figure). This is higher than current trend forecasts: BNEF estimates investments of approximately $120 billion in 2025, and IPCC claims that investments of approximately $147 billion per year into low-carbon electricity supply will be needed in order to restrict the temperature rise to below 2°C. However, it still appears a small price to pay for success in limiting the global temperature rise including impacts and losses from climate change.

The funds are there - as shown by the subsidies spent on fossil fuels. The issue is not where to find the funds, it is about where to allocate them. To give solar energy an opportunity to make a real difference, substantial changes in investment patterns will be necessary, and all costs of other fuel sources should be given far greater consideration than is now the case.

Developments in Associated Areas
Even though the focus of this study is modelling the additional solar capacity that will be needed to deliver solar´s contribution to meeting emissions targets, it will clearly not be enough just to bolt on capacity without also addressing related areas. Space is one key issue: how much space can be freed or allocated for solar and wind power- and is that space being used to maximum efficiency? In particular, solar is showing important flexibility in being able to be deployed on ground, rooftops and even water. Power storage and smart grids will do much to make renewable energies more viable. Efforts are already underway to improve storage of generated solar and wind energy: Deutsche Bank analysts, for instance, predict significant improvement over the next five years, and take the view that the expected significant cost reduction could be a major catalyst in accelerating solar adoption worldwide. Coupled with smart grids, which enable greater reliability, efficiency and flexibility in delivering power to consumers, better storage opportunities will raise the appeal of renewable sources.

Yet, as Deutsche Bank analysts point out, this will also require incentive programmes as a way to encourage power companies to introduce the necessary changes to grids. This is a matter for regional and national governments, who can play a key role in getting the essential policies and regulations in place to encourage the transition to renewable energy sources such as solar.

Conclusion & Outlook
In summary, considering the higher electrification rates that are part of global climate policy strategies for the future, REC calculations forecast that solar energy will account for around 20 per cent of the global electricity mix in 2025. This is in line with analysts´ predictions that solar will be the world´s most common energy source by 2050, powering 40 per cent of global electricity needs.

The calculations on required capacities can be seen as a first step in planning a global power transition. This should be the starting point for further elaborations, discussions and implementing country specific mechanisms for incentivising this transition. Unfortunately, in many countries, the discussions leapfrog this important initial point on what climate change requires, moving straight to the details and target-setting (such as a certain percentage of renewables by a certain year), while losing sight of the big picture - which also has to include areas such as finance, better smart grid and storage technology, regulations and investment incentives.

The REC forecast is certainly ambitious. It is, however, not impossible. With the impetus from agreements reached at the COP21 summit in Paris, worldwide efforts to limit the temperature rise to below 2°C (and ideally below 1.5°C) are now being formalised and hardened. The next step is the 22nd Conference of the Parties (COP22) to be held in November 2016. At COP22, governments are targeting an accord on the rule book of the Paris Agreement, hammering out concrete steps for taking the agreement into force. To meet the targets agreed in Paris, there will have to be quick and substantial reductions in greenhouse gas emissions in the coming decades. Climate change experts continuously explain that there is a momentous challenge ahead, requiring huge efforts from all sides - governments, businesses, organisations, investors and every single household. This is the clear consensus. However, REC calculations now provide the specifics - in clear numbers - just how much of a challenge this will be.

- Authors: Agnieszka Schulze, REC; Hannah Lea, for analysis by REC.

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