Supporting the energy transition
As the world works together to meet the goals of the Paris Agreement, progress must continue to be made to limit global warming to below 2 degrees Celsius with an ideal target of 1.5 degrees. Supporting the required social and economic transformation requires restructuring our mineral materials supply. Significant growth in critical mineral supply must occur to enable the smooth shift from a society powered by hydrocarbon resources to one powered by clean energy technologies.
Technology development has been accelerated by aggressive regulations and targets set by sovereign governments. For example, the UK has heavily invested in and is targeting 40 GW of offshore wind capacity by 2030, reaffirming its commitment to COP26.1 Similar actions have been taken by smaller third-world countries such as Kenya, which targeted 100% utilization of green energy in 2020 and achieved 93.5% with no plans to explore further use of fossil fuels.2
Figure 1: Countries with upgraded climate regulations/targets since 2020
Source: Climate Action Tracker
Battery storage and electric vehicles
If the Paris Agreement goals are met, battery storage and electric vehicles are expected to be the most significant end market for critical minerals. The International Energy Agency (‘IEA’) projects that EVs and battery storage will account for around 50% of the critical mineral demand growth until 2040.3
Figure 2: Mineral demand from new EV sales 2020–2040
Global electric car sales grew 40% in 2020 to ~3 million units, with analysts projecting electric and hybrid vehicles will account for 67–84% of sales by 2040.4,5 Parallel to EV demand, annual battery storage deployments are expected to reach between 67 and 105GW by 2040 to help meet future electricity requirements. 6
Future critical mineral demand attributable to battery storage and EVs heavily depends on the type of batteries most greatly pursued globally. There are several kinds of lithium-ion batteries that host a similar structure. The primary differentiating factors are the minerals that comprise the cathode sides of the battery. The cathodes’ compositions significantly affect battery performance, cost, and life span. The three leading categories of batteries for storage and EVs are lithium iron phosphate (‘LFP’), lithium nickel manganese cobalt oxide (‘NMC’) and lithium nickel cobalt aluminum (‘NCA’).
Figure 3: EV and storage battery characteristics
Source: Bloomberg New Energy Finance (‘BNEF’), 2019
LFP is the current battery of choice for the storage end market. Due to their composition, these materials are typically lower cost and have a higher thermal stability, making them resistant to explosions and fires, as well as having a long 10+ year useful life.7 They trade these benefits off with lower energy density, which Tesla reports is ~50% that of high-nickel cobalt alternatives.8 In addition to the storage market where safety, capacity and price exceed energy density, car manufacturers like Tesla have recently announced their intentions to utilize LFPs in entry-level vehicles with lower maximum ranges.9
NMC batteries combine nickel, manganese and cobalt to produce a cathode with greater energy density while hosting a long useful life. These characteristics have made NMC batteries ideal for high-power requirement end markets such as electric vehicles. NCA batteries are characteristically similar to NMC batteries, however, replacing manganese with aluminum improves their specific energy and lifespan, making them the historic choice for Tesla within their vehicles. To improve the energy density within NMC and NCA batteries, manufacturers are currently developing high-nickel variants with the intended end market of larger vehicles such as SUVs and trucks. Nickel demand is expected to reach 3.3Mtpa in this end market by 2040, with a global non-incentive mine supply of only 3.4Mtpa.10 There is work underway to substitute nickel with more plentiful and stable manganese in order to mitigate nickel supply constraints.
Figure 4: Forecasted nickel demand by application
Source: Wood Mackenzie
The cost of cobalt has made reducing its content in the cathodes a key area of NMC and NCA battery development. Large battery manufacturers such as Panasonic have announced intentions to reduce levels of and eventually eliminate cobalt from their cells.11 Thus, cobalt demand from storage and EVs is expected to increase, but at a slower rate than nickel, to 441ktpa by 2040.11
In recent battery technology developments, silicon has been introduced as an anode coating to replace graphite. Silicon is ~20% more energy dense than graphite and can charge and discharge quicker, meaning greater power density for the battery. These anodes are still in development and have a short useful life, degrading quickly. As these developments progress, silicon for anodes is expected to experience the most significant relative demand jump of any critical mineral growing 460 times over the next 20 years. In comparison, analysts anticipate graphite anode demand to grow to 3,500ktpa by 2040, 25 times the 2020 demand.
