The global power and energy transition

Jun 11, 2018
By BlackRock

A deep structural shift is underway in how the world powers industry, homes and transportation. The implications for infrastructure investors are significant.

Technological innovation, demographic shifts, new government policies and the rise of environmental concerns are driving the transition and creating a need to build and revamp energy infrastructure. With many utilities and energy companies in restructuring mode, investment opportunities are opening up for other capital providers.

The main storyline is the move away from coal and nuclear and toward cleaner energy sources, but there are important regional variations, and the transition is playing out across a sprawling global value chain.

We believe infrastructure investors should focus on four main themes:

  • The shifting mix in energy supply. Renewables and natural gas continue to gain share as coal and nuclear are retired.
  • The changing character of energy demand. More and more energy is being consumed in the form of electricity.
  • The rise of a globally integrated market for natural gas. Liquefied natural gas is playing a key role, creating a major need for new LNG infrastructure.
  • The revision of business models and replacement of aging assets. Energy companies are divesting pipelines, terminals and other assets.

While risks range from the macro (political and economic) to the micro (counterparty), they can be mitigated, and we believe the combination of complexity, global variety and capital need amid clear directional change can make for attractive investment opportunities.

Shifting mix

Proportion of total global electricity generation by fuel

Shifting mix

Source: International Energy Agency, World Energy Outlook 2017; New Policies Scenario; Renewables include Hydro, Bioenergy, Wind, Geothermal, Solar PV, CSP and Marine

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