The core driving force behind the rise of companies like CATL—energy security

The Iran conflict has brought one issue back to the forefront: energy security risk is now more of a "norm" rather than an isolated event. The renewed volatility in oil and gas prices and the uncertainty in LNG supply chains are shifting the global energy transition from a "long-term emission reduction narrative" to "immediate supply security and resilience." Investment opportunities are concentrating on the few segments capable of addressing real-world constraints—power grids, energy storage, key materials, and more economical electrification routes.

According to Windchase Trading Desk, Phineas Glover, UBS Global Research Analyst, stated directly in the latest thematic report: “Energy security reshapes the transition.” Following this main theme, the report summarizes this month’s key developments as: As the energy security premium rises, whoever can make the power system more stable, reduce dependency on energy imports, and better control cost volatility will be more likely to become a "certain destination" for capital.

Concretely, the report emphasizes two "hard constraint" chains: one is the power grid and equipment—orders and supply bottlenecks coexist, and visibility extends further out; the other is battery energy storage—in an environment of price volatility, storage shifts from "optional" to "hedging tool." Upstream, the mid-term tight balance logic for materials like lithium and rare earths is reinforced again.

However, the report does not shy away from boundary conditions: large projects like power grids are more sensitive to interest rates and inflation; the energy storage chain is beginning to show differences in profit and delivery performance amid strong demand; in China, short-term weakness in NEV passenger car demand coexists with strong exports and commercial vehicles. Meanwhile, alternative fuels and sustainable fertilizers have not been directly included in the "core best ideas," but are instead positioned in the "observation zone," which may be increased or reduced at any time.

Return of the Energy Security Premium: Transition first solves "import dependence" and "system resilience"

Middle East disruptions are repricing supply risks for oil, gas, and LNG, shifting market focus to near-term shock resistance and greater domestic diversification.

The shock is not only to the fuels themselves, but also a series of "transition economics"—the substitution relationship between diesel and biofuels, total cost comparisons between fuel vehicles and EVs, how fertilizer costs translate to food inflation, and the division of roles between nuclear and renewables in the system.

This is also why the report narrows "transition winners" from broad new energy to infrastructure and system integration: when energy insecurity becomes a pricing factor, addressing bottlenecks is more valuable than simply increasing capacity.

Energy Storage as the Clearest Turning Point: Payback Period Directly Compressed by Price Volatility

The report views BESS as the most distinct "turning point theme" this month. A key piece of evidence comes from the economic shifts in the previous energy crisis: during 2022–23, total energy storage deployment rose from 4GWh in 2021 to 17GWh in 2023; of that, residential storage rose from 2.5GWh to 12.2GWh, and the payback period compressed from roughly 7–10 years down to 3–4 years. The logic is straightforward: the more volatile electricity and fuel prices are, the more energy storage resembles "insurance."

On the supply side, the report emphasizes CATL remains a cost leader; at the same time, it expects LG Energy Solution's LFP storage capacity to reach about 50GWh by end 2026, and mentions broader potential capacity pipelines of about 140GWh.

However, strong demand does not automatically translate to strong profits. The report uses Sungrow's FY25 performance missing estimates as a warning: raw material costs and project delivery pace can open up differences; going forward, the focus will be on whether strong demand can be converted into more stable earnings across different business models (ancillary services, capacity tariffs, etc.).

Power Grid Equipment: Order Visibility Extends, but Interest Rates Dictate "Construction Speed"

Power grids and equipment are still the report’s structural overweight direction. Supporting factors include: load growth from electrification, investment in safety and resilience, and persistent tight supply constraints in high-voltage equipment like transformers and cables.

Industry leaders Schneider, ABB, Nexans, and Prysmian have all delivered strong order performance. The report also mentions that key power grid equipment shortages in the U.S. have caused delivery times in some cases to stretch as long as five years, with supply bottlenecks themselves shaping bargaining power and the persistence of orders.

