International. As governments increasingly seek to take advantage of energy security and the climate benefits of renewables, this sector has been growing at record levels since 2021, and is estimated to grow further in 2022, according to the International Energy Agency.
The world added a record 295 gigawatts of new renewable energy capacity in 2021, overcoming supply chain challenges, construction delays and high raw material prices, according to the IEA's latest renewable energy market update. Global capacity additions are expected to rise this year to 320 gigawatts, equivalent to an amount that would come close to meeting germany's entire electricity demand or matching the European Union's total electricity generation from natural gas. Solar PV is on track to account for 60% of global renewable energy growth by 2022, followed by wind and hydropower.
In the European Union, annual additions rose nearly 30% to 36 gigawatts in 2021, finally surpassing the block's previous record of 35 gigawatts set a decade ago. The additional renewable energy capacity ordered for 2022 and 2023 has the potential to significantly reduce the European Union's dependence on Russian gas in the electricity sector. However, the real contribution will depend on the success of parallel energy efficiency measures to keep the region's energy demand under control.
"The evolution of the energy market in recent months, especially in Europe, has once again demonstrated the essential role of renewables in improving energy security, in addition to their well-established effectiveness in reducing emissions," said IEA Executive Director Fatih Birol. "Reducing red tape, speeding up permitting and providing the right incentives for faster deployment of renewables are some of the most important actions governments can take to address current market and energy security challenges, while keeping alive the possibility of achieving our international climate goals."
Renewables growth so far this year is much faster than initially expected, driven by strong political support in China, the European Union and Latin America, which more than offset the slower-than-expected growth in the United States. The U.S. outlook is clouded by uncertainty over new incentives for wind and solar power and by trade actions against solar PV imports from China and Southeast Asia.
However, under the current policy setup, global renewable energy growth will lose momentum next year. In the absence of stronger policies, the amount of aggregate renewable energy capacity worldwide is expected to stabilize in 2023, as the continued progress of solar is offset by a 40% decline in hydropower expansion and little change in wind additions.
While energy markets face a wide range of uncertainties, governments' increased focus on energy security and affordability, particularly in Europe, is generating new momentum behind efforts to accelerate the deployment of energy efficiency solutions and renewable energy technologies. Therefore, the renewable energy outlook for 2023 and beyond will largely depend on whether new and stronger policies are introduced and implemented in the next six months.
The current growth in renewable energy capacity would be even faster without the current supply chain and logistical challenges. The cost of installing solar PV and wind plants is expected to remain above pre-pandemic levels during 2022 and 2023 due to high commodity and freight prices, reversing a decade of declining costs. However, they remain competitive because the prices of natural gas and other fossil fuel alternatives have risen much faster.
Global solar PV capacity additions are on track to break new records both this year and next, with an annual market reaching 200 GW by 2023. The growth of solar energy in China and India is accelerating, driven by strong political support for large-scale projects. which can be completed at lower costs than fossil fuel alternatives. In the European Union, solar installations on the roofs of homes and businesses are expected to help consumers save money as electricity bills rise.
Political uncertainties, as well as long and complex permitting regulations, are preventing much faster growth for the wind industry. Having fallen 32% in 2021 after exceptionally high installations in 2020, new onshore wind capacity additions are expected to recover slightly this year and next.
New additions of offshore wind capacity are expected to fall 40% globally in 2022 after being boosted last year by a big jump in China as developers rushed to meet the subsidy deadline. But global additions are still on track to be 80% higher this year than in 2020. Even with its slowest expansion this year, China will overtake Europe by the end of 2022 to become the market with the highest total offshore wind capacity in the world. .
Demand for biofuels recovered in 2021 from its pandemic lows to reach more than 155 billion liters, close to 2019 levels. Demand is expected to continue to rise: 5% in 2022 and 3% in 2023. However, the impacts of the Russian invasion of Ukraine have contributed to a 20% downward revision of our previous forecast for biofuel growth in 2022. With biofuels blended with petrol and diesel, much of the downward revision is due to slowing transport demand, which has been depressed by a combination of factors including rising inflationary pressures, weaker global economic growth, and Covid-related mobility restrictions in China.
