Renewable power generation worldwide will surpass both gas and nuclear by 2016 according to the International Energy Agency.

In a report released today, the IEA estimates that renewable power will increase by 40 per cent in the next five years and will account for almost a quarter of the global power mix by 2018.

Presenting the IEA’s Medium-Term Renewable Energy Market Report in New York today, executive director Maria van der Hoeven said: “As their costs continue to fall, renewable power sources are increasingly standing on their own merits versus new fossil-fuel generation.”

She said that this was “good news for a global energy system that needs to become cleaner and more diversified”, but she warned that “it should not be an excuse for government complacency, especially among OECD countries”.

And she also cautioned that renewable development is becoming more complex and faces challenges in terms of governmental policy, especially in several European countries where stagnating economies and energy demand have resulted in debate about the costs of renewable support policies.

“Policy uncertainty is public enemy number one” for investors, she said.

“Many renewables no longer require high economic incentives. But they do still need long-term policies that provide a predictable and reliable market and regulatory framework compatible with societal goals,” she added. “And worldwide subsidies for fossil fuels remain six times higher than economic incentives for renewables.”

The IEA states that two factors are driving the positive outlook for renewables. Firstly, investment and deployment are accelerating in emerging markets, where renewables help to address fast-rising electricity demand, energy diversification needs and local pollution concerns while contributing to climate change mitigation.

The IEA expects non-OECD countries – led by China – to account for two-thirds of the global increase in renewable power generation between now and 2018. “Such rapid deployment is expected to more than compensate for slower growth and smooth out volatility in other areas, notably Europe and the US,” the report states.

Secondly, says the IEA, in addition to the well-established competitiveness of hydropower, geothermal and bioenergy, renewables are becoming cost-competitive in a wider set of circumstances. “For example, wind competes well with new fossil-fuel power plants in several markets, including Brazil, Turkey and New Zealand. Solar is attractive in markets with high peak prices for electricity, for instance, those resulting from oil-fired generation. Decentralised solar photovoltaic generation costs can be lower than retail electricity prices in a number of countries.”