Challenges in Developing Regional Clean Energy Supply Chains until 2030
Posted 18/12/2023 13:45
Efforts by Western countries to establish regional clean energy supply chains as a countermeasure to China's dominance in this sector might prove to be too little and too late, according to research by Rystad Energy. The study indicates that such an expansion would incur costs of up to $700 billion and would not yield significant results until at least the next decade.
To address concerns over dependence on China in global clean energy supply chains, Western nations are striving to enhance their manufacturing capabilities for solar, wind, and battery technologies. However, Rystad Energy's research suggests that the substantial investment required for building domestic supply chains in material mining, processing, refining, and manufacturing would reach nearly $700 billion.
The increased focus on energy security in Western countries, particularly since Russia's invasion of Ukraine in 2022, has prompted governments to take more significant responsibility for renewable and clean-tech supply chains. China currently dominates the manufacturing of solar and battery cells, leading to apprehensions about reliability. In response, the EU and the US have initiated ambitious plans to reduce this dependence. Despite these efforts, Rystad Energy emphasizes that the impact of such endeavors will not be tangible until the 2030s.
China has also expanded its sourcing strategy by investing in rare earth mineral mining projects in Africa, including lithium extraction in countries like Namibia. While this will enhance global supply, a handful of nations control most of the mineral deposits crucial for the renewable energy supply chain. Breaking China's stronghold on these supply chains requires not only expanding mining capacity but also reshaping the trade routes of these materials.
China's annual investment in building manufacturing and processing capacity has surged from $10 billion in 2016 to $140 billion in 2023, resulting in substantial growth in its solar PV and battery cell capacities. In comparison, the combined annual investment by all other nations has grown only modestly, from $7 billion in 2016 to $20 billion in 2023.
Various programs and policies in the EU and the US aim to level the playing field, including the US Inflation Reduction Act, which has spurred initiatives and grants to encourage the establishment of battery cell, solar module, and wind component manufacturing. However, the total pipeline of projects outside China remains less than a quarter of the investments required to fully disentangle from China's dominance. Achieving self-sufficiency is estimated to necessitate $700 billion in mining and manufacturing investments.
Beyond monetary investments, China possesses a significant know-how and intellectual property advantage, as its companies own numerous patents and lead in developing new technologies. This intellectual property advantage is expected to further delay the EU and US catching up, pushing their timeline for achieving self-sufficiency into the 2030s. The study also emphasizes the need for large-scale mineral recycling, including decommissioned equipment, with the EU targeting 25% of its mineral demand from recycling.