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Automotive companies are putting potential suppliers of critical minerals through a vetting process to ensure their environmental, social and governance (ESG) approaches are aligned before considering offtake deals, an executive at Vulcan Energy said.
Vincent Ledoux-Pedailles told Fastmarkets in an interview that this represents a marked change in the way automakers are approaching their purchasing of lithium, cobalt, nickel and other key minerals for their supply chains.
According to Ledoux-Pedailles, around a year ago, automakers started to build battery metals teams comprising not just buyers and analysts but also people evaluating mergers and acquisitions through the supply chain. Even more recently, automakers have introduced the initial screening with ESG teams to ensure that projects are in line with their own net-zero carbon and other ESG strategies, he said.
“If we pass that test, we’d then discuss commercial terms for potential offtake agreements with the team’s buyers, but not before. That’s a massive change,” he added.
It is a test that Vulcan Energy has taken, and passed, multiple times already. The company, which aims to become the world’s first integrated zero-carbon lithium and renewable energy company, has a number of offtake agreements for battery-grade lithium hydroxide with various large chemicals, battery and automotive firms.
These are Umicore, LG Energy Solutions, Volkswagen Group, Stellantis and Renault Group, and all are initial five-to-six-year terms starting in 2025 and 2026.
Vulcan Energy’s co-founders started the company with the desire to produce a sustainable product using a clean technology, something that was clearly aligned with the desire of the battery and automotive industries to achieve their goals of carbon neutrality, Ledoux-Pedailles said.
The Perth, Australia-headquartered company determined that a zero-carbon lithium project was possible using modern extraction methods, provided a geothermal brine reservoir could be found that had renewable heat, high lithium grades and a high brine flow rate potential. Initial research showed this could be achieved in just two places, Ledoux-Pedailles noted: the Upper Rhine Valley in Germany and the Salton Sea in California, the United States.
It opted for Germany, largely due to the quality of the brine there as well as Europe’s position as a strong growth market for electric vehicles (EVs), aided by government policies.
“Europe is the fastest-growing lithium market in the world. With the number of gigafactories to be built in Europe this decade, the market will require around 1 million tonnes of lithium carbon equivalent (LCE) by 2030,” Ledoux-Pedailles said.
“That’s simply not going to happen – it’s three times the size of the global market, so Europe will have to import from outside the region because there is currently zero local supply of lithium hydroxide,” he added.
But with 80-90% of lithium hydroxide produced in China, there is a supply chain risk as well as ESG issues related to long-distance transportation and production using coal and harmful chemicals, Ledoux-Pedailles noted.
“Current lithium production has a high environmental footprint. Analysts estimate that around 15 tonnes of carbon dioxide (CO2) are emitted per tonne of hard rock lithium refined in China. This is what the industry wants to change,” he told Fastmarkets.
“Every company today has strong goals to achieve carbon neutrality. It’s very important for Vulcan Energy to align with companies that have the same targets as us. We don’t want to become carbon neutral in 2050; we want to be carbon neutral, or even carbon negative, from the start,” he added.
According to independent consultancy Minviro, Vulcan Energy is expected to have a carbon footprint of negative three tonnes of CO2 per tonne of lithium hydroxide produced.
The company has acquired eight licenses in the Upper Rhine Valley as well as some existing geothermal facilities, making it a producer of renewable electricity and renewable heat since the start of the year.
If Vulcan produces renewable electricity, it receives a feed-in tariff guaranteed for 20 years by the state. The plant can also produce renewable heat, which is also well-received given Germany’s goal of producing 50% of its heat from renewables by 2030.
On the lithium side, the plan is to start production in 2024.
Vulcan Energy will extract geothermal brine from an underground reservoir, with the resultant heat generating steam to power the geothermal plant turbine and generate electricity, which is in turn sold to the grid.
The brine is then diverted to an adjacent direct lithium extraction plant, where the lithium is separated from the impurities into chloride form. This product is in turn transported to a central lithium plant – currently being developed in a potential joint venture with chemicals producer Nobian – for conversion into lithium hydroxide.
For its part, the brine is reinjected into the ground.
“We believe that in the future, direct lithium extraction is going to account for a growing share of global lithium supply. More and more companies are looking into it; it’s coming,” Ledoux-Pedailles said.
Having acquired geothermal plants, the company is also developing a brownfield project. The goal is to develop a direct lithium extraction plant adjacent to the geothermal plant, with the operation to share the central lithium plant being developed for its greenfield project.
“We’re also adding a lot of new licenses with the view to add additional phases, with the idea of replicating the projects.”
There’s plenty of room for expansion; to date, Vulcan Energy is using just one-fifteenth of the lithium resource present in the two licenses it is working on, with six licenses still untouched. Automaker Volkswagen has the right of first refusal to invest in any additional capacity the company builds out in future phase expansions.
The company doesn’t plan to license its technology to third parties, although it has various partnerships with companies through its existing production chain, including Nobian and DuPont.
Eventually, Vulcan Energy could end up operating in neighboring France, where around a third of the Upper Rhine Valley is located.
“We’re looking at potentially expanding in France and are talking to a couple of groups there. The potential is to add to the Upper Rhine Valley licenses, but we’re also looking globally as to where we can add projects,” Ledoux-Pedailles said, noting that the goal is to replicate what Vulcan Energy is doing with its technology.
“We’ve got good access to funding, we’ve got experts and we’ve got the technology and the customers, so we’re looking at where else we can do the same thing. It’s not easy; the better you get at the technology, the higher the chance for the resources to be developed,” he added.
Battery chemistries are starting to adopt a more regional approach, Ledoux-Pedailles noted.
China, for instance, is dominated by lithium-iron-phosphate batteries, which are lithium carbonate and not as high performing as lithium nickel-cobalt-manganese (NCM) batteries, he said.
“One of the biggest threats to electric vehicles is that drivers are scared about the range they can achieve; they need reassurance they can go a longer distance. This requires NCM chemistries, which use lithium hydroxide,” he added.
Vulcan Energy’s off-takers have asked for lithium hydroxide for NCM-type cathodes, Ledoux-Pedailles told Fastmarkets.
“We can produce both hydroxide and carbonate, and we did have some requests for lithium carbonate for cheaper vehicles with a lower driving range. Battery chemistries will keep evolving, and you’ll see an evolution per region as opposed to pan-industry,” he said.
The company could also switch to producing solid-state, lithium metal batteries if they become popular in time, given the primary feedstock is the lithium chloride it will produce in the process.
“If we want to consider solid-state batteries later, we can,” Ledoux-Pedailles said.
Vulcan Energy could also consider offtake agreements for energy storage systems, which use NCM-based cathodes and are seeing stronger demand growth than EVs, albeit from a much smaller base.
“Eventually, it’s very likely that energy storage systems will be larger than electro-mobility – every single house needs to store its own electricity, and every company will look to rely on renewable energy, so demand for energy storage is going to be massive,” he told Fastmarkets.
“This is something we’re closely watching. We’ve already committed our volume for the next five, six years, but later on we can definitely look at doing offtakes,” he added.