Renewable Energy Defining Point Reached As Economies of Scale Kick In And Tesla’s Elon Musk Bets He Can Save South Australia from Power Shortages
Are Cobalt Shortages In The Future?
Image source: WIRED
Tesla billionaire Elon Musk says he can install battery farm within 100 days or it’s free.
There’s more than just a little irony in the air these days. Just as Donald Trump plans to reduce energy efficiency standards for cars in the United States, a defining point in the history of renewable energy has been made in the form of a bet between billionaire Elon Musk and the State of South Australia. It is the moment that economies of scale kick in driving down and making the cost of grid scale renewable energy rollout feasible.
An energy crisis has been brewing for some time in sunny South Australia leading to blackouts and price spikes. As the debate raged on about how to solve it Musk stepped in during early March and offered to solve the problem by installing 100-300 MW hours of renewable energy electric grid scale battery storage within 100 days of signing the contract.
When Mike Cannon-Brookes tweeted to ask if Musk was serious Musk replied that if he couldn’t do it within 100 days of signing the agreement it would be free of charge. Cannon-Brookes was interested because he is Australian. He is also the co-founder of Silicon Valley start-up Atlassian which builds software development tools. Being Australian, Cannon-Brookes asked Tesla for a “mates rate.” Although contract figures have not been released Cannon-Brookes told the Australian media that Musk offered to almost halve the cost of the project.
Tesla has just finished building a battery farm in southern California that can provide 80 MW Hours of storage at a cost of $100 million in 90 days. Musk is a high-tech visionary who has made his visions pay. In February 2017 his net worth was calculated at $13.9 billion. He co-founded PayPal, Tesla Motors, Solar City and founded SpaceX, the commercial space transportation business.
Long a renewable energy advocate Tesla has built a second business in residential, commercial and electric grid storage batteries under the Tesla Powerwall banner and SolarCity, which he cofounded with a cousin to provide residential battery storage solutions. Musk has frequently noted that he is in the process of changing Tesla from a car company into a clean energy company. Tesla has also recently launched a roofing product designed to take the ugly out of solar panels by producing solar panel roofing shingles that look like slate, in a variety of attractive colours.
Musk’s ability to fulfill his promise to South Australia lies in the fact that on January 17th, 2017 Tesla’s Nevada Gigafactory, located near Reno, started production.
The Gigafactory has already supplied the batteries for a battery farm in southern California. Tesla has grid scale battery farm projects on the go in the UK, Connecticut, North Carolina, Hawaii and New Zealand. Only a third of the 4.9 million square foot Gigafactory which will cost $5 billion and is part of a partnership with Panasonic is up and running but by 2018 it will have doubled global lithium-ion battery production. Two of the most commonly used lithium-ion rechargeable batteries, including Tesla’s, use cobalt as part of the mix.
Large scale rollouts of solar, wind and water energy have been held back by the high cost of storing the electricity generated. Tesla’s Gigafactory and his consequent offer to South Australia are a game changer indicating that although battery storage costs have been falling for years, now they are about to tumble, thanks to economies of scale. It is estimated that Tesla’s lithium-ion batteries which also use nickel and cobalt are about a third less expensive than other batteries. This also means that the cost of electric vehicles and hybrids will begin to drop.
Last year IHS predicted the electric grid scale utility storage battery market to hit US$19 Billion during 2017. Taiyou Research predicts a US$ 30 Billion market in rechargeable Li-ion batteries by 2020.
If you don’t believe that clean energy will become a very viable industry in the near future you should bear in mind that if this year’s game changer is Tesla’s Gigafactory and the economies of scale that will play in strengthening the renewable energy rollout then last year’s may very well have taken place when Facebook founder Mark Zuckerberg, Virgin founder Sir Richard Branson, Linkedin founder Reid Hoffman, Amazon founder Jeff Bezos, HRH Prince Alwaleed bin Talal, Chairman of the Board of trustees, Alwaleweed Philanthropies, Saudi Arabia, among others announced the creation of a clean energy investment group, The Breakthrough Energy Coalition. The coalition is made up of 28 high net-worth entrepreneurs from ten different countries.
Entrepreneurs who have changed the fabric of modern life are already on board. Warren Buffet, through Berkshire Hathaway has invested US$1 Billion and Bill Gates is investing US$1 Billion of his personal money and US$2 Billion through the Bill and Melinda Gates Foundation in renewable energy.
Battery and cobalt demand won’t just be driven by smartphones and Tesla. According to Rockstone Research the Germans are building a battery factory twice as large as Tesla’s, the Chinese are building four that are bigger than the Nevada Gigafactory, the Japanese are building two and the South Koreans are building one.
Savvy retail investors may be wondering how to take part in this emerging market and one perspective may be to look at it as a commodity market. Lithium stocks went through a gold rush period a few years ago propelled by the rechargeable battery market and now thanks to the amount of cobalt in a car battery and in laptops and smart phones it looks as if cobalt is set to takeoff. The battery pack for Tesla Model S, for instance, contains an estimated 22.5 Kg of cobalt.
Another factor that comes into play is secure supply and ethical sourcing. The refined product market is largely controlled by China, which has a history of trade embargoes and tariff walls when it comes to protecting resources and products for itself. The majority of raw cobalt comes from the Democratic Republic of Congo where much of the mining is done by child workers.
Nobody wants to drive a car or use a cell-phone powered by child labour and so the hunt is on for ethically sourced, securely supplied cobalt. Elon Musk has said that he is going to source the raw materials for his batteries from North America. At the moment there are no producing cobalt mines in North America. Exploration, however, is being fast tracked. Cruz Cobalt is one of the junior mining companies that may benefit. Commodity research house CRU has predicted cobalt demand to rise by 16% annually through 2022.
The LME has predicted that by 2020 the amount of cobalt used in rechargeable batteries could equal the total amount refined in 2015.
In a recent press release announcing the acquisition of the Chicken Hawk Cobalt Prospect in Montana, Cruz Cobalt, (CUZ—TSXV, BKTPF—OTCBB, A2AG5M–FSE), Cruz Cobalt President James Nelson stated:
“This new prospect now makes 9 cobalt prospects within North America that Cruz has secured. Cruz has also secured one of the largest land packages, consisting of 4 separate cobalt prospects, all located in the Cobalt/Silver district of Ontario surrounding the city of Cobalt. Cobalt prices continue to trade to new 5 year highs and have been on a significant uptrend over the past 12 months. Cruz is fully funded to commence operations on all of its 9 cobalt prospects and management expects to be on the ground very shortly.” If Cruz is successful then early investors will benefit accordingly. As of March 17, CUZ traded at $0.205 and has a total of 55,065,386 shares and a market cap of $11,288,404.
Another promising Canadian company exploring for cobalt is Kings Bay, (TSXV: KBG) which over the last year has acquired five prospective cobalt properties, two in Newfoundland Labrador and three in Northern Quebec. Kings Bay was recently reported on in the Financial Post where CEO Kevin Bottomley stated that the company’s Lynx Lake project near Happy Valley Goose Bay had shown initial results with very high cobalt numbers. The company has recently acquired a highly prospective cobalt property on Trump Island in NL. Their three properties in Quebec were worked on by Falconbridge around 2000 and Bottomley describes them as having initial positive results. Bottomley was previously associated with mining incubator Zimtu Resources and as a result has access to a network of European investors eager to invest in Canadian resource projects. Kings Bay traded at $0.18 on March 17, 2017 and has 41 million shares and a market cap of $7 million.
By Noel Meyer