WTW surveyed 100 senior decision makers in leading renewable energy companies globally, to understand their supply chain risks and challenges, their organization’s approach to risk management and what future supply chains will look like.
Credit and Political Risk||Environmental Risks|Direct and Facultative
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Learning the lessons of disruption
After years of exponential growth, renewables may be close to a tipping point when they become the main source of energy powering economies and industries.
Supply chains have been central to this success, delivering the technologies and economies of scale needed to make the energy transition possible.
But there are signs that this progress could be stalling, at least temporarily.
Rising raw material prices are reversing the downward trend in the cost of renewables, while shortages, bottlenecks and delays in the supply chain are lengthening project lead times, putting future plans at risk.
How are renewable energy businesses adapting?
To find out how the sector is navigating this changing landscape, we surveyed 100 risk and supply chain leaders in companies providing technologies, infrastructure and power generation in areas including hydro, solar, wind, biofuels, geothermal, battery storage and heat pumps.
How do they see the supply chain landscape? What are the main challenges and risks they face? What are they doing to overcome obstacles and to try to build resilience? And what will the supply chains of the future look like?
Global uncertainty widens the risk horizon
Uncertainty and obstacles on the road to the energy transition were reflected in the risks that arose most prominently in our supply chain survey.
Shortages, delays, economic issues and geopolitical instability were all top of mind for respondents.
Wider external factors such as cyber security and supply chain sustainability were also leading concerns.
Geopolitical risk
Geopolitical risk was among the factors thought to have the greatest impact on supply chain risks, rated by 57% as medium and 25% high impact.
China produces up to 60% of mass-manufactured clean energy technologies1, so tensions between that country and the west could pose a risk to supplies of critical equipment and components.
Critical shortages
A shortage of raw materials topped the list of factors having the greatest impact on renewables business in the next two years, named by 44% of respondents among their biggest concerns.
Logistics and warehousing shortages (39%) and component shortages (35%) also ranked highly.
These findings underline the sector’s dependence on critical supplies — lack of even one essential item can hold up work on a whole project, which can be costly at a time of high demand.
Cyber risks
Renewables infrastructure such as wind turbines and solar farms are in remote locations that need to be controlled remotely by centralized computer systems, which may increase their exposure to cyber risks.
Contractors, suppliers and equipment manufacturers working on major projects may all share systems, adding potential entry points for malware into sensitive equipment.
These trends may explain why cyber risks were believed to have the most profound effect on supply chains, rated by 39% as high and 49% medium impact.
Economic risks
Economic uncertainty (32%) was a top factor underlying supply chain risks. Soaring energy prices are hitting suppliers and contractors hard and could put manufacturing capacity for components in areas such as solar and batteries at risk.
The rising cost of materials and labor, coupled with volatile energy prices, can also influence projections of income and growth, potentially reducing the scope for future investment.
Climate change and environment
More than half (56%) placed climate change and environment among the top global trends affecting supply chain risks.
In a business that’s meant to deliver a clean energy future, there is obvious concern about the carbon footprint of the renewables supply chain and there is strong pressure to minimize emissions from activities such as mining and manufacturing.
The result may also reflect concerns over the impact of extreme weather on the resilience of renewables infrastructure and supply chain.
ESG
In our survey 84% said sustainability was a key supply chain goal, while 82% said ESG is a specific selection criteria when selecting new supply chain vendors.
As well as decarbonising the supply chain, there is pressure on the industry to source responsibly and sustainably.
Much more effort is going in to making sure that the sourcing of lithium and other essential minerals is not tainted by exploitation or human rights abuses.
Workforce issues
Supplier difficulties in attracting and retaining talent was one of the leading factors underlying supply chain risks, ranked by 32% among their top concerns.
The industry faces major workforce challenges as demand for green jobs is outpacing the availability of qualified workers across the supply chain.
Pandemics
Though we may be past the acute disruptive impacts of COVID-19, the risk of a new strain of the virus, or a new unforeseen pandemic, still seems to be front of mind, topping the list of global trends with the greatest influence on supply chain risks at 66%.
4 key findings
74%of businesses said losses related to the supply chain had been higher or much higher than expected over the last two years.
84%said they have made at least some improvements in their approach to supply chain management in response to the pandemic.
85%said a lack of data, knowledge and understanding were among the factors posing the greatest challenge to addressing risks over the next three to five years.
80%agreed or strongly agreed that a lack of alternative suppliers impeded their ability to implement an effective dual or multisource strategy.
Keeping the energy transition on track
Progress towards the energy transition has faltered as project costs spiral and the world seeks additional short-term sources of oil and gas for energy security following the global energy crisis.
The road to a fully renewable future is also strewn with a range of supply chain challenges, from shortages of raw materials and critical minerals shortages to capacity constraints and a lack of alternative sources and suppliers.
Our survey shows that businesses are working to overcome these problems and considering a range of strategies to increase resilience.
However, they're hampered by an inability to obtain enough accurate data on the supply chain to manage their risks.
Working more closely with suppliers as partners can help companies understand their supply chains better and address these risks.
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Diagnostic mapping and monitoring tools and analytics can help to visualize, quantify and assess risks across the chain and in specific locations.”
Steven Munday | Global Renewable Energy Leader, Natural Resources
Diagnostic mapping and monitoring tools and analytics can help to visualize, quantify and assess risks across the chain and in specific locations.
WTW has an experienced team of experts with the tools and competencies to help clients understand their supply chain vulnerabilities and align their production with financial risk.
We can also help you manage and transfer risks for both property-related and pure economic losses, helping you build greater resilience against future shocks.
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