World of Clean Energy Materials
Published: April 2021
Author: Moses Zaree
The supply chain system must be secured, and the mining industry needs our attention to keep the energy transition growth.
The significant growing sector in the energy transition has been downstream in the supply chain, which consists of manufacturing equipment and materials for solar, wind, and batteries. The emergence of electric vehicles and battery manufacturers needs support to become more price resilient from the unpredictable raw material market.
Supply bottlenecks for certain raw materials are also expected due to the increasing demand for battery cells. Compared to 2021, the market in 2030 demand expectation is to be eleven times higher for lithium, seven times higher for natural graphite, and almost three times higher for nickel metals. Securing the raw materials for the energy transition will be a critical factor in sustaining the momentum of the transition.
New solutions and innovations in optimizing raw materials application will also be a crucial part of a sustainable industry. Effectively establishing new frameworks and regulations to recycle the metals used in renewable technologies will be a growing demand. Policymakers will send a clear message to the aviation industry to seriously take their responsibility toward net-zero carbon emission.
For now, fossil jet fuel is the conventional integrated energy source into the aviation infrastructure system. The aviation industry will need support from governments and lawmakers to transform the infrastructure for aviation running on hybrid fuel systems of battery cells and green fuels or other alternatives.
"The emergence of electric vehicles and battery manufacturers needs support to become more price resilient from the unpredictable raw material market."
The role of critical metals
The transition toward electrifying the economies has to be recognized as the most complex transition that has taken place in modern history. An already fully integrated system, highly dependent on fossil energy, struggles with defining its formula of electronomics. For the transition economies, a smooth energy transition is the core priority to minimize losses and battle the reality that the new clean energy technologies require more minerals to build than their fossil fuel-energy counterparts.
An electric vehicle consists of crucial minerals such as cobalt, copper, indium, lithium, manganese, nickel, and others which require six times the inputs of a conventional car. An onshore wind plant consists of crucial minerals such as aluminum, REE (rare earth elements), copper, manganese, nickel, and others, requiring nine times more mineral resources than a gas-fired plant.
The metals for the energy transition
The move toward a cleaner energy economy is pushing the drive towards a high increase in the supply of the critical minerals, which has also given new strength and momentum for the energy sector to emerge as the vital force for the energy transition. With the Paris Agreement giving additional wind in the sail, the energy sector can comfortably expand its market share as the demand for minerals will quadruple by 2040.
The increasing demands come mainly from electric vehicles and battery energy storage systems, which set the growth at least thirty times by 2040. With the developments come two critical variables that increase the demand for more minerals. The first is the cathode materials in the batteries in electric vehicles and the energy storage systems, which consist of key elements. To have a well-integrated infrastructure for electric vehicles and battery energy storage systems, the increase in copper will be massively for the electric vehicle charging infrastructure and the electrification of the infrastructure as a whole.
"For the transition economies, a smooth energy transition is the core priority, to minimize losses and battle with the reality that the new clean energy technologies require more minerals to build than their fossil fuel-energy counterparts"
Electric vehicles push demand northwards
The focus minerals will be copper, aluminum, nickel, cobalt, and lithium. As the growth in electric vehicles keeps momentum, so makes the demand for critical battery minerals. The electric vehicle market is moving towards developing approximately 80 million cars on the roads by 2030. Electric vehicles are designed to be light; therefore, the demand will increase for aluminum to minimize the weight and copper for the wiring inside the car.
A typical electric vehicle battery pack needs around 6 kilograms of lithium, 8 kilograms of cobalt, 10 kilograms of manganese, 20 kilograms of copper, 29 kilograms of nickel, and 35 kilograms of aluminum, 52 kilograms of graphite, 20 kilograms of steel, and 5 kilograms of iron.
The five cathode components for electric vehicles
The growing thirst and demand for minerals have become a key topic to solve among businesses, investors, and policymakers. Many factors will influence the demand for metals and minerals. The material performance and innovation could change the market for some metals. Researchers and businesses are working hard to phase out cobalt and replace it with other materials for less costly batteries and less dependency on major cobalt suppliers. Other factors such as market price dynamics significantly impact the materials needed for the energy transition. More important is the disruption of the supply chain system and the consequences of falling demand for the miners relying on their business driven by critical cycles in the mining fields.
Vulnerabilities in the supply chain are a hot potato with many dimensions that could disrupt the market. The vulnerabilities could be in investors' sentiment towards the industry, consumers' concern over labor conditions, and political uncertainty in the primary mining, processing, and melting of clean energy metals economies. There is a significant vulnerability when it comes to the supply chain ecosystem. We rely heavily on China's sustainability to deliver the metals needed as China is the largest economy for processing raw materials. Any significant disruption in the Chinese processing industry could push the transition toward a negative path.
