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“Integrating a circular economy approach into renewable energy infrastructure development – securing resources and tackling materials-related environmental impacts – requires a redesign of technologies, business models, and policies.” Ellen MacArthur Foundation.

This is our second blog in our circular economy series, where we seek to raise awareness on the topic and consider potential investor action.

In our introductory blog, we discussed how the circular economy offers a systemic approach to economic development, benefiting businesses, society, and the environment by decoupling growth from resource use. Historically, however, our reliance on linear economic models has driven economic growth but also caused significant harm to the climate, nature, and society. This blog delves into the crucial connections between the circular economy and climate action, using the renewables sector as a case study. We will examine the traditional renewables industry — focusing on solar and wind technologies — and explore the challenges of the current ‘make-take-waste’ model, particularly in relation to climate issues.

We maintain that investing in traditional renewable energy sources is crucial for achieving a net zero world. This belief is reinforced by the International Energy Agency (IEA)’s projection that the share of renewables in the global energy mix will rise from approximately 10% in the 2020s to about 50% by the 2050s1. However, it is essential for investors to recognise the broader challenges associated with these technologies, including high resource intensity, emission-heavy production processes, and significant recycling difficulties. This blog aims to highlight these challenges, not to discourage investment, but to raise awareness about the climate issues related to the renewable sector’s linear economic models and to provide insights into emerging circular opportunities that can mitigate these risks.

Why have we put renewables in the spotlight?

As mentioned above, the adoption of renewable energy technologies is critical for combating climate change, however, these technologies are not without their own set of challenges. The production of renewable energy infrastructure is resource intensive and results in certain negative unintended consequences. We explore three major issues associated with the linear model of production of traditional renewables:

1. Resource depletion

While renewable energy sources are themselves inexhaustible, the minerals used to harness them are not. Traditional renewable energy technologies are resource intensive and require large quantities of materials including rare earth elements, lithium, copper and silicon, significantly contributing to the depletion of natural resources. These resources are being extracted at a rate much faster than they can regenerate. For instance, the IEA has highlighted that the demand for lithium could increase by up to 1500% by 2050 to meet the needs of clean energy technologies2. The increasing demand for resources against a fixed supply, constrained by natural rates of regeneration, poses a scarcity risk that could impact the long-term sustainability and scalability of renewables.

2. Emissions

The journey of renewable technologies, from extraction to disposal, leaves a notable carbon footprint. Solar panels, for example, are crafted through energy-intensive processes with materials like silicon that emit greenhouse gases during production. According to IEA, it can take 1 to 2 years for a solar panel to offset its initial carbon emissions through energy generation3. Similarly, wind turbines rely on rare earth metals such as neodymium and dysprosium for their powerful magnets, whose extraction and processing add to carbon emissions and environmental strain. Furthermore, the international nature of renewable energy supply chains amplifies emissions through the transportation of these components across global networks. Even at the end of their lifecycle, these components often find their way into landfills, where they release toxins and greenhouse gases as they degrade.

3. Recycling

Recycling traditional renewable energy components at the end of their lifecycle poses significant challenges.

Solar panels

The primary recycling issue with solar panels lies in their construction. Polysilicon, used in many panels, is embedded with plastic components that require high-temperature processes to separate, making recycling both energy-intensive and costly. Current recycling rates for solar panels are low, with only about 10% of the materials being effectively recovered4. The first wave of solar power panels, installed in the early 2000s, will soon reach the end of their lifespan; it is anticipated that by the early 2030s, a substantial number of these panels will be decommissioned, leading to an estimated 78 million tonnes of retired panels by 20505.

Wind turbines

Wind turbine blades are made from composite materials such as fiberglass and carbon fibre, which are designed for durability and efficiency but are not easily recyclable. These blades require specialised processes to break down, often involving shredding and incineration, which can release harmful emissions. The lack of scalable, cost-effective recycling solutions for wind turbine blades is a growing environmental concern. Wind turbine blades are fundamentally difficult to recycle due to their size and composite materials and are expected to contribute an additional 43 million tonnes of recyclable waste each year by 20506.

While we have focused here exclusively on the climate concerns associated with renewables, it’s important to acknowledge other significant ESG challenges that are not covered above. These include human rights issues within supply chains, social license with local communities (including indigenous people) and impacts on biodiversity7,8. Each of these issues are crucial and deserve attention to ensure a comprehensive approach to the sustainability and ethical implications of renewable energy development.

