The role of minerals in the clean energy transition
To reach net zero emissions by 2050, the world needs cleaner energy and greener transport. But the construction of solar plants, wind farms and electric vehicles requires more minerals than the equivalent fossil fuel-based technologies. A sustainable supply of these minerals is critical to a clean energy future.
How much renewable energy does the world need?
The COP 27 UN Climate Change Conference in 2022 provided a stark reminder that the deployment of renewable energy needs to accelerate, as the world’s net zero targets look increasingly beyond reach. Accordingly, the International Energy Agency (IEA) raised its projections for the required build-out of wind and solar capacityi.
Required build-out of wind and solar capacity through 2030
solar in the EU
solar in the US
solar in China
wind in the EU
wind in the US
wind in China
Source: International Energy Agency
The IEA is forecasting [USD] 30 trillion in spending over the next 28 years until 2050 just for the build-out of wind and solar capacity.
Jens Zimmerman, Equity Research Analyst, Credit Suisse
How will the energy transition affect demand for minerals?
The construction of solar plants, wind farms and EVs generally requires more minerals than their fossil fuel-based counterparts.
As the world races to decarbonize the power and transportation sectors, the shift to a clean energy system will drive a significant increase in demand for critical minerals.
A renewables future will be massively mineral intensive.
Dirk Hoozemans, Portfolio Manager, Credit Suisse
What minerals are needed for energy transition technologies?
Mineral inputs vary by technology. Batteries require significant amounts of lithium, nickel, cobalt, manganese and graphite. Copper is the most important metal for all electricity-related technologies, including wind farms (in addition to zinc), solar technologies (in addition to silicon for solar panels) and electricity grids (in addition to aluminum). Magnets for wind turbine drives and electric vehicle (EV) motors need rare earth elements.
What are the challenges of mining for critical minerals?
The production of the most crucial minerals for the energy transition is more concentrated than the supply of oil or natural gas. This high level of concentration is further compounded by complex supply chains, which raises the risks of physical supply disruption and trade restrictions. The security of mineral supplies will therefore become an important aspect in the broader energy security debate, which is currently mostly focused on fossil-fuel supplies from OPEC countries (Iran, Iraq and Venezuela).
As metals are a crucial part of the clean energy supply chain, green subsidies try to incentivize the extraction of critical materials at home. Under the US’s Inflation Reduction Act, for example, an EV is only eligible for a full tax credit if a certain percentage of its battery components and critical minerals have been extracted or processed in the US, or in countries with a trade agreement with the US.
Could recycling help meet the growing demand for minerals?
Recycling practices for energy transition metals are not, as yet, well established. For example, around 95% of solar panel components are recyclable, but only 10% of end-of-life panels are recycled currently, according to the IEA.
Increasingly, companies are focusing on circularity and designing recyclability into their product.
Dirk Hoozemans, Portfolio Manager, Credit Suisse
Although the recycling of critical minerals would not eliminate the need for continued investment in new supply to meet climate goals, it would help (as a secondary source of supply) to meet growing demand and reduce the social and environmental impacts from mineral mining. The IEA estimates that by 2040, recycled quantities of copper, lithium, nickel and cobalt from spent batteries could reduce combined primary supply requirements for these minerals by around 10%.
