Essential minerals to play a key role in clean energy supply

NAB has welcomed an agreement between Australia and the US to secure clean energy supply chains, with a senior executive saying the bank was optimistic about playing a key financing role in future projects.

NAB executive, corporate finance, Connie Sokaris, said more established critical minerals such as lithium were increasingly attracting commercial bank financing.

We are still learning with respect to rare earths, and with more transparency and clarity on the mining methods and some stability in pricing, we were optimistic about playing an important financing role going forward, Ms Sokaris told a conference in Perth.

At the moment it is not a direct borrowing sector because the projects are still very small.

Critical minerals such as lithium, copper, cobalt and rare earth elements – a collection of 17 elements on the periodic table are essential components in many fast-growing clean energy technologies, from wind turbines and power grids to electric vehicles.

Australia has some of the world’s richest critical mineral deposits, and is widely seen as a country with the potential to become a critical mineral and renewable energy superpower.

Elsewhere, supply is limited to a few locations and highly vulnerable to disruption.

The CSIRO has said that, with the rise of electric vehicles and battery, solar and wind technologies expected to rise over the next decade, demand for some critical minerals would exceed current sources of supply, creating bottlenecks and increasing the increasingly fragile supply chains come under pressure.

Industry and governments around the world have recognized the problem and are taking action to strengthen and diversify supply chains.

Earlier this month, Prime Minister Anthony Albanese and US President Joe Biden signed the Climate, Critical Minerals and Clean Energy Transformation Compact on the sidelines of the Group of Seven summit in Japan.

The pact is a statement of intent to establish climate, clean energy and a shared industrial energy base as the third pillar of the alliance, along with defense and economic cooperation.

The US, through the Inflation Reduction Act and other measures, has the capital and strategic power to create the global supply chains.

With the IRA allocating approximately $520 billion to diversify and de-risk supply chains in the clean energy sector, there were concerns that the size of the investment could drain funds from Australia.

There is now hope that the pact will enable Australian companies to tap into some of the IRA’s rich grants and aid.

In the meantime, Ms Sokaris said there was a lot of cooperation between the banks and government agencies, such as Export Finance Australia (EFA) and the Northern Australia Infrastructure Facility (NAIF).

This was to be applauded and would hopefully continue.

However, decarbonising not only Australia and the rest of the world was a new phenomenon, with projected shortages of 20 percent in some critical minerals by 2025.

It really turned out to be a dime, said Mrs. Sokaris.

Some of the risks around processing and downstream are not risks that commercial banks have seen before; nor are they risks that we can take because we can’t measure them and we don’t really understand them, or how they’re going to play out from a debt perspective.

Previously, it was equity that took on this kind of risk.

But we’ve been working closely with our clients and NAIF, EFA and others to really flesh out which of the projects we think we can support and what that support looks like.

According to Ms. Sokaris, lithium faced similar challenges a few years ago when transparency was also a challenge.

But now that we have the transparency in that market and what the prices look like, it’s easier to put money into that, she said.

As the rare earth portion of critical minerals matures, debt financing will play a greater role.