As more countries shift to renewable energy procurement through competitive auctions and move away from reliance on subsidies, renewables will continue to transition from being a "marginal supplement to a central focus" of national energy policies, according to new research.
In a note to clients, ahead of the Climate Week in New York City, ratings agency Moody's said along with declining capital costs, wind and solar power have benefitted from higher efficiencies, making both technologies more competitive with fossil fuels in many parts of the world.
Wind and solar are expected to surge globally over the next few years as many countries move away from subsidies to incentivise new renewables.
The agency also said falling costs of renewable energy reduces risks for top carbon-emitting nations as they move toward compliance with the Paris Agreement.
Swami Venkataraman, senior vice president at Moody's, said: "Emerging markets are a key market for growth in renewables, with countries such as China and India leading the charge as new renewables become competitive with other sources of power even in developing nations."
Moody's views a lower reliance on subsidies as positive for renewable energy generators, as over time it alleviates the cost on end-users and relieves the political pressure on governments to address affordability concerns.
Additionally, auctions enable governments to respond more quickly to market developments, help push down costs for end consumers and provide a clear signpost for the future project pipeline.
The number of countries procuring renewables capacity by competitive auctions has been increasing, Moody's said, as governments seek to limit the burden on consumers and respond more rapidly to evolving industry dynamics.
Some recent auctions have produced record low pricing, although the results should be interpreted with caution since the terms and conditions of the contracts awarded, as well as their operating risks, vary across markets, the agency added.