How China Achieved Its Clean Tech Dominance

This is the first in a series of three features looking at China's lead in new energy technologies and other countries' efforts to build out their own industries in competition. 

China holds a commanding lead in manufacturing most low-carbon technologies and looks likely to remain highly competitive — but the landscape is nuanced and varies by technology. There is still potential for other countries to catch up, and thus diversify global supply chains, if they make a similarly concerted effort to attract investments as capital flows into clean energy solutions in the coming years and decades, experts tell Energy Intelligence.

The push to diversify the supply chain beyond China has gained in urgency, due to energy security concerns fueled by the Ukraine crisis and practical supply chain concerns raised by the Covid-19 pandemic in recent years. There’s optimism that others can at least gain significant ground. In electric vehicle (EV) batteries, for example, Anil Srivastava, former CEO of Swiss battery maker Leclanche, says Western countries — and others — can advance their supply chains if they make similar planning decisions. China is "now reaping the benefits of a strategic decision they made by declaring the battery supply chain as a nationally important industry years before the West realized its importance," he says. "They have made massive investments in refining metals required in batteries."

In another example, the solar PV sector, Bethany Meban of SolarPower Europe points to the need for scale and innovation, with Europe already well-positioned with the latter. “The heart of global solar innovation is in Europe — the EU is in the top international patent holders for solar technology,” she touts. To move things along further, the organization is calling for the inclusion of ESG-based criteria to promote “best-in-class” solar PV within the EU Green Deal Industrial Plan, hoping to drive demand for European product. Additionally, the EU would need to make a concerted effort on finance by mobilizing €30 billion of private and public financing to keep efforts on track to achieve the EU’s official goal of 30 GW of solar PV manufacturing by 2025, she adds.

China's dominance can help inform decisions in the push to diversify supply chains, analysts say, particularly as pressure mounts to step up clean energy investments to decarbonize the global economy. So, how did China get to this point of preeminence? It boils down to a mix of planning, patience and persistence, by companies and policymakers, observers say.

• China can mass manufacture very cheaply. This is not necessarily because China is better at mass production than other regions, but because it does it at such large scale, given its huge domestic market. China has also been more willing to absorb near-term financial hits to position itself for future market share. In solar photovoltaic panels, for example, China created huge manufacturing overcapacity, creating problems for companies at home and abroad. Suntech — once the poster child of China's solar prowess and among the world's largest solar panel producers — went bankrupt in 2013 amid relentless capacity expansions and the imposition of punitive US solar import tariffs. Instead of bailing out the company, Beijing allowed Suntech to sink, as an opportunity to consolidate and rationalize its solar manufacturing industry. This eventually paid off: China manufacturers, despite the early hits, ultimately emerged stronger with large market shares and competitive pricing.  

• Beijing offers strong, clear policy support. While countries with more democratic governance structures cannot replicate everything China does under its single-party, centrally planned system, the general approach — a patient, long-term investment strategy — can serve as a loose model and provide general principles. Beijing identified solar power as a strategic priority roughly two decades ago, for example, and electric vehicles around one decade ago. It has then fine-tuned its policies along the way, not hesitating to change tack when confronted with roadblocks. For instance, Beijing's original push to export to US markets ran into trade disputes, but it changed course swiftly by offering incentives to promote stronger domestic demand and targeted other markets in the developing world. China has also offered generous incentives: government grants, low-interest loans and funds from the Ministry of Science and Technology "led to the establishment of several pioneering domestic manufacturers," the IEA notes in its recent Energy Technology Perspectives report.

• Beijing wants manufacturers to stand on their own feet. The government has sought a balance between active support of an embryonic industry and a desire to eventually wean Chinese manufacturers off government handouts and subsidies. With the aim of driving cost reductions through technology innovations, the central government made it clear around the mid-2010s that generous feed-in tariffs for solar and wind projects would be reduced over time and eventually ceased by 2020-21. The same story is now playing out in electric vehicles (EVs): In the past few years, Beijing had been progressively cutting back cash subsidies for EV purchases, raising the technology bar for subsidy eligibility and specifying a Jan. 1, 2023 date for termination of all subsidies, which went into effect last month as planned.

• But China does not enjoy a blanket lead.  Solar panels and batteries, two areas where China dominates the most, can be transported easily (see graph). By contrast, wind turbines and electrolyzers are bulky and have higher transport costs, so a greater share tends to be manufactured closer to market. And while land and labor are still cheap in China, that will not necessarily remain the case forever, experts warn.

