The Challenge: Rising Investments with Declining Efficiency in Renewable Energy

The global renewable energy sector is undergoing rapid transformation, driven by unprecedented levels of investment and technological advancements. Wind and solar power are expanding at a record pace, with global installed wind capacity increasing by over 500% from 2014 to 2022, as shown in the data from the International Renewable Energy Agency (IRENA). Yet, despite this massive growth, a troubling trend has emerged: declining capacity factors, indicating that the efficiency of renewable energy assets is not keeping pace with their deployment.

Global and Regional Trends in Capacity and Production

From 2014 to 2022, global wind energy capacity rose from 179,639 MW to 1,070,851 MW, while annual wind energy production increased from 712,130 GWh to 2,098,332 GWh. However, capacity factors — the ratio of actual energy produced to the maximum possible output — tell a more concerning story. During this same period, the capacity factor of global wind power dropped from 45.29% in 2014 to 22.38% in 2022.

This decline is not limited to wind energy. Solar photovoltaics (PV) have seen modest gains in capacity factors due to improvements in module efficiencies, yet they still hover between 16% and 20% globally, far below their theoretical maximum. Meanwhile, wind power, in particular, is facing challenges that are dragging down the efficiency of even the most advanced systems.

Regional Analysis of Capacity Factor Declines

While global capacity factors have declined, regional disparities offer more insight into the underlying causes.

Europe:
- Europe, home to the largest concentration of offshore wind farms, saw significant capacity growth between 2014 and 2022. However, the region’s capacity factors have been declining due to ageing infrastructure, saturation in prime locations, and increased curtailment (the need to reduce output when supply exceeds grid capacity). Many European countries are reaching the limit of the most optimal wind and solar farm locations, forcing projects into less favourable environments.
North America:
- The United States and Canada experienced similar capacity growth, but the intermittency of renewable resources and grid integration challenges have limited these assets' efficiency. Capacity factors have been impacted by a lack of grid flexibility and a reliance on traditional grid infrastructure that cannot easily accommodate the variability of renewable energy production.
Asia-Pacific:
- In China and India, two of the world’s largest renewable energy markets, capacity factors are also under pressure. Rapid deployment of wind and solar farms in regions with suboptimal wind conditions, coupled with grid congestion, has led to inefficiencies. China’s aggressive energy targets have led to capacity outpacing transmission infrastructure, causing bottlenecks and curtailment.
Africa and Latin America:
- While capacity growth in these regions has been slower than in Europe, North America, and Asia, emerging markets are seeing early signs of capacity decline due to the high cost of maintenance and technical expertise shortages. Projects in remote areas are particularly vulnerable to low capacity utilisation due to their distance from consumption centres and inadequate grid connections.

Understanding the Decline in Capacity Factors

The declining capacity factors in wind and solar energy can be attributed to several key factors:

1. Suboptimal Siting:

As the most productive locations for wind and solar projects are developed, new projects are increasingly being built in areas with lower resource availability. This results in diminishing returns in terms of energy production, as wind speeds and solar irradiance are less favourable in these regions.

2. Curtailment and Grid Congestion:

As renewable capacity grows, particularly in regions with limited grid flexibility, energy producers are increasingly forced to curtail production to prevent overloading the grid. Curtailment occurs when energy that could be produced is not fed into the grid due to a lack of demand or grid congestion. This is a major contributor to the drop in capacity factors globally.

3. Maintenance and Ageing Infrastructure:

As wind farms age, turbine performance naturally declines, leading to reduced output and lower capacity factors. This is particularly evident in regions where the first generation of wind farms is now reaching the end of its life cycle.

4. Intermittency of Renewable Resources:

Wind and solar energy are inherently intermittent, meaning they depend on weather conditions that fluctuate. Without advanced forecasting or energy storage systems in place, it is difficult to ensure that the full potential of these assets is being harnessed. This leads to suboptimal utilisation of installed capacity, further decreasing capacity factors.

5. Grid Integration Challenges:

Many regions are struggling with integrating variable renewable energy into traditional grid systems. Existing grids are often designed around the stable output of fossil fuel-based plants and lack the flexibility to handle fluctuations in renewable generation. As a result, the mismatch between supply and demand is causing inefficiencies across the board.

The Impact of Load Factors

While capacity factors measure the efficiency of energy generation, load factors—the ratio of average demand met by an energy asset compared to its peak capacity—also reveal inefficiencies. The renewable energy sector is plagued by periods where production does not match demand, resulting in wasted potential. Load factors are critical in regions with a mismatch between renewable energy production and peak demand. For example:

• Wind energy often produces more power at night when low demand leads to underutilisation.
• Solar energy, conversely, peaks during the day, but without adequate storage, excess production is wasted when supply drops after sunset.

Addressing the Challenge with AI

Despite these challenges, technology offers a significant opportunity to reverse these trends and optimise the efficiency of renewable energy assets.

At Eshmun AI, we are developing AI-driven solutions to tackle these inefficiencies head-on:

AI Production Engineer Agents: Optimising wind and solar farm operations in real-time by continuously adjusting output based on telemetry data, predicted demand, and weather conditions, ensuring maximum capacity utilisation.
AI Energy Demand Forecasting Agents: Predicting energy demand with precision enables producers to align their output with grid demand, reducing curtailment and improving capacity and load factors.
AI Storage Management Systems: Efficiently managing energy storage solutions, including distributed storage like EV batteries, to store excess energy during periods of high production and deploy it during peak demand.
Autonomous Drone Technology: Maintaining and inspecting renewable energy infrastructure ensures sustained performance and minimised downtime.

Learn more about our solutions.

Conclusion

The renewable energy sector is facing a pivotal moment. While investment and capacity continue to rise, inefficiencies in production, grid integration, and storage threaten to slow down the global energy transition. By leveraging advanced AI technologies, Eshmun AI is ready to address these challenges, helping maximise the efficiency of renewable assets and ensuring a future where clean, affordable energy is accessible to all.