Copper is Key to Delivering Green Energy

While most talk of renewable energy centers on technologies such as wind and solar, the mechanism for delivering green energy, namely, the power grid, is largely ignored.  However, significant improvement and expansion of the existing power grid will be needed to facilitate the transition to green energy.  Critical materials, primarily copper and aluminum, are key to building the next generation power grid. 

Moving Power

Power is often produced and consumed in different places.  The grid facilitates the transfer of power from where it is produced to where it is consumed. 

More Than a Band-Aid Needed

Much of the current grid is antiquated and was built for a power system that relies on fossil fuel.  Wind and solar energy is produced in different locations than energy based on fossil fuels.  Thus, more is needed than just replacing current wires and connections.  New lines and connections are required.

Significant Expansion of the Grid Required

Bloomberg New Energy Finance (BNEF) estimates that a 152-million-kilometer supersized grid is needed to power a greener future.  That is more than double the length of the grid today.[1]

Green Energy Gridlock

Currently, 1,000 gigawatts of solar projects and 500 gigawatts of wind projects in the US and Europe are waiting to be connected to the grid. This backlog represents four and five times the amount installed in 2022.  BNEF notes that if all the stalled wind and solar projects were connected to the grid, that would add up to more than the present electricity generation capacity of the US.

$21 Trillion in Spending

BNEF estimates that more than $21 trillion will be spent by 2050 to build the grid needed for the clean energy transition and to reach net-zero emissions.

Copper and Aluminum Key to Building the Grid

Copper and aluminum are two materials used in the construction of the power grid.  Power lines can be constructed either above or below ground.  Below ground is often preferred as it doesn’t mar scenic views and may provide more protection against extreme weather events.  Submarine lines are required for offshore wind farms.

Aluminum is primarily used for overhead wires as copper is too heavy.  Underground wires are often composed of copper and are far more metal-intensive than overhead wires.  Submarine wires are even more metal-intensive.

How Much Copper Is Needed?

BNEF predicts that the power grid will be the top consumer of copper in a net-zero world, demanding 427 million metric tons between 2023 and 2050.  That is more than eight times as much as wind turbines, solar panels, and energy storage combined, and more than 1.5 times the copper that will go into EVs.  The grid may account for 1/3 of global copper demand by 2050. 

BNEF also estimates that the grid will require 625 million tons of aluminum between 2023 and 2050.

S&P Global concurs, with their forecasts for copper doubling by 2035.  They estimate global demand will reach 53 million metric tons by 2050, more than all the copper consumed in the world between 1900 and 2021.

Which Should be Positive for Copper Prices

New supply will likely struggle to keep up with demand.  Both BNEF and S&P’s estimates only account for the grid’s use of copper and aluminum and do not factor in other uses, including EVs, wind turbines, and other non-energy applications.

S&P also notes that a new copper mine takes 16 years, on average, to start producing the metal.

Thus, increased demand that is not likely to be matched by supply may prove bullish for copper and aluminum prices and the companies that produce these metals.

How May Individuals Gain Exposure to Copper and Aluminum Companies?

The Optica Rare Earths & Critical Materials ETF (CRIT)

The Optica Rare Earths & Critical Materials ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the EQM Rare Earths & Critical Materials Index.

The Index is comprised of global public companies deriving significant revenue from rare earths or critical materials in the production, recycling, processing, or refining of rare earths or critical materials, two of which are copper and aluminum.

The CRIT ETF has holdings in several major copper producers including Southern Copper Corp (NYSE: SCCO) and Freeport McMoran Inc (NYSE: FCX) and aluminium giant Alcoa Corp (NYSE: AA), thereby providing investors with exposure to these increasingly important metals as well as other metals which are vital for the transition to clean energy.

For a complete list of CRIT holdings, please click here.

Holdings are subject to change.

[1] All data sourced from: A Power Grid Long Enough to Reach the Sun Is Key to the Climate Fight, Bloomberg New Energy Finance, 3/8/23; Stevens, Pippa, A Coming Copper Shortage Could Derail the Energy Transition, Report Finds, CNBC, 7/14/22