CERAWEEK: Race for clean energy faces supply chain, geopolitical hurdles

To meet renewable capacity goals, the global economy will require battery, solar and wind capacity to grow considerably in the 2020s, compared with the 2010s, creating significant supply chain and geopolitical challenges, experts said during a panel discussion at CERAWeek by S&P Global in Houston.

"There is a race for clean energy – an urgent global race," said Sam Wilkinson, S&P Global Commodity Insights clean energy technology research and analysis director.

"But as with all the most important games, there are always huge challenges to face along the way," Wilkinson said.

Julian Nebreda, president and CEO of Fluence Energy, a provider of energy storage products, services and software, said his company learned in 2022 "the value of diversity" in the supply chain.

Sumant Sinha, founder, chairman and CEO of ReNew Power, India's largest renewable energy company, said renewable developers had become accustomed to falling prices until 2022, but that shifted due to the dominance of "concentrated supply chains where the sellers then realize they had a little bit more market power."

"The net outcome of all of that was the prices went up, and I think a lot of developers ended up running into problems because all of us tend to have been on fixed-price contracts," Sinha said.

'Unfortunately' making modules

"So, the other thing that is now happening, by the way, is that globally, from a policy standpoint, there's some degree of uncertainty that is slipping in, because of all of the geopolitics that is now trying to find a way to decouple supply chains and how that decoupling should happen," Sinha said. "Which countries will happily import from which country?"

To enhance control of its supply chain, ReNew Power has "unfortunately" started "manufacturing some of the equipment ourselves," Sinha said, because the Indian government is establishing "fairly significant barriers to imports" from China, which meant ReNew Power has "no choice but to start getting into manufacturing of our solar modules."

Scott Tinkler, Accenture global utilities lead and senior managing director, said 2022 has shown that US renewable power developers "can't be beholden to any one state, actor or regime ... that we don't have faith or confidence in."

"We can't be beholden to a very narrow, very hyper-efficient global supply chains that could be disrupted by floods or fires or port issues," Tinkler said. "So we do need to diversify. We do need to localize [supply chains], but localization has to be part of the solution; it can't be the entire solution."

Without acknowledging the comparative advantage of certain specific sources, "the cost of the energy transition will spiral out of control," Tinkler said.

"We'll end up duplicating and replicating supply chains, and ... it just won't be affordable to the end consumer if we do that," Tinkler said.

No more 'project-by-project'

The federal Inflation Reduction Act's component content rules encourage localizing of supply chains, and Mark Noyes, newly appointed CEO of RWE Clean Energy, which operates an 8-GW North American resource portfolio of wind, solar and battery storage, said developers will be "willing to pay a little more, more than likely, if it de-risks" the supply chain.

"One thing that we're learning and have learned over the past couple of years, as we were finishing up our 8 GW operating units, is that we should not be buying project by project," Noyes said. "That day of project-by-project supply chain is gone. We really need to partner with those folks like Fluence and others, and have long term agreements, and make sure that with those long-term agreements, you're willing to potentially -- rather than pay more -- take some of those additional risks."

Fluence's Nebreda said his company seeks to "localize effectively" by commoditizing external supply chains "so that you are not beholden to anyone," but exploiting internal strengths to reduce risk.

"For example, all the software ... will be controlled by us," Nebreda said, so no externally sourced code will be included. "I think that our customers will be willing to pay some for security, but generally, our job is to provide security for our customers in a way that they don't have to pay."

Accenture's Tinkler said he expects localization of supply chains to accelerate the energy transition in the short term, because of the IRA and energy shifts in the European Union in the wake of the Russo-Ukraine war.

"The question at the end of the day is how efficient for the next five or 10 years as we become more mature in the energy transition, will we be?" Tinkler said. "Will we be right and will we have developed the supply chain and global supply chains in a way that you can actually have some price advantage? That's the big question."