Investment Insights

Rising Energy Demand Drives Real Assets 

June 2020

Energy demand shifts to Asia Pacific

Energy demand (including electricity, oil and natural gas)has ballooned in Asia. For example, according to statistics from the International Energy Agency’s World Energy 2019 Outlook, Chinese energy demand is now higher than that of the US, where in 2000 it was less than half.

Such growth rates are also reaffirmed by other industry sources. The British Petroleum (BP) Energy 2019 Outlook estimates that in 20 years time, Asia, will, as a whole overtake Organization for Economic Co-operation and Development (OECD) countries as the region demanding the most energy (Chart 1). 

CHART 1: Asia is poised to dominate energy consumption
Estimated Energy Consumption 2020 vs. 2040 (% of Total) 

Source: Legg Mason, BP Energy Outlook, 2019 edition. OECD is approximated as North America plus Europe plus OECD Asia. China refers to the Chinese Mainland. Other Asia includes all countries and regions in non-OECD Asia excluding mainland China and India. 

Electricity access still has room to grow

While many developed regions in the Asia Pacific region have 100% access to electricity (e.g. Australia, New Zealand, Singapore, Hong Kong), not all emerging countries do (Chart 2). 

A country which highlights the growth potential of power demand in the region is the Philippines. The country has seen rapid economic development and population growth over the last 20 years, resulting in robust power generation growth of 4.2% annually significantly exceeding developed markets such as the US and Europe as estimated by BP. In addition, the World Bank estimates that as many as 178 million people still lacked access to the power grid in 2018 even while growing at 5% annually. 

CHART 2: Access to electricity (% of population)

Source: World Bank; Sustainable Energy for All ( SE4ALL ) database from the SE4ALL Global Tracking Framework led jointly by the World Bank, International Energy Agency, and the Energy Sector Management Assistance Program. Data as at 31 December 2018. 

Significant opportunity for real asset owners

As a result of the strong demand, the investment requirement throughout Asia is significant. In its 2019 Southeast Asia Energy Outlook, the International Energy Agency (IEA) estimates a required spend of US$2.5 trillion out to 2040 to satisfy energy requirements.

This spend can and should provide many opportunities for listed real asset companies to participate. Funding for fulfilling the demand across the energy supply chain can’t be met by governments alone. Indeed, the IEA suggests that “Mobilising investment requires broad participation from the private sector, as well as the targeted use of public funds”. 

CLP Holdings

CLP Holdings Ltd is the holding company for CLP Group, which is a large and entrenched player in the Asia-Pacific utilities sector.

After operating in Hong Kong for more than 120 years, its business has expanded to Mainland China, India, Southeast Asia, Taiwan, and Australia (Chart 3).

The company’s business comprises electricity generation,  transmission, distribution, and retail activities which involve a  diversified fuel mix of coal, gas, nuclear, wind, hydro and solar energy.

Due to its earnings visibility and close to monopoly-like business in several regions, its cash flow and dividends distributed have been very stable (Chart 4). Its dividend yield currently stands at 3.98%, superior to most global equities and bonds.

CHART 3: CLP’s Operations and Opportunities

Source: Legg Mason, CLP Holdings Ltd Company Website as at 1 June 2020. Subject to change as per the company’s direction. 

CHART 4: CLP’s Dividends are steady and growing  

Source: Legg Mason, CLP Holdings Ltd Company Website as at 1 June 2020. This information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were, or will prove to be, profitable. 

The bottom line

Driven by strong population growth, industrialization and urbanization, investors can expect energy demand in Asia to rise. To meet the needs of this secular transformation, energy generation and distribution companies will remain integral. The longevity and stability of these utility companies could offer investors opportunities for a long period of stable yield and asset base growth in the coming future. 

Source: Legg Mason and Martin Currie. Data as at 1 June 2020 unless otherwise stated.

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