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Green Energy Ambitions Are Clear, but Strategy Is Lagging

At RBC Capital Markets’ inaugural Global Battery Value Chain Conference, the key message was that targets and ambitions were nothing without the strategy to underpin them.

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Published April 27, 2023 | 5 min watch
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Key Points

  • There’s a clear ambition to create secure, green supplies of energy and localized value chains, with different governments taking different policy approaches.
  • However, many governments lack a clear strategic plan on how these ambitions can be met and a patchwork of policies is difficult for investors and companies to navigate.
  • The scale of the disruption from the energy transition will cause titans to fall and new brands to rise, as new and changed industries soak up an enormous influx of capital.

The world is well on the path to net zero today and battery storage and electric mobility are key sectors for the energy transition because they can make a very achievable impact on decarbonization. But from mining to battery manufacture and new chemistries to EV infrastructure, companies and governments need a strong industrial strategy that will secure supply chains and ensure resources if they want to be part of these burgeoning industries.

Since the supply chain issues of the pandemic and the Ukraine conflict, there’s also huge pressure on Europe and the US to secure energy supplies and move away from dependence on foreign supplies and expertise.

The ambition is clear – to have secure, green supplies of energy well into the future and localized value chains that will ensure a significant slice of the market. But so far, the tactics for getting there haven’t been so obvious. In the US, the Inflation Reduction Act is a big part of the puzzle, designed to incentivize green investment and grow the local value chain. Europe has regulations in the form of the Rules of Origin and the European Passport that will penalize companies for not sourcing locally or not sourcing cleanly. The European Commission has also adopted the Temporary Crisis and Transition State Aid Framework (TCTF) as of March 2023, aimed at boosting and retaining clean tech investments in Europe. Meanwhile, the UK, despite much rhetoric, has yet to do much to actually encourage investment into the country in the electrification or mining sectors.

The question of just what governments should do is as thorny as the ire over what they’re not doing, however. Senior investment panelists argued that grants can confuse investment decisions because companies build strategies around that funding, but it’s not always certain that they’ll win it. Similarly, subsidies can come and go, so investing on the basis of continued government support carries its own risk. However, without some incentives, many find it difficult to imagine the industry reaching the size and impact it needs to power decarbonization.

“In Europe and the US, we’re facing reindustrialization, reshoring and reinvention of existing industries. And the markets are not acting as efficient channels of capital to those needs… Incentives and subsidies can create imbalance and waste. But I’d rather get to an imperfect state sooner, and then fix it, than not get there at all.”

DMITRY YASHNIKOV, MANAGING DIRECTOR, ALTERNATIVE CAPITAL SOLUTIONS, OMERS

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“In Europe and the US, we’re facing reindustrialization, reshoring and reinvention of existing industries. And the markets are not acting as efficient channels of capital to those needs…Incentives and subsidies can create imbalance and waste. But I’d rather get to an imperfect state sooner, and then fix it, than not get there at all,” said Dmitry Yashnikov, Managing Director of Alternative Capital Solutions at OMERS.

The devil is in the detail

While most governments have objectives, targets and ambitions to lead the way in electrification and decarbonization, there’s been a lack of specifics about how to get there. Particularly in the UK, neither the incumbent party nor the opposition appear to have a comprehensive industrial strategy, lacking a vision for the industries they want to see in the country in the coming years.

The UK needs to solidify its strategy from beginning to end of the value chain. Jeremy Wrathall, CEO of Cornish Lithium, warned that the UK risks missing out in the mining industry and therefore, the rest of the value chain.

“No lithium, cobalt or nickel equals no batteries equals no EVs. So if we don’t have that capacity here, we’re really losing out.”

JEREMY WRATHALL, CEO, CORNISH LITHIUM

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“No lithium, cobalt or nickel equals no batteries equals no EVs. So if we don’t have that capacity here, we’re really losing out. The great thing about the UK is we actually do have the right geology. We also have a longstanding mining culture and we just have the opportunity to do it here.

“Unfortunately, in the latest critical raw materials refresh, the government is prioritizing trying to secure material from overseas. That doesn’t seem very sensible to me, given that we’re last in the queue and China’s way ahead of us,” he notes.

In EVs, there’s risks both because the automotive industry seems to be low on the list of priorities for the UK government and because there’s a lack of support for the EV charging infrastructure needed. Panelists talked about the need for grants and subsidies, as well as support for training and reskilling British workers.

The EU is responding to the US Inflation Reduction Act with the TCTF, but that also has potential issues, according to Matti Hietanen, CEO of Finnish Minerals Group.

“I think [the TCTF] is a bit of a worrying development because there’s a real danger that European countries start to compete with each other on subsidies, so there’s this subsidy race and that is not a good thing. I hope that one of the key ways we avoid that is that the EU will be active and take a union-wide approach, but we’ll have to see how it goes,” he said.

“There’s a real danger that European countries start to compete with each other on subsidies, so there’s this subsidy race and that is not a good thing.”

MATTI HIETANEN, CEO, FINNISH MINERALS GROUP

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While the US has a powerful piece of policy in the Inflation Reduction Act, its next step needs to be to extend that out to free-trade partners that can supply the mineral and metal resources its battery value chain needs.

Enormous disruption, and capital requirements, ahead

For many panelists, the other key message of the day was just how big a change the energy transition really is. The shift to electrification on the grid and in mobility was referred to as a ‘reindustrialization’, the move from internal combustion engines to EVs was no less significant than the shift from horse and cart, and words like revolution and evolution were common in every insight.

"As 70% of the battery cost is material, anode and cathode materials are decisive for the battery cost. With the right choice of materials, I see long term prices around 40 €/kWh for mobile applications and close to 30 €/kWh for stationary applications."

ULRICH EHMES, CEO, THEION

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Battery technology itself is also going to shift, although lithium ion is still seen by most as the likely workhorse of the industry in the years to come. However, most panelists see room for a variety of technologies that will be tailored to specific applications. The competition between them is also going to drive down prices, particularly if solutions using more abundant minerals and metals become commercially viable.

“I see prices below 40 Euros/kWhr for mobile application and around 30 Euros for stationary storage,” said Ulrich Ehmes, CEO of battery start-up Theion.

Such a paradigm shift will have deep-reaching impacts in every sector it touches and speakers said they expected titans to fall, new names to be made and existing companies to strengthen their hold in sectors from mining to automotive. Along the way, there needs to be an enormous influx of capital to fund this transition, estimated at $150bn by 2025, and that will have to come from a variety of sources. The mix is going to be strategic investors with financial investors, mining firms partnering with automotive companies, startups moving from project financing to infrastructure funding over time and many other combinations.

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