For the leaders, the result is geopolitical leverage, energy security and economic resilience, while the laggards are left with supply chain risk and limited economic benefits. In our view, the growing chasm between the haves and is creating dispersion in potential outcomes, increasing the importance of country and security selection.
Scaling Energy Production Is Key to Moving Up the Value Chain
Examples of scalable green-energy initiatives can be found in China and Southeast Asia.
China Hongqiao is one of the world’s largest producers of aluminium, which is among the most energy and carbon intensive industrial materials. Historically, much of aluminium’s production was powered by coal, resulting in high emissions. After years of operating in Shandong province, China Hongqiao moved production to Yunnan province, where the availability of water, wind and solar power make production cleaner.
This transition has been supported by significant capital investment, including RMB¥ 2–3 billion annually in grid maintenance and RMB¥ 6 billion in solar deployment. As a result, China Hongqiao has improved cost stability, mitigated carbon border risks and strengthened its long term positioning in a carbon constrained global market.
Elsewhere in China, companies have been able to scale renewables to increase volume while shoring up margins. For example, solar manufacturer Sungrow has combined the manufacture of solar and energy storage systems—both required for major utility projects—into a rising revenue base. Contemporary Amperex Technology (CATL), the world’s largest EV battery manufacturer, has used both scale and cost leadership to meet demand for grid scale battery energy storage systems. This has allowed CATL to grow unit volume while improving margins.
South Korea has found a different path to cost competitiveness. The country is still heavily dependent on imported coal and gas and subject to seasonal nuclear reliability constraints. But after adding renewable capacity in recent years, South Korea’s energy costs have fallen meaningfully, making renewables competitive relative to fossil fuels (Display).