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China’s Dominance Of Clean Energy Supply Chains Raises Concerns

Over the past decade, no major energy source has grown faster than solar power. According to the 2020 BP Statistical Review of World Energy, installed solar photovoltaic (PV) capacity has grown at an average annual rate of over 42% over the past 10 years, translating into a doubling of global capacity every 1.7 years on average.

Although that blistering pace could start slowing down as installed capacity grows, solar will likely remain the fastest-growing energy source for the foreseeable future. Much as with other energy sources, however, solar’s growth is giving rise to a number of thorny questions regarding geopolitics, supply chains, and national security.

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The Path to Decarbonization

From a North American perspective, the election of Joe Biden as U.S. President has breathed new life into the Paris climate agreement — the most significant global effort to rein in carbon dioxide emissions to date. Fulfilling a key campaign promise, President Biden officially rejoined the Paris accord last month. At the same time, following meetings between President Biden and Canadian Prime Minister Justin Trudeau, Canada also pledged to submit its own new target under the Paris pact, with the two leaders insisting on a joint approach to climate issues.

The European Union, for its part, has consistently maintained an aggressive stance toward carbon emission reductions. The EU is on a path to surpass its goal of generating a third of its energy from renewable sources by 2030. Last September, the European Commission presented its plan to reduce EU greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. That would put the EU on a path to reach climate neutrality by 2050. 

All of these efforts point to one inescapable conclusion: installed renewable energy capacity will continue to rise as governments on both sides of the Atlantic pour money into decarbonization efforts.

At the same time, many of these countries are understandably sensitive about energy security. Political leaders don’t like to depend on other countries for their energy supplies, but this is frequently an accepted trade-off due to economic considerations. 

That pattern has long held true for fossil fuels, with OPEC maintaining a stranglehold on the world’s oil supplies until the U.S. fracking boom somewhat weakened its monopoly. Now, as the renewable revolution picks up steam, one country – China – has built up a clear advantage around certain key renewable technologies, in particular the components needed to construct solar energy infrastructure in the West.

Huawei in the Spotlight

China’s own energy consumption continues to grow rapidly, making the Chinese economy the world’s largest energy consumer. As a result, Beijing invested aggressively in renewables and has now achieved predominant market shares in solar photovoltaics as well as lithium-ion batteries, another key renewable technology. 

Chinese state-linked company Huawei, better known for telecommunications equipment and consumer electronics, has also become one of the world’s largest suppliers of solar inverters, a critical part of solar PV systems that converts direct current power generated by solar panels into alternating current electricity to power electronics in homes and businesses. 

Huawei’s dominant position in the inverter market, coupled with the backing it enjoys from the Chinese government, has raised concerns in the U.S. In 2019, a bipartisan group of U.S. Senators sent letters to Energy Secretary Rick Perry and Department of Homeland Security Secretary Kirstjen Nielsen, urging them to ban the sale of all Huawei solar products in the U.S., citing a national security threat to U.S. energy infrastructure. 

Noting that Congress had previously blocked Huawei from the U.S. telecommunications equipment market due to concerns over its links to China’s intelligence services, the letter stated in part: 

“Both large-scale photovoltaic systems and those used by homeowners, school districts, and businesses are equally vulnerable to cyberattacks. Our federal government should consider a ban on the use of Huawei inverters in the United States and work with state and local regulators to raise awareness and mitigate potential threats.”

The concern is that if the U.S. power grid becomes dependent on a critical piece of state-linked Chinese electronic equipment, it could render that grid especially vulnerable to outside disruption or manipulation. This dynamic mirrors concerns in the U.S. about reliance on OPEC for oil supplies. Huawei responded to what it called an “unwelcoming climate being fostered in the United States” by closing its U.S. inverter business. 

Europe’s Diverging Approach

A more ambivalent approach toward Huawei was initially adopted in the EU, which only agreed to reduce its dependency on equipment susceptible to Chinese government influence for future 5G networks. However, officials in a number of EU countries are now sounding an alarm over the Chinese state’s role in sectors of their economies that represent key national security interests, including banking, energy, and infrastructure. 

Those concerns extend to solar energy, with EU policymakers also expressing concern over China’s use of Muslim forced labor in solar PV module supply chains. That issue has given additional impetus to the European Parliament, which is now pushing for trade bans on Chinese solar module equipment if human rights abuses are involved in their manufacture.

These factors all create major incentives for Western countries to address Chinese state dominance in the clean energy sector. That imbalance didn’t arise overnight, and it will take some time to address.  

President Biden took a step in that direction by signing an executive order aimed at making U.S. supply chains more resilient. Among other things, the report calls for identifying “risks in the supply chain for high-capacity batteries, including electric-vehicle batteries, and policy recommendations to address these risks.”

The EU will now have to decide whether it is ready to pursue a similar approach. Clean energy supply chains haven’t received a lot of policy attention until recently, but governments are increasingly under pressure to ensure potential threats to those supply chains don’t derail global efforts to decarbonize.

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Matt Chester's picture
Matt Chester on Mar 22, 2021

Clean energy supply chains haven’t received a lot of policy attention until recently, but governments are increasingly under pressure to ensure potential threats to those supply chains don’t derail global efforts to decarbonize.

This really puts the push/pull of the various interests and priorities in play. Not a situation with easy, obvious solutions, it appears

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