Joseph Jacobelli describes how the boom in Asia’s energy market investments in digital increase business and investment opportunities for domestic and overseas firms.
Asia is already the largest energy-consuming region in the world. In the coming decades, demand will rise much further and the region will continue to exponentially expand its transmission and generation capacity.
Concurrently, the continent will rapidly build up the digital infrastructure. There are already several markets which are strongly placed to lead the way in smart energy through digital technologies and solutions, both home-grown and from abroad.
Regional energy demand turning from large to massive
The Asia region accounted for 45.5% and 48.2% of the world’s total primary power and energy consumption respectively in 2020, based on BP data. The second largest region, North America, accounted for only 19.4% and 19.5% respectively.
In the coming three decades, consumption will rise much further because of a low base. Less than 11% of the region’s electric power consumption, or about 1,403 TWh out of the 12,919 TWh (Figure 1), was from developed markets; namely Australia, Hong Kong, Japan, New Zealand, and Singapore. This means that Asia must add massive amounts of new transmission and generation infrastructure.
Some advanced emerging economies such as China will see power demand at least double by 2050 while some less economically advanced ones, such as India, will see it rise severalfold. Many governments and corporations in the region have embraced the energy transition and are aggressively seeking green and sustainable paths. They aim at a progressive fading out of fossil fuels-based energy in favour of electricity from clean resources, such a solar and wind power.
These resources will account for 50% to 100% of electricity output in Asia by 2050, depending on which forecast scenario is used. Given the existing energy transition momentum, the amount is likely to be at the higher end of the range.
As detailed in my book, Asia’s Energy Revolution, the various electric power markets in the region will rapidly and extensively add digital technologies and solutions while they construct the new necessary electric power infrastructure. The coverage of the new digital investments will not be limited to traditional demand-side management.
It is considerably more comprehensive and encompassing.
Massive spending expected in soft and hard digital infrastructure
The amount of investment in digital technologies and solutions for energy in the region over at least the next ten years should, conservatively, exceed $200 billion per year or $2 trillion over the period.
The estimate uses various global digital infrastructure forecasts as a base and then assumes that at least half will be spent in Asia. It is imperative to understand that an accurate capital expenditure amount dedicated solely to energy digitalisation is difficult to gauge given that many of the investments in soft and hard digital infrastructure may not necessarily solely be for the energy industry, yet they are absolutely critical to its development.
Examples of this include spending towards such soft digital infrastructure as digital payment solutions and such hard digital infrastructure as connectivity, including 5G and fibre.
There are many motivations and drivers for an acceleration of investments in digitalisation. Some of these are applicable globally. New digital technologies drive cost savings throughout the value chain of the production and supply of the energy.
They facilitate raising environmental sustainability. They can effectively raise the efficiency of energy-related financial transactions. They can address challenges with the intermittent supply nature of power from variable renewable energy
(VRE). They are also essential to improving the operations of new economy electric power networks, including micro-grids and distributed energy sources, and that of energy storage.
The motivations and drivers specific to Asia revolve around the fact that many of the electric power markets are emerging economies. The amount of digital infrastructure investments towards greenfield projects will thus exceed the amount dedicated to the replacement and upgrade of existing digital infrastructure.
We can use India as an example. The country has a total installed generation capacity of almost 390GW, about 83% less than China’s 2,260GW.
So as India ramps up its capacity in the coming decades the vast majority of its investments in digital technologies and solutions will be for greenfield projects and will also allow for the use of the latest and most efficient digital technologies and solutions available.
Learning from examples
Examples of digitalisation advances in Asian electric power markets abound. This can be illustrated by some real-world cases from some widely different jurisdictions; namely Australia, China, and South Korea. The latter two are discussed in more detail in Asia’s Energy Revolution.
The Australia electric power market is only the seventh-largest in Asia with about 265TWh generated in 2020. But it is definitely top-ranked when it comes to digital-related activity for many reasons including the bulk of the market being fully liberalised and the high penetration of VRE; for example, small scale rooftop solar – 8.7kW systems on average – reached a colossal 15GW as of July 2021.
For this, regulating bodies and stakeholders are actively looking at Industry 4.0 for productivity benefits, more extensive monitoring, big data analysis, digitally enabled equipment, real-time energy management, VRE and demand management.
The investments for all of these innovations are chiefly from the private sector, albeit with government support in some areas. It is currently difficult to gauge the amount of expenditure that will be required but it will be hundreds of millions of dollars at least this decade.
China is indisputably one of the digital transformation leaders in the world. The more consumer-oriented high-profile
examples are Alibaba, Baidu and Tencent.
In the electricity sector, state-owned enterprises such as the State Grid Corp. of China (SGCC) and private sector ones such as Huawei Technologies have led the nation to make huge digitalisation advances in a great number of areas including energy efficiency, EV charging, UHV transmission lines, and smart metering.
Perhaps the most talked-about of the areas domestically is smart grids. SGCC’s annual CAPEX on smart energy was about 35 billion yuan ($5.42 billion) in 2011–2020.
In March this year, it announced that in the 15-year period through 2035 it will accelerate “the intelligent transformation of power grid infrastructure”. This includes the construction of smart microgrids, smarter and more reactive power systems, smart-generation, storage connectivity, VRE despatching optimisation, and the large-scale application of new energy storage technologies. The SGCC, Huawei and others have also invested into many digital solutions for energy including AI, big data, blockchain, the cloud, and IoT.
Korea Electric Power Corp (KEPCO) is the nation’s largest utility, accounting for about 65% of generation and virtually all of its supply. The utility has historically devoted an enormous amount of resources into digital technologies and solutions so as to raise its efficiency and also so that it would be able to export its know-how abroad. It has been spending over $600 million annually on R&D, much revolving around Industry 4.0.
In recent years it detailed the digital energy-related technologies that it was focusing on. It broke these down into how it would develop the technologies in six areas and explained how it would go about securing these technologies. The six revolve around sensors, IoT, the cloud, big data, AI, and robots. The company actually undertook many pilot projects to further improve its know-how. This includes being a key participant in 80 smart city projects around the country.
What is next
The Asia region will see hundreds of billions of investments in power generation and supply over the next 30 years. These will be accompanied by huge investments in digital technologies and solutions. The fuel source shift from polluting fossil fuels to green and sustainable sources will only be feasible with enhanced digitalisation. These investments create a massive number of opportunities for businesses and investors from within and outside Asia.
About the author
Joseph Jacobelli is an Asia finance and energy professional with over 30 years of experience. Jacobelli is the founder of Asia Clean Tech Energy Investments, a dedicated family office and advisory firm for companies to source and finance clean energy projects in the region. He published the book Asia’s Energy Revolution: China’s Role and New Opportunities as Markets Transform and Digitalise (Berlin/Boston: Walter de Gruyter GmbH) in 2021.