Asian Power (November - December 2014

ISSUE 66 | DISPLAY TO 31 DECEMBER 2014 | www.asian-power.com | A Charlton Media Group publication

US$360P.A.

sarawak energy’s tactics ceo sjotveit eyes 12 new hydro projects but must overcome ngo opposition

MICA(P) 248/07/2011

analysis Rerating China’s IPPs 2.0: How ash can become cash

country Report Vietnam’s green growth dream vs. regulations

first Exploring Indonesia’s gas-for-energy dilemma

ANALYSIS Where will Asia find its 436 nuclear power plants?

PAge 40

PAge 18

PAGE 7

PAge 36

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FROM THE EDITOR Now on its 10th year, the Asian Power Awards continues its tradition to recognize top achievers in the region as they unceasingly strive for quality and excellence in their own categories. Flip through the pages and take a sneak peek of what has transpired during the awarding ceremony held at the Shangri-La Hotel, Kuala Lumpur. Dubbed as the ‘Oscars’ of the power industry, the event was graced by nearly 100 key executives from exceptional companies in the industry.

Publisher & EDITOR-IN-CHIEF Tim Charlton ASSOCIATE PUBLISHER Laarni Salazar-Navida production editor Roxanne Primo Uy GRAPHIC ARTIST Tamara Pangilinan Editorial Assistant Joana Rizza Bagano Editorial Assistant Queenie Chan EDITORIAL ASSISTANT Jason Oliver

ADVERTISING CONTACTS Laarni Salazar-Navida lanie@charltonmediamail.com

ADMINISTRATION Lovelyn Labrador accounts@charltonmediamail.com Advertising advertising@charltonmediamail.com Editorial editorial@charltonmediamail.com

In this issue, our team caught up with Sarawak Energy CEO Datuk Torstein Dale Sjotveit who was also named as the CEO of the year at the Asian Power Awards. He was recognized for his leadership in transforming the Sarawak state-owned utility company into a modern and agile corporation, in line with its vital role in powering Sarawak’s development through the Sarawak Corridor of Renewable Energy (SCORE). In the interview, he shared with us why the firm remains unstunned by the rise of anti-dam construction sentiments.

For the regular country reports, we have Indonesia and Vietnam in the spotlight. Find out how their respective regulatory frameworks are impeding the growth of their renewable energy sectors.

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Finally, check out a series of reports pertaining to several power developments in other Southeast Asian countries. The Philippines, for instance, has a promising solar sector with an expected ten-fold increase in feed-in tariff allocation and increasing viability of bilateral projects.

Enjoy!

Tim Charlton

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ASIAN POWER 1

EDITORIAL CONTENTS

ANALYSIS

will Asia find its 436 nuclear 36 Where power plants by 2035?

20

ap awards 2014 Asian Power celebrates 10 rewarding years of recognizing the leaders in Asia’s power sector

First

Find out why Japan’s renewables 10 race is getting cutthroat

FIRST 06 China sets universal green targets 06 Can Vietnam handle 10 nuclear plants by 2030?

07 Indonesia’s gas-for-energy dilemma

ANALYSIS 13 CEO Interview: Sarawak Energy eyes 12 new hydro projects,

40 Rerating China’s independent power producers 2.0: How ash

07 The Chartist: Thailand’s primary energy supply

can become cash

OPINION

08 China’s coal crisis persists 08 Will China’s tariff cuts for wind farms hurt developers?

but must overcome NGO opposition

44 DEBAJIT DAS: Powering Asia’s next 100 million 46 ARTHUR MITCHELL: Will there be a continued boom

REGULAR 18 Find out why and how regulatory weeds could choke

or bust for Japanese renewables?

48 JOHN GOSS: A visionary energy strategy for China

Vietnam’s green growth dream

14 What is hindering indonesia from becoming a

renewable energy powerhouse in asia?

Published Bi-monthly on the Second week of the Month by Charlton Media Group #06-09 E, Maxwell House 20 Maxwell Road

2 ASIAN POWER

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News from asian-power.com Daily news from Asia most read

IPP

environment

China IPPs brace themselves for more rounds of tariff cuts Potential tripling of operating cash flows together with substantial improvement in FCF (from being FCF negative) are two key changes the new cycle for coal-to-power in China will herald for the IPP sector in 3-5 years.

According to a research note from Barclays, a prolonged period of lower coal prices could bring a few more rounds of tariff cuts, which Barclays has factored into its estimates. Despite that, it estimates FCF yield for the IPPs under its coverage (CR Power, Huaneng,Datang, CPI and Huadian) improves to over 30% by 2018E.

IPP

China’s added energy power capacity hit over 1100 GW in last 20 years It has been observed that China is by far the world’s largest power market with an installed capacity of 1250GW by the end of 2013, and its growth in installed capacity has been rapid and has grown in sync with economic growth over the last two decades.

According to a research note from Barclays, China added over 1100GW of capacity in the last two decades, averaging 50GW of addition every year (80-90GW per year in the last ten years), which is equal to building Australia’s entire installed capacity every year.

Huaneng Power eyes 80GW capacity growth in the next 3 years Although the Huaneng Power International share price has tripled from its trough in early 4Q11, it is believed that the company’s ten-fold increase in EPS (albeit from a near loss situation) over the same period has not yet been fully priced in.

According to a research note from Barclays, the company could generate a FCF yield of well over 30% on a normalized basis.

The report said that annualised FCF potential of RMB30bn on a normalized basis could fully de-gear the balance sheet in five years.

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FIRST of the total cost.

Richard Myers, VP for policy development, planning and supplier programs at the Nuclear Energy Institute, sees construction of the first power plant starting in 2017-2018 and the commercial operation beginning in 2023; the schedule of the second plant one year behind the first. Vietnam is expecting total nuclear generating capacity to surpass 10,000 megawatts by 2030, he adds. The first four nuclear energy facilities are expected to generate at least 1,000 megawatts each from the coasts of the southern province of Ninh Thuan.

China sets universal green targets

Expect more wind turbines and photovoltaic stations in China within the next two years, as the government will soon require all provinces and grid companies to meet renewable power generation adoption targets.

Under the renewable quota system believed to be released before year-end, China is batting for a long-term renewable energy target and development plan that seeks to reduce the country’s massive dependence on coal. The country has been plagued by pollution in recent years, leaving Beijing residents scrambling for gas masks as smog envelopes the capital.

China’s renewable energy law aims to create a sustainable renewable energy industry through a favourable tariff and costsharing mechanism, guarantee purchase, prioritized dispatch, a development fund and fiscal support. The sector will draw funds from renewable energy power price surcharge and an earmarked fund.

Massive resource potential Recent statistics provided by the Centre for Renewable Development at China’s Energy Research Institute shows the country’s massive resource potential, with a 540 GW technical potential and 400 GW economically viable potential in hydropower; 2,580 GW onshore and 510 GW offshore in wind; two-thirds of the land with more than 2,200 sunshine hours; and 500 million tce in agriculture and forestry residue.

Under the new measure, stricter emission controls on coal-fired generation will be put in place, limiting coal consumption of new coal-fired power plants to less than 300g/ kWh by 2020.

Existing plants will be limited to a maximum of 310g/kWh. This implies that power generators will have to improve the coal efficiency of existing and new power plants.

“As IPPs are expected to construct larger generation units to boost fuel efficiency, their capex will increase. This will be slightly negative for IPPs in the short term but will help lower fuel cost longer term due to improved efficiency,” says Ricky Ng of Maybank Kim Eng. Ng adds the the renewable energy requirement will drive more installation growth in 2014-2015, urging investors to snap up shares in GCL-Poly, Longyuan and Huaneng Renewables.

6 ASIAN POWER

Vietnam goes all out in nuclear

Can Vietnam handle 10 nuclear plants by 2030?

W

ith an expanding manufacturing sector fuelling strong economic growth, Vietnam is turning to nuclear energy to keep pace and make ends meet. Vietnam’s National Assembly passed plans to build the first of two 1,000 MWe reactors at Phuoc Dinh, Ninh Thuan province by 2014, and the government is planning to add six more.

Vietnam has inked a deal with Russia’s Atomstroyexport to build two nuclear power plants in Ninh Thuan.

The Russian Government’s Ministry of Finance is financing at least 85% of the first plant. It will also supply the fuel and remove the used fuel for the life of the reactors.In 2011, Vietnam and Russia signed a deal securing up to $9 billion in construction financing from Moscow. Another agreement worth $500 million financed a nuclear science and technology centre.

Vietnam has also signed an agreement with Japan for the construction of two nuclear reactors at a second site in Ninh Thuan, expected to come online in 2024-2025.

A second agreement was signed for the Japan Atomic Power Company and the International Nuclear Energy Development of Japan Co. Ltd. to work on the power plant project. Like the agreement with Russia, the plan will involve financing and insurance of 85%

Richard Myers

Mely CaballeroAnthony

Meeting standards In a study by Mely Caballero-Anthony, associate professor at the Nanyang Technological University, Vietnam is projected to have nuclear energy accounting for 10.1% of electricity production by 2030, and nearly a third of the country’s entire share by 2050.

“To expand its nuclear energy program from a single research reactor today to 10 commercial nuclear power plants in 2030, Vietnam requires more than imported technology, equipment and fuel; it also requires regulatory, operational and training services,” Myers says.

Myers adds that the country has set very high standards for nuclear non-proliferation, being a party to the Treaty on the Non-Proliferation of Nuclear Weapons since 1982. In fact, the country brought a Comprehensive Safeguards Agreement into force with the International Atomic Energy Agency in 1990, and signed the agency’s additional protocol in 2007.

“Vietnam’s emergency protocol is still not yet in cnformance with the International Atomic Energy Agency’s emergency preparedness and response standards. Vietnam has yet to come up with a comprehensive NPP security plan,” adds Caballero-Anthony.

Projected share (%) of nuclear power in Vietnam’s energy mix

Source: Dung, 2011; Ninh, 2013a

FIRST

Chairani Rachmatullah

Shamim Razavi

Stephanie Wilson Bankrolling in Bali

Indonesia’s gas-for-energy dilemma

W

hen Indonesian state-owned distribution company PT PLN (Persero) signed loan facilities for EUR 160 million with Standard Chartered to finance gas power plant projects early this year, it may have boosted confidence in the country’s gas-for-energy generation potential, but some analysts see prevailing economic roadblocks.

Indonesia has large reserves of gas but there is financial uncertainty as to whether these are best used to generate electricity or sold to the international market. “Because they have regulated prices domestically for gas, it presents a

problem as they can either use their own reserves or buy more expensive LNG in the international market,” says Stephanie Wilson, managing editor, Asia LNG at Platts. “They’ll need to raise their gas price before they can go ahead with any large-scale move to gas for electricity generation,” she adds.

Meanwhile, Saara Kujala, manager, power plant development and financial services, Wärtsilä, says that the key to successful financing of LNG-fuelled power projects with dedicated LNG supply is in structuring a competitive and robust LNG supply chain even for small-scale LNG deliveries.

Saara Kujala

Kujala says that specific attention is needed for the risks related to security of LNG supply, cost over-runs and delays.

“To mitigate some of these risks, a developer would be looking to sign an EPC contract that can take the LNG receiving infrastructure as well as the power plant under a fixed price and date certain arrangement,” she adds.

Chairani Rachmatullah, senior manager for energy planning and evaluation at PT PLN (Persero) agrees, saying that it would also help to develop the economic logistic system to support LNG power plants. The problem stems from the small size of scattered peaking gas power plants that would require small gas volumes for each.

Senior foreign legal counsel Shamim Razavi from Norton Rose Fulbright advises that investors will have to look for government support for the future financial viability of the projects.

“One of the potential growth areas are power projects outside of Java and Sumatra where the shortfall between supply and demand is at its most acute,” Razavi adds.

In the next four years through to 2018, PLN plans to add roughly 1,200 MW in capacity under its Mini LNG Projects for Gasification program.

