Increasing Demand for Raw Materials for the Energy Transition

To expand the supply of renewable energies, ever greater quantities of raw materials such as rare earths, technology metals, and precious metals are needed.

Getting away from coal-fired power and the burning of more fossil fuels and toward green, renewable energy is what the global energy transition is pursuing. The international community agreed on this in the Paris Agreement in 2015. More wind turbines must be built and more solar systems installed to achieve these climate protection goals.

Global Investment Needs Run into the Trillions

Besides restructuring in the energy sector, it is vital that all economic sectors of transport and industry must convert to climate-friendly production and products. The International Renewable Energy Agency (IRENA) estimates this will require an investment of over 5 trillion US dollars per year. That is how much money would be needed to limit global warming to 1.5 degrees by 2030. The US government has put together a financial package of $555 billion to fight the climate crisis, which will run until 2030. In Portugal, the government investment volume for the next ten years amounts to 25 billion euros, as reported by Reuters. The German government plans to provide around 200 billion euros for climate protection and energy security by 2026.

In addition to the government, the economy is also increasingly investing in climate protection, as shown by figures from the German Federal Statistical Office. Companies in Germany spent almost 3.5 billion euros on avoiding emissions in 2019. Half of these investments (52%) went into measures to use renewable energies. A third of the money (33.1 %) was used to increase energy efficiency and save energy, for example, through thermal insulation.

Priority for Wind and Solar Energy

The example of Germany shows how the goals can be achieved in the individual countries of the world: By 2030, renewable energies are to cover 80 percent of the electricity demand, as reported by the German business weekly Wirtschaftswoche. By 2035, the aim is to cover 100 percent of demand, but the figure is currently 46 percent. As a specific action, the German government is focusing on expanding wind power.

The speed of the planning and approvals processes for pre-surveyed areas is to be increased, creating space for 1,000 new wind turbines as quickly as possible. In addition, solar roofs will be mandatory for new buildings with immediate effect. In Portugal, the future of clean energy is also seen in photovoltaics. Plans include the installation of floating solar modules on several reservoirs by the energy company EDP Renováveis. Greece wants to almost double its renewable energy output by 2030, Europe’s largest solar park went into operation in early April 2022, reports the news portal Rohstoff.net. The plant can supply electricity to around 7,500 households.

Rare Earths, Technology Metals and Precious Metals Essential for Energy Transition

Implementing the energy transition and expanding and developing the infrastructure will require large quantities of raw materials. Rare earths, technology metals and certain precious metals will be particularly important:

• Permanent magnets, installed in wind turbines and electric cars, contain neodymium, dysprosium, and terbium.
• Lithium is an important component of electric vehicle batteries.
• Solar panels use gallium and indium.
• Catalytic converters use platinum, palladium and rhodium.

The demand for these critical raw materials will increase continuously due to the new applications and their large-scale use. According to calculations by the International Energy Agency (IEA), the average amount of raw materials required for power generation has increased by 50 percent since 2010. This is due to the increasing share of renewable energies. For example, an e-car requires six times more mineral resources than a combustor, and an onshore wind turbine requires nine times more mineral resources than a comparable gas-fired power plant. Hydrogen technology, which is expected to grow strongly, will also increase demand for metals such as nickel, zirconium and platinum. Many raw materials are therefore classified as “critical” by the European Union.

Demand for Raw Materials May Soon Exceed Availability

Rare earths and technology metals are limited in availability. As they are often only found as by-products, the production volume in the mines cannot be increased at will. Gallium, for example, is extracted during aluminum production. A lot of gallium means large mountains of aluminum, on which the mine operators are in danger of being left stranded. In addition, the mining of rare earths and technology metals in the purity required by the industry is very expensive and complicated. Further, many metals are concentrated in a handful of countries. Annual mining quotas, such as those set by the state in China for rare earths, are also a limiting factor. A few countries hold a monopoly not only on raw material deposits but also on their further processing. For example, 90 percent of rare earths are refined in China.

Source: International Energy Agency

Even now, demand for certain strategic metals can hardly be met by supply. For example, the annual production of palladium in 2021 was about 220 tons, and the estimated need for the current year is 300 tons. Only a few hundred tons of gallium were produced in 2021, according to the US Geological Survey. In 2030, between 600 to 800 tons per year are expected to be needed. Forecasts also show increasing demand for other technology metals such as indium. If the industry were to be unable to import enough of these over a longer period or were to be cut off completely from critical raw material access, this would have a severe impact on the energy transition. In the medium term, therefore, there are several indications that the prices of the strategic metals essential for the energy transition could rise.