Energy transition for the world is not possible without China simply because the country dominates clean-tech value chains including for solar PV, wind, batteries and electric vehicles, says Wood Mackenzie.
To reach net-zero status by 2050, Wood Mackenzie analysts believe the world will need to invest $29 trillion as capital expenditure across power and renewables, between 2023 and 2050. This includes an additional 10 TW solar PV, 6 TW wind, 4 TW energy storage and 5 TW of supporting generation equipment including abated coal, gas, and nuclear.
Even if the global economies work together to 'rapidly rid' China-manufactured cleantech products from their market demand, they will need to massively scale up local manufacturing.
This would entail capital expenditure that's 20% higher than the overall required on equipment alone, translating into an increase of $6 trillion in a not-made-in-China scenario, says Wood Mackenzie in its latest report titled Not made in China: the US$ 6 trillion cost of shifting the world's clean-tech manufacturing hub.
Some economies with big renewable energy targets are sure already working on diversifying their supply chains while strengthening their domestic manufacturing capabilities while keeping the doors open to Chinese wares.
The Inflation Reduction Act (IRA) in the US, Production Linked Incentive (PLI) in India, Net Zero Industry Act (NZIA) in Europe are some such examples (see EU Council & Parliament Agree Over Net Zero Industry Act).
However, China is far ahead in the game. Initially supported by generous government subsidies, Chinese cleantech industry is now learning to navigate the waters on its own.
The Asian giant has already achieved lowest costs across these technologies. Its pricing level is 'unapproachable' for the major competing markets of the world. Availability of cheaper Chinese solar panels last year helped boost installations in the European Union (EU); however, this stockpile is making life difficult for local manufacturers (see Meyer Burger May Shutter German Module Fab By April 2024).
Wood Mackenzie points out that this scenario of achieving climate targets without China will be a time-consuming effort, as the rest of the world is already running far behind schedule to match up.
With their domestic supply chain build-out plans and the price premiums associated with the products produced in the EU and the US, these regions are unlikely to meet their 2030 renewable capacity goals, it argues. Inflationary pressures will make sure the consumers won't be willing to pay more for what they can get for cheaper price from China.
Wood Mackenzie states, "Without China at the table, aggressive cost reductions we have become accustomed to are over."
Chinese products are also not considered low on quality anymore as the analysts cite performance data from operations to show it has best-in-class turbines, solar panels and battery cells. These are as good as their western counterparts.
Wood Mackenzie's Director, Power & Renewables Consulting, EMEA, Rory Mccarthy recommends 'international collaboration, pragmatism, and innovation' between the US, Europe, China and the others.
He explains, "We expect a compromise to unfold, with a more palatable level of cost increases to develop. This compromise will provide opportunities for the world's economies to capitalize on the growth opportunities alongside China."
Chinese manufacturers too are taking their own steps to continue to access these markets by expanding their geographical footprint outside of Asia, including in the US (see LONGi Partners For 5 GW US Solar Module Fab).
The complete Wood Mackenzie report can be accessed on its website.