WEBVTT - Will Biden’s IRA Spark a New Era in Clean-Tech Supply? 0:00:00.120 --> 0:00:02.760 This is Dana Perkins and you're listening to Switched on 0:00:02.960 --> 0:00:05.840 the B and EF podcast. Today we welcome back to 0:00:05.880 --> 0:00:08.520 the show the head of Trade and Supply Chains at BNAF, 0:00:08.680 --> 0:00:12.319 Antoine Wagner Jones. Last year, Antoine came on the show 0:00:12.320 --> 0:00:15.600 to discuss the complex world of global supply chains and 0:00:15.640 --> 0:00:20.520 how the then newly introduced Inflation Reduction Act was impacting them. Well, 0:00:20.640 --> 0:00:23.120 in a few months that have passed, the IRA has 0:00:23.239 --> 0:00:26.640 indeed caused a shift in clean tech production alignment in 0:00:26.680 --> 0:00:30.720 the US and in response, other countries, regions and trading 0:00:30.720 --> 0:00:33.760 blocks have been making moves of their own. So what 0:00:33.960 --> 0:00:36.919 is the current state of play, both in and outside 0:00:36.960 --> 0:00:39.960 of the US and what policies are countries introducing to 0:00:40.120 --> 0:00:43.920 ensure that they keep pace with their own clean energy transitions. Well, 0:00:43.920 --> 0:00:46.040 we're going to come to that, and on today's show 0:00:46.080 --> 0:00:48.839 we discuss with Antoine a range of topics. We talk 0:00:48.880 --> 0:00:52.440 about the potential fracturing of these traditional supply chains as 0:00:52.479 --> 0:00:55.800 countries attempt to onboard their clean tech production and the 0:00:55.920 --> 0:00:59.200 risks that this may pose for the global net zero targets. 0:00:59.480 --> 0:01:03.600 Also how countries and areas like the EU have reacted 0:01:03.600 --> 0:01:06.759 to the inflation reduction Act and then lastly, really can 0:01:06.800 --> 0:01:10.520 anyone challenge China's production capacity. If you like this podcast, 0:01:10.640 --> 0:01:13.440 make sure to subscribe on whatever player you're listening to 0:01:13.480 --> 0:01:16.720 it on today to receive updates on future episodes, and 0:01:16.880 --> 0:01:20.160 consider giving us a review on Apple Podcasts or Spotify. 0:01:20.360 --> 0:01:23.800 We've included several links to BNF research notes on supply 0:01:23.920 --> 0:01:27.280 chains in today's show notes, and BNF subscribers can access 0:01:27.319 --> 0:01:30.640 them at BNF on the Bloomberg terminal, at BNF dot com, 0:01:30.800 --> 0:01:33.400 or on our mobile app. As a reminder, bn EF 0:01:33.440 --> 0:01:36.679 does not provide investment or strategy advice, and our full 0:01:36.680 --> 0:01:38.800 disclaimer is at the end of the show. But right 0:01:38.840 --> 0:01:51.640 now I get to speak with Antoine about supply chains. Antwin, 0:01:51.680 --> 0:01:53.320 thank you very much for joining us today. 0:01:53.440 --> 0:01:54.880 Thanks Dana, great to be here. 0:01:55.160 --> 0:01:57.480 So we're here, We're back. We're talking about supply chains 0:01:57.480 --> 0:02:00.120 with you on the show, and this is actually a 0:02:00.160 --> 0:02:02.400 really great time. No, we scheduled this before we knew 0:02:02.400 --> 0:02:04.000 what was going to happen at the G seven, But 0:02:04.080 --> 0:02:06.920 at the G seven supply chains featured quite prominently. Can 0:02:06.960 --> 0:02:09.359 you tell us a little bit about what transpired? 0:02:09.680 --> 0:02:12.120 That's right, there was a convening of the G seven 0:02:12.400 --> 0:02:15.960 in Hiroshima in Japan, and three days ago on the 0:02:16.000 --> 0:02:19.120 twentieth of May, they issued a communicate, which means that 0:02:19.280 --> 0:02:22.480 it's a document that outlines their priorities. And what was 0:02:22.520 --> 0:02:25.520 striking was maybe two things. One was the extent to 0:02:25.560 --> 0:02:28.400 which supply chains featured and the importance of building out 0:02:28.400 --> 0:02:31.600 clean energy manufacturing. And that's something that we've seen piecemeal 0:02:31.680 --> 0:02:35.760 emerge across these big economies across the world since August 0:02:35.760 --> 0:02:38.440 of last year with the Inflation Reduction Act being passed 0:02:38.440 --> 0:02:40.520 by the US, and we also saw a desire to 0:02:40.520 --> 0:02:43.839 sort of reframe what's being seen as strategic based off 0:02:43.840 --> 0:02:47.480 with China and not talking about decoupling, but talking about 0:02:47.560 --> 0:02:50.320 de risking. And that's very important as well, because a 0:02:50.320 --> 0:02:53.880 lot of these moves towards reshaping clean energy supply chains 0:02:53.880 --> 0:02:57.000 are shaped in relationship with China, which dominates the production 0:02:57.040 --> 0:02:58.120 of clean energies today. 