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Under the Banyan Tree – Energy crisis: a green light for renewables?
685 Plays5 days ago
As the global energy crisis intensifies, Fred and Herald welcome Nneka Chike-Obi to the podcast to discuss whether the situation could breathe new life into renewables in Asia.
Click here for appropriate Disclosures, including analyst certifications, and Disclaimers that must be viewed with this podcast: https://www.research.hsbc.com/R/101/fnh6gsr
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Transcript
Introduction to HSBC Global Viewpoint
00:00:01
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
Energy Security in Asia
00:00:23
Speaker
If you want to look at it from an energy security perspective, and frankly, that is how I generally see it in Asia, which is why it's a nice place to be a sustainability analyst. I think the conversations here are very pragmatic and economies understand that having a diverse source of energy that is not part of a global market and not subject to geopolitical crises is extremely important.
Impact of Middle East Conflict on Asia's Renewables
00:00:54
Speaker
Hello from Hong Kong and welcome to Under the Banyan Tree. I'm Fred Neumann, Chief Asia Economist here at HSBC. And I'm Harold van der Linde, Head of Asia Equity Strategy. As volatility and uncertainty around the Middle East conflict continues, we're asking a new question today.
00:01:08
Speaker
What impact could the situation have for renewables? That's right. Asia is a massive energy importer, but it's also a major player in the energy transition. So the question is, could the supply squeeze help jumpstart the green agenda again?
00:01:22
Speaker
Joining us to help answer that is Nneka Chikaiobi from our sustainability research team. Nneka is based here in Hong Kong and looks exclusively at Asia Pacific. Indeed, we're looking forward to hearing what she has to say. Let's get the conversation started right here under the banyan tree.
Asia's Energy Import Dependency vs. Green Energy Rise
00:01:44
Speaker
A few stats first off to put things into context. We said Asia was highly energy dependent and we weren't kidding. Japan, South Korea and Taiwan are all 100% dependent on fossil fuel imports.
00:01:57
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And when it comes to liquid natural gas, 80% of Qatar's entire production comes to Asia. That's right, Fred. But at the same time, green power is on the rise. 35% of electricity across Asia-Pacific is generated by non-fossil fuel sources. For comparison, Europe is at nearly 50% and the US is at less than 25%.
00:02:16
Speaker
ah Fred, here we are. We've talked about the issues in the Middle East and the impact on Asia in previous podcasts. We looked at higher oil prices, the second round consequences on interest rates and and these sort of things. um Remind me quickly, Asia is really energy dependent, right? what Where are the pockets? where Which countries are mostly? Asia is hugely exposed to disruptions in global oil and gas markets. It's absolutely clear. Even though Asian economies have been quite good at reducing their energy intensity. In fact, over the last 20 years, the the energy use to generate GDP has declined by about 30 percent, which is quite big. But yet, yet, we need a lot of oil and gas, particularly from the Middle East.
Renewable Energy Interest Amidst Oil Price Hikes
00:03:00
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so
00:03:00
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There are about nine economies across Asia that receive more than 70% of the oil imports from the Gulf, which is obviously a huge vulnerability for them.
00:03:11
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um And when we look at gas here too, there a number of economies where gas is a very important generator for electricity, for example, more than 50% of all the energy use comes from gas in places like Thailand, Korea, Japan, Taiwan, Indonesia. So these are economies that are quite exposed to any supply disruptions. So with that dependence on on the Middle East, oil and gas from the Middle East, that exposure, and of course countries thinking more about national energy security, would that kind of renew the interest perhaps in the renewable sector? And of course, what are markets telling us? Do you see perhaps already investors looking at this, the implications for renewables? Absolutely, Fred. So what we've seen is that when oil prices went up, oil companies listed in the markets, they can sell oil now at a higher price, so their profits go up. So these these companies' share prices have gone up. The market cap of these companies have gone up as well.
