Overview: renewable energy and minerals
Shifting to renewable energy sources is a major part of global efforts to mitigate climate change. Since the 2015 Paris Agreement, renewable energy consumption has increased at a year-to-year rate of 10%. However, a low-carbon future is not possible without access to key minerals. Wind, solar, and energy storage batteries are particularly reliant upon minerals. The 2015 Agreement climate stabilization targets require a quadrupling of mineral requirements for clean energy technologies by 2040. While new opportunities will arise for mining companies and mineral-rich countries, significant challenges will need to be overcome in mineral price volatility, mineral supply equity, and resource sustainability.
Increasing global demand for minerals: new opportunities
As renewable energy technology demand continues to increase, so will demand for the necessary minerals. Under a 2-degree scenario (2DS) the production of graphite, lithium, and cobalt will need to increase from 2018 levels by over 450% by 2050 to meet demand from energy storage technologies. This does not include minerals for associated infrastructure to deploy renewable energy technologies, such as transmission lines, gas pipelines, or electrified public transport. As growth in demand for minerals soars, supply chains will need to keep up. Experts predict the global 2DS low-carbon switch will require US$1.7T of investment by mining companies over the next 15 years.
The result is significant growth opportunities in supply for mining companies and under-producing mineral-rich nations. Latin America is in an excellent position to play a crucial role in global supplies of climate-friendly technology minerals. The continent holds particularly significant reserves of copper, iron, silver, lithium, aluminium, nickel, manganese, and zinc. Africa has significant opportunities in supply, with large reserves of platinum, manganese, bauxite, and chromium. Guinea alone holds 26% of known global reserves of bauxite, but is currently responsible for 6.5% of global production. Developing countries overall hold 94% of the world’s bauxite reserves, 100% of chromium reserves, 67% of cobalt reserves and 46% of copper reserves. There is opportunity for investment in mining and mineral production in regions that have historically struggled to capture significant components of global supply chains. Better mapping of minerals in Global South countries will create more opportunities to develop sustainable mining in resource-rich countries, where mapping technology is currently weak compared with resource-rich Global North countries.
As growth in demand for minerals soars, supply chains will need to keep up
Challenges: demand and price volatility.
For investors, predicting mineral demand will be challenging. Demand patterns will shift with the evolution of energy systems, market innovations, and different designs for similar technologies. Part of the challenge will be predicting technology choices. If amorphous becomes the preferred solar technology, demand in minerals will be slower than if the mineral intensive crystalline silicon solar PV installations wins the market. If hydrogen takes off, the need for platinum, iridium, and titanium for electrolysers will intensify. Concentrated minerals such as graphite and cobalt with fewer technological uses may be subject to higher demand uncertainty. For cobalt, demand could increase by up to 30 times depending on the evolution of battery chemistry and climate policies. Minerals with applications across numerous renewable energy technologies are likely to maintain significant demand.
The significant increase in demand for minerals will have a knock-on effect on the affordability of those minerals. Plotting the effect of rising mineral prices on demand will be a key element in predicting mineral investment opportunities.
Challenges: a supercycle
The phenomenal rise in demand for minerals is not slowing and predictions for future usage are staggering. The Benchmark Mineral Intelligence (BMI) index of lithium prices climbed 59% between April 2020 and May 2021; BMI forecast lithium demand to more than triple between 2020 and 2025, out-pacing supply by 200,000 tonnes. Nickel usage is predicted to grow seven-fold by 2023. Graphite usage has increased 233% between 2020 and 2021. This growth is a result of increases in electric vehicle production.
Are we heading for a supercycle? As demand soars, supply dwindles. It is difficult to conceive how to avoid a significantly prolonged period of rising prices supported by phenomenal demand and limited supply. The drivers behind rising mineral requirements require unprecedented levels of long-term supply of minerals that are not mapped and ready to extract. The length of this supercycle hinges on the ability of government and industry to intervene and invest now.
Challenges: equity and sustainability
Increasing demand for minerals for renewable energy technology poses a challenge for supply equity and sustainability. Addressing these challenges will require a correlation of actions between mining, environmental and energy actors.
Historically, legal systems have focused on facilitating mineral extraction rather than protection and sustainability. Contemporary governance, however, is more attuned to efficiency (reducing waste) and equity (fairness in control and distribution). Organizations are fighting for, and winning, legal recognition of rights of intergenerational equity in mineral mining. There is global consensus that sustainable development of mineral resources must meet contemporary needs, without compromising the needs of future generations. Respecting sustainable development will require recognition of the fundamental rights impeded by unsustainable mining practices. Respect for indigenous land rights, local community and stakeholder participation and prevention of environmental contamination must top the sustainability agenda. Political instability in regions with significant reserves, instability likely to increase as mineral demand rises, will impede the ease of doing business. The responses to these challenges will have foundational implications for some of the world’s most vulnerable people.
Reuse and recycling of minerals can play a key role in mineral sustainability. If end of life recovery and reuse of aluminium were to increase to 100%, there would be a reduction of 25% in global production needs. However, reuse rates vary greatly across minerals due to technological and cost issues and recycling rates are currently poor.
Sustainability has a knock-on effect on mineral demand. If there is no mitigation of harmful environmental and social effects of significant mineral production, clean and renewable energy technologies may not have the same level of global support as today. Alternatives to traditional energy storage technologies, such as liquid energy storage, are developing.
For investors, predicting mineral demand will be challenging
Globally, the World Bank Climate Smart Mining Initiative will play a key role in mandating sustainability. Regional innovators in clean technology, such as Green Lithium in the UK, are working with strategic partners to develop clean and low-carbon processing of minerals for regional needs. Further research and policy interventions could increase the sustainability outlook of key mineral use.
There is huge opportunity for investment in mining to support renewable energy technologies. This opportunity could diversify the map of mineral production supporting under-developed mining regions. To ensure that this opportunity develops sustainably and equitably will require an open dialogue between the climate, clean energy, and extractive communities; mineral and renewable energy sectors must align in mitigating sustainability risks if adequate flow of capital into sustainable mining is to support the net zero transition.