Critical Water Shortage Threatens Chinese Economy, Global Supply Chain

December 2, 2022

Covid taught us over the last few years that having a global supply chain for critical economic and national security inputs like microchips, and yeah, solar panels, is probably not a great idea. China comes to mind, with recent disruptions not only from Covid shut downs, but, over the summer, from record shattering drought, as water supplies disappeared, river transport slowed, cooling water for power plants was compromised, and hydro power became unreliable across the country.

The recently passed Infrastructure Initiative, and Inflation Reduction Act included measures to boost domestic production of those components critical to the energy transition, and we’d be well advised to shift into overdrive on this effort.
Drought is not going away in China.

The world is not prepared for the potential disruptions to grain trade patterns and key industrial materials production that water shortages could cause, argue authors Gabe Collins, the Baker Botts Fellow in Energy and Environmental Affairs at the Baker Institute, and Gopal Reddy, founder of Ready for Climate and Chakra Capital Partners. They say the U.S. must take urgent action to decouple its most critical supply chains from China as quickly and comprehensively as possible.

“Policy discussions of China-driven risks so far have mostly centered on the nation’s slowing growth, real estate bubbles, high debt and potential military conflict over Taiwan,” Collins and Reddy wrote. “These factors are significant, but China’s incipient water crisis, which receives far less attention from policymakers, could plausibly overwhelm such issues. An unsettling question emerges: What happens if China suffers a multiyear water crisis that significantly reduces its grain production and electricity supplies?”

Despite the Chinese government’s efforts to increase water availability, the country still faces a supply gap that some scholars estimate could reach 25% by 2030. Billions of people worldwide would be affected in ways worse and potentially longer-lasting than the impacts of the COVID-19 pandemic and the ongoing Russia-Ukraine war, according to the report.

Water is critical not only for human consumption, but also for agricultural irrigation and electricity generation—especially that derived from coal, which accounts for about 60% of China’s output. As the “factory floor of the world,” any disruptions would impact global supply chains, the authors argue.

“Other countries have proven it is possible to manage demand and incentivize efficiency by raising the cost of water,” they wrote. “But this will be a tough sell in China given that the global competitiveness of so much of its industrial model is predicated upon purposely depressed input costs, including both energy (coal) and water.”

Additionally, many of the same energy technologies the world relies on to manage climate change and shift to less water-intensive electricity production come from supply chains originating in China. Polysilicon for solar cells and rare earth metals for wind turbines are just two industries that would likely be disrupted, according to the report. The same is true for electric vehicle batteries; China dominates raw material refining and cell production.

“As China’s water clock relentlessly ticks toward a global crisis, decisive steps must be taken while there is still time to act,” the authors wrote.


First Solar said Wednesday that it has selected Alabama as the site for its fourth U.S. solar panel manufacturing facility, after the Inflation Reduction Act and its incentives for domestic manufacturing encouraged companies to onshore production.

First Solar will spend around $1.1 billion on the facility in North Alabama’s Lawrence County. The company announced plans for a new facility in August, but hadn’t yet disclosed the location. First Solar CEO Mark Widmar previously told CNBC that the Inflation Reduction Act was the key catalyst that led First Solar to choose the U.S. for its latest factory.

All told, First Solar plans to manufacture more than 10 gigawatts of solar modules by 2025. The company’s other three facilities – one of which is slated to come online during the first half of 2023 – are in Ohio. With the latest Alabama factory announcement, First Solar said it’s invested more than $4 billion in U.S. manufacturing.

“The passage of the Inflation Reduction Act of 2022 has firmly placed America on the path to a sustainable energy future,” First Solar’s Widmar said in a statement Wednesday. 

“This facility, along with its sister factories in Ohio, will form part of the industrial foundation that helps ensure this transition is powered by American innovation and ingenuity,” he added.

PV Magazine:

Enel North America affiliate 3Sun USA is now scouring the United States for locations for a new 3 GW bifacial solar module and cell factory, with plans to eventually scale up production to 6 GW per year.

Construction of the proposed facility is scheduled to begin in the first half of 2023, with production anticipated by late 2024.  The facility is expected to create up to 1,500 new full-time jobs.

“Recent policy tailwinds from the Inflation Reduction Act have served as a catalyst for our solar manufacturing ambitions in the US, ushering in a new era of made-in-America energy,” said Enrico Viale, head of Enel North America.


One Response to “Critical Water Shortage Threatens Chinese Economy, Global Supply Chain”

  1. rhymeswithgoalie Says:

    I’m guessing most of China’s thermal (coal) power plants are not only using old-school cooling designs, but dumping ecologically over-warm water back into the source lakes or rivers.

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