Asia: offender or saviour?

January 2023

Key Points

  • Capital allocators can't ignore Asia's role in new energy solutions
  • Asia poses a conundrum. As the middle class grows, so does energy intensity
  • Balancing the need for clean, affordable, and secure energy is particularly acute for the world’s least affluent people

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One of Elon Musk’s favourite Twitter topics over the past year has been long-term population collapse. He’s described this as the most significant danger faced by civilisation. In a few decades, it may well be the case that this is a more commonly aired issue than today, but in 2023 we’d suggest that you’re probably more likely to come across views from the UN that the world’s population is set to continue growing until 2100. Over the last quarter century, the run rate has been 12 years per extra billion people. Resource strains come quickly to mind as we live in an era of heightened climate awareness.

Interestingly, as the world’s population tips over eight billion, India is very soon set to overtake China as the most populous country in the world. Asia poses a conundrum. As the middle class grows, especially in less developed countries, so does energy intensity. More than one billion Asians will likely join the global middle class by 2030. We all know about China’s rising coal use or the fact that India can’t pledge to net zero until 2070. And as such, certain Western ivory towers have clearly been guilty of pointing the finger of blame towards Asia for climate change. While I won’t get into development economics or morality arguments here, I do find the reverse of these assessments very interesting. That is to say that without Asia we have little to no chance of meeting any long-term impactful climate goals. For capital allocators, this is an underappreciated opportunity.

To illustrate, let’s consider some examples.

China (and solar)

In 1956, the cost of one watt of solar capacity was $1,825. Now it can often be less than $1. In the last decade alone, solar energy has become 90 per cent cheaper. The cost has fallen below fossil fuel in most major countries. China has had a considerable part to play in this advancement. Manufacturing requires fundamental components: modules, cells, polysilicon, and wafers. China’s capacity share is 75 per cent, 85 per cent, 79 per cent and 97 per cent, respectively. Interestingly, only around one-third of demand comes from China, which is of growing export importance to the country.

Why is China so dominant? The short answer is that it’s due to technology and investment. The country makes up almost two-thirds of large-scale global investment in solar. In the first half of 2022, they invested over $40bn, a 173 per cent increase year-over-year. Significant capital investment in capital-intensive industries can be a self-fulfilling prophecy (the semiconductor foundry industry is a case in point). Solar is not just an industry where manufacturing expertise is essential; new technologies can also be used to drive efficiency. To give just one example, LONGi Green Energy, the world’s largest solar manufacturer, spoke to us recently about using sophisticated software and drones to place electric substations in distributed solar generation.

Taiwan (and chips)

The reference to the semiconductor industry above takes me next to Taiwan. Last year, our head of Emerging Markets wrote an article entitled, The Possibilist, about the chances of the 2020s being a much better decade for Emerging Market investors than the 2010s.

Within this article, there was one point that stuck with me more than most:

“To be clear, this is not a narrow call for EM investors to buy energy and commodities at the expense of technology. The energy transition may be as important an investment theme in the coming decades as Moore’s law has been in previous decades, but they will continue to feed off each other as chips and software are added to renewable supply chains or EV platforms while robotics, quantum computing and other as-yet unimagined industries demand more power.”

As a result of both supply chain vulnerabilities and geopolitical tensions, it’s become more widely understood just how important Taiwan is to the global semiconductor supply chain in recent years. As technology is used to manage climate change better, the importance of high-end microchips is likely to increase further. Currently, one company does around two-thirds of the global manufacturing of such chips. This is a clear instance of over-reliance, but one that is unlikely to change any time soon.

The number of power semiconductors used in global renewable energy is expected to grow with a compound annual growth rate (CAGR) of 8 per cent to 10 per cent from now to 2027. End applications range from electric vehicles (needing circa 2,000 chips on average) to efficient grid power management. As Caterina Favino, a journalist at, puts it, “chips harness, convert, transfer and store renewable energy as electricity and subsequently move it onto the electric grid with minimal loss of power.”

Indonesia (and materials)

Coal generation accounts for about 60 per cent of Indonesia’s electricity today. The government has publicly stated its aim to lower this reliance. However, this is a complex transition and is a good microcosm for the broader conundrum referred to in the introduction. We’ve been encouraged that the Asian Development Bank has recently issued an important Energy Transition Mechanism (ETM) for Indonesia, which supports the early retirement of coal plants to derisk any losses (both monetary and energy). Divestment is unlikely to be the answer. Instead, the mechanisms require a well-thought-through early retirement strategy. In the very long term, however, coal may not be the most important resource in Indonesia.

