IEA (2023), Energy Technology Perspectives 2023, IEA, Paris https://www.iea.org/reports/energy-technology-perspectives-2023, License: CC BY 4.0
The energy world is in the early phase of a new industrial age – the age of clean energy technology manufacturing. Industries that were in their infancy in the early 2000s, such as solar PV and wind, and the 2010s, such as EVs and batteries, have mushroomed into vast manufacturing operations today. The scale and significance of these and other key clean energy industries are set for further rapid growth. Countries around the world are stepping up efforts to expand clean energy technology manufacturing with the overlapping aims of advancing net zero transitions, strengthening energy security and competing in the new global energy economy. The current global energy crisis is a pivotal moment for clean energy transitions worldwide, driving a wave of investment that is set to flow into a range of industries over the coming years. In this context, developing secure, resilient and sustainable supply chains for clean energy is vital.
Every country needs to identify how it can benefit from the opportunities of the new energy economy, defining its industrial strategy according to its strengths and weaknesses. This 2023 edition of Energy Technology Perspectives (ETP-2023) provides a comprehensive inventory of the current state of global clean energy supply chains, covering the areas of mining; production of materials like lithium, copper, nickel, steel, cement, aluminium and plastics; and the manufacturing and installation of key technologies. The report maps out how these sectors may evolve in the coming decades as countries pursue their energy, climate and industrial goals. And it assesses the opportunities and the needs for building up secure, resilient and sustainable supply chains for clean energy technologies – and examines the implications for policy makers.
Clean energy transitions offer major opportunities for growth and employment in new and expanding industries. There is a global market opportunity for key mass-manufactured clean energy technologies worth around USD 650 billion a year by 2030 – more than three times today’s level – if countries worldwide fully implement their announced energy and climate pledges. Related clean energy manufacturing jobs would more than double from 6 million today to nearly 14 million by 2030, with over half of these jobs tied to electric vehicles, solar PV, wind and heat pumps. As clean energy transitions advance beyond 2030, this would lead to further rapid industrial and employment growth.
But there are potentially risky levels of concentration in clean energy supply chains – both for the manufacturing of technologies and the materials on which they rely. China currently dominates the manufacturing and trade of most clean energy technologies. China’s investment in clean energy supply chains has been instrumental in bringing down costs worldwide for key technologies, with multiple benefits for clean energy transitions. At the same time, the level of geographical concentration in global supply chains also creates potential challenges that governments need to address. For mass-manufactured technologies like wind, batteries, electrolysers, solar panels and heat pumps, the three largest producer countries account for at least 70% of manufacturing capacity for each technology – with China dominant in all of them. The geographical distribution of critical mineral extraction is closely linked to resource endowments, and much of it is very concentrated. For example, Democratic Republic of Congo alone produces 70% of the world’s cobalt, and just three countries account for more than 90% of global lithium production. Concentration at any point along a supply chain makes the entire supply chain vulnerable to incidents, be they related to an individual country’s policy choices, natural disasters, technical failures or company decisions.
The world is already seeing the risks of tight supply chains, which have pushed up clean energy technology prices in recent years, making countries’ clean energy transitions more difficult and costly. Increasing prices for cobalt, lithium and nickel led to the first ever rise in battery prices, which jumped by nearly 10% globally in 2022. The cost of wind turbines outside China has also been rising after years of decline, with the prices of inputs such as steel and copper about doubling between the first half of 2020 and the same period in 2022. Similar trends can be seen in solar PV supply chains.
Countries are trying to increase the resilience and diversity of clean energy supply chains while also competing for the huge economic opportunities. Major economies are acting to combine their climate, energy security and industrial policies. The Inflation Reduction Act in the United States is a clear articulation of this, but there is also the Fit for 55 package and REPowerEU plan in the European Union, Japan’s Green Transformation programme, the Production Linked Incentive scheme in India that encourages manufacturing of solar PV and batteries, and China is working to meet and even exceed the goals of its latest Five-Year-Plan.
