India, Australia sign deal to secure supply chains


From pv magazine 05/24

The recently announced Future Made in Australia Act sees the nation joining a steadily increasing list of countries that are committing public finance to domestic clean energy supply chains. Mirroring efforts in the United States, Europe, and India, the new industrial package includes subsidies and incentives to enhance domestic manufacturing and support key industries including green metals, green hydrogen, and critical minerals.

Nations plan to decarbonize economies and ambitious targets can be found in the power sector. Between 2021 and 2030, planned electricity generation from solar and wind projects outside China will more than triple, from 125 GW to 459 GW.

Such targets require stable markets and resilient supply chains. Today’s clean energy supply chains face several concerns including dependence on imports from a very small number of countries at key points.

China is the leading supplier of clean energy technology and a net exporter of many such items. It holds at least 60% of the world’s manufacturing capacity for most mass-manufactured technologies, such as photovoltaics, wind systems, and batteries. Some 79% of global polysilicon capacity is in China and half of that is in Xinjiang, making wind and solar companies vulnerable to disruption there.

China’s dominance is built on key pillars such as high domestic demand, affordable energy and labor costs, historically less stringent environmental controls – although these are changing – and supportive policy.

Building resilience

Clean energy technology depends on raw materials and minerals including aluminum, glass, copper, silicon, lithium, cobalt, and nickel. Some can take a long time to extract and process so countries dependent on imports, especially from China, must strategically plan supply chain investment.

The dominance of clean energy manufacturing by a small number of countries and companies, however, makes it hard for new solar module, cell, wafer, and battery component producers to secure financing, access global markets, and expand.

Increased public funding is vital to de-risk innovation and investment and attract capital to clean energy supply chains. Governments are drafting policies and incentives to promote domestic clean energy manufacturing. The US Inflation Reduction Act (IRA) earmarks almost $30 billion in production tax credits for the renewable energy supply chain, with similar initiatives in the European Union, Japan, and South Korea. In India, the production-linked incentive (PLI) scheme for module manufacturing has an outlay of $2.4 billion and aims to reduce imports and create domestic green jobs.

Governments using public finances to build supply chain resilience face challenges. They aim to incentivize the use of local raw materials in domestic production without being viewed as imposing trade barriers. Meanwhile, sourcing domestic content often relies on imports from exactly those countries the resilience measures are being pursued against. For example, there was minimal interest in vertical integration – polysilicon-to-module manufacture – in India’s PLI program, despite significant incentives. Raw materials still come from China.

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Secondly, for developing countries such as India, incentives cannot rival those initiatives deployed in developed countries, such as the IRA in the United States. The emphasis must be on offering appropriate types and levels of incentives in specific sections of the supply chain to attract private capital. This is more effective than pursuing overly ambitious goals that may not yield the desired outcomes.

Crucial collaboration

In Australia, prime minister Anthony Albanese has announced the Future Made in Australia Act, emphasizing cooperation to achieve clean energy goals and capitalize on comparative advantages. Coordinating efforts can mitigate supply chain risk and maintain competitive neutrality.

In that context, the Australia-India Economic Cooperation and Trade Agreement (ECTA) is a significant development that aims to help Indian corporates make strategic investments in mining for critical minerals in Australia, such as lithium and cobalt which are essential for battery manufacturing. The ECTA also envisages technical collaboration among Indian and Australian firms on mining technology.

Besides resource use and technical collaboration, creating a shared pool of public finance can ensure that adequate capital is available to fund such arrangements. This capital could be reoriented from existing outlays, such as the PLI for battery manufacturing in India and the one envisaged under the Future Made in Australia Act. The pool of capital shared between both countries could also solicit contributions from multilateral development banks (MDBs).

This collective capital pool can serve as a clean energy catalyst by offering grants for capacity building, project preparation, and research and development in refining technology and low-carbon mining in India and Australia. Australian corporations can strategically invest in India utilizing these incentives, and vice versa. Furthermore, long-term concessional debt from MDBs can be used to expand operations. Properly managed, these capital interventions can attract substantial private investment and facilitate strategic cross-border investment by private entities in both nations.

India’s quasi-sovereign National Investment and Infrastructure Fund (NIIF) recently established a $600 million bilateral India-Japan fund, in partnership with the Japan Bank of International Cooperation, to finance low-carbon technology in India and foster collaboration between Indian and Japanese companies. The NIIF could set up a similar fund in collaboration with its Australian counterparts.

About the authors: Vibhuti Garg is director for South Asia at IEEFA. She focuses on promoting sustainable development through policy intervention on energy pricing, new technology, subsidy reform, access to clean energy and capital, and private participation in the sector.

Shantanu Srivastava is research lead for sustainable finance and climate risk in South Asia at IEEFA. He specializes in financing, policy, and technology in the Indian electricity market.

The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.

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