EU set to dig into raw materials supply

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From pv magazine 06/24

The EU Critical Raw Materials Act (CRMA) entered into force at the beginning of May 2024. In a bid to diversify the supply of strategic raw materials, the CRMA sets benchmarks for domestic production capacities of these materials.

The regulation states that the EU’s domestic extraction capacity should be able to extract the ores, minerals, or concentrates needed to produce at least 10% of the annual consumption of strategic raw materials, “to the extent that the union’s reserves allow for this.” It also stipulates that domestic processing capacity, including for all intermediate processing steps, should be able to produce at least 40% of the EU’s annual consumption of strategic raw materials. Moreover, the EU’s recycling capacity, including for all intermediate recycling steps, should be able to produce at least 25% of domestic annual consumption, according to the regulation.

Importantly, the CRMA also states that, by 2030, no more than 65% of the EU’s annual consumption of each strategic raw material at any relevant stage of processing can come from a single third country. It is worth pointing out that the aforementioned targets are not legally binding, meaning member states cannot be taken to court for non-compliance.

Among the raw materials considered strategic are aluminum, cobalt, copper, gallium, lithium, graphite, nickel, silicon metal, and rare earth elements for magnets.

Faster permitting is also key. Under the CRMA, extraction projects will receive their permits within a maximum period of 27 months while recycling and processing projects should secure their permits within 15 months.

The CRMA’s entry into force comes amid a fragile geopolitical backdrop. After adopting the CRMA in a plenary vote in December 2023, the European Parliament noted in a statement that “since the Russian war against Ukraine, and an increasingly aggressive Chinese trade and industrial policy, cobalt, lithium, and other raw materials have also become a geopolitical factor.”

Critical raw materials are mostly sourced outside the European Union and for some of them, the European Union is solely dependent on one country. According to the European Commission, China provides 100% of the EU’s supply of heavy rare earth elements, Türkiye provides 98% of the EU’s supply of boron, and South Africa provides 71% of the EU’s platinum.

The commission plans to decide on a list of strategic projects that make a meaningful contribution to security of supply, by December 2024. These projects will benefit from faster permitting and easier access to finance, according to the plans.

Accessing finance for mining projects remains difficult, as some EU politicians have noted. Greek MEP Anna-Michelle Asimakopoulou described the CRMA as “an important first step” but added that the private sector needs more incentives to invest. Kerstin Jorna, the European Commission’s director-general for ­internal market, industry, entrepreneurship and small and medium-sized enterprises, highlighted what she referred to as “big manipulation” of the current nickel market.

Jorna added that the CRMA opens the door for joint demand aggregation and joint purchasing of raw materials, similar to the system of joint purchasing of natural gas that has already been established. The regulation also obliges companies to take a good look at their security of supply of raw materials.

“And if you look at the Net Zero Industry Act [NZIA], it actually tells member states when you auction … or you have a procurement or give some subsidies, you could impose some non-price criteria like that green nickel in the battery you buy for your energy storage system,” added Jorna.

NZIA center stage

The NZIA, which is closely linked to the CRMA, was adopted by the European Parliament in a plenary session in April 2024. Formal endorsement by the Council of the European Union is expected in summer 2024.

The NZIA sets a target for Europe to produce 40% of its annual deployment needs using net-zero technologies by 2030, based on National Energy and Climate Plans (NECPs) and to capture 15% of the global market value for these technologies. As with the CRMA, these targets are not binding for member states.

Technology to be supported includes renewable energy systems such as solar, hydrogen, onshore and offshore wind, and energy storage. It also includes carbon capture and nuclear power.

The regulation aims to simplify the permitting process, setting maximum timelines for projects to be authorized. For Net Zero Strategic Projects, the length of the permit-granting process should not exceed 12 months for facilities with a yearly production output of 1 GW or more, and nine months for those with a yearly production output of less than 1 GW.

Specifically on solar power, the NZIA outlines a goal of at least 30 GW of operational solar manufacturing capacity by 2030 across the full PV value chain, in line with the goals set out by the European Solar Photovoltaic Industry Alliance. Currently, 97% of the solar panels imported by the European Union come from China, according to the European Commission. Member states should also set up national ­programs to support the massive deployment of rooftop solar energy, as per the NZIA regulation.

Funding gap

As for financing, the NZIA states that several EU funding programs – such as the Recovery and Resilience Facility, ­InvestEU, cohesion policy programs, and the Innovation Fund – are available to fund investment in net-zero technology manufacturing projects.

