Buried in the International Energy Agency’s latest analysis was some good news: the world already has enough manufacturing capacity for solar PV modules and cells to meet 2030 demand projections for the organization’s net-zero-by-2050 scenario.
This comes amid a broader clean manufacturing boom time. For the first time, IEA found that investments in five key technologies — solar PV, wind, batteries, electrolyzers, and heat pumps — are beginning to “register in broader macroeconomic data.”
- The top line: The organization’s first-of-its-kind analysis of clean manufacturing patterns, published this week, found that investment in clean manufacturing soared 70% year-over-year in 2023 to $200 billion. Solar manufacturing is speeding along six years ahead of schedule, but battery manufacturing is also growing quickly, with 90% of net zero scenario deployment needs covered by announced expansions that have reached final investment decisions. While China still overwhelmingly dominates this growth, its lead has begun to shrink: from making 85% of global manufacturing investments in 2022, to 75% last year.
- The market grounding: The report, “designed to aid policy makers as they prepare their industrial strategies,” stems from a 2023 request from leaders of the G7 countries. The group, including both the United States and European manufacturing centers like Germany, is grappling with China’s massive manufacturing head start — and the cheap imports that kneecap their own manufacturing sectors. The country is particularly dominant in solar and battery manufacturing, which also happen to be the sectors experiencing the biggest growth, accounting for 90% of total investments in clean manufacturing in both 2022 and 2023.
- The current take: John Podesta, the White House’s senior clean energy advisor, said last month that the administration is “very concerned about overcapacity in China across the so-called green technologies,” including solar, batteries, and electric vehicles. “The shift of the economic focus of Beijing has been on trying to get out of those stagnation they were in, by overinvesting in capacity in some of these technologies,” Podesta told attendees of BloombergNEF summit in New York. “But that is not good for the United States…because we need a level competitive playing field across the globe.”
The IEA’s sweeping 115-page report found that the boom in manufacturing these technologies amounted to 4% of the growth in global GDP, and almost 10% of the growth in investment.
And the investment seems to promise immediate returns. Roughly 40% of total 2023 spending was on projects that will come online in 2024, and for battery facilities the share is almost 70%. The report emphasized that these plans are set to have knock-on effects for “adjacent sectors” as well, given that nearly half of the committed battery manufacturing announcements are via joint ventures with automakers.
However, the good news comes with the caveat that “the project pipeline is expanding rapidly, if unevenly.”
Facilities making solar PV cells and modules average about a 50% utilization rate globally, in light of a module supply glut and the rapid expansion of manufacturing capacity. The report warned that “there are signs of downscaling and postponements of planned capacity expansions, particularly in China.”
The picture for battery production is more rosy, though, with manufacturing increasing 45% year-over-year in 2022, to 800 gigawatt-hours. This could swell to 9 terawatt-hours by 2030 if all current announcements are realized, which would nearly cover what’s needed under the IEA’s net-zero scenario.
Wind and electrolyzer capacity additions are also beginning to speed up, though more is needed. Existing wind capacity could meet 50% of the demand projected for 2030 net-zero scenario needs, with announced projects potentially meeting an additional 12%.
Meanwhile, heat pump manufacturing slowed in 2030 “due to stagnation in the majority of leading markets.” Existing capacity is projected to deliver just one-third of what’s needed by 2030, “though this could change quickly given the short lead times typical of capacity expansions in this industry,” the IEA said.
China’s head-start
China remains at the forefront of this momentum, especially dominating in solar both now and in 2030 projections. Despite recent announcements of solar manufacturing facilities lured to the U.S. by the IRA and other incentives, the country’s current capacity barely registers in the IEA’s evaluation of current capacity.
In 2030, announced manufacturing plans are projected to make a bigger dent in China’s lead, though the country is still expected to dominate more than half of the solar, wind, and battery manufacturing at that time.
“Geographic concentration in manufacturing looks set to remain high for most clean energy technologies,” the report said, with China, the U.S., and the European Union accounting for between 80% and 90% of manufacturing capacity both today and in 2030, given announced projects.
While there are many causes for China’s dominance, cost is chief among them — China is simply a much cheaper place to build than either the U.S. or Europe, both in terms of capex and the associated financing costs. The report found that one unit of output capacity in either the U.S. or Europe costs roughly 70% to 130% more than in China for solar PV, wind, and batteries.
And while China also has cheaper labor than the U.S. or Europe, the U.S. is competitive on both electricity costs, and actually has cheaper gas.
The report emphasized that many factors — the size of the domestic market, the availability of skilled workers, permitting processes — lead a company to decide to invest in a particular place, so policymakers have options for luring companies beyond direct subsidies. These include training and certification for workers, and enlarging domestic markets with “robust, stable climate policies.”
For most countries, the report added, “it is simply not realistic to effectively compete in all supply chain steps, or even in parts of all clean technology supply chains,” the report said. “Understanding relative strengths and weaknesses, and where it might be better to build complementary strategic partnerships with other countries…should be key considerations of industrial strategies for clean technology manufacturing.”
Accordingly, the report offers a host of recommendations for countries looking to scale up their manufacturing. These include attracting and supporting innovators such as via grants, tax incentives, and demonstration project finance; collecting production and trade data; coordinating across supply chains such as sharing best practices; and building strategic partnerships while balancing export opportunities and in-country support.
