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Panel stresses need for supply chain diversification

2nd November 2023

By: Marleny Arnoldi

Deputy Editor Online


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As Russia continues to wage war in Ukraine, it has shone a spotlight on supply chains and the sourcing of materials.

Speaking during a panel hosted by British newspaper Financial Times during its Energy Transition Summit, on November 1, Ukrainian energy holding company DTEK CEO Maxim Timchenko pointed out that, because many international contractors had left the country owing to the conflict, local companies and government had had to learn how to transport goods safely from ports and how to install infrastructure even in such circumstances.

For example, Ukraine has built more wind farms than the UK since the start of the war in February 2022.

Timchenko said the Ukraine government has managed to continue advancing reforms in the market, particularly with regard to a liberalised electricity market and frameworks for renewable energy development.

He said many countries could learn from how Ukraine had been building its energy sector, in part to be more resilient. Timchenko explained that, historically, it took one missile to destroy a coal-fired power station, whereas it required fifty missiles to destroy a Ukrainian wind farm.

“We look at security of supply from a practical angle from what we have experienced in Ukraine. My advice is to learn lessons from this war, including being less dependent on gas from Russia,” he added.

Columbia University research entity Centre on Global Energy Policy founding director Jason Bordoff encouraged countries to break their reliance on any one country for the supply of materials, particularly with countries moving to diversify supply away from China.

He admitted that getting to secure and reliable supply chain status was a “messy and nonlinear” process, but stressed that energy security had to be considered on that pathway.

Bordoff said that, instead of countries implementing protectionist measures to build local supply chains and industry, the solution rather lay in creating integrated markets.

He added that the problem of China dominance problem was more to do with processing and manufacturing capacity, which could be solved, and was a “better problem” to have than the historical geopolitical challenge of having to secure oil from one or two regions in the world.

Energy Transition Commission chairperson Adair Turner agreed with Bordoff that the world was faced with the imperative of securing energy, while dealing with challenges.

He said a green energy system, with zero carbon emissions, would be much more secure than current energy systems. He noted that, although wind and solar resources were not evenly distributed across the world, they were better distributed than fossil fuels.

“We will have much less import and export of energy with a new system and different countries being energy independent, which is the direction necessary to mitigate against climate change,” Turner added.

He emphasised that, while solving the short-term challenges was important, countries must keep the strategic direction in mind of building renewable and nuclear energy systems faster to reach true energy security faster.

On the sourcing of materials and supply chain issue, Turner mentioned that some stakeholders were worried about shortages of critical materials, while others were worried about concentrated supply. He noted that there was an abundance of materials available and that the issue revolved around the pace of the development of materials supply chains.

Additionally, he highlighted the example of markets responding to challenges by changing what materials were required, in response to shortages and ethical considerations.

For example, cobalt used to be a huge concern in the battery production environment, owing to its environmental and social risks and it being concentrated in the Democratic Republic of Congo. However, cobalt prices had fallen dramatically on the back of the battery supply chain working out how to take cobalt out of the mix.

Turner said new-generation batteries had no cobalt and no nickel either in many cases; therefore, the process of market reaction worked.

Copper, on the other hand, was still a big problem since it had less opportunities for substitution.

Turner admitted that supply chains were heavily concentrated in some sectors, particularly in China, but the security supply issue in relation to a capital asset to produce renewables was still much less severe than securing supply of fossil fuels.

He cited the example of Russia severing 35% of European gas supply.

On the topic of gas, digital solutions company ABB Energy Industries president Brandon Spencer said new technology in the industry using carbon capture could reduce the carbon footprint of gas plants by up to 90%, which improved the viability of gas as a bridging energy source to renewables.

“We have to be practical in how we get to full renewable energy systems. We need to scale technology and understand the supply chains that are needed. Even grid expansion requires a huge amount of metals. The gas industry is not the sole answer but it is certainly part of the solution,” he explained, adding that gas companies already know how to do things from a supply chain perspective.

Global forum the World Energy Council secretary general and CEO Dr Angela Wilkinson proposed that energy security, affordability and sustainability were in transition themselves, with energy security being dynamic and not static. “It is much more about flows rather than stocks, which requires relationships,” she said.

“Geopolitics are broadening beyond oil and gas and it is a different conversation that governments are having, with multiple relationships being managed,” Wilkinson noted.

She said a broader mix of sustainability goals had to be managed in light of the energy transition, including the implications for water and food.

Wilkinson also stressed the need for planning around maintenance, repurposing and decommissioning, which were harder feats to secure financing for. “We have other gaps to think about, not just supply and building infrastructure.”

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online



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