Rare Earth and Lithium Supplies Cloud Renewables

By Kennedy Maize

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It’s Also About Lithium

Another supply-chain mineral that may give pause to U.S. green power developers is lithium, not a rare earth by chemical or physical definition, but a crucial ingredient in the batteries that are the heart of planned electric vehicles. The lithium problem is located in Bolivia, and it is political.

Today, most of the world’s lithium carbonate, the chemical compound that is the basis of the lithium component of the lithium-ion battery, comes from salt flats in Chile’s Atacama Desert, according to the U.S. Geologic Survey. But the Saudi Arabia of lithium lies across the border in Bolivia on the Uyuni Salt Flats.

Bolivia, one of the poorest countries in South America, has never developed a lithium production capacity. It hopes to benefit from what many analysts believe is a coming worldwide boom in automotive electric batteries, driven by the development of electric cars. If the boom occurs, it will require lithium far beyond the resources of the Chilean desert, according to expert analysts.

Bolivia is counting on that lithium boom for its economic health. President Evo Morales, a populist and socialist who is allied with Venezuela’s Hugo Chavez, says, “Lithium is the hope not only for Bolivia but for all the people of the planet.”

That hyperbolic hope, Morales has insisted, will be a resource developed by the Bolivian government, not by private industry. To accomplish that, Morales will need to raise nearly $1 billion in capital to develop a lithium mining infrastructure that does not yet exist. It isn’t clear who will put up those needed bucks.

Will the socialist Morales be able to convince private investors that the risks of investing in a state-owned lithium industry, combined with the market risks of electric cars, are acceptable? Not an easy sale. It will require Bolivia to offer returns commensurate with the risks.

Can Bolivia float bonds on the international market to finance the lithium play? Unlikely, according to international finance experts talking to MANAGING POWER on background. They cite the track record of many South American countries in repaying international infrastructure debt. “I’d rather burn the money for heat in my wood stove,” said one investment manager.

If Bolivia is unable to exploit its lithium resources, and the market for lithium carbonate tightens, that will drive up the costs of the already-expensive lithium-ion batteries, used extensively in laptop computers and cell phones, and the only choice today for electric vehicle propulsion. Electric cars, where the buyer’s price tag (probably in the range of $40,000 per car) is largely driven by the battery cost, may again stagnate in a consumer-driven market. Large government subsidies—maybe $10,000 per vehicle in state and federal tax breaks—could reduce the final cost to a range that meets the market demands for new cars, according to automotive analysts.

—Kennedy Maize is the executive editor of MANAGING POWER magazine.