Precious Metals: Increasing Prices Are Threatening The Green Transition

As green energy is set for take-off, the increasing costs of precious metals are becoming its main dead weight. Copper, steel, cobalt, and nickel —essential for battery manufacturing, wind turbines, and solar panels— have skyrocketed in the last year, throwing a spanner in the decarbonization of the world’s economy. 

How has the price dynamic affected the main green energy fields, and how is it playing a role in the sector companies’ financial forecast?

A Heating Last Year 

In the last 12 months, cobalt has almost doubled, copper has risen 40%, steel 30% —although it climbed almost 60% last spring— and nickel 20%. The brutal price increase of these precious metals has repercussions far beyond the industrial and the geopolitical, threatening the development of green technologies when the world needs them most.

At present, according to a recent study by the International Energy Agency (IEA), building an electric car engine requires six times more mineral resources than a combustion one, while a typical wind turbine requires nine times more of the same than a gas-fired electricity generation plant. 

The IEA conclusions are staggering as, since 2010 —when the transition to green energy underwent a major acceleration— the amount of minerals required to generate one megawatt of electricity has increased by 50%.

The need for these materials is such that, according to a study by economists Lukas Boer, Andrea Pescatori, Martin Stuermer, and Nico Valckx, the combined value of copper, nickel, cobalt, and lithium will equal that of oil in the coming years. 

Effect On Batteries

“The price increase of these minerals could be a barrier to the energy transition,” says Gavin Montgomery, analyst at Wood Mackenzie. Further, the scarcity of precious metals can decelerate the development of lithium batteries, as “all the materials needed for their manufacturing have risen in 2021.” 

According to his data, the demand for nickel used in electric vehicle batteries will multiply almost by nine between now and 2030, lithium price will increase six times, while that of cobalt will triple —three materials that account for 40% of battery costs.

The rising prices also come at a critical moment. For the cost of electric cars to decrease close to combustion engine vehicle levels, the price of batteries —by far the component that makes them more expensive— should fall below $100 per kilowatt-hour. And after falling below $140 this year, the expectation of a rise in 2022 evaporates that chance.

The latest projections from Bloomberg Intelligence support Montgomery’s claim as, after several years of uninterrupted declines, the price of lithium batteries will rise next year in the heat of rising raw material prices. 

Wind And Solar Energies

Montgomery also sounds the alarm on the effects rising prices may have on solar and wind energy investments. Some of the companies called to lead the transition towards green energy —such as the manufacturers of wind turbines, batteries, and solar panels— are already beginning to feel the rising cost of raw materials in their income statements. 

In early November, Danish windmill giant Vestas Wind Energy A/S VWS was forced to cut its profit forecast for the second time this year due to the rise in steel and copper. Also, the Spanish-German giant Siemens Gamesa Renewable Energy SA SGRE is suffering due to soaring prices, spreading them to the final price of wind turbines.

In the photovoltaics field, the outcry has come from the other side of the Atlantic. James Fusaro, CEO of Array Technologies Inc, said: “Unfortunately, at the same time that we are seeing a record demand for solar energy, we are having to deal with unprecedented steel price increases, both in their magnitude and rate.” 

As companies had to adjust their earnings forecast for the last quarter and early next year, the pressure of the rising precious metals price is being felt on all fronts.

Disclosure: No positions