Clean energy demand driving record growth in critical minerals markets

While the critical minerals market is already booming, a new report from the International Energy Agency (IEA) says the demand for critical minerals in clean energy technologies is set to increase rapidly.

However, the study found that while a range of newly anticipated projects suggest that critical mineral supply is starting to catch up with demand, concerns remain that adequate future supplies are assured.

According to the IEA, as many as three layers of supply-side challenges need to be met to ensure rapid and secure energy transitions, and there is already an issue with limited progress made in diversifying supply sources away from current major markets.

Clean technology hopes

The latest IEA critical demand forecast identified that record deployment of clean energy technologies such as solar PV and batteries is propelling unprecedented growth in the critical minerals markets.

Electric vehicle (EV) sales jumped by 60% in 2022, exceeding 10 million units. Demand for energy storage systems was even higher, with capacity additions doubling in 2022.

Elsewhere, solar PV installations are smashing previous records, and the IEA is confident wind power will get back to its upward march after two subdued years.

Record growth as demand follows suit

To match this clean energy growth from 2017 to 2022, a tripling in lithium requirements occurred, alongside a 70% jump in demand for cobalt, and a 40% rise in demand for nickel.

The share of clean energy applications in total demand in 2022 reached 56% for lithium, 40% for cobalt and 16% for nickel, up from 30% for lithium, 17% for cobalt and 6% for nickel five years ago.

The IEA study found that rising demand and high prices meant the market size of key energy transition minerals doubled over the past five years, reaching $486 billion in 2022.

At the same time, previously popular bulk materials such as zinc and lead recorded only modest growth.

Critical mineral supplies

According to the IEA, the clean energy future may well depend on the availability and affordability of critical mineral supplies.

According to the IEA’s clean energy equipment price index, clean energy technology costs continued to decline until the end of 2020 due to technology innovation and economies of scale, but high material prices then reversed this decade-long trend.

However, despite these recent setbacks, the report noted that the prices of all clean energy technologies today are significantly lower than a decade ago.

The increase in prices and demand has led to a number of countries seeking to diversify mineral supplies with a wave of new policies.

The right policies are crucial

There has been growing recognition in leading economies that policy interventions are needed to ensure adequate and sustainable mineral supplies and the proliferation of such initiatives includes the European Union’s Critical Raw Materials (CRM) Act, the United States’ Inflation Reduction Act, Australia’s Critical Minerals Strategy and Canada’s Critical Minerals Strategy, among others.

The IEA Critical Minerals Policy Tracker identified nearly 200 policies and regulations across the globe, with over 100 of these enacted in the past few years. Many of these interventions have implications for trade and investment, and some have included restrictions on imports or exports.

Interestingly, a number of resource-rich countries such as Indonesia, Namibia and Zimbabwe have introduced measures to ban the export of unprocessed mineral ore. Globally, export restrictions on critical raw materials have seen a fivefold increase since 2009.

Development investment growing

The IEA found that investment in critical minerals development saw a significant 30% increase in 2022, following a 20% increase in 2021.

The agency’s detailed analysis of the investment levels of 20 large mining companies with a significant presence in developing energy transition minerals shows a strong rise in capital expenditure on critical minerals, spurred by the robust momentum behind clean energy deployment.

Companies specialising in lithium development recorded a 50% increase in spending, followed by those focusing on copper and nickel. Companies based in the People’s Republic of China nearly doubled their investment spending in 2022.

Exploration spending on the rise

Exploration spending also rose by 20% in 2022, driven by record growth in lithium exploration.

Canada and Australia led the way with over 40% growth year-on-year, notably in hard-rock lithium plays. Exploration activities are also expanding in Africa and Brazil.

The IEA study identified lithium as a clear leader in exploration activities, with spending increasing by 90%.

Uranium also saw a significant surge in spending, increasing by 60%, due to renewed interest in nuclear power amid concerns over Russian supplies

Nickel was a close follower with a 45% growth rate for exploration, led by Canada, where high-grade sulphide resources, proximity to existing infrastructure and access to low- emissions electricity create attractive investment opportunities.

Strong venture capital support

In comparison to the wider venture capital sector, critical minerals start-ups were found to have raised a record $2.4 billion in 2022.

This 160% year-on-year increase took the critical minerals category to 4% of all venture capital (VC) funding for clean energy.

Notably, the first quarter of 2023 has been strong for critical minerals, despite a severe downturn in other VC segments, such as digital start-ups.

Battery recycling was the largest recipient of VC funding, followed by lithium extraction and refining technologies.

Companies based in the United States raised most of the funds, at 45% of the total between 2018 and 2022. Canadian and Chinese start-ups are notably active in battery recycling and lithium refining.

European start-ups have been successful at raising money for rare earth elements, battery reuse and battery material supply.

Wherever you look, the critical minerals sector is driving record-breaking global change.