There has been a major flurry of strategic and funding activity around Australia’s once in a hundred year battery supply chain opportunity in the last two weeks.
A response at speed and scale is needed, given the US Inflation Reduction Act (IRA) and the Department of Energy’s (DoE) Loan Program Office funding of US$400bn is being deployed at massive scale, as witnessed by last Friday’s US$9.2bn loan to Ford and South Korean’s SK On’s BlueOval SK US battery joint venture.
The Queensland Government announced the Queensland Critical Mineral Strategy this week, a $245m framework to grow the state’s critical mineral sector.
The strategy provides tangible support to expand Queensland’s industry, reducing rent for new and existing exploration permits to zero over the next 5-years, establishing critical mineral zones and allocating $75m to support investment in advanced projects.
The Queensland Strategy also dedicates $100m to the new Queensland Critical Minerals and Battery Technology Fund (QCMBFT), designed to scale the state’s battery manufacturing value chain.
The Fund will provide grants of up to $2m to accelerate feasibility studies, pilot projects, manufacturing capability and advanced materials manufacturing; and provide equity and debt facilities of up to $30m to firms seeking to scale up manufacturing onshore.
The development in Queensland comes days after the Federal Government announced the Critical Minerals Strategy 2022-2030, which seeks to build sovereign capability in value-added critical minerals processing and downstream material manufacturing. The Strategy’s cornerstone funding is $500m earmarked to the Northern Australia Infrastructure Facility (NAIF).
Given the global scale of Australia’s opportunity, the Critical Minerals Strategy is a missed opportunity. It falls short in ambition and industry support.
Australia needs bolder ambition to deliver, at the necessary speed and scale, a nation-building effort to leverage Australia’s competitive advantage in critical mineral and renewable energy resources, including battery value chain, or risk getting locked out of the massive opportunity of global initiatives like the +US$800bn US IRA and DoE funding – initiatives that reflect the urgency of the global investment race well underway.
Australia’s new Climate, Critical Minerals, and Clean Energy Transformation Compact with the US, if approved by Congress, will make Australian firms and projects eligible to be underwritten by that unprecedented pool of US decarbonisation capital. So it is critical that we act with strategic speed now.
The new Critical Minerals Strategy does get it right in two key areas: it really highlights the need to work collaboratively with our First Nations people to ensure equity of participation and collaboration.
And it places a strong focus on leveraging foreign investment and international partnerships to catalyse downstream processing in Australia, and attracting public and private capital from firms that have demonstrated their IP and expertise at scale.
This approach – the imperative of building international partnerships across critical mineral and advanced manufacturing value chains with key trade allies – is the core focus of Climate Energy Finance’s new report, a Value-Added Critical Minerals Bilateral Agreement for Australia and South Korea.
In our view, an Australia-South Korea Compact across value-added critical mineral industries, and scaling of the capacity and cooperation of our respective export credit agencies, should be a strategic federal priority.
Such a Compact would bring material gain to both economies as Australia seeks to move beyond its dig and ship history and capture value further downstream by value-adding and building batteries onshore.
South Korea is the second largest battery producer in the world, holding a 26% global market share, second only to China.
Korea’s battery industry is booming off the back of a strong government-industry collaboration and unprecedented EV demand globally, with Korean EV exports growing 104% in April 2023 compared to April 2022.
The automotive sector is now the largest contributor to Korea’s trade balance. Korea’s battery majors (LG Chem, Samsung SDI and SK On) have driven incredible demand for battery materials in recent years.
Leading battery chemical companies have also emerged in South Korea over the past decade, with POSCO Future M, LG Chem and EcoPro racing to compete with China and become global suppliers of value-added battery materials.
To date, South Korea’s battery industry has been focussed almost entirely on electrified transport, as opposed to stationary and grid-scale battery storage. Now, South Korean firms are seeking to diversify their industry, directing capital into stationary storage batteries.
Australia’s world-leading critical mineral resources and potential to value-add provide an incentive for South Korean firms to invest here.
Our ability to integrate mine, concentrator and refinery means Australia is able to produce value-added lithium 52% cheaper than the rest of the world, when transport logistics are incorporated.
As Australia invests further down the value stream, integrating supply of key material across the upstream and midstream stages of battery production – that is, in mineral processing and battery precursor material production – Australia can benefit from the same competitive cost structures as it currently does for lithium refining.
This provides a mammoth opportunity for Australia to attract IP, expertise, investment, labour and trade to build a stationary storage battery manufacturing industry onshore – and we should be partnering with Korea to achieve this.
South Korean firms have demonstrated, at speed and scale, their expertise across battery and midstream chemical manufacturing. It is in Australia’s national interest to integrate further into this new energy value chain, safeguarding our export industry as the world economy decarbonises.
In order to achieve this, Australia must meet the challenge of bringing the cost curve down further across the entire supply chain, making the investment case for stationary storage manufacturing capability onshore.
To do this, Australia should mobilise its strategic national interest public capital and commit to a focused and sizeable domestic response to the IRA, in the form of a $100bn public investment.
We estimate this will crowd-in the $200-300bn of private investment needed to seize Australia’s renewables investment, employment and value-added export opportunities, including in battery supply chains.
This should be funded by the Australian government’s established nation-building and energy transition finance instrumentalities including the Clean Energy Finance Corporation (CEFC), the Future Fund, the Australian Renewable Energy Agency (ARENA), the NAIF, and Export Finance Australia (EFA).
Australia and Korea have an existing partnership through our respective export credit agencies, with EFA and Korea’s Trade Insurance Corporation (K-SURE) signing an MoU in February 2022 focussed on scaling our joint financing capacity across critical minerals, low-emission technologies and regional infrastructure.
The MoU is evidence of the increasingly key role of bilateral agreements in boosting international critical minerals and cleantech supply chains, including across the Indo-Pacific, and enhancing cooperation, expertise sharing and new investment opportunities.
As our report details, another key to onshoring battery supply chains here is Renewable Energy Industrial Precincts (REIPs) – dedicated clusters of value-added material manufacturing near key regional export hubs, powered by renewable energy.
These should also attract federal funding. In addition to decarbonising production, REIPs provides the mechanism for public-private international partnerships into downstream investment.
Collaboration with South Korea into these regional export hubs across Australia will mutually enhance our global position across the battery value chain, while leveraging our synergies and respective expertise in mining, minerals processing and material manufacturing.
Another benefit of this approach is that the integration of mine-to-battery supply chains in REIP battery hubs will significantly reduce production costs against a backdrop of volatility and inflation of raw material prices as demand outpaces supply, making onshore battery manufacturing capability globally competitive.
Complementing this, the hubs are a pathway for Korean firms to scale up stationary storage and heavy-haulage mine equipment EV capacity, providing global supply chain diversification from China’s dominant industry, whilst catalysing Australia’s downstream industry.
Localising production can also massively reduce Scope 3 exported emissions for Australia, a growing financial consideration as customers put a price on carbon.
The expansion of bilateral investment under a Compact of the kind we suggest will unlock significant public and private capital from Korea into onshoring value-added projects in Australia.
It will also expand the scope of collaboration between the two nations for future trade and co-investment in emerging electrified transport and stationary storage markets across India and the Indo-Pacific.
The opportunity is there. We now need the strategic insight, investment and policy ambition to grasp it.
Matt Pollard, Tim Buckley and Annemarie Jonson, Climate Energy Finance
