Ever since the International Energy Agency (IEA) released its seminal Critical Minerals in Clean Energy Transitions report in 2021, securing energy transition minerals supplies has been a major focus of governments, think tanks and academics.
Analysts such as Kingsmill Bond, a senior principal at think tank RMI and senior advisor at Carbon Tracker, have made the point that the mineral requirements to run fossil technologies will always be far larger on a lifetime basis. However, securing the energy transition minerals for a massive scale-up of low-carbon technology undeniably represents a profound challenge. A standard electric vehicle (EV), for example, requires six-times the quantity of minerals to be built as a conventional car, says the IEA, while an onshore wind plant needs nine times more mineral resources than a natural gas-fired plant.
Economic turmoil stemming from the Covid-19 pandemic and global supply chain crisis has created critical minerals supply challenges in the short term, which in turn has had a real-world impact on the rollout of clean technologies.
One way of understanding the world’s current minerals challenge is by looking at how the prices of energy transition minerals have increased over that period, which reflects how global supply chains have struggled to keep up with demand.
Below, Energy Monitor tells this story using mineral price data from the International Monetary Fund (IMF) and US Geological Survey (USGS) to track the minerals the IEA defines as “critical” for certain low-carbon technologies.
The soaring cost of critical minerals
The biggest mineral requirement in the wind industry is for steel. However, given the ubiquity of steel manufacturing sites globally, as well as the fact that significant scrap steel recycling streams already exist, steel is not defined as a “critical” mineral. Instead, the “critical” minerals needed to build an offshore wind turbine are chromium, copper, manganese, molybdenum, nickel, rare earth metals and zinc, according to the IEA.
An offshore wind turbine requires a greater volume and variety of minerals than an onshore turbine, so referencing this model ensures the analysis is more reflective of the broad mineral requirements of the industry.
The price of each of these metals increased significantly between January 2020 and March 2023, ranging from a 23% price increase for zinc to a 285% price increase for molybdenum (which is currently undergoing a “perfect storm” of supply and demand disruptions). The average price increase of these seven metals over the period is 93%.
The “challenging economic environment” facing the wind industry means that in 2022, the 78GW of wind power capacity added globally was the lowest level in the past three years, according to the Global Wind Energy Council.
Seperate Energy Monitor analysis has shown that the price of 1MW of wind capacity has increased by 38% in two years (the result of increased labour and shipping costs, as well as raw materials like critical minerals).
The key minerals required in solar PV are silicon – for the solar module itself – as well as copper, nickel and zinc, according to the IEA. As of March 2023, silicon has recorded the highest price increase, at 92% since January 2020, while the average price increase across these minerals is 55%.
According to industry group SolarPower Europe, fluctuating mineral prices have had a real-world impact on the price of installing solar PV. The trend was particularly noticeable in late 2021 and early 2022 as soaring solar PV demand came up against lower mineral production volumes initiated during the pandemic.
“Last year solar module prices were higher than usual due to increases in polysilicon prices, but between August 2022 and January 2023, as huge amounts of new supply came online, prices dropped,” a SolarPower Europe spokesperson told Energy Monitor. “So we can see the market quickly responding to some of these key bottlenecks and the balance of supply and demand.
“Elsewhere in the value chain – the copper industry will tell you they are facing challenges. If not addressed, that will eventually impact widespread electrification and the energy transition.”
According to the IEA, nuclear power is – along with hydropower – one of the low-carbon technologies with the lowest mineral intensities. While uranium prices are currently more than twice as high as they were at the start of 2020, this metal is not included in this analysis as it is a fuel rather than a mineral required for equipment production.
Key minerals needed for nuclear include chromium, nickel, manganese and yttrium, which is classed as a rare earth metal. The prices of critical minerals required in nuclear power have increased by an average of 106% since January 2020.
Most analysts now expect that demand for green hydrogen – which is produced via the electrolysis of water using renewable electricity – will soar in the coming years. Electrolyser installations are projected to grow by more than a factor of 2,000 from 0.5GW today to more than 1,000GW by 2050, according to data shared by S&P Global Commodity Insights with Energy Monitor.
The leading electrolysis technologies currently under consideration are proton exchange membrane (PEM) electrolysis – which works in smaller facilities, with a variable current – as well as alkaline electrolysis, which requires much more space and is a mature technology used since the 1920s. Both technologies have significant mineral requirements, with PEM relying on platinum group metals like iridium and palladium, while alkaline electrolysers need a substantial amount of nickel.
Data from the USGS and IMF shows that the prices of these minerals have been less affected than minerals required for other technologies. Indeed, a recent analysis suggests that there are “few risks to the imminent high-growth phase” in the sector.
The high price of natural gas means that green hydrogen has been trending cheaper than blue hydrogen – which is produced from gas along with carbon capture and storage – in certain regions with high renewable energy potential, such as the Middle East.
Electric vehicles (EVs) typically require minerals including copper and neodymium (a rare earth metal) in their engines, and lithium, nickel, cobalt and manganese in their batteries. The prices of critical minerals required in EVs have increased by an average of 86% since January 2020, with the price of lithium in particular soaring by more than 400% by the start of 2022, and remaining around 200% above its pre-pandemic level.
Alastair Bedwell, director at automotive intelligence provider LMC Automotive, which is owned by Energy Monitor’s parent company, GlobalData, points out that manufacturers “aren’t generally paying spot price, so they are somewhat insulated”.
“However, there is no doubt that were lithium prices to fall back to the 2021 level, then the BEV [battery electric vehicle] market would grow faster than we project,” adds Bedwell. “The battery as a share of a typical BEV production costs is higher than that for the powertrain share of the cost of an ICE [internal combustion engine] vehicle (circa 45% versus 35%), magnifying the impact of high battery raw material prices on vehicle cost.”
While soaring mineral prices signify tight supply, it is important not to view this as suggesting that the world will not have enough minerals for the energy transition. Analysts are clear that the Earth’s crust contains sufficient minerals, and historically as global demand has increased, so have known reserves, as companies begin prospecting more. For example, the USGS said in 1930 there were around 80 million tonnes of copper in known reserves, but by 1980, this had grown to 350 million tonnes, and by 2020, the figure was at 870 million tonnes.
The difficulty that the world has witnessed is the result of the challenge to ensure that supply can keep up with demand. While demand can shoot up or down, opening mines is an expensive, time-intensive process. It takes 16.5 years on average to move lithium mining projects from discovery to first production, estimates the IEA.
Bottlenecks can cause significant short-term disruption, but they should nonetheless not detract from the benefits of investing in low-carbon technologies long-term. “There will be bottlenecks, as with all rapidly growing sources of demand,” says Kingsmill Bond. “[But] prices will go up. And supply will be built. And the bottleneck will be solved.”
More recent market indicators suggest that markets are moving on from the post-Covid bottleneck, while policy packages being proposed by governments suggest that countries are working to hedge against future bottlenecks.
Copper prices have “dropped back considerably, weighed down by the gloomy economic situation, war in Ukraine and rising interest rates”, says David Kurtz, director of mining and construction at GlobalData. He adds that lithium prices are expected to continue declining now that subsidies on EVs are ending in China.