Speaker 1: Hi, I'm Dana Perkins, and you're listening to Switch on
Speaker 1: the b n OF podcast. Now. If you've listened to
Speaker 1: this show in the past, you've likely been following the
Speaker 1: deployment and growth of clean energy technologies, might be solar
Speaker 1: or wind, maybe batteries or hydrogen. But one thing that
Speaker 1: we haven't talked about much here on the show are
Speaker 1: the highly globalized supply chains that underpinned these technologies. The
Speaker 1: COVID nineteen pandemic has exposed just how complex and at
Speaker 1: times vulnerable these supply chains can be, and some governments
Speaker 1: have started trying to address this by localizing their supply
Speaker 1: chains for clean energy. Recently, the United States passed the
Speaker 1: Inflation Reduction Act or i ra A, which includes near
Speaker 1: infinite manufacturing credits for what could spur huge investments in wind,
Speaker 1: batteries and solar photovoltaic. For its part, the EU has
Speaker 1: also started to accelerate its spending on battery and electrolyzer
Speaker 1: making in order to try and localize production of the
Speaker 1: clean energy infrastructure it will so desperately need to meet
Speaker 1: its climate goals, and questions still remain though, what is
Speaker 1: driving the shift and how might we go about this
Speaker 1: and at what price? Tag Also, what is this going
Speaker 1: to mean for the energy transition and net zero targets.
Speaker 1: To explore this topic, be NFF has recently started focusing
Speaker 1: more on trade and supply chains and this newly formed
Speaker 1: team has published an inaugural research note titled localizing Clean
Speaker 1: Energy Supply Chains at a Cost. I'll be speaking with
Speaker 1: the author of this note today. He's the head of
Speaker 1: Trade and Supply Chains at BENF and his name is
Speaker 1: Antoine Wagner Jones. All of our reports can be found
Speaker 1: at benof go on the Bloomberg terminal, on banf dot com,
Speaker 1: or via our mobile app. And as a reminder, b
Speaker 1: and EF does not provide investment or strategy advice, and
Speaker 1: we have a full disclaimer at the end of the show.
Speaker 1: But now let's speak with Antoine about clean energy supply chains. Nine.
Speaker 1: Thank you for joining us today. Thanks for having me Dana.
Speaker 1: So we are here to talk about global supply chains today.
Speaker 1: And as we delve into that, can you outline specifically
Speaker 1: within the clean energy supply chain, what industries are we
Speaker 1: talking about. We're talking about renewables and we're talking about
Speaker 1: storage and what that means is looking at technologies like solar,
Speaker 1: but also looking at everything you need to make a
Speaker 1: little mind battery, So that's going all the way upstream
Speaker 1: to the processing and refining of battery metals, all the
Speaker 1: way downstream to the finished sort of battery pack. And
Speaker 1: then in the piece of research that we've published, we've
Speaker 1: also looked at some parts of the wind value chain.
Speaker 1: We've also looked at some parts of the hydrogen value chain,
Speaker 1: focusing on electoralizers. But what we're generally looking at is
Speaker 1: technologies that will represent the vast bulk of investment that's
Speaker 1: needed to decarbonizing power, decarbonizing transport, and also to some
Speaker 1: extent industry for if we're to get to net zero.
Speaker 1: And I know we can't talk about every single part
Speaker 1: of the clean energy supply chains, so batteries and wind
Speaker 1: and various equipment manufacturing, but from a percentage standpoint, so
Speaker 1: you mentioned that over and sent currently in the photovoltaic
Speaker 1: space is manufactured in China. Is it roughly the same
Speaker 1: for batteries and wind or is it just or what's
Speaker 1: the range? The range it does vary quite a bit.
Speaker 1: There's not that larger share of the world's battery grade
Speaker 1: nickel is produced in China, but China, as I said above,
Speaker 1: eleven eleven different bits of those different value chains being
Speaker 1: above is free substantial and when you look at that average,
Speaker 1: it's over half overall and far higher than that for
Speaker 1: many sectors like ingots and wafers for solo, for example,
Speaker 1: which are above. So I think what's maybe useful is
Speaker 1: to take solo for example, and to walk through it.
