China’s renewables manufacturing has emerged from 2021 bigger and more competitive than ever before, according to Wood Mackenzie.
China’s need to meet soaring power demand coupled with ambition to reduce its dependence on coal and gas have given local manufacturers the incentive to grow big.
As a result, Wood Mackenzie 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 two years.
Wood Mackenzie 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.”
China’s position as the world’s dominant supplier of solar modules looks secure with nearly 70% of global manufacturing.
And while Chinese manufacturers have not quite made such significant inroads into overseas markets for wind turbines, they still account for 50% of global manufacturing, mainly for the domestic market.
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.”
Wood Mackenzie expects equipment costs to retreat in 2023 as commodity prices recede, logistical bottlenecks ease and supply-chain investments are made.
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.
Just as China’s boom year played its part in pushing up clean energy costs for the rest of the world, China’s manufacturers are already helping to drive them down again, further propagating its dominance in energy transition technologies.
However, 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, Wood Mackenzie concluded.