The successful integration of other clean energy technologies will depend heavily on increased investment in the electric grid. These investments will need to cover upgrades in all aspects, including transmission and distribution networks, switching stations and transformers. It is predicted that the US will need to expand their systems by 60% by 2030 and may need to triple it by 2050.12 This will be an extremely challenging task based on recent research conducted by Princeton University. The current power grid infrastructure took 150 years to build, and to achieve net-zero emissions by 2050, the same level of infrastructure must be built again within the next 15 years and then again in the 15 years following.13
The IEA anticipates that copper and aluminum costs will play a significant role in upgrading the existing electrical network with each representing 14% and 6% of grid investment, respectively.14 Furthermore, Wood Mackenzie forecasts that copper demand required by the electrical network in 2040 will be 12.6Mtpa, representing a 50% increase over 2020 grid copper requirements. As manufacturers have begun to anticipate supply chain constraints, they have partially substituted copper for aluminum, effectively decreasing raw material costs. Depending on the future substitution, aluminum demand is expected to reach between 16.4 and 22.2Mt by 2040.
Figure 5: Total copper consumption by industry sector
Source: IEA, Wood Mackenzie
Renewable energy generation
The past decade has seen the cost of clean energy generation dramatically fall relative to fossil fuels, accelerating the transition.15 Previously, solar and wind generation was not feasible without external government funding. Now, generation costs from both sources are below that of hydrocarbon-based fuels in many countries and are only expected to fall further.16 Due to the improved solar and wind power economics, McKinsey anticipates that these two methods will grow five to ten times faster than any other power generation technology over the forthcoming years.17
Figure 6: Clean energy generation costs
Source: IRENA 2020
Driven by government subsidies and power purchase agreements, investment and development in solar dramatically increased last decade and saw costs fall nearly 90%.18 As of 2021, solar energy is now cheaper than hydrocarbon energy in 16 US states without any subsidies.19 Continued developments are expected to see costs fall another 15 to 25% in the next decade.20 The leading solar photovoltaic cell (‘PV’) technology is crystalline silicon modules (‘c-Si’).21 Although c-Si cells are expected to lead the market through 2040, four emerging technologies with differing critical mineral requirements: cadmium telluride (‘CdTe’), copper indium gallium selenide (‘CIGS’), perovskite (‘PSC’) and gallium arsenide (‘GaAs’) will compete for growing market share.
The primary variant of traditional c-Si solar technology is thin-film cells which are lighter and more flexible. They are now 70% cheaper than conventional c-Si modules. Still, they are usually 2–3% less efficient than c-Si, making them a favourable technology for installations where space is not a key concern.22
Cadmium telluride cells are the second most used PV cells and are the most popular thin-film technology. They benefit from their combination of the relatively low cost of production and higher efficiencies compared to other thin cells. If CdTe cells were to gain prevalence, supply chain constraints would become of concern, as anticipated tellurium demand from this end market is forecast to reach 1400kpta while the current global production level is 500ktpa.23
The primary competing thin film technology is copper indium gallium selenide. These cells trade greater efficiency for higher significant costs relative to CdTe cells. The primary differentiator is the lack of cadmium use.24 Due to their functional similarities to CdTe, CIGS will be considered a substitute for new projects helping to alleviate cadmium and tellurium supply chain constraints.
Gallium arsenide panels can achieve an efficiency of 28.8%, higher than CIGS but at a significantly greater production cost.25 Their higher prices mean that these panels are rarely sold and are most frequently used for specialized use cases, such as space missions and military vehicles. Akin to CdTe, widespread adoption of GaAs would likely strain global arsenic and gallium supply capacity. The additional demand for arsenic would represent around 25% of global production, while the incremental demand for gallium would represent about ten times the current high-purity production.
