OPEC Cartel Has Nothing on China’s Clean-Energy Monopoly

The supply chain for renewable energy technology is even more concentrated than for fossil fuels. Fixing its overreliance on China will raise the cost of the energy transition.

Geopolitical tensions have prompted moves by the West to diversify supply chains in sensitive industries such as clean energy. Photo: Chip Somodevilla/Getty Images

By guest author Carol Ryan from the Wall Street Journal.

Jan. 16, 2023

Countries that import oil and gas worry about the clout of producing nations, particularly since Russia invaded Ukraine. Yet an even bigger vulnerability is building in the global supply chain for green energy.

China refines 95 % of the world’s supply of cobalt, a metal used in lithium-ion batteries. It manufactures over 70 % of sicilia-based solar photovoltaic modules and is home to three-quarters of global electric-vehicle battery production capacity. Such numbers, published by the International Energy Agency last week, underline just how concentrated the global supply chains necessary for the transition to renewable energy are.

The oil market looks fragmented by comparison. The 13 countries of the Organization of the Petroleum Exporting Countries have cornered around 40 % of the world’s oil supply since the early 1990s, according to Goldman Sachs. Add the additional producers of the larger OPEC+ group, such as Russia, and this jumps to 60 %. For now, the oil cartel has much greater power over the global economy than green-energy technology suppliers, but this could change as the world’s energy mix shifts.

China dominates the manufacturing of renewable-energy technologies today due to years of generous subsidies, access to cheap power, labour and land. The Chinese government first identified clean energy as strategically important more than a decade ago. Between 2018 and 2022, Beijing’s share of global investment in new factories for clean-energy products such as solar panels and wind turbine components held steady at 80 %, based on data from BloombergNEF.

So far, the world has benefited from China’s low-cost manufacturing and highly integrated supply chains, which have dramatically improved the economics of renewable energy. From 2010 through 2021, the cost of electricity generated by large solar photovoltaic facilities fell up to 90 %, depending on the country of installation.

Recent geopolitical tensions have prompted moves by Western governments to diversify supply chains in sensitive industries such as semiconductors and clean energy. The U.S.’s Inflation Reduction Act offers subsidies to encourage domestic manufacturing of electric vehicles, solar and wind-energy components. Tax credits are tied to local production requirements: EVs need to be assembled in North America to qualify for subsidies, for example. The European Union may ease its state aid rules so that the trading bloc can launch an ambitious green industrial policy to compete with Washington’s generosity.

Developing local manufacturing for clean energy technology won’t be cheap. Factory building costs alone can be up to six times higher in the U.S. and EU than in China, according to BloombergNEF. Higher labour and energy bills mean they will also be more expensive to run, pushing up component prices. A Western-made electrolyser is five times as expensive as one made in China, for example.

This is likely to push up the overall cost of decarbonising the global economy. The upside of spreading supply chains more widely is greater energy security, as well as new, highly skilled jobs in local manufacturing. But hopes that renewable power will eventually drive down energy bills look unrealistic. Energy from the wind and sun is free, but bringing home the industry necessary to harness it won’t be.