The past eight years were the warmest on record globally, according to the World Meteorological Organization. Europe’s average temperature is rising twice as fast as the global average. As the warming trend continues, with exceptional heat, wildfires, floods and other climate change impacts and also impacted by the Ukraine conflict, the momentum for clean energy transition is accelerating.
Clean energy investment reached USD 1.4 trillion in 2022, up 10% relative to 2021 and representing 70% of the growth in total energy sector investment according to the International Energy Agency (IEA). Despite this important progress, fossil fuels still account for 80% of the primary energy mix.
The latest report by IEA shows that clean energy technology deployment must accelerate even more to meet climate goals according to the Net Zero Emissions by 2050 (NZE) Scenario. The global production of electric cars should increase six-fold by 2030, renewables should account for over 60% of power generation, up from 30% today.
Clean energy transition requires critical materials like lithium, cobalt, nickel, copper and neodymium. Demand for each of these minerals is estimated to increase 1.5 to 7 times by 2030. In order to cover the demand, mining capacity should increase too. IEA sees the largest gap being for lithium, with anticipated projects covering just two-thirds of 2030 requirements. Lead times for new mines are long and uncertain, meaning that investment of around USD 360-450 billion would be needed mostly over the next three years to bridge this gap. But in order to be used, the ore has to be processed too. Currently anticipated projects point to large gaps. IEA sees shortfalls of 60% for nickel sulfate and 35% for lithium, relative to what is needed in the NZE Scenario by 2030.
Currently, the production of critical minerals is highly concentrated geographically, raising concerns about security of supplies according to IEA. The Democratic Republic of Congo supplies 70% of cobalt today, China is proving 60% of rare earth elements (REEs); and Indonesia 40% of nickel. Australia accounts for 55% of lithium mining and Chile for 25%. Processing of these minerals is also highly concentrated, with China being responsible for the refining of 90% of REEs and 60-70% of lithium and cobalt.
For investors, the increase in demand for the commodities linked to the green energy transition means that prices will be under pressure unless mining and processing investments are accelerating, filling the gap. Cobalt has seen increases in pricing of more than 300% from low to high in the past 7 years, lithium price rose 11 times since 2021 and the nickel price had a roller coaster but increased 6 times since 2001. And the demand could increase more if the conflict in Ukraine ends and its reconstruction will start. This will put pressure on construction materials like concrete, iron and the ones used in the electricity grid heavily bombarded by Russia. Therefore, in all scenarios the prices of raw materials linked to green energy transition will be under pressure.
Clean energy is a preferred investment theme for 32% of Romanian investors, reveals eToro Retail Investor Beat survey. Also, 45% of the investors are having commodities in their portfolios and the percentage will increase to 48% in the next three months.