Call Participants

ATTENDEES

• Catherine Robinson
• Edurne Zoco
• Sam Wilkinson
• Indra Mukherjee

Presentation

Catherine Robinson

Hello, and welcome to this webinar by the S&P Global Clean Energy Technology Group. My name is Catherine Robinson.

I'm your host for the session today.

Clean energy technology covers a wide range of products that can support emissions reduction. And today, we're going to talk about 5. And those 5 technologies are batteries and energy storage; carbon capture use and storage; low-carbon gases, and by that, we mean hydrogen and biomethane or renewable natural gas for those of you in North America; solar photovoltaic; and wind on and offshore.

I lead the S&P Global research on the low carbon gas side. And joining me today are Edurne Zoco, who leads on solar PV and CCUS; Sam Wilkinson, who leads on batteries and energy storage; and Indra Mukherjee, who leads on wind.

The structure of today's session will be a short discussion for, say, 15, 20 minutes. And then after that, we'll move on to questions and answers. So please, as we go through the discussions, submit your questions, we'll track them and we'll answer as many as we can. We anticipate that this session will probably last for 30 to 40 minutes, something like that, depending on how many questions that we get.

Bef ore this session today, when we were discussing how we wanted to structure the session, we really thought it would be good to talk about 3 main themes and to use those themes throughout the discussion. And those 3 themes that we identified were supply chain challenges, and that's the challenges that we've seen this year that affected the wider economy, but also clean energy technology, what's happened this year and then what we think will happen next year and what that means in terms of the cost of clean energy technology.

The second area we're talking about is technology development. Obviously, over the last 10 years, we've seen huge technological progress as things like wind and solar and batteries have reached scale. And the question now for a lot of these technologies is now they are relatively mature, what innovation potential is left. And then the third aspect that we're going to look at is regulation. And I think regulation can be thought of in many ways as a scaffolding on which energy markets are built. And for that, we see big changes on the hydrogen side and also for CCUS that really begins to put in place the infrastructure that we can use to build the market in the coming years.

So I think that's probably enough introduction. And now we'd like to move on to some of the discussion of these topics.

And I'd like to start, if I may, by talking about supply chain and turning to Edurne. And so I think solar is probably the technology where the supply chain effects have been the most extreme or seen the most this year. Could you just give us an overview of what's been happening and what's been happening to cost in the last 12 months?

Edurne Zoco

Sure, Catherine. So this year, actually, we had what we can call a perfect storm o n the solar industry. Actually, the disruption in the solar supply chain did not start this year, starting with the second half of 2020 when the economies reopened after COVID. But this year, the disruption has just reached new heights.

I will say that there are 3 main causes for major disruption and -- of the solar supply chain and also impacting overall cost.

First is an unprecedented demand both in China as well as in international market. So this unprecedented demand is coming from now everybody having renewable targets in their portfolio. So governments have renewable targets, corporations have renewable targets, financial community. And then you can put everything on a piece of paper, but then you need to actually produce it and ship it and sell it. And this is what -- actually, what is happening. The supply chain is a little bit behind at policy [ and ] target. It's going to be ready, but it's going to take some time.

So regarding the bottlenecks, as -- so another main reason why costs are so high this year on the solar side is polysilicon.

Polysilicon is the material -- is the most important material to produce a solar module. And we have seen price increases year-over-year over 200% from October 2020 to October 2021. And polysilicon is the most impact ed raw material, while we are also seeing shortage and high cost for materials like polymers, solar glass and others. So all of these is, of course, creating higher, higher costs for manufacturers. That's on the module side. But the rest of the components, the [ key ] inverters and structures and trackers are not accepted. In that sense, we have seen inverter suffering from semiconductor chip shortage as well as trackers being impacted by high prices of the steel.

Another major reason for disruption is that -- and this is a particularity of the solar supply chain, is that it's extremely concentrated in China, in Mainland China. And of course, at this moment, where we are seeing increasing freight disputes and taxes to the import of materials and components manufactured in Mainland China and some key markets like the United States or plans to do the same in India, where this is also creating additional challenges and higher costs for international procurement. And also price disruption, that is not unique to solar, but it has [ still impacted between many ]international markets.

