焦點對談 — 亞洲電氣化！

This is an edited audio transcript of the Talking Heads podcast episode: Asia electrifies!

Daniel Morris: Hello and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis through the lens of sustainability on the topics that really matter to investors. In this episode, we’ll be discussing the electrification of the Asian economy. I’m Daniel Morris, chief Market Strategist, and I’m joined today by Manish Bishnoi, Portfolio Manager for Asian environmental strategies at Impax Asset Management. Welcome, Manish, and thanks for joining me.

Manish Bishnoi: Thanks, Daniel, glad to be here.

DM: Manish, we’re recording this podcast at an interesting time, given the significant changes taking place in the US. With the inauguration of President Trump, there’s an expectation or a realised expectation that attitudes and policies are going to change quite a bit in the US as regards environmental strategies.

At the same time, we need to remember there is a whole big world out there outside the US where the commitment to environmental strategies is still very strong. Could you tell us about some of the key structural trends you see in Asia?

MB: You’re right, there has been a significant change in sentiment, but if you focus on some of the key underlying enduring trends, they are still quite strong.

One of those is the rapid electrification of Asian economies, which is led by both residential and industrial applications, and this is leading to a surge in power demand. I want to point out three underlying themes which are driving this electrification trend.

First, space cooling is one of the fastest growing uses of energy in Asia, particularly India and Southeast Asia. With the rise of incomes, improved access to electricity and record temperatures, there is a significant increase in the sales of air conditioners.

We believe space cooling could account for almost half of the increase in peak electricity demand over the next decade. And on current trends, the number of installed air conditioner units in Southeast Asia and India could triple in the next decade. However, we believe if you use more energy efficient units, it could considerably lower this power demand. So that’s the first strong theme.

Second, we are seeing a significant transformation of both personal and public transportation systems. This is led by [the] rapid adoption of electrical vehicles (EVs), especially in China. As you may be aware, electrical vehicle sales in China now account for more than 50% of all cars sold.

DM: Certainly, the growth of EV sales in China is quite remarkable. And in fact, we’ve seen when we think about Chinese EV exports, the impact that that has had on the auto industry here in Europe. What about India? How is electrification developing there?

MB: In India, we are also seeing increasing adoption of electrical two-wheelers. If you have been to India, what you’ll notice is the number of two wheelers – bikes and scooters – [which] outnumber cars by five to one. So that’s an important area of electrification, and due to affordability i’s the first area which is seeing adoption.

Another interesting area to focus on is public transportation. India has been investing in the modernisation of its railways. The Indian railway system is the fourth largest in the world, but historically it has been underinvested in and hasn’t kept up with rising demand under the current government.

We are seeing significant modernisation and, more importantly, electrification of the railway network. This will not only reduce logistical costs but also cut emissions.

One more challenge in India is rising urbanization, which is creating challenges like pollution and road congestion. We believe development of a mass transit system is quite crucial. The metro network rollout in India is still at a very nascent stage, but around 40 Indian cities are currently beginning or at an advanced stage of planning.

The third big trend I would like to point out is the rise of artificial intelligence and significant investment in digital infrastructure, which is structurally changing the power market dynamics. Datacentres are essential in powering our digital economy and this is set to drive substantial growth in our economies.

But we also have to be aware that [datacentres] are quite power hungry, projected to account for roughly around 8% to 10% of global power demand over the next decade, which is almost a five-fold increase from current levels. This surge in demand for energy presents immense opportunities but also formidable challenges for the energy sector.

DM: From all these trends, there’s going to be a significant increase in power demand, and you talked about some of the challenges that presents. Can you give us a bit more detail and tell us what the implications are of all of this?

MB: Asia is expected to account for roughly half of the world’s electricity demand by the end of this year, up from around roughly one quarter at the beginning of this century. This rise has been driven mainly by China, but increasingly India and Southeast Asia are becoming quite prominent, and demand is growing quite fast.

As you may be aware, Asia is quite resource challenged and a net importer of energy commodities. This introduces a variation in prices but also leads to significant environmental and health issues. Asian cities are known to have some of the worst air quality in the world. Governments are aware of this, so they want to not only increase energy security, but also improve the quality of life of their citizens.

DM: We’re certainly aware of the vulnerabilities presented by energy import dependence in Europe over the last few years with the geopolitical situation. Aside from the economic ones, how do you see Asia managing some of these challenges?

MB: Something Asia has going for it is that it benefits from falling costs to produce clean power. The cost has fallen by around one third in the last few years, and this has been driven by local companies. Local companies are innovating at a rapid pace, which is increasing affordability and leading to higher adoption rates.

For example, we talked about electric vehicles in China, and these have now become more like personal electronics than traditional cars. So, we are seeing rapid innovation, falling prices and increasing features.

DM: In some ways, this topic makes me think about the opportunity that we historically thought we had in emerging market equities – that companies are adopting trends later [than in developed markets] and have an opportunity to skip some of the mistakes the first players might have made. It means they can focus on innovation. What are some of the investment opportunities you see that are linked to these trends?

MB: We see opportunities in enablers of electrification. Let me point out three areas.

First, building advanced grids. We need big investment in Asia’s power grid infrastructure to accommodate the forecast demand growth and ensure resilience of supply. The region’s grids not only have to get bigger; they also have to become smarter to accommodate the decentralised and intermittent nature of renewable generation and also the bidirectional flows of electricity.

The second area related to that is energy storage systems. I mentioned the intermittent nature of renewables. And as renewables play a growing role in Asia, energy storage will become important to match the supply and demand and ensure grid stability. We have seen a considerable deflation in battery prices over the last few years, and we believe battery storage, combined with solar, is soon expected to reach parity with traditional power generation in Asia, especially in China.

And the third area I’d like to point out in terms of opportunity is power management. You may be aware [that] datacentres are quite power hungry, but they also need high voltage loads and they require consistent power supplies and efficient cooling.

In Asia, we have high temperatures that exacerbate this challenge in terms of managing high voltage and power requirements. Also, the power usage efficiency in Asia tends to be worse than in other regions. So, what we need are innovative power solutions which can ensure reliable supplies but more importantly, reduce energy consumption.

DM: That seems quite a big challenge. As you’re pointing out, you need a lot of power, and you need to keep things cool and you’re doing that in a hot region. What are some of the advanced solutions you’re seeing?

MB: Datacentres require a lot of cooling and cooling systems account for roughly around 40% of power consumption. Historically, air cooling has been the mainstream solution for datacentre cooling, but for more advanced datacentres, such cooling is no longer up to the task.

We believe we need advanced solutions like liquid cooling or even emerging cooling techniques. This creates opportunities for companies whose products improve cooling efficiency, and we believe the global market for advanced cooling solutions could grow ten-fold in the next decade.

DM: Manish, thank you very much for joining me.

MB: It was my pleasure and thanks for having me.