India, along with the rest of the world, is increasingly shifting towards renewable energy systems and electric vehicles (EVs) to combat climate change and reduce dependence on fossil fuels. Thus, there is a significant global thrust on setting up and expanding solar cell facilities, wind turbine factories and lithium-ion battery manufacturing units. This, in turn, is significantly driving up the demand for crucial metals and minerals, such as copper, lithium and rare earth metals.
In fact, according to the International Energy Agency’s (IEA’s) recent Critical Minerals Market Review 2023, the global market size for energy transition minerals has doubled over the past five years and continues to witness rapid growth. The report indicates that the clean energy sector has led to a 40 per cent and a 70 per cent increase in the demand for nickel and cobalt, respectively, between 2017 and 2022. The overall demand for lithium tripled during this time. Consequently, investments in the development of these critical minerals have also been on the rise, with lithium the highest increase witnessed followed by copper and nickel. These investments are expected to continue increasing in the future as the demand for minerals keeps growing.
The overall renewable energy and EV industry heavily relies on specific minerals, leading to concerns regarding their supply, as both renewables and electric mobility have gained significant traction over the past few years. According to the IEA, mineral production activities remain concentrated in a few countries, and supply chains have not diversified to the required levels. For instance, China accounts for a large share of global mineral production and dominates the extraction and refining of minerals such as graphite, rare earth metals, copper, cobalt and lithium. The country was severely impacted by the Covid-19 pandemic and subsequent lockdowns, slowing down the extraction, processing and export of critical minerals.
Meanwhile, Indonesia holds a major share in nickel extraction and refining, while Australia and the Democratic Republic of Congo dominate the global extraction of lithium and cobalt, respectively. Moreover, Russia and Ukraine are major producers of essential minerals such as nickel, palladium, titanium, sponge metal and the rare earth element scandium in the case of former, and titanium, lithium, cobalt, graphite, tantalum, niobium and beryllium in the case of the latter. However, the ongoing conflict between the two countries has caused major disruptions to the global mineral supply chains.
The concentration of mineral production in a few economies has had a significant impact on the supply chains of minerals. It has been further exacerbated not only by pandemic-led disruptions and the Russia-Ukraine conflict, but also current geopolitical issues and global trade tensions. Consequently, the price of some of these essential minerals rose significantly in 2021 and 2022, and while they have started to decline, they remain higher than global historical averages, according to the IEA. As a result, the cost of raw materials for clean energy equipment has been impacted, increasing overall project costs. Given these concerns, there is a renewed focus on diversifying supply chains. Governments as well as large mining firms are making significant efforts in this direction, exploring new reserves, establishing trade agreements and adopting recycling wherever possible.
Critical minerals for India’s energy transition
Like other economies, India too has been assessing its mineral needs and supply chains for clean energy, telecom and other sectors. The Ministry of Mines recently constituted a committee to identify the minerals critical for the country. The committee’s report on the identification of critical minerals has defined critical minerals, drawing from definitions adopted by the US, Europe and Australia, as those that are “essential for economic development and national security. The lack of availability of these minerals or even concentration of existence, extraction or processing of these minerals in few geographical locations may lead to supply chain vulnerability and disruptions”.
The committee adopted a three-stage assessment process to make this list of critical minerals. First, the critical mineral strategies of various countries were studied to identify the parameters for classifying minerals as critical. Based on this analysis, 69 elements or minerals were identified that are considered critical by countries such as Australia, the US, Canada, the UK, Japan and South Korea. Second, an inter-ministerial consultation was conducted to identify critical minerals for each sector. Finally, an empirical formula was derived to identify the list of critical minerals. Based on this assessment, the committee identified 30 minerals that it considers critical for the country, and this list takes into consideration factors such as the status of reserves and import dependency. This list of critical minerals includes antimony, beryllium, bismuth, cobalt, copper, gallium, germanium, graphite, hafnium, indium, lithium, molybdenum, niobium, nickel, platinum group elements, phosphorous, potash, rare earth elements, rhenium, silicon, strontium, tantalum, tellurium, tin, titanium, tungsten, vanadium, zirconium, selenium and cadmium.
Interestingly, many of these minerals are closely linked with India’s clean energy ambitions and their availability will determine the manufacturing and import of clean energy equipment in the country. According to the Central Electricity Authority’s recently released National Electricity Plan, India aims to achieve more than 360 GW of solar power and 120 GW of wind power by 2032.
As per a policy brief by the Center for Social and Economic Progress on Critical Minerals for India, the country does not produce any of the key minerals required for manufacturing solar cells, such as silicon, silver, indium, arsenic, gallium, germanium and tellurium. Similarly, wind turbine production requires chromium, manganese, molybdenum, nickel and rare earth elements. While the country does extract some chromium, manganese and rare earth elements, China dominates the bulk of mining and processing of rare earth elements. In the case of electric mobility, India intends to have an EV sales penetration of 70 per cent for commercial cars, 30 per cent for private cars and 80 per cent for two-wheelers and three-wheelers. EV batteries require minerals such as lithium, cobalt and rare earth elements, most of which are not mined in India.
India does not have many critical mineral resources that are essential for the overall clean energy transition. The country may have to rely on imports of either these minerals for developing its own equipment manufacturing capabilities or on procuring the components from other countries.
Key risks for India and the way forward
Going forward, India’s clean energy transition plans will demand significant quantities of critical minerals. The country lacks reserves of nickel, cobalt, molybdenum, rare earth elements, neodymium and indium. Moreover, its requirement of copper and silver is more than its current reserves. Even if new reserves have been discovered or are discovered in the future, ramping up mining and production will be time-consuming and complex, leading to a potential demand-supply mismatch, varying in intensity from mineral to mineral.
As is the case with demand and supply mismatches, certain minerals may experience price hikes due to supply shortages. The disruptions of the past few years have already increased prices to a certain extent, and this may continue in the future as well, especially as demand increases. Another concern is China’s dominance in global supply chains for many minerals. India has been focusing on reducing its imports from China and planning diverse supply chains.
Thus, going forward, India needs to focus its efforts on securing diverse supply chains for critical minerals that are important for the clean energy transition. Further, for minerals that have no or limited reserves in the country, efforts must be made to secure foreign mineral assets and collaborate with leading mineral producing countries to ensure future supply security. Another important consideration is recovery and recycling of used minerals, and the country needs to develop sufficient technical capabilities to undertake this activity on a large scale. When planned and executed properly, this approach can significantly contribute to securing the country’s supply chains.
India has already made some headway in developing critical mineral supply chains. It recently partnered with Australia to create resilient supply chains for critical minerals. The latter has committed $5.8 million to the three-year India-Australia Critical Minerals Investment Partnership. It is also exploring overseas agreements in mineral-rich countries such as Argentina and Chile. Further, India has joined the Minerals Security Partnership, a US-led venture to create critical minerals supply chains. It also has 11 other nations and the European Union as members. The country is currently a member of the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development, which supports responsible mining governance for better environment and communities.
Net, net, it is imperative for India to set up secure supply chains for critical minerals to develop its clean energy ecosystem and maintain its position as a leader in the clean energy space.