So all of this was -- has been happening since the end of last year, particularly in the first 3 quarters. Then in October, we had something major that happened in the market and contribute to further increase in costs, and that was China implemented restrictions in power shortages. And this, of course, had a [ rising ] impact on utilization rates of module manuf acturers, but also polysilicon and other materials like glass. So all of this contributed to higher cost and prices.

However, there are some news there has been at lift of these restrictions at the moment. So we consider these as good news f or the industry, and we should see a stabilization of the utilization rates and also, of c ourse, going back to levels around -- that were in September in the coming weeks. Then talking a bit -- of course, all of this has created higher module prices and higher preexisting CapEx. Actually, it's the first time in 15 years that CapEx has -- preexisting CapEx have increased.

And now going to our forecast, which I think is going to be the most interesting part. At S&P Global, we do not envision any major change, at least in the first half of the year. So supply chains continue to be very tight and prices might be reduced, but not much. So in the second half, we should see a decline of polysilicon prices as long as we are in the current forecast. If there is even bigger demand that is anticipated at the moment, which is more than 20% growth, then we might be seeing some tightness around polysilicon. And for preexisting CapEx, we don't anticipate any major changes until 2023.

Catherine Robinson

Thanks very much, Edurne. And just I think we had a question on the chart about slides. The f ormat of today's discussion is just purely a discussion. There's no slides for this discussion today. And we will be releasing a paper later in the year that will summarize some of these points that we're talking about today.

But I just want to maybe turn over to Sam and I think get the view from the battery side. I think you're also seeing some supply chain constraints there. So could you maybe just take us through what you've been seeing and how it differs from what's been happening on the solar side.

Sam Wilkinson

Yes, sure. Kind of a different version of the same story, right, but there are some very big differences. But let me start with what's actually kind of the same because I was thinking about this just earlier this morning. I was responsible for tracking the solar market 13 years ago. And at the time, there was this big question around whether China would be the dominant like manufacturer in the space, right? Originally, all the manufacturing was in Europe in the West, and there was this big question around whether the Chinese product would be high quality enough to be adopted. And fast-forward to 13 years, that question has long since been forgotten, right? But the thing about the battery space is it immediately shifted to China.

There was never even a period whether it was under question. And today, 90% roughly of battery cell manufacturing, lithium ion battery cell manufacturing is in China. So it suffers today from a lot of the same things that are impacting solar because of the China dominance of manufacturing, from electricity curtailment to logistics issues, geopolitics, trade, etcetera. But the big difference, if we talk specifically about batteries for energy use in the grid, so for energy storage COPYRIGHT © 2021 S&P Global. All rights reserved. 5 reasons, the big challenge is just that it's a very, very minor sector compared to the EV sector, right? So roughly 90% of electric -- of lithium ion batteries over the next 10 years will go into the EV sector, and it's roughly 5% that is going to go to grid storage. What that means is that all of the biggest, most established, reputable lithium-ion manufacturers are heavily prioritizing the EV sector, trying to sign long-term supply agreements and partnerships with the EV manufacturers.

Now the Tier 1 automotive companies, they are going to offer them many, many years of high volumes of battery consumption. And the energy storage system integrators, the ones that are building systems, battery systems to go into energy storage applications, are really suffering from being the sort of very minor customers here. A nd they're seeing price increases. They're seeing a lack of availability. They're having to be very nimble in starting to work with potentially new suppliers that they weren't working with before. And that's really the -- one of sort of the key things about the supply chain that's causing the sector challenges.

Catherine Robinson

Okay. Thank you very much, Sam. And maybe, Indra, if you want to just comment from the wind perspective on what you're seeing.

Indra Mukherjee

Well, wind is basically no different from the others, so it's also being affected by the ongoing challenges. So in the last year, we actually saw the prices of a lot of these key raw materials that basically are used in the wind turbine go up. So you can take steel, copper, aluminum, fiberglass, epoxy resins and all of these, which are quite important components of raw materials of the wind turbine, and we actually did some estimates internally. And if you were to consider the cost escalations of just these 5 raw materials, then that could potentially have an impact on the wind capital cost by up to 10%.