Why should investors care?

Whilst renewables remain an attractive investment opportunity in light of global decarbonisation efforts, investors should be aware of the lack of circularity in these economic models.

Risks of maintaining a linear approach in renewables

Supply chain vulnerabilities

  • Scarcity of raw materials: Linear models heavily rely on a constant supply of raw materials, many of which are becoming increasingly scarce. The demand for rare earth elements used in the production of solar panels and wind turbines is expected to rise by 400-600% over the next few decades9, which may result in a significant shortage of these materials and supply chain disruption.
  • Price volatility: The scarcity of raw materials may increasingly lead to significant price volatility: the price of lithium surged over 400% in 2021 alone due to its increasing demand and lower availability10. This unpredictability can disrupt project planning and budgeting for renewable energy projects, potentially making them financially less viable.
  • Geopolitical risks: Many raw materials are sourced from regions with geopolitical instability. A prominent example of this in renewables is the dependency on the Democratic Republic of Congo (a country frequently afflicted by political and civil unrest), where 60% of the world’s cobalt is sourced – an essential component in renewable energy storage11. This dependence may expose the renewable energy sector to risks such as trade restrictions, political unrest, and export bans, which can severely impact the supply chain and increase costs.

Cost inefficiencies

  • Escalating waste management costs: Linear models generate significant waste, which becomes increasingly costly to manage over time. This includes the disposal of obsolete equipment and materials, which often require special handling due to their hazardous nature.
  • Regulatory compliance: Stricter environmental regulations continue to be implemented globally. Adhering to these regulations may increase the costs associated with waste management, making linear models less economically viable. In 2024, a large US construction company was fined $2.3 million in penalties to settle claims that they did not adhere to environmental regulations when constructing a solar farm12.

Opportunities in transitioning to circularity in renewable energy

The renewable energy sector is rapidly evolving, with new and more efficient technologies being developed. There are a number of opportunities for investors to engage with, in particular across innovative solution providers and sustainable practices across the supply chain.

Disruptive companies exploring better resource and recycling practices

  • Resource efficiency: Innovative companies are developing technologies and processes to use resources more efficiently during manufacturing. For example, SOLARCYCLE is able to recover up to 95% of a solar panel’s value, with extracted parts being re-used in other solar panels or inserted elsewhere into the supply chain13.
  • Improved recycling: New technologies are being developed to enhance the recycling capabilities of renewable energy components. For instance, Siemens Gamesa has introduced the world’s first fully recyclable wind turbine blade, which can be disassembled and reused at the end of its lifecycle14.
  • Other innovations: A further example of innovation in renewables is a Spanish technology startup, Vortex Bladeless, developing a specific type of wind power generator without rotating blades, where power is produced through Vortex Induced Vibration15. There are also more efficient solar cell technologies emerging as more environmentally friendly alternatives.

Opportunities for investor collaboration in renewables

  • Investor initiatives: There is the opportunity for investors to collaborate with the wider industry to drive change in this space. One such example is the Global Investor Commission on Mining 2030, led by investors including the Church of England, focused on creating a mining sector that is environmentally and socially responsible by 2030. Investors involved engage with various stakeholders to seek to manage systemic mining risks and consider how best practice can be reached.
  • Investment manager engagement: Circular economy considerations can be a key discussion point with investment managers for investors with existing renewables allocations to understand current approach and potential areas of improvement.

Conclusion

There is robust investor interest in the renewables sector, a momentum we strongly endorse to accelerate the transition to a lower carbon economy. Yet, the potential of renewables can be significantly amplified by embracing a more circular approach. This approach not only ensures long-term viability and scalability but also addresses broader environmental and social impacts. By tackling challenges like resource depletion, emissions, and recycling within renewables, investors can mitigate risks, drive innovation, and unlock new growth opportunities. Embracing circularity minimises negative impacts associated with renewable technologies, fostering a sustainable future where both the economy and climate can thrive.

Insight

Our blog series

Our next blog in the circular economy series will delve into the interconnectedness of circular practices and broader environmental impacts, focusing particularly on plastics. In our final blog, we will explore actionable insights for investors looking to make a meaningful impact in this transformative space.

Get in touch

Image Cadi Thomas

Head of Sustainable Investment

cadi.thomas@isio.com See full profile
Image Mark Irish

Deputy Head of Sustainable Investment Consulting

mark.irish@isio.com See full profile

Get in touch

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