Frontier and Emerging Markets - Energy Transition Trends

Author: Ricardo Martinez

Last year alone, demand for renewables grew three times faster than any other energy source. Solar photovoltaic installed capacity rose faster than any other fuel source, and offshore wind installations broke previous records with record low auction prices; despite early scepticism, both continue to show significant cost reduction potential and competitiveness vs. other technologies.

The role of emerging markets (“EM”) continues to be fundamental in the global energy ecosystem. According to the International Energy Agency, global energy demand is expected to increase by circa one third over the next 25 years, with c.70% of growth coming from emerging economies. Whilst the gap in generation is different across geographies, we expect renewables to continue to leap ahead and significantly fill the delta. In hindsight, the role of renewables across EM countries is shaping the energy transition we have witness globally - thus far, in 2018 EMs overtook developed nations in overall capacity of renewable wind and solar power installed.

Key Drivers in accelerating the energy transition

As the world continues to electrify a question remains out there: what trends are we seeing across emerging markets that allow energy transition unfolds?

Power for all: Sub-Saharan Africa (“SSA”) needs solar power

Nearly 550m people in SSA lack access to electricity. Energy keeps standing out as major problem in all rural and urban cities as major blackouts and efficiency losses are common.

Whilst there has been a vast improvement over the last 5 years, with c.50m people gaining access, 45% of the urban population and c.75% of the rural population lack access to electricity. Impact on the local economy is dramatic – local entrepreneurs and smaller market players bearing the highest cost. Investment flows have shown a mild acceleration to new jurisdictions, primarily across Africa and South East Asia, seeking better growth prospects, lack of competition and overall better margins.

Realistic hope: access to power as a platform to promote development

China and India have led the surge to solar energy and access to power overall – with significant positive implications in terms of development and income growth. China has over 35 times more solar capacity than it did five years ago. India contributed over 10% to the global growth in renewable energy capacity in 2018.

In facilitating development, access to power remains a key topic for policy makers to focus on – and a space where development finance institutions and private sector could really influence change.

Lessons can be learnt from successful (and failed) initiatives implemented across various emerging economies. Initiatives such as Power Africa stands as one of the success stories so far: over 100 new power projects providing c.10GW access to the African continent powering 50m people. Access to power stands as one of the key issues holding back development and economic growth.

Navigating technology and policy shifts: utilities continue to face transformation in pursuit of survival

Until recently, most utilities across emerging markets have struggled to prove reliable and attractive business models. Most have historically remained inefficient and loss making with noticeable along the region: ageing infrastructure, ineffective transmission structure, power loses, ageing power stations (commissioned well before 1990s), low collection rates, high operational inefficiencies, poor outages management and maintenance - the list goes on and on.

Primarily in Africa, Indo-Asia and South East Asia - the opportunities brought by change in regulation and for new-gen utilities could shift the way in which energy systems operate.

The Triple D: Sector push for decentralisation, decarbonisation and digitalisation

As systems become ever more intelligent, the impact of cost and efficiency is immense - the possibility opens for the actions of all connected users to be seamlessly integrated to efficiently deliver secure, sustainable and economic supply of energy. From upstream generation to retail energy distribution, technology and market improvements can bring innovation and change to all end users.

Further, decentralisation is being witness not just across the utilities (e.g. new-gens) and solar (e.g. mini-solar), energy payments (e.g. telecom blockchain-powered systems) but also in the fuels space (e.g. biofuels).

Not long gone at all: Coal is still dominant in most of Asia, but will become less relevant

Asia's coal consumption story will be different as we see different countries embarking in various strategies. Coal remains the dominant source of energy for power generation in the rest of Asia excl. China, accounting for most of the increase in power generation in the region.

The International Energy Agency (“IEA”) suggests a “profound shift” globally toward Asian energy consumption, with a projected population rise of c.2 billion and growing regional development. Asia would account for 50% growth in natural gas consumption, 60% of wind/solar consumption growth, and more than 100% of coal/nuclear power consumption growth. Nonetheless, coal-powered generation has been consistently falling in the OECD and is expected to decline in China from around 2030.

Realising vast solar & wind resources potential

Known as the clean energy singularity – where a single technology source could capture most (if not all) capital investments for greenfield developments.

Uneconomical fossil-fuel plants continue to press on each government’s decision making and countries’ national accounts – certain rich-oil countries have fossil-based power generation which have proven uneconomical and inefficient int this day in age. Realisation of potential & limitations has become a key mile-stone in each domestic energy strategy.

Energy transition is well underway. While this is unlikely to be reversed, it still requires strong foundations for it to be sustainable and have the greatest positive impact towards real development in terms of jobs, economy and the environment.

Source: Qbera Research & World Bank Data