Australia’s playbook to become a renewable mineral superpower 

Climate Energy

Australia’s playbook to become a renewable mineral superpower 

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New government sets its sights on 21st-century gold: lithium and rare earth minerals.

Note: This story is based on a paper in a series on value-adding critical minerals opportunities in Australia by Tim Buckley, Director of Climate Energy Finance, and Matt Pollard, Global EV Supply Chain Analyst at Climate Energy Finance. 

Critical minerals like lithium, copper, nickel, cobalt and rare earths are becoming an increasingly crucial part of the global economy underpinning the energy transition, with its heavy reliance on solar, wind turbines, electrification of everything, EVs and batteries.  

Whoever moves fast wins

While China has already gained global dominance of the critical minerals refining, battery, solar and EV manufacturing chains, Australia is one of the world leaders in upstream critical minerals mining. As supply chain and energy security top the global agenda in 2022, the international battery supply chain market is growing rapidly and still being established, meaning whoever moves fast has much to gain. That’s the thinking of the newly-elected Australian government, which is putting financial incentives in place to encourage mining companies, potential processors and investors to get in the game on a global scale.

Australia’s federal Labor government recently launched a new strategy to accelerate rare earths growth and to look for ways to add value beyond mining to the industry to unlock Australia’s share of the global market’s potential. Operating alongside the government’s AU$2 billion (US$1.28 billion) Critical Minerals Facility, the new strategy includes an AU$1 billion (US$642 million) Value Adding in Resources Fund and AU$50 million (US$32 million) to establish an Australian Critical Minerals Research and Development Hub.

Diversifying away from fossil fuels 

These government initiatives will ensure the creation and support of jobs in regional Australia and, it hopes, will give the country an advantage in diversifying global supply chains. It will also improve Australian export resilience, particularly as the inevitable, slow decline in the country’s currently dominant fossil fuel exports occurs.

Scaling up with Public-private partnerships

Post Putin’s protracted Ukraine invasion, public-private partnerships are an increasingly fundamental tool to support and rapidly scale-up global clean energy supply chains, enabling a range of new actors to secure and de-risk the supply of critical minerals for the growing demand for battery storage in direct competition and/or alliances and/or via offtake agreements with global giants in China, the U.S. and the E.U.

With the country’s abundant geological reserves and renewables potential, there is a massive opportunity to bring early- and mid-stage energy-intensive downstream mineral processing back onshore.

Financial de-risking to accelerate decarbonization

De-risking project proposals so they reach final investment decisions (FID) and crowd-in private global debt and equity finance is critical for Australia to establish new, value-adding manufacturers and refineries to reach full-scale production. It also opens up opportunities for accelerating decarbonization by leveraging Australia’s world-scale renewable energy potential. As the U.S. knows post the Inflation Reduction Act, policies that enhance the investment environment and reduce the financial risks of new proposals will signal to investors and crowd-in private capital, accelerating investment ahead of the demand surge already evident in leading EV markets like Norway and China (EV penetration in China in August 2022 hit a record 29.4% of all passenger vehicle sales, with year-to-date sales +110% year-on-year).

Australia is in a position to leverage the enormous opportunity to build clean energy industry economies of scale by positioning critical minerals processing and manufacturing downstream of its mining operations, providing geographic diversity to the concentration of global processing in China to date.

With the country’s abundant geological reserves and renewables potential, there is a massive opportunity to bring early- and mid-stage energy-intensive downstream mineral processing back onshore.

Supporting private capital

Australia’s allies have demonstrated the growing use of government support in accelerating private capital inflows to scale and diversify their supply chains.

For Australia, this is a somewhat unprecedented strategic policy driver, but it is layered on top of what is quickly becoming a massive financial market signal. The listed equity pure-plays market capitalization of the Australian lithium mining sector has risen tenfold to AU$60 billion (US$38.5 billion) in the last seven years, as lithium prices have likewise risen tenfold.

The convergence of public and private finance in North America

The United States’ Inflation Reduction Act of 2022 includes over US$60 billion to on-shore clean energy manufacturing, intending to mitigate the risks of future price shocks, bring down the cost of clean energy and de-bottleneck supply chains, including:

  • US$30 billion of production tax credits to accelerate U.S. manufacturing of solar panels, wind turbines, batteries and critical minerals processing;
  • US$10 billion investment tax credits to build clean manufacturing infrastructure for EVs, wind turbines and solar panels;
  • US$500 million into critical minerals processing in the Defense Production Act;
  • US$2 billion to retool existing auto-manufacturing facilities to transition into clean vehicles; and
  • Up to US$20 billion in loans to build new EV manufacturing facilities.

