South Korea has become a key ally of the United States in clean energy manufacturing

South Korea has become a key ally of the United States in clean energy manufacturing

On June 22, the U.S. Department of Energy announced a $9.2 billion loan to BlueOval SK LLC, a joint venture between Ford and South Korean battery manufacturer SK On, to build three battery manufacturing plants in Tennessee and Kentucky. These plants will drive the shift to low-carbon transportation, replacing 455 million gallons of gasoline annually.

The loan, dubbed "the U.S. government's largest investment in the auto industry" since the 2009 recession, shows the Biden administration's efforts to strengthen domestic supply chains to enable the clean energy transition. As the U.S. tries to kick-start its renewable energy and battery manufacturing capabilities, it especially needs help from overseas to quickly reach net-zero targets, and South Korea is emerging as a key ally for the U.S. in its quest for an energy transition.

According to the IRA ("Inflation Reduction Act") manufacturing investment database compiled by Jack Connes, a policy analyst at Energy Innovation, more than one-third of announced investments went to well-known South Korean companies such as Samsung SDI, LG Energy Solutions, SK Batteries and Hanwha Q Cells. South Korean companies received more than $22 billion in investments, second only to U.S. companies and accounting for 31% of all announced investments. Battery manufacturing accounts for the largest share of investment by South Korean companies, reaching $18 billion out of $22 billion. Solar and electric vehicle projects follow with second and third place in terms of investment priorities. Ranking behind the U.S. and South Korea in the investment rankings are Japanese companies, with well-known companies such as Toyota and Panasonic accounting for 16% of the total investment.

Aaron Brickman, senior director of the Rocky Mountain Institute, said the share of South Korean companies in IRA investments can be attributed to the unique strength of Korean companies and long-standing business partnerships between South Korea and the United States. "Korean companies have a certain level of comfort in the U.S., they understand the market potential in the U.S. and have deep relationships with states across the country."

With decades of high-tech manufacturing experience, companies such as LG and Samsung continue to invest significant resources in R&D programs. For example, Hyundai Motor recently announced plans to invest $8 billion over the next decade to enhance internal capabilities in battery development, diversify external collaborations, and develop next-generation batteries. Last year, the company received tax breaks under the IRA to build its first purpose-built electric vehicle factory in Georgia, which is expected to be operational by the end of 2024. The plant will produce 300,000 vehicles per year to meet the needs of the North American market.

However, despite South Korea's significant technological prowess in battery manufacturing, progress in the country's indigenous clean energy transition has lagged. Statistics from the Korea Energy Agency (KEA) show that clean energy investment has plummeted to a third of what it was in 2014. Investment decreased from KRW 860 billion (USD 680 million) in 2014 to KRW 288 billion (USD 227 million) in 2021. The drastic reduction in funding has had a significant impact on South Korea's clean energy industry, resulting in a nearly quarter-reduction in the number of employees in the sector.