3. Reduce demand for raw materials. Manufacturers could continue to innovate products and technologies that use fewer of the materials facing supply constraints. In the case of lithium-ion batteries for electric vehicles (EVs), for example, General Motors has announced a battery system design that reduces cobalt use by 70 percent, and Tesla has said it is developing a cobalt-free battery. 11 Introducing more-efficient products also diminishes the need for materials. Solar panels have become 50 percent more efficient in recent years, 12 driving a proportional reduction in the materials needed. While there is potential to improve existing technologies, some newer materials that could provide a step change in performance are not commercially proven. Perovskites are a potentially promising material for solar energy that could dramatically increase cell efficiency, using materials that are relatively inexpensive to produce, widely available, and 20 percent more efficient than typical cells today. 13 There are also significant opportunities to further reuse existing materials. 14 For example, second-life EV batteries could potentially cover all demand for utility-scale lithium ion–battery storage from the power sector. 4. Plan for and manage constraints. Players would need to recognize the potential for continued supply constraints and the likely volatility of commodity markets while supply chains continue to reorganize and experience geopolitical shocks. As these actors evaluate their upstream supply chain, they could potentially look to lock in suppliers that have stable supply access in areas with stronger institutions. They could also structure contracts that recognize this supply chain dynamic by demanding provisions such as shared-risk agreements for commodity price fluctuations as well as political and technological risks. These agreements could factor in materials to build facilities and secure access to supplies to run
them and obtain critical replacement parts in the future.
5. Develop domestic supply and trade agreements. Governments can develop resilience plans for access to rare earth metals and other raw materials in the United States and the countries with which it has fair-trade agreements. (The US Inflation Reduction Act of 2022 [IRA] provides for additional rebates for EVs made with critical minerals such as lithium sourced from fair-trade countries such as Chile.) The United States could also look at supporting development of local supply where possible. For example, there are lithium opportunities in the United States that are potentially more expensive today but could ultimately increase domestic capacity. Scale up resilient manufacturing 1. Develop local capacity. Onshoring key areas of solar manufacturing such as larger and n-type silicon wafers used in solar panels is estimated to increase the cost of solar modules by about 20 percent, which would raise the levelized cost of solar by only 5 percent. By contrast, delays in accessing solar panels from Asia earlier this year raised prices by roughly 30 percent. Companies could create a cost-effective and more secure pathway forward by building local manufacturing capacity. While such a move would increase prices, companies would be able to pass those costs on to counterparties who value long-term certainty of supply and guarantees that they would be less subject to supply chain delays. To be effective, however, this solution would need to be implemented now, because building a manufacturing plant takes approximately one to three years. 15 2. Diversify suppliers and countries of origin. US players up and down the electric value chain could also provide incentives to manufacturers to diversify suppliers and source countries.
11 Jo Olson, “What’s up with the cobalt used in EV batteries?,” Fresh Energy, April 22, 2021. 12 Barbara Zito, “The most efficient types of solar panels 2022,” Forbes , July 25, 2022. 13 Iain Wilson, “Solar’s hot new thing nears production: Q&A,” BloombergNEF, June 11, 2019. 14 Hauke Engel, Patrick Hertzke, and Giulia Siccardo, “Second-life EV batteries: The newest value pool in energy storage,” McKinsey, April 30, 2019. 15 The time it takes to construct a solar manufacturing plant varies based on the part of the value chain.
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