But then again, this is not a magic number, and this can actually vary significantly by region as well as the contractual arrangements in place. So from a f irst -- when people listen to it, the -- it might seem like the impact is low. But ultimately, we need to remember that the raw material in itself is not the most valuable part of a wind turbine. So most of the value addition is actually done through fabrication, tooling, welding, painting, some R&D expenses and the works, right, which takes up a higher share of the cost.

But logistics actually has proved to be very challenging for wind. And that is because wind turbine manufacturers need to worry about getting the components and raw materials into their factories, which are actually located across the world and is not as consolidated as solar or batteries, and we can call this inbound logistics as well as getting the finished product out f rom their f actories to the project site, and we can call this outbound logistics. So they kind of face like a double whammy effect on the logistics side.Recently, we saw a major turbine manufacturer, Vestas, actually strike a deal to secure container capacity and kind of hedge against some of these inbound lo gistics issues. And this kind of further highlights the importance of solving the logistics puzzle in the ongoing crisis. As far as 2022 is concerned, I mean, you can expect the price of certain key raw materials such as steel to maybe start normalizing, but these are still expected to be above the 2020 levels. Even for logistics, I mean there's no fast track solution that can happen just for wind. However, deals like the one I just described will be very helpful in hedging against such situations and could potentially redefine how these players do business.

And my last point would probably be that if you were to look at the average selling prices of turbines, then they really haven't gone up very fast. But on the contrary, what we have seen is that these players have actually seen their margins on sales reducing, which is now pretty much in the negative for most of the European turbine manufacturers. And that kind of begs the question as to how much of these escalations can they keep absorbing into their balance sheet. So at a point of time, these might have to be passed on and 2022 might be that year.

Question and Answer

Catherine Robinson

And I think we just had a question in from the audience. Thank you, Indra. And maybe for all 3 of you, but just a really quick 1-word or 2-word answer, please. I think the question is with these cost increases that we've seen and that we're anticipating, are we seeing any challenges? Any slowdown in development because of the cost increases? Any problems with access and finance? Or are things still moving ahead as much as ever? I don't know maybe, Edurne, do you want to address that first?

Edurne Zoco

Yes, I'll go first, please. Sam, Indra, please quickly jump in. So we have seen projects being delayed and projects being canceled. That's a reality. But it's also a reality that demand is so strong at the moment that we are seeing those projects very quickly -- I mean, demand is being picked up by other projects. What we are also seeing is a very strong growth of the DG or small installation sector, that is a sector that can easily -- more easily absorb some of these increased CapEx.

So yes, there are projects being delayed, there are projects being canceled even. But overall, demand at the global level remains very robust and the appetite from the financial community to continue looking for projects to invest has not changed, actually is getting bigger every day. So at least on the solar side, we see no threat on that side.

Sam Wilkinson

Yes. And I would just add to all of that, don't forget we're in an extremely unusual pricing environment for power and other forms of energy today, right? So had we not been looking at huge increases in electricity prices across the board, gas prices above the board and yes, this could potentially be a bigger problem. But what we're finding is that often, the economics still stack up with the increased CapEx, at the moment at least.

Catherine Robinson

And I think, Indra, maybe a slightly different question for you because I think you said so far, the manufacturers are not passing through the increased costs. Are we expecting to see that cost increase come through in 2022?

Indra Mukherjee

Well, I wouldn't say that they haven't passed it to us, it's just that it's not been as sharp as you would expect it to be from all of the impacts that are coming in. Sometimes you need to maybe maintain a certain level of activity, and the market is pretty competitive for these wind turbine manufacturers. On the other hand, you might also have contractual issues as well as -- the main thing is that ultimately, the price increases are not uniform for the whole world, right? So depending on where you're purchasing the steel from or depending on where the component is being manufactured versus where it's being installed, the price increases are -- I think that it's been more laid out on a case-by-case basis. So it's not being across the board, but it's being taken on more of a case-by-case basis. So that's why when you average the entire lot, it might not always seem like it's increasing very fast.

