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Accelerate the Change

Published: June 2022
Author: Moses Zaree

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A sustainable world in focus

The energy transition for a more sustainable future is not a walk in the park, understanding the challenges needs to be invested in for a smoother transition.

As the energy transition has become the pinnacle for sustainability, the emergence of compliance and a clear framework will become a growing topic in the coming years. 

Policymakers in North America and Europe will signal a growing demand for sustainability in the whole supply chain system. The cycle for tightening regulations and compliance will grow as the crucial part of transportation and energy infrastructure start to reach the stage of maturity.

The policymakers will seek to consolidate their energy security strategies as the energy portfolio will consist of a mix of both domestic resources with green and sustainable energy to phase out the fossil fuel energy in the long run. The policies and energy security mechanism will apply the character of securing the raw materials needed to provide insurance against risk and disruptions or price volatility which has been the reality of this era since the great oil crash in Q4 2014.

"tightening regulations and compliance will grow as a crucial part of transportation and energy infrastructure start to reach maturity."

The materials needed

The transatlantic energy transition is in its early stage of growth, and the new economy is in great need of securing the increasing demand for resources. The significant growing sector in the energy transition has been the battery manufacturing plants to procure battery metals to assemble them into cylindric or pouch batteries for electric car manufacturers and other OEMs.

 

Supply bottlenecks for certain raw materials will be a problem in the near time due to the increasing demand for battery cells. Compared to 2021, 2030 demand expects to be eleven times higher for lithium, seven times higher for natural graphite, and almost three times higher for nickel metals. Transatlantic economies need to secure their source of upstream supply and the processing and purifying of the raw materials. The flow of investments to the upstream industry has grown significantly. Still, we need new and sustainable processing and purifying plants with strategic locations to support the transatlantic energy transition.

Securing the raw materials for the energy transition will be crucial to sustaining the transition's momentum. New solutions and innovations in optimizing raw materials application will also be essential to a sustainable industry. Effectively establishing new frameworks and regulations to reuse the batteries and, foremost, recycle the metals used in renewable technologies will be a growing demand from policymakers. In the next decade, we will experience an increasing voice demanding the aviation industry to take responsibility toward net-zero carbon emission seriously by investing in new engine systems to use green fuels or a hybrid engine system. The aviation industry is old and needs the government's full support to set new regulations and infrastructure.

This and more have to be supported and motivated by governments and policymakers. The transportation sector and energy production are about to make significant changes, and they need support from the capital markets and policymakers to make the giant leap towards net-zero emission.

The metals for the clean energy

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The increasing demand for crucial metals will reach unsustainable levels. The solution will involve more upstream business investments and new mining fields. The secondary life of batteries could be used in gridlines and as BESS (battery energy storage systems). In contrast, integrating innovative recycling systems will take time as the upcycling for recycling businesses produces a low yield. To motivate the recycling business to scale up and investors to take the risk to expand market shares in more prominent manufacturing industries, the need for intelligent innovations that optimize the recycling process with low material loss and low energy cost is a necessary code to crack.

It is clearly within governments and policymakers' sphere of interest to solve the issues of bottlenecks and price volatility. From the government and security narrative, the energy transition is more about energy security than climate change, as we are experiencing a shift in the transatlantic foreign policy and security presence.

 

We will have a more narrow and targeted form of policies that still consist of military presence, arms deals, infrastructure projects, trade, and the demand for more compliance from partners outside the transatlantic sphere will increase. The ESG policy framework and other standardization and initiatives are part of the global mechanism to pressure non-complying economies to comply, change their behavior, and stay in line with the "neo-liberal industrialization 4.0". The political dimension is necessary and, from time to time, more critical than the bottlenecks, technologies, and market and industry risk.

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"The energy transition is more about energy security than climate change, as we are experiencing a shift in the transatlantic foreign policy and security presence."

The raw materials

The need for reliable and accessible resources is and will be a crucial topic through the super cycle of the energy transition. The application of the minerals differs and depends on technology. The need for critical metals such as lithium, nickel, cobalt, manganese, and graphite is on every energy transition, specific battery producing director's wish list.

 

Battery producers seek to secure their production line and accommodate a growing demanding market requesting battery quality, high energy density, and longevity. The improvement of wind turbines and electric vehicle motors has had an exponential journey. However, rare earth elements (REE) are critical for permanent magnets applied in electric motors, electric generators, and solar panels. With the transition comes the need for projects and investments in the electric network, gridlines, power stations, and battery energy storage system, which requires a significant amount of copper and aluminum, the essential elements for electricity-related technologies.

