Insights & Perspectives
Cleaner, and Closer to Home: A New Order for Supply Chains in U.S. Green Energy
The historic Inflation Reduction Act (IRA) passed by the U.S. Congress in 2022 allocates $369 billion towards reducing climate change and restructuring the nation’s energy resources.
The domestic renewable energy sector is poised for incredible growth; at the same time, shifts in its supply chains shift from global to local.
The road towards achieving this goal presents many challenges, including one of diverse but important impact: the renewable energy supply chain. The current supply chain paradigm shows significant constraints, while a future focused on a local supply chain ecosystem represents greater predictability, economic investment, energy independence, national security and job creation.
In the U.S. green energy transition, the development of new technologies is less the focus now; it is, rather, the development of infrastructure and local supply chain relationships needed to enable it.
Current and Future Supply Chain Paradigms
The U.S. renewables sector is highly dependent on foreign supply chains. Most clean energy components are manufactured abroad, with the United States most exposed in the solar and wind sectors, as well as battery storage notably used for electric vehicle (EV) manufacturing.
The COVID pandemic exposed supply chain vulnerabilities on an international scale. Now, concerns such as trade tensions, ethical issues and constraints on manufactured components, key materials, and critical minerals threaten to slow down an imminently booming sector. Renewable energy has claimed double its share of US electricity generation in a span of ten years—from 10% in 2010 to 20% in 2020 with rapid acceleration projected in the decades to come.
Most of the climate-focused $369 billion spending within the Inflation Reduction Act (IRA) is in the form of clean energy manufacturing tax credits, grants and loans featuring incentives around U.S.-based production.
In response to the supply chain disruptions of the COVID pandemic and in anticipation of the passing of the Inflation Reduction Act, certain White House executive orders and policies encourage a new direction for the renewable energy sector. On February 24, 2021, the President signed Executive Order 14017, driving a whole-of-government approach to assessing vulnerabilities in, and strengthening the resilience of, end-to-end domestic supply chains for critical production materials such as semiconductor manufacturing and advanced packaging, large capacity batteries, as well as critical minerals and materials.
The Clean Energy for America Act effected on June 21, 2021 also proposed policies that help build domestic renewable energy supply chains such as investment tax credits for renewable energy facilities that use domestically made or domestically sourced goods, for example.
From the polysilicon used in a solar panel, to the steel in a wind turbine, or lithium in electric vehicle (EV) batteries, the domestic manufacturing supply chains in clean technology are receiving a broad revision and unprecedented support for the future.
Solar Power, an Industry Straddling Uncertainty and Empowerment
The U.S. solar market is anticipated to nearly triple over the next five years, according to a new report from the Solar Energy Industries Association (SEIA) and Wood Mackenzie. Expansion of this scale bears heavily the least degree of disruption.
It is estimated that 85% of the solar panels sold in the United States are imported from China and Chinese companies operating in Southeast Asia. Polysilicon, the key raw material in upstream solar products, has experienced a 300% price increase since January 2020.
In addition to rising prices, the industry faced regulatory slowdowns and policy uncertainty earlier this year.
In June, U.S. Customs and Border Protection issued a Withhold Release Order on silica-based products from Hoshine Silicon Industry due to forced labor concerns in China’s Xinjiang region. This created months of uncertainty, stalling new solar installations and larger industry growth, as developers waited for clarity on future policies.
Separately, some U.S.-based companies have filed a petition with the Department of Commerce asking that tariffs on imported solar goods be extended to Malaysia, Vietnam and Thailand, according to SEIA.
Also in June, a group of leading US solar firms formed the US Solar Buyer Consortium to empower their movements in face of this uncertainty. The Consortium commits to purchase more than $6 billion in solar panels, launching a competitive Request for Proposals (RFP) for qualified manufacturers that can commit to a long-term partnership to supply up to 7GW of solar modules per year starting from 2024.
“If we’re going to build a future that is 100% carbon free in the US, we need to have a supply chain that is sustainable and provides energy independence and security,” says Leo President of AES Clean Energy speaking with industry magazine PV Tech magazine.
The Consortium was formed by AES, Clearway Energy Group, Cypress Creek Renewables and D.E. Shaw Renewable Investments (DESRI).
Wind Power, and the Power of Offshore Wind Farms
While slightly less exposed in the wind sector, nevertheless the U.S. imports nearly three-quarters of wind power generating sets from Spain, 64% of wind towers from three Asian countries, and 22% of blades and hubs from China. Record demand and the COVID-19 pandemic strained the global supply chain in 2020, triggering shortages of blades, bearings, and core materials used in blades.
