Tying critical materials through the Untied Loan Guarantee | A proven and effective way to secure materials needed for Europe’s Energy Transition

Wind turbines, solar PV panels, lithium-ion batteries that power electric vehicles, all these end-applications require minerals and raw materials for their manufacturing. Although Europe still seems committed to the Paris Climate Agreement it needs to seriously ramp up its efforts to secure these materials. And in doing so, it needs to get two crucial players in the supply chain for raw materials on its side: (i) the raw material producers and (ii) financial risk takers.

The good news is that there is a instrument that gets both players onboard at the same time, HCSS strategic advisor Jeff Amrish Ritoe states: the Untied Loan Guarantee. Germany refers to this instrument as the Untied Loan Guarantee whereas other countries, such as Finland, may use different references such as Raw Material Guarantee. The principles though are always the same.

Leading industrialized nations such as Japan and Germany have been using some form of the Untied Loan Guarantee for more than 50 years to secure the supply of raw materials. These countries are among the largest consumers of raw materials worldwide; however, they are highly dependent on the supply of raw materials from abroad due to the limited availability of domestically. Although the responsibility for a sufficient raw material supply lies first and foremost with (private) companies themselves, the governments in these countries acknowledge that supply chain constraints, distortions in trade, as well as political influences can impede the access to certain raw materials for companies.

The Untied Loan Guarantee effectively means that the German Federal State covers any (political) credit default risks for projects it considers crucial to the supply of critical (raw) materials. By providing such guarantee, the state removes the biggest hurdles for commercial lenders to provide a loan to the project company established to operate for example a mine or processing company in a high-risk country.

In a time where the great economic powers have all committed to invest in clean energy end applications, a new great game to secure the raw materials needed to produce these clean energy end applications has started. And those who do not have access to a steady supply of raw materials will be left without a chair when the music stops. So perhaps it’s time that more EU member states follow the good example of Germany.