It was the type of question that illustrates the fever that is gripping this small and specialist market, much as the hype that drove rare earth elements through the roof a few years ago and briefly allowed a flood of investment to be available for the development of new mines and processing operations such as Molycorp’s Mountain Pass, only for the market to then collapse again a year or two later.
Don’t Believe the Hype?
An Economist article underlines the case regarding lithium. Much of the recent hype is due to a doubling of lithium carbonate prices imported into China in the last two months of 2015 and comments by analysts from places such as Goldman Sachs calling lithium the “new gasoline” reflecting their opinion that electric vehicles are about to take off — in sales terms, not literally.
Is the investment hype over lithium-ion batteries justified? Source: Adobe Stock/bbbastien.
Yet sales of lithium salts such as lithium carbonate and lithium hydroxide make up a market of only about $1 billion per year, small when you consider — like rare earth elements — their ubiquitous presence in just about every electronic gadget. All-electric cars and, increasingly, power tools and products previously powered by nickel-hydride batteries use lithium. Read more
This is part two of a series on the potential of lithium for energy storage and the investor reaction. See part one first if you missed it.
California is said to have ordered its electricity firms to offer 1.3 gigawatts of non-hydroelectric storage capacity within five years, more than double the 0. 5GW of batteries plugged into grids around the world today.
It remains to be seen how popular Tesla’s “Powerwall” electricity storage devices will become, but as the price comes down through competition and technology improvements they will prove popular in countries where solar panels can supply domestic power economically such as Australia and the southern US, or where power supply is intermittent as in India or South Africa.
So, the market is looking good for lithium even though the technology still needs considerable improvement to achieve truly large-scale uptake. As the Argonne National Laboratory in Chicago is quoted in the Economist as saying, large-scale batteries need to offer hundreds of miles of driving range, be rechargeable in minutes instead of hours, and provide power at costs comparable with natural gas before they can take off. In the meantime, though, supplies of lithium are not, as was the case with rare earths, held in the stranglehold of one country. As this graphic courtesy of the Economist shows, supplies are already well established from several stable, developed mining countries.
Source: US Geological Survey.
Lithium minerals have been used for years in the ceramics and glass industry according to the US Geological Survey, so extraction is not a new technology and nor is the supply chain undeveloped.
Our Renewables MMI fell 4% to start the year, even as congress extended the renewable energy tax credit that gives end users of solar panels, wind turbines and other metal products an incentive for purchases through 2022. Our Renewables MMI fell 4% to start the year, even as congress extended the renewable energy tax credit that gives end users of solar panels, wind turbines and other metal products an incentive for purchases through 2022. This is, of course, the latest in a series of all-time lows.
We have previously written about the paradoxical nature of government incentives and metal price increases, particularly for the metals that go into renewable products. The solar tax incentive can cover up to 30% of a system’s installation and cost so it definitely helps adoption, but that offset also keeps base prices from rising as the true cost is so different than what consumers are paying.
The renewal, unsurprisingly, also supplements solar silicon products in a much more effective way than, say, the neodymium or the grain-oriented electrical steel used to construct wind turbines. We should not expect to see renewables prices rise until the level of government subsidy for solar begins to taper off in 2020 or until adoption of the underlying generation technologies skyrockets.
In the meantime, demand is strong, if muted by the subsidy, and the supply of photovoltaic panels available for consumers that want to slap them on their houses to collect the tax credit can only help spur adoption. SolarCity has topped off its PV panel gigafactory in upstate New York and similarly looks forward to selling its panels and passing most of that discount on to consumers.
It will be years before we know if this economic experiment in subsidizing renewables is a success, but all of the ingredients for creating a stronger market in the future are there and paid for.
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When US lawmakers voted to extend lucrative federal subsidies for renewable energy as part of the $1.15 trillion spending deal last month, wind and solar companies celebrated as they looked forward to passing those savings along to customers and reducing their own production costs.
But are some renewable technologies more promising than others?
You can install PV panels on your roof, collect a tax credit and bring down your own electricity bill. A wind turbine? Not so much. Source: Adobe Stock/rob245.
