How fast can wind and solar accelerate, especially if energy shortages persist? This 11-page note reviews the top ten bottlenecks that set the ‘upper limit’ on renewables’ capacity additions. Seven value chains will tighten enormously in the coming years. Paradoxically, however, ramping renewables could exacerbate near-term energy shortages.
Our growing fear for 2022 is that a full-blown energy crisis may be brewing. The most ‘obvious’ solution is going to be to accelerate renewables. Hence this note models out a hypothetical scenario where the world tried to scale up renewables about 5x faster, adding 1TW pa of new wind and solar capacity each year (page 2).
Capex is the first bottleneck, as our scenario would require almost $2trn of spending on wind and solar, which is 3x total global energy investment from the past half-decade. This is a lot of capital, but not a show-stopper in our assessment (page 3).
Materials are more challenging, and we map out the total demand pull on global steel, copper, silicon, fiberglass and carbon fiber; and we also discuss the CO2 and energy intensity of each of these materials in turn (pages 4-7).
Specialized supply chains tighten most. We identify three specific industries which would effectively see unlimited pricing power in our scenario (pages 7-8).
Energy paybacks present the biggest paradox. It takes 2-years for the average wind and solar asset to repay the energy costs of manufacturing and installing it. Hence in the near-term, a very rapid ramp-up of renewables would tend to exacerbate energy shortages (page 9).
Land and labor are often cited as bottlenecks on ramping up renewables, but we do not think these are material barriers, by contrast to the others (pages 10-11).
Our conclusion is that appetite to scale renewables will rise sharply in 2022. It will
not resolve near-term energy shortages. But inflation will accelerate in ‘bottlenecked’
parts of the supply chain. Investors can help by debottlenecking those bottlenecks.