The future appears to be bright for renewable energy sources like solar, wind, and water.

In fact, power generation from such renewables will exceed that of gas and nuclear by 2016, according to a report published Wednesday by the International Energy Agency (IEA).

"As their costs continue to fall, renewable power sources are increasingly standing on their own merits versus new fossil-fuel generation," IEA executive director Maria van der Hoeven said in a statement.

The report's publication comes on the heels of a speech Tuesday by U.S. President Barack Obama in which he unveiled a plan to combat climate change by limiting greenhouse gas emissions from fossil-fueled power plants and increasing federal reliance on renewable energy sources. (See related quiz: "What You Don't Know About Solar Power.")

"I'm setting a new goal," Obama said. "Your federal government will consume 20 percent of its electricity from renewable sources within the next seven years."

Business Is Booming

The IEA report, unveiled by Van der Hoeven as she delivered the keynote address at a Wall Street renewable energy finance forum in New York, analyzes market trends for renewable electricity in more than 20 countries and regions and predicted that renewable power will increase by 40 percent in the next five years.

The report predicts that renewables will make up almost a quarter of the global power mix by 2018, up from an estimated 20 percent in 2011.

Two main factors are driving the boom, according to the Paris-based IEA.

First, emerging markets in countries like China and India are increasingly turning to renewables to meet their fast-rising electricity demands. (See related: "Pictures: A Rare Look Inside China's Energy Machine.") Growth in these markets is expected to more than compensate for slower growth in Europe and the U.S.

Second, the cost of renewable energy sources has declined considerably. For example, wind competes well with new fossil-fuel power plants in a number of countries, including Brazil, Turkey, and New Zealand.

Hydropower—generated by falling or flowing water, like in dams—will remain the largest renewable power-generating source in the coming years and should account for more than two-thirds of the total global output from renewable sources by 2018, the IEA predicts.

The IEA also expects onshore wind power generation technologies, already widespread in 2012, to be deployed in 75 countries by 2018.

The use of biofuels, which generates energy from biological sources like municipal waste, is also expected to see modest growth in the near term. The IEA projects that more than 50 countries will be generating more than 100 megawatts of electricity using biofuels by 2018, up from 40 megawatts in 2012.

China is projected to be the leader in the adoption of many renewable energy technologies, including hydropower, onshore and offshore wind, solar, and biofuels.

Not So Sunny for Solar

The IEA is less optimistic in its outlook for solar energy production. According to the report, solar energy is expected to experience average annual growth rate of around 25 percent over the next five years—down from 45 percent annual growth for the period between 1998 and 2012.

"If we look at solar energy projections, we realize that these projections are not really promising," said Mohamed ElNozahy, an electrical and computer engineer at Canada's University of Waterloo.

"This is mainly attributed to the cost and technical challenges highlighted in my last review paper," said ElNozahy, who was not involved in the IEA report.

A recent paper co-authored by ElNozahy and published in the Journal of Renewable and Sustainable Energy highlighted numerous challenges for energy generated by solar cells before they can be smoothly integrated with existing electrical networks.

For example, power generation by solar cells—also known as photovoltaic (PV) cells—can vary dramatically in response to changing cloud cover or temperature. This causes dips in electrical output that can require costly equipment to regulate.

A Conservative Estimate?

Daniel Kammen, founder and director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley, argued that the IEA's projections are somewhat conservative.

Kammen thinks the global shift to renewables and the adoption of policies and technologies to accelerate their deployment could occur faster than the IEA predicts due to growing awareness about health impacts of local pollution and the economic and environmental costs of climate change.

President Obama alluded to the impact of human health of global warming in his Tuesday speech.

"The IEA report notes but perhaps could give more weight to the very significant health and environmental costs that will result if this shift does not take place," Kammen said in an e-mail message.

Despite the momentum behind renewables, challenges remain, IEA's Van der Hoeven said.