Nearly ‘impossible’ to manufacture batteries without China

Hello and welcome back to Energy Source.

Joe Biden’s flagship climate law has spurred a clean energy building boom in the US as his administration tries to break America’s reliance on China for technologies needed to green its economy. Will it work? When it comes to batteries, which are expected to be a workhorse for the energy transition, the answer appears to be no, at least not anytime soon. Read on for Amanda’s reporting on that.

Amanda also has data from a new survey showing growing optimism from renewable energy project builders, although there are growing concerns that the anti-ESG backlash is crimping the flow of cash into the sector.

On a personal note, this is my last week at the Financial Times and my last Energy Source newsletter. The energy landscape is going through a period of immense disruption as the world tries to avert damaging changes to the climate without giving up the benefits that fossil fuels have delivered humanity over the past 100-plus years. The stakes are as high as they can be and having forums such as Energy Source where the issues can be discussed and debated without the nonsense (we try our best, anyway!) that has hijacked so much of the conversation is hugely valuable. It has been a pleasure interacting with so many of you over the past couple years and having the opportunity to write for such a sharp and engaged audience. You can reach me for another couple days at [email protected]. Thank you for reading. — Justin

US battery supply is woefully inadequate

The US will not manufacture enough battery parts to meet demand by the end of the decade despite subsidies in its landmark climate bill.

This is the finding of a report released today from the Center on Global Energy Policy at Columbia University. The report estimates North America produces enough cathodes and anodes, crucial parts of a battery, to meet only 18 per cent and 8 per cent of current demand, respectively. Given the coming jump in battery use, production of these parts are not expected to meet demand over the next decade.

“China is ahead in terms of supply chain security, in terms of technology. Changing that within nine years is a very difficult thing to do,” said Tom Moerenhout, one of the authors of the report. “The [Inflation Reduction Act] is making a dent, but it’s not changing the reliance, especially of cathode imports, by the end of the decade.”

The IRA includes lofty subsidies to build out a clean energy economy and move supply chains away from China. The projected shortfall of battery parts underscores a conundrum in implementing the bill’s twin objectives: if the US wants to decarbonise quickly, it cannot entirely shun Chinese supply.

China controls large swaths of the electric vehicle and battery supply chain, producing 68 per cent of the world’s cathodes and nearly 90 per cent of its anodes, according to the International Energy Agency. North America produces approximately 1 per cent of these parts. 

Manufacturing commitments are hardly expected to move the needle. While $57bn has been announced in the North American electric vehicle supply chain since the IRA’s passage, less than 15 per cent is directed towards producing battery components, according to estimates from BloombergNEF in early April. The research group predicts China will increase its dominance of global anode and cathode production by the end of the decade despite attempts from countries to reindustrialise. 

The CGEP report’s authors urge policymakers to exercise flexibility when it comes to implementing the IRA tax credits — or risk slowing deployment and making the transition more costly. The bill’s clean vehicle subsidy requires that no battery components or critical minerals are sourced from foreign entities of concern, including China, starting in 2024 and 2025, respectively. The US Treasury has yet to release guidance on how this provision will be implemented.

“It’s almost impossible to put the battery together today and not go basically via China. There needs to be some type of policy flexibility, some type of pragmatism in IRA implementation,” said Ahmed Mehdi, an author of the report. (Amanda Chu)

No sign of an off-ramp for renewable energy boom

A US clean energy boom is under way following the passage of lucrative subsidies in the IRA. The country’s solar industry had its best first-quarter ever, installing 6.1GW of capacity, according to a report released today from the Solar Energy Industries Association and Wood Mackenzie. 

The pace is not expected to slow. New survey findings from the American Council on Renewable Energy found that all surveyed developers and nearly all investors plan to increase their renewable energy plans this year compared with last year.

Here are three takeaways from the survey on how these plans are shaping up:

1. More manufacturing announcements to come

Approximately 28 per cent of developers plan to open a new manufacturing plant in the US in the next three years, according to the Acore survey. Roughly a third said they planned on working with suppliers to bring manufacturing plants back to the country.

The IRA includes lucrative tax credits for manufacturers to move their supply chains onshore and use domestically sourced materials. At least $65bn in cleantech manufacturing investments have been announced in the US since the IRA’s passage, twice the investment announced in 2021, according to Financial Times analysis in April.

2. Eyes on transferability and direct pay

Part of what makes the IRA tax credits so attractive is the fact that they are transferable, meaning companies can sell credits to buyers looking to offset their tax liability and use the money to finance their projects. IRA credits are also eligible for direct pay, meaning tax-exempt entities such as public schools and cities can qualify for the credit. 

Both developers and investors ranked transferability among the top three available financing options for the market, with 80 per cent of investors saying they intend to use both of the IRA’s transferability and direct pay provisions, according to the Acore survey.

3. Anti-ESG concerns

The growing Republican crusade against environmental, social and governance investing is concerning renewable investors and developers. 

Roughly one-third of surveyed investors and developers reported that anti-ESG actions have negatively affected their investment plans by limiting the partners they can attract for financing.

At least 50 anti-ESG bills have been introduced by US states this year, more than double the number introduced in the entirety of 2022, according to a tracker by Ropes & Gray that was updated in March. The law firm found that more than half of states have taken action against using ESG factors in public retirement plans or targeted funds that have boycotted certain industries, such as fossil fuels. (Amanda Chu)

Data Drill

The New York skyline took on a hazy orange hue yesterday as smoke from Canada’s wildfires spread throughout the region and caused air quality to deteriorate to unseen levels.

Millions of households on the US east coast and Midwest received air quality warnings as a result of the forest fires in Quebec. New York topped the list of global cities with the worst air quality on Wednesday afternoon, according to IQAir, a Swiss technology firm.

New York mayor Eric Adams cancelled outdoor school activities, and his health commissioner recommended wearing masks when going outside. Exposure to wildfire smoke can irritate the respiratory tract and lead to more serious conditions such as heart failure and premature death, according to the US Environmental Protection Agency.

More than 140 fires are active in Quebec and thousands of people have been forced to evacuate their homes, according to SOPFEU, the region’s wildfire prevention agency. Meteorologists predict the smoke will continue at least through to the end of the week in the US and they said it could be a preview of what to expect this summer. 

“As long as the fires remain active and large, there’s going to be this smoke that’s going to be continuously lofted into the atmosphere, and the prevailing winds might continue to pull that into portions of the United States at times,” said Zack Taylor, a meteorologist at the US National Weather Service. 

Poor air quality is an issue that many parts of the world face every day. The World Health Organization released a report last year estimating that in low and middle-income countries, less than 1 per cent of cities report air quality that meets the WHO guidelines. The WHO predicts air pollution to contribute to 7mn premature deaths a year.

“For those in the north-east, this is really uncommon, but other parts of the world deal with this on a regular basis,” said Tom Kines, a forecaster at AccuWeather, adding that more smoky conditions in the north-east could “certainly be an issue down the road”. (Amanda Chu)

Power Points

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Energy Source is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg. Reach us at [email protected] and follow us on Twitter at @FTEnergy. Catch up on past editions of the newsletter here.