00:04:08
Speaker
But the... market capitalization of the combined battery producers in in Asia has gone up be even more. It's about $70 billion dollars since the start of this particular conflict. So clearly the markets say, hey, there is something there with these battery companies. Now, that is partially maybe also been ignited by new batteries come to the market, BYD, the leading electric vehicle company in in China. They've come with a new battery pack whereby it allows you to charge your car in five minutes 80% full and nine to 11 minutes, depending on how cold it is, ah completely full. So that says you can drink a cup of coffee and your car would be fully charged. Absolutely. Just as putting gas in tank Exactly. And this is exactly what they're doing. They're actually installing 20,000 charging stations across China, as we speak. And apparently they have plans to do exactly the same in Europe. So you can then drive around, charge in a few minutes, cup of coffee, done, and you drive another few hundred kilometers before you charge again, just like you
Nneka Chikaiobi on Asia's Energy Mix and Policies
00:05:05
Speaker
do in a petrol car. So there's clearly an interest in in this and we're moving in this particular direction. But I think we need a bit more context and probably it's a good time to bring in our sustainability guru for Asia. Nneke, welcome to the to the podcast. Hi, Nneke. Hi, guys. So, Nneke, you've looked obviously at sustainability and energy issues for a long time across Asia. How do you think about the implications of the current energy shock for the energy mix in Asia and particularly renewables?
00:05:35
Speaker
So when we look at what we call the nationally determined contribution, which is what governments submit to the UN for their commitments to reaching Paris Agreement targets in 2050 of net zero, energy security is mentioned very regularly by many of the large Asian economies. So we see it in the plans for Japan, South Korea, um
Lessons from Past Energy Crises and Current Challenges
00:05:56
Speaker
Taiwan. We'll mention specifically issues around energy security. And this was already before the energy shock. Before this current shock. yeah Exactly. yeah um As you mentioned before, a lot of the large economies in Asia are dependent on energy imports, places like Japan and South Korea. So for them, they were already looking at decarbonization. as an opportunity to reduce their dependence on imports and generate power domestically. um So this kind of supports the thesis that we've seen from the policy perspective that's been going back to sort of 2015. And this is sort of a validation of it.
00:06:31
Speaker
In terms of what this potentially means for the energy mix, we looked back at what happened in the Russia-Ukraine, the start of the Russia-Ukraine conflict in 2022. We took a look at the spreads between gas and solid fossil fuels in Asia. The spreads were actually significantly larger in 2022, particularly in the summer of 2022. So gas was relatively more expensive than, say, traditional fossil fuels at that particular point in time. So this is not as much of a crisis as it was. Exactly. So the relative expense of gas vis-a-vis alternatives is not as great right now.
00:07:05
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And so this leads to the question of what will these economies use as an alternative to gas? Because 80% of the LNG that comes out of Qatar goes to Asia, right? So we're looking at a situation where it's not just a price issue, it's also a supply issue. There is going to need to be energy generated from something else other than natural gas. Now, let's take a look at a couple of these new supplies, in particular solar and wind. That seems to be the energy sources that most countries are focusing on. Is that correct? And maybe to put this in context, how much is actually being generated at the moment by renewables going into this? Because we read a lot about these massive investments. But is it fair to say that it's still really maximum 15%? I mean, we have some economies. I think New Zealand has very high share. I think almost half. But then you get quickly down to Philippines, 19 percent. Other countries around 10, 11 percent. You're talking about alternatives in total or solar and wind? Solar and wind and renewables more broadly in the energy mix with these countries. So, yes, there is investment, but it's still a relatively small share. Is that a fair characterization?
00:08:14
Speaker
I would say it's fair that the if you look at the installed capacity for renewable power generation, it's much ahead of the actual generation.