PLN’s mini LNG projects

Source: PT PLN (Persero)

The Chartist: Thailand’s primary energy supply Thailand’s primary energy mix will experience a few shifts in its composition in the run up to 2025, a report by Macquarie Research says.

Renewables and hydro will be the big gainer in the coming years as mature fields like oil and gas decline. Also, the latest PDP plan calls for a doubling in imported hydrobased power from Laos and Myanmar by 2025.

Macquarie adds that to achieve the government target of 25% renewable contribution by 2021, Thailand will add 2GW solar power generation capacity, 1.2GW wind power generation capacity and 4.39GW bio energy capacity. Thailand’s total non-hydro renewable capacity is projected reach 10GW, assuming the prevailing new addition pace is not disrupted by the ongoing political uncertainty.

Thailand primary energy production - to be essentially flat to 2025

Source: BP Statistical Review 2013, Macquarie Research, October 2014

Thailand primary energy production change 2013 vs 2025e

Source: Source: BP Statistical Review 2013, Macquarie Research, October 2014

ASIAN POWER 7

FIRST

China’s coal crisis persists

IPP WATCH

Huaneng Power eyes 10 projects from parent group

W

hen Premier Li Keqiang unveiled his campaign against pollution, coalfired plants effectively received their death knell – but don’t expect them to die down quietly. Instead, coal-fired plants should see a strong resurgence in the next couple of years due to a combination of positive project economics and low coal prices.

China will see a temporary spike in coal-fired projects and power capacity additions before slowly ebbing as the country ramps up its production of nuclear and renewable energy. The resurgence of coal-fired plant construction has been and will be driven by stable capital costs, accommodative tariff reform, and sustained low coal prices, says Adrian John, managing director at Precergy.

This is despite promises by major China provinces to cut down on coal energy use. “Project economics for coal-fired plants in China have improved greatly since 2012 and provide a strong investment signal for such projects,” says John.

Coal-fired plants benefit from a new policy that allows for 90% of coal price costs to be passed on to consumers when coal prices fluctuate by more than 5% on an annual basis.

To put the savings into context, similar policy in 2004 only allowed for 70% of the fluctuations to be passed on to

Storm before calm?

consumers. Meanwhile, steam coal prices have mellowed to nearly half of the peak prices in 2008, which has enabled the big five coal energy producers to post large profits in 2013, according to John.

But while market forces are making a strong case for building more coalfired power plants, the spike in coal power project activity levels will be “short-lived” in the face of formidable government and public support for curtailing coal use. “Recently adopted air quality policies and the growth of renewable energy show signs of a major change in trend,” says Li Shuo, climate & energy campaigner for Greenpeace China. Shuo points out that 12 of China’s 34 provinces, accounting for $44 of China’s coal consumption, have already pledged to implement coal control measures.

Collectively, these measures imply a reduction in coal consumption of approximately 350 million tonnes (MT) by 2017 and 655 MT by 2020.

Huaneng Power is acquiring 10 projects worth CNY9.3b in total from its parent, the Huaneng Group. The projects are Hainan Power, Wuhan Power, Suzhou Power, Dalongtan Hydropower, Hualiangting Hydropower, Chaohu Power, Ruijin Power, Anyuan Power, Jingmen Thermal and Yingcheng Thermal. The asset injections should be completed by 1 Jan 2015. The company’s total attributable capacity could increase by around 9% by end 2014.

Singapore registers largest CDM project

Adrian John

Li Shuo

Will China’s tariff cuts for wind farms hurt developers?

When China’s National Development and Reform Commission announced that it was considering fresh tariff cuts for wind farms, developers knew better than to panic – even with proposed reductions of up to CNY0.07kWh. They can take comfort from analyst expectations that the final tariff cuts will shave off only a small amount from their bottom line. “We believe the final tariff cuts will be smaller judging by the conservative tariff reductions for coal-fired generation,” says Howard Wong, research head for oil & gas at Maybank Kim Eng. Since the proposed tariff cuts are just for new wind farms that will begin operation in mid-2015, Wong estimates relatively minimal earnings impact on renewable energy producers. But more tariff cuts will likely be implemented in the next five years, at the rate of 5% every two years, starting from 2015 to 2020, says Joseph Lam, research analyst at Nomura International Hong Kong. These will be driven by central government targets to reach grid-parity by 2020, the decline in equipment cost and further improvement of the curtailment issue that has resulted in billions of revenue lost.

8 ASIAN POWER

PacificLight Power’s 800MW combined cycle gas turbine power plant has been successfully registered as a Clean Development Mechanism (CDM) project under the United Nations Framework Convention on Climate Change, making it the largest in Singapore. Situated on Jurong Island and worth $1.2b, it features the latest F-class gas turbines. It bills itself as the only fossil fuel-based power project in Singapore.

Vietnam’s Song Bung 4 to be operational by end 2014

Joseph Lam, research analyst, Nomura

What is coal’s effect on wind?

A major milestone has been achieved on Vietnam’s Song Bung 4 hydropower project with the closure of the river diversion and start of reservoir impoundment. The first major hydropower project in Vietnam to be funded by the Asian Development Bank, the 156MW scheme involves construction of a 110m high roller compacted concrete dam, a 3.2km long headrace tunnel of 7.2m diameter and a 16m diameter surge shaft, as well as an intake structure and powerhouse.

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FIRST

Philippine solar faces growth spurt

I

f investors have been waiting to venture into the Philippine solar energy market, now would be the perfect time to get out of the protective shade. The next five years should see rapid market maturity, and large jumps in cost efficiency and profitability.

The market’s prospects are shining brighter with a looming ten-fold increase in feed-in tariff (FIT) allocation for solar energy and increasing viability of bilateral projects. These developments should make it worthwhile for investors to finance solar power projects, despite lingering regulatory risks. “Equity investors are encouraged to get into the market now because in just 5 years the industry is expected to mature quickly and become very competitive, says Andrew Affleck, founder and managing partner at Armstrong Asset Management.

Affleck points to a couple of drivers that are accelerating the sector. First is the energy department’s recent proposal to increase the FIT allocation for solar energy from 50MW to 500MW within the next 18 months. There is also a move to improve the tariff structure to incentivize the quick construction of solar plants as the government tries to alleviate the expected energy supply shortfall in the summer of 2015.

Momentum is also being driven by the success of bilateral projects which contract directly with local offtakers and distribution utilities instead

of joining the already crowded FIT program.

Affleck says investors that back bilateral projects avoid the uncertainty risks that typically hamper FIT projects, as the former come with a power purchase agreement and clear tariff structure with a direct payment mechanism.

Foreign investors would be blind to ignore the wealth of opportunities in the Philippine solar industry, says Ruth Briones, Chairman and CEO at Greenergy Solutions Inc. She estimates the potential market for solar industry players at about $450 million, or P19 billion, yearly. This is based on the 50,000 households, which represent 10% of the half a million constructions yearly that can install solar panels with a capacity of 2 kilowatts.

Briones says this has led to a rush of foreign and local solar technology developers competing to install solar panels on rooftops of households, commercial establishments and buildings.

Demand has increased due to the combination of the strong cost savings promised by solar panels and the relative affordability of the technology.

“To produce a kilowatt of solar power from these rooftop panels, one would need to invest about $4,500 for the actual components and installation works. Investment can be recovered in about seven years. Solar panels usually last for at least 25 years,” says Briones. But Armstrong Asset Management’s Affleck warns that foreign

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Datuk Torstein Dale Sjotveit CEO, Sarawak Energy

12 ASIAN POWER

CEO INTERVIEW

Sarawak Energy eyes 12 new hydro projects, but must overcome NGO opposition

CEO Datuk Torstein Dale Sjotveit says the twelve dams being studied would produce just over 4,000 MW.

A

nti-dam construction campaigns are growing in the northwest Borneo, but they aren’t slowing down Sarawak Energy (SEB). The state-owned power supplier and dambuilding company has in fact been experiencing unprecedented growth over the last four years. In an interview with Asian Power, Datuk Torstein Dale Sjotveit, the Chief Executive Officer of SEB, reveals that the company has achieved a significant 70% increase in its revenue and profit. Moreover, he notes that it has also increased its manpower by more than 50%, improved reliability to its customers by 25%, and increased the rural electrification coverage from 65% to 80% throughout Sarawak.

“Of course, we cannot stop the anti-dam NGOs from their propaganda, but we can educate the community on the benefits of hydropower and the massive development it brings. We constantly issue correct and reliable information to the media (online and offline) and respond to genuine queries from NGOs. We have also engaged with those who are willing to discuss and contribute to areas of improvements for the betterment of the people,” says Sjotveit.

Sarawak Energy’s projections indicate that by 2020, the energy demand for the Sarawak Corridor of Renewable Energy (SCORE) will grow to over 3,500 MW. How is SEB meeting its required capacity to match this demand?

On a broader perspective, the ASEAN region is experiencing an economic boost, resulting in the rise of energy demand of about 3-4% per year. We look forward to energy exports to our neighbours. We have inked to export to West Kalimantan and are optimistic of exporting to neighbouring Sabah, Brunei, and Peninsular Malaysia next. I believe that Sarawak has the advantage to attract investors due to its competitive electricity tariffs that came from stable generation sources.

Its strategic location in the centre of ASEAN, halfway between China and India, with sound transport infrastructure, a young and educated workforce, as well as a stable government provide favourable regulation and investment incentives for businesses, especially for energy intensive industries.

Responding to the increasing demand, Sarawak Energy capitalizes on our strategic advantage of unique generation mix. While our current generation mix is at 60% hydro and 40% thermal, we are embarking on generation expansion projects from different energy sources, mostly capitalizing on our abundant resources of coal and hydro. Not relying on only one source of generation, we have a higher stability in power generation. With the commercial commissioning of Murum HEP by end of 2014, we anticipate that our generation from hydro will increase from the existing 60% to 75%. Sarawak Energy has identified a further twelve sites as being highly prospective for the construction of further hydroelectric projects. However, construction work for any hydroelectric projects will only begin once feasibility studies and comprehensive Social and Environmental Impact Assessment (SEIA) reports have been conducted by Sarawak Energy and approvals obtained from the State Government.

The twelve dams being studied would produce just over 4,000 MW. Adding to the 2,400 megawatts capacity of Bakun and the 944 MW from the upcoming Murum, the state will have a potential of close to 8,000 MW of hydropower by the early 2020s. This is in addition to gas and coal generation of as much as 3000 to 4000 MW.

What are latest developments and progress in the SEB-owned 944 MW Murum dam?

Murum HEP is Sarawak Energy’s second hydropower project after Batang Ai with an installed capacity of 944 MW. The commercial commissioning of Murum HEP is coming up, with the first set of energy anticipated before end of the year.

Sarawak Energy assures that the Murum HEP is perfectly safe and is subjected to stringent quality controls. As a matter of fact, we have developed proper processes to ensure that quality issues will be detected at an early stage.

As in all our projects, a rigorous Completion Management System (CMS) is implemented. In addition, there is a comprehensive testing programme, ensuring the stability of the generating unit, prior to the handover from the contractor and commissioning of each machine. Sarawak Energy also brings in international specialists to carry out checks at different stages of the project. The engagement of international experts is part of our commitment to stringent quality control for the materials.

What other projects are in the pipeline?

Sarawak Energy has just signed a contract for the construction of 2 x 300 MW Balingian coal-fired plant set to produce its first energy by end of 2017. We have embarked on Social Environment Impact Assessment (SEIA) studies for our hydro projects in the pipeline, namely Baram and Baleh HEP. For Baleh, Sarawak Energy is currently awaiting approval from the State Government, and as for Baram, we are finalizing the SEIA report for submission of approval. Other than these projects, we are doing ongoing feasibility studies of mini-hydro projects in a number of potential sites, as well as pre-engineering studies for additional thermal power plants.

To support our generation planning, we aim to further strengthen our transmission system, with the construction of 600 km backbone 500 kV transmission lines expected to be completed in 2016, as well as construction and expansion of extra high-voltage substations.

