The New Energy System Requires a New Industrial System

In the previous publication in the series, we showed that global investment is recovering selectively. Capital is concentrating around digital infrastructure, semiconductors, the energy transition, critical minerals, and other strategic industries.

These directions may seem different, but they rest on a common physical foundation. Data centers, industrial enterprises and electric transport require ever more electricity. Renewable generation needs grids and storage. Grids, batteries, electric vehicles and digital equipment are increasing demand for copper, lithium, nickel, cobalt, graphite and rare earth metals. The production of these materials, in turn, requires energy, water, equipment, chemical reagents and transport infrastructure.

A single cascade emerges:

growth in electricity consumption → accelerated expansion of generation → increased load on grids → rising demand for flexibility and storage → greater need for critical minerals → competition for processing, technologies, and component manufacturing.

Therefore, the energy transition is less and less about building new power plants. It is gradually becoming a project to rebuild the entire industrial system.

This is the third publication in TALAP’s series on the new growth model. The next article will examine how AI and technological infrastructure redistribute jobs and opportunities across regions. The final publication will consider the state’s ability to bring energy, industrial, technological, and territorial objectives together into a single implementation framework.

The International Energy Agency’s Electricity Mid-Year Update 2026 shows an acceleration in global electricity demand. After growing by 3% in 2025, consumption could increase by 3.6% in 2026 and by a further 3.8% in 2027. By then, global demand will reach approximately 30,700 TWh, compared with 28,600 TWh in 2025.

The sources of growth are changing. Electricity is needed by industrial enterprises, electric vehicles, heat pumps, air conditioners, digital infrastructure, and data centers. Electrification is extending to processes that previously depended directly on fuel: transport, heating, and certain industrial technologies.

The power sector is therefore becoming the core infrastructure of the new economy. Power-system reliability increasingly affects where production is located, the cost of digital services, urban development and the investment attractiveness of regions.

This restructuring is taking place against the backdrop of overall growth in global energy consumption. The Statistical Review of World Energy 2026 records a 1.7% increase in total energy supply in 2025. All major energy sources reached record levels. For the first time outside a period of economic recession, renewable energy became the largest source of growth in global energy supply, with solar power accounting for 71% of the increase within this segment.

The global energy system is still developing along several directions at once. Renewable energy is expanding, demand for fossil fuels remains high, electrification is spreading, and regional trajectories are diverging significantly.

Some economies are seeing rapid growth in solar and wind generation, storage, and new grids. Others are increasing the use of coal or gas to meet rising demand and offset price or logistical shocks. As a result, the global energy transition looks like an uneven restructuring in which old and new sources continue to coexist.

According to revised IRENA data, by the end of 2025 installed renewable energy capacity had reached about 5.2 TW, or 49.5% of total global generating capacity. Renewables accounted for 85.7% of capacity growth.

The International Energy Agency expects that in 2026 renewable energy will, for the first time, surpass coal-fired generation in terms of actual output. Its share in global electricity generation could rise from 33% in 2025 to 37% in 2027. Solar generation alone will add around 600 TWh in 2026 and become the second-largest renewable source of electricity after hydropower.

These indicators confirm the sector’s rapid growth, but they also change the substance of energy policy.

At the initial stage, the main indicator was the amount of installed capacity. The more solar and wind plants were commissioned, the more visible the transition became.

As their share increases, a different question becomes central: can the power system use all available generation when and where consumers need it?

Solar and wind output depends on the time of day and weather conditions. Areas with better resource potential are often far from major consumption centers. Peak generation can occur during hours of weak demand, while the evening peak emerges after solar output declines.

As a result, a new asset creates value only within a broader system that includes transmission lines, substations, storage, flexible generation, demand management, forecasting, digital dispatch control, and pricing mechanisms that take into account the time and location of energy production.

The IEA explicitly links the further development of renewables to grid expansion and modernization, greater flexibility, more precise locational price signals, and the efficient use of existing infrastructure.

The energy transition is thus entering a more complex phase. The cost of solar panels and wind turbines remains important, but the economic outcome is increasingly determined by the costs of integrating them.

One megawatt of installed solar or wind capacity cannot be directly compared with one megawatt of dispatchable thermal, hydropower, or nuclear generation.

A variable plant generates electricity depending on the natural resource. A dispatchable source can increase or decrease output on the system operator’s command, although its actual flexibility also depends on the technology.

Therefore, the rapid expansion of nominal capacity can coexist with energy shortages in certain hours, regions, or seasons.

