The reduction and removal of carbon dioxide (CO2) emissions from the energy sector could have significant positive impacts on the global movement towards Net Zero 2050 goals. This has pushed the rapid adoption and promotion of renewable energy (RE) transition pathways, among which solar and wind power have proven particularly popular.
There are various estimates that conclude high efficiency solar PV-based power generation could potentially even take away the need for any other sources - unlimited energy from an as-yet infinite source, the sun. Some caveats do exist, of course, including any region’s direct sunlight exposure, efficiency of panels, energy storage, and grid solutions among others.
However, it is only in recent decades that solar PV has gained strong traction as a decarbonisation solution. And an even shorter timeline since it has been incentivised, particularly with the likes of the Inflation Reduction Act (IRA) in the US and Production Linked Incentive (PLI) scheme from the Indian government among others. The growth projections for US solar deployment within this decade have increased nearly three times their original steady growth rate since IRA was enacted by the US Senate. This bodes well for solar PV as a green energy transition pathway, but also brings to light some key issues in need of immediate attention – will the supply and procurement chains of solar PV manufacturing be able to match the demand and massive growth? Let’s find out.
What’s driving this growth?
Looking at the sun for justness
During times of such stellar growth projections, there must also come the question of potential vs real. To exemplify, the United States’ recent IRA enactment comes on the back of an energy crisis, which kickstarted at the tail-end of the Covid-19 pandemic and was escalated further by political divides over Russia’s invasion of Ukraine. The energy crisis, emanating from an over-reliance of economies on non-renewables and inflated oil, gas, and electricity prices and impacting overall inflation, has had a knock-on effect on global economic conditions. This had, hence, also disrupted the procurement and supply chains of materials required to build green energy infrastructure.
This context is critical to understanding why it is named Inflation Reduction Act, rather than “Renewables Promotion Act” or something along those lines. The act enhances the US’ stand on clean energy significantly with a nearly $400 billion federal funding outlay. This is the single-largest announcement by the US regarding renewables in history.
A big chunk of this outlay in the form of tax credits, grants, which will go towards reshoring the solar PV supply chain. It has been created to promote local production and subsequent local sourcing of key materials in the solar PV and other clean energy pathways. The largest player in the solar PV manufacturing supply chain has so far been China, accounting for over 80% of the market. While external sourcing for the US will continue with a waiver on increased import taxes for solar-aligned imports for two years, the local US solar PV supply chain is slated to witness unprecedented growth after a setup period of 6 to 24 months.
The hence localised supply chain, which may be able to meet some of the demand for PV modules in the US, will still be reliant on the international supply chain for wafers and solar cells. At the same time, while there is a positive outlook on the potential employment generated during this growth, the labour required to meet these employment quotas will be required to move from other higher margin industries, and could thus, also get complicated.
To top things off, the biggest perspective one might need to take in, would be that the US is doing all this in its bid to mitigate climate change and reduce/remove carbon emissions from its carbon-heavy energy generation mix. The EU, meanwhile, sees the move as one aimed at attracting a fair chunk of the potential green energy business in the years to come. There are two opposing approaches here – one incentivises focussed clean energy development activity, while the other levies carbon taxes on all carbon-emitting activities.
The merits and demerits exist for both. But in a nutshell, one prioritises new business activity that will reduce reliance on non-renewables, external suppliers, and create a new hub for solar products; while the other focusses on achieving overall decarbonisation within its boundaries, by penalising the emitters based on their emissions quantum, thus limiting any activity with an emission.
The question here is not which is the better approach, or more lucrative. The question here is which is the more just transition pathway for the energy industry, which with solar, wind, and other renewables, is trying to decarbonise itself. In the end, the entire purpose of decarbonisation is to limit the global temperatures rise to 1.5 degrees Celsius from pre-industrial levels. And in achieving that, there will not be a regional or local winner, it will be a victory for the planet.
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