New Energy: Security Issues Amid Green Transition and Energy Crisis

Background: Amid the trend of deglobalization, the global energy industry should ensure the security of energy supply while enhancing efficiency. The world is shifting to new energy from fossil fuels. Unlike fossil fuels, of which supplies are limited, new energy comes from inexhaustible resources and depends upon the manufacturing of equipment. As a result, the global energy industry is shifting its focus to optimizing energy equipment manufacturing from simple resource consumption. Against such a background, new energy equipment manufacturing plays a more crucial role in energy security issues. Security risks facing China’s new energy industry chain: We think the vertical risks in China’s new energy industry chain are generally manageable as the industry chain is comprehensive, with a high degree of vertical integration. Some raw and auxiliary material segments may be subject to constraints from overseas countries in terms of resources, technologies, and patents. For these segments, we expect related companies to reduce risks by upgrading technologies or developing alternative materials. Compared with vertical risks, we think that horizontal risks need more attention. In 2021, China exported 55% and 20% of its photovoltaic (PV) and lithium-ion battery (LiB) products to overseas markets. However, with the trend of deglobalization, some countries have repeatedly imposed tariffs on China's new energy products to raise China’s trading costs, and have increased subsidies to local new energy industries after assessing the vertical risks their own industry chains might face. This may convert the supply–demand mismatch in China’s new energy industry chain into horizontal risks. Solutions to mitigate the risks: Mature capacity is moving to regions with lower production and trading costs driven by market competition. We expect Chinese companies to move their mature capacity to Southeast Asia and maintain the competitive advantages of their mature capacity in the global new energy industry chain. In addition, we suggest that domestic companies maintain their leading positions and strengthen the competitive advantages of their advanced new energy technologies via incremental and radical innovations. In our opinion, the development and success of China’s new energy industry chain might be attributed to related companies’ cost and technological advantages amid policy tailwinds and economies of scale. Therefore, tapping domestic demand, breaking through the bottlenecks that restrict the growth of domestic demand, and enhancing China's position as the world’s largest new energy market are crucial to the new energy industry chain. We expect the government to launch policies to optimize the trading and business environment required for the transfer of mature production capacity and to increase funds for skilled personnel required for the upgrading of advanced technologies in China. We also recommend policy support for the development of power infrastructure facilities and power consumption facilities as the development of the infrastructure could boost end-market demand. In addition, the government could also step up efforts to mitigate vertical and horizontal risks facing China’s new energy industry chain.