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The Role of the Semiconductor Supply Chain on the Path to Net Zero

Sept. 5, 2023
How semiconductors will play a key role in the path to net zero.
More than 70 countries are addressing the formidable challenge of cutting greenhouse gas emissions (GHGs) to reach net zero goals. As organizations continue to work towards net zero, many of the reports coming from these discussions point to the key role of semiconductors.

In fact, the International Energy Agency states that most of the infrastructure of today’s energy system, from supply to end-use, will need to be transformed. To turn global goals into reality, “major reductions in cost and improvements in performance will be needed in a wide range of technologies already in use or in the early stages of development.”

The path to net zero will require a shift in energy creation and storage, transportation, and how the supply chain operates. Right now, the competition amongst wind, solar, electric vehicles (EVs) and other industries for essential components is steep. The main challenge manufacturers face is whether or not semiconductor supply will be able to meet demand.

Competing for Critical Components 
Demand for components is diverse as every sector works to allocate parts necessary for “green” technology. Renewable energies like wind and solar are expected to account for more than 90% of global electricity expansion over the next several years and are anticipated to be the most significant source of global electricity by 2025. However, these industries compete with the automotive, industrial manufacturing and consumer electronic industries for chip supply. 

In particular, the automotive industry is a major consumer of insulated-gate bipolar transistors (IGBTs), which have suffered shortages for numerous reasons over the past year. The solar industry relies on IGBTs by utilizing four to eight IGBT power tubes to build solar photovoltaic products responsible for converting sunlight into electricity. Due to the solar and automotive industries pushing demand higher, lead times have consequently been extended as both industries vie for the allocation of these parts.  

There’s also been an apparent shift in automotive production to prioritize the demand for EVs, each of which needs about 3,000 semiconductors—nearly double the number that an internal combustion engine (ICE) vehicle requires. This is one of several reasons why auto manufacturers will continue to face challenges procuring and allocating parts for specific vehicles (regardless of whether their cars are EV or ICE).

To support the growing electronic component needs of the renewable energy and EV industries, manufacturers will clearly have to shift their supply chain strategies. 

Creating Stable Supply 
Spikes in demand and the shortages that follow unforeseen increases are inherent in the supply chain, but they need not create prolonged disruptions. To guard against future constraints, boost competitiveness and protect national security, global economic powerhouses like the U.S., China and the EU are all working to scale up domestic chip manufacturing. New semiconductor fabrication plants (fabs) and enhanced capacity in preestablished facilities will help support the electronic component industry. 

Unfortunately, the results won’t materialize immediately. It takes years and much investment to build a new fab and develop the specialized workforce required to ramp up production. In the meantime, the supply chain remains vulnerable to disturbances that cause price volatility and extensive lead times. 

Forging the Future
Export restrictions like the ones recently imposed by China on gallium and germanium—both of which are critical in renewable energy—are yet another roadblock for the semiconductor industry. To create stable supply chains, manufacturers must steadily expand capacity and factory utilization in a way that meets the demands of the renewable energy industry. On the legislative side, governments worldwide must adopt a level of solidarity to make net zero emission goals possible.

To power the technologies that drive the net zero movement, manufacturers and governments will need to invest in production and collaboration. Regardless of its location, a singular dominant region is not an ideal business model, especially when combined with a limited number of suppliers.

If countries and companies can work together to expand manufacturing and create a system better suited to the cyclical nature of supply and demand, those efforts will help create much more resilient supply chains. This strategy will take time, patience and investment to become a reality, but it may be the key to reaching global goals. 

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