0:02:58.480 --> 0:03:01.440 And certainly we're here to talk about clean energy supply chains, 0:03:01.680 --> 0:03:05.280 but was it all supply chains or specifically clean energy 0:03:05.320 --> 0:03:07.320 supply chains that were discussed at the G seven. 0:03:07.520 --> 0:03:10.280 So energy featured in about a court of the total 0:03:10.280 --> 0:03:12.519 points that were put out in the various documents that 0:03:12.560 --> 0:03:16.080 were issued after the convening. And what's interesting is when 0:03:16.080 --> 0:03:18.760 they've talked about supply chains, when that was mentioned, it 0:03:18.840 --> 0:03:22.880 really was mentioned overwhelmingly with relation to either making supply 0:03:22.960 --> 0:03:25.679 chains more sustainable, so accounting for emissions as part of 0:03:25.720 --> 0:03:29.440 supply chains, or talking about the on shoring of clean 0:03:29.520 --> 0:03:33.000 energy supply chains that's implicitly things like batteries, things like 0:03:33.080 --> 0:03:36.360 solar panels, things like electorallyzers for making hydrogen. 0:03:37.040 --> 0:03:40.600 For a very long time, China has dominated in this 0:03:40.720 --> 0:03:45.440 clean energy equipment manufacturing space and has really driven a 0:03:45.480 --> 0:03:47.720 lot of the cast of clients in certain industries. And 0:03:47.800 --> 0:03:50.760 let's use solar as an example. Even though this conversation 0:03:51.000 --> 0:03:54.920 really has started to shift towards having more local supply 0:03:55.000 --> 0:03:58.040 chains around the world, is China still the dominant player. 0:03:58.640 --> 0:04:02.040 So China still dominates dominates in various areas, and that 0:04:02.120 --> 0:04:05.680 really ranges from the production of various pieces of equipment, 0:04:05.840 --> 0:04:08.400 so of solar modules, of the end piece of equipment 0:04:08.480 --> 0:04:11.040 like battery cells, but it also goes upstream from there, 0:04:11.080 --> 0:04:13.680 and that dominance is even more accentuated in sort of 0:04:13.680 --> 0:04:17.040 midstream building blocks to making solar modules for example, like 0:04:17.200 --> 0:04:19.760 ingots and wafers. And when it comes to batteries, anodes 0:04:19.800 --> 0:04:22.080 and cathodes, and then if you go even further up, 0:04:22.120 --> 0:04:25.040 there's also a lot of refining that's done for things 0:04:25.080 --> 0:04:27.760 like lithium, for things like cobalts, so metals that are 0:04:27.839 --> 0:04:30.719 used for making batteries in sort of the mainstream battery 0:04:30.800 --> 0:04:33.520 chemistries that we're seeing today, and those two are mostly 0:04:33.560 --> 0:04:37.120 located in China. And what we've been doing recently at 0:04:37.120 --> 0:04:39.520 BNF over the last few months is starting to track 0:04:39.760 --> 0:04:42.280 investments and starting to look at the amounts that's sort 0:04:42.279 --> 0:04:45.120 of represented that's flowing into new factories that are being 0:04:45.120 --> 0:04:47.800 brought online across the different sectors that we're looking at. 0:04:47.839 --> 0:04:52.400 And actually there's this dominance today of manufacturing concentrated within China, 0:04:52.400 --> 0:04:55.159 but when we look at new facilities new factories that 0:04:55.200 --> 0:04:58.200 are being brought online, that's equally striking. And actually what 0:04:58.240 --> 0:05:01.200 we're seeing in things like for SOL for example, upwards 0:05:01.240 --> 0:05:04.279 of ninety five percent of new capacity that's coming online 0:05:04.279 --> 0:05:07.240 that came online last year did so in China. When 0:05:07.240 --> 0:05:09.760 we look at the battery supply chain too, it was 0:05:09.839 --> 0:05:12.600 upwards of ninety percent of everything new that came online 0:05:12.600 --> 0:05:15.120 in terms of capacity came online in China. So that's 