Clean energy transitions offer major opportunities for growth and employment in new and expanding industries. There is a global market opportunity for key mass-manufactured clean energy technologies worth around USD 650 billion a year by 2030 – more than three times today’s level – if countries worldwide fully implement their announced energy and climate pledges. Related clean energy manufacturing jobs would more than double from 6 million today to nearly 14 million by 2030, with over half of these jobs tied to electric vehicles, solar PV, wind and heat pumps. As clean energy transitions advance beyond 2030, this would lead to further rapid industrial and employment growth.

But there are potentially risky levels of concentration in clean energy supply chains – both for the manufacturing of technologies and the materials on which they rely. China currently dominates the manufacturing and trade of most clean energy technologies. China’s investment in clean energy supply chains has been instrumental in bringing down costs worldwide for key technologies, with multiple benefits for clean energy transitions. At the same time, the level of geographical concentration in global supply chains also creates potential challenges that governments need to address. For mass-manufactured technologies like wind, batteries, electrolysers, solar panels and heat pumps, the three largest producer countries account for at least 70% of manufacturing capacity for each technology – with China dominant in all of them. The geographical distribution of critical mineral extraction is closely linked to resource endowments, and much of it is very concentrated. For example, Democratic Republic of Congo alone produces 70% of the world’s cobalt, and just three countries account for more than 90% of global lithium production. Concentration at any point along a supply chain makes the entire supply chain vulnerable to incidents, be they related to an individual country’s policy choices, natural disasters, technical failures or company decisions.

The world is already seeing the risks of tight supply chains, which have pushed up clean energy technology prices in recent years, making countries’ clean energy transitions more difficult and costly. Increasing prices for cobalt, lithium and nickel led to the first ever rise in battery prices, which jumped by nearly 10% globally in 2022. The cost of wind turbines outside China has also been rising after years of decline, with the prices of inputs such as steel and copper about doubling between the first half of 2020 and the same period in 2022. Similar trends can be seen in solar PV supply chains. 

International trade is vital for rapid and affordable clean energy transitions, but countries need to increase diversity of suppliers. For solar PV, many components are traded today, in particular wafers and modules. The share of international trade in global demand is nearly 60% for solar PV modules, with around half of the solar modules manufactured in China being exported – predominantly to Europe and the Asia Pacific region. The situation is similar for EVs, for which most of the trade in components flows from Asia into Europe, which imports around 25% of its EV batteries from China. Wind turbine components are heavy and bulky, but the international trade of towers, blades and nacelles is quite common. China is a major player in wind turbine component manufacturing, accounting for 60% of global capacity and half of total exports, most of which go to other Asian countries and Europe. In the United States, one of the largest wind power markets, the domestic content of blades and hubs is lower than 25%. For heat pumps, the share of international trade in global manufacturing is below 10%, with most of it from China to Europe. 

The announced manufacturing pipeline to 2030 is very large for many clean energy technologies. If all announced projects to expand manufacturing capacities were to materialise and all countries implement their announced climate pledges, China alone would be able to supply the entire global market for solar PV modules in 2030, one-third of the global market for electrolysers, and 90% of the world’s EV batteries. Announced projects in the European Union would be sufficient to supply all of the bloc’s domestic needs for electrolysers and EV batteries, but would continue to be highly dependent on imports for solar PV and wind, an area where it currently has a technological edge. The situation is somewhat similar in the United States, although further capacity additions are highly likely as a result of the Inflation Reduction Act. The current global pipeline of announced projects would exceed demand for some technologies (solar PV, batteries and electrolysers) and fall significantly short for others (wind components, heat pumps and fuel cells). This highlights the importance of clear and credible deployment targets from governments to limit demand uncertainty and guide investment decisions. 

For most countries, it is not realistic to compete effectively across all parts of the relevant clean energy technology supply chains. They need not to do so. Competitive specialisms often arise from inherent geographic advantages, such as access to low-cost renewable energy or the presence of a mineral resource, which can lead to lower production costs for energy and material commodities. But they can also arise from other attributes, like a large domestic market, a high-skilled workforce or synergies and spillovers stemming from existing industries. Holistically assessing and nurturing these competitive advantages should form a central pillar of governments’ industrial strategies, designed in accordance with international rules and complemented by strategic partnerships.

Energy costs will continue to be a major differentiator in the competitiveness of countries’ energy-intensive industry sectors. Industrial competitiveness today is closely linked to energy costs, especially natural gas and electricity, which vary greatly between regions. This remains the case in the clean energy transition. For example, production costs of hydrogen from renewable electricity could be much lower in China and the United States (USD 3-4/kg) than in Japan and Western Europe (USD 5-7/kg) using the best resources in those countries today, translating into similar differences in production costs for derivative commodities, such as ammonia and steel. As countries make progress towards their climate pledges, with renewable electricity costs continuing their decline and electrolyser costs falling rapidly, the cost difference between regions is likely to shrink somewhat, but competitiveness gaps will remain. Carefully considering where in the supply chain to specialise domestically, and where it might be better to establish strategic partnerships or make direct investments in third countries, should form key considerations of countries’ industrial strategies.

New infrastructure will form the backbone of the new energy economy in all countries. This covers areas such as the transportation, transmission, distribution or storage of electricity, hydrogen and CO₂. Building clean energy infrastructure can take 10 years or more, typically involving large civil engineering projects that have to adhere to extensive local planning and environmental regulations. While construction is in most cases a relatively efficient process, taking 2-4 years on average, planning and permitting can cause delays and create bottlenecks, with the process taking 2-7 years, depending on the jurisdiction and type of infrastructure. Lead times for infrastructure projects are usually much longer than for the power plants and industrial facilities that connect to them.