$1.8 trillion in clean energy investments in 2023 underscores the importance of critical materials

–Direct News–

By Kyle Anthony, Benzinga

Society is moving towards decarbonization and electrification. At the same time, demand for electricity is growing as new middle classes emerge in countries around the world and the energy demands of new technologies such as AI data centers increase. The importance of critical materials – extractable minerals such as copper, uranium, lithium and nickel – in the global energy transition is growing. The mass adoption of sustainable energy sources such as nuclear, solar, wind, hydro and geothermal, and the growing demand for electricity are driving supply and demand pressures on the raw materials necessary to create and sustain clean energy technologies.

For investors, the energy transition is no longer a future prospect, but a present reality in which they can participate through exposure to stocks that are economically linked to critical materials.

The importance of critical minerals

Critical materials, both metallic and non-metallic, are natural elements that play a key role in the global economy. They are essential for manufacturing a variety of products, including electronics, renewable energy technologies, aerospace, defense, and medical industries. The criticality of these materials stems from their economic importance and the associated supply risk. Key factors that determine the viability of these materials include limited availability, geographic concentration of production, weak points in the supply chain, and a lack of readily available substitutes.

Given the importance of critical materials, companies that facilitate access to the global supply chain are well positioned to benefit from increased investment in them. According to BloombergNEF Energy Transition Investment Trends 2024 worldwide: $1.8 trillion invested in the energy transition sector in 2023, which benefited many companies exploring and refining critical materials for use in clean energy technology.

Decarbonization: A Global Commitment

The need to transition away from greenhouse gases has become increasingly important in the global economy, as evidenced by the Paris Climate Agreement and the 196 parties that have signed the treaty, covering climate change mitigation, adaptation and financing. Although the overarching goal of the treaty is to “keep the increase in average global temperature well below 2°C above pre-industrial levels” and “continue efforts to limit the temperature increase to 1.5°C above pre-industrial levels”, the harsh truth is that World leaders have stressed the need to limit global warming to 1.5°C by the end of this century.

According to the United Nations Intergovernmental Panel on Climate Change, exceeding the 1.5°C threshold could lead to much more severe climate change impacts, such as more frequent and intense droughts, heatwaves and rainfall. To keep global warming within 1.5°C, greenhouse gas emissions must peak by 2025 at the latest and fall by 43% by 2030. Nations around the world have committed to achieving a net-zero carbon dioxide emissions goal by 2050.

In short, the need to transition away from fossil fuels sets the stage for increased demand for critical materials for renewable energy. To meet net-zero emissions targets, global investment may need to accelerate to an annual average of $4.8 trillion from 2024 to 2030, according to Bloomberg NEF.

Minerals critical in generating, transmitting and storing renewable energy

Critical minerals are needed at every stage of the renewable energy value chain as they form the basis for converting primary energy such as wind and solar into consumable forms of energy. The roles and attributes of critical minerals in the renewable energy ecosystem include:

Generation: Uranium, Silver and Rare Earth Metals

Many people see nuclear power as a cost-effective source due to its low greenhouse gas emissions and ability to provide the highest efficiency, meaning actual electricity production is close to maximum potential production compared to other, greener energy sources. Uranium is essential for nuclear energy; a very heavy metal that can be used as an abundant source of concentrated energy for nuclear reactors.

Silver is a unique critical mineral due to its excellent electrical conductivity profile. It is the most conductive metal on Earth, even more than copper. Silver plays an important role in the solar energy sector and helps solar panels produce electricity. As the use of solar panels increases, industrial demand for silver is expected to increase significantly. The World Bank estimates that the demand for silver in green technologies will double between 2017 and 2050, from 1.4 thousand metric tons to 3.2 thousand metric tons, powered primarily by solar panels.

Rare earth elements are a collection of 17 metallic elements that are essential in many high-tech products due to their strong magnetic properties. Rare earths play an important role in electric motors, with 90% of electric vehicles (EVs) using rare earths as part of their powertrains. They help power the wheels of an electric vehicle – electric motors use the force created when two magnets push against each other, causing the axles to rotate rapidly and producing enough torque to turn the wheels. Without some rare earth elements, this process would be very difficult to replicate. Rare earth elements are also crucial in the design of wind turbines, which use rare earth elements in significant amounts to achieve the same functionality of a torque-generating magnet.

Gearbox: copper

Copper’s exceptional electrical conductivity and contribution to energy efficiency make it a key element in energy transmission. Its broad market demand and versatility in use in many industries have historically positioned its price as an indicator of the global economy. As the global economy moves towards decarbonization and electrification, emerging clean energy technologies require significantly more copper than traditional systems.

Storage: lithium, nickel, cobalt and graphite

Lithium plays a key role in battery design. The movement of lithium ions back and forth between the battery’s anode and cathode generates free electrons at the anode, creating an actual charge at the positive end of the battery. This charge flows to the vehicle’s engine or powered electronics.

The lithium market is of urgent interest to the world as it looks to replace combustion engine vehicles with electric vehicles in the coming decades. Estimates show that the global lithium market is 7 billion dollars in 2022, and some predict that it will reach over USD 22 billion by 2030.

As he stated Nickel Institutethe main advantage of using nickel in batteries is that it helps provide higher energy density and greater storage capacity at lower cost. Further advances in nickel-based battery technology mean that they will play an increasingly important role in energy storage systems, helping to make the cost of each kilowatt-hour (kWh) of energy storage more competitive. Ultimately, this will enable more efficient capture and storage of energy from sustainable but intermittent sources such as solar and wind.

Cobalt is another key mineral for clean energy, used as the main component of cathodes in batteries. Cobalt provides thermal stability and high energy density for lithium-ion batteries, which is crucial for the range and stability of EV batteries. It is one of the most expensive battery components and researchers have been hard at work trying to reduce the amount of cobalt in an electric vehicle battery, but it currently remains essential to battery design.

Graphite is another mineral that is critical to lithium-ion battery design, especially the anode, and every battery needs a lot of graphite. Graphite is one of the largest components of an EV battery by weight, accounting for 20% to 30%. And EV batteries are quite heavy, significantly heavier than ICE components, so the weight of graphite is quite significant. The average plug-in electric vehicle contains over 55 pounds of graphite.

Demand for graphite in the context of the energy transition is already growing and is estimated to increase by 750-2,500% by 2040 compared to 2020 levels, depending on how ambitious global players are in achieving zero emissions targets net by 2050

The broader economic landscape

While demand for critical minerals is partly driven by clean energy, there is also economic necessity. Increasingly, governments are competing for materials critical to national security or to stimulate the national economy through domestic production of clean energy technological inputs. The knock-on effect of this increased demand also impacted commodity markets, catalyzing miners and manufacturing plants that were underinvested to take new actions and begin scaling production to meet anticipated future demand.

Obtaining contact with critical minerals

Critical materials are essential for decarbonization and electrification. The Sprott Energy Transformation Materials ETF (NASDAQ: SETM) aims to capitalize on the growing demand for critical materials and their important role in the transition to a carbon neutral society.

The ETF provides pure-play exposure to a wide range of key minerals and mining stocks essential to the transition to cleaner energy. These key materials, metals and raw materials include uranium, copper, lithium, nickel, cobalt, graphite, manganese, rare earths and silver.

As Sprott’s latest special report shows, A New Era: How Critical Minerals Are Driving the Global Energy TransformationAs electric vehicles and clean energy technologies become pillars of our global economy, companies that reflect the value of critical minerals will represent real economic value and will be a source of wealth creation for investors. So decarbonization and electrification are not just about energy progress, but also an opportunity to generate wealth in an ecosystem focused on sustainability.

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