Western Clean Energy Independence Faces $700 Billion Challenge Until 2030: Rystad Energy

In a bid to counter China’s stronghold on global clean energy supply chains, Western countries are ramping up efforts to bolster their manufacturing capabilities. However, recent research from Rystad Energy suggests that these endeavors may be too little, too late, with a substantial investment of up to $700 billion required, and tangible impacts not expected until at least the next decade.

The Rystad Energy study delves into the financial commitments needed to establish domestic supply chains encompassing material mining, processing, refining, and manufacturing for pivotal elements such as solar, wind, and batteries – integral components of the impending energy landscape. The collective expenditure for these sectors among Western nations is anticipated to hover around $700 billion.

In the wake of Russia’s invasion of Ukraine in early 2022, heightened concerns about energy security have prompted Western governments to reassess their reliance on China for solar and battery cell manufacturing. The EU and the US, recognizing the risks associated with dependence on a single trade partner, have initiated ambitious plans to diversify supply chains and enhance energy security.

Audun Martinsen, Head of Supply Chain Research at Rystad Energy, cautioned, “Relying on a single trade partner for important manufacturing or raw materials is inherently risky. As the energy transition accelerates and demand for affordable clean energy capacity grows, the West is frantically trying to break China’s stronghold on supply chains to boost adoption rates and cut costs. However, these countries are fighting an uphill battle, and it will take many years and significant investments to make an impact.“ 

While Western nations focus on domestic sourcing, China is strategically expanding its reach beyond its borders, investing in rare earth mineral mining projects in Africa, including lithium extraction in countries like Namibia. Although this diversification may contribute to global supply, the concentration of mineral deposits remains a challenge, necessitating efforts to redirect trade routes away from China.

Significant investments are imperative to develop the processing, refining, and manufacturing capabilities required for clean energy development, but breaking China’s dominance demands more than just expanding mining capacity. China’s annual investments in manufacturing and processing have surged from $10 billion in 2016 to $140 billion in 2023, leading to substantial growth in solar PV and battery cell capacities. In contrast, the combined annual investment from other nations has only increased from $7 billion in 2016 to $20 billion in 2023.

Various programs and policies in the EU and the US aim to level the playing field, such as the US Inflation Reduction Act, which has sparked initiatives and grants to encourage the development of battery cells, solar modules, and wind components. However, the pipeline of projects outside China falls significantly short of the investments needed for a complete decoupling. A staggering $700 billion in mining and manufacturing investments is essential to disrupt China’s dominance in these markets.

Not only does China have a head start in manufacturing and mining, but it also holds a significant advantage in know-how and intellectual property, with Chinese companies owning numerous patents and leading in the development of new technologies. This, coupled with the necessity for large-scale mineral recycling, pushes the self-sufficiency timeline for the EU and the US into the 2030s.