Private Markets Look to De-Risk Energy Investments
Investors are evaluating how to meet the world’s energy needs while avoiding unstable supply chains, as highlighted in a 2022 letter from BlackRock CEO Larry Fink to shareholders following Russia’s invasion of Ukraine, according to Private Equity Wire. The conflict triggered a global energy crisis and skyrocketing oil prices, prompting European countries to seek alternatives in renewable sources that do not rely on imported fuels.
Geopolitical Triggers for Energy Shifts
The Iran war led to the closure of the Strait of Hormuz, sparking debates around energy security and showing how fossil fuels leave countries dependent on a small number of oil-producing nations and complex supply chains vulnerable to geopolitical shocks. Oscar Pérez, CEO of renewables investor Qualitas, stated that renewable energy is increasingly about energy security and the ability to deliver capacity quickly, as renewables can operate outside national infrastructure by combining with battery storage to create localized grids. In Ukraine, this technology has helped power regions where centralized systems were shut down, with local communities forming microgrids, as explained by Yana Hryshko, head of solar supply chain at Wood Mackenzie.
Advantages of Renewables in Energy Security
Asia has faced significant supply chain disruptions from the Iran war, with 84% of the oil and 83% of the LNG passing through the Strait of Hormuz going to Asian markets in 2024, according to the US Energy Information Administration. South Korea responded by lifting caps on electricity from coal, though this fuel faces environmental opposition, as noted by Rahul Agrawal, head of Southeast Asia energy at sustainable infrastructure investor Actis. Actis’s portfolio includes MTerra Solar, which operates an integrated solar energy and battery storage facility in the Philippines, and following the outbreak of the war, the Philippine government expedited approvals for the project to provide domestically available power that competes with fossil fuels on cost.
Challenges in Renewable Supply Chains
While renewables utilize local energy sources, they still face challenges in sourcing components, with 94% of global production capacity for silicon wafers last year coming from China, based on data from Wood Mackenzie. This centralization means that even wafer manufacturing in Southeast Asia is typically carried out by Chinese companies, as Hryshko pointed out, creating potential risks if geopolitical tensions escalate, such as speculation over China’s plans regarding Taiwan. For investors thinking long-term, this uncertainty poses a challenge, as Pérez acknowledged that there is an inherent tension in relying on concentrated supply chains, according to Private Equity Wire. (As widely known context, energy security has been a global concern since the oil shocks of the 1970s, influencing modern investment strategies in renewables.)
