Infrastructure players leverage technology to improve their services.
One of the amazing things about today’s technology environment is that new ideas are not confined to one geography or sector.
Take renewables, for example. We are seeing a massive pipeline of renewable projects emerge around the world as the price of solar and wind turbines continues to fall, and as (most) governments target decarbonization as a policy priority. Yet, while the technologies being leveraged are largely the same in every market, the approach often differs.
In Europe and the West, we have seen growing competition for renewables assets from solar farms to offshore wind auctions. In some cases, bidders for assets seem to be betting that the economics of renewables will improve significantly, which, in turn, is pushing down the reported cost per kilowatt generated. However, as Europe’s governments move away from feed-in tariffs and towards power-purchase agreements, the opportunities for margins and above-market returns are diminishing.
In Asia, on the other hand, the competition for renewables is just getting started. By 2025, Taiwan hopes to increase the share of renewables to 20 percent, including 20 gigawatts (GW) of solar and 5.5 GW of offshore wind power; Korea plans to develop at least 20 GW of renewables; and Japan has 18 GW in the pipeline. And that’s just the developed Asian markets – most developing markets, including Indonesia and Vietnam, are also promoting a range of potential renewables opportunities to foreign investors, developers and operators.
Similarly, the competition around electric vehicles is also heating up. Manufacturers are competing to create the best technologies; cities are competing to create encouraging environments for electric cars; even different sectors (aerospace, automotive, shipping and mass transit, for example) are competing to move away from traditional combustion engines.
One unexpected outcome of this diversity of approaches to technological change may see emerging markets leapfrog the mature markets. There are numerous examples of jurisdictions – like India, Malaysia and Egypt – that, unencumbered by legacy assets and outdated regulation, are rapidly moving forward with the adoption of new technologies like solar. Yet in the West, governments continue to struggle, bogged down trying to maintain old infrastructure networks that everyone knows need replacing.
Over the coming year, we expect to see the competition around new technologies intensify as players continue to look for new opportunities to improve their services, products and revenues. And one sobering feature is that historic leadership means nothing in this new environment (in fact, it is often the incumbents that struggle the most to adapt to new technologies and ideas). The winners are just as likely to be found in the start ups of the developing markets as they are in the leaders of the developed world.