The age of clean technology manufacturing offers big opportunities for the countries that embrace it, including positive synergies with climate and energy security goals, as well as benefits for economic growth.

Countries will need to define industrial strategies fit for the clean technology manufacturing age in accordance with their national circumstances, considering potential strengths with regards to different technology areas, as well as priority needs for collaboration and strategic partnerships with third countries. Governments seeking to stimulate domestic manufacturing also have a unique possibility to influence local demand for clean energy technologies at the same time, such as by supporting incentives for purchasing EVs. For suppliers, local markets offer benefits such as lower transport and administrative costs for reaching potential buyers.

The majority of announced manufacturing projects across most key clean energy technologies do not have committed investments. In the United States, for example, almost 40% of the announced battery factories are under construction whereas the figure is just 2% for electrolysers. In Europe, the equivalent figures are around 10% and 15% respectively. However, such manufacturing facilities can be brought online with relatively short lead times – around 1-3 years on average – meaning that deployment can rapidly scale up if support is maintained. Likewise, manufacturing projects that have been announced but not firmly committed may end up moving to different countries in response to policy shifts and market developments.

In an era of great change, project developers and investors are on the lookout for supportive policies that could give them the edge in different markets, and since the beginning of the decade, several major economies have introduced new policies to boost domestic clean technology manufacturing. Examples from the past year alone include the Inflation Reduction Act in the United States, the Net Zero Industry Act in the European Union and various milestones in Japan’s Green Transformation programme. Together with China’s latest Five-Year-Plan (2021-2025) and India’s Production Linked Incentive scheme, these policies are transforming industrial policy relevant to clean energy technology and reshaping the balance of global trade.

In this part of the briefing, we examine the impact of recent policy developments on progress towards domestic deployment targets in selected regions and countries. We consider the potential role of these policies in shaping the expansion of clean technology manufacturing in the future, as a starting point for decision-making.

Policy frameworks are not the only factor influencing change in technology manufacturing. Each country will need to carefully consider their own individual circumstances to assess where in the supply chain to specialise domestically, and where it might be more effective to establish strategic partnerships or to make direct investments in other countries. One of the major differentiators in the competitiveness of energy-intensive industry sectors in different countries, and thus their attractiveness for manufacturers, is the cost of energy. This is especially true for natural gas and electricity, the prices of which vary significantly between countries.

Industrial competitiveness is also influenced by other contextual factors besides energy costs. Access to local customers and the size of the domestic market can be an important pull-factor for new manufacturing development, as can opportunities to exploit synergies with existing industries or to leverage the skills of an existing workforce. A favourable regulatory context, such as with regards to permitting times; competitive labour and capital costs; enabling infrastructure; and prospects for future development can also help encourage investment.

The Inflation Reduction Act (IRA), adopted in August 2022, set a new course for clean energy industrial strategy in the United States to support the achievement of decarbonisation ambitions, with around USD 370 billion allocated to energy and climate investments. It is already starting to have an impact on the pipeline of domestic manufacturing capacity. The IRA aims to provide more than USD 60 billion to scale up domestic clean energy manufacturing through production tax credits for manufacturers and consumer incentives to help drive demand. Specifically, the IRA provides USD 30 billion in production tax credits to accelerate domestic production of solar PV, wind turbines and batteries, as well as critical minerals processing. The IRA was also accompanied by new authority to use USD 500 million in Defense Production Act funds to increase production of five key clean energy technologies, including solar PV, heat pumps and electrolysers, as well as platinum group metals used in clean energy supply chains.

The effect of incentives and new requirements under the IRA to date has been particularly pronounced for battery manufacturing. Between August 2022 and March 2023, major EV and battery makers announced cumulative post-IRA investments of USD 52 billion in North American EV supply chains, of which 50% is for battery manufacturing, and about 20% each for battery components and EV manufacturing.

Total installed capacity for battery manufacturing rose 85% in 2022 relative to 2021, to 105 GWh per year. The pipeline of announced projects suggests huge growth over the next years – 30% CAGR through to 2030 and an additional 925 GWh of annual production capacity. If all these projects are realised, the manufacturing throughput for batteries made in the United States will be just shy of the domestic needs in the APS in 2030 – and over 60% of the levels needed in the NZE Scenario. As imports may still be needed for individual battery components, the minerals they use, and for specific battery types, the IRA includes provisions for collaborating with countries that have a trade agreement with the United States. This could slow down production in the near term, given the relatively limited possibilities to rapidly boost domestic production of some components. However, further provisions aim to strengthen the US domestic industrial base for large-capacity batteries and their component minerals, using loans and purchase commitments to incentivise expansion of domestic mining.

