This is an extract from a recent report “Identifying Risks in the Energy Industrial Base: Supply Chain Readiness Levels” by the U.S. Department of Energy (DOE).
The U.S. energy system is entering a period of substantial transformation. Following extended periods of low or no demand growth for electricity, driven by both efficiency increases and a decline in domestic manufacturing, the U.S. is reentering a period of rising electricity demand. Artificial intelligence and data center expansion, reshoring of manufacturing, and the electrification of transportation and industrial processes are all contributing to expected load growth. U.S. data center load growth is projected to double or triple in the next few years, rising from 176 TWh in 2023 to 325-580 TWh in 2028. As a result, overall U.S. electricity demand is projected to grow by 15-20% in the next decade and double by 2050. Meeting this demand will require historically unprecedented deployment of energy generation capacity – increasing from 1.25 TW of capacity in 2024 to 3.2 TW in 2050 according to National Renewable Energy Laboratory (NREL) models – and the expansion and enhancement of aging transmission and distribution infrastructure.
While the U.S. has historically benefited from the development of multiple energy resources including fossil fuels, nuclear energy, hydropower, renewables, and others, the bulk of capital investments have historically flowed to fossil fuel power generation. The result is an energy system that still relies on fossil fuels for 84 percent of primary energy end-use and 60 percent of electricity generation as of 2023. Despite this legacy, NREL’s Current Policies Scenario predicts that 96% of future capacity additions between now and 2050 will come from a newer, more economical set of technologies: solar, wind, and batteries. Notably, in 2024 (Jan-Oct), 92% of energy system capacity additions have come from these three technologies. The rapid cost reductions seen across wind, solar, and battery technologies have led to commensurate acceleration in their deployment.
The impact of these cost declines of energy technologies can be clearly observed, for example, in the Texas power market, which is currently leading the nation in wind deployment and second in solar and storage deployment. While these patterns are driven fundamentally by economics, environmental and geopolitical considerations serve as a further tailwind in many markets. Each of these technologies, as well as the grid equipment that will carry increased loads, is an engineered product that relies on complex supply chains. While many of these technologies were invented and commercialized in the U.S., much of their manufacturing occurs abroad today. Rapid cost reductions over the past decade have been achieved through both specialization in energy supply chains and offshoring associated with globalization. Large production facilities now serve as anchors for industrial clusters as second and third tier sub-component and material suppliers relocate nearby to service these expansive manufacturing facilities and improve production economics. However, while this concentration of production can drive meaningful cost efficiencies, it also introduces risk into supply chains.
These trends, further reinforced by decades of non-market practices and policies, have resulted in China amassing a dominant market position across energy technology manufacturing. Companies subject to Chinese influence collectively control overwhelming global market shares in the solar and battery supply chains and have claimed similar market positions for the processing of key engineered metals (e.g., aluminum, electrical steel), minerals (e.g., nickel, graphite), and rare earth elements (e.g., neodymium, dysprosium). This degree of market power presents multiple risks to U.S. energy security, ranging from inability to access materials to manipulation of global market prices for critical energy inputs.
Harnessing the Full Potential of Energy Technologies
Modernizing the energy system—and maintaining the existing one—will require a range of technologies and robust supply chains to support them. Each of these technologies and their accompanying supply chains play a unique role in the energy system and are likely to face a distinct set of challenges to meet rising U.S. demand. While SCRL can be applied to a broad range of energy technologies—ranging from traditional generating turbines to carbon capture equipment to renewables—a summary of key supply chain challenges has been provided below for the technologies driving the bulk of capacity additions in NREL’s Current Policies Scenario:
- Batteries: Battery demand is expected to grow substantially to 2030. Demand will largely be driven by the automotive sector as battery electric vehicles are projected to represent up to half of global light vehicle sales by 2030. Batteries will also play a key role on the grid, accounting for nearly 20% of added capacity to 2050. While a range of battery technologies will be deployed (including various long-duration energy storage solutions for grid storage), most projections show ongoing reliance on lithium-ion batteries in the near-to-medium-term. Several initiatives are underway to diversify battery supply chains with a focus on U.S. and North American sourcing to decrease China’s significant market share across the battery supply chain.