The Innovation Fund has so far granted €400 million ($434.8 million) over two years to support new investment in solar manufacturing projects. In January 2024, for example, Enel Green Power’s “3Sun” heterojunction cell and module production factory secured a €560 million financial package to back the expansion of its production capacity. Located in Catania, Sicily, 3Sun’s existing production capacity of around 200 MW a year is set to expand to 3 GW by the end of 2024, thus becoming the largest solar factory in Europe.

The funding is made possible thanks to the support of a consortium of Italian banks whose commitment is backed by Italy’s SACE export credit agency, and European Investment Bank (EIB) direct financing backed by the InvestEU program. The EIB loan amounts to €47.5 million. However, the EIB finance also includes intermediated loans to ­­commercial lenders, for €118 million, which could be increased to up to €342 million in 2024, bringing total EIB support for 3Sun to €389.5 million.

Yet the funding made available so far is a drop in the ocean compared with the massive investment needed to scale up mining and green technology production in Europe. To this end, industry observers say the NZIA and CRMA fall short as a response to the US Inflation Reduction Act (IRA), which offers tax incentives, among other measures.

“[The] NZIA is less effective than the IRA because the EU cannot use taxation as an instrument for the reimbursement and the EU is, to a certain extent, dependent on green industrial subsidies provided by member states from their own budgets,” said Louise van Schaik, the head of unit and senior research fellow at the Clingendael Institute in the Hague.

The targets under the CRMA and NZIA are, in any case, seen as ambitious and will be difficult to achieve. “For critical raw materials, it will still be difficult to open mines in Europe because this is not popular among voters and the moment EU industry moves abroad there is the risk of it being accused of being neo-imperialistic or a climate colonialist, apart from its private sector not having mining and processing knowhow,” Van Schaik said. “But the raw materials partnerships with Kazakhstan, Canada, Chile, and others are a good start.”

Outside opinion

In a speech at the College of Europe in Bruges in April 2024, Fatih Birol, executive director of the International Energy Agency (IEA), said that if coal is king, “solar is the queen because solar is the winner.” But he raised the issue of overreliance on Chinese solar panels.

“It was Germany, Spain, Italy, who, some 25 years ago, started the solar adventure in the world,” said Birol. “Solar started with Europe. We were the leaders, manufacturers. But after a few years, governments dropped the ball and China took it over. And China dominates the game around the world now, big time. So, therefore, in my view, it was a huge mistake that we did not have consistent policies for solar and now missed a big opportunity.”

Asked about his opinion on the NZIA, Birol said it was a step in the right direction but he added that policies need to be much stronger, with clear incentives and a much bigger role for public sources. “We cannot leave everything to the markets here,” Birol said, reiterating calls for an industrial strategy.

EU policy breakdown

Some of the recently adopted (or soon to be adopted) EU policies will likely have an impact on the deployment of solar power in Europe. Critical Raw Materials Act/Net Zero Industry Act: This sets targets for domestic sourcing of raw materials and clean technology and also opens the door for faster permitting of projects. Electricity Market Design (regulation and directive): This policy aims to boost the market for power purchase agreements (PPAs) and two-way contracts for difference (CfDs). The plan is to reduce the role of gas as a price-setting fuel. Regulation on the internal markets for renewable and natural gases and for hydrogen (“Gas Package”): This policy sets out hydrogen market rules and establishes the European Network of Network Operators of Hydrogen (ENNOH) as an independent transmission system operator to coordinate the planning, development, and operation of EU hydrogen infrastructure. EU carbon market reform/Carbon Border Adjustment Mechanism (CBAM): Reform of the EU Emissions Trading system (EU ETS) means free carbon allowances for heavy industry will be phased out gradually and the supply of allowances to markets will be tightened. This is expected to lead to higher prices for EU carbon allowances, which will benefit renewable energy, including solar. Under CBAM, importers of cement, iron, and steel, aluminum, fertilizers, electricity, and hydrogen products from non-EU countries will be subject to carbon prices similar to the ETS. Renewable Energy Directive (revised): This policy raises the target for the share of renewable energy in the EU’s final energy consumption to 42.5% by 2030 (up from 32% previously), with an additional 2.5% indicative top-up to reach 45%. It also sets out measures to accelerate permitting for renewables projects.

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