All these projects when fully completed will further enhance the State Grid System to ensure ample, secure and reliable power for our consumers. Planning ahead, we are also preparing the necessary infrastructure to play our role in the regional energy supply through the much anticipated ASEAN Power Grid.

How is SEB responding to opposition to dam projects?

Hydropower has been proven to be a successful development model in developed countries such as Canada, United States, Australia, and Norway. Sarawak is emulating the same model as we have abundant of hydropower resources, which is our competitive advantage moving forward.

I believe that hydropower is the answer to depleting natural resources and rising energy demand in this region. Given hydropower’s ability to produce at an average competitive cost of USD0.05, this sustainable renewable energy resource would drive economic growth in the ASEAN region.

Hydropower is a more suitable option for Sarawak compared with alternative renewable sources such as solar power.

Looking at Bakun HEP as an example, it is producing 20 TWh annually. If we were to embark on solar power that gives an equivalent output of 20 TWh, it would take about 500 square kilometres of solar panels at a cost of more than USD30billion.

ASIAN POWER 13

Country report 1: Indonesia

Rural Indonesia benefits from renewables

What is hindering Indonesia from becoming a renewable energy powerhouse in Asia?

Can the country clear up the uncertainties that kept development of renewables to less than a tenth of its potential?

W

hen the Indonesian government passed the revised Geothermal Law in August 2014, it was widely seen as small step towards a clearer operating environment for renewable energy development, but analysts argue that the sector has long passed the need for minute corrections. What is required now are big leaps in regulatory clarity and end-user pricing if the country hopes to produce renewable energy to its full potential.

Uncertainty remains the biggest hurdle for renewable energy development, says William I.Y. Byun, managing director at Greenpower Fuels. “To what extent is foreign ownership permitted? Who pays: local or national Perusahan Listrik Negara (PLN)? Is there a standardized power purchase agreement (PPA)? Without very clear and quick answers to such questions, any need to ‘consider’ or ‘get back to you’ means the investor may have departed for Thailand or other markets where the answers are down pat.” He adds project red tape has also come up as a challenge to certain projects.

Analysts believe these hurdles are a shame given Indonesia’s tremendous opportunity to become a renewable energy powerhouse. The country has the potential to produce roughly 140 GW of 14 ASIAN POWER

Camilla Fulland

Harsh Thacker

William Byun

power across three of its most promising renewable energy sources: hydropower, geothermal and biomass, says Shobana Venkataraman, principal investment officer at International Finance Corporation. Unfortunately, only a fraction of this potential power is being produced.

Venkataraman says Indonesia has been estimated to be able to produce 76 GW of power from large hydroelectric sources and 500 MW from small hydroelectric sources. But as of 2013, only 5.7 GW has been installed from large hydroelectric facilities, and another 218 MW has been installed from small hydroelectric facilities.

Similarly, Indonesia has not fully capitalized on its strength as the nation with the largest known geothermal power generation potential of roughly 27 GW, of which 8-10 GW is considered to be economically viable when environmental benefits are considered.

“Although geothermal power has been utilized in Indonesia for over two decades, only a fraction of the potential resources – a little over 1 GW – has been developed thus far,” says Venkataraman.

Indonesia also holds a high potential for biomass power generation due to extensive agricultural activities, with an estimated 124.7 million tons of biomass

produced annually. The country can generate an estimated 50 GW of power from biomass.

A key reason why Indonesia has been slow to construct renewable energy projects to tap into its vast resources is its poor implementation of renewable energyrelated laws and regulations. A standout example is the revised Geothermal Law, says Venkataraman, which still requires ministerial regulations to provide guidelines to specific activities cited in the law such as the process of project tender by the central government and the funding mechanism for exploration activities.

The government also passed the Land Acquisition Law to ease difficulties faced by the private sector in acquiring land for large infrastructure projects. However, Venkataraman points out that the law only applies to new projects, which leaves existing projects bogged down by land acquisition issues.

There are many other contradictions and points of confusion in different regulations, which has scared off potential investors, according to other analysts.

Shackled potential Indonesia could greatly benefit from a more clear-cut environment to speed up the completion of renewable energy

Country report 1: Indonesia projects and help the country meet its skyrocketing energy needs.

With a population of more than 250 million, and one of the largest and fastestgrowing economies in Asia, Indonesia is terribly hungry for energy. Currently the country depends largely on fossil fuels, but the government has realized that for long-term energy security in the face of dwindling oil production, it has to develop its abundant and diverse renewable energy resources.

“There is a huge identified potential for geothermal, biomass and solar power in Indonesia. And renewable energy generation can provide the much needed support alongside conventional power plants in meeting over 8% increase in electricity demand in Indonesia,” says Harsh Thacker, senior research analyst, energy & environment practice at Frost & Sullivan Asia Pacific.

Indonesia’s oil production has decreased from 1.6 million barrels/day to 1 million barrels/day, while the nation’s energy consumption is expected to increase up to 10% within the next 10-15 years, factoring in fossil oil depletion in Indonesia, says Dr Hadiyanto, assistant professor, chemical engineering department at Diponegoro University.

Faced with this predicament, the government has outlined a strategy to increase the share of renewable energy sources into the Indonesian energy mix.

By 2025, the government is targeting a rise in renewable energy use to 17% from the current use of between four and five percent.

The majority of this renewable energy will help bring power to the remote islands of Indonesia. Renewables are a better fit for these tiny islands across the archipelago, says Byun, a significant number of which remain without power.

While Java and Bali have an electrification rate of greater than 95%, Indonesia’s national electrification rate is at 75%, notes Hadiyanto.

“Indonesia does not have a widespread grid and often not a sufficient localized generation capacity outside of Java-Bali.

As a result, because renewables tend to be smaller and more localized – and since Indonesia has extensive options for renewables such as biomass and hydropower – such demand growth in the ‘outer islands’ is driving interest in renewables,” says Byun.

Geothermal, hydropower or biomass?

Even though smaller islands have a large technical potential to generate and consume renewable energy, the remoteness of such locations hurt their economic feasibility, according to Camilla Fulland, investment analyst at Differ Group.

Of the three largest renewable energy sources that Indonesia can harness, Fulland says biomass shines the brightest as the most viable, along with solar photovoltaic (PV) sources.

“For a majority of Indonesia’s 922 permanently inhabited islands, distributed electricity generation or stand-alone systems are the only economically feasible solutions, with biomass and solar PV holding the largest potential.”

Fulland says geothermal and large-scale hydropower energy projects, by contrast, face significant environmental risk assessments and major investments in transmission infrastructure which can lower their financial feasibility.

But considering the near-term outlook, focus could swing towards harnessing geothermal and mini-hydro sources, says Bikal Pokharel, senior analyst for Asia Power at Wood Mackenzie.

“Geothermal power holds the most promise, with the estimated potential of over 20 GW across Indonesia. Indonesia has yet to develop their biomass, solar and wind projects, and these would be more of a longer term potential.”

The biomass sector has its share of challenges ahead, such as the lack of an existing model to guarantee dependable long-term supply of feedstock for power projects to be connected to the national grid, says Venkataraman. Biomass projects also experience difficulties aggregating agri-waste feedstock.

Key barriers There is no doubt among analysts that Indonesia possesses all the raw ingredients for a renewable energy boom. Its renewable energy resources are vast, the imperative to develop non-fossil fuel energy sources is strengthening, and there is an ever-deepening well of demand amid blistering economic expansion.

But the devil is in the details, and Indonesian government has been regrettably slow to create a more accommodating operating environment where projects can be started and completed without a range of complications.

“The key barriers are subsidized enduser prices at levels below renewable energy generation costs, unclear regulations and bureaucracy, PLN reluctance to sign PPAs with independent power producers, as well as foreign ownership regulations preventing private participation,” says Fulland, summarizing the array of hurdles a typical renewable energy project faces in Indonesia.

Fulland says the subsidy regime is especially discouraging for renewable energy production. “As long as electricity is sold at prices below renewable energy generation cost, the state owned utility, PLN, has

“Indonesian government has been regrettably slow to create a more accommodating operating environment where projects can be started and completed without a range of complications.”

no incentives to increase the renewable energy share of the electricity mix.”

For 2014, around $22 billion (IDR 280 trillion) will be spent on the subsidy, which consequently tilts the economical balance of the country, says Hadiyanto.

“To supply the national demand for oil, Indonesia is still importing from other countries, which makes the price on the domestic level really dependent upon the world oil price, and consequently increases the subsidy. This is a serious problem, when the government has to reduce the oil subsidy but the renewable energy is still not well developed yet.”

The government has recently moved to address this problem by rolling out a new scheme that raises the tariff by 64% for electricity purchased from mini-hydropower plants. This should improve the breakeven timeline for renewable energy projects, says Thacker.

While the tariff increase will encourage project developers to take on more mini-hydro projects or fast-track those currently in the funding stages, Thacker argues that these kinds of incentives are still ultimately too weak to galvanize the sector to produce renewable energy at full steam.

“There are over 100 clean energy projects in the pipeline in Indonesia, but progress on their execution has been slow

Indonesian government subsidies (2014 estimates)

Source: International Business Times

Indonesia’s future energy mix

Source: Solar Business Focus

ASIAN POWER 15

Country report 1: Indonesia due to lack of clarity in government policies and licensing guidelines. The industry stakeholders consider the current feed-in tariff (FIT) and tax benefits provided are not enough to build momentum,” says Thacker.

Getting back on track He explains that Indonesia should look to its neighbours Thailand and Malaysia, which have much clearer and more transparent national renewable energy programs and FIT policy frameworks.

Emulating its peers can help Indonesia improve its project implementation speed and attract larger investor interest.

Thacker further recommends that the government revise the legal framework for getting environmental clearances for developing geothermal power projects in forest areas, since the country can exploit its geothermal potential only when such regulations are revised.

Much can also be learned from from successful renewable energy projects supported by international banks and private equity firms, says Thacker.

Fulland shares this assessment, noting that despite the slew of incentives for renewable energy over the past five years – this includes FiTs for geothermal, hydropower, and solar PV, PPAs, tax incentives and value added tax concessions, Energy policy in Indonesia

Source: Sari Prima Energy

Growth in ASEAN primary energy demand

Source: Canary USA

16 ASIAN POWER

“The government should increasingly work with the private sector to tackle and finance the immense project requirements in the renewables sector.”

and the opening up of protected areas for renewable energy generation – their effectiveness is still not evident.

“Successful projects that have achieved financial closure with the support of international banks and private equity firms have shared their experience as to how project profitability calculations can be carried out. When project profitability is calculated, it is very important to determine correct debt to equity ratio for any projects.”

“Secondly, many of the projects avoid risk factors in their calculation. Project costing should include the risk costs for availability of fuel – sunlight, wind, biomass, steam, etc – and plant factor and reliability of the output.”

Stakeholder education is equally critical for success, says Thacker, with the goal of teaching local banks, financial institutions and the concerned PLN executives to thoroughly understand the financial risks involved in a renewable project and lessen their reliance on collaterals.

The government should increasingly work with the private sector to tackle and finance the immense project requirements in the renewables sector. This is one area where the government has taken strong and effortful strides, with Hadiyanto pointing to increased private sector opportunities to cooperate in infrastructure projects relevant to renewable energy development and technologies, such as electricity infrastructure that covers power stations.

Hadiyanto further recommends increased research efforts and public education campaigns in order to align national priorities towards pushing for more renewable energy projects. “Since renewable energy is a new development in the energy sector, the Indonesian people’s understanding of the use of renewable energy and its potential for utilization in supporting human lives is still low. This means research and applied technology in the development of renewable energy utilization is not a priority.”

“The barriers can be eliminated or improved by adopting a policy of encouraging the development of renewable energy and energy conservation, in the form of mandating utilization of renewable energy and committing to the implementation of energy efficiency and creating an energy-saving culture,” Hadiyanto adds.

Hadiyanto reckons strengthening research and development is imperative for Indonesia to achieve the targets of Vision 25/25. He recommends further broadening the research partnerships to include Indonesian research institutes, other governments and international counterpartners.

