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In recent years, Asia has emerged as a key player in the global energy landscape, both as a major consumer and as a rapidly growing market for renewable energy.
Asia is home to some of the world's most populous and rapidly developing countries, yet the region faces significant challenges in meeting its energy demands, while minimizing greenhouse gas emissions.
We believe private market activity focuses where companies and investors can generate compelling risk-adjusted returns, or in places which are offering incentives to invest. The availability of skills and raw materials, as well as environmental conditions conducive to renewable energy sources, are also important factors.
In our view, when considering each of these factors, the opportunity in Asia stands out. The scale of investment needed in renewables is large and spread across many countries, many of which have a long-term track record of infrastructure delivery with private sector participation. This is supportive of investment activity, as risks are reduced, compared to other countries without this long-term experience or track record of investment, or compared to those without established regulatory or legal frameworks. Furthermore, many countries within Asia currently use coal as an outsized contributor to electricity generation. As mentioned earlier, we believe coal will likely be hit first amongst the fossil fuels, providing further impetus to the energy transition in Asia.
Fig 1: Share of annual electricity generation by region or country
Source: BloombergNEF, as of November 2022
Demand for electricity from the APAC region has risen over the past decade and the continent now accounts for half of global generation. Mainland China alone accounts for 30% of the global power generation (up from 23% in 2012).1 Meanwhile, relative generation capacity in North America and Europe continues to decline. North America and Europe accounted for 19% each of the world's electricity production in 2021, down from 21% each in 2016. Clearly, the trajectory in Asia is very different to that in Europe and the US. As a result, in our view any energy transition investment needs to have a focus on this region.2
China has experienced the strongest growth in electricity generation over the period between 2012 and 2021. Over this time, electricity generation grew from 4.8TWh to 8.2TWh - equal to compound growth of 5.9% per year. In comparison, Europe saw growth of just 0.2% and North America saw growth of 0.7%. Europe and North American generation is also behind that of Asia Pacific (ex-China), which has delivered 5.5TWh of capacity.2
Fig 2: Global annual electricity generation by region
Source: BloombergNEF, as of November 2022
The Asia energy transition is increasingly important given the proportion of generating capacity derived from coal-fired power plants. Global coal-fired power generation capacity has also increased by 1.1TWh in 2021, to reach 9.6TWh in 20212 - meaning coal remains the dominant source of global energy generation. Mainland China and India lead in the building of new coal-fired power generating capacity. The two countries accounted for 83% of new coal additions in 2021. Mainland China alone added 62% of global coal generating capacity between 2012 and 2021. Transitioning this generation capacity to renewable energy sources is important to achieving net zero targets, not only for Asia but also globally.
Fig 3: Global annual electricity generation by technology
Source: BloombergNEF. As of November 2022
Finally, the majority of the global renewables supply chain is located in Asia.3 This means Asia, in addition to replacing its existing generation capacity with renewable sources and installing new renewable generation capacity to meet growth, in our view also needs to invest in the industrial capacity to deliver the required equipment for this region and the rest-of the-world. This should provide significant ancillary investment opportunities in the region.
Investing in energy transition infrastructure in Asia offers a compelling opportunity to combat climate change effectively. By focusing on renewable energy sources such as solar, wind, and hydroelectric power, countries in Asia can reduce their reliance on fossil fuels, decrease carbon emissions, and contribute to global climate goals.
Learn more about the investment opportunities in the energy transition
HSBC Asset Management is a major global asset management firm managing assets totaling USD707 billion as at 31 December 2023, with well-established businesses in Europe, Asia-Pacific, Americas and the Middle East. We are the asset management division of, and wholly-owned by HSBC Holdings plc (HSBC Group), one of the largest financial services organisations in the world. Our investment capabilities span across different asset classes - equities, fixed income, multi-asset, liquidity and alternatives. HSBC Asset Management is well placed to provide a globally-consistent, disciplined investment process across our capabilities, drawing on the local knowledge and extensive expertise of our team of over 600 investment professionals across over 20 locations around the world.
For more details, please visit http://www.assetmanagement.hsbc.com.hk
Source: HSBC Asset Management as at 31 December 2023
1. Greenfield infrastructure struggles to attract private investment (gihub.org), June 2023
2. All data from BloombergNEF, as of November 2022
3. Can US and EU unseat China as the dominant supplier of green energy tech globally? SCMP as of August 2023
Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way, HSBC Asset Management accepts no liability for any failure to meet such forecast, projection, or target.
For professional investors and intermediaries only. This article should not be relied upon by retail clients/investors.
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