Energy Development Associated With Resource Security
By Kelly Roberson
The military presence of Iran in the Strait of Hormuz presents a security dilemma for China concerning its imported energy supply lines and renewable energy market. The changing conditions incentivize China to further develop its domestic energy as the opportunity cost to produce becomes lower. With China already operating as a monolith in renewable energy, further development could pose a strategic concern to the US if China were to establish monopoly control over renewables. However, the US can utilize multinational horizontal foreign investments and Free Trade Agreements (FTAs) under active tariff policies to collaborate with Southeast Asian (SEA) in order to re-balance with China.
Presently, China imports approximately 48% of its oil from the Strait and 13.4% specifically from Iran; additionally, Iran’s blockade is encouraging other state actors to further militarize the Strait. This situation is catastrophic for China, who has already faced concerns over trade route inflexibility. As the new Ayatollah appears to be emphasizing efforts to contest US military presence at the expense of global oil prices, Beijing is faced with another obstacle it must navigate to support its energy import routes. Fortunately for China, there is a present solution which has become more cost-effective over the past month due to China’s pre-existing renewable energy infrastructure.
China serves as a renewable energy hegemon, producing 80% of the world’s solar power inputs and 60% of its wind manufacturing input goods. The present oil blockade shifts the relative cost of internal solar self-sufficiency to the lowest it has been for China. Additionally, new tech developments have eliminated the loss of energy in solar utilization by 16.5%, contributing to a sharp increase in efficiency over the past two years. Furthermore, with the advent of AI, solar is expected to see a rapid rise in productivity as larger quantities produce cheaper per-unit prices. Through optimizing present solar networks and AI optimization, China could consolidate a natural monopoly that could outpace neighboring energy markets in South Korea, Vietnam, and Malaysia. For states that do or plan to produce renewables, they run into a risk: if China achieves a technical monopoly in renewable energy production, it would be capable of leveraging its scale of production to drive its fee below what competitors can viably charge, effectively pricing out all other national producers from the market.
Despite China’s significant headstart, quick and decisive policy action from the US could re-balance the situation and offset China’s potential technical monopoly. The policy intervention should prioritize lowering upfront costs, developing access to capital finances, encouraging domestic worker participation, and cooperating with recipient states so that industrial development encourages mutually beneficial arrangements. Therefore, subsidizing the upfront cost through multi-lateral investment treaties between SEA, Australia, and the US produces lowering development costs. The policy would allow countries like Malaysia and Vietnam access to Australia’s high silicon deposits at a cheaper rate and, subsequently, produce final products at lower costs when shipped to consuming markets (Japanese, Taiwanese, American, etc.). Direct investment can be encouraged through the US International Development Finance (USIDFC), which can provide tax incentives or subsidized transition for industries hesitant to take-on the upfront costs. Substantively, this would alleviate investment absence for domestic markets, ensure investors, and in the long-run, return cheaper products that encourage greater market competition.
SEA countries have the best proximal position for development efforts as several – particularly Vietnam and Malaysia – have renewable energy sectors already in smaller stages of development. Propping up these countries’ renewable industries rather than starting from the ground up would prove far more cost efficient; furthermore, it would expand their access to raw resources (silicon, aluminium, microchips,etc.) which are necessary for renewable tech development. While China is the primary producer for these resources, Australia, South Korea, and Taiwan also have comparative advantages in producing these resources. This policy intervention would promote a more dynamic marketplace that disrupts a single country’s ability to regulate energy prices – relevant to today’s concerns over oil supply.
Implementation remains nascent within many industrial spheres; however, that is quickly shifting and countries that don’t act now will be left behind. As of now, the levelized cost of energy has already shifted towards renewables, and while there is a higher upfront cost to renewable energy development, these costs will disappear after the infrastructure is established. Additionally, maintenance costs and connectivity costs are relatively low. This indicates that higher costs are due to the inflexibility of industry development, and operational costs would lower once more grid connectivity is developed. Furthermore, the expected levelized cost of renewables is expected to drop-off at a steep rate; levelized costs are expected to fall by 23% for offshore wind, 26% for onshore wind, and 49% for battery production from 2024 to 2035. The driving force behind this cost is due to a combination of technological innovation and higher costs being upfront fixed expenses, that give-way to cheaper maintenance and expansion price tags.
The concerns for the program are based in the skepticism surrounding the energy efficiency of renewable energy sources and upfront costs associated with the development of relatively new industries. Renewables have faced extensive detours due to supply issues, delays in product efficiency, and cost-ineffective implementation programs on a macro scale. However, individual ownership has risen sharply, and prioritization of supply line stability and diversification will lower upfront costs.
The implementation of investments and cooperative industrial policies would diversify a homogenous and heavily concentrated industry. The opportunity cost and prospective security interests for China only push it to further expand its capabilities to develop its own energy and input capital. This would serve not just to counter Chinese hegemony, but diversify away from importing oil and hedging Iran’s ability to influence other states’ energy capabilities. Therefore, it would behoove Western investors to use Foreign Direct Investment as a tool to strengthen its economic relationship with Southeast Asian actors through supporting a politically self-insulated region, limiting a single country from pursuing an uncontested sphere of influence.
Author’s Bio
Kelly Roberson is a first-year dual-degree student pursuing a Master of Public Policy and a Master of Science at the University of Michigan, with concentrations in International Economic Development and Environmental Policy. His research focuses on sustainable development strategies for enhancing energy and water security in the Indo-Pacific region. In this article, he examines the trajectory of U.S. strategic engagement in Asia over the past two decades and proposes analytical frameworks to inform future regional development.
Editors: Aklesia Maereg/ MPP & MSI, Veronica Goonan/ MPP’27