What should renewable energy research prioritize? Hadiyanto says efforts

should be focused on the current challenges in energy efficiency, energy planning and energy economics, issues which are not deeply studied and explored.

While it is helpful to continue pointing research initiatives towards developing renewable energy technology, a more holistic approach may yield better results, he argues.

There is scant research to determine Indonesia’s future energy demand outside of local government support and consultation on local energy planning efforts, says Hadiyanto. Research is currently too focused on the technological side, and while important, there is much to be gained from scrutinizing the complex issues of renewable energy supply and demand.

After research, the government must then make sure that renewable energy projects can thrive in the country. A big component of this is upgrading and building infrastructure to support distributed power generation for renewable services, says Thacker.

In turn, this can only be done if local engineering and consulting companies deliver high-quality services so it is in the government’s interest to create a competitive environment where the best firms are encouraged and rewarded.

Hopes for new presidency?

Analysts are mixed on whether the new President Joko “Jokowi” Widodo will act on these recommendations.

Pokharel expresses optimism that the nation’s leader will ensure faster greenlighting of infrastructure projects, especially under increasing pressure to ease the energy problem.

“There is a hope that the infrastructure projects will kick off a little faster. Indonesia is heading for severe power crunch and project delays will only make it worse.

IPPs are waiting for positive signals from the government; but government backed guarantees might be necessary for IPPs to come and invest.”

Thacker reckons the new government has signalled intentions to ease the fuel subsidy, which will indirectly boost renewable energy. “Fuel subsidy is a big burden for Indonesia, and the upcoming government has already announced their will of shifting subsidies from fuel and using it in agriculture.”

Hadiyanto, meanwhile, says that while Jokowi has not yet announced his renewable energy plans yet due to the infancy of his tenure, his campaign indicated an inclination to explore the use of gas and coal as energy sources.

The next move is the government’s, with producers and investors now waiting for the right time to pounce on the country’s renewable energy opportunities, with less risk stacked against them.

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ASIAN POWER 17

COUNTRY REPORT 2: VIETNAM

Are renewables just on Vietnam’s sidelines?

Find out why and how regulatory weeds could choke Vietnam’s green growth dream

Insufficient regulatory pruning remains a threat to the goal of raising renewable energy to 5% of its mix by 2020.

W

hen Vietnam planted the seeds for a renewable energy renaissance it had right idea to fertilize the sector with strong incentives but its government has been neglecting to clear the fields of legal uncertainties and regulatory impediments. This along with insufficient funding for planning and research initiatives has the potential to stunt national aspirations to develop a robust renewable energy sector in the coming decades, warn analysts.

Vietnam sorely lacks a clear and well-developed legal framework relating to renewable energy, says James Harris, global head of infrastructure at Hogan Lovells.

“While certain incentives are available, renewable energy projects are generally treated as regular investment projects under the legal framework of Vietnam,” which can result in regulatory confusion and operational complications, he says.

Vietnam needs to create new laws or revised existing ones with specialised mechanisms to promote investment in renewable energy.

“The legal framework for renewable energy could be further developed, with renewables-specific legislation 18 ASIAN POWER

Pratibha Mehta

Andrew Scott

Sesto E. Vecchi

passed to guide the development of renewable energy projects and improve the regulatory institutional framework. For example, by setting up a specific authority to regulate renewable energy,” says Harris.

While Vietnam is known to have expansive renewable sources like solar, wind and biomass, there are no reliable country-wide estimates to guide project developers and investors.

This is a task that the government should consider subsidising.

“It is critical that such information is accurate for planning purposes, as well as to attract significant foreign investment,” says Harris. “Many countries subsidize the surveying and exploration stage of renewable energy projects, to reduce the risk for private investors. Vietnam could consider such a policy to reduce the barrier to entry for renewable.”

Regrettably, Vietnam also allots minimal funds to purchase and develop new renewable technologies as well as train its workforce to satisfy the growing staffing requirements among renewable power projects, says Sesto E. Vecchi, analyst at Russin & Vecchi.

“It is unlikely that the government will expend significant public funds

on the research and development of alternative and clean energies.

The government is more likely to rely on progress that occurs in other countries and to adopt these newer, imported technologies via foreign and domestic investment.”

Vietnam lacks programs to augment or reshape workforce skills that involve current renewable technologies. “At this point, Vietnam relies on on-thejob training or retraining that is linked to specific projects,” says Vecchi.

Renewables and fossil fuel subsidy Any discussions on increasing funding for renewable energy initiatives will of course involve one of the biggest drains on government resources: Fossil fuel subsidies. Some analysts suggest that Vietnam’s success in developing a strong renewable energy hinges on a rapid dismantling of its fossil fuel subsidy regime.

Vietnam has earned praise for its determination to become a green growth economy and renewables beacon in Asia, but there are concerns that the government’s strong resolve has met its match in fossil fuel subsidy reforms.

The United Nations Development

COUNTRY REPORT 2: VIETNAM Programme says the government has been slow to implement reforms on its substantial, largely indirect, fossil fuel subsidies which reached US$3.45 billion in 2012.

Fossil fuel fiscal reforms must be accelerated if the Vietnam government hopes to achieve the ambitious targets set in its Green Growth Strategy, says Pratibha Mehta, resident coordinator at United Nations in Vietnam.

Subsidy reform is often largely limited to changes to domestic energy pricing systems, but reforms need to go beyond adjusting prices and include reforms to state-owned enterprises (SOEs), governance and regulation of energy markets.

Mehta says there are currently no plans to break up the monopoly of SOEs in the energy sector, except in electricity. The majority of energy producers and distributors in Vietnam are SOEs and receive the bulk of fossil fuel subsidies in the form of price controls, provisions, loan guarantees, tax exemptions and lax enforcement of environmental regulations.

“Progress in the implementation of legislation and regulation on SOE reform has been slow due to vested interests, the complexity of SOEs’ role within markets, and difficulty in tackling the scale of commercial and institutional issues existing within energy markets,” says Mehta.

Rallying the public The government should address its inability to raise prices by informing households and businesses on the costs of subsidisation and the likely benefits of a comprehensive fossil fuel fiscal reform, including a carbon price, says Mehta.

The government will likely need to launch a widespread information campaign to explain this complex, and often contentious, topic and gain support for reform measures. Mehta suggests that the government will likely make a better case for subsidy reform and the resulting increase in electricity prices by stressing the fiscal savings and efficiency those results from such a measure.

Core messages could include how fiscal reform will enable energy producers to provide better, more reliable services. The current regime allows for chronic SOE inefficiency and wastefulness, which leads to poor energy service provision to consumers.

It is also beneficial to communicate how the government can direct resources to more productive and useful ends like enhanced funding for key developmental programs,

including enhanced renewable energy initiatives, resulting in a more progressive and inclusive county.

Subsidy reform will also entice more developers and investors to enter Vietnam’s renewables market. The low electricity tariffs in Vietnam makes it harder for higher-cost sources of energy such as renewables to be profitable, says Harris.

“The price that the government is willing to pay for electricity from private power producers has been the single largest deterrent to the growth of private investment in power,” adds Nhut H M Nguyen, analyst at Russin & Vecchi.

Limited government financing opens up more opportunities for the private sector to take on renewable energy projects, especially those involving high-potential sources like solar, wind, and biomass.

Nguyen says private investors hoping to dip into the lucrative renewable market should pin their hopes on the creation of a new legal framework for public-private partnerships, where the government is a contractual counterparty only and not an equity holder, as this holds “considerable promise.”

Tackling sustainability Aside from enhancing the operating and regulatory environment and making the public amenable to subsidy reform, the government must ensure the economic and environmental sustainability of their green growth vision, says Andrew Scott, analyst at Development Program.

“Mitigation measures are needed to contain short-term negative impacts of higher energy prices, with a focus on poor and vulnerable households

“The potential for energy efficiency savings is between 15% and 30% of demand, and is highest, in proportional terms, in the residential sector.”

and businesses,” says Mehta.

He suggests two options that would make Vietnam’s energy system more environmentally sustainable.

First is to improve the efficiency of energy use. The second is switch to lower carbon energy sources, including increasing the proportion of energy from renewable sources.

He estimates that the potential for energy efficiency savings is between 15% and 30% of demand, and is highest, in proportional terms, in the residential sector. These savings would reduce demand by up to 22,000 GWh a year by 2030, or equivalent to the output of 15 planned coal-powered stations and reduce carbon dioxide emissions by over 100 million tons a year.

“To achieve these savings, regulation and changes in enterprise management practices will be necessary, together with investment by the private sector and SOEs.” Meanwhile, the potential for renewable electricity generation is estimated to be about 155,000 MW, seven times higher than the total installed capacity in 2010.

Renewable energy increases in Vietnam

Source: International Rivers

What price is the Vietnam government willing to pay?

ASIAN POWER 19

Asian Power celebrates 10 rewarding years of recognizing the leaders in Asia’s power sector

T

he Oscars of the power industry is now on its 10th year. Asia’s power sector is poised for tremendous growth, and Asian Power set out once again to discover and recognize the leaders and innovators of the region’s booming power industry.

Over a hundred executives and power industry heavyweights gathered for the tenth Asian Power Awards, held on September 11 at Shangri-la Hotel Kuala Lumpur. The Asian Power Awards 2014 recognized the most outstanding and innovative projects in 17 categories.

This year’s winners were selected from a pool of 69 nominations. The projects came from 32 companies representing 13 countries across the globe.

The nominations were screened by an esteemed panel of judges that included John Yeap, Partner, Head of Energy – Asia at Pinsent Masons; John Goss, Managing Director of Ceejay International Ltd; and Andrew Bedford, Global Function Leader of KBC Advanced Technology Pte Ltd. According to Asian Power publisher Tim Charlton, “It has been ten years since we first organized the Asian Power Awards, and we have witnessed tremendous growth in the region in the past decade. Tonight we are here to recognize the best achievements and projects as well as name the key players who bested others in a drive for efficiency and productivity in the Asian power sector.”

Sarawak Energy CEO Datuk Torstein Dale Sjøtveit bagged the coveted CEO of the Year award for his outstanding work in one of Malaysia’s leading power firms. Appointed as CEO of Sarawak Energy in late 2009, Torstein has a vast experience of more than 30 years in various industries, including shipbuilding, oil and gas, petrochemicals and aluminum.

“I am honoured to have been able to lead Sarawak Energy in this period of great transformation. We acknowledge that there is a lot more to be done and an even bigger responsibility that comes our way. This award is a much appreciated acknowledgement of our achievements so far and I’m sure it will drive us to greater heights,” he stated.

These projects are leading the way in Asia’s drive for sustainability, reliability, and maximum efficiency. These projects are fuelling Asia’s sustained growth, and their benefits are invaluable to the people of this thriving region.

The full list of winners as well as the snapshots from the glamorous awards night are available in the following pages: 20 ASIAN POWER

Solar Power Project of the Year • Gold - Pratapgarh Solar Power Project, ICML powered by Integrated Coal Mining Limited • SILVER - SACASOL

BY BRONZEOAK PHILIPPINES, THOMASLLOYD AND OWL GROUP • Bronze - Solar Photovoltaic Commercial Rooftop Project powered by Thai Solar Energy Public Co., Ltd.

