Wind industry prepares for “bottlenecks and price hikes” in rare earth metals
Rare earth metals are important in the new energy economy, in particular in offshore wind turbines and Chinese onshore turbines. Companies in Europe and the US are working to decrease their dependence on these elements and reduce the potential risk of price rises and shortages. Earlier this year, China — which dominates the mining and processing of rare earths — suggested the elements could be brought into its trade disputes with Washington. And most recently, US President Donald Trump has been eyeing Greenland, in part because it has large deposits of rare earths.
Global annual demand for the three most used rare earth metals, all of which help power the clean energy economy, was worth $3.3 billion in 2018, says Adamas Intelligence, a consultancy. By 2030, Adamas projects a 2.1 increase in global demand for the two main rare earth metals (neodymium and dysprosium) used in wind turbines and electric vehicles. About a third of wind turbines installed globally in 2018 incorporated rare earth permanent magnet generators (PMGs). This proportion could grow to two-thirds in ten to 15 years as next generation designs call for more “power per tower”, says Gareth Hatch, head of business development at the consultancy — with an increase in offshore turbines globally and in offshore and onshore turbines in China fuelling growth.
By eliminating the need for a massive mechanical gearbox, wind turbines with PMGs weigh less than their traditional counterparts, explains Hatch. And, while direct drive turbines containing rare earth magnets may cost more than geared turbines, they are also seen as requiring less maintenance, an important factor for offshore wind farms, where maintenance operations are costly.
Shashi Barla, global wind supply chain and technology analyst at Wood Mackenzie Power & Renewables, comes to similar conclusions. He estimates that 20–25% of new wind turbines installed globally in 2018 incorporated rare earth PMGs, growing to 65% in the next ten years.
China has hinted it could drag these elements into its trade war with the US, but analysts are sceptical. “I do not think China will use them as geopolitical weapons. They already used this trick a decade ago and the wind industry has started to look for alternates,” says Barla. “[The] wind industry is working on reducing the rare earth content in turbines with design enhancements and improvements.”
Spain-based Siemens Gamesa will phase out direct-drive generators for onshore turbines by 2020–2021 primarily because of the technology’s cost and instability around the price of dysprosium and, to a lesser degree, of neodymium, says Barla. But the company, the offshore wind market leader outside China, will continue to use direct-drive generators with PMGs for offshore turbines, meaning its consumption of rare earth oxides will continue to increase, says the analyst. Offshore turbines made by Denmark-based MHI Vestas include a medium-speed geared drivetrain generator that uses lower amounts of rare earth oxides. A low-speed direct-drive turbine with a PMG uses four times more rare earth oxides than a medium-speed drivetrain, says Barla. Each drivetrain technology has its pros and cons, and different vendors make different technology decisions, he states.
WindEurope, the Brussels-based industry organisation, will issue a report on rare earth metals this autumn.
Maturing industry
In May 2019, President Xi Jinping of China visited the centre of the country’s rare earth mining industry in Jiangxi province. It was Xi’s first domestic trip since the latest escalation of the US-China trade war and sparked fears that China could use rare earths to change Washington’s stance on implementing tariffs on Chinese goods. After Xi’s visit, global prices of rare earths jumped a little. In June, as the trade war ramped up, US President Trump and Canada’s Prime Minister Justin Trudeau ordered officials to develop a plan for bilateral collaboration on “critical minerals” such as rare earths, an initiative in which Australia is also partnering.
In July, it emerged that the Pentagon was starting to assess domestic rare earths capability. Then in August, Trump proposed buying Greenland, an idea that was quickly rebuffed. The US State Department had signed a memorandum in June to cooperate with Greenland to boost mineral exploration, including of rare earths.
The potential for global disagreements over rare earths has long been apparent. Previous Chinese leader Deng Xiaoping said in 1992: “The Middle East has oil and China has rare earths.” And almost a decade ago, following a territorial dispute, China banned rare earth exports to Japan, the second largest manufacturer of rare earth permanent magnets, leading to major price spikes. The price of neodymium oxide in 2011 was $360 a kilogram (kg), dropping in 2017 to $50/kg and only rising a little in 2018 to $51/kg, says information provider IHS Markit.