Speaker 1: So he starts out and you've got polysilicon, which is
Speaker 1: you basically take sand and you make it into a
Speaker 1: very refined form of silica, and then you end up
Speaker 1: with these what are basically rocks, which then are then
Speaker 1: melted and made into ingots in a different facility, which
Speaker 1: are then sliced and made into waivers, often in an
Speaker 1: integrated facility with the in goot production. And then you
Speaker 1: then combine those and seal them into cells which are
Speaker 1: then strung together and assembled into modules. Broadly speaking, those
Speaker 1: different steps are done three different factories and different facilities,
Speaker 1: and when we think about supply chains, this is going
Speaker 1: to be something that's very relevant in this discussion is
Speaker 1: that they're very different in terms of the amount of
Speaker 1: economic value they produce. For polysilicon, for example, margins are
Speaker 1: far higher than module manufacturers, and in terms of job creation,
Speaker 1: you've got very different pictures for those different bits of
Speaker 1: the supply chains. So polysylican, for example, a new facility
Speaker 1: might only create fifty two hundred jobs, very automated low
Speaker 1: in terms of labor intensity, But then a module manufacturing
Speaker 1: facility might involved it's seven hundred jobs per gigawat, and
Speaker 1: that was per giggle watch for the polysylicon side of
Speaker 1: things too, So you've got this vastly front sort of
Speaker 1: picture in terms of economic value add of having a
Speaker 1: certain bit of the value chain located in your country
Speaker 1: if your government, as well as job creation, and those
Speaker 1: two things might not always run in parallel, but then
Speaker 1: so for example, so there's only a few factories making
Speaker 1: poly cynic in the world, most of them are located
Speaker 1: in China, many of them are located in specific parts
Speaker 1: of China and the West in a couple of provinces,
Speaker 1: And the picture from module manufacturing on the other end,
Speaker 1: on the downstream of the solar sector is far more dispersed,
Speaker 1: and there's a lot more of that happening in places
Speaker 1: like Southeast Asia, and some of it also happening in
Speaker 1: the global West, for example in India is something where
Speaker 1: we're seeing things picking up. In order to understand where
Speaker 1: we're going, it was useful to figure out how we
Speaker 1: got here. And solar manufacturing is definitely seen very steep
Speaker 1: declines and costs year on year, and I think that
Speaker 1: seems to be changing a bit at the current moment.
Speaker 1: But a lot of the story of what has happened
Speaker 1: within the solar industry has been that the finished modules
Speaker 1: have been getting cheaper and cheaper over time, and a
Speaker 1: lot of that has been due to manufacturing in China
Speaker 1: and some of these centralized places where they can really
Speaker 1: take advantage of, let's say, economies of scale and efficiencies
Speaker 1: in the manufacturing process. But how did that end up happening,
Speaker 1: How did it end up becoming that it was largely
Speaker 1: centered in this part of the world. So it's a
Speaker 1: story that's very different from each of those difference and
Speaker 1: there's general misunderstanding around China's position today and how it
Speaker 1: got there. Generally speaking, a lot of people highlight, for example,
Speaker 1: the fact that vast subsidies were provided to manufacturers. Now
Speaker 1: that was true for many different industries where investment was attracted,
Speaker 1: where foreign direct investment was something that China was trying
Speaker 1: to or the Chinese government was mindful of attracting. So
Speaker 1: that involved the provision of pretty cheap finance, that involved
Speaker 1: land at a low cost, that involved benefiting from a
Speaker 1: relatively cheap labor force at the time, if we're looking
Speaker 1: at over a decade ago, also the provision of low
Speaker 1: cost power. Those things all played a role on the
Speaker 1: economic side of things, and we also saw vast subsidies
Speaker 1: or indirectly or more direct forms of subsidization occurring, and
Speaker 1: that's something that happened. For example, for for the battery
Speaker 1: industry in the early days, there's it's pretty well recorded
Speaker 1: how low cost loans were afforded and given to manufacturers
Speaker 1: to attract them to set up shop in China. Now
Speaker 1: there's a lack of data as to how much that
Speaker 1: exactly entails in terms of overall funding. There's been various
Speaker 1: efforts made by the Department of Energy in the US
Speaker 1: looking at how much exactly was spent to get here.