• Bronze - new coal ash materials for the coastal construction of Taichung Thermal Power Plant powered by Taiwan Power Company Transmission & Distribution Project of the Year • Gold - Chun Yat Street 132kV Substation powered by CLP Power Hong Kong Limited

Biomass Power Project of the Year

• Silver - Smart Digital Substation in Meralco, Philippines powered by Alstom Grid Pte Ltd

• Gold - Namjeju Bio-fuel Oil Power Plant powered by Korea Southern Power Company Limited

• Bronze - Da-An Extra High Voltage Substation Construction Projects powered by Taiwan Power CompanY

• Silver - Sang-am District Heating and Cooling Plant, Korea District Heating Corp powered by Emerson Process Management Asia Pacific Private Limited

Power Plant Upgrade of the Year

Wind Power Project of the Year • Gold – Jeneponto 1 powered by Indo Wind Power Holdings Pte. Ltd. Coal Power Project of the Year • Gold - 2 X 300 MW Thermal Power Project, Haldia, East Medinipur, West Bengal, India powered by Haldia Energy Limited’ • SILVER - NEW COAL ASH MATERIALS APPLIED TO CASTAL CONSTRUCTION OF TAICHUNG POWER PLANT POWERED BY TAIWAN POWER COMPANY • Bronze – Manjung 4, Malaysia powered by Victaulic Gas Power Project of the Year • Gold - District Heat Conversion of KOWEPO Seoinchon GTCC powered by Korea Western Power Co,. Ltd. • Silver - EGAT Chana 2 combined cycle power plant in Southern Thailand powered by Siemens

• Gold - Santa Rita and San Lorenzo plants - Successful performance of inspections and overhauls for six units within 15 months powered by Siemens • Silver - district heat conversion of KOWEPO Seoinchon GTCC powered by Korea Western Power Co. Ltd. • Bronze - China Nan Yang Yahekou Power Plant powered by Emerson Process Management Asia Pacific Private Limited

Smart Grid Project of the Year • Gold - completed nationwide deployment of deregulated energy services for commercial & industrial customers in Singapore powered by Singapore Power • Silver - Smart Digital Substation in Meralco, Philippines powered by Alstom Grid Pte Ltd. Information Technology Project of the Year • Gold - Outage Management System powered by reliance Infrastructure Limited • Silver - A Novel Visualization Technique for Rapidly Identifying Power System Islands and Boundaries powered by Taiwan Power Company Power Utility of the Year - Malaysia • Sarawak Energy Berhad Power Retailer of the Year - Singapore • Diamond Energy Supply Pte Ltd Power Utility of the Year - Thailand • Thai Solar Energy Public Co., Ltd. Power Utility of the Year - India

Innovative Power Technology of the Year

• Tata Power Delhi Distribution Ltd

• Gold - Smart Digital Substation in Meralco, Philippines powered by Alstom Grid Pte Ltd.

Independent Power Producer of the Year

• Silver - China Huadian Jiangsu Wang Ting Power Plant powered by Emerson Process Management Asia Pacific Private Limited • Bronze – Micro Hydel Units (3 x 15 Kw) to extract waste energy from Condenser Cooling Water return to River powered by Southern Generating Station, CESC Limited

• Gold - CGN Meiya Power Holdings Co., Ltd. • Silver - Thai Solar Energy Public Co., Ltd. • Bronze - San Carlos Solar Energy (SaCaSol) CEO of the Year • Datuk Torstein Dale Sjøtveit

• Bronze - First Combined-Cycle Power Plant (“CCPP”) in Singapore Fully Fuelled by LNG powered by PacificLight Power Pte Ltd Fast-Track Power Plant of the Year • Gold - Kyaukse Power Project (Myanmar) powered by APR Energy • Silver – Andong Combined Cycle Plant in South Korea powered by kospo • BRONZE - MANJUNG 4, MALAYSIA POWERED BY VICTAULIC Environmental Upgrade of the Year • Gold - relocating an entirecombined cycle power plant

by Korea Midland Power Co. Ltd. • Silver - retrofitting of electrostatic precipitator to hybrid electrostatic precipitator powered by Sesa Sterlite Limited ASIAN POWER 21

Bill Ho and Brian Sung of CGN Meiya Power Holdings

DoHee Won, YoungHyun Park, SangJin Lee and WanHo Park of Emerson Process Management

Chin Fei Chow and Arshad Mohidin Gani of Alstom Grid

Kang Won Jung and Byeong Gab Park of KOSPO

Kim Nam Ho and Jae Young Shim of KOWEPO

Kang Won Jung of KOSPO

Ho Tae Lee of KOMIPO

Tony Segadelli of OWL Group, Michael Airey of Thomas Lloyd and Jose Maria Zabaleta of Conergy Asia & ME Pte. Ltd.

Datuk Torstein Dale Sjøtveit of Sarawak Energy

Clive Turton of APR Energy

Pol Kongsue and Suntorn Punmake of EGAT

Lawrence Lee of Singapore Power

Yunpeng Shao, Dezhong Yu & Chinhai Tan of Emerson Process Management 22 ASIAN POWER

Stefan Schaab of Siemens

Thomas Bierdel and Thomas Hagedorn of Siemens

S. P. Tang and Henry Chan of CLP Power Hong Kong Limited

Rabi Chowdhury and Sudipta Mukherji of Haldia Energy Limited

Michael Airey of Thomas Lloyd , Tony Segadelli of OWL Group and Jose Maria Zabaleta of Conergy Asia & ME Pte. Ltd.

Lawrence Kwan of Diamon Denergy

Jose Maria Zabaleta of Conergy Asia & ME Pte. Ltd.

Tat Ming Yu of PacificLight Power

Sudip Ghosh of Integrated Coal Mining Limited

Amit Sengupta and Sudipta Kumar Laha of CESC Limited

Chang, Mu-Chun of Taiwan Power Company

Chinhai Tan of Emerson Process Management

Bharat Kumar Bhadawat, Mahender Kumar Singhal and Shiv Ram Bhardwaj of Tata Power Delhi Distribution Ltd

Alfred Chua of Victaulic

Ho Tae Lee of KOMIPO

Datuk Torstein Dale Sjøtveit of Sarawak Energy

CEO of the Year, Datuk Torstein Dale Sjøtveit of Sarawak Energy ASIAN POWER 23

Jose Maria Zabaleta of Conergy Asia & ME Pte. Ltd. and CGN Meiya Power Holdings Co., Ltd Team Michael Airey of ThomasLloyd CTI Asia Holdings Pte Ltd

Siemens Team

KOWEPO Team

Emerson Process Management Team

Tata Power Delhi Distribution Ltd Team

Singapore Power Team

Emerson Process Management Team

KOMIPO Team

Emerson Process Management Team

Silver Spring Networks Team 24 ASIAN POWER

Alfred Chua of Victaulic

Tony Segadelli of OWL Group, Jose Maria Zabaleta of Conergy Asia & ME Pte. Ltd. and Michael Airey of ThomasLloyd CTI Asia Holdings Pte Ltd

Emerson Process Management Team

Thidathep Luekhuntod of EGAT and Gerda Gottschick of Siemens

Samsung C&T Team

Diamond Energy Team

EGAT Team

Singapore Power Team

Emerson Process Management Team

Alstom Grid Team

KOSPO Team

Sarawak Energy Team

Siemens Team

Singapore Power Team

EGAT and Siemens Team

Haldia Energy Limited Team

Kimanis Power Plant, Sabah, Malaysia

KOSPO Team

EGAT Team

Singapore Power Team

SPECIAL FEATURE: POST-POWERGEN

POWER-GEN Asia 2014: Exploring sustainable solutions to solve Asia’s booming power needs

Over 7,600 delegates attended the inaugural ASEAN Power Week in Malaysia.

in the generation side is that we’re using coal for fuel. The challenge in that is we need to secure better clean coal technology. We are embarking on R&D, and also looking at cooperation with other countries who already have good clean coal technology.

“Our next great project is to look at renewable energy as part and parcel of our fuel policy. We’re looking at biomass--we hope that if that can be advanced, it can form a substantial amount of fuel for electricity generation,” said Dato’Nadzri Bin Yahaya, Ph.D., from the Ministry of Energy Green Technology and Water, Malaysia.

G

rowth, efficiency, and sustainability were the core issues addressed in this year’s keynote session at POWERGEN Asia. The region is on a steady growth trajectory, but this growth remains largely fuelled by coal. Asia’s power industry is challenged to provide energy in the most efficient way possible while reducing its massive environmental toll.

This year’s POWER-GEN Asia was part of the inaugural ASEAN Power Week. It was co-located with Renewable Energy World Asia and the POWER-GEN Asia Financial Forum, and was held from September 10-12 in Kuala Lumpur, Malaysia. The combined events at ASEAN Power Week allowed for the necessary dialogue and collaboration between the two parts of the industry which will be needed as countries develop sustainable approaches to their energy policy.

Southeast Asia’s future is dominated by coal. The region’s energy demand is projected to increase by over 80% between 2013 and 2035. At the same time, the region’s economy is expected to almost triple while its population will expand by over one-quarter.

For both power producers and policy makers, coal remains the fuel of choice because of its relative affordability and abundance.

According to the International Energy Agency, coal’s share in Southeast Asia’s energy generation is expected to surge from less than one-third at present to almost one-half in 2035. This comes at the expense of other energy sources, such as renewable energy, 26 ASIAN POWER

natural gas, and oil.

The dominance of coal was starkly highlighted at the joint plenary panel discussion. “The panel explicitly stated that price is still the main driver. Economics trumps environment, sadly, to many people, but in the current situation that is the case. The panel came out and stated that bluntly, and to me, I don’t usually see panels being that open and honest. People will usually hedge and say, ‘Oh, sustainability is important,’ but when we raised the point, it is plain that coal wins and sustainability loses.

That’s what the politicians are saying,” noted Mark Hutchinson, Managing Director of IHS Energy, who moderated the discussion.

While the region has vast power generation potential, the challenges that power producers face are equally enormous. Governments are tasked with the delicate job of pushing through with progress at full speed, while not losing sight of the necessity to reduce the impact of these plans on the environment.

The IEA notes that more than 130 million people in the region, or around a fifth of the population, still lack access to electricity.

The dearth of access, however is not evenly spread--there are very high levels of access to electricity in Brunei Darussalam, Malaysia, Thailand and Singapore, but levels drop below 75% in Cambodia, Myanmar, the Philippines and Indonesia.

“When it comes to challenges, we’re looking at two sides--the generation side, and the transmission-distribution side. The challenge

Unscrambling the riddle Southeast Asia’s love-hate relationship with coal can only be remedied by continuous discussion and exploration. “These topics aren’t going to be solved today, tomorrow, or in the next ten years. And it’s important to have open discussions so we can know what other stakeholders think. We’re not going to change overnight, but we’re hoping for evolution through transparency,” Hutchinson noted. Stakeholders can stay abreast of new developments and soak up new knowledge through events like the ASEAN Power Week.

This year’s exhibition floor was packed with over 200 exhibitors from around the world showcasing their latest technologies, products and solutions that will drive the industry forward.

According to Zainudin Ibrahim, Vice President (Generation) of host utility Tenaga Nasional Berhad (TNB), “If ever there was a need for the industry to collaborate and exchange views about how best to adapt to changing market conditions, it is now.

Whether you are in the forefront of the renewable energy industry, a supplier of power island equipment or an operator of a conventional power fleet, there is a mutuality of interest to develop a modern power system that is both smart and sustainable. And it is events like ASEAN Power Week that play an important role in encouraging this exchange of information and nurturing that allimportant collaboration.”

“Governments are tasked with the delicate job of pushing through with progress, while not losing sight of the necessity to reduce the impact of these plans on the environment.”

Water footprint: more than volume

WATER TECHNOLOGIES

Veolia’s Water Impact Index expands on existing volume based water measurement tools by incorporating multiple factors such as > water volume > resource stress > water quality With over 300 power generation references worldwide, Veolia has the capability to provide reliable water and wastewater treatment solutions in full compliance with the quality and environmental standards applicable to the power industry as well as long-term cost-effectiveness. www.veoliawaterst-sea.com/industries/power/ or contact: info.sea@veolia.com

ASIAN POWER 27

co-published Corporate profile

Silver Spring Networks and Singapore Power revolutionize energy industry for smarter city

Customers with different kinds of consumption all throughout SP’s territory are offered the opportunity to ‘opt-in’ and purchase electricity on an open market.

W

ith the demand for intelligent, flexible power solutions growing rapidly, energy companies and utilities across the globe are turning to new and exciting technologies to build solutions that allow commercial, industrial and residential customers to benefit from lower prices and more stable energy offerings. As innovators in the energy industry, Singapore Power Group (SP) and Silver Spring Network have created an award-winning smart grid project that addresses the diverse, growing power needs across Singapore by offering deregulated energy services to customers for the first time ever.

