We expected this to be a piece about how the rising cost of critical minerals was hampering the green hydrogen transition.
But in the two months it took for us to dig deep into the supply chains, the price of cobalt, a critical mineral used for making batteries, electronics, and green hydrogen electrolysers, dropped 35%. Nickel and zinc, two other critical minerals for hydrogen electrolysers, have fallen 30% and 35% year over year. While risks are high in a rising price environment, opportunities abound when prices fall.
Our findings show that hydrogen electrolysers are surprisingly vulnerable to the volatility of critical minerals. But to our surprise, when we talked to green hydrogen developers, few had strategies to mitigate the risks this entailed or capitalise on opportunities when they present themselves.
Hydrogen electrolysers rely on a variety of critical minerals. Each electrolyser technology uses a different mix of metals and varying amounts of particular minerals. Therefore, each electrolyser technology has a different set of upstream risk exposures.
Critical mineral uses by electrolyser technology system type
Today’s dominant electrolyser technology, alkaline electrolysis (AE), requires large amounts of relatively common metals like zinc, copper, and nickel. The supply chain risks in those markets are caused by under-investment in bringing new resources online coupled with increasing demand across energy and other technology sectors.
Newer electrolyser technologies focus on delivering operating characteristics that are ideal for green hydrogen production. But to achieve these performance standards, they rely on rarer minerals.
Proton exchange membrane (PEM) electrolysers use small amounts of platinum and iridium, two of the worlds’ rarest and most expensive metals. To put this in perspective, the 1 kg of platinum group metals needed for a MW-scale PEM electrolyser can cost more than the 10 tonnes of minerals and metals needed for a 1 MW onshore wind turbine.
Solid-oxide electrolysis cell (SOEC) electrolysers, on the other hand, rely on the rare earth element yttrium and cobalt. Supply chains for these are highly concentrated in China and the Democratic Republic of Congo, with known human rights and labour violation risks.
Ramboll surveyed a basket of energy technologies, including both fossil fuels and renewables, and found that AE electrolysis had the highest share of total capital expenditure (CAPEX) tied to mineral costs.
Green hydrogen is not currently cost-competitive with hydrogen created from fossil fuels. It needs to become less expensive to compete. In the short term, one way to do that is by procuring minerals as cheaply as possible. In the long term, companies will drive down costs by designing systems that use fewer and less expensive minerals. But no matter what, there will be a competition between hydrogen and other energy transition technologies for limited critical resources.
Total CAPEX and mineral costs as percentage of total CAPEX ($/KW, 2021)
Like most infrastructure projects, green hydrogen projects progress through four key phases:
- Development and site selection (for the purposes of this article, “development”)
- Engineering, procurement, and construction (“implementation”)
- Operations and maintenance (”operations”)
- Decommissioning
From the perspective of an independent green hydrogen developer (not vertically integrated into either power generation or electrolyser supply chains), the exposure to different critical mineral supply chains shifts over time as the project progresses through its major milestones. As such, the risk associated with exposure shifts, as illustrated below.
Critical mineral risks never disappear completely
As the market matures, many green hydrogen projects are moving from development to implementation – the phase where the projects are most at risk from disruptions to critical mineral supply chains. This makes supply chain risk management particularly relevant today.
Price spikes and mineral scarcity can and do cause delays and cost overruns.
Given the high composition of critical minerals in the total CAPEX of green hydrogen technologies (especially AE), one volatile year with a price spike of a key mineral can ultimately turn an otherwise profitable project into a loss-making one. Meanwhile, a similar project, insulated from the shock due to a more comprehensive risk mitigation strategy, remains profitable.
The good news is that there are already established strategies for hydrogen developers to hedge and circumvent risks, including:
- learning from other green technologies such as EV batteries and wind
- employing supply chain transparency, partnerships with upstream suppliers, and circular economy principles to unlock opportunities to hedge against market disruptions
Developers who pursue these strategies will have a higher chance of succeeding while less-prepared competitors risk losing both time and money in an increasingly competitive market.
For questions and comments, please contact the editor of this story, Anders Brønd Christensen ,Content Advisor at Ramboll.
What are critical minerals?
Critical minerals are a category of elements that have strategic and economic importance, such as zinc, platinum and nickel that are used in renewable energy technologies. Many of these minerals have supply chains that are vulnerable to disruption, such as rare earth elements which are almost exclusively refined in China.
Want to know more?
Sasha Wedekind
Senior Manager, Energy Transition Management Consulting