How do high copper prices affect the green revolution?

Through many technologies that power energy conversion, we can see a red metallic light. Copper is an important part of green infrastructure from power grids to wind turbines, and the recent surge in copper prices may make decarbonization more expensive.

Copper prices have roughly doubled from their lows a year ago and are close to a nine-year high at the beginning of this month. Many analysts predict that a new commodity super cycle will kick off, but they say that metals as the core of green energy drivers have not yet reached their peak. Even after a 3.2% drop on Thursday, prices have risen by more than 30% in the past six months.

According to data from Citigroup Global Markets Inc., demand from renewable energy power generation, battery storage, electric vehicles, charging stations and related grid infrastructure accounts for about one-fifth of copper consumption. As governments set aggressive net-zero emissions targets in the next few decades, which means cleaner electricity, a shift that takes into account the construction of a $28.7 trillion grid, which may be copper-intensive.

Part of this growth will come from the need to connect new renewable energy power plants with customers. This is because it is usually the cheapest to build such power plants in places with the strongest wind or solar resources, which may be in the middle of the sea or in isolated deserts. But this means that more cables are needed than in the past for centralized power grids—expensive copper is used.

According to BloombergNEF's forecast, by 2050, the global power grid will grow by 48 million kilometers (30 million miles). This is enough to surround the earth's circumference by nearly 1,200 times, which is equivalent to doubling copper demand to 3.6 million metric tons.

Sanjeet Sanghera, an analyst at BNEF in London, said: “City, electrification and copper are mutually reinforcing. Copper plays an important role.”

Because its conductivity is almost twice that of aluminum, this metal is used extensively in underground cables. This reduces the energy required for power generation.

According to the British National Grid Corporation (PLC), there is 240 kilometers of electrical interconnection between the United Kingdom and France, called IFA2, using 9,000 tons of copper. It is planned to connect Denmark for 760 kilometers, requiring 26,000 tons.

According to BNEF data, in offshore wind power projects, the proportion of copper in the cost is still relatively small, but in the next few years, the proportion of copper will rise from the current 1% to 3% in 2050.

Vestas Wind Systems A/S estimates that a 100 megawatt wind farm using 4.2 megawatt turbines will use approximately 89 tons of copper in the turbines.

If the rise in copper prices proves to be lasting and push up the cost of green investment, some wind farms may use cheaper aluminum as much as possible. Compared with copper prices, aluminum prices have risen slightly. According to BNEF estimates, by 2050, the demand for aluminum from the grid infrastructure will reach 7.6 million metric tons.

Srinivas Siripurapu, chief innovation officer of cable manufacturer Prysmian SpA, said: “We believe that copper is still an indispensable part of interconnection lines. But for offshore wind farms, there are many signs that, driven by overall costs, it will become more important. Many places are advancing to the aluminum field."

It is not yet clear how much a direct impact of copper price increases will have on the financial status of green power operators. The turbine manufacturer Siemens Gamesa Renewable Energy SA hedged the prices of raw materials a year in advance, temporarily protecting them.

The rise in metals is largely driven by investors, who believe that as the pace of the green revolution accelerates, demand will soar. But their early optimism may eventually push up government costs as they begin to implement infrastructure spending plans.

Max Layton, managing director of commodities research at Citigroup Global Markets Inc., said that increased consumption of copper for decarbonization may drive annual demand growth by up to 3%. This will increase the time of supply shortage, and prices have the potential to rise.

Although rising prices mean that companies have the incentive to increase investment in the mining industry, which will help supply, the downside is the time it takes for the project to start and run.

Raul Jacob, chief financial officer of Southern Copper Corp., said in an interview on Monday: "If this price level remains the same, we should see new projects announced to enter the market." But there is a lag from decision-making to production. Will make the price cycle "slightly longer than in the past."