SP, often regarded as the premier utility in Asia, provides electricity and gas transmission and distribution services to more than one million industrial, commercial and residential customers in the Republic of Singapore.

Widely recognized for its high standards of reliability, SP has one of the best track records for the lowest occurrence and shortest duration of power outages in a major city worldwide.

Since April 2014, SP has successfully begun delivering deregulated energy services to 15,000 commercial and industrial (C&I) customers, in support of the Singapore government’s policy to progressively liberalize the retail electricity market.

By enabling consumers to switch seamlessly between retail providers and buy electricity at wholesale market prices, SP is now able to offer new opportunities and more widespread energy availability for its customers, including lower energy prices through increased competition. With competitively priced electricity services, businesses and consumers

Open market electricity, anyone?

28 ASIAN POWER

can reduce costs significantly by selecting the best option for their particular energy needs, gaining efficiencies.

To enable this new model, SP deployed an advanced metering infrastructure (AMI) canopy for maximum flexibility. With an AMI canopy, SP can easily offer all of its customers – even those with the lowest average consumption – the opportunity to ‘opt-in’ to the program and purchase electricity on an open market.

SP partnered with Silver Spring Networks of networking platforms for mission critical infrastructure to deploy the IPv6 AMI platform as the foundation for delivering deregulated services to its customers. With over 19 million Silver Spring-enabled devices delivered around the world, Silver Spring is making the internet-of-things a reality for mission critical infrastructure including smart energy and water networks, intelligent and adaptive street lights and traffic controls, environmental and disaster sensors, airports and more. Their innovative solutions enable cities and utilities to operate more efficiently, and empower consumers to manage energy consumption. Silver Spring Networks’ customers include major cities and utilities

“Silver Spring’s selfhealing RF mesh network ensured the highest availability throughout SP’s territory, guaranteeing highly reliable yet affordable reach for its customers.”

around the globe including in Barcelona, Chicago, Copenhagen, Dongguan, Dublin, Foshan, Glasgow, Jakarta, Miami, Paris San Francisco and Sao Paolo.

Silver Spring’s self-healing RF mesh network ensured the highest availability throughout SP’s territory, guaranteeing highly reliable yet affordable reach for its customers. Because the program was ‘opt-in,’ SP could not know the exact location of participants. With Silver Spring’s extended reach – delivered through a mix of backhaul, cellular access points (APs) and microAPs – SP could ensure reliable communications from anywhere, at all times.

Through this solution, SP has not only met the mandate, but also extended the network and improved customer services.

Using Silver Spring’s IPv6 network platform, SP has successfully begun delivering deregulated energy services to 15,000 commercial and industrial customers, which equals around 100,000 meter end-points, allowing customers in Singapore to voluntarily choose their electricity retailer and purchase electricity at wholesale prices.

And by using intelligent network devices, including access points, relays and smart meters, SP has formed a powerful network infrastructure that can easily scale as the deployment expands. If the geographic region of the deployment grows, SP can also use microAPs, or meters with cellular connectivity, to cost-effectively and organically extend the network, and to deliver scalable smart grid and smart city applications to help drive energy efficiency.

The solution is so successful that Asian Power magazine recently recognized the program as the ‘Smart Grid Project of the Year.’ The award showcases the partnership as a ‘power project’ that is significantly enhancing the power sector in Asia.

“By enabling consumers to switch seamlessly between retail providers and buy electricity at wholesale market prices, SP is now able to offer new opportunities and more widespread energy availability for its customers, including lower energy prices through increased competition.”

SPECIAL FEATURE: POST-POWERGEN

VEOLIA WATER TECHNOLOGIES

W

ater is integral to the efficiency of power plants, and Veolia Water Technologies is at the forefront of providing unique solutions to the ASEAN’s booming power industry. Carlo Patteri, Veolia Water Technologies’ Business Development Director, highlighted the fact that proper wastewater treatment is crucial to a region that is still highly dependent on coal.

Patteri stated that Asia is beset with challenges stemming from the need to balance sustainability and development. Asian power producers still favor coal because of its relative cheapness.

However, coal’s affordability comes at a high price for the environment. In many Southeast Asian countries, Patteri noted that local communities are no longer keen on developing coal power plants if the projects are not tied with environmental guarantees.

Taking on the ASEAN challenge Veolia Water Technologies has been present in Southeast Asia for over 20 years and can address these challenges aptly. Veolia’s Regional Market Manager Aaron Seah stated that the ASEAN presents a unique challenge to the power industry because in comparison to their Western counterparts, Asian power companies are generally relatively slower when it comes to implementing water and wastewater treatment plants.

This situation is exacerbated by the lack of clarity and enforcement when it comes to environmental regulations, as well as a lack of corporatelevel understanding, and economical challenges.

But Seah noted that Veolia has observed seen increased acceptance of water treatment solutions in Asia in recent years.

The reasons for the greater focus on wastewater treatment include steadily increasing water costs, stricter state environmental regulations on waste discharge, and the fact that companies are now more keen to recycle wastewater and optimize water usage to reduce their water footprint.

The Veolia system integrates Zero Liquid Discharge (ZLD) technology with other cutting edge solutions for a complete wastewater treatment 30 ASIAN POWER

facility within a plant. The process involves the demineralization of the water system, including pre-ttreatment processes of screening and solids removal, using Actiflo Technology.

After the initial screening and purification processes, reverse osmosis and continuous electro-deionisation (CEDI) are utilized to further remove dissolved ions, to reach high purity water quality for boiler feed. Using the water output derived from the reverse osmosis process, CEDI is capable of producing high quality water with no delay in the ion regeneration cycle.

Veolia’s Asian expertise In line with the company’s goal to help develop more sustainable and reliable plants, Seah chose to highlight the Veolia’s proven expertise in condensate polishing “We try to focus more on condensate polishing to actually recover the condensate. This is especially critical for coal-fired power plants. We want to focus our time and technology into this area, where we can bring a more sustainable plant to our customers,” Seah notes. “If a condenser breaks down, the whole power plant can be shut down.

We see many unreliable plants in Asia, so we really want to improve the quality of these plants for our customers.”

The company’s edge in the region is further highlighted by their work on the first wastewater treatment plant installed upon a floating platform in South East Asia. Process and Application Engineer Yue Mei explains that a floating wastewater platform is normally very expensive and spaceintensive. Veolia’s work used the Actiflo® system, which has a significantly smaller footprint and is perfect for land-scarce Asian countries.

Veolia’s solution will occupy the smallest area on a floating platform, and therefore will enable clients to achieve minimum construction costs and maximum savings. With this floating wastewater treatment plant, Veolia is able to offer a win-win solution by providing crucial wastewater technology while addressing land scarcity concerns.

“Actiflo’s footprint is forty to eighty times small-

er than conventional systems. And we have the largest installation base for Actiflo. It is a proven and robust technology with over 800 installations worldwide,” she says.

Veolia’s Actiflo® solution is especially compatible for the treatment of lead and brackish water as it consistently produces sludge even under varying water conditions. Able to handle a flow rate of up to 17,000 cubic metres per day, Actiflo® incorporates microsand (ActisandTM) in the clarification process.

It acts as a stabiliser, by dampening the effects of sudden variations in water conditions. With Veolia’s solution, this new application in Singapore will see an improvement in the quality of waste that is released into surrounding waters, and enable the marine life in the area to continue thriving.

Yue Mei further highlighted the fact that Veolia’s solutions are not limited by industries, as the company offers a range of solutions that can be customized to target specific and varying client needs.

Among its many other projects in the region is the ANDA power plant in the Philippines, Tenaga Nasional Berhad (TNB) thermal power plants in Malaysia, and its work with the Formosa Petrochemical Corporation (FPCC) in Taiwan.

Through its three complementary business activities, Veolia helps to develop access to resources, preserve available resources, and to replenish them.

In 2013, Veolia supplied 94 million people with drinking water and 62 million people with wastewater service, produced 86 million megawatt hours of energy and converted 38 million metric tons of waste into new materials and energy.

With its cutting-edge technology and distinctive solutions, Veolia is indeed uniquely poised to leverage on the Asian power sector’s massive growth.

“Veolia used the Actiflo system, which has a smaller footprint and is perfect for land-scarce Asian countries.”

SPECIAL FEATURE: POST-POWERGEN

PW POWER SYSTEMS

P

W Power Systems (PWPS) is a global leader in developing and manufacturing energy solutions for power generation, transportation, and mechanical-drive applications. In May this year, PWPS and Mitsubishi Heavy Industries (MHI) celebrated a successful first year since MHI acquired PWPS in 2013.

According to Harsh Shah, PWPS Regional Director—Asia Pacific, PWPS’ small- to medium-sized power generation packages uniquely complement MHI’s capabilities, which has traditionally focused on large-capacity systems. A

combination of Pratt and Whitney’s cutting-edge technology and MHI’s global reach gives PWPS a definite edge when it comes to leveraging on Asia’s robust growth.

Asia is experiencing unprecedented economic growth, creating a gap brought about by insufficient power infrastructure. Many parts of the region remain crippled with power outages and shortages, which weigh on Asia’s stellar prospects.

Shah stated that PW Power Systems can provide a tailor-made solution for Asia’s energy demand through its portfolio of quickly deployable power

The OWL Group

T

he Owl Group was born and bred in the ASEAN. Since it established its first office in Thailand five years ago, the power engineering consultancy firm has grown by leaps and bounds and has since established offices in the Philippines and Japan.

Apart from traditional engineering, Owl Group also works with the Asian Development Bank in its efforts to establish the IPP sector in Myanmar.

The group is also working on the largest solar

project in Asia, a 200 mW development that will cover the entirety of a former golf course.

Tony Segadelli, OWL Energy’s Managing Director, discussed the power sector’s obligations to the environment in a session at PowerGen Asia 2014. In an interview with Asian Power, Segadelli noted how the push for renewable energy is steadily gaining ground in Asia. However, its expansion remains hemmed in by a number of challenges, among which are land scarcity, feedstock feasibil-

generation equipment. The PWPS gas turbine portfolio offers competitive, efficient and flexible power generation products at 25 MW to 120 MW nominal output.

“The speed with which our units can be up, running and generating power is much quicker than our competitors. These products can be installed so quickly because most of the building of the product is done at our manufacturing facility before they are shipped to their destination, leaving less work to be completed on site. We can be up in running in as little as one day for our FT8® MOBILEPAC® product and in just few weeks for SWIFTPAC® units,” he said.

Shah further highlighted that electric utilities across Asia have become increasingly reliant on intermittent renewable energy sources. The nature of these sources creates a strong need for flexible and quickly deployable generation assets to satisfy short to mid-term requirements, which the MOBILEPAC® and SWIFTPAC® engine configuration can provide.

PWPS has delivered over 100 MOBILEPAC® units to date. The company has also recently unveiled the new FT4000™ SWIFTPAC® gas turbine generator package, which produces the highest output of any aero-derivative engine while maintaining high efficiency.

“PW Power Systems can provide a tailor-made solution for Asia’s energy demand.” ity, and the sufficiency of available technology.

In the micro scale, he highlights how renewables are much more beneficial to individual communities when compared to large power plants. Renewable energy sources can directly serve the community it is located. The people behind renewable power plants have to be much more active community stakeholders as opposed to owners of huge power complexes.

When it comes to macro outlook, renewable energy remains the most viable replacement to fossil fuel. Non-renewable fuel prices have soared significantly in recent years, and even prices of liquefied natural gas remain very prohibitive.

Growth trajectory After the success of its first five years, OWL Energy is now well on track to clinch more projects and grab bigger opportunities in the region. Segadelli told Asian Power that the company is looking around the ASEAN for expansion opportunities.

They are particularly interested in Indonesia and Myanmar, and the group is actively exploring opportunities in Malaysia as well.

“The OWL Group is looking around the ASEAN for expansion opportunities.