The system simultaneously requires several types of adequacy:

1. Energy adequacy — producing the required amount of electricity over the course of a year.
2. Capacity adequacy — the ability to meet peak demand in a specific hour.
3. Regulating capability — the ability to quickly offset changes in demand and generation.
4. Network adequacy — the ability to transmit electricity from the area of generation to the consumer.
5. Contingency resilience — the ability to withstand the loss of a major facility or transmission line.

Growth in one indicator does not guarantee improvement in the others. A country may increase annual generation while still maintaining a shortage of flexible capacity. A new facility may be located in a region where the grid already constrains power transmission. Excess daytime output may coincide with an expensive evening peak.

In mature markets, these contradictions become visible through prices. In the first half of 2026, negative wholesale prices were observed in about 20% of hours in South Australia and California, and in 17% of hours in Spain. Such periods reflect excess generation amid a shortage of flexible demand, grid capacity, or storage. At the same time, the expansion of battery capacity helped Australia reduce its reliance on expensive gas-fired generation during peak demand hours.

A negative price looks paradoxical: there is too much electricity, even though the power system may face shortages at other hours. This example clearly shows why the next stage of the energy transition requires managing the entire system, not just increasing the number of plants.

The traditional power system mainly adjusted generation to demand. The new system uses a broader set of tools: generation adjusts its output, storage shifts energy between hours, consumers adjust consumption, grids redistribute flows between regions, digital platforms forecast and manage the balance, and prices incentivize the desired behavior of producers and consumers.

Flexibility is gradually becoming a resource in its own right, just like electricity itself.

It can be achieved in different ways.

Gas-fired power plants can quickly ramp up or ramp down output. Hydropower plants and pumped-storage facilities provide balancing where suitable water and geographic conditions exist. Batteries respond quickly to short-term fluctuations. Interregional grids make it possible to combine different demand and generation profiles. Demand management shifts part of the load to hours of high output.

Each solution has its limitations. Gas-fired plants depend on infrastructure and fuel prices. Large hydropower facilities are constrained by water availability and environmental impacts. Batteries are currently more effective at addressing short-term needs. New grids require land, lengthy permitting, and significant capital. Demand management requires digital meters, tariffs, and consumers’ willingness to change behavior.

Therefore, there is no one-size-fits-all flexibility solution. Its architecture is made up of a combination of technologies tailored to the structure of a specific power system.

The main investment question is also changing. Previously, investors assessed the payback of a single power plant. Now, the coordination of several projects matters: generation + grid + regulation + storage + demand.

When one link lags behind, the outcome of the entire investment program declines.

Electric grids were long seen as supporting infrastructure between generation and the consumer. In the new energy system, they are becoming a central asset.

The grid determines which power plants can connect, what share of generation can be transmitted, where new production will be located, how quickly transport and heating can be electrified, whether the region can attract data centers and energy-intensive industry, and how the system will withstand the failure of a major facility.

A grid project differs from building generation capacity in its more complex geography. It spans multiple territories, requires land-use coordination, stakeholder coordination, and consideration of projected demand over decades to come.

A time lag emerges. A solar plant or a data center can be built faster than a major transmission line. As a result, investment can arrive in a region before the infrastructure is ready to accommodate it.

As a result, the grid becomes a hidden constraint on industrial policy. The state may have a strategy for developing critical minerals, hydrogen production, data centers, and new plants. All these directions simultaneously compete for the same volume of available energy and grid capacity.

If their plans are developed separately, aggregate demand can exceed the system’s actual capacity long before new power plants are commissioned.

Electrification requires far more physical infrastructure than its digital representation suggests.

An electric vehicle contains a battery, power electronics, cables and an electric motor. A solar power plant requires panels, inverters, metal structures and grid connection. A wind turbine includes a tower, generator, magnets and extensive infrastructure. Electric grids rely on copper, aluminum, steel, transformers and specialized equipment.

Therefore, the energy transition increases demand for several groups of materials:

• copper and aluminum for grids and electrical equipment;
• lithium, nickel, cobalt, graphite and manganese for batteries;
• rare earth elements for permanent magnets;
• silicon and other materials for solar power generation;
• uranium for expanding nuclear generation;
• strategic minor metals for semiconductors, robotics, and high-tech equipment.

Global Critical Minerals Outlook 2026 shows that demand for key energy minerals continued to grow strongly in 2025. It was driven by batteries, electric vehicles, storage, grids, and solar and wind power.

At the same time, prices rose again. Between January 2025 and April 2026, aluminum, copper, and tin became roughly one-third more expensive. Lithium prices more than doubled, while cobalt prices rose by about 130%. The increase was driven by strong demand, constrained supply, and export measures by the largest producers.

