The consequences of reliance on China in a critical industry have become clear as Australia and the US have vowed to challenge its dominance.
Australia and the United States are working to ensure that China does not solidify its dominance in renewable energy as the world comes to terms with the dangers of relying on one country to supply basic resources.
China already produces about 80% of the world’s solar products, and this figure is expected to increase to 95% within a few years.
As one expert noted: “What happens if there is a fire in one of these factories? The entire global supply chain will be affected.”
The world has come to realize the energy security implications of dependence on countries like Russia for resources such as gas, the price of which skyrocketed after the invasion of Ukraine, and the disadvantages of dependence on goods from other countries during the Covid pandemic.
Experts are now sounding the alarm about China’s dominance in the production of renewable energy, especially solar, and its further potential to monopolize the battery market.
In particular, China recycles more than 80 percent of the world’s rare earths, which are used in the manufacture of batteries.
It also dominates the processing of key minerals such as cobalt, lithium, copper and nickel.
The chairman of the Japan Institute of Energy Economics, Tatsuya Terazawa, said that without critical minerals such as nickel, lithium and rare earth elements, the transition to renewable energy would not be possible.
But China already dominates not only the supply of these minerals, but also processing.
“We need to diversify and reduce reliance on a single source,” Terazawa said at the Sydney Energy Forum on Tuesday.
Japan, perhaps more than other countries, understands the risks associated with dependence on China.
Mr. Terazawa said that Japan stopped deliveries of rare earths in 2010 after it refused to release the captain of a Chinese trawler operating in disputed waters near the Senkaku Islands, whose vessel collided with a Japanese Coast Guard patrol boat.
“Honestly, we didn’t know we were so dependent on rare earths from China,” Mr. Terazawa said.
“This embargo almost paralyzed all of our industrial activities… and prices for rare earths skyrocketed.”
The Japanese auto industry was particularly dependent on rare earths from China, and the Japanese government was forced to issue a US$1 billion package to deal with the crisis. This included funding the development of alternative materials and use reduction technologies, as well as promoting material recycling and helping new and existing mines. The country has also begun stockpiling critical minerals and rare earth elements.
The Sydney Energy Forum, co-hosted by the Australian Government and the International Energy Agency (IEA), this week identified eight actions that need to be taken in the Indo-Pacific region to address key energy challenges.
These include accelerating project investments and partnerships that expand and diversify the supply of critical minerals, and accelerating industry partnerships and research for the production capacity of key products such as solar panels.
These actions will be promoted through international forums including COP27, G7, G20, IEA and IRENA.
China’s peak start came from the US, Australia
Ironically, both Australia and the US have contributed to China’s solar dominance.
University of New South Wales professor Martin Green said that solar energy production was previously mainly in Europe, Japan and the US, and then moved to China.
“Australia has been actively involved in this transition,” Professor Green told the forum on Tuesday.
“The first production in China was set up by a series of Australian-Chinese joint ventures, usually involving students from my group.”
Professor Green said the industry has also been boosted by funding from US investors.
Contrary to what many believe, he said that the Chinese government did not initially invest in solar energy because it believed that solar energy would always be too expensive and supported the wind instead.
However, he began to see potential after young, small private companies based in China began listing on US stock exchanges.
Professor Green said that the first of these companies was listed in 2005 on the New York Stock Exchange.
“There was a huge demand for Chinese stocks at this stage in the US, and it was a huge success when they managed to raise $400 million – obviously the biggest technology was released that year,” he said.
Professor Green said that this has sparked a massive rush by US investors to find other similar Chinese companies to list. Between 2005 and 2010, 10 Chinese companies listed on the exchange.
Six of them are now among the top 10 solar energy producers in 2022, said Professor Green.
“They formed the backbone of the industry,” he said.
The German feed-in tariff, which spread the cost of solar energy to all customers, has also created an ever-growing market for solar PV.
The Chinese government began to support the industry after about 2010, in particular by creating a large market for solar energy in China.
Professor Green pointed out that the solar industry has been developing for more than 20 years, and now the cost of solar energy was ten times lower.
However, the world expects a much faster transition if it wants to achieve zero emissions by 2050.
In particular, battery production needs to be greatly increased, and countries like Australia and the US are hoping to challenge China’s dominance in this area.
“China is very good at what they do”
Although the US and Australia have declared their ambition to become clean energy superpowers, it will not be easy.
“(China) is very good at what they do, they produce an extremely high quality product at a very low cost, so it is very difficult for any manufacturing activity in another country to compete on either of those two terms,” Professor Green said.
Asking customers to pay more for organic products or goods made outside of China will also be difficult.
Professor Green said there could be ways to differentiate products made outside of China: Europe has talked about imposing tariffs on highly carbon-intensive imported products, or there could be certification that no forced labor was used in the production of a product.
However, Amanda Lacaze, chief executive officer of Lynas – the only non-Chinese rare earth separator – warned that many companies would not pay more if it wasn’t necessary.
“There is not a single buyer who is willing to pay even $1 per kilogram for their magnets (used in electric vehicles),” she said.
Government support and partnerships with businesses are seen as critical to attracting investment if Australia is to stimulate local industry.
This includes making it easier to obtain permits for mining and other activities.
There is also a “big shortage of raw materials” as experts worry that there won’t be enough raw materials to meet the demand for things like batteries.
Benchmark Mineral Intelligence CEO Simon Moores said a battery plant could take as little as 10 to 24 months to build, while a lithium chemical plant could take up to 10 years to build.
“(Car manufacturers) who make big announcements about electric vehicles don’t talk to mining companies,” he said.
Demand for lithium-ion batteries and electric vehicles is expected to grow by about 30% over the next ten years, Mr Moores said, but raw material supply is expected to increase by about 15%.
Energy and Climate Change Minister Chris Bowen said Australia is already the world’s largest lithium producer with 49% of global production in 2020 and will work with India to expand production and deployment of solar photovoltaic cells and electrolyzers.
Mr. Bowen also signed the Australian-U.S. Net Zero Technology Acceleration Partnership on Tuesday, under which Australia will work with the U.S. on key technologies such as long-term storage, electric vehicles and grid integration.
“We will accelerate the development and deployment of energy storage and digital grids,” Bowen said.
“We will work to ensure that supply chains for critical minerals are safe and resilient by increasing production, processing and production capacity.
“These technologies and supply chains will be critical to the adoption of renewable energy in Australia and the US.”
Asked if China is seen as a contender in the race for clean energy, U.S. Energy Secretary Jennifer Granholm told reporters: “I worry that China is using many technologies and supply chains that could end up making us vulnerable if we don’t.” “. develop their own supply chains.
“In terms of energy security, it is critical that countries that share the same values develop their own supply chains, not only for the climate, which is of course very important, but also for our own energy security,” she said.
“We’ve seen what happens when we rely too much on a single entity as a fuel source, and we don’t want that to happen. So diversifying these energy sources and building relationships with partners is all part of our energy security.”
Originally published as Australia and US to challenge China’s renewable energy dominance