Industrial Strategies Key to Tackling Global Energy Challenges: IEA
Tight supply chains increase prices, making energy transition difficult
January 13, 2023
The uneven geographic distribution of critical mineral resources used in clean energy supply chains makes international collaboration and strategic partnerships crucial, a new report by the International Energy Agency (IEA) has said.
The report said that the three largest producer countries account for at least 70% of the manufacturing capacity for technologies related to solar panels, wind, EV batteries, electrolyzers, and heat pumps. China was dominant in all of them.
A big chunk of mining for critical minerals was concentrated in a small number of countries. For instance, the Democratic Republic of Congo produces over 70% of the world’s cobalt, and just three countries – Australia, Chile, and China – account for more than 90% of global lithium production.
In its Energy Technology Perspectives 2023, the IEA provides a comprehensive analysis of global manufacturing of clean energy technologies and their supply chains today. It also maps out how they are likely to evolve as the energy transition advances.
The report highlights the specific challenges related to the critical minerals needed for many clean energy technologies, noting the long duration for developing new mines and the need for strong environmental, social, and governance standards are hurdles.
The risk of tight supply chains, in turn, results in pushing up the prices for clean technologies, thereby making countries’ energy transitions more difficult and expensive, the IEA report said.
Increasing prices for cobalt, lithium, and nickel led to the rise in electric vehicle 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, and similar trends are being seen in solar PV.
Industrial Strategies by Major Economies
IEA Executive Director Fatih Birol said that a new global energy economy has become a central pillar of economic strategy and every country needs to identify how it can benefit from the opportunities and navigate the challenges.
The report noted that major economies were combining their climate, energy security, and industrial policies into broader strategies for their economies.
For instance, the Inflation Reduction Act (IRA) in the United States, the Fit for 55 package and REPowerEU plan in the European Union, Japan’s Green Transformation program, and the Production Linked Incentive (PLI) scheme in India encouraged the manufacturing of solar PV and batteries.
China, it said, was working to meet and even exceed the goals of its latest Five-Year Plan.
Amid the regional ambitions for scaling up manufacturing, the report underscored the importance of international trade in clean energy technology supply chains.
Nearly 60% of solar PV modules produced worldwide were traded across borders. Trade was also important for EV batteries and wind turbine components, with China being the main net exporter today.
Future Estimates and Meeting Net-Zero
The report suggested that if countries worldwide fully implement their announced energy and climate pledges the global market for key mass-manufactured clean energy technologies would be worth around $650 billion a year by 2030, three times today’s level.
Birol said, “If everything announced as of today gets built, the investment flowing into manufacturing clean energy technologies would provide two-thirds of what is needed in a pathway to net zero emissions.”
However, the report found only 25% of the announced manufacturing projects globally for solar PV were under construction or beginning construction. The number was around 35% for EV batteries and less than 10% for electrolyzers.