Semiconductor, Water Electrolyzer, Fuel Cell Supply Chain Trends in 2022

This is the second article in a two-part analysis of America’s clean energy supply chains. The first reviewed the key takeaways of a series of “deep dive assessments” by researchers at the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL), covering the clean energy market’s top three subsectors.

For the second part in the series, we’ll focus on the NREL’s findings regarding two markets: semiconductors and water electrolyzers/fuel cells. Both technologies provide tremendous support for the ongoing transition to renewable energy and the growth of electric vehicles.

 

Image used courtesy of the Semiconductor Industry Association

 

Semiconductors: Manufacturing Capacity Gaps Fail to Meet Demand

A key thematic trend permeating many facets of the semiconductor supply chain is insufficient manufacturing capacity to meet market demand. Semiconductors are the pillars of many renewable energy applications, electric vehicles, smartphones and other personal electronics, data centers, and even defense weapons. 

A few notable statistics underscore their pervasiveness: The NREL report estimates that nearly one-third of all electricity used in the United States flows through power electronics devices, a number poised to grow 80 percent as the technology spreads to more markets. Computing and communication applications are the main end uses of conventional semiconductors, claiming about two-thirds of the global market value; industrial and automotive applications each account for about 12 percent of global value.

The report focuses on conventional silicon-based semiconductors and wide bandgap (WBG) semiconductors, both of which are currently high in demand but low in supply domestically. Researchers identify several vulnerabilities threatening the sector. America’s share of global semiconductor manufacturing capacity fell from 26 percent in 1995 to an abysmal 10 percent in 2020. This is despite record demand in the industry, with the worldwide adoption of semiconductor-based products doubling every three years since 2010. In addition to energy applications and electric vehicles, semiconductors are also vital to the growth of artificial intelligence and other advanced computing technologies. 

The three main stages of semiconductor production are design, fabrication, assembly, and advanced testing and packaging (ATP). The report says the whole process could be conducted by a single company, such as an integrated device manufacturer, but it’s usually undertaken by different firms. The United States is already a leader in the design of semiconductors but falls behind in many other areas, including fabrication, material supply, ATP, and packaging equipment.

 

This flow chart depicts the complex supply chain of semiconductors. Image used courtesy of  the DOE’s Semiconductor Supply Chain Deep Dive Assessment

 

The report advises investing in the development and deployment of silicon carbide (SiC) and gallium nitride (GaN) WBG devices, focusing on higher voltage applications for utility-scale renewable energy systems. This points to the need to increase the performance and efficiency of domestically produced WBG devices to offset silicon-based devices that are imported.

Also, the report advises investing in the research and development (R&D), demonstration, and commercial application of conventional semiconductors, with the goal of doubling energy efficiency at least every two years for the next two decades. The current rate of technological improvement is about three years. Domestic workforce training is also needed.

As EE Power has covered extensively, new incentives have come online this year to push American companies to produce semiconductors domestically. Several tax credits and grants have already been dispatched through the trifecta of spending packages that went into effect over the past year: The CHIPS and Science Act, Inflation Reduction Act and Bipartisan Infrastructure Law.

The Semiconductor Industry Association (SIA), a trade group representing 99 percent of the U.S. chip industry by revenue, recently documented dozens of projects announced in anticipation of or following the passage of the CHIPS and Science Act alone. That activity includes 46 projects involving the construction or expansion of fabrication facilities and materials and equipment plants, equating to $180 billion in private investment.

 

Image used courtesy of the Semiconductor Industry Association’s 2022 State of the U.S. Semiconductor Industry Report

 

With federal and state incentives covering much of the capital cost of building manufacturing facilities and equipment, the private sector is investing in R&D to push chip technology to its limits for better efficiency and smaller size. The SIA estimates that American semiconductor companies are investing about one-fifth of their annual revenue on R&D, equivalent to $50.2 billion in 2021. Still, slowing global semiconductor sales and U.S.-China tensions continue to impact the overall market.

The SIA estimates that in 2021, roughly half of the U.S.-headquartered firms’ front-end wafer capacity was located domestically, with the rest coming from Singapore, Taiwan, Europe, and Japan. Recently, China has attracted fewer investments than other major Asian markets.

 

Water Electrolyzers and Fuel Cells: A Young Market

This report reviews the supply chain of water electrolyzers and fuel cells, particularly highlighting polymer electrolyte membrane electrolyzer cells (PEMEC), polymer electrolyte membrane fuel cells (PEMFC), solid oxide electrolyzer cells (SOEC), and solid oxide fuel cells (SOFC). Since the industry is still relatively nascent, the researchers say information is sparse about ongoing supply chain challenges and needs.

But looking at hydrogen as the main ingredient of the technology provides some indication since electrolyzers produce hydrogen and fuel cells use it. Both are viable alternatives to address the gaps in incumbent technologies such as batteries, as hydrogen is decoupled from emissions. Also, they can be used in combination to provide low-cost energy storage for the grid.

 

Image used courtesy of DOE’s Water Electrolyzers and Fuel Cells Supply Chain Deep Dive Assessment

 

Both supply chains come down to a handful of segments: raw material extraction and processing, subcomponent and component manufacturing, and end-of-life recovery. While it’s difficult to predict the precise supply chain constraints impacting the fuel cells and electrolyzers, it’s clear that the United States lacks the production facilities to keep pace with global competition around decarbonization applications. More specifically, America will need up to 1,000 gigawatts (GW) of electrolyzer capacity by 2050, up from today’s 0.17 GW of installed or planned domestic production.

Likewise, domestic fuel cell capacity will need to increase by more than 50 GW or at an annual rate of 3 GW to meet the demand in heavy- and medium-duty vehicles and electricity generation. While lithium-ion batteries are the current standard for powering most electric cars, more companies are exploring the cheaper alternative of fuel cell electric vehicles (FCEVs). They’re especially useful for fleets and larger industrial or construction vehicles, such as mining trucks and tractors—a prime end market fitting today’s fuel cell technology capabilities.

The consumer-directed market remains small due to a lack of sufficient nationwide charging infrastructure. Only two FCEVs are available to American consumers today, and they’re only offered in California, which has a small network of FCEV stations.

The report mentions several vulnerabilities in the electrolytic hydrogen market, such as immature technologies, lack of emissions-reduction incentives, unavailability of key raw materials, workforce gaps, and insufficient codes and standards both domestically and abroad. With these challenges addressed, American companies can unlock the value of the electrolytic hydrogen supply chain to meet demand in the industrial, transportation, and energy sectors.

Some opportunities include reducing the cost of electrolytic hydrogen production, expanding electric grid capacity, developing and managing bulk hydrogen storage, using natural gas infrastructure for hydrogen transport and storage, and developing domestic material supplies for recycling and PGM-free catalysts.