The dark horse in the PV cell market is perovskite solar cells. PSCs have been promised to host all the ideal PV characteristics; cheap, lightweight, and equal efficiency of the market-leading c-Si cells.26 Given their great potential, researchers across the globe have been racing to find the best possible variation that combines these attributes with durability. The primary issue preventing greater use in the current market is their much higher rate of degradation compared to c-Si cells. Development has come far, with samples now lasting a few years instead of mere hours, but considerable work has to be done before they can compete with c-Si, which retains 90% power output after 25 years.
Pivotal to deciding investment and development into either of these cell technologies will be China, which currently boasts 36% of global solar capacity.27 As of 2019, they produce 66% of the world’s polysilicon, incentivizing continued development into c-Si and other silicon-based PV cells.
Figure 7: 2020 global solar PV installed capacity
Over the past decade, wind capacity has increased by an average of 14% annually, with US capacity additions doubling in 2020 and tripling in China. Wind turbines have historically been resource intensive, requiring a mix of base metals, bulks and rare earth elements.28 In recent years, installations of permanent magnet turbines have continued to gain favour over electromagnet turbines. These turbines are lighter, have lower installation costs and boast higher efficiency. However, the market for permanent magnets is currently led by those made of rare earth minerals such as neodymium and praseodymium. Global permanent magnet demand for neodymium and praseodymium is expected to triple by 2040. Rare earth minerals have proven controversial, as production generates significant greenhouse gasses, reducing the net environmental benefit.29 Additionally, China is responsible for 80% of the current supply creating geographical concentration risk. Thus, research is underway to find new permanent magnet minerals without these drawbacks.
Figure 8: Demand for rare earth elements from wind power 2020–2040
Mineral requirements from other clean energy technologies will significantly differ based on future development. The IEA anticipates growth in chromium demand to 91ktpa, copper demand to 42kt, manganese demand to 105kt and nickel demand to 35kt attributable to the expansion of concentrated solar power.28 Additionally, they predict that by 2040 geothermal generation will account for 80% of nickel demand, 40% of titanium demand and nearly 50% of chromium and molybdenum demand.
There are numerous classifications of hydrogen technologies; grey, blue and turquoise amongst others. However, green is the only one produced in a climate-neutral manner.30 To be classified as green hydrogen, it must be produced by splitting water into hydrogen and oxygen using renewable electricity. The key to green hydrogen production is electrolyzers, which have recently experienced significant investment in research and development. Notably, the Green Hydrogen Catapult, comprised of UN countries such as France, Germany and the UK, committed to financing 45GW of electrolyzers by 2027.
The capacity for low-carbon hydrogen is expected to rise to 1.4MW by 2050. Despite this, it remains uncertain which electrolyzer design will dominate, as each has its own material requirements.28 Although critical mineral requirements for electrolyzers are high, they are projected to have a marginal impact on total global mineral demand.
Currently leading the market are alkaline electrolyzers, whose primary advantage is their low manufacturing cost due to a lack of required precious metals. Their primary metal requirement is nickel, at greater than one tonne required per MW. The IEA expects reductions in nickel requirements as the technology is further developed. The more recent development uses a proton exchange membrane. Since this technology can ramp up and down quickly, it is ideal for generating energy using excess grid power. Proton exchange membranes are more reliable, compact and suitable for small to medium applications. Due to the use of precious metals, such as platinum and iridium, production costs are currently higher, and they will be dependent on demand from other end markets, such as EVs.28
Figure 9: Critical mineral needs per technology
Development of the global critical mineral supply chain is essential to ensure a smooth energy transition. Clean energy technology is mineral intensive, and significant capital investment in critical mineral projects is required to meet the Paris Agreement targets. Increasing environmental regulation, longer and more complex permitting processes, and difficult traditional financing markets are expected to reduce new mine supply. Long-term supply constraints are expected in many critical transition mineral markets, creating opportunities across commodities and geographies.
Appian believes that limited new mine supply, pricing inflation and the magnitude of new critical mineral demand are expected to continue to support critical mineral prices over the medium and long term.