Better, Faster, Cleaner: Securing clean energy technology supply chains

• The global transition to net zero demands a massive deployment of clean energy technologies. Clean electrification is the backbone of the transition and will provide over 60% of all energy consumed in 2050.
• This Insights Briefing is critical in highlighting that the clean energy transition can be delivered on time and at an affordable cost if supply chain risks are minimised by policy and industry action.
• Overall, the economics of clean energy technologies are becoming increasingly attractive. However, the pace and scale required for the transition raises several challenges. As clean energy technology deployment scales, strengthening supply chains will be critical to ensuring low costs and avoiding disruptions.
• Supply chain shocks have the potential to derail the energy transition by increasing the costs of key technologies and, in worst-case scenarios, creating absolute shortages of key supplies; this in turn could slow down the pace of the overall transition. In recent years, disruption in global supply chains has led to price rises for wind and batteries.

At the global level, there are no inherent barriers to the scale-up of supply chains, clear actions from policymakers and industry must help to navigate challenges.

The ETC’s Barriers to Clean Electrification series focuses on identifying the key challenges facing the transition to clean power systems globally and recommending a set of key actions to ensure the clean electricity scale-up is not derailed in the 2020s.

This Insights Briefing addresses two main questions:

• Where – and to what extent – could there be bottlenecks to clean energy supply chains, looking out to 2030?
• What are the key actions that policymakers and industry can take to mitigate these?

The path to a net zero global economy will require huge growth in clean energy technology deployment, with rapid scaling required of both clean energy supply and end-use decarbonisation technologies. Despite positive recent progress, including widespread legislated national commitments to net zero by mid-century, and some ambitious sector targets, several barriers limit the pace and scale of the transition. These include overall uncertainty about the pace of clean tech deployment in some markets, where government-backed incentives or market design play a key role, and issues around execution – including planning and permitting delays, lack of infrastructure availability (e.g. grids), and supply chain volatility. If unresolved, these barriers risk delaying and/or increasing the costs of the energy transition, putting a global net-zero emissions trajectory by mid-century at risk.

While there are no fundamental barriers to delivering the energy transition by mid-century, three key supply-side challenges must be addressed in the short to medium-term to avoid delays or increased costs:

1. Scaling manufacturing and supply quickly enough to meet demand, which could be challenging for key raw materials
2. Environmental and social concerns around mining and manufacturing
3. Geographic concentration of clean energy supply chains

The pace and scale of clean energy deployment means that all countries should be able to benefit from growing markets and grasp new opportunities around industrial competitiveness and energy security. However, in some cases, relocation of production is likely to entail short-term cost increases for the energy transition – which will require careful balancing against political priorities.

A critical priority for governments is to set out a clear strategic vision for the energy transition, supported by sectoral targets. Overall, the more clarity over the shape and timeline of the future transition, the more likely that supply chain challenges can be solved by market competition and private investment. Ensuring a balanced approach that can support a low-cost, fast-paced global energy transition, as well as meeting domestic political priorities, is vital.

Key findings and recommendations from the report focus on recommendations for government and industry focusing on addressing supply-demand imbalances, developing environmentally and socially sustainable supply chains, and ensuring diversified, resilient and secure supply chains.

Key recommendations for industry include:

• Continue driving technological advancements to improve the efficiency of technologies using key materials.
• There should also be a concerted push to develop circular business models (including second life, refurbishment, and modal shift) which can reduce overall material intensity.
• Major companies, government purchasers or major investors can include requirements for high sustainability throughout supply chains.
• Adopt strategies to manage supply dependence for mining, refining and manufacturing in particular:
  • Securing supply from different mine sites/manufacturers, to diversify supply chain
  • Manufacturers starting joint ventures, carrying out vertical integration, signing off-taker agreements to secure future supply
  • Agreeing strategic international partnerships and ‘friend-shoring’, to ensure a diversified but aligned source of supply
  • Ensuring production, content and diversification targets are focused on location of production, not ownership – to allow strong competition across markets and supply chains
  • Ensure that any one country or company does not provide >80% of supply for a particular material/product
  • Ensure diversified and free flow of trade for clean energy supply chains

Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. Find out more: https://www.hsbc.com/who-we-are/our-climate-strategy