There are big dividends for countries that get their clean energy industrial strategies right. Project developers and investors are watching closely for the policies that can give them a competitive edge in different markets, and will respond to supportive policies. Only 25% of the announced manufacturing projects globally for solar PV are under construction or beginning construction imminently – the number is around 35% for EV batteries and less than 10% for electrolysers. The share is highest in China, where 25% of total solar PV and 45% of battery manufacturing is already at such an advanced stage of implementation. In the United States and Europe, less than 20% of announced battery and electrolyser factories are under construction. The relatively short lead times of around 1-3 years on average to bring manufacturing facilities online mean that the project pipeline can expand rapidly in countries with an environment that is conducive to investment. Manufacturing projects announced, but not firmly committed, in one country today could end up actually being developed elsewhere in response to shifts in policies and market developments.
Greater efforts are needed to diversify and strengthen clean energy supply chains. China accounts for most of the current announced manufacturing capacity expansion plans to 2030 for solar PV components (around 85% for cells and modules, and 90% for wafers); for onshore wind components (around 85% for blades, and around 90% for nacelles and towers); and for EV battery components (98% for anode and 93% for cathode material). Hydrogen electrolysers are the main exception, with around one-quarter of manufacturing capacity announcements for 2030 being in China and the European Union, respectively, and another 10% in the United States.
Announced projects throughput and deployment levels for key clean energy technologies in the Announced Pledges and Net Zero ScenariosOpen
International trade is vital for rapid and affordable clean energy transitions, but countries need to increase diversity of suppliers. For solar PV, many components are traded today, in particular wafers and modules. The share of international trade in global demand is nearly 60% for solar PV modules, with around half of the solar modules manufactured in China being exported – predominantly to Europe and the Asia Pacific region. The situation is similar for EVs, for which most of the trade in components flows from Asia into Europe, which imports around 25% of its EV batteries from China. Wind turbine components are heavy and bulky, but the international trade of towers, blades and nacelles is quite common. China is a major player in wind turbine component manufacturing, accounting for 60% of global capacity and half of total exports, most of which go to other Asian countries and Europe. In the United States, one of the largest wind power markets, the domestic content of blades and hubs is lower than 25%. For heat pumps, the share of international trade in global manufacturing is below 10%, with most of it from China to Europe.
The announced manufacturing pipeline to 2030 is very large for many clean energy technologies. If all announced projects to expand manufacturing capacities were to materialise and all countries implement their announced climate pledges, China alone would be able to supply the entire global market for solar PV modules in 2030, one-third of the global market for electrolysers, and 90% of the world’s EV batteries. Announced projects in the European Union would be sufficient to supply all of the bloc’s domestic needs for electrolysers and EV batteries, but would continue to be highly dependent on imports for solar PV and wind, an area where it currently has a technological edge. The situation is somewhat similar in the United States, although further capacity additions are highly likely as a result of the Inflation Reduction Act. The current global pipeline of announced projects would exceed demand for some technologies (solar PV, batteries and electrolysers) and fall significantly short for others (wind components, heat pumps and fuel cells). This highlights the importance of clear and credible deployment targets from governments to limit demand uncertainty and guide investment decisions.
The mining of critical minerals is the only step in clean energy technology supply chains that depends on resource endowment alone. The long lead times for new mines, which can be well over ten years from the start of project development to first production, increase the risk that critical minerals supply becomes a major bottleneck in clean technology manufacturing. Moreover, the high geographical concentration of today’s production creates security of supply risks, making international collaboration and strategic partnerships crucial. Clear policy signals about future deployment are particularly important to de-risk investments in this sector, as companies developing new mining capacity need to be confident that clean energy technologies further down the supply chain will be successfully scaled up in time.
