The paradox of green metal demand and the Just Energy Transition

By Spencer Eckstein – Director, Ukwazi Mining Studies

At COP26, in Glascow 2021, the USA and certain EU members promised to provide $8.5bn over five years to support South Africa’s Just Transition. That funding now seems in jeopardy owing to a potential decision by government to extend the life of certain coal-powered stations and to relax air emissions standards for some of Eskom’s power plants.

In the EU, some members have backtracked on commitments to reduce their usage of fossil fuels (e.g. in September 2022, the German government passed legislation to extend the life of three of its major coalfired power stations) as the energy crisis caused by the Russian/Ukrainian war deepens. In contrast, others have embraced renewables more completely; the ports of Rotterdam and Antwerp have done feasibility studies to assess the viability of operating off hydrogen. In 2022, 41% of the UK’s total energy mix came from renewables. Norway has indicated that its entire energy supply will be 100% from renewables by 2030, Denmark by 2040 and Sweden by 2050.

Due to load shedding, where Stage 6 seems to be the current dominant trend, mining companies with ESG considerations in mind, have been quick to embrace renewables. In June 2022, the Minerals Council South Africa said that the mining industry had a pipeline of 73 projects, from 24 mining companies, to generate 5.1 GW (5,116 MW), valued at more than R65bn. Roughly one year later, the Auctus Metals report (May 2023) suggested that the renewable project pipeline in the private sector in South Africa stood at around 13 000 MW.

The gold sector, via Gold Fields and its renewable projects at South Deep, and the PGM sector, with players such as Anglo Platinum and Sibanye Stillwater, have been quick out of the starting blocks to focus on solar projects and the use of hydrogen for vehicles, green steel making, and power generation, amongst others. In contrast, vanadium players, such as Bushveld Minerals, have focused on processing vanadium oxides to supply battery materials, particularly to China. The coal sector for obvious reasons has been less excited about renewables. The usual refrain is that renewables cannot supply baseload power and are expensive. Experience and evidence from other countries suggests this is not the case. The exceptions in the coal sector have been Exxaro, which is transforming itself from a coal producer to an energy company, and Seriti, which has invested in a wind farm.

The paradox of the quest for green metals and battery solutions, particularly for EVs and the transition to renewables such as solar, wind or hydrogen, is that it requires more mining and more commodities, not less! So, the transition will be built on metals and minerals as core ingredients in the energy transition. Accordingly, the tension between demand and supply dynamics on one hand and ESG on the other needs to be managed and mitigated. However, as a recent banking advert stated: It is not either net profit or net zero emissions, it can be both. According to a relatively recent IMF report (Jan 2021), the demand for green metals will require increased investment in mining in an uncertain economic climate locally and globally between now and 2050 because the demand for green metals is likely to increase by 25% to 30% (compounded annually).

It also implies that there are likely to be supply shortages in the short to medium term, where demand will outstrip supply, causing prices to tick upwards. A typical electric vehicle battery pack, for example, needs around 8 kilograms of lithium, 35 kilograms of nickel, 20 kilograms of manganese and 14 kilograms of cobalt, while charging stations require substantial amounts of copper. For green power, solar panels use large quantities of copper, silicon, silver and zinc, while wind turbines require iron ore, copper, and aluminium.

In the Presidential Climate Commission report on the Just Energy Transition Investment Plan (issued on 15 May 2023), the authors advocated in-depth consultation with stakeholders to ensure access to affordable electricity for vulnerable communities and to mitigate potential job losses. It suggested that the implementation should be in two phases to allow for skills development and capacitation, which implies that implementation will require roughly double the time required for implementation than originally envisaged. The report also suggested that EV and the hydrogen economy components be developed as a sector under the Investment Plan and that public-private partnerships be used to finance the upgrades to the national grid within the context of the National Transmission Company of South Africa, once established under Eskom Holdings.

South Africa is uniquely poised to take advantage of the increased demand for green metals as we can supply most of them: provided we make smarter policy choices, streamline our permitting systems and processes, and create sufficient space for the industry to contribute capital and skill to the Just Energy Transition in a manner that optimises implementation.

Originally published in the July edition of Modern Mining: https://user-54716422671.cld.bz/Modern-Mining-July-2023/28/