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 (IEA). In 2023, capacity surged by 50% – the fastest growth in two decades. Though the acceleration creates short-term challenges, it offers emerging markets 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, cut production in September 2022 as global demand softened, managing to avoid the oil-supply shortages envisioned by the EU ban. The EU’s attempt to limit Russian hydrocarbons has encouraged countries, for example, in Latin America to focus on developing green hydrogen from clean energy resources that can be exported to Europe and consumed locally.
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. Handling this volume of clean electricity will present a challenge, as the world requires an estimated $14trn in investment by 2050 to keep pace with renewable energy gains.
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 2022 Indonesia signed a Just Energy Transition Partnership agreement, which includes $20bn from international donors to seed additional investment to develop sustainability green climate projects in the country.
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.
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