In times of peace, oil and gas are cost variables; in a war context, traditional energy becomes a security variable.

The escalation of conflict in the Middle East at the end of February led to a high opening for oil prices on the first trading day of March. During peacetime, energy prices fluctuate around the supply-demand gap, with the market focusing on production, inventory, and cost curves. However, in a war environment, the market first trades not on production but on deliverability. Whether key shipping routes are open, whether insurance costs soar, and whether sanctions spread, all quickly translate into risk premiums. As a result, oil prices exhibit high fluctuations, even if actual supply has not significantly decreased, as prices are pushed up by delivery uncertainties. Energy thus transforms from a commodity into a strategic resource.

As an analyst in the new energy sector, I believe that this change does not simply benefit new energy. Rising oil prices reinforce the logic of electrification, making EVs and renewable energy more economically attractive. However, the macroeconomic uncertainty brought about by war may also dampen consumer and investment confidence. If high oil prices drive inflation and slow growth, overall demand for cars and industry will slow down, and new energy will not be immune. Therefore, the investment logic for new energy is no longer unidirectional, but depends on the balance between substitution effects and macroeconomic contraction effects.

A deeper change lies in the fact that capital is beginning to re-evaluate energy security. The traditional oil and gas system is highly dependent on cross-border transportation and continuous fuel supply, with its vulnerabilities lying in shipping and geopolitics. In contrast, wind and PV do not require continuous fuel input during operation, and energy storage can enhance the stability of the power system, giving new energy strategic value in a war environment. They are not only low-carbon tools but also a path to reducing external dependence. The security attributes of new energy are thus being revalued.

However, it must be recognized that this security attribute is not absolute. The manufacturing of new energy is highly dependent on critical minerals such as lithium, nickel, and cobalt, with their mining and processing concentrated and heavily reliant on transportation. If upstream resource policies tighten or logistics are disrupted, risks will also propagate through the industry chain. Therefore, the security of new energy is operational security, not supply security. This means that future investment logic will shift from simply pursuing the lowest cost to focusing on supply chain control capabilities and regional diversification.

In a war environment, the allocation of risk premiums by capital changes. Transportation premiums, geopolitical premiums, and supply chain concentration premiums all rise. The volatility of traditional energy intensifies; new energy generation assets gain a security bonus; and critical minerals and midstream processing capabilities become new strategic nodes. Efficiency is no longer the sole criterion, with redundancy and controllability becoming important components of the valuation system. Deglobalization and supply chain restructuring may push up the cost center of the industry, but they also enhance the strategic position of assets.

In this context, the value of energy storage and power grid assets stands out. If conflicts persist, the core goal of the energy system will shift from cost optimization to system resilience. Distributed energy, microgrids, and energy storage have insurance-like attributes, and their value becomes more evident in extreme scenarios. Even if high raw material prices increase project costs, an elevated policy priority may still provide long-term support.

Over the past five to ten years, the narrative of the energy transition has largely focused on new energy as a tool for decarbonization to ensure sustainable development of the planet. However, geopolitical tensions in the last two to three years have redefined new energy as part of the energy security framework. Within new energy, it is not just the power generation assets that are being repriced, but also energy storage and the power grid.

1) In a war environment, the core issue of the energy system shifts from efficiency to resilience

During peacetime, the goal of the energy system is to maximize efficiency: lowest cost, highest utilization rate, and optimal allocation. Cross-border trade and centralized power generation have made the global energy structure highly globalized and scaled.

War exposes the vulnerabilities of such a system. Maritime transport routes, natural gas pipelines, tanker insurance, key ports, and large power plants can all become risk nodes. At this point, the system's priority is no longer efficiency but resilience – the ability to maintain basic operational capacity under shocks.

Energy storage and the power grid are at the core of a resilient system.

2) Energy storage: from an arbitrage tool to system insurance

In normal circumstances, the value of energy storage mainly comes from electricity arbitrage, ancillary services, and peak load regulation, with its return on investment depending on fluctuations in electricity prices and policy subsidies.

However, in a wartime context, the value of energy storage is redefined. It is no longer merely an economic optimization tool but a guarantee of power system stability. Energy storage can provide emergency support during fuel supply disruptions or grid shocks, preventing the power system from collapsing due to a single point of failure.

This means that energy storage assets have insurance-like attributes. When system risks rise, capital's risk appetite for these assets increases. Even if high raw material prices drive up project costs, there may still be stronger policy support because of the rising strategic value.

The valuation logic of energy storage thus transitions from "IRR-driven" to "system safety premium."

3) Power grid: an undervalued strategic hub

The impact of war on the energy system often first manifests in the transmission and distribution network. Centralized energy structures rely on a few key periods, and once damaged, the impact is widespread.

Therefore, power grid upgrades and digitalization have become the focus of secure investments. Enhancements in smart grids, regional interconnections, grid redundancy, and distributed access capabilities can significantly strengthen the system's resilience to shocks.

The investment logic for power grid assets becomes clearer in a wartime context: it is not only infrastructure but also the backbone of national energy security.