Solar PV module manufacturing capacity grew more slowly in 2022, albeit from a larger base, increasing by just 4% relative to 2021 to 7 GW. A sizeable amount of investment is expected to reach the solar PV industry, and announced projects suggest a further 35 GW of capacity could come online by 2030. Together with capacity already installed, if they were all realised, these announced projects could help deliver 40% of the domestic deployment needs in the APS in 2030. 

Capacity additions for other technologies may be slower to get started. Electrolyser manufacturing installations doubled from 1 GW per year in 2021 to 2 GW per year in 2022. However, the pipeline of announced projects for electrolysers implies substantial growth – a compound annual growth rate of over 30% – through to 2030, by which point domestic installed capacity would be able to satisfy 90% of domestic demand. Manufacturing output for heat pumps needs to more than double, and for wind power components to more than triple by 2030 in order to catch up with deployment needs in the APS.

The Net Zero Industry Act (NZIA), announced in March 2023, proposes measures to strengthen clean technology manufacturing in the European Union towards the overall aim of domestically manufacturing at least 40% of the technology required to achieve the Union’s 2030 climate and energy goals. While it is too early to assess the full impact of the NZIA, analysis of existing and announced projects shows significant progress towards the policy’s goals for some technologies.

The NZIA focuses on streamlining the regulatory environment and developing new avenues for internal co-ordination on manufacturing eight priority net zero technologies, including solar PV, onshore wind, batteries, heat pumps and electrolysers.1 These technologies have been selected for their potential contribution to decarbonisation and competitiveness, as well as their relative maturity. A key aim is to improve diversification in supply chains: all the technologies selected have a component or part of the value chain for which the EU is currently heavily import-reliant, and tender opportunities will take into account the proportion of products or components originating from a single supply source. The NZIA also includes measures to create a skilled labour force, to test innovative technologies, and to establish a framework to monitor supply chains and track progress.

The NZIA does not emphasise financing schemes or trade policy, which are covered under other pillars of Europe’s Green Deal Industrial Plan. The proposed European Sovereignty Fund is expected to provide more detail on investments for critical and emerging technologies.

There was strong growth in EU battery manufacturing in 2022 (110 GWh of output) relative to 2021 (70 GWh), driven by the increase in sales of EVs. Manufacturing capacity in the European Union increased 90% year-on-year to 130 GWh per year in 2022. Capacity is expected to increase at a compound annual growth rate of 25% per year through to 2030 if all announced projects are realised, with about 650 GWh per year added relative to 2022 levels.

The projected output of existing and announced projects combined looks set to comfortably achieve the cross-cutting 40% minimum level for domestic clean technology production specified in the NZIA. The supplementary targets stipulated for battery manufacturing include a further demand-dependent target of 90% of annual demand, and a 550 GWh absolute target, which also both appear achievable with the combined output from existing and announced projects (660 GWh). However, fewer than 10% of announced projects for battery manufacturing in the EU can be considered “committed” (i.e. have begun construction or reached final investment decision). If the NZIA domestic production targets are to remain within reach, a supportive policy environment is required to increase the likelihood that the remaining 90% of preliminary project announcements actually materialise.

The global energy crisis sparked by the Russian Federation’s invasion of Ukraine and subsequent high gas prices have given additional impetus to the deployment of solar PV in the EU, which reached a record level of 38 GW in 2022. Despite this, domestic manufacturing capacity remained virtually flat, and domestic production was just 7.5 GW. Existing manufacturing capacity together with announced projects look set to fall well short of the 30 GW deployment needs of the APS in 2030, meaning the EU looks set to remain an importer of PV modules for the foreseeable future. While the overarching domestic manufacturing target in the NZIA of 40% of domestic needs looks achievable based on existing and announced capacity, there remains a large gap between the current project pipeline and the supplementary absolute target of 30 GW per year for solar PV.

Installed electrolyser manufacturing capacity remained flat over 2021 and 2022, but if all announced projects are realised, the projected CAGR of 34% over the next seven years looks set to deliver in excess of the level required in the APS by 2030 to meet domestic demand. The NZIA sets a target of 31 GW of annual manufacturing capacity by 2030 for heat pumps. The current pipeline of announced projects, together with existing capacity, look set to deliver in excess of this target, and moreover, in excess of the 53 GW annual deployment needs of the APS in 2030. Further project announcements could move the EU into a net export position for these two technologies.