0:05:15.160 --> 0:05:17.839 not just a snapshot in time. It's not just a 0:05:17.880 --> 0:05:20.839 picture that we're seeing. Over the last few years, China's dominated, 0:05:20.880 --> 0:05:23.200 but that's starting to change. Even though we've got all 0:05:23.200 --> 0:05:26.279 of this talk of shifting supply chains and on shoring 0:05:26.400 --> 0:05:29.680 things to various countries and friendshuring and near suring, what 0:05:29.760 --> 0:05:33.159 we're not seeing is that translate into factories coming online 0:05:33.240 --> 0:05:37.040 just yet to really challenge that dominance of all that 0:05:37.080 --> 0:05:39.480 concentration of capacity in one country. 0:05:39.520 --> 0:05:43.680 And that conversation around enshuring near shoring moving. The supply 0:05:43.800 --> 0:05:46.400 change largely has to do with the West and then 0:05:46.600 --> 0:05:50.240 Australia and the beginning you reference the G seven transpiring. 0:05:50.279 --> 0:05:52.880 At the same time as the G seven, China had 0:05:52.920 --> 0:05:55.000 a meeting with a number of other countries in Asia, 0:05:55.400 --> 0:05:59.440 which also serve as an excellent block of countries that 0:05:59.520 --> 0:06:03.360 are also so installing renewable energy. Is the domestic market, 0:06:03.360 --> 0:06:05.640 both in China and then within the rest of the 0:06:05.680 --> 0:06:09.640 continent going to essentially grow to the point that even 0:06:09.680 --> 0:06:12.839 with the onshoring and near shoring taking place in other 0:06:12.920 --> 0:06:15.960 parts of the world, perhaps it doesn't wind down business 0:06:15.960 --> 0:06:18.280 activities within Asia. 0:06:18.400 --> 0:06:21.440 So definitely, domestic markets are really important when it comes 0:06:21.480 --> 0:06:23.600 to industrial strategy, and that's something that we're sort of 0:06:23.600 --> 0:06:25.560 seeing from a number of different angles. One of the 0:06:25.600 --> 0:06:27.760 reasons why China has been able to scale up the 0:06:27.760 --> 0:06:30.719 manufacturing of things like batteries, of things like soda, having 0:06:30.720 --> 0:06:35.000 these really efficient integrated value chains located within its borders 0:06:35.520 --> 0:06:38.599 is due to having this massive booming local market and 0:06:38.640 --> 0:06:42.160 then having that be the basis for developing this manufacturing 0:06:42.240 --> 0:06:43.960 base and then being able to export from that has 0:06:44.000 --> 0:06:46.080 been really key to to what we've seen play out 0:06:46.120 --> 0:06:48.360 over the last couple of decades. And then the presence 0:06:48.400 --> 0:06:51.560 of countries near China that are also seeing an increase 0:06:51.560 --> 0:06:55.000 in an uptake of renewable energy of storage of electric vehicles, 0:06:55.040 --> 0:06:57.919 whether they be two three wheelers or passenger vehicles, is 0:06:57.960 --> 0:07:00.320 also a big part of the picture, and that's something 0:07:00.360 --> 0:07:03.360 that we'll see manufacturing emerge in those countries too, and 0:07:03.400 --> 0:07:06.000 we are already seeing that. But is also a boon 0:07:06.120 --> 0:07:08.680 to sort of China being able to leverage its proximity 0:07:08.680 --> 0:07:11.480 to those markets in continuing to remain one of the 0:07:11.520 --> 0:07:13.240 big sources of exports in the region. 0:07:13.400 --> 0:07:16.160 So you noted that some of the projects haven't really 0:07:16.200 --> 0:07:20.240 started yet and that we haven't seen these manufacturing facilities 0:07:20.280 --> 0:07:23.360 really at the scale that they're being talked about, or 0:07:23.400 --> 0:07:25.920 perhaps are intended in the future. But certainly there are 0:07:25.960 --> 0:07:28.200 movements in various countries and parts of the world from 0:07:28.240 --> 0:07:32.440 a policy standpoint, that do very intentionally create an environment 0:07:32.480 --> 0:07:34.840 where we expect to see this happen in the future. 0:07:34.880 --> 0:07:38.520 So let's start with the US. Can you remind us 0:07:38.560 --> 0:07:41.640 briefly what it is that the Inflation Reduction Act is 0:07:41.680 --> 0:07:45.880 designed to do in reference to supply chains and manufacturing. 