There have been a number of stories published this past week highlighting electricity shortages across a number of geographies.
The most notable story came from developed markets, Japan in particular. Japan closed its last active nuclear reactor with no plan in place for supplanting the power generation capacity it is losing (see article here). What happened after the Fukushima nuclear disaster remains unclear. As a personal anecdote, I was having dinner this past week with a person who manages the import of vehicles from Japan, into Canada.
One of his employees, receives shipping containers at their facility in Vancouver and removes vehicles from shipping containers. He was recently crossing the US border and was stopped and sent for further interrogation. He was informed that his car was emitting higher than normal radiation levels. They did a thorough check, and it was discovered that his elbow was emitting the radiation. The part of his body that has the most contact with the imported Japanese vehicles.
This anecdote illustrates that whatever did happen in Fukushima was probably far worse than we are currently aware of. This imperils nuclear technology, particularly in frontier markets where regimes are not necessarily stable and political risk remains high.
This is pertinent. The investor that can correctly identify which sources of electricity will be responsible for production in Frontier and Emerging markets is likely to reap significant rewards. Electricity shortages are now faced across the world. Chile is struggling to generate enough power for the development of its copper projects (article here). In Frontier markets, Pakistan is persistently on the brink of sovereign default due to unpaid bills owed to utility operators (article here) and Namibia is realizing that it can no longer rely on the decades-old British infrastructure in South Africa and Zambia; which had been selling Namibia electricity(article here). Even the UK though, is not immune; the UK could face acute power shortages by 2030 if investments in infrastructure are not made (article).
The Fukushima disaster has made nuclear technology unappealing and Iran’s ongoing problems has made it a dangerous avenue to pursue for Frontier Markets. Concerns over greenhouse gas emissions have led to a number of developing countries abandoning or at the very least making plans to abandon coal for electrical generation.
Frontier markets are bifurcated along two lines; countries with strong governments as a result of monarchies or socialist systems that are able to act on large-scale capital projects and those countries that have never had a strong government and find themselves unable to construct the large-scale projects needed to meet electricity demand.
For the governments able to construct large-scale projects; technologies like carbon-capture will be paramount (article).
The other markets, most of which are Frontier markets are even more interesting. Where large-scale projects cannot succeed small-scale technologies are the only way to meet demand. The term for this type of electrical generation is ‘decentralized generation.’ Markets like Pakistan, Nepal, Bangladesh, Egypt, Nigeria and others are ideally suited for these types of projects. The world leader in decentralized generation innovation is India. The largest company there is Husk Power; which uses small-scale biomass plants to generate electricity for villages. Similar projects are being done across Africa, Asia, and Latin America using solar, wind, hydro, biomass and other innovative technologies (algae, wave power).
Businesses suffer without electricity, the wealthy are inconvenienced, and the poor lose the opportunity to advance. Each segment has their own reasons, but the overarching commonality is the deep-seeded desire for a stable power supply. Decentralized generation enables these segments to generate their own electricity without having to rely on government or third-parties. This is happening in India and will happen elsewhere. Opportunities to invest in decentralized generation producers are limited, but we expect them to increase over the coming years. The other opportunity for investment is in the makers of the technologies that make this possible. While most are based in emerging markets rather than frontier markets; expect an emergence of local producers that cooperate with larger international companies in the future.
Many of you may be familiar with William Kamkwamba, the boy who built himself and his a family a working windmill to study from, using rubbish. It is an inspiring tail and affirms the important of electricity for Frontier markets. See his speech at TED here .
An excerpt from a book by Maggie Koerth-Baker about this phenomenon