$1.1 trillion investment opportunity in Asia’s energy transition

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$1.1 trillion investment opportunity in Asia’s energy transition

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New IEEFA report urges ASEAN governments and businesses to go beyond solar panels and turbines 

In the Asia Pacific, governments are setting ambitious solar and wind energy targets, ramping up investment opportunities worth an estimated $1.1 trillion. But a new report looking at this fast-growing industry advises Asia’s industry players looking for investment opportunities in renewable energy to look beyond manufacturing solar panels and wind turbines to essential but neglected parts of the renewables supply chain.

“Solar panels and wind turbines are the most identifiable symbols of the energy transition, and government policies often focus on encouraging, or even mandating, local production of these components,” writes Grant Hauber of the Institute for Energy Economics and Financial Analysis (IEEFA).

A new report advises Asia’s industry players to look beyond manufacturing solar panels and wind turbines to essential but neglected parts of the renewables supply chain.

However, Hauber cites two key reasons for new entrants to the renewables industry in the Association of Southeast Asian Nations (ASEAN) member countries to consider the market more broadly: 1) China, and 2) global shortages of grid capacity for new energy projects.

China dominates

China currently produces 83% of the world’s polysilicon, 97% of wafers, 83% of solar cells and 72% of modules, according to the report. It has 100% overcapacity to produce PV panels and at prices that are ever-declining, Hauber writes. That will make it incredibly difficult for new players with high, up-front costs to compete.

But there is still enormous opportunity in the energy transition if the renewables supply chain is considered as a whole, says Hauber.

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Global transmission gridlock

The global gap in transmission capacity to get new energy to customers represents a huge opportunity. Worldwide, where renewable energy generation capacity has expanded rapidly, there are years-long waits to connect new projects to the grid. Why? Because, in addition to permitting requirements, grid modernization, components, and services lag far behind — most markedly in the United States.

Failure to upgrade and modernize grids has been made worse… due to short supplies of essential components such as high-voltage transformers, switchgear, circuit protection systems and cabling.

Failure to upgrade and modernize grids has been made worse, according to the International Energy Agency, due to short supplies of essential components such as high-voltage transformers, switchgear, circuit protection systems, and cabling.

“Creating fully grid-integrated energy supply projects requires a wide array of complementary materials, components, and services.” These “balance of system” elements can account for 55% to 80% of the total investment cost in a solar or wind project, according to IEEFA.

Mind the gaps: Investment in Asia’s renewable energy projects

Highlighting the opportunity for new manufacturers is the example of Japan-based Hitachi, currently the world’s largest manufacturer of transformers. Despite pouring billions into expanding its capacity the company is struggling to keep up with demand with orders backed up by as much as four years, according to industry reports.

“Balance of system” elements can account for 55% to 80% of the total investment cost in a solar or wind project

Likewise in the offshore wind industry, there’s no shortage of turbines, but there are many other supply chain opportunities — the need for manufacture of steel foundations and towers, to build transmission substations, and to lay undersea cables. To transport and install these components requires specially equipped vessels, and ports, and so on. 

The report argues that it makes sense for ASEAN’s fast-growing economies to focus on localizing and expanding supply chains for grid components and meeting other gaps in renewable energy projects, helping meet market demand projected to be worth $700 billion by 2032.

“Not only would this enhance energy security, reliability, and availability,” says Hauber, “but it would ensure faster recovery from natural disasters — a vital consideration in an increasingly climate-volatile world.”

Click here for IEEFA’s full report.

Written by

Kari Huus

Kari Huus is a writer and editor based in Seattle. She was a staff reporter for MSNBC.com from 1996-2014, with stints covering international business, foreign policy, and national affairs. Earlier, she reported on China for the Far Eastern Economic Review in Hong Kong, and Newsweek in Beijing. From 2015 to 2020, she was managing editor for the website Money Talks News.