Transforming the U.S. Clean Energy Supply Chain

Investment Analysis Clubs Macro Economic Trends and Risks
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One of the cornerstones of the Biden administration’s strategy to achieve net-zero emissions by 2050 is to fully decarbonize U.S. electricity generation by 2035. In 2023, renewables, including solar, wind and hydropower, accounted for about 25 percent of the electricity generated in America.

Closing that gap requires simultaneous progress in multiple areas, including streamlining and speeding interconnection and permitting, expanding transmission capacity, and building a large and skilled workforce. Importantly, it also demands a rapid and large-scale buildout of its domestic manufacturing capacity.

It would be impossible in just two years for the IRA-driven boom in domestic manufacturing to create a resilient supply chain able to fully meet America’s demand for clean energy products. In particular, the critical minerals, components, and manufacturing capacity for both solar and energy storage are concentrated overseas, mostly in China, which accounted for about three-quarters of all global investment in clean energy manufacturing in 2023, according to the International Energy Agency (IEA).

China’s dominance of clean energy manufacturing is well documented. A few data points illustrate the dominance China has across the solar and energy storage value chain:

In 2023, China produced almost 82 percent of the world’s solar modules and is expected to manufacture 80 percent of all modules by 2030.

China also produces over 90 percent of all polysilicon, cells, and wafers. According to the IEA, China’s share of polysilicon production increased from less than 60 percent five years ago to more than 90 percent today.

Similarly, China manufactured nearly 83 percent of all the batteries produced in 2023.

China produces 84 percent of the anode materials, including graphite, along with 63 percent of the cathodes and nearly 70 percent of the electrolytes used in lithium ion batteries.

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You have to admire China for its far reaching strategic planning. Apparently their think tanks are very capable. And they seem to get there first. Or know how to undercut competitors in the west and grab market share. Sometimes driving competitors out of business.

Autocratic govt also seems able to address opportunities quickly. Our visionaries seem to take too long.

Of course China did not invent strategic planning. Fifty years ago we used to worry about “Japan Inc” and its ability to do likewise in electronics, automobiles, and probably many more. They spotted a competitive advantage and were adept at pursuing it.

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There was a time when the US Government did a lot of that, and was responsible for many of the “great leaps forward”, at least until someone convinced some people that “government isn’t the answer, government is the problem” and “government shouldn’t be picking winners and losers” and the like.

In the 1930’s it was government that started up Land Grant colleges which (among other things) taught farmers about soil conservation, crop planting and rotation and more, and helped end the Dust Bowl which had decimated the Midwest for a decade.

Need something more recent? NASA. The government poured billions into space travel in the 1960’s and forward which produced technological advancements as diverse as satellite TV and the production of integrated circuits, advances in metallurgy and chemistry, and consumer products such as camera phones, LEDs, and CatScan machines. The reason private companies can now do so much with space travel with “off the shelf” components is because NASA built the shelf.

There are roads, which seems like a no-brainer, except the anti-socialists in the early 20th century were against them; “the private market should provide them” they said, which led to the “Good Roads Movement” (look it up). The germ was actually bicyclists, but when cars came around it really got traction. (Yeah, I know.)

There are lots more, where government support has changed our lives (education & higher education, GI Bill, support of nascent industries (EV rebates, for example), and so much more.

But yeah, it’s easier when you have a dictatorship and can target a few auspicious industries rather than letting the messy market try to do it while you hope for the best.

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I believe the Land Grant colleges had their beginning in the 1860’s when Congress passed funding legislation.

JimA

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There must be plenty of think tanks out there that see how markets and technologies are developing and what their needs are likely to be. Those are excellent investment opportunities.

Yes, govt does some of that, but often Congress takes years if not decades to move forward. Think broadband internet everywhere. Or rural electrification.

Companies and private investors should be much more adept at it. Elon Musk and Jeff Bezos have to be mentioned as people who saw an opportunity and moved forward. They are also willing to invest and make it happen.

DARPA invented email and the internet. Its a good example that worked well. But successes seem to be the exception.

Govt with good leadership can do much more faster, but doesn’t seem to do much in this area.

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Do you mean the corporate visionaries that want to milk every penny out of their stranded assets in fossil fuels? Those are the ones telling us about “Clean Coal,” “Green Hydrogen,” and the environmental benefits of natural gas.

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There are indeed companies that do strategic planning to guide their allocation of resources. But most have conservative board members that are reluctant to invest far from their core business.

There are a few notable exceptions. Elon Musk, Jeff Bezos. Google. Lubrizol had a new investment division before Warren Buffett got them.

Most find new opportunities too small or risky to bother with. They would rather do stock buy backs than invest in new opportunities. (Sad that their core businesses do not have major growth potential. How did that happen?)

Analysts and shareholders are looking over their shoulder and are quick to criticize any missteps.

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I’m not sure that arguing that government took so long to move forward when it’s clear the private market didn’t “move forward” at all.

It’s doesn’t because one tribe has convinced itself that government can’t do anything, and wants to “drown it in a bathtub.” In fairness that’s been going on since the birth of the Republic. In the early 1930’s FDR had a tough time getting support for many of his programs (all of which were experiments) including getting the USSC to allow them. Heck, Thomas Jefferson’s vision was that we would all be pastoral farmers and that government should do as little as possible and be as weak as it could be and still function. I’d bet there was plenty of support for that point of view at the beginning (see: failure of the Articles of Confederation, which didn’t even allow for federal taxation of the colonies or inhabitants).

Anyway, there are lots of examples: NASA was really a faux-defense program masquerading as a heroic civilian enterprise, researching how to shoot rockets. The Interstate Highway system faced stiff resistance until Eisenhower told members of his own party that it was needed “to move troops” in case of war.