China has been one of the significant contributors to the demand for the metals needed for the energy transition. China's growth as the most extensive processing economy correlates well with its domestic market for the materials required in a growing economy seeking to safeguard its energy security. The Chinese government has applied great infrastructure plans and projects which have pushed metals, copper, and other minerals skyrocketing.
Minerals allocation size
The minerals allocation size in different clean energy technologies
Different technologies requires different mix of mineral resources
"Researchers and businesses are working hard to phase out cobalt and replace it with other materials for less costly batteries and less dependency on major cobalt suppliers."
Supplying the energy transition
To scale up production of the critical elements needed for the energy transition is one of the key factors for keeping momentum. Mining businesses and their capacity, as well as their access to resources, should receive our attention. The current entrance to metal reserves exists and is in good condition for miners to upscale, but these mining fields and their operators need more investments for future extraction.
What's important to remember is that our current reserve basket will not comply with future demand. There are solutions as researchers in the field develop new extraction technologies to access and expand miners' further exploitation capacity from new reserves. Accessing new mining fields of resources could be among many critical solutions to secure the future supply of metals to meet future demand.
The energy transition exposure to clean energy metal-producing economies' vulnerability includes the complicating relation in their domestic needs, market speculation, geopolitics, and security. The primary metal suppliers are generally very concentrated among key producing economies. The Democratic Republic of Congo (DRC) accounts for about 70 percent of cobalt output and holds half of the world's reserves. DRC is the Saudi Arabia of Cobalt, making this African nation the primary market mover and playing the dominant role in the energy transition. If the DRC could not expand its mining operations, or if a significant disruption occurs inside the DRC, the impact would be devastating for global transition. The same risk variable should be applied to China, Chile, South Africa, Indonesia, and Australia. The top producing economies of the critical metals are needed for the transition.
A vulnerable case to study
Energy products producers
The top three major producers of key energy resources
Energy products processors
The top three major processors of key energy resources
"The energy transition exposure to clean energy metal-producing economies' vulnerability includes the complicating relation in their domestic needs, market speculation, geopolitics, and security."
The ESG and financing of mining industry
The mining industry is in great need of ESG advice; for quite some time, venture capital, but foremost industry-related financing and M&As, have had a modest focus of allocation in the mining sector. As investors' focus and demand for environmental, social, and governance (ESG) have grown, the mining industry hasn't been able to follow the lead at a sustainable level in correlation with a growing demand to expand the extraction of metals needed.
The junior mining companies have been constrained by a lack of financing and forced to go public to attract retail investors and investors seeking higher yields with higher risk. For junior miners, going public is not always the best choice, as the leadership and their conditions to respond in a highly transparent environment often backfire. The sentiment and motivation to finance mining companies with low ESG ratings impact their valuation and could constrain production, adding more risk to the supply chain bottleneck. We have seen mining companies adapting to a changing market with higher requirements. Some miners have begun to apply a certain level of ESG policies to their business. Reducing their CO2 footprint has significantly impacted the rating and is starting to win some investors' confidence. They need to do more; finding ways to expand compliance to the full spectrum of the ESG will be crucial to attracting significant funding from institutional, pension funds, sovereign wealth funds, ETFs, green funds, and other major green financiers.
Mining, needs more attention
Reports have shown that mining companies that have managed to raise their ESG rating from 2018 to 2020 saw the market benefits as they received a positive response through a significant increase in debt and equity financing.
To be realistic, applying ESG to the mining industry is a complex task, as the sector by itself operates in a non-environmental friendly process. There must be a more flexible approach to miners, an ESG formula specifically suited for the mining industry. ESG rating is also questionable as the agencies tend to set rates with significant gaps compared to each other's ratings, which sets the condition for confusing the capital market.
Governance and equality could be applied to cultivate the ESG framework at the beginning of the business. Part of ESG in the mining business could be seen in mine development and production. Creating jobs for communities, engaging in social projects within the communities where the mining business operates, and securing the employees' health are crucial parts of the ESG. Finally and most durable is the end lifecycle of a mining field—the closure and rehabilitation of the area and recovery of the environment where the exploitation occurred.
As the mining industry is in great need of help and advice, it is also within the market's interest to secure that it can scale up and supply the growing demand. Our firm recognizes the obstacles and is well prepared to help and advise miners needing our expertise.
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: firstname.lastname@example.org
Author: Moses Zaree
Published: April 2021
Sources: International Energy Agency, World Bank, Reserve Bank of Australia, Bloomberg