Green energy economics: Redefining geopolitics and business

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  Quantumrun Foresight
• July 12, 2023

Insight highlights

The renewable energy sector is expected to grow dramatically over the coming decade thanks to increasing government subsidies and technological innovation that are driving down costs. Industry leaders believe renewable energy has transitioned to a central economic and infrastructure policy, driven by governments and customers choosing environmentally friendly and economical energy solutions. However, the ambitious transition to a fully electric future heavily relies on access to several rare earth minerals. As a result, the anticipated supply deficits may reshape global dynamics and create a new geopolitical landscape around minerals critical for green technologies.

Green energy economics context

According to the New York Times, industry experts indicate that the renewable energy sector is expected to retain reliable growth rates throughout the 2020s. The renewable energy sector experienced minimal impacts from COVID restrictions compared to other industries, with only a few companies experiencing slight interruptions. Key factors contributing to this resilience include the consolidation of businesses, which has resulted in stronger players in the sector. An example is Siemens Gamesa, established in 2017 from a merger between the German industrial behemoth Siemens and the Spanish company Gamesa.

Additionally, the industry's persistent efforts to lower costs have proved wildly successful. For instance, the turbines at offshore wind farm East Anglia One are fifteen times more powerful than those first installed nearly three decades ago, generating significantly more revenue per unit. US wind power, for instance, often measures as the nation’s most cost-effective electricity source.

Industry leaders argue that renewable energy has transitioned from being a peripheral player to a central figure in the energy sector’s growth investments, which could provide it with a better chance of successfully navigating the crisis. When it comes to electric power—a critical element for all economies—governments and customers are increasingly opting for environmentally friendly energy solutions, not only due to their potential to lower carbon emissions but also because they are often more economical. Moreover, as manufacturing and transportation continue to be increasingly powered by electricity, the demand for renewable energy is anticipated to rise dramatically.

Disruptive impact

However, the ambition for a fully electric future is highly reliant on copper, and anticipated supply deficits may jeopardize countries' targets of achieving net-zero emissions by 2050, according to an S&P Global report. The report warns that without a considerable influx of new supply, climate objectives could be disrupted and remain unattainable. Copper is integral to electric vehicles, solar and wind energy, and energy storage batteries. 

Electric vehicles, for instance, need 2.5 times more copper than vehicles with internal combustion engines. Additionally, compared to power produced using natural gas or coal, solar and offshore wind power require twice and five times more copper per megawatt of installed capacity, respectively. Copper also plays a crucial role in the infrastructure that delivers renewable energy, mainly due to its electrical conductivity and low reactivity. 

The escalating demand for metals and rare earth minerals is poised to reshape global dynamics as nations vie to secure resources such as copper, lithium, and nickel. A new geopolitical landscape centered around minerals like copper might emerge, especially since the supply chain for copper is far more concentrated than other raw materials, including oil. China has proactively established a dominant position in the supply chains for minerals critical for achieving net-zero carbon. In contrast, US copper production has dropped nearly by half over the past 25 years.

Implications of green energy economics

Wider implications of green energy economics may include: 

• Governments prioritizing renewable energy policies and investments, leading to a shift in political dynamics. International cooperation on green energy initiatives can strengthen diplomatic relations and foster collaborative efforts to combat climate change. Alternatively, select countries with concentrations of rare earth minerals may choose unite under a block (similar to OPEC) to control the supply and prices of these green sector resources.
• The increasing costs and supply chain difficulties associated with using rare earth minerals leading to private sector innovations that permit the manufacture of renewable technologies that use less rare minerals or transition to more widely available minerals.
• Breakthroughs in energy storage, grid integration, and smart grid technologies, revolutionizing the energy sector and opening up more business opportunities.
• Countries gradually becoming more self-sufficient in meeting their energy needs, leading to more stable and resilient global economies. By the 2040s, household and industry spending on electricity may fall due to renewable energy abundance, leading to a new deflationary era of cheaper manufactured goods and services.
• Job creation and economic growth as the renewable energy sector will continue to expand its need for a skilled workforce to install, maintain, and manufacture clean energy technologies.

Questions to consider

• How is your country preparing for a green energy transition?
• What might be some geopolitical tensions that could result from renewable energy production?