Date: March 16
Global supply chains have been under enormous pressure from the Covid-19 pandemic and the Ukraine crisis. In the wind and solar sectors, these pressures are compounded by industry-specific challenges, according to McKinsey analysis.
Also, as countries around the world work to meet aggressive decarbonization goals, power from wind and solar sources are a beacon of hope. Carbon-free, inherently abundant, and increasingly affordable, these renewable sources remain a vital pathway to achieving global net-zero carbon emissions by 2050.
But such rapid growth requires stable markets and resilient supply chains. What then are, according to McKinsey, those three core challenges facing renewable energy developers:
1.- Guarantee access to raw materials and rare earth metals at stable prices
The analysis reveals that the commodity restriction challenging the wind and solar industries will only get tighter as demand for global decarbonization efforts increases. The rare-earth metals neodymium and praseodymium, for example, are needed as high-power magnets in both wind turbine generators and electric vehicles. However, McKinsey estimates that these materials will face a 50 to 60 percent shortage by 2030. Recycling will play an increasingly important role, but is expected to meet only 10% of total demand.
Green steel offers another example. Environmental, social and governance (ESG) requirements are increasing interest from the wind and solar industries in steel produced with minimal or zero CO2. But McKinsey points out that increasing steel production with hydrogen instead of fossil fuels faces multiple obstacles.
“Building large-scale new facilities often involves lengthy efforts to obtain subsidies and design and develop unique equipment. In parallel, steel producers have to install capital-intensive electrolysers or secure hydrogen supply through (long-term) contracts. In addition, major infrastructure developments are required, such as the construction of a pipeline network to transport large amounts of hydrogen, ”he maintains.
2.- Scale manufacturing capacity to meet regional demand
The growing demand for renewable energy has been driving up factory utilization rates in the industry. Unless additional capacity is added, this can make supply chains more vulnerable to unplanned events.
“COVID-19 shutdowns, factory accidents, and flooding that affected polysilicon manufacturing, for example, have helped push capacity utilization rates to 100-110 percent since 2020, causing shortages and price increases. prices. Across all renewable energy supply chains, large investments are needed to increase capacities in line with demand and prevent large-scale imbalances between supply and demand,” says McKinsey.
Furthermore, the dominance of one region and the relatively small number of suppliers weaken the resilience of renewable energy supply chains. In the case of polysilicon, 79% of global capacity is in China, with half concentrated in Xinjiang province, making wind and solar players around the world especially vulnerable to disruptions in this area.
He also adds that the top ten polysilicon suppliers, of which only three are outside of China, have a total capacity of more than 90% of global capacity. The fact that many of these providers have announced capacity expansions in recent years will likely only increase their market share.
3.- Strengthening logistics and installation capacities
Finally, McKinsey argues that installing new wind and solar capacity will require a lot of talent and a lot of machinery. However, developers often face a shortage of both. In the past two years in the United States, for example, qualified engineering, procurement, and construction (EPC) capacity for large-scale one-gigawatt-plus solar plants has faced a gap of about one or two gigawatts per year.
Another area of limited capacity is the vessels used to install offshore wind turbines. Although wind turbines for large offshore projects have become larger, a limited number of vessels have been upgraded for the task of transporting and installing them. Companies in a position to add this urgently needed capability are limited to a small circle of established players. Only three companies plan to own more than three jack-up, heavy-lift installation vessels.
Source: Review Energy