Onshoring Vs. Global Supply Chains: Can The U.S. Clean Energy Market Keep Up With Demand?

(MENAFN- 3BL) The U.S. clean energy market is buzzing. Billions are flowing into domestic manufacturing, courtesy of the Inflation Reduction Act (IRA) , aimed at ramping up production of solar panels, wind turbines, and electric vehicles (EV). Meanwhile, the International Energy Agency (IEA) estimates 2,400 gigawatts of clean energy will be deployed globally between 2022 and 2027 . But while the U.S. wants to reduce dependence on foreign suppliers, particularly China, can onshoring alone meet demand? Or will global supply chains still be essential in keeping the grid – and our EVs – powered?

In the face of this, DP World co-authored a report with Canary Creative,“Closing the Gap on Clean Energy Supply-Chain Sustainability ,” to explore some of the implications of all this. In view of its findings, let's break down whether the U.S. clean energy sector can hit its goals through onshoring or if global supply chains remain indispensable.

Onshoring: A Tall Order

The U.S. is making big moves to bolster its clean energy manufacturing. Since the IRA passed, over 100 new facilities have been announced, from solar factories to EV battery plants. For instance, the Department of Energy committed $9.2 billion in loans to Ford and SK On to build three new battery plants. At first glance, this seems like onshoring will save the day.

But here's the rub: it's a heavy lift. Despite the IRA's push, the U.S. still heavily relies on imports for key clean energy components. Between 2018 and 2020, over 85% of solar modules installed in the U.S. came from abroad, mostly from China . And in batteries? China controls 75% of global lithium-ion battery production and 70% of cathode capacity, while the U.S. lags at just 7% of global battery manufacturing capacity.

Clearly, onshoring alone won't be enough to meet the surging demand for clean energy technologies in the near term.

Infrastructure: The Elephant in the Room

One giant hurdle for onshoring is infrastructure-or the lack of it. The U.S. faces serious capacity constraints, from ports to factories. According to the IEA , building new polysilicon factories, essential for solar panels, can take 12 to 40 months. Opening new mines for lithium or cobalt? That can take 16 years. Without massive infrastructure investments, the U.S. risks falling behind in the clean energy race.

Plus, it's going to cost. The U.S. will need about $175 billion over the next two to three years just to match China's battery production capacity, according to a report by RMI . Without these investments, scaling up the supply chain fast enough to meet ambitious targets may be a tall order.

The High Price of Going Local

Onshoring sounds great-but it's expensive. Labor and operational costs in the U.S. are significantly higher than in Asia. McKinsey estimates that building a fully domestic semiconductor supply chain could cost the U.S. $1 trillion-more than double the global market's value.

Additionally, building a clean energy workforce requires massive training efforts. According to International Renewable Energy Agency (IRENA) , a significant proportion of the nearly 40 million projected clean energy jobs worldwide by 2050 will require substantial training, especially in sectors like solar panel and battery manufacturing.

Why Global Supply Chains Still Matter

Despite the onshoring push, global supply chains remain critical for meeting U.S. clean energy demand, at least for now. China still dominates, producing 97% of the world's solar wafers and 85% of solar cells. China also controls over 50% of battery material processing. As much as the U.S. wants to reduce reliance on Chinese imports, these supply chains are still crucial to the clean energy transition.

Enter“friendshoring.” Deloitte highlights how countries are partnering with trusted allies to source critical materials and reduce reliance on adversarial nations. By diversifying supply chains through partnerships with countries like Japan, Australia, and Canada, the U.S. can reduce its dependency on China while building more resilient systems-a hybrid approach balancing domestic production and global partnerships.

The Data Problem: You Can't Fix What You Can't Measure

One of the less glamorous but equally critical challenges to onshoring is the lack of accurate data on supply chain emissions. Our report found that most companies are not tracking key metrics like Scope 3 emissions , which account for the indirect emissions generated throughout a company's supply chain. Without this data, it's nearly impossible to develop strategies to reduce emissions or improve sustainability.

In Europe, companies have a long history of collecting and reporting emissions data, but in the U.S., this practice is far less common. Many companies are now scrambling to gather the data they need to comply with new regulations, such as potential mandates from the Securities and Exchange Commission (SEC) . However, without a standardized approach, the clean energy sector risks falling behind on its sustainability goals.

Conclusion: A Hybrid Path to Success?

So, can the U.S. clean energy market keep pace with demand? The short answer: not without a little help from global supply chains. While onshoring is crucial to building resilience and reducing reliance on foreign suppliers, it's clear that global supply chains-and strategic partnerships with trusted allies-will continue to play a vital role in meeting America's clean energy needs. To succeed, the U.S. must invest heavily in infrastructure, workforce development, and data collection while maintaining a balance between domestic production and global collaboration.

For those interested in exploring how to close the gap on clean energy supply chain sustainability, click here to download the full report co-authored by DP World and Canary Media.

MENAFN14112024007202015466ID1108888889