BloombergNEF has conducted a study titled “The Cost of Producing Battery Precursors in the DRC” in the lead up to the DRC-Africa Business Forum. The objective of study is to determine the cost of producing lithium-ion battery precursors in the Democratic Republic of Congo (DRC) and benchmark the cost to that of the U.S., China and Poland. In addition to the cost, the study assesses the emissions associated with the production of precursors in the DRC for the global electric vehicle market compared with producing them in China and Poland.
REGlobal provides an extract of the report covering the key findings as well as the policy implications…
African countries could play a key role in the lithium-ion battery supply chain. Electric vehicles represent a $7 trillion market opportunity between today and 2030, and $46 trillion between today and 2050. While there are notable leading electric vehicles and cell manufacturers today, the sheer scale of growth expected in the coming decades means that there is inherent uncertainty over which companies and countries may come to dominate this new value chain.
African countries could play a key role in the lithium-ion battery supply chain. Electric vehicles represent a $7 trillion market opportunity between today and 2030, and $46 trillion between today and 2050.
Electrification of two-and three-wheelers could be a big opportunity for Africa. Two-and three-wheeler sales are growing rapidly in countries such as India, Vietnam and Indonesia. Increasing population, GDP per capita and urbanization in Africa and other parts of the world will help drive global sales of two-and three-wheeler sales up from 88 million in 2020 to 114 million in 2040 in BloombergNEF’s long-term outlook. Electric vehicle adoption is also growing fast in this segment, where some 44% of new two-and three-wheelers sold globally in 2020 were electric models.
Annual lithium-battery demand will grow rapidly, topping 4.5 terawatt-hours (TWh) annually by 2035. Meeting this demand requires unprecedented but achievable increases in metals, precursor and cell production. By 2025, there will be over 3TWh of nameplate cell manufacturing capacity, if manufacturers successfully execute their growth plans.
Total metals demand from lithium-ion batteries will reach 13.5 million metric tons by 2030. Overall cobalt demand from the lithium-ion industry will grow 1.5 times between 2021 and 2030. Nickel, used in the cathode, will see demand grow to about 1.4 million metric tons by 2030, five times that of 2021. Annual demand from the lithium-ion battery industry for copper will reach 3.9 million tons by 2030 while aluminum will reach 3.1 million tons, with market size for both metals growing six times over that period.
Total metals demand from lithium-ion batteries will reach 13.5 million metric tons by 2030.
BloombergNEF expects the nickel-manganese-cobalt oxide (NMC) 622 and NMC 811 battery chemistries to be prevalent in passenger electric vehicles in Europe this decade. Most European original equipment manufacturers (OEMs) have announced their reliance on high nickel chemistry batteries, for performance applications, although they will use lithium-iron-phosphate (LFP) for low-cost entry-level vehicles. It would be more practical for the DRC. to produce precursors that would ultimately have commercial value in its most dependent market, Europe, as Africa works toward building its domestic demand.
Building a 10,000 metric-ton precursor facility in the DRC could cost $39 million. This is three times cheaper than what it would cost for a similar plant in the U.S. A similar project in China and Poland will cost $112 million and $65 million, respectively. The capital cost in the DRC is cheaper than all three countries mainly due to the lower cost of land and construction of the project (Figure 1 and Figure 2).
Operating a 10,000 metric tons precursor facility in the DRC that procures cobalt at cost (integrated scenario) from a captive mine is the most cost competitive, compared to a similar plant in the U.S., China and Poland. Operating in the DRC becomes more expensive than Poland once the plant has to procure its cobalt at spot prices (non-integrated) (Figure 3 and Figure 4).
An optimal mix of concessional loans, development funds, private debt and equity could maximize the project net present value (NPV). At an interest rate of 8.5% and a theoretical precursor price of $32/kg, the project NPV is $11 million, as shown in Figure 5. The project NPV increases to $20 million at a 5% interest and rises further to $26 million at a 3% interest rate. This shows that high interest rates could increase total project cost. Working with development finance institutions on adding a tranche of concessional financing – debt at a discounted rate compared to typical market rates – could significantly reduce the cost of borrowing. However, over-reliance on concessional loans could crowd out investment from private lenders.
The project partners indicated their interest in developing a 100,000 metric-ton capacity precursor plant in the DRC using BloombergNEF’s top-down approach, we estimate a 100,000 metric tons precursor plant built in the DRC could cost $301 million. A 100,000 metric-tons-per-annum NMC (622) precursor plant will require 16,000 metric tons of cobalt annually as well as 48,000 metric tons and 15,000 metric tons of nickel and manganese, respectively.
Building a 10,000 metric-ton precursor facility in the DRC could cost $39 million. This is three times cheaper than what it would cost for a similar plant in the U.S. A similar project in China and Poland will cost $112 million and $65 million, respectively.
Producing the precursors in the DRC for packs assembled in Salzgitter, Germany, and cells manufactured in Nysa, Poland will reduce the life-cycle emissions of cells by 30% compared to making the precursors in China, and 9% compared to making them in Poland. This is due to the DRC’s proximity to some cathode raw materials and relatively clean grid.
Countries in Africa must create a diversified capital market that supports battery research, early-stage products and the scale-up of manufacturing for the electric vehicle industry. Development finance institutions such as the AfDB and BADEA can support research and early-stage projects through grants. Also, institutions such as the Afreximbank and the AFC can complement commercial banks by providing loans to mature companies to support expansion, whilst the ALSF can provide legal support for business transactions.
African countries must formulate policies such as zero-emissions vehicle subsidies, emissions regulations and consumer incentives to boost demand for electric vehicles in order to attract cell manufacturing capacity to the continent.
The DRC must upgrade its infrastructure, from electricity, roads, ports, and rail to electric vehicle charging ports, to support low-cost manufacturing and integration of electric vehicles.
In line with setting up the precursor manufacturing plant, the DRC must also develop a research center to invest in next-generation battery technology to support the budding industry and to also train the local workforce.
Government must promote fiscal certainty through the provision of laws and regulations that support local businesses. The government could also create specialized economic zones with a focus on the electric-vehicle industry, with a clear mandate to protect investment capital, guarantee business continuity and lower the risk of operating business in the country.
The government could set up a one-stop-shop to coordinate and streamline engagement with third-party organizations. This will improve transparency and reduce red tape associated with activities such as licensing, permitting and intellectual property negotiations. This could either be through a joint venture between the state and its strategic partners or a special purpose vehicle.
The full report can be read here