Securing the Supply Chain: Role of critical minerals in India’s clean energy transition

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.

By Khushboo Goyal