Thus, the cost of the energy transition depends not only on technological progress in solar and wind generation. It also depends on the availability of materials and the resilience of the entire production chain.

Critical minerals are often viewed through the geography of deposits. However, the presence of reserves shows only the beginning of the chain.

After extraction, the ore undergoes beneficiation, chemical and metallurgical processing. Materials, components and finished equipment are then produced. Each subsequent stage requires different technologies, specialists, energy resources and quality standards.

The IEA notes a further increase in concentration at the processing stage. In 2024–2025, Indonesia in nickel and China in most other key minerals accounted for more than three-quarters of the increase in processed supply. In manganese, nickel and graphite, almost all of the growth came from the dominant supplier. The average share of the leading country in the processing of major minerals, excluding rare earth elements, reached 72% in 2025.

This structure creates several risks. The first is linked to the physical disruption of supply. The second arises through export restrictions and administrative decisions. The third concerns the price gap between the producer country’s domestic market and external buyers. The fourth is related to dependence on processing equipment and technologies, even when domestic raw materials are available.

In 2025, the number of commodity codes for mineral products subject to Chinese export restrictions was three times higher than in 2023. Other major producers also introduced new restrictions. The IEA describes this process as a shift from theoretical vulnerability to a real economic security issue.

Therefore, supply diversification requires more than developing new deposits. It calls for processing facilities, specialty chemicals, equipment, laboratories, purification technologies, and long-term demand for the products.

The global investment cycle is still doing little to correct this imbalance.

Investment in critical minerals fell by 9% in 2025 after several years of growth. In battery metals, capital expenditure declined by more than 20%, while lithium companies cut investment by about 40%. Exploration spending fell by more than 10%.

The decline in investment is occurring alongside long-term demand growth. For copper, the IEA still projects a supply shortfall by 2035 of around 25% of expected demand. Risks remain for other materials as well, and a change in one country’s export policy can quickly reshape the global balance.

The structure of the investment portfolio is of particular importance. New projects outside the dominant countries are concentrated mainly in extraction. Processing and component manufacturing are developing more slowly.

This preserves the existing international division of labor: some countries extract raw materials → others control processing → still others produce components → core technologies and profits are concentrated in the downstream stages.

Under such a structure, the energy transition can increase demand for resources while preserving producer countries’ raw-material specialization.

The transition to higher value-added production requires addressing energy, water, technology, financing, and a market for its products at the same time. A processing plant makes sense when it has a stable supply of feedstock, reliable power, chemical reagents, skilled staff, and a long-term sales contract for its products.

Therefore, industrial policy in critical minerals is closely linked to energy policy.

Previously, energy security primarily meant having fuel, power plants, and backup supply routes.

The new system adds other dependencies: transformers, power electronics, batteries, magnets, semiconductors, software, critical minerals, and processing equipment.

A country may have sufficient generation capacity while at the same time relying on imports of components needed for the repair, expansion, and digital management of the power system.

Therefore, the boundary between energy policy and industrial policy is gradually disappearing.

States are increasingly using direct funding, guarantees, concessional loans, equity participation, long-term contracts, and strategic reserves. In 2025, the volume of announced government support for critical minerals in advanced economies reached approximately $65 billion, more than four times the 2023 level. At the same time, the actual impact will depend on the speed and quality of implementation of the announced measures.

Such a policy is associated with high costs. Government support can reduce investment risk, but it shifts part of the risk onto the budget.

Therefore, project selection requires answers to three questions:

1. How critical is a specific link for the economy?
2. Does the country have the conditions in place to develop it?
3. What share of the risk is a private investor prepared to assume?

Project support has a lasting effect when it helps overcome a specific market barrier and creates a competitive value chain. Continuous subsidization of weak production increases the budgetary burden without building new capacity.

Generation projects and new consumers are developing faster than transmission lines. Connection queues, regional shortages, and curtailment constraints emerge.

The growth of variable generation increases the value of assets that can respond quickly to changes in system balance. A lack of flexibility creates both surplus hours and shortage hours within the same power system.

Transformers, cables, batteries, inverters and power electronics are becoming strategic goods. Limited production capacity can delay projects even when financing is available.

New deposits expand the resource base, but do little to change the structure of dependence if processing remains highly concentrated.

Industry, data centers, transport, utility systems, and new residential areas are all increasing demand at the same time. Separate sectoral forecasts create the risk of overstating available capacity and of projects competing for the same infrastructure.

All five constraints are systemic in nature: they arise between individual facilities and sectors. They cannot be fully resolved within a single sectoral program.