- Grid Components: Rising demand for grid components—driven by rapidly increasing electricity demand, the build-out of distributed electricity generation, and aging grid infrastructure further stressed by severe weather events—has exerted pressure on supply chains. The result is long lead times and increasing prices. For example, across transmission and distribution (T&D) equipment, the lead time for components range from an average of 51 weeks for distribution transformers to 137 weeks for power transformers with prices up 37% to 80%. Risks in the transformer and grid components supply chain are primarily driven by insufficient production capacity, labor shortages, and constrained upstream material availability for grain-oriented electrical steel and copper.
- Solar: Solar energy is playing a central role in our future energy system, accounting for over 45% of capacity additions between now and 2050 based on NREL projections. While recent U.S. solar module assembly has grown to nearly 50 GWdc of annual nameplate manufacturing capacity—enough to satisfy nearly all domestic demand with U.S. produced modules— substantial resiliency risks remain in essential upstream segments of the solar supply chain. Production of polysilicon, ingot/wafer, and cells remains overwhelmingly concentrated in Chinese or Chinese-controlled manufacturers. The enormous scale of these producers dictates global production economics for the industry
- Wind: Land-based and offshore wind are expected to total roughly one-third of new generation to 2050. Because U.S. manufacturing capacity for offshore wind components is still scaling up, developers are often dependent on foreign manufacturers to ship large components over long distances at substantial cost. While supply chain challenges are less pronounced for land-based wind, both land-based and offshore wind share common challenges for manufacturing and sourcing of materials. Investing in innovative solutions to increase production volumes and reach globally competitive price points is critical to capturing opportunities in this sector. The lack of U.S.-flagged wind turbine installation vessels and onshore substations are supply chain bottlenecks for U.S. offshore wind.
- Nuclear: Nuclear power provides a key value proposition for energy independence and the electrical grid. Nuclear generates large quantities of zero emission electricity at stable prices, produces firm power to meet industrial needs and growing AI/data center demand, and lowers land-use and, in some cases, transmission needs relative to other generation sources. DOE estimates that U.S. domestic nuclear capacity has the potential to triple in scale from ~100 GW in 2023 to ~300 GW by 2050—driven by deployment of advanced nuclear technologies that may also be more dispatchable than conventional nuclear reactors. The build out of new nuclear power generation capacity in the U.S. will require an increase in capacity for its supporting supply chain including fuel enrichment capacity, production of specialized materials for reactor components, and equipment to produce reactor components
A Government-Enabled, Private Sector-Led Manufacturing Renaissance
The U.S. is undergoing a government-enabled, private sector-led energy manufacturing renaissance. Transformation of the U.S. energy industrial base has occurred through a range of tools and strategic investments: tax incentives for manufacturing across several energy supply chains, government capital for new commercial-scale manufacturing facilities, loans for a variety of energy technologies, and production and investment tax credits for clean energy generation.
Charged with modernizing the U.S. energy system to support a competitive national economy, the Department of Energy (DOE) was authorized to deploy roughly $90 billion in grant and rebate programs from Congress to coinvest with the private sector. Congress provided an additional $300 billion in loan and loan guarantee authority for DOE to support investment in a range of new energy projects and supply chains. To date, DOE has allocated $85 billion in grants and rebates and approximately $55 billion in loans and loan guarantees. The result of these investments, combined with the long-term certainty provided by production and investment tax credits, has been a historic surge in industrial and energy investment. Since January 2021, private companies have announced $1 trillion in new investment, including over $450 billion of investments in energy manufacturing, EVs and batteries, and clean power generation.
The Office of Manufacturing and Energy Supply Chains (MESC) has played a key role in spurring investments in American energy manufacturing by helping administer nearly $20 billion in grants and tax credits authorized by Congress. These investments have catalyzed 66 manufacturing projects across 29 states, and created or retained over 25,000 jobs in the energy industrial base. Despite this significant progress, additional investment is needed to further secure U.S. energy supply chains. Taking lithium-ion batteries as an example, recent investments under BIL and IRA represent a downpayment towards building battery supply chains that can operate more independently from covered nations—the beginning of a phase of investment rather than the successful completion of one. To fully realize the energy security and economic benefits from building U.S. manufacturing capacity in these sectors, and to enable these investments to withstand anticompetitive pressures from competitors, further action will likely be needed.
Having visibility into each segment of our most critical energy supply chains is critical to allow us to monitor their development and ensure continued progress towards U.S. energy security. In some areas, such as critical minerals, further investment and policy measures will likely be needed to reinforce segments at risk of market power wielded by countries exercising non-market policies and practices. To meet this challenge, MESC has developed a framework to measure readiness of energy supply chains to meet U.S. energy system needs under a range of scenarios, as well as to identify specific risks within supply chains.
