The energy transition advanced in 2023 despite geopolitical tensions, supply chain disruptions and inflationary pressures that maintained elevated energy prices globally. Prices fell from 2022’s historic peaks but remained higher than pre-2020 levels, potentially signalling a turning point in the shift from hydrocarbon dependence toward lower-cost clean energy alternatives.
Hydrocarbons’ uneven global distribution, vulnerable supply chains and volatile pricing present ongoing challenges. While hydrocarbons-producing countries achieved record revenue in 2022, renewable energy capacity grew by over 8% that year, exceeding 300 GW for the first time according to the International Energy Agency. In 2023 capacity surged by 50% – the fastest growth in two decades – reaching approximately 510 GW. Though the accelerating transition creates short term challenges, it offers emerging markets significant opportunities if they can adopt the clean technologies that will define the future energy landscape.
Alternative Sources
Energy security became paramount following disruption to European hydrocarbons supplies due to the Ukraine war. With the world’s largest natural gas reserves, Russia historically supplied approximately 40% of Europe’s gas imports – and up to 55% of Germany’s in recent years. As European countries have sought alternatives to Russian supplies, new policies and initiatives have accelerated the shift toward diversified import sources and alternative energy solutions.
In May 2022 the EU announced a ban on seaborne imports of Russian oil, which presented an opportunity for oil-exporting emerging markets − both Organisation of the Petroleum Exporting Countries (OPEC) members and non-members − to increase production to meet demand. When the ban was instituted in December of that year, the EU found itself with ample supply thanks to increased cargoes in the intervening months from Africa, Latin America, the Middle East and the US.
Members of OPEC and other allied oil-producing nations, collectively known as OPEC+, cut production in September 2022 as global demand softened, managing to avoid the oil-supply shortages envisioned by the EU ban. To curtail Russian revenue from natural gas, the EU decided in February 2023 to set two price caps for petroleum products originating in or exported from Russia. The first price cap for petroleum products traded at a discount to crude is set at $45 per barrel, while the second price cap for petroleum products traded at a premium to crude was set at $100 per barrel. The price caps came into effect on February 5, 2023, though a transition period of 55 days was put in place for vessels carrying Russian petroleum products that were purchased and loaded onto vessels before that date and unloaded prior to April 1.
The EU’s attempt to limit Russian hydrocarbons has encouraged countries in Latin America to focus on developing green hydrogen from clean energy resources that can be exported to Europe and consumed locally. For example, Argentina unveiled a $6bn investment plan in June 2022 to develop wind-powered hydrogen and ammonium industries in the southernmost Tierra del Fuego province, positioning the country as a major exporter to European and Asian markets.
Electricity & Emerging Markets
Going forwards, the speed and effectiveness of the energy transition hinges on the electricity sector, where replacing coal with solar and onshore or offshore wind could go a long way towards meeting global electricity demand. Among these sources, solar began to take the lead in 2022, eclipsing wind in China and Australia. Solar photovoltaic (PV) accounted for three-quarters of global renewable capacity expansion in 2023, with China commissioning as much PV as the entire world that year. Wind capacity also grew by 66% year-on-year. Overall, the IEA expects that energy security imperatives will drive global renewable power capacity to expand by 2400 GW between 2022 and 2027 – 30% more than was forecast in 2021. Global solar PV capacity is set to triple during this period, while wind capacity is expected to double. Handling this volume of clean electricity will present a challenge, as the world requires an estimated $14trn in investment in power grids by 2050 to keep pace with renewable energy gains.
New Technologies
Technological advances helping to revitalise traditional clean energy resources that are domestically generated, particularly hydroelectric power. Despite drought-related output declines in China and elsewhere in 2022, the IEA projects pumped storage hydropower will expand the sector’s global role, adding 65 GW of capacity by 2030, predominantly in Asia and Africa. New cross-border agreements in 2022 include Nepal’s plans to transfer hydropower to India through the West Seti and Seti River projects, and Ethiopia’s 200 MW commitment to Kenya via the Kenya-Ethiopia Electricity Highway Project.
Meanwhile, biogas and biomethane are strengthening the green circular economy in emerging markets. Produced through anaerobic digestion of agricultural, food, municipal and animal waste, biogas can power national grids and household heating, while process residue can be used as fertiliser.
Although the biogas industry is well established in Europe and North America, it has considerable unexplored potential in emerging markets – especially in Asia, where crop residue and animal manure could be harnessed to help biogas account for up to 20% of global natural gas supply. For example, in January 2024 Indonesia launched its first commercial biomethane plant. Located in North Sumatra, the plant is expected to prevent the emission of 3.7m tonnes of CO annually.
Green Climate Finance
As emerging markets continue to add capacity to generate renewable energy, some of the world’s wealthiest countries could help finance their energy transitions. In November 2022 Indonesia signed a Just Energy Transition Partnership agreement, which includes $20bn from international donors to seed additional investment to develop sustainability projects in the country. In November 2023 Indonesia announced the Comprehensive Investment Policy Plan to fund the partnership’s main goals.
In 2022 there was also a pronounced rise in climate-friendly debt issuance in emerging markets, which takes the form of countries leveraging their natural environments to fund environmental projects in so-called green or blue bonds. Many emerging markets in Africa have turned to creative climate financing to address shortfalls in public finance and would welcome bond issuances from international organisations and the private sector to fund climate-related projects.
Southern and East African nations are also seeking to use blue bonds to build the Great Blue Wall initiative, which aims to protect coastal and marine areas spanning from Somalia to South Africa in the Indian Ocean, sequester 100m tonnes of CO₂ and create 1m blue jobs by 2030. The Bahamas put a slight twist on this approach, offering $300m in blue carbon credits from mangrove forests, seagrass beds and other ecosystems that absorb and store significant amounts of carbon to companies that want to offset their carbon emissions.
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