And on top of that, because it's an average selling price, these metrics also have their own shortcomings. So for example, if you were to install a lot of capacity in a country like India, then actually, your average selling prices are going to fall. So that might also kind of have a dampening effect on that. But in terms of when we look at the margins, they are a negative.

So it does seem like this is something that they need to work on.

Catherine Robinson

Excellent. Thank you very much. And I think we wanted to pick up on some of these points around the wind manuf acturers and what the wind manufacturers are doing to improve their margin. And I think, Indra, before we talk about -- when we're preparing this session, you mentioned there was a sort of transformation of the product portfolios of the major turbine manufacturers. Can you talk just briefly about what they've been doing and how we expect that to feed through to the next couple of years?

Indra Mukherjee

That's right. I mean technology has actually been front and center in the wind story. Larger, more powerful turbines that are actually introduced in very short intervals of time have actually been the driving force behind continuously lowering the cost of energy. But on the other hand, this has also shortened product life cycles by a lot, actually. And as a result, what these turbine manufacturers are looking to do is kind of reduce product complexity as well as also the cost of innovation.

And basically, how they have gone about doing this is by modularizing their product portfolios. Now it's a big concept. But to put it simply, modularity simply means sharing your product architecture and your components across different turbine models.

So how does this help? Firstly, it allows you to upgrade these turbines much faster, much shorter times to market. It also saves you a lot of cost by basically all -- procuring a lot of common components that are there across these turbine models, right? So these are just some of the benefits. But what's important is that this approach of modularity has actually synergized very well in line with how the demand for wind technology is evolving, right?

For example, in an onshore wind turbine, you want to -- or an onshore wind, you want to customize the turbine as much as possible. Because if you think of it from a manufacturer's perspective, they have to optimize the cost of energy across 40, 50 dif ferent markets, which have very different wind speeds, which have very different local restrictions. So over here, modularity is actually helping maintain very broad product portfolios, which can then be frequently upgraded to meet these cost expectations. On the other hand, if you're looking at maybe offshore wind, you need to make the turbine as big as possible to reduce costs. And we've seen companies jump from the 8 megawatts to the 12 megawatts to now the 15 megawatts in very quick succession. And modularity also helps quickly achieve this without having to reinvent the wheel each time.

So in 2022, we can expect the turbine OEMs to kind of retain this explosive pace of product R&D that we have seen.

Newly announced onshore turbines have already crossed the 7-megawatt mark and come with rotor sizes of over 190 meters. Offshore wind, sky seems to be the limit. It's already at 16 megawatts now.

So overall, technology will remain a key enabler for driving down the cost of wind energy now as well as in 2022. And you can almost imagine this to be kind of like wind learning from more mature industries, kind of like the car industry and how they go about their manufacturing and how they come up with new products and how they come up with their cost as well.

So it's kind of like really trying to learn as well from a more mature industry to kind of set the stage for how they want to do their product innovation in the future.

Catherine Robinson

Thank you, Indra. And I think we've had a couple of questions in on hydrogen and greening of steel, using hydrogen and CCS and that sort of thing. And we'll pick them up maybe later on in the discussion. But if there are any other questions, then you'll -- please feel free to send them in, and we'll answer as many as we can in the next, well, 15 minutes or so. I think we're possibly slightly running out of time for the number of questions that we've got.

But I just wanted to put one more question on the technology side, and then we'll move on to policy. And Sam, I think this is probably a question you've had on every panel that you've ever been on. I mean, obviously, at the moment, lithium-ion is the dominant battery chemistry. What do you see as being the prospect for the other technologies? And is there anything that's happening in the market today that can maybe change the answer from what you'd have given a year ago or so?

Sam Wilkinson

Yes, sure. So I guess one quick comment on lithium-ion technology because across the board for lithium-ion and all the alternatives, there is this fascination with improving technology, and that's driven by enabling the adoption of EVs, but this kind of goes in 2 different directions at the moment, which is interesting because there is the pursual of the sort of next- generation, highest energy density battery. There's also a trend going back towards some of the sort of older, more established technologies that are lower cost as well, and that's really to help enable lower cost, mass-adopted electric vehicles that are more affordable.

But to answer your specific question around the alternatives to lithium-ion, there are many different very interesting, exciting innovative companies out there with technology, offering alternatives mostly focused on the grid storage space.