For solar, this is an unqualified windfall as the consumer products manufacturers such as SolarCity and SolarWorld make, mostly silicon photovoltaic panels, can qualify homeowners, banks and other end users for tax credits, but the picture is still murkier for far more costly and technically challenging wind power.
Solar’s Sweet Deal
The legislation allows solar power companies to keep claiming federal tax credits at 30% of the price of a solar array. The credits, which apply to home solar kits as well as big commercial installations, will be good through 2019. After that, though, the credit will begin to drop, declining to 10% in 2022. It will remain at 10% unless legislation eventually eliminates the credit before or after 2022. Read more
The new standards, issued by the National Development and Reform Commission (NDRC) on Wednesday, will enable the China to create a statistical system for greenhouse gas emissions and support the establishment of a national carbon trading scheme.
We sometimes indulge our more geeky side and cover topics that, while metals related, are never going to significantly move the needle on metals consumption, pricing or supply and demand. We reserve the right to be geeky.
While a recent development recently discussed by Mark Shackleton, Professor of Finance and Associate Dean Postgraduate Studies at Lancaster University definitely falls under the “geeky” heading, it could, one day, potentially move the needle for tin demand if the economics permit.
Carbon Capture and Carbon Taxes
One of the biggest dynamics in the next 10 years will be how legislators approach carbon emissions. If they seek to control emissions by putting a significant price on carbon, it will have profound implications for the metals industry, along with just about every energy-consuming activity out there.
A new report released by the Solar Energy Industries Association and produced by GTM Research forecasts that US Solar installations will more than double next year, reaching 15.4 gigawatts of solar power installed in 2016.
Worldwide, growth in solar installations is expected to rival the boom occurring in the US. Berlin-based research firm Apricum forecasts that 54 GW will be installed worldwide in 2015, with new capacity additions reaching 92 GW by 2020. The largest market for the most common type of panels, solar silicon photovoltaics will be China, with 180 GW of total capacity installed by the end of 2020, followed by the US (83 GW) and Japan (57 GW).
Photovoltaic solar array at the National Renewal Energy Laboratory.
As 2015 ends this week, US installed capacity of photovoltaics stands at 7.4 GW, an improvement over 6.3 GW last year.
Part of the reason for the surge was purchases made by individuals and utilities to beat the scheduled expiration of the federal investment tax credit at the end of the year. That all changed when congress passed a long-term extension of the wind and solar tax credit as part of its omnibus spending deal earlier this month.
Established by the Energy Policy Act of 2005, the wind/solar investment tax credit provides a tax credit of 30% of the value of solar projects. Annual solar installations have grown by at a compound rate of 76% since the act was implemented in 2006. Under the new scheme, the 30% solar tax credit will extend through 2019 and then decline gradually to 10% in 2022. After 2022 the credit will be eliminated for residential solar installations and will continue at 10% for commercial ones. Bloomberg New Energy Finance predicts that the move by congress will add an extra 20 gigawatts of solar power over the next five years.
Solar silicon prices have remained stubbornly low and, while this extension won’t necessarily help them rise, it will spur utilities and homeowners to adopt them for electricity generation. The low prices, in this way, are a feature of expanded adoption and a not a bug as the generous discounts, on top of low prices, will make solar a cheaper alternative to other low-price power supply technologies such as natural gas.
The extension of the tax credit through 2019 is a boon to photovoltaic manufacturers and wind/solar energy suppliers who were quick to celebrate the long-term extension as an important step toward their goal of developing clean energy at an affordable cost through the development of solar projects.
“This is a game changer for our company and will finally allow us to plan with certainty our growth and expansion over the next several years,” said John Billingsley, Chairman and CEO at Dallas-based Tri Global Energy. “Tri Global Energy plans aggressive expansion of both our wind and solar divisions into diversified geographical areas across the US.”
Jeff Yoders: Your chapter on the ways that mining companies receive funding was very eye-opening. Is it happening that mining executives are making more money off of investment than they are off of mining?
