Embracing the Green Industrial Revolution

The transition towards a greener, more sustainable future is no longer a distant dream — it is an industrial revolution unfolding before our very eyes. At the heart of this seismic shift lies the meteoric rise of clean tech manufacturing, a sector igniting economic growth while propelling us towards an environmentally friendly tomorrow. This presents abundant investment opportunities, and those who capitalize on these trends stand to benefit greatly. Though managing the associated risks is crucial.

 

Uruguay: A Beacon of Renewable Success

One shining example of the potential of renewable energy is Uruguay, which achieved an extraordinary milestone by powering its entire economy with renewables for ten consecutive months between July 2023 and April 2024. In this period, the South American nation generated all of its electricity from hydro, wind, bioenergy and solar, according to data collated by Ember [1].

Uruguay's success serves as an inspiring testament of how dedicated clean tech investments and policy support can enable nations to achieve energy independence and significantly reduce their carbon footprint.

 

Macroeconomic Impact of Clean Tech's Rise is undeniable

As highlighted by the International Energy Agency (IEA) in their recent report on Advancing Clean Technology Manufacturing [2], the clean tech manufacturing boom extends far beyond its environmental benefits, leaving an unmistakable imprint on macroeconomic indicators. In 2023 alone, a staggering $200 billion was invested in clean tech manufacturing, representing approximately 0.7% of total investments across all economic sectors. The numbers look even more impressive when seen from a growth perspective. The industry accounted already for a staggering 10% of the global increase in investments and contributed nearly 4% to global GDP growth.

 

Investment Dynamics: Technologies and Geographies

At the forefront of this surge are solar photovoltaics (PV) and battery technologies jointly commanding over 90% of the total $200 billion invested in 2023. The solar PV manufacturing sector saw investments more than double to around $80 billion, while battery manufacturing grew impressively by 60% to $110 billion. As Bloomberg New Energy Finance (BNEF) points out in their recent New Energy Outlook 2024 [3], these technologies are two of the four pillars that are at the forefront of the clean energy transition, offering scalable and efficient solutions to meet rising energy demands.

Despite a slight dip from 85% in 2022 to 75% in 2023, China remains the undisputed leader in global clean technology manufacturing investments, which is a testament to their long-term geopolitical and economic strategy. This relative decline highlights also the robust investments being made in other regions, signaling a gradual but significant shift.

The combined efforts of the United States and the European Union have increased their collective share to 16%, a notable rise from 11% in the previous year. Particularly noteworthy is the more than tripling of battery manufacturing investments in these regions. Interestingly, many of these battery investments in the US have been made in Republican-led states, potentially mitigating the impact of political backlash against the concept of Environmental, Social, and Governance (ESG) principles, as well as reducing the impact of a possible Republican victory in the upcoming elections.

Also other nations like India, Japan, Korea, and Southeast Asia made notable contributions within specific clean tech domains. However, regions such as Africa, Central America, and South America saw negligible inflows of clean tech manufacturing investments, which is mainly due to the higher cost of capital that we see for projects in these countries.

Building for the future: Committed Projects

Not only do we already see promising examples at the country level, such as Uruguay, but the near-term outlook for clean tech manufacturing also remains robust. The IEA reports that around 40% of the 2023 investments are earmarked for facilities set to come online in 2024—a share that soars to nearly 70% for battery manufacturing facilities alone.

Committed projects, those under construction or having reached final investment decisions through 2025, coupled with existing capacity, would exceed by 50% the global solar PV deployment needs in 2030 as projected by the IEA's Net Zero Emissions by 2050 Scenario (NZE Scenario). These projects would also meet 55% of the battery cell requirements under the same scenario.

Moreover, this manufacturing boom is also impacting adjacent industries; for instance, nearly half of the US battery production commitments involve partnerships with automotive companies. Worldwide EV sales grew 25% in the first quarter of 2024 and are expected to reach 17 million units this year, according to the IEA [4]. Despite temporary bumps in the road, such as slightly lower than expected growth rates, by 2030 almost 1 in 3 cars on the roads in China is set to be electric, and almost 1 in 5 in the US and EU.

 

An Uneven but Rapidly Expanding Project Pipeline

Amid this surge of capital, a concerning trend has emerged: a mere 2-3% allocation to wind power manufacturing, jeopardizing the ambitious goal of tripling renewable energy capacity by 2030. This disparity underscores the urgent need to recalibrate our approach to avoid failing to meet our climate obligations.

 

The Wind Sector: Challenges and Recovery

Recent challenges in the wind sector were exacerbated by inflation, rising interest rates, and supply chain disruptions, leading to higher costs for wind turbine manufacturers and developers. Fixed-price contracts further strained the sector, resulting in canceled projects and missed net zero targets. However, signs of recovery are emerging. In the past quarter, the Book to Bill ratio—a measure of new orders to existing sales—reached 1.8x, indicating strong growth prospects. Governments and companies are adjusting to new economic realities, improving licensing processes, and raising bid prices, paving the way for a more resilient wind sector.

 

Manufacturing Capacity and Net-Zero Emissions Future

While current manufacturing capacity for solar PV modules and cells can meet the projected demand for the NZE Scenario by 2030, gaps remain in upstream production steps such as wafers and polysilicon.

The battery manufacturing sector had a remarkable year in 2023, with production soaring by 45% and capacity additions reaching nearly 780 GWh. If all announced projects materialize, global battery manufacturing capacity could exceed 9 TWh by 2030, meeting 90% of the deployment needs under the NZE Scenario.

Conversely, the electrolyzer capacity, essential for the hydrogen economy, must expand sixfold to align with NZE scenarios, despite a burgeoning project pipeline dominated by aspirational announcements.

Wind and heat pump manufacturing capacities also lag, with project pipelines representing only 10-20% capacity expansion—a stark contrast to the 40-60% deficit from NZE requirements.

 

Geographic Concentration Persisting

China, the United States, and the European Union currently dominate global manufacturing capacity in solar PV, wind, batteries, electrolyzers, and heat pumps, accounting for 80-90% of the total. This significant level of geographic concentration is unlikely to decrease by 2030.

China's cost advantage in global manufacturing remains a key factor, solidifying its dominance in clean tech exports. However, other regions are becoming more competitive by enhancing worker training, streamlining project lead times, and implementing robust, stable climate policies.

An example of this is the battery cell sector. If all announced projects materialize, Europe and the United States could potentially achieve around 15% global market share each by 2030. This could challenge China's current dominance in this market.

 

Conclusion

The clean tech revolution is clearly accelerating, and policymakers remain vigilant to catalyze the next leg of sustainable industrialization, thinking about streamlining permitting processes, fostering regulatory clarity, bolstering government agencies, and expediting grid interconnections,

Harnessing the power of clean tech manufacturing is not only vital to safeguard our planet’s future but also represents a significant multi-decade investment opportunity across various regions and various sectors of our daily lives, where there is room for multiple technologies over time to be successful. Investors can capitalize on all of these underlying trends by investing in a well-diversified thematic climate fund.

 

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