Happy New Year

A few potential surprises and interesting reading from the break

Happy new year! I hope you all got a break over the holiday season (I did) and enjoyed it (this too). Your inboxes are likely full of market outlooks and price targets - I would rather focus on more interesting emerging developments in energy, materials and the transition and some recent reading of interest.

To that end I have four potential surprises for 2023.

1. Maybe we do not need as much lithium as we thought?

For governments, producers and consumers working out how much to produce for emergent technology inputs is hard, even more so if lead times are long as they are in mining. It might seem obvious that lithium is going to eat the battery space today but it was also “obvious” that Nickel Metal Hydride batteries would eat the market in the late 2000s and early 2010s. The Nickel Metal Hydride technology was used by Toyota in the Prius and used significant quantities of lanthanum, a rare earth element which had a vertiginous rise before a collapse as lithium chemistries displaced it.

Some technologies that looked a long way off have recently been sending out test cells in applications where lithium is currently the default. Sodium is the most interesting on this count: volumetric densities are getting to the point where they are compelling for lower specification transport applications, but better safety and a reduced bill of materials make them really appealing for home energy storage and some stationary applications like server racks. Faradion looks very real now, and Natron and others are shipping products to niche markets already.

This is a huge problem. One the one hand we might see cheaper batteries with as-good-if-not-better performance in a lot of applications. This creates existential uncertainty around how much lithium we might need. If you think about the usual volatility of the metals and mining sector and then imagine an overlay of possible technical obsolescence that is a recipe for some incredible volatility and likely dramatic over and undershoots in market balances.

It is also a policy problem: in this context it is unlikely the sector gets enough capital if other options do not perform or we are going to have an absurd surplus caused by an otherwise beneficial technology change. Predictions of cobalt balances have been radically revised as the cobalt is pushed out of lithium-ion batteries, there is good reason to believe that it is not the last of “unobtainiums” to get substituted out especially as prices have risen six to seven since 2020.

One “unobtainium” that appears to be becoming more obtainable is vanadium, and it is also used in batteries. More and more projects attached to oil refineries that recapture spent catalysts are coming through, mostly associated with AMG NV, which should allow for more and more stable supply. By products get produced almost no matter what and so long as refineries are looking to reduce their heavy metal residues there should be a lot more vanadium available.

2. Renewables to hydrogen becomes a thing because of the maritime fuel industry.

Hydrogen has had something of a slow start compared to batteries in decarbonization and has suffered from real technical challenges as well as some ridiculously partisan hype and pump cycles in the media and PR. A more realistic appraisal of its prospects is here from Michael Liebrich and on the whole, 2022 was a good year for hydrogen on a number of levels.

System Level Efficiency Improvements: Companies like Hysata are radically improving the performance and cost of electrolyzers allowing for much cheaper hydrogen from renewables and various efforts are underway to improve combustion.

Real, scalable customers: Efforts by Maersk and others to develop a proper maritime e-fuels supply chain are turning into real projects. Most of the attention seems directed towards ammonia and methanol as fuels - methanol being partially a “drop in” option for diesel. The advantage here is that many of these projects can scale well as brownfield expansions, and Maersk is clearly interested in offering green fuels as a product to customers of shippers - “tick this box and pay this amount to use zero carbon transport”. From here consumers and in particular consumer goods brands can upsell clean transport to customers. Having this kind of modular and very scalable customer base bodes well for marine transport and could readily be applied to aviation e-fuels in time. We are going to need a lot more renewables and electrolysers for this.

3. Is the weird reddit meme of solar driving up silver demand to impossible levels being displaced by better technology?

Quite possibly as Sundrive goes from startup to cell records. According to this article they can displace the copper in solar cells and thus get past any purported silver shortage. This is not an exciting development for copper bulls though, the amounts used are relatively low per GW compared to the size of the copper market (~25 million tonnes). A terawatt of solar production is not going to even add .1% to demand.

In addition to reducing manufacturing cost, Sundrive’s replacement of 25 tons of silver with 13 tons of copper per GW can reduce the embodied emissions of HJT modules by around 6 kilotons of CO2 equivalents (CO2e) per GW. This reduction is due firstly to the lower mass of copper required per cell; but also the lower emissions intensity of producing copper compared to silver.

4. Weather will continue to be a source of volatility.

The safest bet of all and barely controversial but worth remembering that in a less stable and changing climate system the future will continue to drift from the past, in somewhat unexpected ways. The emotional rollercoaster of watching European gas storage the last 12 months is likely to continue though as Europe builds up much bigger buffers than anyone hoped for the horrors of the geopolitical energy shock do appear to be going away though the climactic energy shocks are nowhere near done.

Inventories can suppress a lot of volatility and so can headroom in power capacity as renewables are installed rapidly in Europe and in the US as projects held back prior to the IRA get built. French nuclear getting its act together is another welcome development. I would expect this year to be less crazy but I doubt a day comes where weather models aren’t updated daily for anyone tracking fuel balances anytime soon.