Speaker 1: But one thing that's also worth mentioning is the fact
Speaker 1: that some of this was due to supply side subsidies
Speaker 1: and policies too, So there was a feed entire program
Speaker 1: that was brought in over a decade ago in China,
Speaker 1: which then led to an incredible boom in PV demand,
Speaker 1: which led, given that you've got a huge domestic market
Speaker 1: to those enabling those economies of scale that have become
Speaker 1: so important to having these huge integrated facilities and lowering costs.
Speaker 1: The same happened for batteries, for example, other very quick
Speaker 1: growth musicipalities, local governments seeking to build out their electric
Speaker 1: bus fleets for example, and that's something that again was
Speaker 1: a massive source of demand and lead to manufacturings being
Speaker 1: able to scale and make future investments and knowing that
Speaker 1: would pay off in the future. So this huge up
Speaker 1: to on and demand is very important. And the end
Speaker 1: picture what we have now is some of the most
Speaker 1: competitive companies in the world such as c A t
Speaker 1: L for example, is the world's largest battery manufacturer, that
Speaker 1: are actually very integrated and they have for activities or
Speaker 1: stakes or investments or direct operations sort of looking at
Speaker 1: across the value chain. So PV manufacturers, producers of for example,
Speaker 1: modules and cells might also operate in gotten way for factories,
Speaker 1: and the same holds true for producers of battery cathodes.
Speaker 1: They might also operate facilities making anodes or separators, and
Speaker 1: that can't be overstated as to how important that is
Speaker 1: today in terms of China's competitive is is less about
Speaker 1: low wages, for example, those have doubled over the last
Speaker 1: decade in China, and it's more about having these incredibly
Speaker 1: technologically sophisticated, integrated value chains that are very often focused
Speaker 1: on industrial hubs and provinces where you have this ecosystem
Speaker 1: of engineers know how an investment built up over a
Speaker 1: decade in many cases in one place, and that really
Speaker 1: was at the heart of China's competitiveness today. So why
Speaker 1: do you have reason to believe that supply chains are changing,
Speaker 1: that there is interest in other countries to bring this
Speaker 1: on board. Number of things have changed, and one of
Speaker 1: the big shifts that we've seen over the last couple
Speaker 1: of years is as there's been discussion localizing supply chains
Speaker 1: as a result of the COVID crisis, or at least
Speaker 1: diversifying things to make them more resilient. Generally speaking, what
Speaker 1: we've talked about here is that many of these different
Speaker 1: bits of clean energy manufacturing are incredibly concentrated in one
Speaker 1: part of the world, and regardless of your various inclinations
Speaker 1: you might have in the political spectrum or geopolitical concerns,
Speaker 1: that concentration is a vulnerability. So generally speaking, if, for example,
Speaker 1: as is the case today, one in seven Chinese solo
Speaker 1: panels are produced within one factory, then if that factory
Speaker 1: shuts down, that has some pretty dramatic repercussions. And there
Speaker 1: have been some issues around gas rationing at least previously,
Speaker 1: and then that causing some slowdown manufacturing at certain facilities
Speaker 1: which have elongated delivery timelines. Or also I believe that
Speaker 1: there was a good move of shipping being disrupted by
Speaker 1: the global movement of PPE, which then changed delivery timelines
Speaker 1: for a lot of different goods as well. Did this
Speaker 1: also affect the clean energy pipeline? Yes, of course, the
Speaker 1: increase in freight rates, the longer lead times, the build
Speaker 1: ups and pork congestion this will had a massive effect,
Speaker 1: as did other things. Are just very recently the last
Speaker 1: few months we've seen in the middle of this year,
Speaker 1: it was the summer of fire in Shinjiang Province in
Speaker 1: ch Know, which is a big pository of a lot
Speaker 1: of polysilicon production, which led to a factory being shut
Speaker 1: down that increased pressure on prices, and we also saw
Speaker 1: later in the year in August, poly cilicon prices reach
Speaker 1: on the spot market eleven year highs as a result
Speaker 1: of the drought that we saw in Stetran Province which
Speaker 1: led to extricity generations shortages. It's been something that's been
Speaker 1: really evident recently is that even outside of the sort
Speaker 1: of recurring concerns around lockdowns in Shanghai or various other
Speaker 1: COVID related or even war related supply chain issues, we've
Speaker 1: seen evidence of this gaping vulnerability at the heart of
Speaker 1: the world's keenergy supply chain recur and wear its head
Speaker 1: again and again. Now for a very short break, stay
Speaker 1: with us. So which country seemed to be making I
Speaker 1: guess the biggest steps towards bringing manufacturing more local. I've
Speaker 1: just talked about how the concentration of supply chains is
Speaker 1: of vulnerability, and that resiance is something that's being thought
Speaker 1: about by policymakers. There's another factor as well, which is
Speaker 1: the creation of jobs, and that's equally relevant when we
Speaker 1: look at a part of the world that's acting quite
Speaker 1: fast and quite decisively in terms of trying to reshore
Speaker 1: or at least onshore and localize that clean energy manufacturing.