The majority of announced projects for the processing and refining of key critical minerals are set to be located in China. These midstream processes tend to be energy-intensive. China accounts for 80% of the announced additional production capacity to 2030 for copper and dominates announced refining capacity of key metals used in batteries (95% for cobalt, and around 60% for lithium and nickel). Currently planned expansions of mineral processing capacity worldwide fall well short of the volumes that will be needed for rapid deployment of clean energy technologies. Polysilicon for solar PV supply chains is the only area in which a surplus of capacity by 2030 can currently be expected.
Mitigating risks in critical mineral supplies requires a new, more diversified network of diverse international producer-consumer relationships. These will be based not only on mineral resources, but also on the environmental, social and governance standards for their production and processing. These new partnerships need to be balanced in ways that offer resource-rich producers, especially in developing economies, the opportunity to move beyond primary production. Stockpiling options can also provide safeguards against disruption, but a comprehensive suite of policies in support of minerals security needs to include attention on the demand side, notably via recycling programmes and support for technology innovation.
Time available for final investment decision in clean energy technology supply chain capacity by technology category in the Net Zero Scenario, 2023-2030Open
For most countries, it is not realistic to compete effectively across all parts of the relevant clean energy technology supply chains. They need not to do so. Competitive specialisms often arise from inherent geographic advantages, such as access to low-cost renewable energy or the presence of a mineral resource, which can lead to lower production costs for energy and material commodities. But they can also arise from other attributes, like a large domestic market, a high-skilled workforce or synergies and spillovers stemming from existing industries. Holistically assessing and nurturing these competitive advantages should form a central pillar of governments’ industrial strategies, designed in accordance with international rules and complemented by strategic partnerships.
Energy costs will continue to be a major differentiator in the competitiveness of countries’ energy-intensive industry sectors. Industrial competitiveness today is closely linked to energy costs, especially natural gas and electricity, which vary greatly between regions. This remains the case in the clean energy transition. For example, production costs of hydrogen from renewable electricity could be much lower in China and the United States (USD 3-4/kg) than in Japan and Western Europe (USD 5-7/kg) using the best resources in those countries today, translating into similar differences in production costs for derivative commodities, such as ammonia and steel. As countries make progress towards their climate pledges, with renewable electricity costs continuing their decline and electrolyser costs falling rapidly, the cost difference between regions is likely to shrink somewhat, but competitiveness gaps will remain. Carefully considering where in the supply chain to specialise domestically, and where it might be better to establish strategic partnerships or make direct investments in third countries, should form key considerations of countries’ industrial strategies.
New infrastructure will form the backbone of the new energy economy in all countries. This covers areas such as the transportation, transmission, distribution or storage of electricity, hydrogen and CO2. Building clean energy infrastructure can take 10 years or more, typically involving large civil engineering projects that have to adhere to extensive local planning and environmental regulations. While construction is in most cases a relatively efficient process, taking 2-4 years on average, planning and permitting can cause delays and create bottlenecks, with the process taking 2-7 years, depending on the jurisdiction and type of infrastructure. Lead times for infrastructure projects are usually much longer than for the power plants and industrial facilities that connect to them.
Indicative production costs for crude steel via electrolytic hydrogen-based DRI in selected regions compared to current referencesOpen
Industrial strategies for clean energy technology manufacturing require an all-of-government approach, closely coordinating climate and energy security imperatives with economic opportunities. This will mean identifying and fostering domestic competitive advantages; carrying out comprehensive risk assessments of supply chains; reducing permitting times, including for large infrastructure projects; mobilising investment and financing for key supply chain elements; developing workforce skills in anticipation of future needs; and accelerating innovation in early-stage technologies. Every country has a different starting point and different strengths, so every country will need to develop its own specific strategy. And no country can go it alone. Even as countries build their domestic capabilities and strengthen their places in the new global energy economy, there remain huge gains to be had from international co-operation as part of efforts to build a resilient foundation for the industries of tomorrow.