Energy Transition: Net-Zero Future and Supply Chain Implications
To meet ambitious net zero targets, existing and new technologies will need to be deployed at a pace and scale far beyond anything previously imagined or experienced. This creates enormous challenges for supply chains that do not currently exist at scale—or exist at all.
2050, 2060, and 2070. Three sacrosanct years as governments across the world have unleashed ambitious net-zero targets at the recent COP26 conference. Undoubtedly, the race to achieve net-zero has gathered momentum. Governments, companies, and institutions have all joined the bandwagon working hard to meet these ambitious decarbonization targets. Recent commitments by a number of governments to net-zero emission targets have underlined both the need and the desire to rapidly reduce hydrocarbon consumption. To meet these ambitious targets, existing and new technologies will need to be deployed at a pace and scale far beyond anything previously imagined or experienced. This creates enormous challenges for supply chains that do not currently exist at scale—or exist at all.
The magnitude and pace of this industrial transformation raises considerable risks and uncertainty as well as very significant opportunities. Yet decision makers face a welter of contradictory information regarding low carbon energy technologies and the supply chains that will be needed to support them.
To navigate the path to net-zero, oil and gas companies will have to define their strategic approach and become either resource specialists, integrated energy players, or low carbon players. The direction a company takes often goes hand in hand with a national strategy on the part of many oil producing nations to decrease their dependence on fossil fuels.
Achieving net-zero could require installed capacities of solar PV, wind turbines, and grid-connected batteries to increase by factors of 14x, 9x, and 160x, respectively, by 2050. The demand on vehicle batteries will increase even more rapidly, growing from an annual 144 GWh in 2019 to 1,400 GWh by 2030, a nearly ten-fold rise in a decade. The supply chains to support this growth are nascent, and highly geographically concentrated. Currently, for solar and battery technologies, the top 3 countries account for over 80% of global manufacturing capacity, and for certain components in the supply chain the geographical concentration is even greater.
Bottlenecks in the global supply chain threaten to drive up renewable-power costs, reversing a decade-long trend that made wind and solar mainstream. Solar panels are also in high demand and are critical to mitigate climate change but have been particularly hard hit this year by supply chain problems. The solar industry is reeling with market disruptions over trade and logistics issues. Supply uncertainty and constraints are fueling cost increases and potential delays in solar projects—a major concern for utilities and other purchasers that rely on solar as the go-to resource for transitioning to clean energy.
This makes it all the more urgent to assess the resilience of supply chains for low carbon technologies and the opportunities for growth and diversification. At the same time there is the need to assure the sustainability and socio-environmental impact —from raw material extraction all the way through to end of life disposal or recycling. Stakeholders want to understand the full lifecycle carbon emissions from source to deployment to assess the true reductions in GHG emissions from adoption of alternative low carbon energy sources and the associated costs and investment implications. The key decision makers to embrace net-zero energy transition should have a thorough understanding of the following
- Understand the characteristics of the existing "cleantech" supply chains and the networks that support them
- Evaluate the scale and nature of the investments, supply sources, supply chains, and costs needed to meet net-zero ambitions by 2050/ 2060/ 2070
- Articulate the new supply chains and business models required to deliver at the scale required
- Formulate the strategies, understand the investment risks, and assess opportunities for energy companies, investors, and supply chain participants
- Develop a deeper understanding of how the geopolitical factors and government policy drive supply chain localization.
- Understand the potential for developing local suppliers and supply chains, and the implications
- Evaluate the lifecycle emissions and sustainability of these supply chains and assess the opportunities for recycling and reuse.
- Understand the role of innovation and technology to meet supply chain challenges
Going forward, we realize that the rethinking of net-zero energy-transition-related supply chain strategy has already begun for companies. Improved net-zero supply chain resiliency, collaborative supplier relationship management with focus on emission metrics in procurement, alternative strategic sourcing of rare earth minerals, fully integrated supply chain model, and supply chain decarbonization are some of the measures to be undertaken by the energy companies to focus on achieving net-zero targets in the most optimized way. Supply chain decarbonization will truly be a game changer for the net-zero energy transition impact. It will be interesting to see how government and energy companies can effectively navigate these supply chain challenges to achieve their ambitious net-zero targets in the years to come.
[The article was first published in the 2021 ADIPEC Exhibition and Conference Show Daily.]