EU, China WTO delegates debate derisking clean energy supply chains

Strategies to derisk clean energy supply chains must not sabotage global cooperation, cost-effectiveness or efficiency, Chinese and EU delegates said at the recent Trade and Environment Week organized by the World Trade Organization.

As of 2022, China had a 70% share of the global market in solar PV modules and wind turbines, official data showed, as well as a dominant position in the supply of other clean energy products like batteries, fuel cell stacks and electrolyzers.

Following the security of supply shocks resulting from the Russia-Ukraine war, countries reliant on Chinese exports have looked to diversify their clean energy supply chains.

"We all need to look at supply chains to make sure that we are protected, but I think our message from Europe is that a supply chain is best served for us if it is diversified, rather than going for a reshoring option or a friend-shoring option," Hiddo Houben, Deputy Permanent Representative of the EU Mission to WTO, said during a panel session.

Reshoring involves companies bringing manufacturing capacities back home instead of opening factories abroad, while a friend-shoring option means asking companies to shift manufacturing towards countries that are Europe's allies. Both cold mean higher costs.

"The existing supply chain is mostly driven by market forces, that also means market efficiency," said Li Chenggang, Ambassador and Permanent Representative of China to the WTO. "When you mandatorily require local production, maybe that means low efficiency economically."

Cooperation to maintain efficiency

Both Houben and Li hoped the trend to globalization and international cooperation would not be compromised by heated debates on derisking supply chains.

"When we look at the relationship of the energy transition to trade, we are really thinking about derisking and about diversifying the supply base. But it really depends on the global system remaining open," Houben said.

Besides diversification, making supply chains more resilient through cooperation was a key objective, China's Li said.

"If you only target diversification, maybe someday, we will face another challenge. The efficiency challenge, and the cost [challenge]," he said.

China's decentralization

Sophie Sun, Global Head of Strategic Marketing with LONGi, one of China's largest solar PV manufacturers, said its decentralization strategy would see it "building our manufacturing bases closer to our clients. We have some new sites in Southeast Asia this year. We think that could help [support] the local community and local labor market."

EU's Houben said renewable energy projects were smaller and less capital-intensive than fossil fuel projects, making them more accessible to developing countries. That effect would be enhanced by access to local supply chains.

"From the perspective of the solar PV industry, we have seen global trade experiencing some turbulence: tariffs, non-tariffs, Customs issues, supply chain disputes -- you name it," LONGi's Sun said.

Besides enhancing developing countries' energy accessibility, exporting clean energy products from these countries faced less trade friction compared to directly exporting from China. This was a consideration for manufacturers like LONGi when setting up factories abroad.

Chinese investments in Malaysia and Vietnam have made those countries major exporters of solar PV products, accounting for around 10% and 5%, respectively, of their trade surpluses since 2017, International Energy Agency data showed.

Headwinds

No matter where manufacturers set up, renewable resource was local in nature and offered economies export benefits in the event of surplus wind or solar supply, Wang Zhongying, Director General of Energy Research Institute said at the WTO event in Geneva. ERI is backed by China's top economic planner, the National Development and Reform Commission.

Governments needed to adopt supportive policies enabling foreign investors to set up manufacturing bases abroad, Wang said.

For now, China's solar PV manufacturers were experiencing "slow and tedious" bureaucratic processes when planning overseas investments, LONGi's Sun said.