Morgan Stanley Discusses Why Global Clean Power is ‘At a Tipping Point’

Morgan Stanley analysts have suggested that global clean power is at a critical “tipping point,” influenced by changing market dynamics, advancements in technology, and a rising demand for cleaner energy sources.

The world’s power systems are undergoing significant changes as electrification increases, the cost of clean energy continues to decline, and investment priorities increasingly shift toward greener, more sustainable options.

Since 2023, the cost of producing clean energy has fallen by approximately one-third, making renewable energy sources more competitive. This drop in prices is particularly evident in Asia, where energy costs now are lower than those in Europe and the U.S., reflecting a global trend.

Analysts predict that power markets are entering a ‘new normal’ characterized by heightened demand and sustained higher prices. This tightening of power markets is viewed as a structural shift rather than a temporary condition.

Following the COVID-19 pandemic, supply in traditional power generation has lagged, creating an opportunity for renewable and hybrid power sources to satisfy the increasing demand.

Hybrid systems that integrate gas and renewable energy have outperformed purely renewable sources, as they are better positioned to respond to tight energy markets, providing more reliable power generation and higher returns.

A key element of this transition is the rapid decline in clean power equipment costs. Morgan Stanley highlights that the costs associated with solar and wind technologies have decreased more than anticipated.

In the past year alone, equipment prices for clean energy have dropped by 20-50%, mainly due to newly localized supply chains and technological innovations, especially in Southeast Asia and India.

This decline in costs is encouraging increased investment in renewables, as the improved economics enhance the profitability of clean energy generation.

The evolving supply chains are also a critical component of the current market landscape. While China has traditionally led in the production of clean energy equipment, there are now signs of capacity growth in Southeast Asia and India, which can help diversify global supply chains.

This shifting dynamic is perceived as a reaction to trade barriers and the demand for more resilient production capabilities that are focused on regional needs.

Investment in power grids is deemed essential for supporting this energy transition. Modernizing and expanding grids to accommodate the distributed generation of renewables is at a pivotal point.

This evolution is crucial for ensuring that the growing share of renewable energy can be effectively integrated into existing power infrastructures.

Morgan Stanley notes that grid-related investments are increasing across all major regions, with long backlogs in orders for grid equipment highlighting the rising demand for infrastructure enhancements.

In summary, Morgan Stanley posits that the global clean power sector is well-positioned for continued growth and potential reevaluation. With power prices expected to stay elevated and clean energy production costs on the decline, there exists significant potential for renewable power producers, grid operators, and equipment manufacturers.

This pivotal moment in global clean power signifies a structural shift rather than a cyclical one, representing an important opportunity for investors and stakeholders involved in the energy transition.

Consequently, Morgan Stanley anticipates that companies in this sector—especially those with flexible generation capabilities and robust renewable portfolios—are likely to experience improved returns on equity and better long-term growth prospects.