Reliance on other countries for materials and components significantly affects the energy storage supply chain by introducing vulnerabilities related to geopolitical risks, supply chain disruptions, and dependencies on dominant foreign suppliers.
Key Effects on the Energy Storage Supply Chain
1. Geopolitical and Economic Risks
- Many critical raw materials and processed components for lithium-ion batteries and other energy storage technologies are sourced predominantly from countries like China, which holds a dominant position in mining, processing, and manufacturing as well as battery recycling capacity (over 80% of global lithium-ion battery recycling).
- This concentration exposes countries dependent on these imports to geopolitical tensions, trade restrictions, or conflicts which can abruptly disrupt supply chains and increase costs.
- For example, the U.S. energy storage supply chain faces risks due to uncertain trade relations with China, prompting efforts to onshore manufacturing and reduce reliance on single-country sources.
2. Supply Chain Vulnerabilities
- The material supply chain for energy storage encompasses extraction, processing, component manufacturing, assembly, and end-of-life recycling. Most steps currently rely on international supply chains with limited domestic capacity in many countries.
- Exporting used batteries for recycling means countries like the U.S. lack robust end-of-life processing, which restricts circular economy benefits and increases dependence on foreign facilities.
- Supply constraints in critical minerals and components needed for batteries can cause delays or bottlenecks impacting energy transition timelines and costs.
3. Market and Strategic Implications
- The dependence on foreign supplies necessitates costly measures to diversify supply sources and develop domestic industries, such as policy incentives (e.g., the U.S. Inflation Reduction Act) aimed at promoting onshore manufacturing, reducing exposure, and enhancing energy security.
- Growing demand for battery energy storage systems (BESS) increases reliance on non-domestic supply chains, particularly in Europe, making second-life battery reuse critical for energy resilience but still linked to initial foreign supply dependencies.
- Reducing dependency involves developing alternative technologies, supply diversification, and recycling improvements to mitigate risks associated with global sourcing while maintaining cost-effectiveness.
Summary
Reliance on other countries for materials and components creates a supply chain that is vulnerable to geopolitical risks, supply disruptions, and limited recycling capacity domestically. This impacts the cost, reliability, and security of energy storage technologies critical to global energy transitions. In response, countries are pursuing diversification strategies, domestic capacity building, and technological innovation to reduce dependency and enhance supply chain resilience.
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