Until the 1980s, the US controlled most of the global rare earth market, but by 2018, about 63% of rare earth minerals were mined in China, with the rest coming from Myanmar, Australia and the US, says IHS Markit. China contains a third of the world’s rare earth reserves, Australia about 10%, Russia 10% and Brazil 10–12%. China also processes and separates 88% of the world’s rare earths — the only major separation plant outside China is in Malaysia — and accounts for 80% of US imports. Even the small amount of rare earths still mined in the US is shipped to China for processing.
Chinese dominance
“The Chinese have worked so hard to build up a rare earth oxide industry from a hole in the ground up,” says Roger Turner, research fellow at the US Science History Institute. Another way of looking at China’s rise to dominance is that the world has been content to outsource the pollution from mining and processing rare earths to China, he says. But this over-reliance on one country is starting to raise concerns. “China is locking up the supply chains whereas the US has been sleeping,” says Simon Moores, managing director of London-based Benchmark Mineral Intelligence. “If the US continues to rely on China, it is going to end in tears.”
Boston University academic Julie Klinger, author of the book Rare Earth Frontiers, views the anguish over rare earths as fuelled by deeper jitters over China’s increasing broad economic dominance. She adds that China is adjusting and rationalising its maturing industry and, for environmental reasons, starting to outsource mining. The Chinese government has already dispatched geologists to South-East Asia and Africa to help find rare earth metals.
China is also keen to build up the higher-value processing of rare earths and the manufacturing of components that use them. By 2025, China is expected to control 95% of the global rare earth magnet market, up from 90% in 2018 and 80% in 2010, says Adamas. Rare earth feedstock will increasingly flow through China’s value chain leaving users with a higher degree of opacity and ambiguity, says the consultancy.
“China controlling more of the value chain — both horizontally and vertically — reduces transparency and predictability for others, and it matters. Transparency and reliability are important for any business,” says Indra Øverland, head of the Centre for Energy Research at the Norwegian Institute of International Affairs. He adds: “One of the most interesting things is how the Chinese are not using the rare earths weapon at the moment. If there ever was a situation in which it should be attractive to use it, it should be this trade war. [China] may still do so, but in that case they will also pay the price.” China needs to make money by exporting rare earths oxides and compounds, and rare earth magnets.
Technological innovation
Øverland nonetheless predicts supply bottlenecks and price hikes. The wind industry could handle this, he says, by stockpiling rare earth products, diversifying supplies where possible and emphasising reliable supply sources, with long-term contracts with “safe” suppliers, and with technological innovation.
The West is looking at developing more of its own mines and processing, with companies from the US, Canada and Australia considering investing. Moores of Benchmark Mineral Intelligence stresses that it takes much time and money to develop an industry. An average-sized rare earth separation plant can cost over $1 billion.
The rare earths supply could, in theory, be increased by urban mining, recovering materials from used products. Rare earths are being recycled, but the industry is still in its infancy and prices of rare earths have not been high enough to prompt much urban mining. In 2018, around 10% of the rare earth oxide supply in China was obtained from recycled sources, says IHS Markit. Recycling initiatives are under way, too, in Europe, the US and Japan, but it will take time before this material is available on the market, says the consultancy.
As for technological innovation, wind turbine manufacturers already have alternate generator configurations on their drawing boards and they could accelerate these developments if there are challenges to rare earth supplies and/or price spikes, says Woodmac’s Barla. But new technologies can take years to commercialise and “drastic departure from current technologies will pose financing risks for financial institutes as debt lenders will be cautious of unproven technologies,” he adds.
Øverland believes design advances would likely trump supply disruptions. The scope for innovation is often greater than people think, he says, citing the massive advances in solar and wind power over the last decade. “The energy transition is above all about technology and innovation,” he says. “It is impossible to predict with certainty which renewable energy technologies will be developed in the future.”
This story by Ros Davidson was originally published in FORESIGHT Climate & Energy’s Markets section