For Kazakhstan, the international energy shift has direct significance. The country is simultaneously addressing several tasks: covering the domestic electricity deficit, modernizing aging generation, expanding renewables, developing flexible capacity, strengthening interregional networks, considering new large-scale industrial and digital projects, and seeking to secure a place in critical minerals value chains.

Each task appears justified on its own. The main risk arises from their misalignment in timing, geography, and resources.

In 2025, Kazakhstan produced 123.1 billion kWh of electricity, while consumption amounted to 124.6 billion kWh. Installed capacity rose to 26.7 GW. Coal-fired generation accounted for 51.4% of output, gas-fired generation for 25.6%, and renewable sources for 13.5%.

The government reports the implementation of 81 projects with a total capacity of 15.3 GW and investments exceeding 13 trillion tenge. By 2035, it plans to commission more than 26 GW of additional generation. In the near term, the focus is on flexible capacity capable of addressing the regulation shortfall.

The scale of the program shows a shift from isolated repairs and individual facilities to a major restructuring of the sector.

At the same time, a simple balance of annual production and consumption gives an incomplete picture. What matters is the region where the new facility is located, the availability of grid connection, its generation profile, its ability to regulate load, fuel requirements, commissioning timelines, and the readiness of supporting infrastructure.

Kazakhstan can eliminate its annual deficit while still retaining a shortage of flexible or grid capacity in certain zones. Therefore, assessing the program requires an overall balance of energy, capacity, balancing capability, and grids.

Kazakhstan’s power system spans a vast territory and has an uneven distribution of generation and consumers.

KEGOC is strengthening the Southern Zone through the 500 kV Shu — Zhambyl — Shymkent line, 475 km long, and integrating the Western Zone into the Unified Power System through the 500 kV Olke — Karabatan line, which is more than 604 km long. Completion of both projects is scheduled for 2027. By 2035, the company plans to build 6,659 km of new 220–500 kV lines and reconstruct another 10,591 km.

These projects are important beyond the energy sector. They determine the ability to site new production facilities, connect large renewable energy projects, develop western industrial regions, reduce regional dependence on external power flows, build digital infrastructure, and manage emergency operating conditions.

Each major industrial or digital project therefore needs to be assessed not only in terms of the country’s energy availability, but also the available capacity at a specific point in the grid.

Kazakhstan is developing renewable energy sources alongside gas-fired, coal-fired and prospective nuclear generation. Each technology performs its own function.

Solar and wind plants add low-carbon electricity and reduce fuel consumption during generation hours. Gas-fired capacity can provide balancing. Coal-fired generation still accounts for the largest share of output and requires modernization. Nuclear power can provide a large amount of stable baseload capacity.

It is advisable to assess the balance of these sources through their system functions: baseload power, peak coverage, fast balancing, seasonal resilience, reserve capacity, emissions reduction, and geographic accessibility.

Storage systems also play different roles. Short-duration batteries can smooth intraday fluctuations and quickly support frequency. Longer-duration storage helps shift energy between periods. However, storage systems do not yet replace the full range of reserve and grid solutions.

Thus, Kazakhstan’s energy strategy needs a flexibility architecture in which each instrument serves a specific function.

Kazakhstan already produces 22 of the 36 minerals identified by the United Kingdom as strategically important, including uranium, titanium, silicon and rhenium. Kazakhstan and the United Kingdom have agreed to expand cooperation in the extraction and processing of rare earth elements. The agenda also includes the extraction of by-products, specialized services, waste processing and financial mechanisms to support projects.

The Government of Kazakhstan is developing a Critical Minerals Development Strategy and plans to significantly expand funding for geological exploration. At the same time, new incentives are being discussed for deeper processing of raw materials and for increasing exports of higher value-added products.

The international environment creates a favorable window of opportunity. Consumers are seeking supply diversification, and governments are ready to support alternative supply chains.

At the same time, strong demand for raw materials does not in itself guarantee a shift to processing.

Each mineral requires a separate economic model that takes into account the quality and volume of reserves, the complexity of the technology, energy and water requirements, environmental costs, the availability of chemical reagents, logistics costs, potential buyers, the long-term price range, and the possibility of using by-products.

Some value chains may be competitive at the stage of deep processing. For others, extraction and primary beneficiation will be the realistic option. Others will require international technology partnerships.

Therefore, a critical minerals strategy must distinguish between the presence of a resource and the presence of industrial capability.

The development of critical minerals processing increases demand for electricity, water, heat, and transport. At the same time, building new energy infrastructure requires metals and equipment.

A mutual dependence arises: the energy sector powers processing → processing supplies materials for the energy sector → both industries compete for capital, water, workforce, and infrastructure.

