Renewables to create quarter of world's electricity by 2018-IEA
* China leads way in building renewable capacity
* Government policies critical in driving growth
By Edward McAllister
NEW YORK, June 26 (Reuters) - Global electricity generation from renewable energy sources will rise 40 percent in the next five years, outpacing natural gas, as China and other developing countries expand capacity, according to a report from the International Energy Agency on Wednesday.
As the cost of generating power from wind, solar, hydro and other sources falls, renewables will account for nearly 25 percent of global electricity production by 2018, up from about 20 percent in 2011, according to the IEA's latest medium-term renewable energy market report.
Renewables will overtake natural gas and be double that of nuclear by 2016, said the IEA, which acts as energy policy adviser to 28 member countries, including the United States, Japan, Canada and leading European nations.
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"Renewable power sources are increasingly standing on their own merits versus new fossil-fuel generation," IEA Executive Director Maria van der Hoeven said at the Renewable Energy Finance Forum in New York.
Developing countries outside the Organization for Economic Cooperation and Development (OECD) are expected to account for two-thirds of the global increase, the IEA said, with Africa and Asia showing some of the strongest gains.
China, with government backing and access to cheap capital, is streaks ahead of other countries, expected to beef up its renewable capabilities by 750 terawatt hours (TWh) between 2012 and 2018. The United States (150 TWh), Brazil (130), India (95) and Germany (70) are also expected to show large increases.
In terms of percentage growth, however, smaller economies are seen making the largest strides, with Morocco (25 percent) and South Africa (20 percent) leading the list.
Much will depend on government policies and regulations to encourage renewable growth. Uncertainty about renewable policies may hamper investment and growth in the sector, the IEA said.
"Policy uncertainty is public enemy number one," van der Hoeven said, citing policies surrounding tax credits in the United States and incentives for wind power in India.
Global investment in renewables fell 12 percent in 2012, according to the report, driven by a drop in European spending as the economic crisis lingers.
In the United States, "boom and bust" cycles are hampering development of renewable sources, especially wind, said Paolo Frankl, head of the IEA's renewable energy division.
U.S. President Barack Obama launched a new climate change initiative on Tuesday that would involve cutting carbon emissions from coal-fired power plants and supporting renewable energy sources. (Reporting by Edward McAllister; Editing by Leslie Gevirtz)