Commodity prices could slow down the energy transition

Status: 01/26/2022 2:48 p.m

Electric cars, solar systems and wind turbines play a major role in the fight against climate change. However, according to a DIW study, their production could soon become much more expensive because the prices for cobalt, copper, lithium and nickel are rising.

For important raw materials such as cobalt, copper, lithium and nickel, there are signs of significant price increases in the future. This has consequences for the energy transition because the metals are needed for the production of electric cars, solar systems and wind turbines. “The demand for these raw materials will rise sharply in the coming decades,” according to a study by the German Institute for Economic Research (DIW).

Around 2030, prices could peak and remain there for years. “They would thus represent an obstacle to the energy transition,” said DIW researcher Lukas Boer, referring to the scenario examined, which is expressly not intended to be a forecast.

Large amounts of copper are required to build wind power and photovoltaic systems, and large amounts of cobalt, lithium and nickel are required for batteries in electric cars. According to the International Energy Agency (IEA), annual copper consumption is likely to double over the next 20 years, nickel more than triple and cobalt sixfold.

20 times as much lithium needed?

Demand for lithium is likely to grow the most. In 2040, demand for the light metal is expected to be more than 20 times higher than today. The supply should therefore have a hard time keeping up with the higher demand. Because the metals in question are extracted in mines at great expense. It can therefore take up to 20 years before new deposits are developed.

The consequences would be significantly higher prices. According to the scenario examined by the DIW, copper could be almost 70 percent more expensive in 2030 than in 2020, and lithium by almost 180 percent.

New technologies on the horizon

But the researchers also point out that unforeseen technological advances could dampen potential price increases and reduce the costs of the energy transition. The same applies if alternative materials prove suitable for generating and storing renewable energy.

A development that can currently be observed in electric cars. For some time, Tesla has been using lithium iron phosphate (LFP) batteries in some models, which do not require cobalt. Even better at omitting expensive raw materials are sodium-ion batteries, which do not require lithium, cobalt or copper. The Chinese group CATL, for example, relies on this technology. The company is currently building a battery factory in Erfurt for almost two billion euros.

Politics must deliver

Regardless of technological improvements, the DIW considers political decisions to be particularly important. “Clearly communicated political decisions are crucial for the energy transition,” said Boer. “Uncertain prospects for regenerative energies or electric cars prevent investments in metal mining, for example.” A globally coordinated climate policy is needed that gives producers more planning security.

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