However, the grid is not a "only goes up, never down" story. The sector is increasingly described as a "Curate's Egg": fundamentals are improving, but macro sensitivity is increasing. Persistently high energy prices could push up inflation and interest rates, raising financing costs for capital-intensive grid projects and slowing project pace. The report maintains its overweight position but takes a more cautious tone—essentially acknowledging "strong demand" and "potentially slow pace" can exist together.

Divergence in Electrification: Passenger Vehicles Under Pressure, Exports and Commercial Vehicles Carrying the Flag

The report defines electrification's keyword as "divergent but not extinguished." The contradictions in the Chinese market are most pronounced: NEV total sales in Jan–Feb 2026 fell 6.9% year-on-year to 1.71 million units, with passenger NEV sales down 25.7% year-on-year; but NEV exports soared 110% year-on-year, reaching nearly half of passenger vehicle exports, with destinations expanding to Brazil, UK, UAE, and other markets. Structurally, B-class NEV sales still grew 9.4% year-on-year, while A00/A-class declined, indicating demand is shifting towards "higher-end, stronger product competitiveness."

Thus, the report maintains its preference for "multi-modal electrification": electric two-wheelers, buses, and trucks depend more on high utilization for economic viability, making them better able to convert oil price and fuel uncertainty into penetration growth. It also places passenger vehicle OEMs in a more cautious position, worrying about profits and competitive pressure.

Transition Materials Tighten Again: Lithium, Rare Earth Mid-Term Constraint Logic Strengthens

The acceleration of energy storage and electrification raises the certainty of upstream materials. UBS maintains transition materials as structural overweight and offers a set of "event-to-materials" transmission clues:

• Lithium: Tianqi Lithium's FY2025 net profit was RMB 463m, Q4 profit grew 198% quarter-on-quarter, and production rose 24% year-on-year. The report also models the Hormuz Strait scenario: an interruption could block about 13Mbpd of crude (about 12% of global supply), and estimates "theoretically, replacing half that shortfall would require about 385 million EVs," underscoring how high oil prices drive EV economics and lithium demand.
• Rare Earth: Lynas and JARE introduce a US$110/kgNdPr floor price under their agreement and set volume commitments; UBS raises its long-term NdPr price assumption from a US$110/kgNdPr floor price and sets volume commitments; raises its long-term NdPr price assumption from US$100/kg to US$120/kg, adjusting its near-term forecast to 2029.
• Nickel: Indonesia’s 2026 ore quota reset to 260–270m wmt, significantly lower than 379m wmt in 2025. The report believes tighter raw material supply will raise nickel's "floor price," and integrated producers will be better able to absorb cost volatility.

The report's conclusion is straightforward: when "supply chain security" becomes the main narrative for the energy transition, material pricing is no longer just about demand curves but also about the pace of regionalization and de-concentration.

Alternative Fuels and Fertilizer: Opportunity in "Policy and Supply", Risk in "Inflation Spillover"

The report puts alternative fuels and sustainable fertilizer in a "re-evaluating" position, all due to second-order effects of energy security.

On alternative fuels, U.S. biofuel policy support is strengthened: final RVO uplifted biomass diesel obligations, and starting 2028, "foreign fuel and raw materials will only get half compliance value," introducing stronger domestic leaning. At the same time, SAF, e-methanol, hydrogen shipping and other routes see more projects and financing, but the constraints are in financeability, certification and infrastructure, rather than technology itself.

For fertilizers, the story has shifted from "price shock" to "supply, logistics, and timing risk." As of April 7, urea prices have risen about 50% since the conflict broke out; the Middle East's share in related maritime trade (such as urea, ammonia, sulfur) combined with natural gas making up 60–80% of fertilizer costs, makes energy price volatility more likely to spill over into fertilizer and food inflation. India has signed a 10-year, 724,000 tonnes/year green ammonia supply agreement, trying to use long-term supply arrangements to reduce import dependence.

These themes haven’t yet been directly "bet" on by the report, mainly because there are too many variables: policy implementation, raw material availability, and inflation sensitivity all affect the risk/reward ratio.

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The above excellent content is from Windchase Trading Desk.

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