Speaker 1: And that's the US. So the United States. In August,
Speaker 1: Joe Biden signed in the Inflation Reduction Acts, which is
Speaker 1: this massive historic bill that includes provisions on healthcare but
Speaker 1: also is the US is most significant piece of climate
Speaker 1: legislation ever to date. Pretty huge deal. And as part
Speaker 1: of that, what it includes is a sweeping array of
Speaker 1: tax credits which are the main sort of vector to
Speaker 1: which all of this subsidy spending is happening, which targets
Speaker 1: the deployment of a lot of that clean energy. But
Speaker 1: what it also includes is measures that are specifically intended
Speaker 1: to see the development of clean energy manufacturing in the
Speaker 1: US or at least a greater sort of diversification of
Speaker 1: manufacturing and among the US is perceived allies. So, for example,
Speaker 1: if an electric vehicle is being supported by these tax credits,
Speaker 1: are given, share of the battery materials and components that
Speaker 1: are in that electric vehicle have to be produced within
Speaker 1: North America, for example, or depending on what's being covered
Speaker 1: in countries with which United States has a free trade
Speaker 1: agreement for that electric vehicle to be subsidized, So access
Speaker 1: to those subsidies is depending on these local content provisions,
Speaker 1: and we're also seeing pretty generous and meaningful tax credits
Speaker 1: that are then on an output basis subsidizing manufacturing. So
Speaker 1: a manufacture of polysydic and can get I think it's
Speaker 1: ten thousand dollars per mega work of production. That rises
Speaker 1: to fifty thousand if you're producing wafers, for example, and
Speaker 1: that's a reasonably large chunk of the prices of those
Speaker 1: components that we've seen today, So they make a big difference,
Speaker 1: I think, really big deal as well is the fact
Speaker 1: that this is not only backed by pretty aggressive local
Speaker 1: content provisions, is that these subsidies aren't only to last
Speaker 1: over the next decade so through two is a sort
Speaker 1: of phase outdates for all of them across the board.
Speaker 1: Is that not only are they also spread out across sectors,
Speaker 1: whether it's different parts of the wind value chain, whether
Speaker 1: it's for factories in the battery value chain, whether or
Speaker 1: not is for critical minerals or the solar value chain.
Speaker 1: There's this incredible fact which is that the overall subsidy
Speaker 1: budget is infinite. So actually depending on how demand scales,
Speaker 1: if manufacturers are convinced that demand is going to grow
Speaker 1: in the US that it's worth setting up shop and
Speaker 1: building a factory in breaking ground and developing production lines.
Speaker 1: Then that the subsidy volume could be extremely substantial, and
Speaker 1: that's already sort of estimated by the US government reckons
Speaker 1: it's going to spend around billion on clean energy as
Speaker 1: a result of the i RA through two roughly, but
Speaker 1: that figure could swell and could be far higher depending
Speaker 1: on whether or not on the extent to which manufacturing
Speaker 1: takes off. So it's no exaggeration to say that this
Speaker 1: is a historic turning point, and we are already seeing
Speaker 1: investments made into building out manufacturing capacity across solo, across batteries.
Speaker 1: So given that the potential is you mentioned, to some
Speaker 1: extent limitless for certain parts of the industry, do you
Speaker 1: have a general idea on how much of the supply
Speaker 1: chain you think might shift between now and let's say
Speaker 1: right now, we're tracking investments and we're looking at what's
Speaker 1: happening in the battery space, for example, and it's quite substantial.