The Supply Chain Readiness Level (SCRL) Framework
Energy supply chains comprise a complex network of production steps: from raw material extraction and processing, to manufacturing of intermediate sub-components, to final product assembly, and ultimately to end-of-life management to recover and reuse key materials. Each of these segments in the supply chain requires specialized equipment, skilled labor, permits to operate, relationships with suppliers, and customers. It is important to note that supply chains are not static. Producers and manufacturers will continue to innovate, developing new intellectual property (IP), and to react to an evolving market and regulatory environment. The challenge of understanding these systems is more difficult when supply chains scale rapidly. Most supply chains are built to keep up with average commercial growth rates of 1-2% each year, but emerging energy technologies are expected to grow exponentially over the coming years and decades. The unprecedented scale, speed, and coordination of investment in U.S. energy manufacturing is further accelerating the development of U.S. energy supply chains.
Recognizing the need for precise visibility into energy supply chains, DOE’s Office of Manufacturing and Energy Supply Chains (MESC) established the Modeling, Mapping, and Analysis Consortium (MMAC), a collaboration across MESC and DOE’s National Laboratories. Leveraging supply chain and technology expertise from across the National Renewable Energy Laboratory, Argonne National Laboratory, and Idaho National Laboratory, the consortium set out to develop analytics tools including a consistent approach to measure supply chain risk from the perspective of the U.S. government. To address this challenge, MMAC assembled metrics used to evaluate supply chain risk based on laboratory expertise, industry engagement, and literature review and prioritized those that most closely reflect key risks to the U.S. energy system or to the durability of U.S. energy manufacturing investment.
While the conceptual framework SCRL is an important starting point, illustrating how it can be applied to a particular energy supply chain offers insight into how the tool functions in practice. Lithium-ion batteries are critical for U.S. energy security and will play an increasingly vital role in the defense, power, and transportation sectors. Transportation represents the largest market for advanced batteries, driving 85-90% of demand, as electric vehicles increase adoption in the domestic market. Stationary storage represents the other major demand driver, with batteries poised to play an increasingly important role in grid resilience and balancing. While defense currently comprises a smaller portion of demand, batteries are projected to play an increasingly important role in weapons ranging from unmanned drones to enhanced energy weapons. Many defense applications require higher standards of performance relative to commercial applications and may serve as an accelerant for leading-edge, frontier technology development, where U.S. producers may be particularly well-positioned. The result is that demand for batteries is expected to grow dramatically over the next decade.
The Path Forward: Building Resilience in Energy Supply Chains
The United States has made historic investments in batteries and energy manufacturing. In doing so, the U.S. has reasserted leadership across energy technologies—many of which were invented on American soil—while safeguarding American energy independence. While these investments have provided a meaningful downpayment to build resilient energy supply chains in the U.S. and partner countries, more work lies ahead to minimize reliance on production from covered nations and to ensure that domestic investments have a path to sustained competitiveness. Competitor nations have supported manufacturing for decades through subsidies and non-market practices. Building competitive industries in these areas within the United States will require a sustained effort to develop these sectors and protect them from unfair competitive practices intended to undercut U.S. companies. World class market intelligence will be required to successfully execute this mission for three primary reasons.
First, understanding relative readiness at a technology level, including quantifying where competitors have built entrenched positions, will inform where to focus efforts to build domestic supply chains. Second, understanding where incremental investment and policy support is needed to develop robust production and innovation ecosystems will enable more efficient use of public funds. Third, the dynamic nature of these supply chains necessitates a data-based, system-level perspective to monitor risks as conditions change and evolve. Supply chains today will look very different in the future, reinforcing the need for clear and consistent visibility into the market structure. Capabilities such as the Supply Chain Readiness Level framework can help address this need. MESC has developed this tool to supply policymakers with the information necessary to craft efficient and effective policy and to provide investors with a common set of facts to inform investment decisions. Extending these analyses to other technologies and building enduring infrastructure to maintain and strengthen this capability is an essential step to ensure policymakers have the tools necessary to secure America’s energy supply chains. Combining this level of insight with the exceptional innovation of American entrepreneurs, drive of American workers, and strength of the American economy will enable the U.S. to chart a path to maintain energy independence as the global energy system evolves.
Access the report here
