Emerging Markets: The Energy Transition Opportunity
The global shift toward cleaner energy is creating significant opportunities for emerging markets (EM), but the benefits will not be distributed evenly. Many EM economies are turning to lower-cost renewable energy to reduce dependence on imported fuels, improve power-price stability and strengthen energy security. Countries and businesses that can capitalize on their positions in critical minerals and clean-energy technologies may gain a competitive advantage, creating significant differences in investment outcomes.
After years of relatively subdued growth, global electricity demand is accelerating, driven in part by artificial intelligence and the infrastructure required to support it. Electricity consumption per person is expected to reach new highs across many parts of the world by 2030. With populations growing faster than those in developed economies, EM countries are likely to account for a substantial share of this additional demand.
At the same time, the composition of global energy production is changing. Renewable sources are expected to account for most new power-generation capacity across much of the developing world over the coming decades, with solar and wind playing leading roles. This appears to be more than a temporary shift. Population expansion, urbanization and increasing electrification are creating long-term structural demand for additional clean power.
After years of relatively subdued growth, global electricity demand is accelerating, driven in part by artificial intelligence and the infrastructure required to support it. Electricity consumption per person is expected to reach new highs across many parts of the world by 2030. With populations growing faster than those in developed economies, EM countries are likely to account for a substantial share of this additional demand.
At the same time, the composition of global energy production is changing. Renewable sources are expected to account for most new power-generation capacity across much of the developing world over the coming decades, with solar and wind playing leading roles. This appears to be more than a temporary shift. Population expansion, urbanization and increasing electrification are creating long-term structural demand for additional clean power.
Renewables Can Support EM Growth and Energy Security
Renewable-energy deployment is expanding across emerging markets as governments improve grid infrastructure and introduce supportive regulatory frameworks. In many major EM economies, renewable generation can also be developed and operated at a lower cost than in developed markets, helping countries improve competitiveness while supporting industrial expansion.
EM's growing control over many critical minerals, combined with the potential for greater energy-cost stability, is strengthening its position in the global energy transition. These advantages can support economic resilience across a wide range of emerging economies.
Many EM countries have spent years reducing their dependence on imported energy. Recent geopolitical disruptions have reinforced that objective, highlighting the economic risks associated with volatile fossil-fuel prices. At the same time, geopolitical uncertainty is encouraging governments to explore green financing and renewable-energy investment as a way to reduce exposure to fluctuations in global energy markets.
EM's growing control over many critical minerals, combined with the potential for greater energy-cost stability, is strengthening its position in the global energy transition. These advantages can support economic resilience across a wide range of emerging economies.
Many EM countries have spent years reducing their dependence on imported energy. Recent geopolitical disruptions have reinforced that objective, highlighting the economic risks associated with volatile fossil-fuel prices. At the same time, geopolitical uncertainty is encouraging governments to explore green financing and renewable-energy investment as a way to reduce exposure to fluctuations in global energy markets.
The Benefits Are Not Being Shared Equally
However, access to renewable resources alone does not guarantee economic gains. Critical minerals still need to be extracted, transported and processed before they can become part of the clean-energy supply chain. Performance across these stages has varied considerably, with a relatively small group of countries accounting for a significant share of critical-mineral production.
Countries that have successfully expanded mineral production and developed related industries can gain greater geopolitical influence, stronger energy security and increased economic resilience. Countries that have struggled to develop these capabilities may instead remain exposed to supply-chain disruptions while capturing only a limited portion of the economic value.
This widening divide between countries that are successfully building energy-transition capabilities and those that are not is likely to produce increasingly different economic and investment outcomes. As a result, country selection and security selection may become increasingly important for investors.
Countries that have successfully expanded mineral production and developed related industries can gain greater geopolitical influence, stronger energy security and increased economic resilience. Countries that have struggled to develop these capabilities may instead remain exposed to supply-chain disruptions while capturing only a limited portion of the economic value.
This widening divide between countries that are successfully building energy-transition capabilities and those that are not is likely to produce increasingly different economic and investment outcomes. As a result, country selection and security selection may become increasingly important for investors.
Expanding Energy Production Can Help Companies Move Up the Value Chain
China and Southeast Asia provide examples of how companies and economies can use scale and renewable resources to improve their competitive positions.
China Hongqiao, one of the world's major aluminium producers, illustrates this approach. Aluminium production is highly energy intensive and has traditionally relied heavily on coal, resulting in substantial carbon emissions. After operating for years in Shandong, the company shifted some production to Yunnan, where abundant hydropower, wind and solar resources provide access to cleaner electricity.
The company has also made substantial investments in supporting infrastructure, including annual spending of roughly RMB 2–3 billion on grid maintenance and around RMB 6 billion on solar development. These investments have helped China Hongqiao improve the predictability of its energy costs, reduce exposure to carbon-related trade measures and strengthen its competitive position as global markets move toward lower-carbon production.
