Joseph Webster at the Atlantic Council’s Global Energy Center takes stock of the European wind sector’s dependence on China. Nobody wants geopolitics and a worsening relationship with Beijing to disrupt positive cooperation in the urgent energy transition. The news is mostly good: the dependence is low because the international trade in turbines is constrained by weight-to-value ratios, transportation costs, and local content requirements. In fact, the EU was a net exporter of turbines in 2021. The need for rare earth elements (REEs) for components is where the weakness lies, and China dominates throughout the supply chain. Europe must bolster its indigenous supply (or import from allies like Australia) and reduce demand through innovation. In order to reach its REPowerEU benchmarks, the EU must install another 510GW of wind capacity by 2030. And policy certainty and ambitious targets are helping to maintain the sector’s momentum, driving down costs and prices while scaling up capacity. But Webster notes that Western turbine manufacturers are struggling to reach profitability and even closing some plants. This needs fixing. In conclusion, cooperation with China must continue, but a keen eye should be kept on the issue, especially the supply of necessary raw materials, says Webster.
With tensions between the West and the People’s Republic of China (PRC) rising over Taiwan, how vulnerable are Europe’s wind markets? The news is largely positive: outside of rare earth elements (RREs), European wind markets do not suffer from outsized dependency on Beijing. Moreover, the West is working to reduce rare earth dependency by securing new mining and processing facilities, enhancing RRE supply; simultaneously, technological developments could limit demand for critical minerals. Europe should be wary of swapping dependency on Russian gas for reliance on Chinese clean energy, but the EU’s onshore and offshore wind supply chains are, with the important exception of rare earth elements, largely insulated from systemic rivals.
Applying lessons learned from the disastrous experience with Russia, European wind should continue to draw from China’s industrial base and engineering expertise but also ensure a competitive marketplace. The EU should continue to de-risk responsibly, seeking climate cooperation with Beijing while ensuring it is not held hostage to a sole supplier along any part of the wind energy supply value chain.
Rare earth elements: China dominates
Rare earth elements (REEs) constitute a critical EU dependency on China in wind technology value chains. The wind industry’s demand for REEs is projected to double from today’s levels by 2030. Specifically, the EU must install 510 total Gigawatts (GW) of wind capacity by 2030 in order to reach its RePower EU benchmarks, which would require installation of nearly 36 GW every year. Consequently, REEs will be critical for Europe’s wind ambitions, especially for offshore turbines. Permanent magnet generators are increasingly important for wind turbines and require REEs such as neodymium and dysprosium.
China’s dominant role throughout the REE supply chain poses risks to the European wind industry, however. The PRC accounts for 63 percent of world rare earth mining, 85 percent of rare earth processing, and 92 percent of rare earth magnet production. Beijing not only also has a long history of using economic coercion to achieve its political objectives, but it also has intervened directly in minerals markets before, blocking exports of rare earth elements to Japan in 2010 amid a fishing dispute.
Democracies can reduce their dependency on Chinese REE exports by bolstering their indigenous supply or by reducing demand. Expanding upstream mining of REEs, as well as downstream processing, is enormously vital for Brussels and Washington. There is, fortunately, progress in creating additional supply, especially Down Under.
Australia is pushing to accelerate its mining and processing industries, inking agreements with Japan, Germany, the UK and India. Canberra is also adopting a refreshed 2023 Critical Minerals Strategy after unveiling several investment initiatives last year, including a A$2 billion Critical Minerals Facility. Concretely, Australian rare earth mineral supplier Arafura and European wind manufacturer Siemens Gamesa signed an important offtake agreement for new neodymium-praseodymium extraction capacity.
In addition to boosting REE supply for wind turbines, democracies can cooperate to lower demand. A Cambridge study reported initial findings that manufacturing tetrataenite, a ‘cosmic magnet’ that typically develops naturally over millions of years in meteorites, can replace REEs. It remains to be seen, however, if the technology can be developed economically and at-scale. Another study from the US Department of Energy found additive manufacturing (i.e. 3D printing) can help manufacture permanent magnets, reducing REE demand. Research and development breakthroughs could help lower demand for REEs and reduce sole-source supplier risks.
Other wind supply chain items
China’s role in other wind-relevant minerals is less threatening but worth watching carefully. Zinc or copper account for over 80 percent of the critical minerals used in both onshore and offshore turbines. China is the largest processing player in both minerals but has traditionally not been a major exporter in either commodity. China produced about half of the world’s refined zinc in 2021, but only became a net zinc exporter in 2022, as it has traditionally consumed more zinc than it produces. China controlled about 43 percent of all refined copper production capacity in 2021. As with zinc, however, most of China’s refined copper is consumed on its domestic market, not exported.
The EU has not imported significant quantities of finished wind turbines from China, as international turbine trade is constrained by weight-to-value ratios, transportation costs, and local content requirements. Indeed, the European Union was a net exporter of wind turbines in 2021, shipping products to the UK, the US, and Taiwan, among others.
Mainland China’s exports of finished wind turbines could rise in the future, however, especially amid pressure on European wind producers. Europe had over 22 Gigawatts (GW) of wind turbine manufacturing capacity in 2020, but Siemens Gamesa, Vestas, GE, and other Western wind turbine manufacturers are struggling to reach profitability and closing some plants. Component and turbine suppliers are suffering from hits to profitability, due to energy and skilled labour inflation, as well as COVID-backlogs of key items. European OEMs are also finding it difficult to pass-through costs to customers, due to the lag between order placement and delivery.
Still, there are limits to how much Chinese manufacturers can export to Europe, given the economics of exporting massive wind turbines. There is also an air of optimism in the Western wind manufacturing industry due to climate policy certainty in the US and the EU, as well as lower costs from post-COVID supply chain stabilisation. In addition to improving economics, wind manufacturers are receiving political support, as calls grow for EU wind turbine factories to produce 85 percent of the bloc’s annual installations by 2030.
Given these technical, economic, and political factors, there is a low risk that Chinese wind manufacturing firms will be able to undercut European wind turbine manufacturers in their home market. There is also seemingly little chance that Chinese firms will be able to invest in European production lines, given Brussels’ growing political suspicions of Beijing.
Reduce vulnerability in wind markets, enhance cooperation
China is undoubtedly a critical player in any climate discussion, although its role is ambiguous, at best. China is undeniably a renewable energy superpower: it generates more renewables electricity than any other country, and has installed more wind and solar capacity than anywhere else. At the same time, the world’s second largest economy is also its most polluting, as it accounts over half of all global coal consumption and is responsible for nearly a third of all fossil CO2 emissions.
Europe and other Western countries should continue to seek to work with Beijing on reducing emissions: climate change is a global problem and agnostic about the source of carbon emissions. Yet the West must also de-risk supply chains, including in wind. De-risking supply chains will not harm climate objectives. On the contrary, and as Putin’s invasion of Ukraine demonstrates, decreasing the West’s vulnerability to energy blackmail reduces the probability that the Communist Party leadership will ever weaponise clean energy trade.
Europe should continue to work with its close allies and partners on de-risking its wind energy supply chains, especially in rare earth elements mining and processing. While European wind energy supply chains are largely in a good place, there’s more work to be done on reducing sole-supplier risks.
Joseph Webster is a Senior Fellow at the Atlantic Council’s Global Energy Center and edits the China-Russia Report. This article represents his own personal opinion.