They are particularly interested in Indonesia and Myanmar.”

ASIAN POWER 31

SPECIAL FEATURE: POST-POWERGEN

S

iemens has a strong focus on the ASEAN. Under its local-for-local concept, the multinational firm seeks to answer customers’ power needs by mixing local resources with its proven international expertise.

“Where the customer needs us, we are acting accordingly to build up our local resources,” said Markus Lorenzini, President & CEO Siemens Thailand, Myanmar & Cambodia.

ASEAN is one of the best examples where there has to be decentralized power. A brilliant example is Thailand, where the SPP program has led to the creation of industrial zones with their own power generation set-up. This set-up has allowed Siemens to sell 48 units of its industrial gas turbine SGT-800 to the Thai market.

Siemens has a long history of EPC capabilities on full turnkey power plants. As a matter of fact, Siemens had recently inked a contract with Petronas, under which the firm is going to apply its full turnkey capability to one of the largest power plants in the region.

“Our strength is that we know how to optimise the technology and give the best product and solution to the customer,” noted Lorenzini.

Siemens’ latest innovative product is the SGT8000H gas turbines. The H-class technology boasts of over 60% efficiency, and Siemens is the only company to have a product with such a track record in the market. The Siemens SGT5-8000H is designed for 400 MW in simple cycle operation and 600 MW in combined cycle operation.

Environmental protection considerations as well as economic factors were taken into account

Siemens

in the development of the SGT5-8000H. This tried and tested efficiency pays off handsomely: Siemens has been able to sell 6 units of the H-class to Malaysia alone.

To further boost its gas turbine capability, Siemens acquired Rolls Royce’s energy gas turbine and compressor business on May 2014. The acquisition perfectly complements Siemens’ portfolio and gives Siemens better access to the oil and gas market. Although the deal is still subject to antitrust approval, the plan is to integrate Rolls Royce by the first of December this year.

General Electric

G

E unveiled its cutting-edge 9EMax solution at PowerGen Asia this year. The 9EMax is a marked advancement in 9E gas turbine performance that redefines how Asian power producers can meet the region’s soaring power demand while maintaining lower costs.

This technology can significantly elevate the output and efficiency of existing GE 9E gas turbines while empowering power providers to rapidly and cost-effectively deploy the solution. The

32 ASIAN POWER

9EMax‘s high-performing technology will better position GE’s Asia Pacific customers to meet the region’s projected 4% annual growth in energy demand through 2035.

The 9EMax can deliver up to 143 megawatts of power and achieve up to 37% efficiency in a simple-cycle operation. It can deliver up to 210 MW of power and reach up to 53% efficiency in a combined-cycle operation.

For GE’s 9E customers, this performance boost

“We are proud to be here in ASEAN and we are continually building our footprint to be really close to the customer and serve their needs,” he said.

“Siemens’ H-class technology boasts of over 60% efficiency, and Siemens is the only company to have a product with such a track record in the market.” can open up as much as $6 million in new annual revenue opportunities per unit upgrade and as much as $5 million in annual fuel savings. With a fleet nearing 100 units across Asia Pacific, GE 9E customers can more effectively support the 10+ gigawatts of gas turbine power added in the region each year to keep pace with rising energy demand.

This advanced technology can have an even larger impact in the 10-country region of ASEAN, where demand is increasing at twice the rate of global growth.

“The high performance this technology brings to our customers opens up new doors for them to compete with larger block gas turbine machines and other power generation technologies across the region,” said Ramesh Singaram, Asia Pacific president of GE’s Power Generation business.

This technology is amother addition to GE’s 9E gas turbine fleet, which exceeds 99% operational availability across a global fleet of 700+ units. GE customers can operate up to 32,000 hours or 900 starts between scheduled maintenance inspections, a period of approximately four years for typical continuous-duty power plants.

“This can open up as much as $6 million in new annual revenue opportunities per unit upgrade and as much as $5 million in annual fuel savings.”

ASIAN POWER 33

co-published Corporate profile

Seamless automation and electrical integration through IEC 61850 A unified platform saves time and cost while providing effective risk management

I

n the power generation and water industries, there is a growing demand for more cost efficiency, environmental compatibility, and plant operation flexibility, whereas these are achieved to a limited extent in a traditional Process Control System (PCS).

To support and implement more efficient operation and maintenance processes, there is a need to access larger volume of relevant information, including from the electrical installations that supply the process with power. Having the right information at the right time and place makes a huge difference to the operational availability and efficiency for the entire plant.

The relevance of the IEC 61850 standard for electrical integration The introduction of open standard in electrical systems brings the simplification of electrical integration a step higher. A suitable PCS makes use of these advantages and helps develop a consistent concept. With the use of Intelligent Electronic Devices (IEDs), more information are available in electrical systems, which when integrated into the PCS result in more cost efficient operation and maintenance. A possible solution for integrating the process and electrical control systems can be implemented using the IEC 61850 communication standard.

A typical utility or industrial process can be divided into; i) Process control equipment, ii) Low voltage systems, iii) Medium high voltage systems. Process control equipment consist of instrumentation, safety systems, and controllers where the devices communicate via PROFIBUS or Hart protocols. Low-voltage systems consist of actuators and motor where these devices typically communicate with the process control system via PROFIBUS or Modbus protocols. Medium and high voltage systems, along with the associated protective relays (IEDs), transformers, converters, and meters communicate via the IEC 61850 protocol for process electrification, power distribution and management. IEC 61850 chief benefit is interoperability, where protection and control devices from one or more manufacturers can exchange information with each other.

An object-oriented data model serves as a basis for control system integration.

It abstracts all the relevant components and functions of electrical equipment - like circuit breakers and overcurrent protection - into so-called ‘logical devices’ and ‘logical nodes’. For vertical communication between protection and control devices and the 34 ASIAN POWER

operations level, the IEC 61850 standard uses the Ethernet-based manufacturing message specification (MMS) protocol. For horizontal communication between protection and control devices, IEC 61850-GOOSE is used, fulfilling the requirements for very quick transmission of protection or interlocking signals via the Ethernet station bus, thus replacing most of the fixed wiring or serial communications between the protection, control devices and the PCS. S+ Operations – complete plant information In the past, the main limit to increased productivity was to aggregate data from different sources and transform it into meaningful information that can be presented to operations, maintenance and engineering personnel in their respective contexts. This is more critical when simultaneously treating process, electrical and supervision data.

S+ Operations, Symphony® Plus’ human machine interface (HMI), provides easy and flexible data access in order to facilitate operational decisions. Its operator workplace is optimized for better user convenience.

“S+ Engineering provides an innovative approach to engineering, based on seamless data exchange between the integrated tools”

Navigation options are available, designed in accordance with advanced ergonomics principles. In an integrated system, all relevant information are presented in a way that offers the best possible benefit. S+ Engineering provides an innovative approach to engineering, based on single front-end for all system engineering tools, consistent checking of the system design, single-point entry of data and the simple reuse of this data, and seamless data exchange.

S+ Control CI850 IEC 61850 module, the latest addition to the Symphony Plus family of controllers, provides connection between Symphony Plus controllers and IEDs, thus allowing easy integration of elements such as bay control and generator protection units.

Each device’s resident information can then be used in control strategies and higher level applications.

Integrated PCS offers a multitude of benefits throughout the system life cycle from design and engineering to operation and maintenance and future extensions.

A common database can be used simultaneously by operators, maintenance and service personnel, as well as by plant engineers. Condition-based and predictive maintenance activities can be scheduled simply by connecting the PCS to higherlevel enterprise systems and maintenance management systems, thus preventing unexpected and costly downtime.

To learn more about ABB’s electrical integration, contact your local ABB office or visit www.abb.com/powergeneration.

ANALYSIS: asia’s energy Shortage

Asia: importer or exporter?

Where will Asia find its 436 nuclear power plants by 2035?

With 41% of global energy consumed within the region, Asia is torn between going hard and going home amid an impending shortage in primary energy.

I

t is received wisdom that the global economy, and Asia in particular, will consume more energy in the future – either that or widely accepted notions of future GDP growth are very wide of the mark.

Essentially, for all the trappings of modern day society, we are little more than cavemen with iPads when it comes to energy technology; we dig stuff out of the ground and then basically set fire to it to meet 87% of our global primary energy consumption.

At the regional level Asia and Europe are short energy, whilst the Middle East and FSU are long, leading to the huge trans-global trade in primary energy that we see today.

Eight of the world’s top energy exporting nations are either Russia or an OPEC member country. This should give some cause for concern – Russia is more militarily active today than at any time post-cold war (i.e. the last 25 years) and lest anyone forget, OPEC is a cartel specifically in existence to ‘manage’ oil prices.

Coal stays king There is much talk of reducing dependence on coal, and this is 36 ASIAN POWER

Coal will indeed lose some share of Asian primary energy production but will still be utterly dominant, with ~60% of the mix by 2025 versus 68% in 2013.

often interpreted to imply that coal consumption will stall or even fall. It is a fantasy in our view.

The energy balance numbers come nowhere near to working unless a large increase in production of still plentiful coal reserves is assumed – and even then we still see Asia becoming increasingly short energy. That’s the brutal reality in Asia and the sooner everyone moves on to thinking about how that coal can be used in as ‘clean’ a way as possible, the better for all!

Coal will indeed lose some share of Asian primary energy production but will still be utterly dominant, with ~60% of the mix by 2025 versus 68% in 2013.

Nuclear will be the biggest production share gainer, from 2% to nearly 6% on the back of China new capacity growth and an assumed partial restart in Japan.

The net result is that even with arguably aggressive China coal and Japan nuclear primary energy production baked into our base case, implied Asia net energy imports will still rise materially by 2025, by 53%. In this base case Asia Pacific’s energy import dependency will rise from 24% in 2013 to 26%.

The hope would be that our ‘High efficiency’ scenario could somehow

come to pass, in which case Asia net energy imports would fall materially from 2013 levels –however, this requires aggressive energy efficiency improvement assumptions and major policy changes throughout the region (zero subsidies for a start) that whilst not impossible, are nonetheless firmly in the ‘blue sky’ bucket at this point in time.

China’s imports to rise the most in absolute terms but Indonesia, Vietnam and Thailand will see the most increases in import dependency. China of course dominates the overall numbers when we look at the absolute increase in future energy imports. However, if we think about the stress associated with seeing a big change in import dependency, that stress can be just as big for a small country as for a larger one. Indonesia, Vietnam and Thailand arguably all face more of a challenge than China.

A big increase in energy import cost is perhaps acceptable if you can afford it – i.e. if your GDP is growing fast enough.

China appears relatively stable at ~5% of GDP, as does Japan, and we forecast both to actually incur lower percentage costs on this basis in the future. Indonesia, Thailand and Vietnam, however, all have a materially higher energy cost headwind to GDP by 2025 than today (in Indonesia’s case it is actually less of an export surplus but the end result is the same).

Asia’s world domination With 41% of global energy consumed within the region in 2013, Asia is the largest consuming regional by far, with North America some way behind with ‘only’ 22%.

Looking at the top ten energy consuming countries, Asia’s dominance starts to be explained; China is the most energy-hungry nation on the planet and is joined in the top ten global consumers by fellow Asian nations India, Japan and South Korea. The difference between the major consumers and the rest is stark – of the world’s ~195 countries (apparently this number is subject to debate…), the largest ten consumers account for 2/3 of all global energy consumption.

‘Efficiency’ is usually considered a good thing, and that probably is even more true when it comes to energy consumption, given that the vast proportion of the fuel we burn today is finite, no matter the success the world has had over the last 100 years in growing fossil fuel reserves.

We consider efficiency by looking at energy consumed per unit of GDP generated, i.e. ‘energy intensity’ or kgoe/US$k.

Europe currently sets the regional energy intensity gold standard, consuming only 114kgoe per US$k of GDP generated. Demand side efficiencies

ANALYSIS: asia’s energy Shortage as a result of it being short energy for decades and a relatively large contribution to GDP from the service sector help.