David Abraham: I think you can go around at conferences and ask people have they ever produced a salable material and you would find that, much of the time, the answer is no. That’s certainly understandable because a lot of these mines take a long time to develop. You have to do your own due diligence, as an investor, and dig into a company’s financial reports, and make your own judgements, to find out how much someone deserves to be paid.
That’s something that the board of directors should be doing. Some of the time, though, it does seem a little out of line to see what these executives are being paid and judging what they are paid in comparison to other industries. I tried to allude to that.
Lighting technology marches on from candles to tungsten to fluorescent to LEDs. Source: Adobe Stock/vladimirfloyd.
JY: It can be a very risky investment to be involved in without, so to speak, your head up.
DA: It is a big risk and, financially, a challenging investment to get involved in. As much as you want people investing in the space, because these materials are critical, the challenge is you don’t know what demand is going to be, exactly, in the future. The prices are so volatile that you it’s hard to make projections. You can see a trend line, sure, but you could be investing in the wrong trend. If you made a decision to invest in, say, rare earths specifically because you thought demand for compact fluorescent lighting would take off, well, LEDs came about, and you would have gotten stung.
JY: What’s interesting is a lot of these technologies are not new at all and take off due to availability of materials or recent research. Light-Emitting Diodes (LEDs) are a semiconductor technology that, as consumer lighting, has been around since the ’60s. The road to mass adoption for much of these rare metal products can be a long road.
DA: There is a challenge of knowing what material is going to be needed because of changing of technology. My hope is that if we start clarifying some of the supply chains as best we can and start investing in some of these materials that they will be commodities, in terms of price and availability, and they will be more adaptable for use in consumer technology. We won’t try to NOT be using these materials, and many companies have shied away from rare earths, we’d try to use them more.
Indeed many technologies like LEDs have been around for many years, but the commercialization can happen very quickly. The adoption of LEDs surprised many who thought that rare earths in phosphors would be a growing market because rare earths are used heavily in compact fluorescent lighting —only a fraction of them are used in LEDs. But LEDs quickly won out.
Trying to predict new technologies and, therefore, the elements necessary to make them is fraught with risk. Just before the iPhone came out, Microsoft’s Steve Ballmer said there was no chance it would take market share. Those who are most in the know often have no clue. So predicting the resources that future tech will use is impossible.
But, with the rapid adoption of technology globally — the smartphone and tablet spread around the world faster than any other technology ever — and a middle class set to grow by 2 billion over the next 15 years, we are sure to use a lot more of these specialty resources, even if some technologies become more efficient in their use of rare metals.
JY: Were you surprised when Molycorp, Inc. declared bankruptcy earlier this year? I don’t think many of us were.
DA: It goes back to the first thing we talked about. They faced real challenges: the amount debt they had to cover, the competition they were up against, and the processing facility they developed, which wasn’t efficient and took longer to set up than expected, indicated that profitability would be an obstacle. Now, Molycorp was not the only one with those challenges. Lynas Corp.has faced those same challenges, and although Lynas has been able to, apparently, last a little bit longer, Lynas also has the good fortune of having forgiving backers in the Japanese government.
I wrote the book, really, to give perspective to a lay audience about where this stuff comes from and the implications when they make decisions to buy computersand iPhones. I wanted to let consumers know that there’s this whole other world of rare metals under their fingertips.
The renewables MMI fell 1.9% to yet another all-time low of 52 this month. The index has fallen in price steadily with very few exceptions since we started charting renewables prices in 2012.
The bearish commodity environment is certainly one part of the story but, as we’ve written before, the market performance of renewable metal inputs such as neodymium and grain-oriented electrical steel (GOES) are only part of the story for the market since, in a commodity sense, it’s still in its infancy.
Strong Investor Interest
While prices fell this month we noted some interesting acquisitions such as Chinese venture capitalist Sonny Wu purchasing 80% of Philips’ LumiLEDs business. LumiLEDs is one of the largest producers of light-emitting diode (LED) commercial lighting, a semiconductor technology that uses rare earth phosphors and other renewables to light your home for less energy.
