Investors are evaluating how to meet the world’s energy needs, while avoiding unstable supply chains.
By Jack Arrowsmith, London
In a 2022 letter to shareholders shortly after Russia’s invasion of Ukraine, BlackRock CEO Larry Fink said the war meant “More than ever, countries that don’t have their own energy sources will need to fund and develop them – which for many will mean investing in solar and wind power.”
The conflict triggered a global energy crisis and skyrocketing oil prices. European countries that had long been dependent on Russian oil and LNG for a significant portion of their energy mix had to look elsewhere, often to renewable sources which don’t rely on imported fuels.
The Iran war has told a similar story, with the closure of the Strait of Hormuz again prompting debates around energy security. Advocates for renewables argue that fossil fuels leave countries dependent on a small number of oil-producing nations, and a complex system of supply chains which can be upended by geopolitical shocks.
Oscar Pérez, CEO of renewables investor Qualitas, says that “renewable energy is not just about decarbonisation anymore – it’s increasingly about energy security and the ability to deliver capacity quickly”.
One advantage is that renewables can operate outside of national infrastructure, combining with battery storage to create localised grids which are not subject to nationwide disruptions.
In Ukraine, this technology has helped power regions where centralised systems have been shut down, with local communities forming their own “microgrids”, explains Yana Hryshko, head of solar supply chain at Wood Mackenzie.
“It will become a very important consideration for governments and also for private investors to invest in a decentralised power supply…to ensure greater autonomy and independence,” she adds.
Asia has been hit particularly hard by supply chain disruption during the Iran war. According to the US Energy Information Administration, 84% of the oil and 83% of the LNG that moved through the Strait of Hormuz in 2024 went to Asian markets.
For many countries in the region the immediate solution has been coal: South Korea, for instance, has lifted caps on electricity from this source. While the fuel has seen less sharp price rises than oil and LNG this year, its environmental impact brings opposition of its own across the region.
“The resistance to coal power is very high, both in terms of financing, and locally,” says Rahul Agrawal, head of Southeast Asia energy at sustainable infrastructure investor Actis.
The firm counts Philippines-based MTerra Solar as part of its portfolio, which operates an integrated solar energy and battery storage facility in the country.
The energy crisis has brought the need for projects such as MTerra into sharp focus. Agrawal explains that following the outbreak of the war, the Philippine government worked to complete the paperwork for the project and get it approved ahead of schedule: “The Department of Energy expedited those approvals two or three months in advance to get this power”.
MTerra’s value for the Philippines comes from its ability to compete with fossil fuels on cost while de-risking from these supply chains: “This power was cheaper, and available domestically rather than relying on imported fuels,” he says.
Renewables not immune
But while renewables utilise local energy sources, they still face the challenge of sourcing components, which have global supply chains of their own.
In the case of solar, that supply chain is highly centralised. According to data from Wood Mackenzie, 94% of global production capacity last year for silicon wafers (the material used to produce solar cells) came from China.
Across other regions, production is highest in Southeast Asia, although Hryshko notes that limited information on the production process of these wafers means the bulk of the work could still be taking place in China.
This is because wafers are made from slicing up silicon ingots, which are produced from polysilicon in a difficult and energy intensive process.
“There is no way to check if it’s wafer slicing, where [companies] import ingot and then slice it into wafers, or convert polysilicon to ingot and then ingot to wafer,” she says, adding that wafer manufacturing in Southeast Asia is typically carried out by Chinese companies anyway.
“Polysilicon and ingot growing and wafer making – it’s all concentrated in China.”
For now, investors see this concentration as an advantage, with the supply chain only dependent on a country currently viewed as very stable.
But there is no guarantee this will last. With constant speculation over China’s plans to take control of Taiwan, there remains the risk of a future conflict in which Europe experiences a supply chain disruption similar to the one it has faced with Russia over the last four years.
For investors who are looking to think long-term, this uncertainty is a challenge. Pérez acknowledges that “there is an inherent tension today between the local nature of renewable generation and the global nature of its supply chains.”
However, he adds that an integrated approach can be taken, to retain some of the decentralisation of renewables, while also mitigating supply chain risks.
“We see increasing value in diversification by combining scalable renewables with more localised solutions such as biomethane, as well as investing in flexibility through storage and hybridisation.”
Biomethane is a purified version of biogas which has a similar quality to natural gas, meaning it can be distributed using existing gas pipeline infrastructure. Biogas is produced through a process called anaerobic digestion, where microorganisms break down organic waste.
Qualitas backed Acorn Bioenergy, a firm operating UK sites producing the fuel, in 2022. The company opened its first UK biomethane facility back in September, producing more than 120 GWh of the fuel annually, enough to meet the head demand of over 9,000 homes.
With even renewables not being invulnerable to supply chain shocks, investors may need to spread risk to avoid what many see as the over-reliance on fossil fuels exposed by the conflicts in Iran and Ukraine.
This de-risking appears to be on the minds of allocators. According to Private Equity Wire® survey data from Q1, the share of allocators prioritising renewables is over twice the share for traditional energy sources.
“The energy transition will not follow a single linear path, but we think its forward momentum is clear,” says Pérez.
“If anything, the current geopolitical context is accelerating its importance rather than undermining it.”