Speaker 1: We see announced investment in battery cell manufacturing capacity that's
Speaker 1: of the order of above eight hundred gigawa hours by
Speaker 1: twenty thirty and exceeds demands locally in the US by
Speaker 1: that date by over two hundred gigawa hours, So it's
Speaker 1: really substantial as a pipeline, and that involves roughly sort
Speaker 1: of eight billion dollars of funding investment to build out
Speaker 1: those manufacturing facilities. Things are moving pretty quickly on the
Speaker 1: and the what we've done to gauge the extent of
Speaker 1: which that finance and those subseas are meaningful is we've
Speaker 1: roughly estimated to how much it would cost to do
Speaker 1: everything locally to build up that factory capacity across the board.
Speaker 1: So how much will it cost to build all the
Speaker 1: factories you need to meet demand for solar, for batteries,
Speaker 1: for battery metals, for even electrolyzers you need to make
Speaker 1: low carbon hydrogen. So we estimated for the U S
Speaker 1: that would be about a hundred and thirteen billion by
Speaker 1: twenty thirty dollars, and then for the EU that would
Speaker 1: be a hundred billion dollars. So the sums involves are substantial,
Speaker 1: But actually when you compare that to the cost of
Speaker 1: deploying those technologies, what we see is that there's actually
Speaker 1: only a small fraction of the overall cost of the
Speaker 1: energy transition. So essentially it'll add cast, but then there
Speaker 1: are cost savings elsewhere. So generally, what are we going
Speaker 1: to see to the cost of the finished products and
Speaker 1: the people are actually procuring these finished modules or batteries.
Speaker 1: So it's not just about the upfund investment for factories
Speaker 1: like I mentioned, and that's a really useful bell weather
Speaker 1: sort of asure the extent to which the funding that
Speaker 1: we're seeing announces significant. It's also about a number of
Speaker 1: other things and the success of this transition and the
Speaker 1: success of this politicized sort of desire to build out
Speaker 1: local manufacturing in the US, for example, but it's something
Speaker 1: that's very much present in the U that's very much
Speaker 1: present in India, for example, is the fact that is
Speaker 1: whether or not production can be competitive. In the US,
Speaker 1: we've seen these local content rules which will fall to
Speaker 1: an extent basically artificially create a competitive environment for local production,
Speaker 1: but production is still more expensive in the US than elsewhere,
Speaker 1: and that really depends on sector. So you see pretty
Speaker 1: dramatic differences in the cost of producing electoralizers in China
Speaker 1: versus Europe or North America. So Chinese electoralizers are about
Speaker 1: five times cheaper because of low operational expenses, low running costs,
Speaker 1: also the provision of cheap equipment and equipment providers that
Speaker 1: are already where's already far more capacity in that area
Speaker 1: built out in China today and even more established sectors
Speaker 1: like there are significant volumes of policylicon being produced in
Speaker 1: Europe today, but the cost of that policylic and is
Speaker 1: far above the average costs that we're seeing globally, and
Speaker 1: especially in China's it's significantly lower. So those running costs
Speaker 1: are going to be higher if you're producing in the
Speaker 1: Global West generally speaking, or even in places like India
Speaker 1: as the sector scales, and you don't have those same
Speaker 1: integrated value chains, and that in of itself is a challenge.
Speaker 1: Another challenge is also the fact that there are significant
Speaker 1: labor needs for those different industries right now. If a
Speaker 1: South Korean sort of LG can, for example, a battery
Speaker 1: manufacturers building out facility in the US, they'll very often
Speaker 1: rely on South Korean engineers to come over and assist
Speaker 1: because of the lack of know how, a lack of
Speaker 1: skilled workers in the United States. Those kind of labor
Speaker 1: shortages is something that's being considered very seriously by an
Speaker 1: industry that's scaling up quickly and important things is also
Speaker 1: that generally speaking, the ecosystem of of associated sort of
Speaker 1: raw material supplies and producers and providers isn't as press
Speaker 1: and so if you're producing PV, if you're producing modules
Speaker 1: in the US, you'll need to deal with the fact
Speaker 1: that right now there isn't an awful loss of those
Speaker 1: materials that you need to build those modules, whether it's
Speaker 1: backsheets or whether it's encapsulent sort of material used to
Speaker 1: as basically glue for some of those cells. So this
Speaker 1: is all a challenge, and this is something that needs
Speaker 1: to be built out, and a lot of those bottlenecks
Speaker 1: and hurdles are only going to become evident if production
Speaker 1: does scale. There's also another question, and that really is
Speaker 1: around the fact that a lot of the bleeding edge
Speaker 1: of technological proficiency and knowledge today for a lot of
Speaker 1: those different sexes resides in China. We're not just seeing
Speaker 1: things being produced on the cheap. We're actually seeing a
Speaker 1: lot of those companies really and the forefront of technological
Speaker 1: innovation and knowledge. Now. Usually when you see a region
Speaker 1: try and build up it's manufacturing base for different technology,
Speaker 1: what they try and do is attract manufacturers from countries
Speaker 1: which are leading and for many of those sexes, that's China.
