Renewables surpass coal in global power sector

Renewable energy is set to overtake coal in worldwide electricity generation for the first time in 2026, a milestone in the energy transition.

After pulling even with coal in 2025, renewables will grow by another 8 percent this year, allowing clean power to surpass coal, according to a new report from the International Energy Agency (IEA). Renewables will continue to steadily eat away at the market share of other sources, rising to 37 percent of global electricity generation in 2027, up from 33 percent in 2025.

Solar PV is the new workhorse of electricity generation, adding huge volumes of new capacity each year. In 2026, solar will add 600 TWh of new generation, matching the record expansion in 2025, the IEA said. In 2027, solar generation will expand again by a similar amount.

Overall electricity demand is expected to accelerate this year and next, rising by 3.6 percent in 2026 and by 3.8 percent in 2027. That is up significantly from a 3 percent growth rate in 2025. Rising electricity use is due to industrial demand, more electric vehicles, air conditioning and heat pumps, and the proliferation of data centres.

The crisis in the Strait of Hormuz, which has disrupted roughly 20 percent of global LNG supply for much of the last five months, has driven up the cost of gas. TTF prices have jumped to around $20 per MMBtu, while JKM prices have surpassed $21/MMBtu. Both are almost double the levels seen before the war in Iran.

With gas trading at eye-watering prices, some countries have switched back to coal, at least temporarily. As a result, global greenhouse gas emissions from the electricity sector are expected to rise by 1 percent this year, plateauing in 2027.

But the Hormuz crisis has also resulted in demand destruction and the ongoing expansion of renewable energy.

Taken together, demand for gas will be stagnant in 2026, the third time in the past decade in which gas demand flatlined on an annual basis. The IEA sees an uptick in gas demand in 2027, but that projection is at risk if the Strait of Hormuz remains shut.

Higher LNG prices have translated into higher electricity prices in markets that depend on imported gas for power generation. Spot wholesale prices for electricity in the EU and Japan rose by more than 30 percent year-on-year, the IEA said. By contrast, India saw electricity prices rise by less than 10 percent. LNG does not play a large role in electricity production in India, but where it does, soaring costs for LNG has led to demand destruction.

In India, “gas-fired generation decreased by about 15%, compared to H1 2025, and was more than 40% below H1 2024 levels,” the IEA wrote. “Although around 70% of the natural gas used for power generation in India is domestically produced, high prices and disruptions to LNG flows through the Strait of Hormuz led to supply curtailments by the country’s LNG importers, which particularly affected industry and captive gas-fired power generation.”

The expansion of renewable energy is undoubtedly a good news story, but with solar and wind now at the core of so many electric grids, it does bring some challenges.

Electric grids in some regions — such as in California, South Australia, the EU and China — are swamped with clean power at certain times of the day, resulting in negative prices and the need to curtail output. Prices can jump around significantly between certain hours of the day. The IEA notes that this sets up a big opportunity (and need) for flexibility, including demand response and more battery storage.

Grids dominated by renewables also see lower wholesale prices. In Australia, average wholesale prices declined by 30 percent in the first half of 2026, in part because of the rapid expansion of battery storage, which has shifted clean power to evening hours, thereby reducing the need for gas and coal.

That offers a preview for other markets that continue to ramp up clean power.

In Europe, electricity prices are on the rise, pushed up by the sharp jump in the price of imported gas. European policymakers are now scrambling to accelerate electrification as a way to head off price spikes and improve energy security. The IEA sees some progress on the horizon.

“Renewables generation is expected to increase more than electricity demand growth in the European Union over 2026 and 2027, driving a sustained decline in fossil-fired generation,” the IEA said.