L R AS Published on Tuesday 1 February 2022 - n° 391 - Categories:PV Watch
A look at an unattainable energy transition under current conditions
Pressure from climate activists has led to a sudden emergence of new needs: people want to replace fossil fuels with renewable energy. For example, people want to replace internal combustion engines with clean engines. The pressure has been so great on a balanced economic world that the producers of these panels or batteries want or are obliged to switch to mass production, which uses a large proportion of the raw material production. The foreseeable needs become even greater than the commodities available on the ground. This upsets previous balances and leads to price increases. The speed and scale of the change disrupts the world economy, which defends itself by raising prices. As demand does not seem to be frightened by the price increases, they will continue until it is no longer worth buying panels or batteries!
The commodity price revival in 2021 Commodity prices: almost all the world's commodities saw their prices soar less than a year ago. The rise has continued in recent months.
Global demand has also risen sharply Producers have benefited from the global economic recovery, the need for their raw material in the production or consumption process and the sharp rise in demand.
Prices are set to rise sharply again over the next twenty years The increase is particularly evident in the new energy sector (copper, nickel, aluminium, cobalt, lithium, silicon) due to the sharp rise in global demand and the future prospects of hyperbolic demand
These rising metal prices will reduce or negate the attractiveness of panels or batteries These price increases will increase the cost of finished products. They will dampen or negate the demand for panels or batteries!
For panel or battery prices to fall, there would have to be a net increase in efficiency or a new technology This means reducing the production cost of finished products and thus boosting demand
Or that the world learns to recycle raw materials to reduce the cost of primary metals The world must reorient itself towards massive recycling, as new raw materials are so expensive because they are too rare. This is changing the world's economic habits in a very profound way.
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Raw material prices to wake up in 2021
2021 was the year of the awakening of raw material prices. Aluminium has risen in value by 56% in twelve months, zinc by 44%, tin by 77%, and in the case of batteries, cobalt has risen by 71% and lithium by six times!
In the middle of last year, one might have thought that the increases at the beginning of 2021 would not be followed up. On the contrary, the increases continued at the end of the year. What is more serious is that this price surge is sustainable. On the one hand, prices were supported by the particularly strong global recovery last year; on the other hand, due to the acceleration of demand for raw materials for panels and batteries. Between 2020 and 2021, global demand for panels has increased by around 27% (+ 39 GW) to 183 GW. Installations in the European Union increased by 6.6 GW or +34% to 25.9 GW
Global demand has also risen sharply
Even though manufacturers are using less cobalt in a battery in favour of a lithium iron phosphate (LFP) formula, cobalt has risen in value by 71% and lithium has increased sixfold in the last twelve months. At the same time, the number of electrically powered vehicles sold worldwide has risen from 3.1 million in 2020, to 5.6 million last year, an increase of 80%. There has therefore been an 80% increase in demand for batteries, to which should be added the replacement batteries for vehicles already in service. The manufacturer Tesla confirms the exponential growth of its vehicles in the United States, Europe and China. All electric vehicles use lithium. This high demand explains the six-fold increase in the price of lithium carbonate during 2021, due to the increasingly urgent need for lithium by battery manufacturers. As a result of the growing need, demand for lithium exceeds production. As stocks are depleted, this keeps prices high. Wood Mackenzie believes that we are entering a new era for lithium prices: in the coming years, demand growth will remain very strong.
Prices set to rise sharply over the next twenty years
According to the German DIW study, the price of copper could rise by 70% and that of lithium by 180% by 2030. Over the next two decades (by 2040), the International Energy Agency estimates that global demand to satisfy the energy sector will increase to more than 40% for rare metals and copper, to 60-70% for nickel and cobalt, and even to 90% for lithium. The energy transition could lead to a fourfold increase in the cost of cobalt, lithium, nickel and copper, which will make the energy switch more expensive.
If these increases in raw material prices are sustainable, what does this mean for photovoltaics and electric vehicles, the two niche markets on which the energy transition is based?
These rising metal prices will reduce or cancel out the appeal of panels or batteries
Climate activists will remain mobilised, to fear and cause fear of a 2° Celsius temperature rise by 2050. They will remain mobilised because nothing will have really changed by the middle of the century since the measures taken will take time to have an impact on greenhouse gases and on the dynamics of warming that is melting the poles. They will require more solar panels or wind turbines as is becoming clear in countries such as Germany, which wants to increase its annual installations by 50%, or in theSolarPower Europe has set a target of a 55% reduction in greenhouse gases by 2030. This would mean an increase of 210 GW in installed solar capacity in ten years, from 660 GW to 870 GW in 2030! This explains why the IEA predicts that, compared to today, annual copper consumption should double over the next twenty years; nickel consumption should more than triple; cobalt consumption should increase sixfold; and lithium consumption should increase twentyfold.
At the same time, the prices of panels and batteries will rise. The price advantage of solar electricity over other energy sources could well be reduced and even reversed. This is gradually becoming apparent as prices rise in the various stages of panel development. Silicon manufacturers see a 12-18 month window of opportunity before there is an oversupply of silicon. Wafer and cell manufacturers are passing on upstream prices while pushing the envelope a little further, as LONGi did in January. Panel manufacturers are caught between price increases in the industry and global demand that has not yet adapted to rising prices, but will have to since there are no alternative producers.
For the prices of panels or batteries to fall, there would have to be a net increase in yields or a new technology
For this downward trend in panel and battery prices to continue, there would have to be a clear technical advance that raises the efficiency of a panel from the current 21-22% in production to 30%. According to Enel Green Power, such a technological change could take place within four or five years. Until then, Chinese manufacturers may well be tempted to keep the goose that lays the golden eggs and continue with N TOPCon technology.
The same is true for batteries: (The price of batteries has fallen by only 6% in 2021). The rise in the price of lithium in Q4 2020 has mitigated the annual decline in battery prices and boosted the price increase. As a result, the $100/kWh mark, which BloombergNEF sees as the limit at which electric cars are expected to proliferate, will be delayed by about two years. That's if the various gigafactories that will mass-produce batteries don't place massive orders for lithium in the next few half-years. Otherwise, the rise in the price of the basic product will lead to a rise in the price of batteries and a slowdown or even a halt in the distribution of clean vehicles!
Thus, the evolution towards a cleaner world will be far from being a smooth ride. The pressure of demand is too brutal. It disrupts the current economy by driving up prices. It disrupts previous achievements. It is certain that the objective of 1.5° or even 2° Celsius will not be achieved because the tools to achieve it are becoming more expensive and there are not enough of them. We will continue to hear complaints and other demands from well-meaning people who insist on taking climate degradation into account. The only problem is that the materials and therefore the tools available are becoming too expensive. This is the consequence of "we want too much too fast".
Or that the world learns to recycle raw materials to reduce the cost of primary metals
This logical analysis would be overturned if manufacturers started to recycle panels and batteries and increased the percentage of materials recovered. For the moment, the quantities to be recycled are too small. Therefore, the processes are not sophisticated enough and therefore not profitable. Moreover, there is no guarantee that a sufficient recycling rate will be achieved to meet industrial needs.
A few months ago, observers were reluctant to say that the price increase was sustainable. The lack of economic normalisation and, above all, the pressure of global demand mean that metal prices will remain high for a long time. Prices for the energy sector will remain under upward pressure until an effective recycling policy is in place and alternatives to lithium, cobalt, aluminium and silver metal are found. In a few months' time, panel owners will be glad they bought them, even if they were expensive, because their price will have risen again
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