Speaker 1: And the extent to which China these manufacturers are going
Speaker 1: to be able to freely operate or are going to
Speaker 1: be successful in terms of building out capacity in place
Speaker 1: like the US is a bit of an open question
Speaker 1: right now. So that's another thing is policymakers also need
Speaker 1: to be mindful of the fact that transfer of knowledge
Speaker 1: might be made more difficult if some of the decoupling
Speaker 1: that we're seeing today begins to pick up pace. And
Speaker 1: we're already seeing some pretty worrying signals from that perspective,
Speaker 1: where for example, the United States has locked the export
Speaker 1: of some of the most advanced the conductors to China
Speaker 1: over the last month, and that's generally perceived as a
Speaker 1: direction of travel today now for a very short break
Speaker 1: stay with US. So presumably these incumbent players are not
Speaker 1: keen on the idea that they will be losing market share,
Speaker 1: and so it's this technology exchange that's really at the
Speaker 1: heart of trying to protect market share. There is a
Speaker 1: fear on the part of Chinese manufacturers as the result
Speaker 1: of these policies they might lose global market share, and
Speaker 1: what we're seeing is those companies reacting pretty decisively. For example,
Speaker 1: I've mentioned with the IRA, there are various provisions that
Speaker 1: are put in place that favor battery components are within
Speaker 1: countries that have a free trade agreement with the US.
Speaker 1: So we're seeing, for example, some Chinese companies set up
Speaker 1: shop and build out their manufacturing capacity in South Korea,
Speaker 1: a country that has a free trade agreement with the US.
Speaker 1: But it's not just about the IRA and its provisions.
Speaker 1: We're also seeing a significant pipeline of projects of battery
Speaker 1: self factories in Europe, for example, and that comes with
Speaker 1: its own set of policies to see through and develop
Speaker 1: that sector. Now, the EU isn't as joined up in
Speaker 1: terms of having the same kind of manufacturing incentives that
Speaker 1: the US has. Has got a patch work of sort
Speaker 1: of grants and loans and various sort of government sort
Speaker 1: of members state subsidy programs that do encourage the localization
Speaker 1: of a lot of those factories in different parts of
Speaker 1: the value chain, but generally speaking it's less coordinated. However,
Speaker 1: we are seeing several policies come in place that could
Speaker 1: be quite decisive. One of them is the launch in
Speaker 1: the coming years of what's referred to as a battery
Speaker 1: passports are for every battery retail lifting mind, battery retailed
Speaker 1: within the EU, you'll have a QR code which gives
Speaker 1: you information about recycled content about from a life cycle
Speaker 1: basis of the batteries carbon footprint, and then that will
Speaker 1: then be linked to mandatory product requirements. So if you
Speaker 1: had a battery that was produced in a very coal
Speaker 1: heavy grid, a coal heavy part of the world, then
Speaker 1: by when a lot of these requirements are to be
Speaker 1: scaled up after being brought in a few years before,
Speaker 1: then you could see them failing to meet those requirements
Speaker 1: and that could then be a bit of a barrier
Speaker 1: to importing batteries from elsewhere. So already we're seeing action
Speaker 1: from Chinese battery manufacturers to reduce the carbon intensity of
Speaker 1: their production to favor hydro heavy so regions with an
Speaker 1: availability a high availability of hydro ectric power, to generally
Speaker 1: lower there the carbon footprint associated with the batteries they're making.
Speaker 1: That's a shift that we're also seeing as companies adapt.