Given the European Union’s dependence on imports for inputs to the manufacturing processes for clean technologies, the NZIA is expected to work in tandem with the 2023 EU Critical Raw Materials Act (CRMA), also announced in March 2023. The Act’s overarching goal is to ensure the European Union’s access to a secure and sustainable supply of critical raw materials for domestic manufacturing by: a) strengthening EU capacities along the different stages of the value chain, b) diversifying the European Union’s imports of raw materials, c) improving monitoring and risk mitigation capacities, and d) improving the sustainability and circularity of critical raw materials. The impact of the NZIA on manufacturing capacity expansions is still too early to gauge. 

China’s 14th Five-Year Plan, launched in 2021, continued its support for clean technology manufacturing, contributing to the overarching aim of achieving a peak in CO₂ emissions before 2030. More than a decade of policy support has established China as the largest manufacturer for clean energy technologies and their components globally, and it looks set to maintain – and even extend – this position in the coming years.

For solar PV and wind, China already had enough manufacturing output in 2021 to satisfy its projected domestic demand under the APS in 2030. In 2022, manufacturing output was still growing, with solar PV reaching 190 GW and wind reaching 62 GW. These manufacturing operations are still seeing strong growth, driven in part by growing export markets. Manufacturing capacity is growing more quickly than domestic demand, and so if all announced projects are realised, exports of these technologies will also need to grow continually over the coming seven years. The combined output of existing and announced projects is estimated to reach nearly 860 GW for solar PV and around 70 GW for wind by 2030, relative to deployment needs in the APS of 108 GW and 41 GW per year for solar PV and wind respectively.

Manufacturing facilities for several technologies in China typically operate at lower utilisation rates than in other major economies. For solar PV manufacturing for example, current utilisation rate is estimated at 38% compared to an average of 65% for the next 5 largest producers.

For batteries, while existing manufacturing output would not be sufficient to satisfy domestic demand under the APS in 2030, the pipeline of announced projects would lead to around four times the volume of its domestic demand being produced by then. These projects – or the car manufacturing industries they supply – would need to find export markets if they are to operate at the utilisation rates modelled in this analysis (tending to 85% in 2030). Even if utilisation rates were to remain near today’s levels in China, the country would still be able to service around twice its domestic demand for batteries in the APS.

For electrolysers, the project pipeline also constitutes huge growth, exceeding the level of installations in the APS in 2030 (12 GW per year). Installed and announced manufacturing capacity for heat pumps has also continued to grow steadily over the past few years, but it is the one technology among the five examined where sufficient output to satisfy 2030 APS needs is not currently forthcoming. However, the same caveat for heat pump manufacturing capacity applies in China as it does elsewhere: installations are not typically announced as prominently or as far in advance as for the other technologies assessed in this briefing. 

In October 2022, India’s Production Linked Incentive (PLI) scheme for High Efficiency Solar PV Modules entered its second phase, with incentives of nearly USD 2.4 billion – up from around 600 million in its first phase – to encourage integrated domestic manufacturing facilities for polysilicon, ingots, wafers, cells and modules. In this phase of the scheme the government awarded around 40 GW of additional manufacturing capacity, in addition to the nearly 9 GW contracted during the first phase. Eleven companies were awarded a total of USD 1.7 billion in March 2023 for a cumulative total of 39.6 GW of capacity additions. Import duties on PV modules and cells have also been increased to give Indian manufacturers a competitive edge.

The PLI on Advanced Chemistry Cell Battery Storage, announced in late 2021, is also ramping up. The scheme has allocated USD 2.2 billion to boost domestic battery manufacturing, with the aim of reaching 50 GWh in domestic manufacturing capacity. In March 2022, funding was awarded to projects collectively providing at least 50 GWh of annual capacity, with facilities to be set up within two years. An additional 95 GWh is expected to be established by other private companies. This is an ambitious target, as there is currently no significant domestic battery cell manufacturing in India, but considerable growth is expected in the domestic market if the country keeps on track with fulfilling its climate pledges.

Many other countries around the world are seeking to secure their place in the clean energy technology economy. Canada’s 2023 Budget proposes a refundable tax credit equal to 30% of the cost of investments in new manufacturing equipment for key clean technologies, including batteries. In April 2023, Korea announced a number of initiatives to support battery manufacturing, including USD 5 billion worth of loans and guarantees from the Export-Import Bank of Korea and state-owned Korea Trade Insurance to advance the domestic industry. Japan’s Green Transformation (GX) initiative includes measures to boost battery manufacturing with up to USD 1.8 billion in subsidies. Full details of how the initiative will be implemented are still emerging, but manufacturers have already announced new projects. The Australian federal government’s USD 10 billion National Reconstruction Fund (NRF), passed in March 2023, also aims to boost domestic manufacturing, with up to USD 2 billion for clean technologies including solar PV, batteries, wind components and electrolysers.