Opportunities in Renewable Energy Capacity
00:08:22
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And that could be a combination of continuing to use existing power plants that maybe are coming towards the end of their life. So, for example, South Korea has a very ambitious plan to retire a large amounts of um energy from traditional fossil fuel plants, and those will have to be replaced by either renewables or or some alternative fuel. so But does that mean the the plants are already there? The solar panels are installed? They're just waiting to to turn them on? And is this an opportunity then to actually ramp it up quite quickly? Yeah. So I actually took a look to see what the capacity utilization was for wind and solar in most of the large Asian economies. And in most cases, they are underutilized. um India might be the one with the most underutilization. At the moment, 50 percent of installed power capacity in India is renewables, but it's only around 20 percent of generation. So in some senses, you can see that as an opportunity in a crisis like this for economies to have the option to switch to renewables because there is excess capacity available. So that's good news. because that that is already installed, say, solar panels that they are not fully utilizing. So for whatever reason, you would expect them to do so. In addition to that, across the whole solar food chain, there seems to be oversupply as well. So even if you would run into capacity problems, you need a module or you need a panel, there is plenty of that around, in particular in China at the moment, right? Yes. Another thing to consider is when you look at the efficiency of solar, um the installation of battery energy storage systems increases their efficiency because you have the opportunity to store solar power. This goes back to this sort of BYD story that these batteries are getting better. Exactly. So as the battery technology becomes better and cheaper, it
Solar and Wind's Role in Energy Security
00:10:00
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improves the efficiency. So if you look at a typical capacity utilization of a solar panel, it's around 25%. So that means 25% of the day, the panel can generate electricity. And that's because of clouds. Half the day, of course, in a cloud cover. That makes sense. Exactly. You can increase that significantly through battery storage. At the moment, we have battery storage systems that are around four to six hours. um But there's actually been some interesting news in the U.S. of some new battery types that could potentially, in terms of ah a grid scale battery, store 100 hours of power. so it's it's interesting You mentioned that actually we have already much more capacity than we're using. So it's really about turning that capacity on. Batteries going to be a key part of that. um But beyond that, isn't there scope then it's to double down even more on reliance on some of these renewable sources just to get away from
00:10:52
Speaker
imports of fossil fuels because it's a national security issue if these economies want to continue to work. is that Do you see that prudentially happening? and And if I can add to that, wind, for example, very often is is in places far away. So batteries are playing a maybe even more important role with with wind as well. Yes, and wind, if you look at the time to sort of activate, solar is the fastest and solar is the cheapest compared to wind. And then when you talk about other renewables like hydro or geothermal, longer scale, more capital intensive. um If you want to look at it from an energy security perspective, and frankly, that is how I generally see it in Asia, which is why it's a nice place to be a sustainability analyst. I think the conversations here are very pragmatic and economies understand that having a diverse source of energy And energy that you can control within your own own borders yeah that is not part of a global market and not subject to geopolitical crises is extremely important from a stability perspective. And so this kind of creates the story for renewable energy outside of simply...
Nuclear Power's Potential and SMRs
00:11:55
Speaker
doing something better for the earth and reducing carbon emissions. So just to put this very quickly together, there is enough solar installed for the moment in order to quickly switch into that. And if we need more, there's supply as well. ah Wind probably as well takes a bit longer, but the battery technology is key here and that allows us to utilize these sources much better. Then, of course, there's nuclear as well, right? is Is that something we can quickly start up as well?
00:12:20
Speaker
Nuclear has a much longer lead time. yeah And in most of the economies that already have nuclear installed and had shifted away from it after the 2011 crisis at Fukushima, there is a process of putting nuclear back onto the system. Japan's 2050 net zero strategy requires it to have around 25 percent of its electricity generated by nuclear. At the moment, it's around 15 percent. But this is going to be done by putting plants that have been idled back online. yeah In terms of new, brand new nuclear, that is very expensive and has a much longer lead time. There's this new sort of trend of small modular reactors, right? Smaller nuclear reactors that you can use in and in cities or in in in data centers. Is that right? That would probably be considered an earlier scale technology in terms of the maturity. At the moment, there's a lot of investment coming from the technology sector, as you mentioned, related to data centers for small modular reactors. I've also heard about some potential uses for maritime, for example, as a replacement for fuel oil. But in terms of grid scale electricity, i think that's probably unlikely at the moment, just based on the economics of of nuclear SMRs.
Technological Shifts Towards Renewables
00:13:32
Speaker
But Harold, I feel a little bit better now, I have to say. We talk – obviously the tragic war in the Middle East and all the worrying consequences for for Asia and the disruptions to lives and and the economies.
00:13:45
Speaker
But it does appear that sometimes also this can be an impetus for change. And I think the energy shock is – yeah, there are technologies available. We have capacity. We actually have a capacity bring on. So – maybe that accelerates a little bit process towards things like renewables and will make economies just more resilient against some future shocks. So, Nneka, thank you so much for joining us. And we'll make sure that we'll check in with you again very soon to see where we are in terms of the energy transition.
00:14:17
Speaker
Thank you, Nneka. Thank you. Thank you. And that brings us to the end of this week's podcast. Thanks for joining us. And remember to listen, like and subscribe to Under the Banyantree and our sister podcast, The Macro Brief, if you haven't already.
00:14:29
Speaker
Under the Banyantree is HSBC Global Investment Research production. Our producer here is Graham Mackay. We'll talk to you again very soon.
00:15:04
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.