0:07:46.560 --> 0:07:48.880 Absolutely, when we talk about a lack of investment in 0:07:48.920 --> 0:07:51.880 new facilities, that's really in the West, in countries that 0:07:52.040 --> 0:07:55.560 profess to have this real emphasis on reshowing, on onshoring, manufacturing, 0:07:55.600 --> 0:07:57.760 supply chains for clean energy, and we haven't seen that 0:07:57.760 --> 0:08:01.960 translate into commissionings yet into being brought online at scale 0:08:02.080 --> 0:08:04.160 and anywhere near the scale that we're seeing in China. 0:08:04.160 --> 0:08:06.360 And we're continuing to see there. That might change, and 0:08:06.400 --> 0:08:09.680 that might change just because of what you mentioned just now, 0:08:09.720 --> 0:08:12.440 which is because of policies like the Inflation Reduction Act, 0:08:12.560 --> 0:08:16.240 which are all about deploying speeding the energy transition within 0:08:16.280 --> 0:08:18.400 the US, but are also framed and this is really 0:08:18.400 --> 0:08:21.960 important as an economic tool as a job creation bill, 0:08:22.160 --> 0:08:25.840 and as something that really doubles down on localizing the 0:08:26.120 --> 0:08:28.880 value add and having that accrue as part of the 0:08:28.960 --> 0:08:31.040 energy transition, having that value add a crew to the 0:08:31.120 --> 0:08:34.400 US to the domestic market. So what's resulted is this 0:08:34.480 --> 0:08:37.920 policy which not just subsidizes through the form of tax credits, 0:08:37.960 --> 0:08:40.440 the deployment of things like evs, of things like the 0:08:40.440 --> 0:08:43.400 production of hydrogen of ccs, but also is very keen 0:08:43.480 --> 0:08:46.600 on providing that same support to manufacturing facilities. So you've 0:08:46.600 --> 0:08:49.520 got tax credits again that are available for manufacturers not 0:08:49.600 --> 0:08:52.720 just of critical minerals for batteries, but also of various 0:08:52.720 --> 0:08:57.120 components for whether it's onshore or offshore wind, solar battery 0:08:57.160 --> 0:08:59.920 making itself really across the board, and it's very compar 0:09:00.240 --> 0:09:02.280 have been doing so. And then you've got some additional 0:09:02.320 --> 0:09:04.520 tools which are very much linked to this, such as 0:09:04.520 --> 0:09:06.880 with some of the investment tax credits which are available 0:09:06.880 --> 0:09:10.720 for deploying renewable energy projects. Ten percent for examples, is 0:09:10.720 --> 0:09:14.080 typically what it's set at. Additional subsidies which are provided 0:09:14.120 --> 0:09:18.000 when various domestic manufacturing requirements are met. So there's a 0:09:18.000 --> 0:09:20.360 whole suite of tools that are deployed as part of 0:09:20.400 --> 0:09:23.440 not just the Inflation Reduction Act, but also piece of 0:09:23.480 --> 0:09:25.800 legislation that are linked to it, such as the Infrastructure 0:09:25.800 --> 0:09:28.680 Bill that was passed earlier by the Biden administration. And 0:09:28.720 --> 0:09:31.600 that's a pretty powerful arsenal when it comes to really 0:09:31.679 --> 0:09:34.480 channelling investments into the US, and we've seen a pretty 0:09:34.520 --> 0:09:36.600 marked response as a result of that. What we're doing 0:09:36.679 --> 0:09:40.360 is tracking new EV new battery factory projects. We're doing 0:09:40.360 --> 0:09:42.280 so in other areas too, but just when we look 0:09:42.320 --> 0:09:46.000 at EV's and batteries, we see about sixty plus billion 0:09:46.040 --> 0:09:50.160 dollars of new announcements that have been made since August 0:09:50.280 --> 0:09:52.680 last year, and really directly as a result of the 0:09:52.720 --> 0:09:55.480 Inflation Reduction Act. So the IRA has really proven that 0:09:55.559 --> 0:10:00.480 it's managed to convince developers, investors finances to double their 0:10:00.480 --> 0:10:04.280 efforts towards funding facilities in the US for manufacturing clean 0:10:04.400 --> 0:10:06.760 energy technologies. And that's something that's really speeding up. 0:10:06.920 --> 0:10:10.280 And certainly this will drive this onshoring move in the 0:10:10.400 --> 0:10:13.640 United States. But what about the near shoring aspects? Does 0:10:13.679 --> 0:10:17.440 the array have a benefit for nearby countries and specifically 0:10:17.520 --> 0:10:21.360 