The war in Ukraine has rocked energy markets, pushing oil and gas prices to their highest levels in more than a decade and leaving governments scrambling to secure energy supplies. In the months following Russia’s invasion, policymakers were faced with a hard truth: energy policy is security policy, and it has been neglected for far too long.
Government priorities feature prominently in discussions on the transition to renewable energy. Enthusiasm for wind power may be abundant, but if the United States is serious about its future, it must contend with critical supply chain disruptions and market-distorting foreign competition. Western companies will falter if these problems are not addressed as their state-backed Chinese competitors outperform them. The United States can expect major ramifications if Chinese companies expand further into this critical market.
Globally, wind turbine manufacturers suffered heavy losses in the first quarter of 2022 due to production costs and downward pressure on prices. GE Renewable Energy
Industry profits began to plummet in 2017 as governments tendered contracts to accommodate new tariffs, leaving companies scrambling to cut costs and squeeze profit margins. Earnings were further impacted by high metal prices, import duties and widespread economic turbulence due to the war in Ukraine. Disappointing profits continue despite global interest in wind development, but low profit margins discourage future investment.
For Chinese companies, wind is not just a growth market; it is a political project. Chinese cities are notoriously polluted. For years, Beijing has invested heavily in wind power, trying to corner the market as they did in photovoltaic panels.
Following President Xi Jinping’s calls for an “energy revolution” and “pollution control”, the country’s energy sector has changed dramatically. This transformation is not only that of national production; it is also a matter of foreign trade policy, investment and influence.
China wants to become a Saudi Arabia of renewable energies. In March, Beijing said it aimed to create 450 GW of solar and wind capacity in the Gobi and other desert regions. China is capitalizing on the vast landscapes of Tibet, Xinjiang and Inner Mongolia in conjunction with offshore turbines for power generation. By comparison, President Biden has pledged to create 30 GW of offshore wind by 2030.
Ignoring profit and loss can get you somewhere. China built more offshore wind turbines in 2021 than any other country in the past five years. It installed 55.8 GW of turbines in 2021, beating its own 2020 record of 52 GW, an increase of 19.4%. China now has 344 GW of wind power generation. During the same period, the United States increased by approximately 12.5 GW for a total capacity of 135 GW.
As we head into the brave new world of solar and wind geopolitics, described in the insightful book The Prologue: The Alternative Energy Megatrend in the Age of Great Power Competition by Professor Alexander Mirtchev, this imbalance becomes even more glaring when we consider Chinese territorial disputes further. Solar provinces and wind corridors could become as desirable as oil and gas fields. Fulfilling China’s territorial ambitions in the South China Sea would mean an Exclusive Economic Zone that is not only strategically valuable and resource-rich, but also perfect for offshore wind farms. Undisputed control of the Fujian Strait between China and Taiwan or victory in one of its many territorial disputes with India or Japan can have a similar impact.
Direct territorial expansion is complemented by soft power and Chinese investment. The China-Pakistan Economic Corridor (CPEC) includes several power, hydroelectric, nuclear, coal and solar projects totaling 21,690 MW – new projects include the 50 MW Cacho wind project. The wind infrastructure in the corridor will provide sufficient power and leverage for Beijing. Beyond Pakistan, many global examples could be listed, showing the vast scale of Chinese investment in global wind energy. In just three years, Chinese turbine makers Xinjiang Goldwind Science & Technology Co. Ltd. and Ming Yang Smart Energy Group Ltd. more than doubled their exported wind capacity; included in these exports is the first Italian offshore wind farm in the Mediterranean.
The decline of turbine manufacturing in the United States, combined with a reliance on Chinese manufacturers for most of the rare-earth metals needed to make solar panels, poses a long-term challenge for American interests. To that end, the Biden administration must prioritize easing the burdens on U.S. businesses to grow and export by making impact statements less onerous for emerging energy technologies while streamlining existing energy regulations. A comprehensive energy security strategy and regulatory reform are needed.
Reducing the regulatory burden on US businesses will also promote innovation. Wind energy poses several technological challenges that companies must face. Offshore wind, for example, is limited to shallow waters because fixed-bottom turbines can only reach a depth of around 65 meters. Companies will need to invest in and expand floating wind technology to overcome this limitation and reap the benefits of having rigs in deeper waters.
The Biden administration should also use “friendshoring” – shifting production of renewable technologies to trusted allies to keep supply chains secure. Loyal allies around the world lead the way. Denmark, one of the international leaders in wind energy and home to Vestas, the world’s largest wind turbine manufacturer, is an obvious example.
U.S. allies around the world are investing in wind power to diversify away from hydrocarbons, avoid dependence on authoritarian oil states, and build a more sustainable future. Unfortunately, unless a complete change occurs, expect the Chinese storm to continue. The United States must lead to avoid it.
With the help of Inès Lepeu