In 2023, sustainability disclosures for the world’s largest electric utilities underscore increasing risks regarding the procurement of raw materials.

Upstream risks are identified concerning both the cost of raw materials and the security of supply, with implications outlined for the electrification of transport and the build-out of solar technology.

The issue is a long-term source of risk in the context of rising global trade tensions, which the IMF has recently referred to as “geoeconomic fragmentation”.

Raw materials shortages

In their corporate reporting, electricity utilities indicate supply chain disruption for non-fuel raw materials such as steel. American Electric Power refers to a particular shortage of electrical steel for transformers in the domestic US market. 

Other firms attest to delays in procuring or to higher costs for critical battery metals such as lithium, nickel and cobalt. ENEL suggests this could lead to delays in the development of green hydrogen.

"Critical" raw materials

Recent reports by global electric utilities refer extensively to the impact of the global policy context.

The latest example is the European critical raw materials act, which has focused the attention of electricity utilities on battery materials such as lithium and phosphorous.

In the US, electricity utilities highlight the Infrastructure Investment and Jobs Act (IIJA), which provides support for nuclear power, hydroelectric generation and access to critical minerals for clean energy.

Supplier diversification

The most common form of risk mitigation in firm-level reports is the application of resource circularity principles. This approach seeks to lower dependence on scarce raw materials through a business model of conservation and reuse.

ENEL, which dedicates significant attention to circularity in its corporate reporting, announced a new target for resource efficiency which compares the number of resources consumed to EBITDA generated. The firm is investing in digital technology to improve its tracking of resources consumed.

Supplier engagement

According to sustainability disclosures, leading electricity utilities have also pursued proactive supplier engagement to mitigate raw material risk.

For raw materials with competitive supply chains, electricity utilities list examples of efforts to diversify the sources of supply in terms of the number and geographical location of suppliers. For critical raw materials, there is a trend in favour of utilities presenting themselves as “customers of choice” to suppliers.