10 October 2024
Fortune
Op-eds
There is much debate about how
the macro environment, including the elections in the U.S. and monetary policy
changes in key economies, might impact the fight against climate
change. However, a key aspect of meeting clean energy targets will be the
development of a de-risked global supply chain capable of delivering both
materials and components to support the rapidly expanding demand.
Clean energy supply chains are
long, complex, and capital-intensive. Even if manufacturing is set up at home
for some parts of the supply chain, re-shoring production of every single step
to Western countries is a gargantuan industrial task.
India is much better placed than
the U.S. or the EU to replicate many of the variables that help Chinese
producers dominate green industries. These variables include land prices,
electricity costs, permitting timelines, construction timelines, construction
costs, labor costs, and supply chain sourcing (just to name a few). It is in
the geopolitical interest of major economies to support India in achieving the
scale, efficiencies, and expertise needed to compete effectively with China.
The U.S., EU, and India must urgently come together in a free trade agreement
on clean energy.
Countries like Mexico and
Vietnam are only at the first step of diversification, focusing on the assembly
of components to put together products such as solar modules or battery packs.
Risks of disruption will only truly reduce when the value chain further
upstream is diversified too, including the manufacturing of intermediate
products (like polysilicon, wafers, ingots, and cells for solar; cathode,
anodes, and cells for batteries), as well as the technologies and processed
minerals needed to manufacture these intermediate products, and even mining and
processing ores needed as raw materials. Much of this is technologically
complex, capital and time-intensive, and energy and emissions-intensive.
Through initiatives such as the
Production-Linked Incentive scheme for alternate battery chemistries and
integrated solar manufacturing facilities, India has already kickstarted
backward integration. It is also set to launch the Critical Minerals Mission to
catalyze investments in the mining and processing of critical minerals.
To meet international 2030
emissions targets, the global manufacturing capacity needed for solar PV
modules must rise to 651 GW, 400 GW for wind turbines, 167 GW for hydrogen
electrolyzers, and 5099 GWh for EV batteries, according to the IEA. A
recent statement from the Ministry of New and Renewable Energy
revealed that India has already increased its solar modules manufacturing
capacity to 67 GW, a 27x increase in the last 10 years, accounting for 10% of
the global requirement. The government has offered financial incentives to
companies to set up 1.5 GW capacity of electrolyzers, the main technology to
produce green hydrogen from water. Battery manufacturing projects will
create a manufacturing capacity of a minimum of 120 GWh by 2030, which will
result in a 10-fold increase in India’s share of global battery manufacturing
capacity, from 0.2% currently to 2% in 2030.
Reports show that China is
a leading investor across the majority of clean energy manufacturing
investments in Southeast Asian nations, likely in a bid to bypass trade
barriers. By contrast, a majority of investments into the Indian clean energy
manufacturing ecosystem are from a diversified investor base, primarily from
India but also from the U.S., Japan, and others. This helps India’s positioning
as a trusted source for supplies of clean energy equipment.
Ultimately, quality and pricing
matter. As the CEO of a company involved in both the manufacturing of solar
modules and cells and their use in electricity generation, I can confidently
say that modules, cells, batteries, and electrolyzers made in India meet the
highest international standards, as evidenced by the rapidly rising
exports from India to the U.S. and EU.
Competitiveness on pricing is
trickier. Industry estimates indicate that production costs for Chinese
suppliers are between 15-25% lower than other international players across
technologies such as solar modules, cells, batteries, electrolyzers, and wind
turbines. However, Chinese suppliers are offering products at almost 40-50% of
the prices being offered by players from other countries. This mismatch has led
to a spate of non-tariff barriers, anti-dumping duties, and investigations
initiated by several markets including the U.S., India, and the EU.
Clean energy is an area ripe for
stronger international collaboration. Even though building domestic supply
chain capabilities opens possibilities of a huge economic prize for host
countries, multiple hubs are critical to nudging domestic manufacturers toward
gaining international competitiveness (especially as subsidies are time- and
resource-capped) as well as to leverage respective strengths for faster
innovation and cost reduction across the board.
Sumant
Sinha is Founder and CEO of ReNew
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