And so it goes. It seems it’s easy enough to sell some people with scare tactics, and others with vision. The good ones manage to do both, I guess.

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My point is of course that China seems to do this well – at least better than we do. Govt has done well in some cases. After Sputnik the space program got support from Congress.

Not blaming politics. But clearly there are opportunities that we overlooked.

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Michigan State University was founded, as an ag school, February 12, 1855. Whatsa Matta U was founded May 27, 1903, as a teacher’s college. Because more and better farmers and teachers were deemed a good thing to have.

Steve

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I’m sorry, yes, the colleges were started much earlier. However FDR made use of them (and other institutions) to educate farmers on soil conservation techniques with the Soil Conservation Service, later renamed for Natural Resources, to stop the destructive farming that contributed so greatly to the Dust Bowl phenomenon. There were other programs too: paying farmers who agreed to use better techniques, using unemployed men to plant wind breaks, teaching crop rotation and contour plowing, and so on.

The larger point is that government - not heroic entrepreneurs or private industry - addressed the issue and got the country over one of the worst environmental disasters in history. You’d think maybe government could do the same with climate change? Nah, drown it in a bathtub.

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As I stated in another thread, there is no way the US power grid will be fully decarbonized by 2035. There isn’t enough time, and we aren’t doing nearly enough to even get close to the goal.

If we look at the combined electricity generation from coal, natural gas, petroleum and other fossil fueled power plants, “peak fossil fuel” occurred in 2007, at 2,992,238 GWh, or 2,992 TWh. (In these numbers, total fossil fuels includes “Other Gas” generators. According to the EIA defintions, the constituents of Other Gas come from fossil fuels.)

As of 2023, total fossil fuel generation was 2,509 TWh. Therefore, we declined from 2,992 to 2,509 in 16 years. That is a 16% drop in 16 years. How are we going to decrease the other 84% in only 12 years? It just isn’t going to happen.

      Electric Power Sector
Year    Fossil Fuels, TWh
2007       2,992
2008       2,927
2009       2,726
2010       2,883
2011       2,789
2012       2,775
2013       2,746
2014       2,751
2015       2,728
2016       2,655
2017       2,537
2018       2,660
2019       2,584
2020       2,429
2021       2,508
2022       2,553
2023       2,509

If we plot these numbers on a spreadsheet, the resulting graph is fairly linear. Doing a least-squares fit on the line, we might get to zero a few years after the year 2100. That is only 65 years after the goal. But, it is also too far in the future to be able to predict with accuracy. There might be some kind of unexpected technology development, or we might get serious in a big way about building nuclear power plants that we already know how to build. Who knows? But I wouldn’t count on a miracle. What is obvious is that current efforts are insufficient, and there is no actual plan, with the necessary commitment, to make it happen.

_ Pete

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The growth of clean electricity on the grid is not linear.

A graph illustrating the growth of clean electricity over the last 20 years would show a steep upward trend, demonstrating a significant increase in the percentage of electricity generated from renewable sources like solar, wind, and hydropower, with the most notable growth occurring in recent years, especially in solar power capacity.

For example, solar power generation in 2023 was 238,121 GWh. that is a 16% increase over 2022. At that rate of increase and the growth rate of wind, nuclear, geothermal, hydro and biomass we will have 90% clean electrical grid by 2035.

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Fossil fuels aren’t out yet.

The Kansas utility company Evergy is building two new natural gas plants to help meet the need for electricity in the state. Everybody seems to be on board with the plan, including our Democrat Governor.

Evergy plans to build two new natural gas plants in Kansas by 2030

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It is very hard to do as it requires a very thick skin. Consider this board and how it has dealt with topics like FSD, robotaxis, humanoid robots, and most recently the Boring company. A lot more negativity and sarcasm than an appreciation of the potential.

I think the majority of folks here were pretty cynical 10 years ago about the pace of EV adoption and battery storage. Given that, would there have been much support here for a foreign policy in 2013 (when China’s Belt and Road initiative began) that emphasized locking up lithium and rare earth mines?

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I agree. Our short term profit focus works against long range strategy. Much easier to focus on what is working and grow that.

Still strong leadership can work for people like Elon Musk or Steve Jobs. And hats off to companies like Lubrizol with mature markets and limited growth potential who put resources into a venture capital division. It does take guts. You will be criticized.

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In 2023, solar was 5.6% of total US generation. It is relatively easy to grow fast when the percentage is that small. As the share grows, it becomes more difficult to maintain that sort of percentage growth.

And then there is the whole problem of the inability of wind and solar to load-follow, so as to match generation with demand. Dispatchable generators are needed to pick up load when the sun sets, etc. I doubt the percentage of wind and solar will be as high as is indicated on the graph you provided. I also highly doubt enough batteries can be installed, at the scale that will be necessary, in order to make wind and solar dispatchable. Same goes for the various carbon capture schemes that exist. You just can’t scale it up in the numbers that will be needed.

_ Pete

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News story today reported Kansas utility plans two combined cycle NG plants in 2029/2030 to supplement abundant wind turbine electricity. (Recall the dust bowl from the 30s. It’s windy out there.)

You told us on the old utility board combined cycle is most efficient technology available.

Natural gas is a cleaner fossil fuel, but supplies (as from Oklahoma) are expected to be abundant for the life of the plants.

More green house gases. I think we would rather have nuclear. But at least cleaner than the old way. Better than coal.

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That is not true. Where do you get this misinformation?

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Kansas will use the the plant for backup in case the solar & wind have lull periods. No utility wants to run natural gas fired power plant 24/7 using this expensive fuel. The plant will operate at about 50% of the time for load following. Solar & wind are so much cheaper for electricity generation.

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