The Opportunity

Emerging Asia is a fast-growing market with an average expected GDP growth rate of 6.3% throughout this decade  and a strong increase in urbanization, mobility and consumption. On the flipside, the region is also characterized by soaring resource demand, fossil fuel import dependencies, environmental pollution and comparably low access to basic services. 

The team of Asia Climate Partners believes that a key driver of sustainable growth in emerging Asia will be an increased investment in the clean energy, resource efficiency and environmental industry sectors. In fact, emerging Asia is already leading global growth in many of these sectors and could leapfrog Western economies through sustained strong economic fundamentals, recently introduced regulatory frameworks and further technology advancements. 

Growing Environmental Markets in Asia

Over the past decade, emerging Asia – in particular China, India and Southeast Asia – has been characterized by robust economic growth coupled with significant increases in urbanization and consumption. Whilst this strong underlying growth dynamic is projected to continue, it is increasingly compromised by concerns over resource depletion and/or scarcity, as well as serious pollution issues across the region.  A crucial requirement for achieving sustainable growth in Asia is to shift towards a more efficient use of key resources such as energy and water, combined with a stronger focus on environmental preservation and pollution control. In view of this, ACP believes that the renewable energy, resource efficiency and environmental industry sectors present large and fast-growing opportunities in Asia with a compelling long-term outlook and substantial governmental and societal support. 

Environmental technologies have become cost competitive in key markets

There have been significant reductions in the cost for environmental technologies over the past few years, driven by process innovations, scale and efficient business models. A prominent example is renewable energy technologies, such as onshore wind and solar photovoltaic (PV) power which have seen reductions in the levelized cost of electricity (“LCOE”) of 60% and 80% respectively over the last five years . This has placed renewable energy in a very competitive position vis-à-vis conventional fossil-fuel based power generation in Asian markets. This cost competitiveness on the part of renewable energy is further enhanced if one considers (a) carbon costs/taxes to capture the externalities of fossil fuel based generation, and (b) cleaner generation technologies for coal (and gas), e.g. through carbon capture and storage, which could potentially add up to USD 0.02/kWh to the indicated fossil fuel power cost range in the chart below.

Weighted average Levelized Cost of Electricity (LCOE) by region and technology in 2014

Source: International Renewable Energy Agency 

Similar cost reductions can be seen in other technologies relevant for environmental industries. The cost of energy storage has fallen by 40% between 2012 and 2015 and a further drop of more than 50% is expected until the end of the decade (UBS, 2014). In the same timeframe, battery lifetime cycles are forecasted to increase by a factor of three. Cost efficient storage solutions are critical for reaching a high penetration of renewable energy generation. The cost of LEDs for general lighting has fallen by 50% within the past two years and is expected to fall by another 50% until 2020 (Goldman Sachs, 2014). Already now the economics of LED light bulbs are more beneficial than all other types of light bulbs after about 5 years of use.

Regulatory tailwind and public pressure will help the sector to grow

Further growth in the environmental sectors is supported by governments in emerging Asia that have adopted a wide range of policies and regulations to promote clean energy, resource efficiency and environmental protection. These policies are built on best practices and not expected to be reduced in scope as governments aim to shift their economies towards future growth industry sectors that will spur foreign investment activity and boost their international competitiveness. While an increasingly affluent public in Asia is putting additional pressure on governments to create the framework for a clean environment, large parts of the region’s population still lacks access to basic services and creates more demand for resources. In 2012, 620 million people in emerging Asia had no access to electricity, 1.9 billion people relied on traditional biomass for cooking (OECD, 2014), and 750 million people had no access to basic sanitation facilities (WHO, 2014).

Environmental industries have grown rapidly and become sizeable markets in emerging Asia

As a consequence of the trends highlighted above, environmental industry sectors have already become sizeable markets in emerging Asia with the potential for continued strong future growth. Expected compound annual growth rates to 2020 are as high as 50% for solar electricity generation in China and India, and are above 20% for most low-carbon/environmental sectors. Even more established industries, such as water and wastewater treatment or food and agriculture are expected to benefit with growth rates in the same 20% range. This allows for attractive diversification across sectors and geographies.