The impact of the energy transition
The world is hungry for energy. Demand is rising not least because new technologies such as digitalisation, cryptocurrencies and artificial intelligence are proving to be energy guzzlers.
Around three-quarters of the world's energy needs are currently met by fossil fuels. But growing awareness of climate change has shifted the focus. In recent years, wind and solar power have also become competitive sources of energy.
The challenge of replacing cheap fossil fuels is enormous. Demand for energy is still growing. However, according to the International Energy Agency (IEA), the rate of growth in industrialised countries has slowed thanks to technological progress, efficiency gains and higher added value in the service sector.
Reducing dependence on fossil fuels will require, among other things, increasing electrification of the energy supply. This is no small feat, given the costs of restructuring and building new infrastructure for energy production, buildings, transport and industry.
For these investments to be made, energy prices would have to be high but metal prices low. However, fossil fuels are still cheap and therefore relatively attractive compared to renewables. This means that investments to replace fossil fuels will be delayed.
Conversely, the demand for metals and rare earths that are essential to the energy transition is increasing. This is particularly true for copper, nickel and lithium. To illustrate: 8,000 kilograms of copper are needed to produce one megawatt of electricity from wind turbines at sea. A gas-fired power plant requires only 1,100 kilograms. The supply of these critical raw materials will only increase if prices rise, because only then will the investment be worthwhile.
As a result, fossil fuels will continue to dominate the global energy mix for some time to come, competing with investments in renewables. Some developed countries have shown that the transition to more CO2-friendly energy sources can be achieved quickly. However, demand for affordable energy continues to grow, particularly in emerging markets.
Solar and wind power continue to grow. The associated infrastructure investment would not only help reduce global CO2 emissions but would also benefit industrial metals producers. In other words, demand for individual commodities is simply shifting. Coal has been king for a long time, but the crown could soon pass to something else.
