Opportunity for the renewable energy supply chain in the Asia-Pacific region

summary

The Asia-Pacific region has enormous untapped potential for renewable energy, particularly solar and wind energy. Harnessing this potential could transform the region’s energy economy. There are gigawatts of projects seeking investment whose development spans decades. This sustainable regional investment opportunity could potentially drive the development of regional and national renewable energy supply chains as core activities.

This report focuses on two sectors of the energy transition: photovoltaic (PV) projects and offshore wind farms.

Photovoltaics offers opportunities in the “here and now” – it already represents the lowest marginal cost of electricity generation in the world, with prices completely falling. This creates an immediate opportunity for governments to achieve the dual goals of decarbonizing their networks while ensuring the lowest energy costs for consumers.

Offshore wind offers the potential for reliable, predictable supplies of renewable energy at scale. While currently expanding in the Asia-Pacific region, it represents a promising emerging opportunity in the coming years. Global evidence shows that the costs of offshore wind are falling rapidly as solutions are implemented on a larger scale. Moreover, wind can complement solar energy generation, since wind typically produces most energy at night.

Together, solar and offshore wind could make a significant contribution to regional energy transition efforts, creating significant economic opportunities at scale.

Investment could reach hundreds of billions of dollars over the next twenty-five years, and much of these capital flows will support the country’s manufacturing, supply and services sectors. Governments across the region are already looking at how to capture this value and keep it on land.

When considering solar and wind supply chains, decision makers often focus on the most symbolic pieces of generating equipment: photovoltaic panels and wind turbines. They are the most visible and seemingly obvious targets for green technology investment.

While these are attractive symbols of a sustainable energy transition, the solar and wind energy supply chain goes far beyond these components. It includes the materials, manufacturing, infrastructure, logistics and services needed to realize fully functioning energy projects. These expenditures can add enormous value to the national economy over decades.

Some of these elements constitute advanced green technology in themselves, while others are more common materials and services. All are essential, and some contributions may be as or even more valuable than the technology they support. Understanding their scope and value is essential to maximizing renewable energy opportunities.

In addition to PV modules, the solar supply chain includes many components such as electrical equipment, racking and tracking systems, controls, construction contracts, testing and operational services.

Offshore wind energy requires fabricating foundations and towers from raw steel, creating forgings and fittings, building transmission substations, and laying submarine cables between them. These components and structural elements must be lifted, transported and installed, requiring a fleet of ocean-going vessels equipped with some of the world’s largest marine lifting equipment and rigs. Additionally, robust port facilities and manufacturing facilities are required to support these operations. These are all elements of the supply chain that complement wind turbines.

When developing national renewable energy technology strategies, countries would benefit from looking beyond panels and turbines. These high-tech components, while crucial, require significant investment and face high competition and low margins.

When developing national renewable energy technology strategies, countries would benefit from looking beyond panels and turbines.

Nowhere is this more evident than in China’s solar supply chain, where China dominates the process of converting raw silica into solar modules. The country produces 83% of the world’s polysilicon, 97% of wafers, 83% of cells and 72% of modules. In addition, China has over 100% excess production capacity, enough to meet twice the expected global demand over the next decade.

For countries trying to break into the solar market, China’s dominance is an extreme challenge. Currently, markets seeking to compete with China produce products that are 20% to 200% more expensive; meanwhile, costs in China continue to fall, while costs in other countries remain the same or rise.

Meanwhile, the non-panel and turbine supply chain offers more opportunities. Many of these “balance of system,” or BoS, components and services are best delivered locally and account for the majority of the investment cost of a solar project or wind farm.

In PV, BoS components account for 60% to 72% of the total investment, while in offshore wind they account for around 58% to 68%. These local costs are typically shared between manufacturers, suppliers and service providers, rather than accumulating in a single company. This creates the potential for a wider distribution of economic benefits.

The size of the opportunity

Order-of-magnitude assessments conducted for this report estimate that the Asia-Pacific region will have a combined investment potential of $1.1 trillion in solar PV and offshore wind between 2025 and 2050, creating a potential 873 gigawatts (GW) of clean energy. Of this, $394 billion will support PV projects with a total capacity of 634 GW, and $621 billion will support the construction of 239 GW of offshore wind farms.

Local supply chain development is the bulk of this opportunity. Between 2025 and 2050, 72% of solar investments ($346 billion) and 68% of offshore wind investments ($425 billion) are expected to be made using local material suppliers, manufacturers and services. In the offshore wind sector, which uses a fleet of installation, construction and maintenance vessels, another $72-97 billion may be needed to build a new fleet by 2050. This will be a boon for regional shipbuilders and the maritime economy that supports and maintains these fleets.

The estimates in this report are based on nationally announced plans to expand renewable energy capacity in the period to 2030 and to 2050. There are varying degrees of political support and market readiness for implementation. Projects already implemented under the national framework have been included in the short-term targets for 2030. For programs that have not yet been implemented, practical assumptions have been made regarding implementation times, postponing the start dates. It is assumed that by 2050 these plans will be implemented.

National plans vary – some are ambitious, others conservative. Collectively, these differences balance out, so that the aggregate figures reflect more average performance. As costs continue to fall and experience increases, there is potential for these plans to evolve.

For example, Indonesia has very modest, short-term solar additions, while Japan has very ambitious goals. Taiwan is already implementing its offshore wind program, while other countries are either on a very small scale or have not started yet. However, all countries in the region can benefit from empirical evidence from their neighbors about what works, what doesn’t, and the costs involved. Offshore wind in particular benefits from a regional supply chain sourcing strategy in the early stages of implementation. Ultimately, some of these components and systems may be better produced locally, but in the meantime the supply chain can learn and mature.

In summary, photovoltaics in the near term and offshore wind in the medium to long term are huge growth businesses. Supply chain contributions to solar and wind projects in the Asia-Pacific region are estimated to be worth $185 billion regionally and $770 billion in potential local domestic sourcing by 2050. In addition, another $72-97 billion needs to be invested in offshore vessels to support offshore wind.

These estimates are based on current government policy for targeted capacity expansion and ongoing research using supply chain cost trajectories. If, as expected, overall life cycle costs continue to decline, these forms of energy will become even more economically advantageous. The potential to increase the local content of the solar and wind supply chain over time provides a strong incentive for governments and businesses to develop these industries.