Solar, Wind and More

China has essentially built up its solar panel empire from scratch over the past two decades. Initially, Beijing set a goal of tripling solar cell and module manufacturing capacity from 5 megawatts (MW) in 2000 to 15 MW in 2005. Those objectives appear negligible by today’s standards, as China’s manufacturing prowess exploded over the following 20 years. The country churned out 182 gigawatts (GW) of solar modules in 2021, according to figures from the China Photovoltaic Industry Association. Today, Chinese manufacturers consistently hog the top positions in many global rankings based on shipment volumes, quality or bankability. China’s dominance in solar PV manufacturing is expected to persist or even expand in the short term, the IEA notes. Shenzhen-listed JA, for example, is planning a major expansion to reach 80 GW in module manufacturing capacity by the end of 2023, from 50 GW at end-2022. Similarly, Longi this month announced a $6.7 billion expansion plan that would add some 100 GW in wafer and 50 GW in cell production capacity over the next three years.

China also leads in wind and electrolyzer manufacturing, but not as markedly as in solar because of the transportation issues (see graph). China still accounts for 60% of global manufacturing capacity of both onshore and offshore turbines and half of global trade, with most exports going to other Asian countries and Europe. In offshore wind, China was a relative latecomer but has made great strides to catch up with Western rivals. Chinese turbine manufacturer Goldwind recently announced the successful rollout of the world's largest offshore wind turbine at 16 MW, beating Vestas’ 15 MW in Denmark.

China makes up about a third of global electrolyzer manufacturing capacity and can produce most key parts domestically, although it is considered by some as not yet up to international standards in efficiency and reliability. Still, China is acknowledged as having the lowest cost for manufacturing electrolyzers using the alkaline electrolysis process — one of the two main electrolyzer categories — with the ability to produce them for one-fifth to half the cost of similar production in Europe or North America, according to IEA’s Global Hydrogen Review 2022.

Shanghai-listed Longi, which ranks among the world’s top solar panel manufacturers, has diversified into the hydrogen equipment business. The company projects that the domestic cost of alkaline electrolyzers will fall to 700 yuan-900 yuan ($94-$126) per kilowatt by 2030, with the potential to further tumble to 530 yuan-650 yuan ($74-$91)/kW in 2050. Longi’s cost forecast is significantly lower than the IEA’s estimates of “slightly above $300/kW” for such electrolyzers within its net-zero scenario, which assumes a globally installed electrolysis capacity of 725 GW by 2030.

Chinese state oil and gas giant Sinopec is pursuing a vertically integrated production chain that includes electrolyzer manufacturing. It has a joint venture with New York-listed power technology provider Cummins to manufacture in China proton exchange membrane (PEM) electrolyzers that are deemed better suited to the fluctuations of wind and solar power than the alkaline variety.

Electric Cars

In the transportation world, the story is similar. China has led the world for eight straight years on domestic EV sales, with nearly 6.9 million units in 2022. The country is now exporting its domestic EV success to other parts of the world — albeit with some notable exceptions, including the US. Chinese EVs are viewed as value-for-money alternatives that deliver decent performance, in contrast to the country’s reputation with conventional vehicles. Shanghai Automotive (SAIC), for example, acquired iconic British brand MG in 2007 and now manufactures “designed in Britain” MG models in China. China’s EV exports doubled year on year during the first 11 months of 2022 to 590,000 units, with the top destinations being Belgium, the UK, Thailand, the Philippines and Australia. Of the global top 10 EV manufacturers listed by US-based TT Consultants, two are Chinese — BYD and SAIC. US Tesla, which holds the top spot, says its China plant in Shanghai is its “main export hub supplying vehicles to most markets outside of North America.”

China also has a commanding share of production at every stage of the EV battery supply chain, with the exception of mining of metals for cathode materials. Two-thirds of global battery cell production is in China, according to the IEA. China’s CATL and BYD are the world’s top two EV battery suppliers, with a combined 50% of the global EV battery market share, according to South Korean battery research firm SNE. CATL, which singlehandedly supplied 37% of the global EV battery market over January-November 2022, is also advancing on the technology front — the company’s new Qilin battery can provide a range of 620 miles (1,000 km) on a single charge, and was featured in Time magazine’s list of best inventions in 2022. CATL is aggressively investing billions of dollars into capacity expansions in places like Sichuan and Shandong provinces, and abroad in locations like Germany.

Interconnected Market

Healthy and diverse interdependence, rather than independence, may be the ticket for strong low-carbon supply chains. The head of the International Energy Agency’s energy technology policy division, Timur Gül, says it is “important to keep in mind that the huge scale-up of manufacturing capacity that took place in China" — for solar PV and EV batteries — “has actually helped bring down the cost of these technologies for everyone," he told Energy Intelligence in a recent interview. This is one of the “key reasons why we are seeing solar PV being competitive in the vast majority of the markets and today why we are seeing electric cars basically closing the cost gap to conventional internal combustion engine vehicles,” he said.

Further, it's "not realistic" and arguably "not even desirable" for each country to effectively compete across all parts of technology value chains, he suggests. ”There are competitive advantages that countries have," including inherent strengths such as access to low-cost renewable energy, the presence of mineral resources, a large domestic market, and a skilled workforce.