[Financial Planning for the 100-Year Life] Bet on Future Growth Industry Renewable Energy

Currently Accounts for 3% of Total Energy
Exponential Growth Potential Is High

Growth industries are not fixed. Industries that were growth sectors yesterday may fall out of favor today. In the spaces created by this shift, new growth industries emerge.

Between 1975 and 1978, immediately following the first oil shock, the top growth industry in South Korea was construction. This was largely due to Middle East construction projects, which generated a significant portion of the nation's wealth. From the mid-1980s onward, electronics and automobiles became the growth industries. The production value of South Korea's electrical and electronics industry, which was only $160 million in 1970, increased to $2.852 billion by 1980. With an average annual production growth rate of 44%, it firmly established itself as a growth industry. In 2000, information and communications became the growth sector, later transitioning into the digital industry.

There were also obstacles to becoming a growth industry. The biggest was internal resistance within the industry itself. As a particular sector develops, the scale of sunk assets that must be managed within the industry grows. Sunk assets refer to assets developed but no longer usable; a representative example is the disposal of cathode ray tube (CRT) production facilities after the advent of liquid crystal displays (LCDs).

Which sectors will become growth industries in the future? Industrial transitions have proceeded through "creative destruction." The replacement of one industry by a more advanced one has not occurred linearly or steadily but rather with sudden acceleration at specific points, rapidly supplanting existing industries. Therefore, investment in new industries is generally determined not by their current economic share but by their growth rate.

Renewable energy is currently in such a state. Although renewable energy accounts for only 3% of total energy consumption, its growth is exponential, making it highly likely that soon investments in traditional energy will decrease while investments in new energy will increase. Electricity experienced a similar shift in the past. When electricity accounted for 3% of lighting, gas lighting demand sharply declined, leading to a rapid substitution between the two. In the future, eco-friendly renewable energy will be the main driver of change.

A similar pattern is expected in transportation. With increasing demand for electric vehicles (EVs), it is highly likely that by 2025, global automobile sales will shift from internal combustion engine (ICE) vehicles to EVs. The spotlight on EVs is due to batteries. The price of EV battery packs has fallen from $1,183 in 2010 to $132 in 2021, decreasing at an average annual rate of 19%. Contrary to the price decline, average energy density has increased by 5-7% annually. Moore's Law, which states that semiconductor integration doubles every 18 months, is also being applied to batteries. If this trend continues, EVs and ICE vehicles will reach price parity by 2024.

Consumers prioritize total cost when purchasing vehicles. This includes not only the initial purchase price but also operating costs such as fuel. The total cost for an average individual to purchase an EV has already become comparable to that of an ICE vehicle. Various other barriers to EV adoption are also disappearing. EV driving ranges have increased to rival those of ICE vehicles, and charging infrastructure is rapidly expanding. Frequent exposure to EVs has alleviated vague concerns about them. Considering these changes, it is highly likely that future growth industries will be related to eco-friendly sectors.

This content was produced with the assistance of AI translation services.