President Joe Biden signed the Inflation Reduction Act into law in August 2022, creating a substantial market signal for the transition of the battery supply chain into the U.S. and potentially allied nations, including Canada and Australia.

“What we’re seeing is this unprecedented policy driver or policy signal layered on top of what was quickly becoming a ginormous market signal,” said Aaron Brickman, Principal at the Rocky Mountain Institute.

Listen to our podcast with Rocky Mountain Institute energy guru Amory Lovins

The U.S. bill created a snowball of private investment into the battery supply chain. Within a week, Volkswagen AG and Mercedes-Benz Group AG sealed agreements with the Canadian government to secure supply chain stability for nickel, cobalt and lithium for their manufacturing operations in the U.S.  After announcing their US$4 billion battery factory in Kansas, Panasonic began discussions to invest a further US$4 billion to construct an additional facility in the states.  On August 29, 2022, Honda and LG Energy Solutions announced their intention to jointly invest US$4.4 billion for a new EV manufacturing facility in the U.S. This investment was confirmed on October 12, with the companies committing a minimum US$3.5 billion into Ohio, creating at least 2,200 new jobs.

In November 2021, the President Biden signed a $1 trillion Bipartisan Infrastructure Law, bringing significant federal support to 20 firms critical to the energy transition and onshoring upstream battery supply chains. The facility will support the creation of more than 8,000 jobs, with 5,000 ongoing.

The IEA estimated clean energy investments at US$1.3 trillion in 2021.

Among the selected projects, the Australian companies Syrah Resources, Novonix and Piedmont Lithium were granted US$511 million to deliver downstream lithium and graphite materials for domestic cell production. Following the Bipartisan Infrastructure Law announcement, Syrah, Novonix and Piedmont share prices soared by 14%, 16%, and 9%, respectively.

The 2022 Canadian budget contained significant support for supply chain security with up to CA$3.8 billion in support infrastructure investments to develop its Critical Minerals Strategy. The strategy was targeted toward projects prioritizing manufacturing, processing and recycling applications.

The scale of the clean energy investment pipeline is monumental. The International Energy Agency (IEA) estimated clean energy investments at US$1.3 trillion in 2021. To reach global net zero emission targets, investment needs to more than triple by 2030.

The Australian context

In Australia, capturing the value of minerals processing pre-export is imperative for the country’s economic growth, with the state of Western Australia (WA) exporting 79% of the global hard-rock lithium supply in 2021. The WA government committed AU$1.6 billion to establish midstream critical mineral projects in 2021-22.

Australia must now scale up the value chain through the onshore processing of minerals, including nickel, manganese, cobalt, lithium, aluminum and iron ore for economic, strategic and global decarbonization reasons, and leverage its global competitive advantages by powering minerals processing with clean energy at world-leading scale. 

The figure below shows the opportunity of growing demand for Australia to act.

Figure 1: Projected Demand Increases for Lithium-ion Metals: 

In announcing the country’s National Critical Minerals Strategy, Australian Prime Minister Anthony Albanese said, “Australia’s natural resources have powered our nation and we are committed to supporting the critical minerals sector and new clean technologies to reach our target of net zero, and make our nation an economic powerhouse with a clean energy future. Today’s new initiatives will ensure we can create and support local jobs, diversify global supply chains and meet the growing demand for batteries, EVs and clean energy technology. These minerals will be critical to Australia achieving net zero emissions and to helping the rest of the world make that transition as well.”

The rapid acceleration of private and public convergence in North America and the efficacy of China’s state-backed initiatives highlight how Australia’s public, first-loss capital vehicles are imperative to capturing the opportunity to be a global renewable energy-powered critical mineral leader.

Written by

Tim Buckley & Matthew Pollard

Tim Buckley is founder and director of Climate Energy Finance Australasia. He has 30 years of financial market experience covering the Australian, Asian and global equity markets and is a highly influential energy finance commentator. He was previously the Australasian Director of the Institute for Energy Economics and Financial Analysis (IEEFA). Prior to that, Tim was a top-rated Equity Research Analyst, including Head of Equity Research in Singapore at Deutsche Bank, a Managing Director, Head of Equity Research at Citigroup, Head of Institutional Equities at Shaw & Partners and co-Managing Director of Arkx Investment Management P/L, a global listed clean energy investment start-up. Matthew Pollard is CEF's global EV supply chain analyst. He focusses on the significant growth opportunities future-facing companies have in electrified transport and energy transition.