I'm thinking about Mexico, which has started to emerge as 0:10:21.400 --> 0:10:23.120 a nearby manufacturing hub. 0:10:23.360 --> 0:10:25.800 So there are various bits of the IRA that do 0:10:25.840 --> 0:10:28.280 allow for near shoring. I think what's important to note 0:10:28.320 --> 0:10:30.000 is that this is actually quite limited when we talk 0:10:30.040 --> 0:10:31.960 about the IRA as a whole. There's a number of 0:10:31.960 --> 0:10:35.480 different production tax credits, investment tax credits that fund clean 0:10:35.600 --> 0:10:38.120 energy technologies, but there's only really one where this whole 0:10:38.160 --> 0:10:41.280 near shoring aspect is that relevant, and that's the Electric 0:10:41.400 --> 0:10:44.240 Vehicle Tax Credit. So that's five hundred dollars that you're 0:10:44.280 --> 0:10:47.480 ultimately eligible if you meet both criteria that are set 0:10:47.679 --> 0:10:50.280 for accessing this tax credit, and part of that can 0:10:50.320 --> 0:10:54.560 be met via sourcing critical materials from a number of geographies, 0:10:54.880 --> 0:10:57.800 including countries with which the US is a free trade 0:10:57.840 --> 0:11:01.160 agreement and that does include North America to Canada and Mexico. 0:11:01.400 --> 0:11:05.320 And the other is to assemble manufacture electric vehicles in 0:11:05.440 --> 0:11:09.320 North America, and that includes Mexico and Canada, and that 0:11:09.360 --> 0:11:12.800 does represent opportunities not just for free trade agreement countries, 0:11:12.880 --> 0:11:15.440 but also for of course the countries that are closest 0:11:15.440 --> 0:11:19.120 and that are most enmeshed in the vehicle supply chains 0:11:19.120 --> 0:11:21.600 that we have today in the US, and Mexico really 0:11:21.600 --> 0:11:24.079 has pride of place there as somewhere where it's actually 0:11:24.160 --> 0:11:27.079 quite cheap to manufacture. Labor costs are now cheaper than 0:11:27.080 --> 0:11:30.440 in China, Andres Manuel Lopez Obrador, the Mexican President, is 0:11:30.520 --> 0:11:32.800 very keen to make good on this. And even though 0:11:32.840 --> 0:11:35.440 he isn't very keen on building out renewable energy locally 0:11:35.440 --> 0:11:37.520 within his country, he is keen on building on these 0:11:37.600 --> 0:11:40.080 kind of opportunities available as a result of near shoring 0:11:40.200 --> 0:11:43.400 and the IRA having those provisions, So that changes things somewhat. 0:11:43.480 --> 0:11:46.520 And what we've also spotted as a trend that's emerged 0:11:46.640 --> 0:11:48.920 after the IRA is the fact that we've had a 0:11:49.000 --> 0:11:52.320 number of different governments, a number of different countries come 0:11:52.360 --> 0:11:54.880 to the US and ask to be included in various 0:11:54.880 --> 0:11:58.079 bits of this EV tax credit. So, for example, I 0:11:58.200 --> 0:12:01.600 mentioned that critical material require for materials that are mined 0:12:01.760 --> 0:12:04.760 or refined in a given region being used for an 0:12:04.760 --> 0:12:08.040 EV sold in the US, thereby making it eligible for 0:12:08.160 --> 0:12:10.719 about half of that tax credit. Well, that's a requirement 0:12:10.800 --> 0:12:13.640 that's been lobbied for by various regions, such as countries 0:12:13.679 --> 0:12:17.360 like Japan. So Japan successfully asked to sign a form 0:12:17.400 --> 0:12:20.520 of free trade agreement that allows for its raw materials 0:12:20.559 --> 0:12:23.520 to be considered as part of that tax credit Europe, 0:12:23.559 --> 0:12:25.920 the EU, the European Commission is quite keen to do 0:12:25.960 --> 0:12:29.360 something similar, but as a whole, that's only one small 0:12:29.400 --> 0:12:32.160 part of the overall package. And when it comes to 0:12:32.200 --> 0:12:35.640 a lot of those subsidies available for domestic manufacturers in 0:12:35.679 --> 0:12:38.760 the US, those are really focused just on the domestic market. 