Energy industry facing supply chain crunch as renewables scale rapidly

This was a key finding from a recent survey of 800 industry leaders and market experts from across the globe. The results of that survey have been released by Bureau Veritas today (7 August).

As bodies such as the International Energy Agency (IEA) have concluded before, the survey found that most in the industry believe governments and regulators will be key to accelerating the energy transition and decarbonising energy-related sectors in line with the Paris Agreement.

The survey also uncovered the actions the private sector can take that are widely deemed the most impactful.

Fast-tracking the development of next-generation innovations came out on top in this regard.

Survey respondents also highlighted the importance of dramatically improving supply chain management, as the industry demands an ever-increasing supply of parts and raw materials for clean energy infrastructure.

Some 90% of respondents said they are concerned that supply chains are, at present, too highly-concentrated in certain geographies. These factories now risk becoming overwhelmed without expansion, the report notes. Moreover, this lack of geographical diversity makes supply chains vulnerable to shocks.

Solar and semiconductor supply chains, largely concentrated in China, were badly impacted by Covid-19 lockdowns, for example. Wind supply chains are currently dealing with high costs as a result of the energy price crisis.

One-third of respondents say their company is already dealing with the fall-out of a lack of supply chain resilience.

Among them is Corio Generation’s chief executive Jonathan Cole. He said the developer is one of many in the sector dealing with “fragile” supply chains in offshore wind and is advocating for interventions from policymakers.

Cole said: “[We will be] slowed down unless we are able to see a more progressive approach to pricing the energy from offshore wind. The price should take account of the wider value to society in terms of important matters like energy security, price stability, decarbonization of the economy and industrial stimulation.”

The UK is considering this sort of change. It is currently consulting on reforms to its Contracts for Difference (CfD) auction scheme process, which could see developers rewarded for ‘non price factors’ like proving community benefits or working with local suppliers.

There are, however, worries that this will not be enough. After Vattenfall paused a major offshore wind farm in British waters over cost worries earlier this summer, many other companies are calling for urgent alterations to pricing structures and interventions to ease post-Brexit trading frictions.

The UK is also under pressure to respond to clean energy subsidy packages on offer in the US and EU, to retain and attract international investment. It has stated that it will do so this autumn.

The Bureau Veritas report states: “New regulation in the form of the EU’s Net Zero Industry Act and the United States’ Inflation Reduction Act send a signal that major economies are taking the issue seriously— but the test of their effectiveness will be on the ground.”

Bureau Veritas is estimating that the US will account for one in ten new clean energy jobs created globally through to 2030. The proportion is 7% for the EU. The UK lags behind.

Spotlight on skills

As well as sourcing the right materials and components from the right places, the report looks at the importance of employing the right people in the right places to close the looming green skills gap in energy.

The report explains that the energy transition will have a net benefit in terms of job creation. Bureau Veritas forecasts that 90 million people will be employed in the energy sector by 2030; a 38% increase on current staffing levels.

Most of the job additions in the coming two years – almost two-thirds – are set to be in Asia. China alone will account for more than 40% of the global total unless more robust skills plans are developed and implemented elsewhere.

In the absence of mature national plans, the experts surveyed said they were facing challenges recruiting and retaining engineers and other technical staff – because the demand for these workers is growing so rapidly. 70% stated that recruitment was a challenge while 40% are struggling to retain talent.

The survey respondents also told of skills crunches in the construction phase; several companies have faced delays as they were not able to recruit enough construction site workers at the right time.