Supply chain security remains a challenge: Clean energy technology manufacturing is highly geographically concentrated, with China as the main supplier in most supply chain stages. China accounts for around 85% of solar and 80% of lithium-ion battery supply chain production capacity, and even higher shares for PV wafers (95%) and anode materials (97%). Cybersecurity considerations further enhance the importance of addressing security of supply.

An “N-1” assessment, which models the impact of losing the largest exporter in each supply chain, shows that for the final downstream stages of most of the four technologies examined – solar PV, wind, batteries and heat pumps – capacity outside China could, in theory, have met most non-Chinese demand in 2024. Yet each of these supply chains contains several steps where production outside the largest exporter is not sufficient to meet demand, and at least one step where it covers less than one-quarter. A supply chain is only as secure as its weakest link.

No major change in the security of global clean energy technology supply chains is likely before the end of the current decade, based on committed manufacturing and mining projects and projected market trends based on today’s stated policy settings.

The impact of Chinese clean energy technology manufacturing companies extends beyond the country’s borders. Chinese firms account for a large portion of the production capacity located outside China in the solar PV industry. Such high market concentration can create risks, particularly in the event of major firms facing financial difficulties, labour disputes or being targeted by sanctions. For most technologies, the largest company holds between 5% and 20% of global production capacity.

Applying the “N-1” analysis to the facility level for each of supply chains reviewed above reveals that, in each segment, the largest facility had the capacity to supply between 2% and 17% of global demand in 2024. Solar PV wafer manufacturing sits towards the top of this range, with one facility in the Inner Mongolia province, China, capable of producing the equivalent of the entire solar PV demand of the European Union and India combined. Fires at Chinese polysilicon plants in 2020 and 2022 caused major global price spikes and supply bottlenecks.

Concentration is also high in metal and mineral refining. China processes over 70% of lithium, cobalt, graphite and rare earths. Similarly, in mining, two-thirds of cobalt comes from the Democratic Republic of the Congo, and 85% of natural graphite from China. This heightens exposure to risks of disruption.

Around half of global clean energy technology trade passes through the Strait of Malacca, the sector’s most critical shipping chokepoint. Blockages at Malacca, Suez, or other major routes could increase transit times, fuel use and freight costs, underscoring the importance of diversified transport networks for supply security.

Industrial competitiveness is shaped by a wide set of structural drivers, including the price of labour, energy, capital and raw materials, but also productivity, manufacturing efficiency, infrastructure quality, digitalisation, access to skilled labour and the strength of innovation ecosystems. Stable policies and secure energy systems also underpin competitiveness, by helping firms to commit capital at scale to better technologies and manufacturing plants.

Energy-intensive industries account for 30% of global manufacturing value added, 70% of industrial energy use and 20% of manufacturing employment. They play a strategic role in providing the inputs for downstream industries, with implications for economic and national security. Yet they are highly vulnerable to volatile energy prices: energy can represent over two-thirds of total production costs.

Decarbonisation reinforces the importance of access to low-cost clean energy in industry. As industry shifts towards electricity and hydrogen, regions with abundant renewable resources gain competitive advantage. For example, offshoring ironmaking to regions with low-cost renewables – such as Brazil – could significantly narrow cost gaps with conventional production routes, with limited impacts on jobs.

Input costs vary considerably across countries and regions. Labour costs tend to be lower in emerging economies; in China, labour costs can be five times lower than in Europe or in the United States. Capital costs are typically lower in advanced economies. Regional energy prices also vary substantially, with electricity prices varying by up to a factor of seven across regions, and natural gas varying even more.

In clean energy technology manufacturing, there is no single factor that explains China’s cost advantage and central position. Structural cost differences, such as energy and labour, account for over two-thirds of the cost gap with Europe in manufacturing steps that are particularly energy- or labour-intensive, such as upstream solar PV manufacturing and wind turbine blade production. Economies of scale are especially important for heat pumps and solar PV, while for batteries over 40% of the cost gap reflects higher manufacturing efficiency in China.

Countries will need to identify and play to their strengths while establishing strategic partnerships to offset weaknesses in competitiveness. For example, producing solar PV modules in the European Union with imported wafers from North Africa would cost almost 20% less than producing a fully EU-made module.

Securing clean energy technology supply chains depends on minimising the potential economic and social risks resulting from a disruption. These can be significant: we estimate that each month of an interruption in battery supply chain exports from the largest supplier would lead to output loss worth USD 17 billion from electric car plants elsewhere, with almost two-thirds of these losses in the European Union.

Enhancing supply chain security can go hand in hand with improving industrial competitiveness. These objectives are deeply intertwined and have profound implications for other policy goals beyond energy. Supply chain security improves with diversification, which can be supported by increasing domestic production in more countries. But this comes at a cost, especially if the domestic industry struggles to become competitive. There can be trade-offs: a narrow focus on improving cost advantage by sourcing components as cheaply as possible risks leaving the industry more vulnerable to upstream supply disruptions.

Improving the competitiveness of domestic manufacturing can help maximise the economic returns and create other benefits, such as for innovation. The economic opportunity is increasing: the combined global market value for key technologies grows in all IEA scenarios, reaching almost USD 3 trillion by 2035 in the Stated Policies Scenario (STEPS), up from nearly USD 1.2 trillion today.

Working towards these policy objectives is complex, as such technologies encompass a broad set of components and materials, and require diverse competencies and processes. For most countries, it is not possible to compete in all steps of a technology supply chain, let alone in all supply chains. Governments will therefore need to be mindful of respective strengths and weaknesses when designing industrial strategies and prioritising action.

Strategic international partnerships – based on trade or industrial agreements, and including foreign direct investment – are central pillars of a co-ordinated strategy to advance on both policy objectives. Policy measures that foster economies of scale, support innovation and address energy prices also provide opportunities for governments to boost competitiveness.