A shift towards domestic manufacturing, continuing high costs for components and a push towards more concrete policy frameworks will be some of the key themes in the global Clean Technology space this year, according to a new report from the Clean Energy Technology Service at IHS Markit (NYSE: INFO), a world leader in critical information, analytics and solutions.
Supply chain woes, trade barriers and geopolitics to reshape solar PV and battery manufacturing
IHS Markit expects that solar PV supply chain tightness will persist and maintain high prices in 2022, particularly in the first half. However, there are some positive developments that will alleviate the current supply chain challenges, such as the ramping up of new polysilicon capacity and the entrance of new wafer players in the solar PV market.
Trade barriers and geopolitics will start to reshape the global manufacturing map. Policies aiming to reduce dependence on international module imports in major solar installation markets like India, where the government has launched the Production Linked Incentive (PLI) scheme, or the United States which is currently discussing the Build Back Better bill, could become an important driver to incentivize domestic manufacturing of solar PV.
“The confluence of supply chain issues and geopolitics is driving changes to the dynamics of battery cell manufacturing. U.S. automakers are increasingly less content to rely on Chinese suppliers as they aim to rapidly expand EV production and have begun entering into joint ventures to develop local cell manufacturing facilities. IHS Markit has also observed the rapid expansion of some Korean tier 1 cell suppliers into the U.S. market.” – George Hilton, senior analyst, clean energy technology, IHS Markit
Downward slide of Li-ion battery costs to halt, higher prices for energy storage systems to continue
Lithium-ion (Li-ion) battery prices rose 10–20% in the latter half of 2021. Cost increases have been predominantly for LFP cells, the favored technology for grid energy storage systems. Price declines are not predicted to resume until 2024. Even then, the declines depend on LFP manufacturing capacity quickly scaling up and energy storage system integrators securing supply agreements with a wider range of LFP suppliers that are less focused on the larger electric vehicle (EV) opportunity.
The major contributing factors to battery price increases are set to persist, making it impossible for prices to continue their previous downward trajectory. IHS Markit forecasts that average battery module prices in 2022 will be 5% higher than in 2021, contributing to a 3% increase in total battery energy storage system costs. However, modest price declines will be enabled again from 2023 by a continued scale-up of LFP battery manufacturing and validation of an emerging second tier of Chinese LFP manufacturers.
More concrete policy frameworks will pave the way for new Hydrogen and CCUS investments
A lack of standardization and infrastructure, plus unaffordability have been the main barriers to the development of CCUS and hydrogen technologies. Since last year, policymakers have begun to target all three with measures to provide clarity to corporates and investors and begin to build a framework to facilitate the development of large-scale projects.
Definitions are beginning to be published for low-carbon or ‘clean’ investments, for example the European Union’s proposed revision of RED II—rules for renewable fuels of non-biological origin—will effectively set the standard in the region for green hydrogen.
IHS Markit expects the policy push to continue through 2022. The main elements of future EU frameworks (i.e. revision of RED II, the Hydrogen and Gas Market Decarbonisation Package) will now be negotiated between the Commission, Parliament and the Member States. The United Kingdom, meanwhile, plans to agree to support packages for its first CCUS projects this year.
“Rising carbon prices, targeted support and quotas are providing increasing certainty around demand trajectories for CCUS and hydrogen. In the United States, the bipartisan infrastructure bill has allocated $12 billion for CCUS and $9.5 billion for clean hydrogen. Meanwhile, quotas requiring substantial use of low-carbon hydrogen and ammonia by the end of the decade have been set in both the European Union and South Korea.” – Catherine Robinson, executive director, IHS Markit
Carbon capture to gain traction as a decarbonization tool for a wider group of regions and industries
Last year solidified the revival of the CCUS industry, as increasingly ambitious global climate goals drove demand for potential solutions. The active pipeline for large-scale CCUS projects—those at the construction, design, financing and planning stages—increased by 26% in 2021.
In terms of industrial diversification, the CCUS active pipeline is signaling a shift away from the traditional natural gas processing facilities, which has historically been the lead sector, to a broader pool of projects including heavy industries, hydrogen production and power generation.
“As this market continues to gain traction, more projects will be announced in multiple regions and industries. Regional expansion is expected to continue in 2022. While North America and Europe will continue to lead the market, additional countries that have net-zero targets, high emissions and good understanding of storage capacity will likely announce new CCUS projects in 2022.” – Paola Perez, research analyst, clean energy technology, IHS Markit
To download the full whitepaper – IHS Markit Top 10 Cleantech Trends for 2022 – click here.