AMIT SINHA: In the emerging markets, the demand for electricity is rising and rising rapidly. The people are not access-constrained anymore, so they have access to electricity through the new developed transmission and distribution network.
In addition, they are not income-constrained, either. Their per-capita income is increasing, so they're able to afford the volumes of electricity and appliances that they want to consume. On the supply side, you know, it's an interesting equation. The investments are needed on the generation side as well as on the transmission and distribution side.
The developing markets are finding it quite interesting to attract capital. As they try to balance economic growth as well as environmental sustainability, they'll have to bring more renewables in the mix. And we all know renewables tend to be more expensive than the conventional forms of electricity.
Our estimate is that developing markets will require two times as much capital to achieve [the] same parity on the consumption target as developed markets, as they think about putting the capital [into] the overall market. Capital is scarce; these markets don't have local sources of capital to fund huge investment plans. They will need to attract private international investors to come to their markets and put money into the sector.
And frankly, the track record has been mixed. Many of these economies have not returned [a] decent amount of returns to the investors in the past investments. So it's critical for them to create the right policy, [the] right environment, and make sure the whole power ecosystem moves along to provide returns to the investors.
And frankly, it needs to be not only risk-adjusted but also currency-adjusted, given the currency fluctuations you see in these markets. We have recently done work with World Economic Forum on [the] future of electricity in these markets. And there are three critical principles that jumped out to us based on the work we have done.
First and foremost is, build local capabilities. This is a very, very local, regional, national business. You need to really understand the government, how they operate, the policy and the regulators, how they serve the policies, and finally, the ecosystem. You know, the EPC partner, the suppliers, the other talent that is going to support you in building your assets in these markets. It becomes extremely important to develop local capabilities.
Number two: While you think globally, hire locally on the talent side. You know, it is a long investment cycle business. When the expats come in, they are there for a shorter duration. So you have to nurture, groom, train and retain the talent that's needed to support the long investment cycle related to this market.
And finally, there [is] a huge amount of learning that can be shared across emerging markets. For example, [the] Indonesian solar sector is likely to open up...you can benefit [by learning] from the Indian solar sector that has scaled very well in the last three years.
So in summary, these are the three principles that are critical as companies look to participate in these emerging markets.
Read the related Bain Brief:
The Future of Electricity in Fast-Growing Economies