The cost of solar energy has been on a steady decline, with prices having fallen by over 60% for residential and commercial installations, and by over 80% for utility-scale installations over the past decade (Figure 2).

The main challenge for alternatives such as solar and wind is intermittency.  They don’t produce energy when the sun is not shining or when the wind is not blowing.  As such, for either technology to be more than a compliment to fossil fuel or nuclear-based power generation, cost effective means of storing solar and wind energy is vital.  Good news then that the cost of lithium battery storage has fallen by 70% over the past decade and by 98% over the past three decades.  Since 2012, the cost of lithium battery storage has been dropping by about 10-14% per year (Figure 3). If costs for solar energy and lithium batteries were to continue to progress at current rates, it would be possible to imagine a future with abundant, inexpensive, clean energy.

Batteries were responsible for 19% of lithium use in 2004.  By 2020 batteries made up 71% of lithium use (Figure 4).  Despite the boom in lithium carbonate demand, the price of battery grade lithium carbonate has not increased a great deal, rising from $5,180 per ton in 2010 to around $8,000, on average, in 2020, according to the U.S. Geological Survey (Figure 5).  That’s a 4.4% annual increase in prices on average over the past decade – or about 2.5% above the rate of overall inflation.  Prices, however, have been volatile, rising to over $17,000 per ton in 2017 and 2018.

Part of the reason why lithium prices have not risen too much more than overall inflation is that lithium production has boomed.  In 1994, the world produced 6,100 metric tons of lithium.  By 2020, that production had risen more than 14-fold to 88,200 metric tons.  Moreover, the production of lithium comes from a variety of countries with Australia, Chile, China and Argentina taking the lead as the biggest producers, respectively (Figure 6).  

Batteries are playing a dominant role in cobalt use as well.  A recent report from the Cobalt Institute suggests that batteries account for 57% of cobalt use globally.  Cobalt’s other uses, including superalloys, gas turbine engines, cemented carbides, pigments, soaps and dryers, catalysts and magnets, have also grown but not at the same pace as battery demand. 

Like lithium, cobalt has also seen a production boom with nearly a seven-fold increase in production since 1994.  In cobalt’s case, however, the production is highly concentrated in one country: The Democratic Republic of the Congo (DRC), also known as Congo-Kinshasa (Figure 7).  The concentration of production in the DRC has the potential to make cobalt more vulnerable to supply disruptions than lithium, which has a more diversified supply base.  Additionally, most cobalt production comes as a by-product from copper and nickel mining.  As such, cobalt supply depends to a great extent on what happens in these markets. That said, over the past few decades, booming supplies of cobalt have kept a lid on prices: prices are little different today than they were on average during the 1990s, the 2000s or the 2010s (Figure 8). That said, cobalt prices have been volatile and susceptible to boom-bust cycles where demand sometimes outstrips supply for several years interspersed with periods of oversupplied markets.

With pressure building to reduce carbon emissions, sharply declining costs for electric vehicles and continued advances in alternative energy technologies such as wind and solar, demand for battery metals could remain robust in coming years.  If so, price volatility in these metals could one day have important consequences for the global economy as price volatility in coal, natural gas and crude oil have today.  Additionally, as battery technology advances and costs come down, the portion of the cost of batteries that comes from raw materials such as lithium and cobalt is increasing.  As such, the need to hedge battery metals costs might increase with time.