Solar energy storage as well as other forms of renewable energy have all been in the forefront of media reporting in the past couple of months due to the COP26 conference. On the face of it, solar energy has the potential to be one of the most “international” forms of power – after all, it’s what we thank our existence on this planet for in many ways – however it’s still not in mass mainstream usage across the world, despite ever increasing demand.
What did COP26 finally resolve about renewable energy and solar energy storage?
It has to be said that most countries (& also the UN) see the COP26 resolutions as a basis for further discussions about how the world can urgently cut carbon emissions to try and limit the effects of global warming. Fact is, that 42% of all carbon emissions come from China, the USA & the EU, and the top 10 emitters account for more than 2/3 of greenhouse gas emissions.
Renewable energy is at the core of the UN’s sustainable development goal 7: access to affordable, reliable and clean energy for all, but it’s not easy to get agreement from all countries on how to achieve that. This is such a vital topic as it feeds into so many aspects of life for developing countries such as the viability of health or education systems. e.g. Think about trying to safely roll out vaccines without a reliable supply of electricity for storage.
By the end of the conference, 40 countries had committed to phase out coal and fossil fuels, whilst around 40 more made a commitment to making clean energy more affordable and reliable. That’s certainly not a breakthrough, but it was a clear signal that it’s worth investing into.
Additionally, around 400+ financial institutions (representing a total value $130 trillion) have pledged increased investment into green tech, which can be expected to mean that for examples pension funds will move more in this direction.
So it’s all a bit wishy washy without really concrete measures on renewable energy, especially solar energy storage.
Status of Renewable Energy in 2021
According to the International Energy Agency (IEA), renewables were the only source of power for which demand increased in 2020. They represented 90% of new capacity which came on stream in that time. Solar photovoltaic is expected to keep growing strongly in the coming years.
A report from Allied Market Research said that the global solar energy market was valued at $52.5 billion in 2018 and is projected to reach $223.3 billion by 2026. That’s a CAGR (compound annual growth rate) of 20.5% from 2019 to 2026.
So should we all just switch over to solar power?
If only it were as easy as that. Some of the obstacles in the past have been:
- high initial investments required
- extremely long payback periods compared to other sources of energy
- often the time when most power can be produced (in the northern hemisphere that’s in the summer months) isn’t when the power is directly required so cost efficient storage solutions are needed in order to make use of the “free energy” from the sun
- especially for private home owners, it feels like a really complicated solution and perhaps not so reliable (I’ve seen some interesting discussions between UK acquaintances recently about the viability of solar energy in climates which don’t have say 290 sunshine days per year…)
- right now also is a situation where demand is exceeding supply – solar energy storage products are a truly global industry which means they are also subject to the vagaries of an international supply chain
The global nature of this problem is the reason that I selected the solar industry for this deeper look at how interconnected we all are & how supply chains can impact also climate developments.
I’m grateful to base most of my thoughts below on the interview that Leonardo Marra carried out with Andy Klump on the International Business Podcast.
All the hype is about Electric Vehicles, but what about Energy Storage?
Well, these two topics kind of go hand in hand. Yes, there’s huge hype about electric vehicles (after all a Tesla is sexier than a solar panel, at least in our consume-driven Western society, which has long idolised fast cars as a status symbol), but the questions of battery life and energy storage solutions are of strategic importance.
Right now world demand for solar energy storage is exceeding supply & a large part of that problem is the lack of polysilicon. Polysilicon is a refined silicon chemical product, which forms an essential part of the crystalline solar supply chain – you’d probably recognise it as the blue part of photovoltaic cells or solar panels. It has the advantage that the raw material silicon is one of the most frequently found substances in the earth’s crust & that polysilicon doesn’t degrade with prolonged exposure to sunlight (obviously a major plus!). If you’d like to know more about the production process of polysilicon, I found this description that’s understandable for non-technicians like myself.
So if silicon occurs so frequently, why is there a shortage of polysilicon?
In recent years, there was a huge consolidation in the polysilicon production sector, with smaller players losing out if they were unable to compete on economies of scale. That has resulted in 4 out of the top 5 global players (or 7 out of the top 10) being based in China. That raises a couple of issues. On the one hand, traditionally most Chinese producers have been reliant on coal-fired power stations for their energy (how ironic is that?) & on the other producers based in Xinjiang, or with subsidiaries there, have been blacklisted by the US due to reports of forced labour usage. The US also imposed tariffs on Chinese products, driving up prices there.
So initially prices were pushed down by overcapacity (fuelled by cheap coal-fired electricity in China) and have now exploded with the price of polysilicon increasing 3 times since the beginning of 2021.
Of course, if in future 90% of the world’s polysilicon is produced in any 1 country, this represents a risk factor which supply chain experts would normally try to avoid.
When will capacity be expected to increase?
Well, the expansion pathway for polysilicon is usually between 18 & 24 months, meaning shortages until at least 2023. Under regular circumstances one could expect China to be able to increase capacities in 12-15 months (you know, the famous China speed), however right now the government in Beijing has announced a halt to all expansion of energy intensive industries, which means that many plans are presently on hold.
Andy Klump expects that there will be some increase in capacities in 2022, however due to pent up demand in the market, there probably won’t be a real easing of the situation much before 2023.
The growth in electric vehicles will continue, with China leading the way. This year, 1 in 4 new vehicles registered in Shanghai have been either electric or hybrid. That means that the pressure for increased solar energy storage solutions will continue to grow.
Realistically, over the next 2-5 years the adoption rate for solar power will continue to increase for private households, in municipal settings and also in commercial sectors. This change to renewable energy, thus helping to move towards the global climate goals, can only be achieved if the market demand can be satisfied.
Severe Weather Events
Climate change is a globalised issue, and severe weather events have been becoming ever more frequent over the past years with extreme forest fires or summer hail in places such as Texas or Austria. These kinds of events can result in severe damage to solar units as well as making installation of new projects more difficult.
Extreme temperature fluctuations if unexpected can also cause issues for the solar industry in terms of quality and testing, so the increasing effects of climate change make it also increasingly complex to simply switch to using renewable power, especially solar energy.
Why Supply Chain Traceability will be key in future
Looking at the reasons for the present shortages in the supply in the market, it’s clear that in future a key question will be: who has the best route to low carbon production?
Traceability at all stages of the supply chain will be an important way to ensure that for example polysilicon manufacturers are using power from non-fossil fuels in their production process. In the case of China, that probably means drawing production from Sichuan or Yunnan provinces where already a number of manufacturers are using HEP (hydro-electric) for fuelling their production.
Sustainable criteria (Environmental, Social & Governance) will be a key factor in selecting suppliers, which means that you have to be able to trace HOW each sub supplier is managing their processes. There will be a higher demand for sustainably produced renewable energy. Indeed France & South Korea are already starting to impose tariffs on products which are not produced according to ESG principles.
Supply chain is therefore a key contributor to be able to achieve climate goals
…and I don’t just mean whether you transport your goods with a diesel truck or an electric vehicle (although that certainly has a role to play). Being able to ensure sustainable, reliable supply chains will also be a major contributory factor. Our globalised world means that the complexity of supply chains is likely to increase, & that in order to solve the world’s problems in future, we all need to be able to think more internationally to find our solutions.
You can listen to the full podcast episode here:
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[…] Dependency on a single supplier overseas may bring cost benefits (economy of scale, geo-advantage of location) but also can become a risk factor. […]