As a result, WoodMac projects in its latest report Power Play, that China’s production capacity for solar modules is rising faster than forecast global demand, while its wind turbine component and battery manufacturing capacity will grow by 42% and 150%, respectively, over the next 2 years.
Research director Alex Whitworth said:
- This production of epic proportions is enough to meet what China needs to accelerate decarbonisation while supporting the ambitions of much of the rest of the world
The country also accounts for nearly 90% of global manufacturing capacity of lithium-ion batteries.
Whitworth said:
- But this also creates a political headache for many countries that have announced more ambitious 2030 emissions targets on the promise of jobs and prosperity
- Achieving this without greater dependence on China looks harder than ever as its manufacturers expand capacity and drive down costs
- And with China’s power demand now cooling on the back of more manageable economic growth, local manufacturers are looking to further extend global reach
China’s renewables capacity investments and rising output will be a key part of this trend, and while the cost of capital for Chinese companies is currently higher than in the US and Europe, interest rates will rise in these markets while they have recently fallen in China.
However, it is not all sunshine and roses in China, says WoodMac.
The massive deployment of clean energy is dependent on the availability of a wide range of raw materials, including aluminium, copper, nickel, lithium, cobalt, rare earths, graphite and silicon.
China could potentially face supply disruption risks, for example for Australian lithium, as well as China-owned nickel and cobalt production in less stable regions such as the Democratic Republic of Congo.
China’s domestic power shortages in 2021 also forced the closure of polysilicon factories in western China, and some solar module plants in Guangdong.
But more importantly, the country is facing increasing anti-China sentiment in western markets and will have to rebuild its brand as a responsible superpower.
Partly in response to China’s dominant position, western markets have introduced policy and taxonomy initiatives designed to put the spotlight on the sustainability and supply chain of clean energy investments and to offer greater support for local manufacturers.
In the US, the current administration has recently extended the Trump-era solar tariffs that have effectively limited Chinese-made solar modules accessing the US market.
In addition, President Biden’s climate agenda includes extending solar investment tax credits for another 10 years and allowing the technology to take advantage of the federal production tax credit and direct payment.
The EU taxonomy is similarly aimed at helping the bloc scale up sustainable investment and implement the European Green Deal.
But competing with China will require more than tax breaks and stricter market-entry regulations.
Principal analyst Shirley Zhang said:
- While China’s dominance in renewables is clear, its long-term energy transition strategy is arguably flawed by its over-dependence on wind and solar
- China is far from a global leader in several of the sectors that will be equally critical to reducing emissions, including carbon capture, low-carbon hydrogen and even further ahead, emerging technologies such as next-generation green fuel
- This presents opportunities for those more advanced in these areas to gain competitive advantage and work with China
