The only good thing that may have come out of the war in Ukraine is the acceleration of the energy transition. Renewables — along with nuclear power — are set to dominate the growth of the world’s electricity supply over the next three years, according to a new report from the International Energy Agency. The strong growth of renewables means their share of the global power generation mix is forecast to rise from 29% in 2022 to 35% in 2025, with the shares of coal- and gas-fired generation falling.
An energy system powered by clean energy technologies differs profoundly from one fueled by traditional hydrocarbon resources. Solar photovoltaic (PV) plants, wind farms and electric vehicles (EVs) generally require more minerals to build than their fossil fuel-based counterparts. A typical electric car requires six times the mineral inputs of a conventional car and an onshore wind plant requires nine times more mineral resources than a gas-fired plant.
Therefore, the shift to a clean energy system is set to drive a huge increase in the need for these minerals, meaning the energy sector is emerging as a major force in mineral markets. Until the mid-2010s, for most minerals, the energy sector represented a small part of total demand. However, as energy transitions gather pace, clean energy technologies are becoming the fastest-growing segment of demand. In a scenario that meets the Paris Agreement goals, their 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. EVs and battery storage have already displaced consumer electronics as the largest consumer of lithium and are set to take over from stainless steel as the largest user of nickel by 2040.
The World Bank estimates that, by mid-century, the amount of raw materials necessary for the green transition will soar to 500%. And with new legislation such as the US Inflation Reduction Act turbo-charging demand for clean tech, that pressure is set to soar.
Opportunities
Two oil producers I listed back in September 2022 were Shell (SHEL) and Total Energy (TTE), primarily due to the short-term high liquid natural gas prices, but also for the long term due to their focus to grow renewable energy production. Also in the September 2022 newsletter, I listed Albemarle (ALB) and Lithium Americas (LAC), two lithium manufacturers that will tap the higher demand, which continues to be elevated at $70,000 a ton.
Although lithium is a critical mineral for the batteries powering consumer electronics and electric vehicles, hydrogen is a fuel that could power heavy equipment and light to heavy commercial vehicles, including forklifts, trucks, trains and ships. Green hydrogen is a renewable gas that’s produced from the electrolysis of water, and gray hydrogen is created from natural gas.
Plug Power (PLUG) is building a complete green hydrogen solution — from fuel cell technology to green hydrogen fuel. Air Products (APD) has traditional industrial gas projects as well as new opportunities including gasification, green hydrogen and carbon capture. It’s also well-positioned to benefit from an acceleration in zero- and low-carbon hydrogen opportunities driven by the Inflation Reduction Act in the U.S., which includes tax incentives for green hydrogen as well as carbon capture and sequestration.
The energy transition to renewable would be a mix of many sources so that we’re not dependent on any one method alone. Many players in renewable energy space are new companies, hence their management and operational efficiency are relatively unknown. As I explore more opportunities in the space, I will list them in the watch list.
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