The United States has increased its positioning with more than 500 manufacturing facilities in 40 states. The country reached a milestone on March, 29th 2022 when wind turbines in the continental U.S. produced more electricity from wind power than both coal and nuclear energy, for the first time ever.
Offshore wind farms specifically may prove to be a core building block of the US green energy transition as they harvest faster and more consistent winds at sea. They are particular interest to regions with large populations and high energy demand, such as in the North East, which also lack space onshore for installation of large-scale green energy infrastructure. Meanwhile, the US Gulf Coast states aim to leverage their deep experience in offshore oil and gas in transitioning towards an offshore wind industry.
However, much of the offshore wind expertise is sourced in Europe. To U.S.’s challenge is to bridge the gap between EU technology, foreign manufacturing, and service suppliers meanwhile building a local skilled workforce able to build and operate offshore wind installations.
Dominion Energy, one of the largest US utilities, is developing the 2,640 MW Coastal Virginia Offshore Wind Farm, projected to power up to 600,000 homes. Expected to go online in 2026, it will be the first ever wind farm owned by a US utility. Notably, it is developing the first US offshore wind turbine installation vessel, which utilizes more than 14,000 tons of domestically sourced steel, with nearly 10,000 tons of steel coming from suppliers in Alabama, West Virginia, and North Carolina. This is a first for the US: a locally-developed offshore wind farm.
Re-sourcing Critical Minerals
The International Energy Agency describes a “looming mismatch between the world’s strengthened climate ambitions and the availability of critical minerals that are essential to realizing those ambitions.”
The need for critical minerals and rare earth elements (REEs) could increase by as much as six times by 2040, creating momentum behind these commodities and sparking intense interest in their sourcing.
Lithium-ion battery production, for example, requires lithium, nickel, cobalt, manganese, and graphite, while wind turbines and EV motors require neodymium, praseodymium, and dysprosium for permanent magnets. Solar PV requires polysilicon and silver. Electricity networks overall will need significant amounts of both copper and aluminum.
The White House released a statement June 8th, 2022 outlining steps to strengthen critical supply chains, notably in mineral sourcing. It established a working group comprised of several agencies “to identify sites where critical minerals could be produced and processed in the United States while adhering to the highest environmental, labor, and sustainability standards. This working group will collaborate with the private sector, states, Tribal Nations, and stakeholders—including representatives of labor, impacted communities, and environmental justice leaders—to expand sustainable, responsible critical minerals production and processing in the United States.”
Notably, Uranium is also viewed as a key “energy transition metal” as the U.S. increases its focus on nuclear energy. The Inflation Reduction Act allots $700 million in federal funding to catalyze the creation of a domestic commercial HALEU market. It aims to help make high-assay low-enriched uranium (HALEU) available for advanced reactor demonstration and commercialization through public and private partnerships and actions.
In an official statement released from the Office of Nuclear Energy at the U.S. Department of Energy, “Establishing a U.S. HALEU supply can also play a role in eliminating our current dependence on Russia for 20% of the enrichment and conversion services needed for our nuclear fuel supply. This money must be applied by 2026.”
While Uranium mining has been largely the domain of specialist companies, junior miners are now taking a more active role in this space. With 35% of the U.S. purchases of uranium in 2021 coming from Kazakhstan, U.S power plant purchases from domestic suppliers is at its lowest in 20 years. Since the passing of IRA, however, the pathway for an alternative future is clearly in view.
The Unites States, and the world at large, is looking forward. The world enters a critical period of change—for the planet as well as for individual economic interests. The supply chain relationships that develop in the coming years and decades will structure industry for the foreseeable future.
Governments, end-user industries, and individual companies are working to address these supply chain setbacks and restructuring. Solutions include developing domestic manufacturing and sustainable mining, working with allies and partners to secure additional supplies, committing to future demand to incentivize investment such as with the US Solar Buyer Consortium, recycling materials, and changing designs to limit use of scarce resources.
Cleaner, cheaper, and safer energy solutions require supportive policies and legislation to take shape—and form entire industries that are bold, agile and responsive while keeping a sustainable, long-range view on investment.
SOURCES: Department of Energy.gov, Democrat.senate.gov, Whitehouse.gov, the Center for American Progress, Department of Energy energy.gov – Office of Nuclear Energy, The United States Senate Committee on Finance, Financial New Media.com, Wall Street Journal, Ramboll Consulting, Deloitte Renewable Transition Survey, POWER magazine, CNBC, International Energy Agency (IEA), Energy Information Administration, Monthly Energy Review