Copper’s golden age?
As the world reduces its dependency on fossil fuels, its dependency on copper must rise.
The transformation of the power and automotive industries from hydrocarbon to electric powertrains continues apace. One of the less understood consequences of this shift is the additional consumption of copper; a ubiquitous metal in the infrastructure of both renewable energy and electric vehicles.
Renewables more copper intensive
Renewable energy systems, on average, consume approximately five times more copper than conventional power generation systems. To understand why renewables are so copper intensive, consider that around two hundred 3-megawatt (MW) wind turbines are needed to replace one large steam coal or gas turbine. These hundreds of wind turbines each have an individual copper content (in the generator, tower cabling, gearbox etc.), but also all need to be separately connected to the electrical grid. The same goes for the sheer scale and footprint of a solar farm – one solar farm in California of 550MW covers over 6,000 acres of land.
The “five times more intensive” calculation is on a capacity (per MW installed) basis, but renewable energy also operates at much lower utilisation than thermal or nuclear power generation. On this basis, the copper consumption per unit of power actually generated can be up to 37 times higher for renewables.
Copper required to increase power output
Source: CDA, IEA, Bernstein analysis & estimates
Applying these numbers to estimates for the future change in energy mix towards renewables suggests an incremental 3-8% rise in copper demand by the middle of the next decade.
Copper use in electric vehicles
Turning to electric vehicles (EVs), a fully EV uses approximately three times as much copper as a typical conventional vehicle: approximately 75kg of copper for an EV compared to 15kg. At an extreme, if all 80 million global new car sales were to be converted to EV, this would require 6 million tonnes of copper. This compares to a current annual market of 24m tonnes a year, so an incremental 25%. Clearly, this is an extreme scenario, but at 25% or 50% penetration of EVs in the next decade, we would be looking at a large new source of copper demand.
Demand outlook for copper
In conclusion, the shift to a low carbon economy will entail a significant additional source of demand for copper over the next decades, perhaps adding up to 20-30% to overall global copper consumption relative to business as usual. We would expect this to put upwards pressure on copper pricing in order to incentivise the new supply that will be needed.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.