0:12:38.800 --> 0:12:41.800 They're not available to other countries, and a real focus 0:12:41.880 --> 0:12:45.000 of that's part of this policy, which is bringing manufacturing 0:12:45.040 --> 0:12:47.520 to the US as part of this energy transition that 0:12:47.520 --> 0:12:50.680 we expect to accelerate as a result of the IRA Well. 0:12:50.800 --> 0:12:54.120 So you reference that there are some very limited instances 0:12:54.120 --> 0:12:56.679 where countries are able to take advantage of the tax credits, 0:12:56.679 --> 0:12:59.920 but largely this is a domestic conversation, which then leads 0:13:00.080 --> 0:13:02.880 need who then ask what is the reaction on the 0:13:02.920 --> 0:13:06.680 part of other countries that perhaps were depending upon trade 0:13:06.840 --> 0:13:09.600 or even on another side of it in the EU 0:13:09.720 --> 0:13:12.200 where they were looking to become manufacturing homes of some 0:13:12.320 --> 0:13:15.839 of these industries. What has the reaction been over in Europe. 0:13:16.080 --> 0:13:17.480 So I feel like we're entering a bit of a 0:13:17.520 --> 0:13:20.040 new phase with the energy transition, where before it was 0:13:20.080 --> 0:13:23.640 all about carbon budgets domestically quantified you try and hit 0:13:23.679 --> 0:13:26.440 your goals, you'd clean up your power sector. The spillover 0:13:26.480 --> 0:13:30.840 effects would be pretty negligible. Besides providing opportunities for countries 0:13:30.880 --> 0:13:33.640 like China to emerge as exporters of clean technology, what 0:13:33.679 --> 0:13:35.760 we're seeing now is something very different, and we've entered 0:13:35.800 --> 0:13:38.160 a sort of era of policy competition where there's this 0:13:38.240 --> 0:13:41.480 perceived need to respond to things like the IRA, which 0:13:41.480 --> 0:13:45.120 a seemingly proven extremely attractive when we look at announced 0:13:45.160 --> 0:13:48.000 projects and the investment that's flowing to the US right now, 0:13:48.080 --> 0:13:51.080 and there are concerns by countries like the member states 0:13:51.080 --> 0:13:53.319 of the European Union, for example, that they might be 0:13:53.400 --> 0:13:55.960 left by the wayside. So the EU has targets for 0:13:56.000 --> 0:13:58.959 building out battery making. It's for the last few years 0:13:58.960 --> 0:14:02.679 formed big sort of sourcier and alliances and different projects 0:14:02.679 --> 0:14:05.600 of common European interests, for example, to promote battery making 0:14:05.600 --> 0:14:08.480 within its borders. But what the IRA provided was this 0:14:08.600 --> 0:14:12.000 extremely streamlined system of tax credits, which have no sort 0:14:12.000 --> 0:14:14.920 of federal budgetary limits to how they can be accessed, 0:14:14.960 --> 0:14:19.080 are extremely generous and basically blow anything that the European 0:14:19.200 --> 0:14:21.560 Union is offering out of the water. And that's something 0:14:21.640 --> 0:14:24.080 that's been really that's been a real concern and has 0:14:24.120 --> 0:14:27.520 been a point that a lot of clean energy lobby 0:14:27.520 --> 0:14:30.200 groups lobby the EU sort of change and revise. So 0:14:30.400 --> 0:14:32.640 what came of that was the Net Zero Industry Act, 0:14:32.720 --> 0:14:35.600 and that's a few weeks ago we saw the release 0:14:35.720 --> 0:14:39.800 of this plan, which really has as a central purpose 0:14:39.840 --> 0:14:42.880 to respond to the IRA and prove that EU means business, 0:14:42.880 --> 0:14:45.160 that it's serious, that it has the tools to encourage 0:14:45.240 --> 0:14:48.280 the onshoring of manufacturing for clean energy technologies. It does 0:14:48.320 --> 0:14:50.880 a few things, and unlike the IRA, it actually goes 0:14:50.880 --> 0:14:54.280 a bit further and sets actual targets that are quantifiable 0:14:54.360 --> 0:14:57.320 in many cases for building out the manufacture of things 0:14:57.360 --> 0:15:01.880 like heat pumps, solar technologies, win turbines, batteries. All of 0:15:01.880 --> 0:15:04.360 those different things have different targets that are set. So 0:15:04.560 --> 0:15:07.200 for batteries that U wants to meet eighty five percent 0:15:07.240 --> 0:15:10.080 of domestic demand by twenty thirty, that's about five hundred 0:15:10.080 --> 0:15:12.840 and fifty gigg what hours of capacity. That's quite a lot. 0:15:13.000 --> 0:15:15.640 And having its sight set on that is very clear 0:15:15.680 --> 0:15:18.480 and sets the direction of travel. Now, whether you fall 0:15:18.520 --> 0:15:21.520 short is by not really