The impact of the coronavirus pandemic will cause a temporary dip in the pace of global renewables installations in 2020, slowing down the green energy expansion for the first time in two decades, according to the International Energy Agency. But growth in the U.S. and China is expected to be largely undeterred as investors rush to complete projects before tax credit and subsidy phase-outs.

The agency, or IEA, predicts that the world will add 167 GW of renewable power capacity in 2020, 13% less than in the previous year, it said in its latest market update on May 20. Although installation levels will likely rebound to 2019 levels next year, the IEA now expects growth for 2020 and 2021 combined to be 10% lower than it had previously forecast before the outbreak of the virus disrupted supply chains and hampered construction schedules and financing activity.

"Countries are continuing to build new wind turbines and solar plants, but at a much slower pace. Even before the COVID-19 pandemic struck, the world needed to significantly accelerate the deployment of renewables to have a chance of meeting its energy and climate goals," IEA Executive Director Fatih Birol said in a statement.

Global renewables capacity will grow by 6% in 2020 under the agency's updated forecast, with net additions revised down by 20% compared to its previous outlook from October 2019, which had predicted a record year for renewables.

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The majority of projects that are being delayed this year will come online in 2021, the IEA said. But although renewables are set to fare much better than commodities like coal, oil and gas, which are suffering from a steep drop in energy demand, Birol said the unprecedented nature of the crisis means wind and solar power will not escape unscathed despite continuing cost declines.

"It will not be enough to shelter renewables from the impact of the coronavirus," Birol said on a webinar presenting the report. "Therefore the role of governments is more important than ever."

Growth in US, China

Although most renewables markets are affected by the crisis, the U.S. and China will both see solid growth in capacity additions as a result of a commissioning rush ahead of incentive deadlines, the agency said.

In the U.S., the IEA actually revised its forecast upwards for 2020 and 2021, underpinned by a larger pipeline of both utility-scale solar and onshore wind projects announced in late 2019. The Trump administration extended the federal wind energy production tax credit in December 2019 and, more recently, the U.S. Treasury Department signaled that it may extend the construction clauses for all renewable projects that receive tax credits and are supposed to come online in 2020.

"These two policy developments make the U.S. a little bit of a bright spot," Heymi Bahar, a senior analyst at the IEA, said on the webinar.

Globally, the rooftop solar sector is expected to see a significant downturn across major markets including the U.S., since residential projects have shorter financing periods and will suffer more under a general recession, he said.

In China, overall solar photovoltaic, or PV, installations are still expected to grow by 20% in 2020 and remain stable the following year, a slight downward revision due to an expected drop in commercial installations as investors delay or cancel some investments. Utility-scale PV projects without subsidies, which end in 2020, could also be postponed or cancelled, while growth in wind could slightly decline this year as developers push projects back to 2021, the IEA said.

European slump

By contrast, strict lockdown measures in Europe will hamper both utility-scale and rooftop projects in many countries and cause annual additions to fall by a third in 2020, according to the report. This would mark the largest annual decline since 1996.

Bahar said the more pronounced drop is partly due to the higher prevalence of rooftop solar in Europe as well as the increasing share of utility-scale projects underpinned by power purchase agreements or wholesale power prices, which are expected to suffer more from the worsening market environment than subsidized developments.

In Europe, the coronavirus pandemic also adds to "existing policy uncertainty in some countries, such as Germany and France," Birol said. Planning hurdles and local opposition in both countries have hampered renewables development in recent years.

While wind and solar additions could largely recover in 2021, Birol emphasized that about 70% of projects beyond that date are subject to market and policy uncertainty, according to the IEA's calculations. This means there is still significant uncertainty around long-term growth if governments fail to capitalize on stimulus programs, he said.