Other Chinese companies have used scale in renewable energy to expand revenues while improving profitability. Solar-equipment manufacturer Sungrow, for example, has combined solar-generation equipment with energy-storage systems, both of which are increasingly important for large utility-scale projects. This broader product offering has contributed to a growing revenue base.
Contemporary Amperex Technology (CATL), the world's largest electric-vehicle battery producer, has similarly relied on manufacturing scale and cost advantages to address growing demand for grid-scale battery storage. Increasing production volumes while improving margins demonstrates how scale can help companies capture more value from the energy transition.
South Korea has followed a somewhat different route. The country remains significantly dependent on imported coal and natural gas and faces periods of uncertainty around nuclear-power availability. However, increased renewable capacity has helped bring down energy costs, improving the competitiveness of renewable power relative to conventional fossil-fuel generation.
Elsewhere, governments are experimenting with innovative financing structures to accelerate the shift away from fossil fuels. Chile, for instance, has worked with private-sector participants to expand its green and sustainability-linked bond markets, creating additional sources of capital for renewable-energy development.
Comparable initiatives are emerging throughout the developing world, although the pace and effectiveness of implementation vary substantially. Investors therefore need to distinguish between markets and companies that possess genuine competitive advantages and those that may struggle to convert the energy transition into sustainable economic gains.
China Hongqiao, one of the world's major aluminium producers, illustrates this approach. Aluminium production is highly energy intensive and has traditionally relied heavily on coal, resulting in substantial carbon emissions. After operating for years in Shandong, the company shifted some production to Yunnan, where abundant hydropower, wind and solar resources provide access to cleaner electricity.
The company has also made substantial investments in supporting infrastructure, including annual spending of roughly RMB 2–3 billion on grid maintenance and around RMB 6 billion on solar development. These investments have helped China Hongqiao improve the predictability of its energy costs, reduce exposure to carbon-related trade measures and strengthen its competitive position as global markets move toward lower-carbon production.
Other Chinese companies have used scale in renewable energy to expand revenues while improving profitability. Solar-equipment manufacturer Sungrow, for example, has combined solar-generation equipment with energy-storage systems, both of which are increasingly important for large utility-scale projects. This broader product offering has contributed to a growing revenue base.
Contemporary Amperex Technology (CATL), the world's largest electric-vehicle battery producer, has similarly relied on manufacturing scale and cost advantages to address growing demand for grid-scale battery storage. Increasing production volumes while improving margins demonstrates how scale can help companies capture more value from the energy transition.
South Korea has followed a somewhat different route. The country remains significantly dependent on imported coal and natural gas and faces periods of uncertainty around nuclear-power availability. However, increased renewable capacity has helped bring down energy costs, improving the competitiveness of renewable power relative to conventional fossil-fuel generation.
Elsewhere, governments are experimenting with innovative financing structures to accelerate the shift away from fossil fuels. Chile, for instance, has worked with private-sector participants to expand its green and sustainability-linked bond markets, creating additional sources of capital for renewable-energy development.
Comparable initiatives are emerging throughout the developing world, although the pace and effectiveness of implementation vary substantially. Investors therefore need to distinguish between markets and companies that possess genuine competitive advantages and those that may struggle to convert the energy transition into sustainable economic gains.
Scalability and Execution Will Determine the Winners
Ultimately, the ability to scale projects and execute effectively will be crucial for countries and companies seeking to move higher up the clean-energy value chain. Over time, a broader group of emerging markets may be able to capture the economic benefits associated with renewable energy. At present, however, only a select number of countries and businesses appear particularly well positioned.
For investors, this uneven development creates both opportunities and risks. Active management, careful country analysis and disciplined credit selection may therefore be essential for identifying the potential beneficiaries of the energy transition.
The original authors acknowledged contributions from Waseem Amin, ESG Strategy and Client Solutions Analyst, and Sourish Chatterjee, Research Analyst.
This material is provided for informational purposes only and does not constitute investment research, investment advice or a recommendation to buy or sell securities. The views expressed may not represent those of every portfolio-management team and may change over time.
References to individual securities are illustrative and should not be interpreted as recommendations. There is no assurance that investments in any securities discussed have been or will be profitable.
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For investors, this uneven development creates both opportunities and risks. Active management, careful country analysis and disciplined credit selection may therefore be essential for identifying the potential beneficiaries of the energy transition.
The original authors acknowledged contributions from Waseem Amin, ESG Strategy and Client Solutions Analyst, and Sourish Chatterjee, Research Analyst.
This material is provided for informational purposes only and does not constitute investment research, investment advice or a recommendation to buy or sell securities. The views expressed may not represent those of every portfolio-management team and may change over time.
References to individual securities are illustrative and should not be interpreted as recommendations. There is no assurance that investments in any securities discussed have been or will be profitable.
Click here to know more.
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