3 ways the Global South can harness clean energy supply chains

The global shift to renewables is accelerating, driving rapid growth in the clean energy market. The IEA projects the global market for clean energy technologies to expand to over $2 trillion by 2035; nearly on par with the world’s current crude oil market. This growth will continue as the world moves toward net-zero emissions by 2050. However, while the clean energy transition presents vast opportunities, many emerging economies risk missing out and may even end up paying high costs to others for their transition.

Eighteen countries account for 80% of global manufacturing output, with only four emerging economies figuring among this group: India, Brazil, Mexico and Turkey. The situation is even more lopsided in the clean energy sector, where China dominates, producing 80% of the world’s solar panels and a similar share of solar cells, wafers, electrolyzers (for green hydrogen) and batteries. Meanwhile, the US is expanding its capabilities with $370 billion in federal subsidies, roughly the annual GDP of mid-sized economies like Chile, Pakistan and Egypt.

Do other emerging economies have a chance to join these supply chains? Current evidence suggests they do, but it requires strategic and concerted efforts. Based on first hand experience of leading ReNew’s foray into manufacturing of solar modules and cells in India, I suggest three key prescriptions for integrating emerging economies into the expanding clean energy value chains, drawing from blueprints available within the clean energy and other economic sectors.

Scale is critical for the international competitiveness of the clean energy manufacturing industry, as China has shown. The size of domestic markets is a crucial factor in driving manufacturing investment at scale, particularly amid rising protectionism. Most developing countries have smaller domestic electricity markets. However, cross-border energy trading frameworks in regions like Southern Africa and Central America are gaining traction, creating electricity markets that rival those in the United States and other large economies. Several regional free trade agreements are also in place, notably the Southern African Development Community (SADC) FTA, with 16 member countries, and MERCOSUR and the Pacific Alliance in South America.

This presents a significant opportunity to develop clean energy supply chains regionally. Strategically linking local manufacturing capabilities to regional demand and infrastructure projects can drive substantial benefits, attract investments, create jobs and bolster local economies. As the EU experience has shown, this requires strong coordination on factors such as government-led mandates, energy tariff levels, market design and regulatory arrangements.

South-East Asian nations like Vietnam and Philippines have leveraged their partnership with China to emerge as manufacturing destinations. India and Indonesia are moving forward on their own, since they have a head start in terms of wider manufacturing capabilities and strong investment environments. At the same time, the current drive for supply chain diversification in advanced economies in the EU, North America and Japan has created new opportunities. To effectively match the competitiveness, innovation capabilities and unfair trade practices of incumbents, a more coordinated approach between developing countries and certain advanced economies is needed.

For example, India, the US and the EU could come together for a clean energy free trade agreement-type arrangement. Together, they will account for well over two-fifths of global clean energy deployment in the next decade. They have the manufacturing ecosystems, technological expertise, innovation networks and collective fiscal strength. There are opportunities for technology flows across the three geographies, creating a symbiotic, mutually advantageous relationship – particularly in mid-value chain stages, such as manufacturing polysilicon, ingots, wafers for solar; cathodes and anodes for batteries; and membranes for electrolyzers. Partnerships like these can also focus on developing expertise early in emerging supply chains, such as green steel, carbon capture, green building materials and sustainable fuels, to avoid playing catch-up again.

The World Bank Group and the Asian Development Bank have long supported infrastructure development and are actively reforming to provide more catalytic capital.

Emerging multilateral development banks (MDBs), such as the New Development Bank and the Islamic Development Bank, offer new opportunities. These institutions serve most Global South countries and provide a more agile alternative to traditional MDBs, free from the dominance of major supply chain players. They offer capital, innovative financial products and technical advisory.

However, much of this development must be driven by the private sector in the medium term. Though Foreign Direct Investment (FDI) and MDB resources can kick-start the process, local capital markets will ultimately sustain it. The limited size of capital markets in the Global South is a constraint, and accessing international capital markets brings currency and other risks. In addition to deepening of local capital markets, partnerships will be crucial. A good example is Nuam, the integrated stock exchange platform launched in 2023 by Chile, Peru and Colombia. It is already enhancing liquidity by attracting a broader range of market participants and offering diverse financial products.

The Global South has a significant medium-term opportunity to benefit from the energy transition. Challenges exist – due to the head start of dominant players, geopolitics and investment climates –but these are not insurmountable. There are clear blueprints for finding entry points. Innovation and collaboration can turn challenges into opportunities.