The PGI Intelligence team monitors a wide range of regulatory changes and physical security threats. As part of ongoing monitoring, we have assessed geopolitical competition amid increasing investment in the renewables sector. The piece explores the continued expansion of the sector, the challenges of supply-chain competition and increasing demand for the key resources that enable photovoltaic and electric vehicle production.
Increasing investment in renewables
Investment in the renewables sector is accelerating. Companies and governments have announced plans to increase their use of clean energy and adopt electric vehicles. US President Joe Biden has pledged to shift to renewables by 2035. Meanwhile, Australian Prime Minister Scott Morrison announced a USD 1 bn green energy research plan earlier in April. The announcements come as leaders of Russia and China pledged cooperation but no new commitments at a US-led environment summit on 22 April.
Countries with once unreceptive policies towards renewables have changed their stance, amid a need for cheaper energy and less reliance on oil and gas. The International Energy Agency (IEA) has said that solar power is the cheapest source of electricity supply and will expand in the coming years. A 2020 IEA report claimed that solar energy output would expand by an average of 13 percent per year from 2020 to 2030.
In the private sector, hundreds of companies have announced ambitious green initiatives. Ikea announced that it would invest USD 4 bn in renewable energy by 2030, including solar panels, solar parks, and wind turbines. The increasing adoption is a response to growing consumer demand for greener products amid concerns over climate change
Concerns over China’s dominance in the clean energy sector has also contributed to increasing focus on renewables. Following the Made in China 2025 plan that was unveiled in 2015, China has greatly dominated the cheap photovoltaic solar panel and wind turbine sector. Three of the top seven solar panel manufacturers in 2018 were Chinese firms. China is also the main source of panel components, effectively accounting for 80 percent of polysilicon supply.
US Secretary of State Antony Blinken has said that renewable energy investment was a key part of Washington’s competition with China. The prevalence of Chinese firms in the sector may sustain US interest in increasing its involvement in renewables.
Prospect of trade restrictions
Washington and other nations are unlikely to impose major trade restrictions on China, as they attempt to reduce their reliance on Chinese sources rare-earth materials and Chinese-made solar panels. The US has gradually reduced trade tariffs on China after they were imposed by former president Donald Trump in 2018. Washington is unlikely to undermine its cooperative message with targeted sanctions on the renewables sector. On 17 April, China and the US issued a joint statement of cooperation which pledged ‘actions to maximize international investment’ into renewable energy. Instead, the US and European states are more likely to promote the use of locally produced products and materials with financial incentives to encourage growth in domestic renewables sectors.
However, there is a prospect of targeted measures on trade with China over manufacturing concerns related to human rights and supply chain sustainability and traceability. The Australian Council of Trade Unions has called on Canberra to ensure companies are not complicit in profiting from forced labour in China, amid concerns over the mistreatment of Uyghur communities in China’s Xinjiang region. The US Energy Secretary Jennifer Granholm has said that it is not worth sacrificing worker safety and human rights for access to cheaper Chinese solar panels.
Concerns over access to critical resources may see increased cooperation, as countries seek to guarantee their ability to pursue renewables initiatives. A March conference between the US, Japan, Australia, and India focused on identifying more sources of rare-earth elements. The only refinery outside China is operated by an Australian firm in Malaysia.
Australia is likely to emerge as a particular focus of investment, with companies seeking to begin new rare-earth projects. Another country with potential for rare-earth mining is Greenland, although the leftist government has indicated that it will block some mining projects on environmental grounds.
The electric vehicle sector is particularly likely to be impacted by global competition over resources. Reliance on battery technology, which uses cobalt and lithium, is likely to increase competition in the mining sector amid the growing adoption of electric vehicles. Other rare-earth metals used in motors, neodymium, and praseodymium, will also be crucial to the increasing use of electric vehicles.
Chinese companies dominate existing cobalt and lithium as well as rare-earth metal supply chains. China produces 140,000 tonnes of rare-earth elements per year, effectively comprising more than 80 percent of the global market. Other companies are exploring potential sources of rare-earth elements, including in Australia, but they still represent a fraction of the Chinese supply. Australia produced 17,000 tonnes of rare-earth elements in 2020.
Although other types of battery with less use of rare-earth metals are being developed, it is unlikely they will be used on a commercial scale in the near term. General Motors said it was testing an aluminium-based battery for vehicles in a joint venture with Korea’s LG Energy Solution at the start of April. Development of aluminium batteries may take time as developers struggle to improve longevity and cyclability.
Rapidly changing legislation is likely to be one of the most widely felt impacts of the trends for all companies. Government legislation on fleet composition, supply chain impact, and facilities’ energy use may change rapidly in the coming years. German technology company Bosch has criticised the EU for focusing solely on electric vehicle adoption as the bloc considers a set of strict limits on emissions from private and commercial vehicles, the FT reported. Bosch, which has invested heavily into electric vehicle technology, amid generous subsidies in Germany, has also pushed for the use of hydrogen vehicles.
For companies within the sector, legislation is likely to be favourable in North America and Europe, as countries attempt to encourage the growth of the industry. However, supply chain restrictions may present an increased cost, particularly if there is an increasing struggle to secure materials.
Growing demand for reliable energy sources in Southeast Asia presents opportunities for foreign firms working on renewables. As companies relocate Asian supply chains because of trade tensions between China and the US, governments in the region are likely to provide renewable investment opportunities. International development banks will support investments, including joint ventures and public-private partnerships. In 2020, the Asian Development Bank provided a USD 37.8 mn loan to a subsidiary of Thailand’s Gulf Energy Development to finance a solar power plant in Vietnam.
Cyber attacks present an additional threat to energy companies. With increasing development of the sector, state-backed cyber attacks to obtain details of industrial processes as well as battery and panel technology are likely to increase.
The threat of state-backed cyber attacks is likely to particularly focus on small and medium sized high-tech energy companies, who may have valuable intellectual property but weaker cybersecurity infrastructure than major firms. Although the volume of attacks is expected to increase in the coming years, it is unlikely to undermine investment and innovation in the sector.
Our team provides daily bulletins on changes to regulation and tariffs through the PGI Risk Portal alongside a range of bespoke monitoring. The PGI Risk Portal provides global updates on regulatory changes, international disputes, and cyber threats, among other challenges to the renewables sector and other industries.