having the same system of 0:15:21.560 --> 0:15:24.560 subsidies that the US has We've mentioned how streamlined the 0:15:24.640 --> 0:15:27.040 tax credits are. Even though there's all this guidance coming 0:15:27.040 --> 0:15:29.360 out from the US Treasury about how to interpret various 0:15:29.360 --> 0:15:31.680 bits of them, they're generally there's really good awareness of 0:15:31.680 --> 0:15:34.600 how they can be accessed and the process for doing so. 0:15:34.720 --> 0:15:37.080 It's relatively simple. Now when it comes to the EU, 0:15:37.200 --> 0:15:41.120 what you've got is pretty comparable levels of available funding 0:15:41.160 --> 0:15:43.200 across the board for clean energy, but a lot of 0:15:43.200 --> 0:15:45.640 that isn't going to manufacturing. It's going to things like 0:15:45.800 --> 0:15:48.680 R and D. It's going to things like deploying technologies, 0:15:48.800 --> 0:15:51.400 and that's a bit of a weakness. Now the U 0:15:51.560 --> 0:15:53.560 wants to sort of rejig some of those pots of 0:15:53.600 --> 0:15:56.840 money and have them flow towards manufacturing. But again there's 0:15:56.880 --> 0:15:58.680 this issue, which is when the US try to do 0:15:58.720 --> 0:16:00.720 this in the past, it's struggled with the level of 0:16:00.760 --> 0:16:03.680 administrative complexity of some of these schemes. So there's the 0:16:03.680 --> 0:16:06.240 Innovation Fund, which is one of the main funding schemes 0:16:06.240 --> 0:16:09.680 that's available for the energy transition writ large, that's something 0:16:09.720 --> 0:16:13.520 that's funded by carbon credit revenues levied across the EU, 0:16:14.000 --> 0:16:17.360 and it's actually incredibly difficult and competitive to access that. 0:16:17.440 --> 0:16:19.360 Lots of money. So we saw a success rate of 0:16:19.400 --> 0:16:22.160 about two percent for one of the funding rounds for 0:16:22.240 --> 0:16:25.400 large projects under the Innovation Fund. That's a lot of 0:16:25.400 --> 0:16:28.880 time that's wasted by companies putting together proposals applying for 0:16:28.920 --> 0:16:30.960 that funding. So what you've got in the EU is 0:16:31.000 --> 0:16:33.640 a really broken up system of various funds, of various 0:16:33.640 --> 0:16:35.640 pots of money. There's not a great deal of awareness 0:16:35.640 --> 0:16:37.480 about how to access them. A lot of them aren't 0:16:37.520 --> 0:16:40.400 funding manufacturing and doing so. When you do figure out 0:16:40.400 --> 0:16:42.240 where the money is and how to access it is 0:16:42.320 --> 0:16:45.280 very competitive. So it is not the sort of basis 0:16:45.320 --> 0:16:48.320 for giving US a vote of confidence in European industry 0:16:48.440 --> 0:16:51.480 and seeing it as a real competitor with the IRA. 0:16:51.720 --> 0:16:55.000 And we've continued to see post this Net Zero Industry Acts, 0:16:55.080 --> 0:16:58.480 which again sets those impressive targets, is still a proposal, 0:16:58.520 --> 0:17:00.520 will be enacted over the next couple of is. We've 0:17:00.520 --> 0:17:03.320 seen a response, some enthusiasm, but still there's this general 0:17:03.400 --> 0:17:06.400 narrative that when it comes to competing on these subsidies, 0:17:06.440 --> 0:17:10.040 the US is far ahead, and a number of different 0:17:10.080 --> 0:17:14.040 European battery makers such as North Vault, Freyer, even Tesla 0:17:14.119 --> 0:17:16.320 has said that they'll pivot towards the US, which they 0:17:16.320 --> 0:17:19.159 see as far more attractive in terms of the incentives 0:17:19.160 --> 0:17:22.120 that are being offered and away from the EU, and 0:17:22.200 --> 0:17:24.640 that's a trend that we might receive speed up over 0:17:24.640 --> 0:17:25.520 the next few months. 0:17:25.960 --> 0:17:28.520 Well, let's rewind a little bit and let's just go 0:17:28.640 --> 0:17:31.360 back to those targets that you mentioned in the EU specifically, 0:17:31.440 --> 0:17:33.480 And the reason I want to focus on that is 0:17:33.520 --> 0:17:35.679 one that the space that we work in has no 0:17:35.760 --> 0:17:39.440 shortage of targets, but certainly the underpinning mechanisms are something 0:17:39.480 --> 0:17:41.560 that need to be figured out. These parts of money, 0:17:41.680 --> 0:17:45.520 this complexity around how to actually go about accessing them. 0:17:45.520 --> 0:17:49.160 In the EU, are there dedicated funds that are against 0:17:49.200 --> 0:17:51.439 each of these targets or is it still yet to 0:17:51.480 --> 0:17:54.159 be determined how those targets will be met? And the 0:17:54.160 --> 0:17:56.080 targets just create a statement of intention. 