May 12, 2021

There is a need for a reliable, clean energy supply chain

In 2050, more than 50% of energy would be required than the one generated today. Much of this energy is expected to come from renewables and clean energy technologies. In the next 30 years to come, the US Energy Information Administration predicts that renewables would account for 50% of the total global power production. Several agencies and organizations such as World Bank, International Energy Agency (IEA), Energy Information Administration, and the International Renewable Energy Agency forecast unparalleled growth in clean energy technologies in 30 years to come.

The big question is how will this energy be generated or sourced? Will the generation follow international best practices, or will the supply chain go against environmental protections, human rights, and transparency standards? Can clean power be generated sustainably? Clean energy mineral supply chains are facing two major challenges: reputation risk and market concentration. In the 1970s oil crisis, the globe realized how market concentration affects worldwide energy prices. State Secretary Henry Kissinger assisted in founding the IEA, which countered the geopolitical interference and boosted market resiliency. In the recent study, the IEA found out that the generation and processing of clean energy minerals are concentrated in one geographical area compared to oil and natural gas. Also, depending on the few generators means those global consumers are at risk of supply disruption.

A sole supplier company or a nation as a key source having export restrictions can cause supply risks. Other factors that are also likely to bring supply hazards include transportation delays, labour unrest, equipment shortages, skilled labour shortages, limited electric power, and opposition on environmental policy grounds. All these potential supply disruptions can increase prices or costs and intensify supply tightness.

There is a great concern on market concentration from companies that develop batteries, wind turbines, solar panels using imported minerals since their supply chains are prone to trade restrictions, regulatory changes, and political instability. For instance, over 50% of the world’s cobalt, a mineral used in electric vehicle battery technology, comes from the Democratic Republic, over 70% of the world’s graphite and metals used in wind technologies and solar photovoltaic come from China. China is also the biggest producer of rare-earth elements with 80% and vanadium with 56%.

This concentration of the world’s key minerals in a few regions makes the market vulnerable to several external factors and lack resilience. For example, a rapid cobalt demand growth between 2016 and early 2018 increased its pieces by five times. Indonesia, which produces 25% of the world’s nickel, banned its exports last year so as to increase local smelting capacity, an act that left importers scrambling.