There is much debate about how the macro environment, including the elections in the U.S. and monetary policy changes in key economies, might impact the fight against climate change. However, a key aspect of meeting clean energy targets will be the development of a de-risked global supply chain capable of delivering both materials and components to support the rapidly expanding demand.
Clean energy supply chains are long, complex, and capital-intensive. Even if manufacturing is set up at home for some parts of the supply chain, re-shoring production of every single step to Western countries is a gargantuan industrial task.
India is much better placed than the U.S. or the EU to replicate many of the variables that help Chinese producers dominate green industries. These variables include land prices, electricity costs, permitting timelines, construction timelines, construction costs, labor costs, and supply chain sourcing (just to name a few). It is in the geopolitical interest of major economies to support India in achieving the scale, efficiencies, and expertise needed to compete effectively with China. The U.S., EU, and India must urgently come together in a free trade agreement on clean energy.
Countries like Mexico and Vietnam are only at the first step of diversification, focusing on the assembly of components to put together products such as solar modules or battery packs. Risks of disruption will only truly reduce when the value chain further upstream is diversified too, including the manufacturing of intermediate products (like polysilicon, wafers, ingots, and cells for solar; cathode, anodes, and cells for batteries), as well as the technologies and processed minerals needed to manufacture these intermediate products, and even mining and processing ores needed as raw materials. Much of this is technologically complex, capital and time-intensive, and energy and emissions-intensive.
Through initiatives such as the Production-Linked Incentive scheme for alternate battery chemistries and integrated solar manufacturing facilities, India has already kickstarted backward integration. It is also set to launch the Critical Minerals Mission to catalyze investments in the mining and processing of critical minerals.
To meet international 2030 emissions targets, the global manufacturing capacity needed for solar PV modules must rise to 651 GW, 400 GW for wind turbines, 167 GW for hydrogen electrolyzers, and 5099 GWh for EV batteries, according to the IEA. A recent statement from the Ministry of New and Renewable Energy revealed that India has already increased its solar modules manufacturing capacity to 67 GW, a 27x increase in the last 10 years, accounting for 10% of the global requirement. The government has offered financial incentives to companies to set up 1.5 GW capacity of electrolyzers, the main technology to produce green hydrogen from water. Battery manufacturing projects will create a manufacturing capacity of a minimum of 120 GWh by 2030, which will result in a 10-fold increase in India’s share of global battery manufacturing capacity, from 0.2% currently to 2% in 2030.
Reports show that China is a leading investor across the majority of clean energy manufacturing investments in Southeast Asian nations, likely in a bid to bypass trade barriers. By contrast, a majority of investments into the Indian clean energy manufacturing ecosystem are from a diversified investor base, primarily from India but also from the U.S., Japan, and others. This helps India’s positioning as a trusted source for supplies of clean energy equipment.
Ultimately, quality and pricing matter. As the CEO of a company involved in both the manufacturing of solar modules and cells and their use in electricity generation, I can confidently say that modules, cells, batteries, and electrolyzers made in India meet the highest international standards, as evidenced by the rapidly rising exports from India to the U.S. and EU.
Competitiveness on pricing is trickier. Industry estimates indicate that production costs for Chinese suppliers are between 15-25% lower than other international players across technologies such as solar modules, cells, batteries, electrolyzers, and wind turbines. However, Chinese suppliers are offering products at almost 40-50% of the prices being offered by players from other countries. This mismatch has led to a spate of non-tariff barriers, anti-dumping duties, and investigations initiated by several markets including the U.S., India, and the EU.
Clean energy is an area ripe for stronger international collaboration. Even though building domestic supply chain capabilities opens possibilities of a huge economic prize for host countries, multiple hubs are critical to nudging domestic manufacturers toward gaining international competitiveness (especially as subsidies are time- and resource-capped) as well as to leverage respective strengths for faster innovation and cost reduction across the board.
More must-read commentary published by Fortune:
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