And the challenge has always been the scale of lithium-ion has -- and the cost declines that has enabled for lithium-ion has made it very, very difficult for them to compete. But obviously, based on everything we've been saying just in the last 20 minutes or so, some of the promises that these companies have been making for a long time are real ly starting to prove valuable. The -- some of the pinch points in the lithium's supply chain, the competition with electric vehicles for battery supply, all of these things are starting to sort of open a window of opportunity for these alternative companies. I'm talking about flow batteries, for example, or some of the more mechanical approaches like gravity storage or flywheels or compressed air.

And the -- but still the #1 challenge for these companies because they've been prevented from scaling up over t he last 5 to 10 years and because of the dominance of lithium-ion is to now scale up quickly enough to really capture the opportunity. And we have seen some companies via a number of different means, private equity, SPACs, et cetera, raise a huge amount of capital. So we do now have some very well-funded companies with promising technologies that are out there. But again, for me, the biggest challenge now for them is to scale up quickly and to really tackle the opportunity quickly whilst lithium-ion is challenged.

Catherine Robinson

Okay. Well, thank you. Now I think just in the interest of time, I'm going -- we are getting questions in. But I'm going to move on to our third topic, and that was policy. And I'm going to change my hat now, and I'm going to talk -- stop tiering this session and start talking about what have -- we see happening on the hydrogen side.

And I think policy is really the big change that we've seen in the last year for hydrogen. And we've really seen a total transf ormation. And -- but I wanted to start just with a little bit putting into the context, the current status of hydrogen. And I think what we now see is that very clearly, hydrogen is accepted as the third pillar of the energy transition. So that's alongside electrification and alongside energy efficiency.

The problem that hydrogen has or the challenge that it's [ seizing ] is moving from the current scale, so installed electrolysis capacity about 300 megawatts globally today to moving to the scale that would be required for the 2030 Paris goals or for mid-century ambitions. And that means moving to the multi-gigawatts, hundreds of gigawatt scale. So how do we get f rom where we are today to where we need to be in the future. And in particular, I think the question that needs to be answered is how do we get from companies investing small numbers of millions of pounds to investing multibillion or billions in size projects. I think for that to happen, we need a clear commercial framework.

And sorry, again, I think we maybe have some technical problems. I'm not sure if it's frozen, but I'll keep going just in case.

So we've got the need for a clear investment framework, and that is now being provided by the policymakers. I think that's happening in 3 ways. First of all, they're providing definition. And by that, I'm talking about examples such as the renewable f uels of nonbiological origin, the standard that's proposed by the European Union. Secondly, they're building demand. And a really good example of that is the National Hydrogen Mission within the Indian -- sorry, the hydrogen quota within the Indian National Hydrogen Mission. And then the third element is providing support. So that is tier tax credits, such as in the U.S. infrastructure bill or the carbon contracts for differences that are being proposed by the German government and potentially included in some forthcoming European legislation.

There is a f ourth aspect that is somewhat linked to policy but also market related. And I think this is very important from a European perspective as we've also seen very significant run-up in the EU ETS price. So sitting over EUR 70 at the moment, and that would be more than sufficient where it to be sustained for 10 or 15 years to allow the investment in DRI with hydrogen, with green hydrogen, for clean steel production, for example. So current levels of the ETS really do now begin to provide a clear signal of what is required for investment. For cement, probably looking at something more like EUR 100 per tonne, slightly higher than that, so not quite there at the moment. But steel and ammonia, certainly the ETS will be providing sufficient revenue where it to be sustained.

All of these measures together, I think, really let us think that 2022 could be the year of where we see the first really large- scale announcement of FID on either green hydrogen project or large hydrogen projects in other parts of the value chain.

So I think this is something that we should maybe come back and talk about on this call next year when we review what's been happening in 2022 and see if we were right.

I'd like to maybe just hand over to Edurne now to talk about what's happening on CCS.