At the G20 Summit in November 2022, Joko Widodo, Indonesia’s president, made it clear that the country is very open to foreign investment. This has been on an upward trajectory for the last decade, having nearly quadrupled since 2010. Metals processing and manufacturing are critical to this. Significantly, Indonesia is home to almost 20 per cent of the world’s nickel. It’s easy to envisage a scenario in which Indonesia becomes a more strategic partner for other countries that cannot boast this resource.

As we’ve discussed with many of you before, the importance of nickel in the electric vehicle industry is of growing significance, though only about 7 per cent of the global nickel supply currently goes into batteries. We’re at a very early stage of growth here. The Czech-Canadian scientist and author, Vaclav Smil, suggested that even if 25 per cent of the world’s EV fleet were electric in 2050, our nickel requirements could grow by a factor of 28.

For around five years, in our EM and Asian equity portfolios, and some others at Baillie Gifford with a broader remit, we have been investing in nickel producers, including those with deposits in Indonesia. Globally, in the last decade, $5.5bn has been spent on new nickel projects, with only two significant discoveries. In the 19 years before this, there were 20 significant discoveries, which equated to around 15 times the amount of material. This suggests that the low-hanging fruit has been obtained, and we need higher prices to attract more development!

South Korea (and batteries)

Sticking on the electrification of transport (which has the highest reliance on fossil fuels of any sector according to the IEA (using 2021 data), it is clearly not only the materials that are important in this trend but also batteries themselves. Alongside China, South Korea is home to some of the world’s most important actors in this market, including Samsung SDI, SK On, and LG Energy Solutions. Between them, they supply some of the critical global auto companies; the Korean government considers rechargeable batteries among the key industries for the country’s future economic growth. Its largest companies are investing tens of billions in research and development and benefit from significant government support through tax cuts to do so.

While China has the largest market share in electric vehicle batteries today, the last few years have made it more critical than ever for global automakers to ensure they are not overly reliant on just one country. Korea is very likely to be a real export beneficiary here. Looking at LG Energy Solutions, for instance, we can already see that its customer base already includes majors such as Tesla, VW, Renault, Audi and General Motors.

© Visual Capitalist

India (and hydrogen)

India’s economy is growing at such a clip that it needs to plan carefully for its future electricity demand. It is likely to need to build as much additional generating capacity by 2040 as the European Union currently possesses!

India is heavily reliant on traditional energy at present. Still, it often gets missed that over the last 12 years, proposals for over 600GW of coal-fired power in India have been scrapped or postponed. For context, this is about three times the current installed base of coal plants. At the state and company levels, there are clear ambitions for new energy.

The Indian Prime Minister, Narendra Modi, wants to increase non-fossil fuel power generation by three times by 2030. This would mean building the equivalent of the country’s total generation capacity again, which needs hundreds of billions of dollars in investment. Large conglomerates such as the Adani group, Reliance Industries and Tata have a massive role in these plans. Reliance Industries is likely to be especially important. This is a company that has proven it has world-class engineering expertise in building and operating one of the most complex refineries in the world. As well as this, it has shown that it can take bold and effective capital allocation decisions to build a colossal 4G network in India for over 400 million people in just a few years.

In November 2022, during COP 27, India submitted its long-term low-emission development strategy. There were six salient features, with green hydrogen production highlighted in item one. Producing green hydrogen by electrolysis from renewable sources involves breaking down water molecules into oxygen and hydrogen. Reliance Industries’ ambitions include making India the first country to produce green hydrogen for $1 a kilogram within a decade (the current cost is four times that). While it’s too early to determine with certainty whether the company will be successful, it is already one of the largest grey hydrogen producers globally. It has several key ingredients on its side: an ambitious management team, government backing and engineering expertise, to name a few.


There is an important point to note alongside the positive examples shared here. Under all International Energy Agency (IEA) projections for energy usage, including even the most aggressive transition scenarios, traditional energy will continue to play a vital role in both developed and emerging economies for decades. Investing in the most responsible and low-carbon fossil fuel companies remains necessary to minimise the inevitable impact of carbon emissions from these companies over the coming years.

However, the complexities of balancing the need for clean, affordable, and secure energy are likely to be particularly acute for the world’s least affluent people. Asian countries are currently responsible for a considerable portion of global emissions due to their size and stage of development. But as the continent develops further, Asia stands to play a critical role as a solutions provider for the energy transition. There is a danger that reductive scoring techniques disguised as ‘ESG integration’ miss the wood for the trees on this point.

We expect many vital technologies and resources to be developed in Asian economies, which will command more attention from capital allocators in years to come. Here I have identified just five examples. Such is the dynamism of Asia, however, that it’s almost inevitable that there will be countless more in the coming decades.

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