In the long term, power grid upgrades will be a necessary prerequisite for the expansion of new energy. The fluctuations in new energy generation require more robust transmission, distribution, and dispatching capabilities. When risk environments rise, countries are more inclined to accelerate grid construction to reduce dependence on external energy.

4) Distributed Energy and Microgrids: The Strategic Significance of Decentralization

While centralized energy systems are efficient, they are also highly vulnerable. Although distributed PV, community energy storage, and microgrids are relatively small in scale, they possess the capability for independent operation. In a war context, distributed energy has two advantages: first, it reduces the risk of single-point failures; second, it decreases reliance on cross-border fuel transportation.

The strategic value of such assets is being re-evaluated in high-risk environments.

5) Deep Changes in Investment Logic

The rising value of energy storage and power grids means that new energy investments no longer solely revolve around installation growth and cost reduction, but rather around system security and supply chain control.

Key changes include:

a. Capital is more focused on localized manufacturing and supply chain diversification;

b. The weight of security in investment decisions has increased;

c. The cost center may shift upward in stages, but the strategic premium has risen.

The valuation system of the new energy industry is transitioning from a growth premium to a strategic premium.

What opportunities and risks does geopolitics bring to China's new energy industry?

1) China's Energy Security Structure: From Import Dependence to Electrification Advantage

China has long been one of the world's largest crude oil importers, with persistent energy security issues. In a wartime environment, oil price fluctuations and transportation risks increase, directly affecting energy costs and macro expectations.

However, unlike before, China has established the most complete new energy manufacturing system globally. The high integration of the PV, wind, energy storage, battery, and EV industry chains gives China a manufacturing and scale advantage during the energy transition.

In a war context, this advantage is beginning to translate into security attributes: an increase in electrification means a reduction in dependence on external fuels; an increase in new energy installations means a more resilient energy structure.

Thus, China's new energy system has the potential for alternative security.

2) Energy Storage and Power Grid: China's Most Strategic Assets

If the war becomes protracted, the core of the energy system will no longer be power generation capacity itself, but system stability. China's layout in energy storage and power grid gives it a relative advantage at this stage. In terms of energy storage, China possesses the world's largest battery manufacturing capacity and cost advantages. Under the logic of energy security, energy storage is no longer solely about economics, but has become an important tool for ensuring the stability and emergency response capability of the power system. At the policy level, there may be an emphasis on increasing the proportion of energy storage in the power system.

Regarding the power grid, China has developed the world's largest ultra-high voltage transmission network and grid construction capabilities. The increased redundancy and interconnectivity of the grid help to absorb more new energy installations while enhancing the system's resilience against shocks. In a high-risk environment, investment in the grid may accelerate.

This means that, under the security logic, China's energy storage and power grid assets have structural strategic premiums.

3) Critical Minerals and Supply Chain: Advantages and Risks Coexist

China has advantages in the new energy manufacturing sector, but still relies on overseas layouts for upstream resources. The supply chains for critical minerals such as lithium, nickel, and cobalt are highly internationalized, and wars or geopolitical risks may amplify policy and logistics uncertainties.

For China's new energy industry chain, the real challenge lies not in the manufacturing end, but in the stability and cost fluctuations of the resource end. The trend of supply chain deglobalization may push up the cost center, compressing profit margins.

The core of future competition will shift from scale expansion to resource control capabilities and the diversification of global layouts.

4) New Energy Vehicles: China's Structural Advantages and Short-term Fluctuations

The impact of the war environment on new energy vehicles also has a dual nature.

On one hand, rising oil prices reinforce the economic advantages of EVs. In a context of high oil prices, the cost advantages of using EVs become even more evident, which is conducive to increasing the penetration rate among end-users. China has the world's largest EV capacity and supply chain system, with scale and cost advantages.

On the other hand, high oil prices may suppress consumer confidence through inflation and macroeconomic uncertainty. If the war continues for a long time, global economic growth may slow down, putting overall car demand under pressure. Although new energy vehicles have a substitution logic, they cannot be completely independent of the macro cycle.

Therefore, the short-term performance of China's new energy vehicle industry will depend on the relative strength of the substitution effect and macroeconomic drag.

5) Long-term Structure: Re-stratification of Strategic Assets

In the era of energy security, the competitiveness of China's new energy system will be more reflected in three aspects:

First, manufacturing scale and cost control capabilities;

Second, the system support capacity of the power grid and energy storage;

Third, the diversification of upstream resources and supply chain layout.

War has accelerated the stratification of the global energy system. Traditional energy bears higher fluctuation risks; new energy power generation and power grid assets gain a safety premium; critical minerals become the focal point of geopolitical competition.

For China, the new energy industry is no longer just an engine for growth but also a part of the energy security system. The investment logic will shift from pure growth rate and subsidies to strategic position and supply chain stability.

Overall, as energy transitions from a cost variable to a security variable, the strategic value of China's new energy system rises, but it also faces higher supply chain risks and global competitive pressures. Energy storage and the power grid are becoming the core of system stability; new energy vehicles benefit under the substitution logic, but one must be wary of macro cycles; critical minerals will determine the cost center and industrial profit margins.

In an era where war reshapes the energy order, stability is more important than growth.

SMM New Energy Analyst Yang Le 13916526348