IEA report highlights the increasing role of critical minerals in clean energy transition

With soaring demand for critical minerals for clean energy technologies, there is an increasingly urgent need for policy makers to provide clear signals about climate ambitions and how their targets will be turned into action in order to provide long-term visibility for investment in new projects.

In the recently released World Energy Outlook special report on The Role of Critical Minerals in Clean Energy Transitions, the International Energy Agency (IEA) again highlights the increasing importance of critical minerals in the clean energy transition. The report identifies the risks that could hamper progress towards a clean energy future and provides six key recommendations to ensure mineral security.

Opportunities for the mining sector

The report confirms again that clean energy technologies, such as solar photovoltaic plants, wind farms and electric vehicles (EVs), generally require more minerals than their fossil fuel-based counterparts. Accordingly, the clean energy transition will mean a huge increase in demand for key minerals and metals.

The energy sector is fast becoming a leading consumer of critical minerals and metals. In a scenario that meets the Paris Agreement goals, the IEA forecasts that clean energy technologies’ share of total demand will rise significantly over the next two decades to over 40% for copper and rare earth elements, 60-70% for nickel and cobalt and almost 90% for lithium.[1]

Clearly, there is a huge growth opportunity, particularly for countries like Australia which has extensive natural resources, existing infrastructure, a stable regulatory framework for the sustainable sourcing of critical minerals and globally recognised expertise in developing and operating mining and processing plants.

The IEA report identifies that global supply and investment plans are not ready to support the accelerated transition that is needed to meet the Paris Agreement goals as they remain geared towards a world of gradual action on climate change, based upon today’s stated policy measures and plans. The report suggests that a concerted effort to reach those goals means a quadrupling of mineral requirements for clean energy technologies by 2040. An even faster transition to net-zero globally by 2050 requires six times more mineral inputs in 2040 than today.

Driving further critical minerals investment in Australia

Australia is already the world’s top producer of hard rock lithium concentrate and the second largest producer of zircon and rare earth elements.[2] The Australian Government recently established the Critical Minerals Facilitation Office with a mandate of continuing to drive further critical minerals investment in existing and new mines in Australia.

As noted in our previous article, public funding may be available for critical mineral projects in Australia, including from Export Finance Australia, the Clean Energy Finance Corporation, the Northern Australian Infrastructure Facility and the Australian Renewable Energy Agency.

There is also a rush to go downstream with several new lithium hydroxide processing plants being constructed to position Australia as a future major producer of lithium chemicals for the battery minerals industry. In this regard, in March 2021 the Australian Government released a National Manufacturing Priority road map into Resources Technology and Critical Minerals Processing. This roadmap seeks to leverage off Australia’s current expertise and capabilities in the resources sector in order to develop a strategic critical minerals manufacturing industry in Australia.

However, the forecast rise in critical mineral demand as well as current geopolitical tensions have resulted in an emerging focus on securing supply chain resilience as a matter of national sovereignty, particularly in the technology, healthcare and defence-related equipment manufacturing sectors.

Impacts for the energy sector

The need for further critical minerals investment comes at a time when mining companies are looking for new ways to secure sustainable and reliable power supplies and to reduce emissions. Mining operations are energy intensive and investments in new mining infrastructure will also create opportunities for renewable energy developers and power suppliers.

Mining companies are increasingly looking to build their own renewable energy plants and microgrids at mining sites or enter into power purchase agreements (PPAs) with renewable power generators for on- or off-grid solutions. Given the intermittent nature of solar and wind power, collocated renewable energy plants often involve a mix of solar, wind, energy storage and diesel or gas to ‘firm’ the renewable generation and ensure reliable and stable baseload power for mining operations.

Recent examples include the 56 MW Agnew Hybrid Renewable Microgrid commissioned in 2020 for Gold Fields’ Agnew Gold Mine in Western Australia, and the signing by BHP in February 2021 of a PPA with Merredin Solar Farm to provide up to 50% of its electricity needs at its Nickel West Kwinana Refinery. Rio Tinto is currently focusing on achieving net zero emissions by 2050 and has budgeted A$1 billion to achieve this outcome, while Fortescue Metals Group is targeting carbon neutrality by 2030 and has committed to funnel 10% of net profit after tax each year (approximately A$400m this half-year) into renewable energy technologies such as wind, solar and green hydrogen.  

Ensuring mineral security

Despite the opportunities, there are many vulnerabilities that raise concerns around the reliable and sustainable supply of minerals to support the energy transition. The IEA report outlines that these include high geographical concentration of production and processing operations, long lead times to bring new mineral production on stream, declining resource quality in some areas, growing scrutiny of environmental and social impacts and increasing exposure of mining assets to climate risks such as water shortage, extreme heat and flooding.

The long lead time of new production is a key issue when considered against the current inadequacy of global supply and investment plans. As identified by the report, there is a need for policy makers to provide clear signals about climate ambitions and how their targets will be turned into action in order to provide long-term visibility for investment in new projects. Efforts to scale up investment should go hand-in-hand with a broad strategy that encompasses technology innovation, recycling, supply chain resilience and sustainability standards.

IEA’s six key recommendations to ensure mineral security are:

1. Ensure adequate investment in diversified sources of new supply.
2. Promote technology innovation at all points along the value chain.
3. Scale up recycling to reduce primary supply requirements.
4. Enhance supply chain resilience and market transparency.
5. Mainstream higher environmental, social and governance standards.
6. Strengthen international collaboration between producers and consumers.

Supply concerns may lead to more vertical integration

Producers of clean energy technologies, such as EV manufacturers, are already taking steps to secure future supply as demand heats up with Tesla’s recent decision to become a technical partner in a nickel mine in New Caledonia one such example.

As concerns about price volatility and long term supply increase we may see more technology manufacturers dealing directly with mining companies to secure future supply.

Clearer long term policy direction is needed

The need for further critical minerals investment is clear, however there is still insufficient clarity on governments’ climate change policies and actions which is essential to drive the necessary investment in new projects.

The call for longer term investment signals will be welcomed not only by mining companies and the minerals sector, but also the broader energy sector to further support the increasingly urgent need for investment in new energy and resources projects. 

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^{[1] Source: IEA (2021) World Energy Outlook special report on The Role of Critical Minerals in Clean Energy Transitions. All rights reserved.}