0:17:56.320 --> 0:17:58.520 It's a statement of intention. There's a number of funds 0:17:58.520 --> 0:18:01.720 that are available, the Modernization Fund, the innovation fund I mentioned, 0:18:01.800 --> 0:18:04.560 there's this mooted creation of a sovereignty fund that's to 0:18:04.640 --> 0:18:07.280 speed things. But again, many of those funds are not 0:18:07.400 --> 0:18:09.720 focusing on manufacturing, and some of them aren't even just 0:18:09.760 --> 0:18:12.280 focused on the energy transition. So there's this new fund 0:18:12.320 --> 0:18:14.080 that will be created that will be coming up with 0:18:14.119 --> 0:18:16.880 the words sovereignty slap to its title, and what that'll 0:18:16.880 --> 0:18:19.600 be funding is not just keen energy, but things like semiconductors, 0:18:19.600 --> 0:18:22.000 which are also incredibly capital intensive when it comes to 0:18:22.000 --> 0:18:26.040 building out factories for making advanced chips. So there's there's 0:18:26.080 --> 0:18:29.560 a lack of clarity of purpose, there's an opacity of 0:18:29.600 --> 0:18:32.160 available schemes, and that means that the EU just seems 0:18:32.240 --> 0:18:34.879 less nimble, it seems less reactive, it seems less attractive 0:18:34.960 --> 0:18:36.600 when you're a manufacturer that has a bit of a 0:18:36.640 --> 0:18:39.200 global footprint and some flexibility about where it can set 0:18:39.280 --> 0:18:39.720 up shop. 0:18:40.040 --> 0:18:42.520 So let's continue moving around the world. One of our 0:18:42.560 --> 0:18:45.680 recent shows focused on India, which is now the most 0:18:45.680 --> 0:18:48.200 populous country, and there is a conversation to be had 0:18:48.240 --> 0:18:50.760 regarding whether or not they are going to emerge also 0:18:51.000 --> 0:18:53.919 as a manufacturing center for some of these industries. So 0:18:54.800 --> 0:18:59.680 how has the IRA impacted India's strategy and even more 0:18:59.680 --> 0:19:04.760 broad how do you see India fitting into this renewable energy, 0:19:04.880 --> 0:19:07.159 clean energy manufacturing space. 0:19:07.480 --> 0:19:09.920 So India's sort of pursuing its own strategy and it's 0:19:09.960 --> 0:19:13.399 been doing so unlike many other countries pretty consistently for 0:19:13.440 --> 0:19:15.760 the last couple of years. There's been this stated ambition 0:19:15.880 --> 0:19:18.600 to build out with a real focus on solar manufacturing, 0:19:18.880 --> 0:19:22.600 local PV technology production, and there's been a number of 0:19:22.640 --> 0:19:25.400 tools that have been developed doing so what's really interesting 0:19:25.480 --> 0:19:28.919 is seeing how that's playing out. So there's this various 0:19:28.960 --> 0:19:32.320 prongs to this Indian strategy to building out domestic clean 0:19:32.359 --> 0:19:35.639 tech manufacturing. One of them is by limiting manufacturers and 0:19:35.680 --> 0:19:39.840 really barring a whole number of example Chinese solar product 0:19:39.840 --> 0:19:42.800 manufacturers from being able to compete in auctions where a 0:19:42.800 --> 0:19:45.320 lot of the subsidy pots of money are available. There's 0:19:45.359 --> 0:19:48.800 also a pretty hefty tariff for around forty percent that's 0:19:48.840 --> 0:19:53.120 also levied on various solar product imports. There are also 0:19:53.200 --> 0:19:56.879 various local content requirements in different subsidy schemes. There are 0:19:56.920 --> 0:19:59.720 a number of different measures. But what's happened as a 0:19:59.720 --> 0:20:02.760 result that is pushing up the costs of building out 0:20:02.800 --> 0:20:05.520 solo projects in India at a time when the government 0:20:05.560 --> 0:20:09.200 is implementing an incredibly ambitious plan to speed up a 0:20:09.280 --> 0:20:13.080 new energy deployment and a shortage of domestically available modules. 0:20:13.080 --> 0:20:15.520