IEA Report Has Good News on Manufacturing Clean Energy Technologies

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Global investment in five types of clean energy manufacturing rose about 70% in 2023, to about $200 billion, according to a new report from the International Energy Agency (IEA) (Paris, France). The investment in producing these technologies--solar photovoltaics (PV), wind generation, batteries, electrolyzers and heat pumps--amounted to about 4% of global economic growth last year, said the report, Advancing Clean Technology Manufacturing, which was released May 6.

This report is the first time the IEA has analyzed the worldwide manufacturing capacity for these five clean energy technologies.

Spending on solar PV manufacturing more than doubled last year, while investment in battery manufacturing rose by around 60%, the IEA said. As a result, solar PV module manufacturing capacity today already is in line with what is needed in 2030 to achieve its designated role in IEA's net-zero carbon emissions scenario. For battery cells, if all announced projects are included, manufacturing capacity is 90% of the way toward meeting that technology's contribution to the net-zero carbon emissions scenario at the end of this decade.

The report finds that many projects in the pipeline are expected to be operational soon. Overall, approximately 40% of investments made in 2023 in clean energy manufacturing were in facilities that are due to come online in 2024. For batteries, this share rises to 70%.

For those reasons, this new IEA report had a more upbeat tone compared to previous IEA analyses warning about the need to move faster to counter the worst impacts of global warming. Advancing Clean Technology Manufacturing was not ready to declare victory yet, but it was far more upbeat about the prospects of these five technologies to join the fight against rising levels of atmospheric carbon dioxide (CO2) emissions and temperatures.

"Record output from solar PV and battery plants is propelling clean energy transitions -- and the strong investment pipeline in new facilities and factory expansions is set to add further momentum in the years ahead," IEA Executive Director Fatih Birol said in a statement accompanying the May 6 report. "While greater investment is still needed for some technologies--and clean energy manufacturing could be spread more widely around the globe--the direction of travel is clear. Policy makers have a huge opportunity to design industrial strategies with clean energy transitions at their core."

Worldwide investment in clean tech manufacturing capacity was concentrated in batteries and solar PV for both 2022 and 2023. Battery-related investments jumped from about $70 billion in 2022 to approximately $115 billion in 2023, while solar PV manufacturing facilities drew about $30 billion of investment in 2022, rising to approximately $75 billion last year.

China accounted for three-quarters of the investment in those two technologies in 2023, down from 85% in 2022. Both the United States and the European Union made significant inroads in 2023, with their combined share of total clean technology manufacturing investment reaching 16% in 2023, up from 11% in 2022. India, Japan, Korea and Southeast Asia made up most of the remaining share. Virtually no manufacturing investment took place in either Africa or Central and South America.

The IEA sees these five technologies as critical to achieving its net-zero carbon emissions by 2050 scenario. It measured 2022 and 2023 manufacturing output for the five technologies at existing facilities, then calculated how much more could be produced if the factories that came online in 2023 were run at near-full capacity.

The agency also looked at the manufacturing capacity that could come online from announced but not yet built clean-energy factories. Batteries and electrolyzers were seen as the two technologies with the most to gain from announced manufacturing plans.

But if all announced factory investments in solar PV were realized, it could lead to a significant oversupply, IEA wrote. This would have good and bad consequences: The positive effect would be a significant decline in PV module prices from 2023 levels, as supply overwhelmed demand, possibly leading to even greater deployment of solar PV generation. The negative effect could be cancellation of planned PV greenfield investments or expansions.

Advancing Clean Technology Manufacturing also looked at where the clean energy technologies were being manufactured in 2023, then projected the market share that those countries would have in 2030. China is expected to continue dominating the production of solar PV materials, batteries and wind nacelles. A somewhat more competitive market is seen for heat pumps and electrolyzers. China's current share of the electrolyzer market could fall to 50% in 2030 from 60% in 2023. In the heat-pump market, China's share is expected to fall slightly to 2030 as production grows from the U.S. and European Union.

Manufacturing clean energy technologies is a capital-intensive endeavor. The energy agency's report estimated the capital costs to manufacture these five clean energy technologies and found China has a significant advantage over other countries. One of the reasons for this is China's lower cost of capital. Many clean energy technology factories are bankrolled by the Chinese government, which can charge low or no interest for its loans.

In the U.S. and Europe, it costs an average of more than $400 to manufacture the equipment that goes into building 1 kilowatt (kW) of installed solar PV generating capacity; in China, the comparable figure is less than $200. The same story plays out for wind generation: In the U.S. and Europe, it costs about $550 to manufacturing the equipment needed to build 1 kW of wind generation capacity; in China, that equipment is produced for slightly more than $300.

In India, capital costs to manufacture clean energy equipment are lower than the U.S. and Europe, but higher than China.

Various countries, including the U.S., have complained that China unfairly subsidized favored industries like clean energy manufacturing.

"China is the lowest-cost region for manufacturing ... all (clean energy) technologies and for all manufacturing steps," the IEA report noted. "Costs of clean technology manufacturing facilities in the United States and Europe are between 70% and 195% more expensive per unit of output capacity. India's capital costs are around 20-90% more than China's for the five technologies analyzed, but still significantly lower than in the United States and Europe. These cost differentials are likely due to differences in underlying labor, material and construction costs."

Advancing Clean Technology Manufacturing noted that government industrial strategies increasingly provide financial and other incentives for manufacturing selected technologies. The aim of these policies is to reduce the cost of production--and thereby increase the attractiveness to invest--for firms, usually by transferring aspects of cost to governments' balance sheets.

The IEA report noted several such policies exist in the U.S., such as the Infrastructure Investment and Jobs Act of 2021, Defense Production Act, the Inflation Reduction Act of 2022, Clean Vehicle tax credit and the Clean Hydrogen Production Tax Credit. The relative newness of these domestic measures may mean it could only be a matter of time until more clean energy manufacturing plants are located in the U.S.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).