Speaker 1: And then another point I'd make is also that we
Speaker 1: are seeing pretty substantial investments across the board, whether it's
Speaker 1: in Europe, whether it's in the US, and we're also
Speaker 1: seeing a pretty significant upsurgeon investment for PV manufacturing in India,
Speaker 1: but we're still seeing massive investments in developing capacity in
Speaker 1: China too. So right now today we might be in
Speaker 1: a situation where nearly of battery cells are made in China,
Speaker 1: but when we look at the sector that's going to
Speaker 1: grow by over seven times by twenty thirty, we're only
Speaker 1: going to see that China share dropped to around so Europe,
Speaker 1: the US, they're going to take a larger share of
Speaker 1: the pie, but that's a growing pie, and the overall
Speaker 1: share that China occupies is only going to drop by
Speaker 1: a little bit. So there's a massive opportunity here to
Speaker 1: make jobs, to render supply chains less concentrated, potentially more
Speaker 1: robust as they're diverse, defied by these initiatives. But overall,
Speaker 1: this isn't a shift that's going to happen overnight, and
Speaker 1: China's dominance isn't something that's going to disappear from one
Speaker 1: day to the next. So it seems like we're on
Speaker 1: the precipice of a fairly large shift and we'll see
Speaker 1: what the future really does hold. And in the process
Speaker 1: of researching all of this, presumably there are additional questions
Speaker 1: that have come up in your mind. So what are
Speaker 1: the things that you know you're thinking about that you
Speaker 1: want to investigate further that you don't yet know the
Speaker 1: answers to that you think are going to really have
Speaker 1: a big impact on what happens to global supply chains
Speaker 1: for clean energy. One of the big questions is if
Speaker 1: we localize manufacturing, that can bring a host of cod
Speaker 1: benefits that we just mentioned. But alongside those associated upsides,
Speaker 1: there's also a very simple fact, and that is, if
Speaker 1: you're building a way for facility in the US, for example,
Speaker 1: that we estimate is going to be about three times
Speaker 1: more expensive than building it in China today, that costs
Speaker 1: will drop with time, But what won't necessarily catch up
Speaker 1: with China will be the cost of running that facility.
Speaker 1: So you're gonna end up with facilities and factories that
Speaker 1: are producing clean energy technologies, generally speaking, at a higher cost.
Speaker 1: When we've got all this talk of decoupling, of re shuffling,
Speaker 1: reorganizing supply chains, of reshoring or friend shoring or on
Speaker 1: shoring or localizing or whatever you want to call it,
Speaker 1: what we're seeing is a move away from a global
Speaker 1: economic order that's based on efficiency to one that's guided
Speaker 1: by a set of very different principles. So what we
Speaker 1: are seeing today in the US is protectionism or industrial strategy,
Speaker 1: whatever you want to call it, and that's something that
Speaker 1: again is going to be incredibly important to making supply
Speaker 1: chains more robust. But on the flip side, it also
Speaker 1: means that the energy transition globally is going to be
Speaker 1: more expensive. So what we've seen over the last decade
Speaker 1: plus is a drop of the cost of PV of
Speaker 1: the order. We can measure this. We can refer to
Speaker 1: learning rates for example, so I've reach doubling of global
Speaker 1: capacity for energy storage or for solar power, you see
Speaker 1: a learning rates at cost productions of around a seen
Speaker 1: to and that's really substantial. Those cost de clients have
Speaker 1: been huge, and they've largely been enabled by these very efficient,
Speaker 1: technologically advanced value chains that we've seen in China. If
Speaker 1: we're moving to producing in the US, then the big
Speaker 1: question is how much is that going to cost overall?
Speaker 1: Does that mean that the energy transition becomes more expensive?
Speaker 1: And the big question is government in its forecast, in
Speaker 1: its estimates, ready to move away from that least cost
Speaker 1: economic way of figuring out what the energy transitions price
Speaker 1: tag is going to be and facing up to the
Speaker 1: real challenges involved in making that shift. Antoine, thank you
Speaker 1: very much for talking to us about supply chains today.
Speaker 1: I think there's a lot to evaluate in the future.
Speaker 1: So hopefully you will come back and dig in on
Speaker 1: some of the individual industries and things as they start
Speaker 1: to emerge and changes start to happen. That sounds wonderful.
Speaker 1: Thanks having. Today's episode of Switched On was edited by
Speaker 1: Rex Warner of gray Stoke Media. Bloomberg an f A
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