Investment in renewables is strong according to the UNEP Global Trends in Renewable Energy Investment 2015 report. China saw, by far, the biggest renewable energy investments in 2014 — a record $83.3 billion, up 39% from 2013. The US was second at $38.3 billion, up 7% on the year but well below its all-time high reached in 2011. Third came Japan, at $35.7 billion, 10% higher than in 2013 and its biggest total ever.
The numbers for 2015 will be out soon and most are predicting gains over last year as companies such as Tesla and SolarCitystarted construction of factories estimated to cost more than $1 billion — Tesla’s is actually estimated to cost $5 billion — this year.
Investors are clearly in the renewables game for the long run, as many expect a switch from coal-fired electricity production in China and the US to take off in the next 10 years. Liquid natural gas has already begun to replace it — according to my colleague, Stuart Burns the UK is even more rapidly phasing out coal in favor of LNG —and technology improvements in solar and wind are expected to make them competitive with LNG in the near future.
Can these investments speed up adoption and increase the price of parts such as motors made of neodymium magnets? It really depends on how quickly consumers accept SolarCity and Tesla’s products. Tesla’s already selling its Powerwall lithium ion batteries for home solar energy storage.
Alternative applications of solar silicon are also popping up seemingly every day, at least in the warmer parts of the US. As gadgets such as cell phones and tablets take over more and more of our work and home lives, its hard to imagine their thirst for power being slaked entirely by wall-mounted plugs fed by coal or LNG-burning plants.
We wrote recently about the probability that coal assets would become increasingly uneconomic if climate change related legislation such as emission caps and carbon taxes heaped costs on the industry that have, so far, been avoided.
Well, an article in the Financial Times gives a glimpse of the future as envisaged by Amber Rudd, the UK government’s energy secretary. Speaking to the BBC hours before a speech on UK energy policy, Ms. Rudd announced a major review of the subsidies the UK pays for electricity produced from natural gas in an effort to encourage the replacement of the UK’s coal-fired power stations with combined-cycle, gas-powered technology ostensibly with a view to reduce carbon emissions
Coal vs. Natural Gas
Rudd would say later in her speech that she wants all coal power stations to shut down by 2025. The UK currently produces 21% of its electricity from coal-burning power stations, but those stations produce some 75% of the electricity industry’s CO2 emissions. However, a third of these power stations are expected to close by 2016, so that they meet EU air quality legislation.
Coal cars may be a thing of the past in the UK soon. Source: Adobe Stock/Carolyn Franks.
Coal creates roughly twice as much carbon dioxide as gas when it is burned for power. According to another FT article this week, research presented by the American Petroleum Institute shows that in the 25 US states with the highest rate of carbon dioxide emissions from their power generation, switching completely out of coal-fired generation and into gas would more than meet their targets for reductions set under the EPA Clean Power Plan.
For once, where the UK leads the US may follow if the current administration can build a head of steam behind emission reductions following next month’s summit in Paris. We say “may” with caution though. The US coal lobby is infinitely more powerful than the UK coal mining industry and, with an export market dwindling fast, can expect to put up a fierce resistance to the suggestion coal-fired power generation should be abandoned en masse.
Auctions and Emissions
In the UK, Rudd at least recognizes it is not sufficient to heap emission limits on power generation and expect the industry to sort itself out, switching from coal to other options. A recent auction for peak power provision ended up set to hand hundreds of millions of pounds in subsidies to highly polluting diesel generators, which are cheap to build and can undercut the prices offered even by gas plants.
The auction process could be rebalanced to take emissions into account, but that would not, in itself, encourage the industry to invest in new gas plants. For that, the market needs a guaranteed price which only the government can provide, much as it did for a recent new nuclear power plant project. Investors just aren’t willing to make 25-30 year commitments in such a volatile wholesale electricity market as the UK.
No guesses who will end up paying the price of the governments drive to be the “greenest government” ever, as usually consumers will foot the bill for subsidies, but at least with natural gas they have plants capable of meeting base and intermittent peak load in a relatively less polluting manner and, unlike renewables, with total reliability of supply.