From an energy security and risk variable perspective, replacing fossil energy with energy transition metals and minerals will not change the problems. In the long-term, if policymakers take bold actions in a proactive approach regarding energy security and geopolitical presence and investments, the transition could and, at some point, bring stability and less volatility. As we are at the starting point of this super cycle, which starts with the essentials of the energy transition, we will face challenges and vulnerabilities will be exposed to us.

As global energy transition consultants, we are aware of the obstacles. Therefore we choose to focus on the improvement of technologies and policymakers' ability to understand and take action, the geopolitics of the raw materials, as well as keeping close attention to the upstream and midstream of the supply chain system.

The inbalance needs to balance

Energy products producers
The top three major producers of key energy resources
 

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Energy products processors
The top three major processors of key energy resources
 

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The energy security dimensions are accurate, and their existence is palpable. We have now experienced the tremendous disruption of war and conflicts as the total basket of commodities got hit. For a fossil fuel energy economy, the price volatility and, worst, price spike directly hit the consumer, which then affects the economy and trading partners.

 

The need for renewable and alternative energy sources is one of the pillars of a sustainable economy to secure and prevent the market from future volatile events. Another vital pillar is storing the energy and creating an intelligent energy ecosystem to prevent the loss of power while the electricity moves through gridlines over long distances. Intelligent and local energy production and storage systems must be part of a sustainable transition and applied in local energy ecosystems. The third pillar is the supplement of the raw materials needed to produce the new green economy products, such as electric vehicles, solar panels, and other consumer products.

 

In the event of sudden supply chain disruption, in a fully electrified transportation system, a significant impact will hit the supplier. While consumers are not dependent on fossil fuels to refuel their cars anymore, they can rely on a stable energy system that produces and stores electricity locally. As future local energy security ecosystems have applied, consumers will not be affected by the offshore price volatility in the electricity market, and the economy will maintain a tranquil cycle. 

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"The need for renewable and alternative energy sources is one of the pillars of a sustainable economy to secure and prevent the market from future volatile events

Investments and policies

The energy transition needs government support, grants, and the benefits of tax-relief schemes designed to support projects during its five to eight fiscal years to attract more investors. Foremost the frameworks and policies for infrastructure projects and energy transition-related technologies must be a walk-in-the-park process to become less costly for such tasks to process their business plans and finally communicate with the capital market. The capital markets need the indicative convincing policymakers to take bold action.

The upstream business in the transition needs our full attention and massive support from governments and the capital markets. As the demand for minerals increases, everyone is fully aware of the bottlenecks that will become increasingly debated in the next ten years. The IEA argues in their SDS analysis that in the next two decades, the share of total demand will rise significantly to over 40% for copper and rare earth elements, 60-70% for nickel and cobalt, and 90% for lithium.

The recycling and secondary life of electric vehicle batteries will have a significantly important role in the future reuse of battery materials in the secondary market. However, the upscaling of recycling systems is not economically durable as the ROI is low because the recycling of electric vehicle batteries hasn't yet reached an attractive level. There are not enough electric vehicle batteries to recycle, operate, and supply the recycled minerals to large-scale battery producers (gigafactories).

 

The need for such improvement in battery minerals recycling technology will be necessary as the end of the lifetime of electric vehicle batteries will surge in 2030. To solve the bottlenecks, we will need to invest more in the upstream of this supply chain and the midstream of processing and purifying the minerals required for the clean energy transition.

Another important field is to improve electric vehicle motors and generators for wind power and more. Reducing the material intensity and replacing materials through intelligent, innovative technologies could be essential in eluding the supply issue and lowering the cost of clean energy products to make them affordable for the mass consumer.

 

The planned group of battery-producing gigafactories will be essential for technology improvement and to meet consumer demand. Taking intelligent and innovative policies, recognizing risk, and applying measures to prevent disruptions through stress tests and proactive procedures could improve the condition for a stable transition. The energy transition will experience smooth and sustainable growth under the proper leadership and conditions.

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Author

Mr. Zaree is an economist with extensive knowledge and experience in the energy market and the sector as a whole. He has dedicated his career life to understanding the complexity of the commodity and energy market. A deep understanding of energy security, geo- and macroeconomics. Great insight and knowledge of technologies and the financial markets in connection to the field of his expertise.

Email the author: moses.zaree@zareepartners.com

Author: Moses Zaree

Published: June 2022

Sources: International Energy Agency, World Bank, Bloomberg

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