For Kazakhstan, this means the need for an overall balance of major projects.

It is advisable to include the following in a single framework: forecasts of industrial electricity demand, the siting of new generation, grid capacity, the need for balancing capacity, water availability, critical mineral projects, data center and digital infrastructure plans, the development of transport corridors, and the training of engineering personnel.

Such a balance will make it possible to see which projects reinforce one another and which compete for the same limited resource.

Kazakhstan has significant energy and mineral resources. Under the previous model, this was sufficient to build an export position.

The new economy imposes more complex requirements.

• A deposit creates an advantage when processing emerges nearby.
• Processing capacity grows when reliable and competitively priced electricity is available.
• New generation delivers results when networks and flexibility are in place.
• Networks generate economic returns when they connect production and technology hubs.
• Personnel and suppliers make it possible to retain the competencies that emerge around the project within the country.

There is no single central object in this configuration. The result is shaped by the quality of the links between all the elements.

For Kazakhstan, two possible trajectories can be identified.

• The first entails the parallel development of a multitude of separate projects: generation, grids, deposits, plants, and digital infrastructure. Each project addresses its own sector-specific objective, but their timelines and resource requirements are only partially aligned. This trajectory increases the risk of delays, infrastructure shortfalls, and competition for energy, water, and budget support.
• The second trajectory is built around interconnected production chains. The state determines which new consumers will emerge in a specific region, what generation and grid capacity they will require, which materials and suppliers can be localized domestically, and which competencies will remain within the country.

This model requires more complex coordination, but it makes it possible to turn the energy program into the foundation of industrial development.

The central question of the new energy era is therefore broader than a choice between coal, gas, nuclear power, solar, and wind.

What combination of generation, grids, flexibility, materials, and technologies will enable the economy to create new production facilities and remain resilient?

The answer to this question will determine not only the structure of the energy balance. It will also affect the geography of investment, the location of jobs, and disparities between regions.

Energy and mineral resources create the physical foundation for the next technological cycle. However, its benefits will be distributed unevenly. Computing capacity, capital, and specialists will concentrate where infrastructure and expertise already exist.

The next publication in the series is “AI Is Changing the Geography of Opportunity.” It will examine how technological infrastructure redistributes investment, jobs and incomes across cities and regions, and what territorial consequences this process has for Kazakhstan.

The article is based on reports by the IEA, Energy Institute, and IRENA.

1. International Energy Agency — Electricity Mid-Year Update 2026

https://www.iea.org/reports/electricity-mid-year-update-2026

2. Energy Institute — Statistical Review of World Energy 2026

https://www.energyinst.org/statistical-review

3. Energy Institute — Statistical Review of World Energy 2026: Report and Data Downloads

https://www.energyinst.org/statistical-review/resources-and-data-downloads

4. IRENA — Renewable Capacity Statistics 2026

https://www.irena.org/Publications/2026/Mar/Renewable-capacity-statistics-2026

5. IRENA — Renewable Energy Statistics 2026

https://www.irena.org/Publications/2026/Jul/Renewable-Energy-Statistics-2026

6. International Energy Agency — Global Critical Minerals Outlook 2026

https://www.iea.org/reports/global-critical-minerals-outlook-2026

7. The Government of Kazakhstan — Olzhas Bektenov Holds a Meeting on the Generation of New Capacities to Address the Energy Deficit

https://primeminister.kz/en/news/olzhas-bektenov-holds-a-meeting-on-the-generation-of-new-capacities-to-address-the-energy-deficit-30961

8. Ministry of Foreign Affairs of Kazakhstan — Kazakhstan and the United Kingdom deepen economic cooperation in priority sectors

https://www.gov.kz/memleket/entities/mfa/press/news/details/1170613?lang=ru

9. Government of Kazakhstan — Kazakhstan’s Government Launches New Stage of Subsoil Exploration: 240 Billion Tenge Allocated for Geological Exploration

https://primeminister.kz/ru/news/pravitelstvo-kazaxstana-pristupaet-k-novomu-etapu-izuceniia-nedr-240-mlrd-tenge-vydeliaetsia-na-geologorazvedku-30959

10. Government of Kazakhstan — Olzhas Bektenov Attends Astana Mining & Metallurgy 2026: Government Implements President’s Instructions on Development of High Value-Added Products in the Mining and Metallurgical Complex

https://primeminister.kz/ru/news/olzas-bektenov-prinial-ucastie-v-astana-mining-metallurgy-2026-pravitelstvo-realizuet-poruceniia-prezidenta-po-razvitiiu-produkcii-vysokogo-peredela-v-gmk-31506