IEA warns of clean technology's reliance on few global players

The global market for clean energy technologies could triple in value if countries deliver on their climate pledges, but risks in global trade and supply chains loom large, the International Energy Agency said in a Jan. 12 report.

Makers of solar panels, wind turbines, electrolyzers and batteries operate in a market with strong demand and political commitments. The market could be worth $650 billion annually by 2030, with related manufacturing jobs more than doubling to 14 million, the IEA said.

On its way there, the clean technology sector will have to overcome substantial obstacles.

Supply chains are geographically concentrated, both upstream in mining and processing and in manufacturing, the IEA said. China dominates the manufacturing of solar panels, wind turbines, electric vehicles, batteries and heat pumps, making up a large share of global capacity.

The mining of cobalt, a critical mineral used in producing batteries, is concentrated in Democratic Republic of Congo, which produces 70% of global supply. Meanwhile, 90% of global lithium production comes from Australia, Chile and China.

Tight supply chains pushed up the cost of these materials in 2022, and electric vehicle battery prices increased for the first time ever, by nearly 10% globally.

"As we have seen with Europe's reliance on Russian gas, when you depend too much on one company, one country or one trade route — you risk paying a heavy price if there is disruption," Fatih Birol, executive director of the IEA, said in a statement.

Good news on European domestic metal resources came from northern Sweden, where state-owned miner Luossavaara-Kiirunavaara AB (publ), or LKAB, reported the discovery of large amounts on rare earths Jan. 12.

"This is the largest known deposit of rare earth elements in our part of the world, and it could become a significant building block for producing the critical raw materials that are absolutely crucial to enable the green transition," said Jan Moström, president and group CEO of LKAB.

Such discoveries will underscore the EU's REPowerEU plan, which includes an electrification drive and reduced reliance on outside countries for technologies underpinning the energy transition.

The trend goes beyond Europe. In the U.S., the Inflation Reduction Act, a flagship policy package passed in August 2022, puts a focus on domestic supply chains, with technology manufacturers eligible for tax credits. India also launched an incentive scheme for solar and battery manufacturing.

Praising the scope of these strategies, Birol said they can stimulate and incentivize investments effectively.

Trade headwinds

Relatively short lead times of one to three years mean investors can hold out for such incentives and then bring facilities online in jurisdictions where business is most attractive.

Only 25% of globally announced solar manufacturing sites are under construction or will begin construction soon, the IEA said. That figure is 35% for EV batteries, and only 10% of hydrogen electrolyzer manufacturing sites are at an advanced development stage.

Nearly 60% of solar photovoltaic modules are traded across national borders, the IEA said, adding that trade is also key for batteries and wind turbine components, despite their bulkiness.

A healthy competition between countries vying for leadership in technology development can bring improvements and reduce cost, Birol said. At the same time, policymakers should not lose sight of collaboration, the executive director added.

"When it comes to healthy trade in these technologies, the wind seems to be blowing in the other direction," Birol said during a webinar accompanying the report.

Cooling trade relations and, consequently, the push for more domestic manufacturing of clean technologies have partly been a result of concerns over human rights violations in the solar supply chain. Companies in manufacturing powerhouse Xinjiang, a region in western China, are allegedly using the forced labor of Uyghur Muslims to make panels and other goods, a practice that China denies.

The Biden administration introduced the Uyghur Forced Labor Prevention Act in December 2021, banning goods from Xinjiang unless importers can document that their products were not made with forced labor.

The European Union is developing a ban on forced labor, with a focus on supply chain transparency and traceability. China is the bloc's largest supplier of solar panels, and experts see China's supply chains outside of Xinjiang as capable of meeting the incoming standards.

The Inflation Reduction Act is not without controversy. EU lawmakers have noted a potential risk to fair competition from the generous U.S. support, and they pledged to adjust state aid rules to ensure European companies do not lose out.

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