Ongoing supply chain disruptions are causing renewable energy growth to grind to a halt as higher prices, shortages in supply, and general uncertainty around the future of Covid prevent the development of several green energy projects. China, a huge manufacturing hub for global exports, has been battling against rising Covid cases in recent months, leading the government to lockdown Shanghai for over a month. It has also placed firm restrictions on Beijing and other areas, aiming for ‘zero Covid’. So many lockdowns, and uncertainty around restrictions, have led the Chinese supply chain to be severely weakened. But it’s not the only country fighting to strengthen its supply chain to pre-pandemic levels.
As well as losing out on products from China, the increasing cost of materials, such as steel, has slowed the development of several renewable energy projects worldwide. Steel is a key component in wind turbine blades. But many companies are fighting to maintain wind energy project costs as the price of steel rose by around 50 percent well before the Russian invasion of Ukraine.
Fraser McLachlan, CEO of global renewables insurer GCube, stated “You’ve almost got the perfect storm right now… We’re seeing delays of six months at a minimum to get replacement parts and things like that coming out of China, sometimes more.”
Rising energy prices are hitting companies, governments, and consumers hard from every angle. The oil and gas shortage, exacerbated by international sanctions on Russian energy, has sent fossil fuel prices soaring. Meanwhile, rising mineral and metal prices, as well as disruptions to the supply chain, mean that the cost of the clean energy transition is mounting higher and higher. With more lockdowns in China and uncertainty about what the future of Covid holds in other areas of the world, the production of both fossil fuels and various forms of renewable energy is looking increasingly precarious.
In addition, many are starting to question the reliance of European powers on China’s supply chain, not only because of Covid-related delays but also due to the realization of how heavily dependent the region has become on Russia for its energy and other goods. China has already become a major player in renewable energy, providing many of the core components for green energy developments. In addition, many Chinese firms have invested heavily in renewable energy projects worldwide.
While Europe continues to wean itself off Russian oil and gas, currently its primary focus, it must also consider the long-term implications of coming to rely heavily on China as a replacement for Russia. China is an authoritarian power, with much of the revenue from state-owned companies going towards the Chinese People’s Liberation Army. While it is evident that China is playing an indispensable role in the renewable energy transition, thanks to its strong manufacturing industry, Europe must consider the potential repercussions of once again becoming overdependent on any one power.
The effect of supply chain disruptions and rising prices are becoming evident in some parts of the world, with the U.S. solar industry being hit particularly hard. The national solar industry is expecting a slowdown in project expansion in 2022 due to supply chain delays as well as potential tariffs being introduced on solar panels imported from four Southeast Asian states. The introduction of tariffs could further hinder an industry that is already experiencing the negative impact of Covid disruptions. With energy firms struggling to find the materials needed to complete their green energy projects, it is no wonder that many have come to rely on manufacturing superpower China to deliver as many components as possible.
But the worst could be yet to come, as China is open to more lockdowns to achieve its zero-Covid target. Fitch Ratings stated “As a result [of restrictions], freight traffic volume in the Shanghai metropolitan area plunged in early April and remains 80 per cent below late March. Shanghai handles a fifth of China’s port volumes,” at the beginning of May. Should lockdowns be extended, this trend is likely to continue.
However, it is important to note that despite rising costs, the price of solar and wind energy has decreased substantially in recent years due to the scale of new projects. The introduction of giant wind turbines and mega solar parks has helped to reduce long-term costs substantially. Fraser McLachlan explains, “You look at where solar was only a few years ago, it’s $6m a megawatt.” And “now you’re looking at $1.5m a megawatt.”
So, while concerns around rising prices for minerals, metals, and other renewable energy components continue to be an issue, it is worth remembering how far energy companies have come in reducing the cost of renewable energy over the last decade. Although supply chain disruptions may cause a slowdown in green energy developments, the rising cost of renewables is likely temporary and should not dissuade governments and energy firms from investing heavily in a necessary green transition, in line with COP26 climate summit goals.
By Felicity Bradstock for Oilprice.com