Many technologies will help comprise the energy transition. Clean energy in the form of wind, solar, batteries, nuclear, hydrogen, etc., all face challenges, stunting their implementation. We will need to utilize many of them, and others, to achieve a net-zero world. The following identifies and discusses supply chain challenges associated with these technologies.

This research is not intended to fully describe these supply chain challenges nor suggest favor for one technology versus another; it solely provides an overview of some of these challenges so that customers can take appropriate steps to mitigate these risks where possible.

Introduction

In 1977, many thought the world was running out of natural gas¹, and others believed that as early as 1919, oil supplies were nearly depleted². Ingenuity led to more oil discoveries and, more recently, to hydraulic fracturing (i.e., “fracking”) of natural gas trapped in rock formations, the latter of which helped the U.S. gain energy independence. However, climate change, not supply issues, drives the world to find means to source energy without carbon emissions. There are supply constraints to much of what is needed in the future, but history has demonstrated that humans find ways to obtain what is required and develop new technologies beyond those known now. Still, reliance on fossil fuels will continue for some time while these alternative technologies develop and grow. Renewables currently represent only a small but growing fraction of overall energy use.

Global sourcing is cost-effective but carries geopolitical risks, as seen with oil and renewables. China is the leader in sourcing, processing and manufacturing materials vital for the energy transition. As renewables gain market share in energy use, the U.S. becomes increasingly dependent on these materials. Given uncertain trade relations with China and expected renewables growth, the U.S. has taken steps to onshore manufacturing and reduce dependence on a single country. The Inflation Reduction Act (IRA) promotes renewable development and onshore manufacturing. Most believe the IRA will help diversify rather than fully domesticate supply chains. Global sourcing will continue, albeit relying less on individual countries, improving energy security over time.

The supply chain is not limited to equipment and materials, as there needs to be sufficient trained labor, including trade (electricians, plumbers, etc.), interconnections and a grid that can handle the increased load necessary for a more electrified world. While these issues impede the energy transition, this research focuses on supply chains associated with the technologies rather than other concerns.

Photovoltaic / Solar

Solar projects are mainly comprised of widely available materials, but processing these materials to make panels is only conducted in a few places. Some rare earth materials are used, including silver.

Solar modules are mostly made of silicon, which is derived from sand, the most abundant solid material on the planet. Glass protects photovoltaic cells from damage by vapors, water and dirt. Silicon dioxide is converted into pure metallurgical grade silicone (MGS) to make polycrystalline cells. MGS is made from high-grade quartz, a product of silicon and oxygen. Other materials used are glass, resins for making plastic sheets (encapsulant and backsheet) and aluminum⁴. Though none of the materials used in this process are supply-constrained, China accounts for nearly 80% of solar polysilicon manufacturing capacity worldwide⁵. China’s Xinjiang region, an area alleged to utilize forced labor, produces nearly 50% of the world’s polysilicon supply chain alone. Even with significant IRA incentives available to onshore polysilicon manufacturing in the U.S., it will take some time for the U.S. to develop its own polysilicon supply chain. Cutting off supplies from China before that happens would, again, cripple the solar industry, which is how the Auxin Solar petition brought U.S. solar to a standstill in 2022⁶. Further, some believe that even with incentives, it will be challenging to manufacture polycrystalline panels at a competitive cost against those made in China for the foreseeable future⁷. As of late November 2023, there was a glut of supply of solar panels in Europe8, and some see a decline in solar panel production approaching⁹.

1. https://www.americanactionforum.org/research/fuel-for-thought-fracking-and-the-natural-gas-boom/
2. https://en.wikipedia.org/wiki/Peak_oil
3. https://atlasgeographica.com/sand-the-most-important-natural-resource
4. https://www.energy.gov/eere/solar/solar-photovoltaics-supply-chain-reviewreport#:~:text=The%20primary%20inputs%20to%20the,and%20backsheet)%2C%20and%20aluminum.
5. https://www.statista.com/statistics/1334952/solar-polysilicon-manufacturing-capacity-share-by-country-orregion/#:~:text=In%202021%2C%20China%20accounted%20for,the%20global%20manufacturing%20capacity%2C%20
respectively.
6. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/glut-of-inexpensive-solar-panels-ineurope-boosts-project-economics-77068399
7. https://www.powerengineeringint.com/solar/china-to-dominate-global-solar-manufacturing-to-2026-says-woodmackenzie/
8. https://www.canarymedia.com/articles/solar/thin-film-solar-sparks-a-manufacturing-boom-in-the-midwest
9. https://www.bloomberg.com/news/articles/2023-07-03/the-world-s-appetite-for-solar-panels-is-pushing-up-silverprices?embedded-checkout=true

Property & Casualty Team