Edurne Zoco

So actually, in CCS, this is, to some extent, very similar to what we have described, Catherine, in the case of hydrogen. I mean policy support indeed is critical for the development of any new technology. We have seen this in the case of hydrogen, but it was also critical for the exponential growth of renewables in the last 15 years. Without feed-in tariff and grants, it would have been extremely difficult for the renewable technologies to reach scale and lower cost.

So this is particularly true in the case of CCUS projects because they are very CapEx intensive, and it takes years to fill them. So therefore, a solid policy support that is not only dependent on 1 electoral cycle, but at least for 1 decade is critical for the growth of carbon capture projects. We have seen policy failure in the last intention to pull CCS. And we still learn f rom that. It's critical for corporations as well as the financial community to understand that there is a strong policy support in order to make these investments.

So what do I mean by policy support? For instance, something that we see as critical to the development of CCUS is carbon price. We think this would be a game changer in the adoption of carbon capture projects. And by carbon pricing, I mean in sort of ETS, emission trading schemes or carbon tax. We have seen major announcements this year, and we expect this trend to continue in 2022. There are already more than 20 countries that have implemented either ETS or carbon taxes and in many cases, both schemes together.

If we look at policy support and we think about attractiveness ranking, we can say that at this moment, the most interesting markets or the most attractive markets to develop CCUS are Norway because of the high carbon tax has also strong government support or there is a very low currency risk score there that helps.

Another country that has made major announcements and major developments this year has been China, China Mainland. A shift in the government to a more friendly policy framework for the carbonization technologies has been done in China. This is very important because this is a country with a high emission, but also with a lot of energy-intensive industry that requires greening. And in this case, it is hard to abate industrial emissions, CCS could be an effective mechanism to lower emissions there.

And last but not least is United States. This is also an extremely attractive market for development of CCUS. CCUS, indeed, by the current government, has been identified as an important -- as one of the important strategies to help the country to achieve net zero goals. And now with the finalized 45 key credit regulations that will bring more visibility to both corporation and financial community, we expect this boom or this momentum of CCUS in the United States to continue.

Something that is going to be very interesting to monitor and watch out next year is what policy are announced or policy mechanisms are announced in emerging markets like India or Indonesia, also in other markets in Southeast Asia. These markets are expected to account for most of the new energy additions in the next 30 years. And also, they have a picture of -- as part of the energy mix, a picture of coal and gas so -- and also heavy industry with hard-to-abate emissions. So it's going to be very interesting to see the opportunities that are open, therefore, for carbon capture projects. Ideological conditions are favorable, of course.

Catherine Robinson

Thank you very much, Edurne. So I think I'm going to move on to some other questions that have come in from the audience, if I may. Can I just check that you can hear me okay?

Edurne Zoco

Yes, good.

Sam Wilkinson

Yes, we can hear you, Catherine, but we can't see you.

Catherine Robinson

Yes. I decided that I would put my camera off since it was stuck.

So first question, I think, is for me, and it's about green and blue hydrogen and what we're seeing happening. And I think we're seeing some geographical differences in the way that standards are being set. So if we look at what is included in the U.S. inf rastructure bill, the focus is very firmly on the carbon intensity of the hydrogen. And there's tier tax credit proposed with different amounts of funding depending on the level of carbon intensity, but it is technology neutral in the sense that the hydrogen, the input fuel or the electricity can come from a range of sources that just really looks at the carbon footprint.

If we look at the European market, the situation is slightly different there. There, there is different regulations being put in place for what they call clean hydrogen, which has to come from renewable electricity or potentially from biomass, and this is set out in the renewable energy directive, so the renewable fuel of nonbiological origin is what sets the standards, and there is an explicit quota that is in -- that is under discussion.

We see the same thing happening in India. There is a green hydrogen target that is being proposed in India.

However, in the European Union, there's a second view that's also been taken, which is looking at the carbon intensity.

And there is an expectation there will be a low carbon hydrogen standard published in the hydrogen and gas decarbonization directive, which is due in the middle of December. So that standard is due out in the next month or so.

So 2 parallel tracks, both are available and both can progress. But I think this is why we're seeing regulation is so important. It really needs to be clear what thresholds need to be met by the different technologies to be eligible for funding and to meet -- to take part in the quarter.

