The demand for renewable energy technologies grows daily. Industry commentators regularly produce estimates of the enormous investment in alternative fuels and technologies that will be needed for a net zero world, and the advanced manufacturing capacity required to produce it. These include hydrogen (derivatives), battery storage, bio-based fuels and gasses all of which will play different but critical roles in our transition to net zero.

As the Economist reported in February, in 2022 global capital spending on wind and solar assets was greater than investment in new and existing oil and gas wells – a global first and clear sign of the trend. But despite the growing demand for green energy from all areas of the economy and government and regulators, there are certain questions that still give manufacturers of green energy tech pause. As in any moment of major industrial transition, there are questions to address: is this the year to invest or do we delay and wait for others to lead? Do we have access to the skills and resources to scale manufacturing of products and components that the industry will clearly need, but isn’t investing in yet? What are the impacts on other parts of our business and organisation?

The future isn't here yet

At one level, the future looks rosy for green energy tech manufacturers. Advancements in technology, automation, robotics and digitisation can generate an efficient facility, reducing operating costs and increasing output. The European Commission states that demand for battery production is growing rapidly and is set to increase 14-fold by 2030, and the EU could potentially account for up to 17% of that demand. Additionally, the European Commission has set a renewable hydrogen target of 20 million tonnes (Mton) of annual production by 2030. This means European electrolyser manufacturers will need to increase their production capacity to deliver 17.5 GW per year by 2025, up from an annual capacity of only 1.75 GW in 2022.

In parallel, the 2022 US Inflation Reduction Act (IRA) includes over $60 billion for domestic manufacturing across the clean energy supply chain, targeted at the production of solar panels, wind turbines, batteries, hydrogen electrolysers, critical minerals processing and more. Across Asia, Japan recently announced over $24 billion in investments to develop a competitive manufacturing base for batteries used in electric vehicles and energy storage systems. India’s hydrogen strategy requires the deployment of 160 GW of electrolyser capacity and Indonesia wants to develop an integrated electric vehicle (EV) supply chain with a capacity of 140 GWh in 2030.

So if the demand (and funding) for new infrastructure, technology and supporting supply chains is huge – what’s the problem?

As a market, green energy technology has huge potential, but requires everyone to answer many unfamiliar questions before investment (and production) will accelerate to where we need them.

Maarten Wessels

Associate Director

Investing today to meet tomorrow's demand

In truth, a scale-up of this size would be a daunting task in normal market conditions. But with high inflation, growing domestic on-shoring and deglobalisation, the alignment of supply and demand is even harder for such a high-tech/new tech sector. New manufacturing capacity is increasingly subject to circular economy commitments, not only in materials, but also in contractual arrangements and supply chain integration.

Interestingly, investment capital is not in short supply. Yet the investors we work with, both private equity parties and institutional investors, face a lack of market-ready investment targets rather than capital.

So, the challenges facing green energy technology manufacture are varied:

Developing local supply chains and access to resources

Market
Industry and manufacturing
Worker at Jaguar Land Rover plant

There are significant resource constraints to consider. You need renewable energy sources, land, grid connections, water, skilled labour, permitting, supply chain capacity and the required materials – all of which are increasingly in short supply. Bespoke, local and dedicated supply chain wide arrangements are needed for any early major investment where commoditised markets do not (yet) exist. Identifying these sources is a dedicated market and location analysis task, one that impacts the business case and investment sequencing of any new productive facility.

Timing your market entry

Timing is always a vital aspect of successful investment. Although policy and market direction are gaining clarity at the macro level, customers that purchase and deploy the manufactured core technologies are still emerging, meaning revenue and growth potential cannot always be sufficiently guaranteed for investors. Our finance and economics advisory teams are adept at helping clients to navigate these dilemmas. They look at ways to build in sufficient flexibility, designing out technology and contractual risk, planning step-by-step upscaling – and early anchor off-take agreements. Together these enable you to move forward with lower risk and maintain access to sustainable capital.

Deeper due diligence

With so many changes to the fundamentals of the energy sector, doing due diligence on investments in promising new energy modes or technologies has become an even more critical task. Early or emerging technology inherently presents greater market risk, without many of the comforts investors typically seek. New approaches to de-risking investment must be considered.

In recent years we have performed feasibility studies, techno-commercial appraisals and due diligence for investments in dozens of scale-up technology providers active in, among others, renewable hydrogen, biomethane and biofuels, EV charging, SAF and battery manufacturing. During these remits we helped shape investment and project development plans against robust growth.

Early or emerging technology inherently presents greater market risk, without many of the comforts investors typically seek. New approaches to de-risking investment must be considered.

Maarten Wessels

Associate Director

Addressing site selection challenges

Today, finding the right physical location to service the wider supply chain depends on a growing number of external, local variables: from the softer planning and permitting restrictions, stakeholder influence and government support, to the harder regulations, utility and logistics connections, local supply chain match, geotechnics, labour markets and space requirements. In our work around the world, we’re often called on to provide the local knowledge that’s critical to successful site selection, backed up by credible insights into local market realities. This is absolutely central to achieving a climate neutral advanced manufacturing sector that will produce what we need and endure at a commercial level.

Navigating major change

Pivoting to a new opportunity, however promising, brings with major challenges for any organisation. Ensuring your organisation’s people and culture adapts in tandem with your production processes can be extremely difficult. This rings especially true for new rapidly up-scaling companies. Many scale-ups have robust technology and sound project development plans – these are after all, their first priorities. However, growing and developing the organisation and upskilling its workforce are often underprioritized, leading to risk of over-promising actual delivery potential. Developing a shared culture and business practices amid a major technological change or market entry requires a change programme that aligns product goals with organisational development. It’s a challenge our people and organisations team have addressed across many sectors.

Learn from those ahead

There are some positive lessons that can be learned from related sectors. Data centres, low-carbon manufacturing plants, solar and wind power and electric vehicles producers have all faced similar issues, and yet these markets have consistently outperformed most growth predictions. We have worked extensively with the established players and innovative start-ups entrepreneurs in these markets, understanding how realisation of growth can be facilitated in a resilient manner.

To learn more about how Arup can support your green energy technology manufacturing goals, download The Green Factory. The report demonstrates how we can help you to achieve a more sustainable and green facility.