I think I have a second question that perhaps is for both Sam and Edurne. And maybe Sam, if you could pick up first and then hand over to Edurne. And I think this is a question around production centers and the concentration that you're seeing in the supply chain. Are we expecting any diversification in the supply chain into other markets? Or do we think it will remain very geographically concentrated?

Sam Wilkinson

Sure. I can take that and talk about it for batteries to start with. And batteries is a very long, complicated supply chain from mining metals to processing them to creating anodes and cathodes and cells and packaging them up into batteries that eventually end up in electric vehicles or other energy systems.

On the metal side of things, essentially the -- where the metals are in the ground around the world doesn't really change.

The ownership of them certainly can change. And it's a very diverse picture, right? Some of them, nickel, for example, is heavily concentrated in Southeast Asia. Lithium is heavily concentrated in Latin America and Australia. Cobalt is predominantly in the Congo in Africa. And certainly, the ownership of that has changed a little bi t. Again, China, very strong in its ownership of a lot of these materials or with offtake agreements in place. And then a lot of the processing and cell production is in China today.

But we're starting to see that change, and that's predominantly driven by policy and regulation in actual fact because electric vehicles are really considered to be a key pillar of any country's decarbonization goals. And so access to batteries and a sustainable supply of batteries is really important. And so governments are increasingly trying to find ways of localizing battery manufacturing. And there is now some very significant plans to build out factories to manufacture batteries in the U.S. and around Europe.

I guess one of the interesting things is who is actually going to operate those factories because in many cases, it's still the Asian battery manufacturing giants that are really taking that on in partnership with local electric vehicle producers. And so yes, the -- what we're likely to see is China becoming less dominant of the cell manufacturing in terms of pure geography and where it's located. But I do think that really, they'll still maintain a pretty significant share if you just consider who owns these f actories or who operates these factories even if they are located in the West.

Edurne Zoco

So on the solar side, maybe it's worth to just provide some figures, like you look -- if we look at the volume supply chain, over 30% of the polysilicon capacity is in China, over 90% of the wafer capacity is in China and a little bit less for cells and modules. So the concentration of the supply chain in Mainland China, I mean, it cannot be overstated.

Now we have seen in the last couple of years, but particularly in the -- in this year 2021, a lot of announcements in some other markets. For instance, we are seeing important expansions in Southeast Asian countries like Vietnam and Malaysia.

Some of them are, like Sam was saying, actually owned also by Chinese companies, but we are also seeing announcements in India as well as in the United States and Europe. So there is -- some of these markets, such as the United States or India, have actually incentives or are establishing incentives to bring manufacturing of solar closer to the end market.

So that's the situation. So yes, there is a lot of activity outside of Mainland China and in these regions. Still, when you look at the total numbers, as we see, the capacity remains quite small, except in the case of Southeast Asia markets. So it's going to -- it's a trend that is going to continue. It's going to be consolidated the next year. But still, when you look at it, when looking at the overall picture, it will remain a small percentage of the manufacturing landscape on the solar side.

Also, you have to differentiate between bringing manufacturing closer to the end market for the cell and modules, which is less CapEx and it's faster and then bring like more upstream notes to the international markets for manufacturing like polysilicon and wafer that is [ far higher ] in CapEx and also more time intensive. So we see this trend consolidating but still remaining quite small compared to the total manufacturing picture.

Catherine Robinson

Thank you very much, Edurne. I think we've covered a lot in the last 45 minutes. And I think, really, I would just like to, I think, wrap up now and to thank my colleagues, Sam -- Edurne, Sam and Indra for their insights. I think we've all taken a lot away from this. I'd also like to thank all of you for listening to this presentation and also for asking so many questions. I think it makes it much more interesting to have questions coming in from the audience. So thank you very much.

And really, just to say that we're all very much looking forward to discussing these topics and many others with you in 2022 and maybe coming back towards the end of next year to see whether what we predicted in this discussion today really came to pass. So thank you very much. Thank you again to Sam, Edurne and Indra, and thank you to you all.

Goodbye.

Sam Wilkinson

Thank you. Goodbye.

Indra Mukherjee

Thank you.

Catherine Robinson

Thank you. Goodbye.

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