Asia is the only region that has seen rising energy intensity over the last ten years, driven up by China and to a lesser extent Vietnam and Thai relatively energy intensive growth.The FSU (Russia, Kazakhstan, Azerbaijan etc.) has more than halved since peak inefficiency levels post-Soviet break-up in 1995, however the region is still relatively wasteful in its use of energy; 735kgoe/US$k GDP in 2013 is 67% higher than the next most inefficient region – the Middle East.

Japan has consistently been the most efficient user of energy in producing GDP for at least the last 30 years, with France and Germany very close behind. The US is 50% higher than Japan but is still relatively energy efficient in global terms.

China and Russia have both delivered significant efficiency improvements over the last 20 years but from the worst levels of any nation globally.

They are still by far the most inefficient users of energy in the top ten global energy consumers. In China this reflects the manufacturingbiased economy whereas in Russia it’s more a case of a country that has plentiful fossil fuel resource.

Asia is not just the biggest energy consumer, it is also the largest producing region, accounting for 31% of global primary energy supply in 2013.

It’s a fossil fuel world ‘Fossil fuels’ are utterly dominant in the global energy supply mix, being responsible for 87% of all primary energy consumed. ‘Fossil fuels’ means oil, gas and coal – of which there are large but finite amounts available to us.

The world is roughly balanced in its dependence on oil, gas and coal – each account for ~25-33% of global primary energy consumption. The remainder is where hydro, nuclear and renewable come in – collectively for a mere 13% of global primary energy supply.

The fact that most of the world’s major potential hydro sites are already built upon, and that some major users of nuclear power are reducing their nuclear generation capacity doesn’t suggest the fossil fuel dependence

Where to extract next?

will fall materially any time soon.

The US and Europe have reduced their dependence on coal to below 20% over the last few decades on the back of environmental concerns.

Asia stands out as having a 92% dependence on fossil fuels, a much higher than average dependence on coal and a relatively low relative usage of gas.

Asia is not just the biggest energy consumer, it is also the largest producing region, accounting for 31% of global primary energy supply in 2013. North America was the next largest supplier with 20%.

“Whilst known for its voracious energy appetite and rising oil and gas import dependency, China is nonetheless that world’s single largest producer of primary energy; it alone produces almost 1/5 of the planet’s energy, with coal being the dominant contributor.”

One could be forgiven for concluding that the Middle East just isn’t that important on the global energy supply stage – China, the US and Russia supply 44% of global energy between them whilst Saudi Arabia, which is the largest Middle East and OPEC oil producer by far, supplies a mere 5%. So why bother getting excited about any instability in the Middle East? The answer lies with its share of global net exports of energy.

Japan, China and the US are ‘shortest’ in terms of absolute levels of primary energy, followed by South Korea and India. Russia is the world’s largest exporter of primary energy by far, which adds a level of complexity to calls for yet more Ukraine-related sanctions; isolating Russia’s energy exports would be the same as losing 1.5x Saudi Arabia’s. It seems unlikely that can happen without disruption to most of the world’s economies.

Saudi Arabia is the next most important energy exporter, and is joined by its OPEC colleagues Qatar, Kuwait, UAE, Venezuela and Iran in being major energy exporters that we all depend upon.

Reserves – a great magic trick The ‘fossil fuels’ that dominate the global energy supply picture are oil, gas and coal. This fuel is essentially dead bugs and trees and the odd dinosaur, which conveniently for us captured and stored energy when they were alive that ultimately came from the sun (so when you drive your car it is already using solar power, somewhat indirectly – no need to buy a Tesla!). Given that we can’t wait 100 million years for more fossil fuels to be created, they are ‘finite’; there’s only so much in the ground for us to scoop up and once we’ve done that it’s all

Total Asia energy net (imports)/exports, base case

Primary energy consumption breakdown by country, 2013

Source: BP Statistical Review 2013, Macquarie Research, October 2014

Source: 2014 BP Statistical Review, Macquarie Research, October 2014 ASIAN POWER 37

ANALYSIS: asia’s energy Shortage Asia Pacific will need to import 641 mtoe (53%) more energy than today by 2025 – that’s equivalent to 430 new nuclear 1GW power plants.

Asia’s energy tightness will inexorably rise

over, or so conventional wisdom goes.

Conventional wisdom and intuition gets you to the wrong conclusion in this case, or at least has done over the last 100 years. Despite incessantly rising production of the three main fossil fuels, reserves keep on growing.

How is this apparent magic trick achieved? No new dinosaurs are dying as far as we are aware, so where does all the new oil, gas and coal come from?

The answer can be made to sound complicated entire books have been written just on what the word ’reserves’ means and before you know it the authors are throwing terms such as ‘Monte Carlo probabilistic distributions’ at you.

We distil it all down to: There are vast amounts of fossil fuels left in the earth, only a relatively small portion can be extracted at current market prices using currently available technology, as exploration continues so more underground fossil fuel deposits are found, but this is a relatively minor part of ‘reserves’ increase over the last 20 years.

As the market price of energy rises and as technology and/or process improvements are made, so more quantities of fuel long known to be lying in the ground become economically viable – i.e. qualify for the term ‘reserves’.

There have been some large discoveries (e.g. West Africa deepwater and subsalt, deepwater Brazil) but by far the biggest contributor to new oil ‘reserves’ is simply being able to justify investing additional capex to either, 1) extract more from fields that are already producing or, 2) from being able to develop known hydrocarbon accumulations that were previously uneconomic (e.g. US shale gas and shale oil).

38 ASIAN POWER

An intuitively useful way of quantifying reserves is to look at how many years life is left, as in. By ‘life’ we mean the number of years the current reserve estimate can last at current production rates.

Even on this metric known oil and gas reserves have been flat at near 50 years life for decades, and coal, despite a massive upsurge in Chinese demand over the last 15 years, has seen a rising life since 2007 to almost 150 years.

Since 2008 global fossil fuel reserve life has risen by a few years to 63 years despite rising oil, gas and coal consumption, as all three reserve estimates have been upgraded, mainly on investment decisions by the owners into already well known accumulations.

The regional reserves split – the haves and have nots. Regionally there is a huge difference in scale of fossil fuel reserves.

Europe looks to have the largest reserves of any region but it is almost entirely costly to extract, lower quality coal.

The Middle East’s luck in being blessed with tens of millions of tons of dead algae 100 million years or so ago is clear, with its oil and gas remaining reserve estimates dwarfing all other regions.

Looking for 430 nuclear plants Asia Pacific will need to import 641 mtoe (53%) more energy than today by 2025 – that’s equivalent to 430 new nuclear 1GW power plants.

As to where will Asia source its future energy import needs from, there seems to be plenty of potential options: the US is long gas and becoming less short oil, so displacing oil imports.

Canada is very long oil and potentially shale gas. Venezuela is very long oil.

PetroChina, CNOOC and Sinopec all

have positions in Canada upstream and the Chinese government has long-term oil supply deals with Venezuela that can provide a platform for China SOE further involvement.

Additionally, Turkmenistan and Kazakhstan are very long gas and already have substantial China oil SOE investments. We expect this to increase yet further. The Middle East is increasingly being shunned by IOC’s that see less risky returns available back in North America. Iraq and Iran have issues today but that doesn’t impact geology – the oil will still be flowing 50-100 years from now, and China can take a long term view.

Large scale gas discoveries offshore Tanzania and Mozambique have huge remaining LNG potential development upside. Russia is very long gas and oil and a new era of more constructive Sino-Russian relations have been ushered in by this year’s gas supply deal and a general post Ukraine/Georgia deterioration in Russian relations with the US and Europe. Absolute changes in imports are important but it is also informative to look at the import dependencies, i.e. what percentage of a country’s energy consumption will have to be met by imports and how this will evolve over the next ten years.

China gets the headlines but actually it is one of the least import-dependent nations in the region, importing only 15% of its energy needs in 2013 and a still relatively low 20% by 2025 in our base scenario. Of more interest is Indonesia, which although stays a net exporter, sees its production excess over consumption plummet by ~50%, with likely associated challenges for its budget and economy.

Vietnam is at a pivotal inflexion point, likely switching from a net energy exporter to net importer over our forecast period. Thailand is next most at risk of material changes that may be challenging to adjust to, with a near 15% adverse change in its import dependency looming in its base case.

by James Hubbard, Macquarie Research

Change in regional energy demand 2013 vs 2025e

Source: BP Statistical Review 2013, Macquarie Research, October 2014

ANALYSIS: China’s ipps

Where will China’s coal miners go?

Rerating China’s independent power producers 2.0: How ash can become cash

As coal continues to cool down, power companies and coal producers find themselves scrambling for profits.

I

n China, the coal-to-power cycle has come a long way with rapid power capacity expansion driving coal prices stronger in the last 10 years. For the last two decades the coal-to-power sector in China has mostly favoured value creation for upstream coal mining companies while downstream power companies have been busy meeting national targets on power generation.

This has resulted in sub-par profitability for power companies vs. coal producers and debt-ridden balance sheets.

Current policy focus in China on orderly cooling down of economic growth and re-balancing of the energy mix in favour of renewable energy will likely ease out the aggressive push on IPP capacity addition while the outlook for coal prices could remain subdued in the medium term.

Decisive and favourable cycle shift Most of the largest IPPs in China are state-owned companies that have operated effectively under a government mandate for capacity expansion. This was reflected in a quadrupling of the IPP sector installed capacity since 2001 despite having a scale of 250GW as a starting base. The intensity of growth is better reflected when we look at the 40 ASIAN POWER

“The expansion phase was a cash deficit period, with net debt increasing

by RMB420bn and only 5% of the cash generated was allocated for shareholder returns.”

fact that China already had an installed capacity equivalent to that of Japan’s current capacity and that the capacity addition in 2008 alone exceeded the total installed capacity of Brazil.

The cyclical position of the China IPP sector has turned positive since 2013 and should strengthen further in the next five years. A subdued outlook for coal prices and the potential for a substantial increase in FCF are two basic drivers of our positive view on the China IPP sector. We expect FCF for the five companies under coverage to improve to RMB300bn between 2013 and 2018E, which is higher than the current total market cap of these companies. Further conviction is driven by the fact that we have already factored in two additional tariff cuts in 2015 and 2016, excluding which the FCF generation could be even higher than our base case estimates.

For the IPP companies, the expansion phase was a cash deficit period, with net debt increasing by RMB420bn and only 5% of the cash generated was allocated for shareholder returns (which was offset by multiple capital raisings during that time). We expect IPPs to generate a cash surplus of RMB137bn between 2013 and 2020E, even after distributing a three times higher dividend than was

distributed between 2006 and 2012.

Sustainable improvement in profitability is a key driver for improving FCF of the China IPPs. We also expect to see a slowing of capex spend cycle, but it is really the increased operating cash flows that are the key driver. We expect operating cash flows to triple between 2013 and 2020E compared to operating cash flows between 2006 and 2012.

As the profitability improves and cash flow starts to strengthen for IPPs in China, higher dividend payment is the closest way for management to reward shareholders (although the IPPs are majority owned by the government).

We expect total dividend payments from the five IPP companies under our coverage to increase three-fold between 2013 and 2020E compared to dividend payments made between 2006 and 2012. A total dividend payment of RMB100bn over 2013-2020E compared to RMB37bn paid by the IPP companies in the previous cycle.

In the near term, we expect 2014 dividend payments for the five IPP companies under our coverage to double y/y, implying a sector average dividend yield of 4.7%. In the context of dividend payments by global utility companies, China IPPs are once again likely to

ANALYSIS: China’s ipps standout on dividends based on our 2015 estimates, implying a dividend yield of 5.3%, while most other markets are likely to have lower dividend yields.

Valuation stage set Attractive valuation is one of the key drivers of our positive view on the thermal power sector in China, which is based on our view that earnings recovery will continue in 2014 and that sustainability of earnings will be established in 2015 and 2016.

Sustainability of earnings has been a key concern for investors, as reflected in a flattish performance since May 2013, although consensus earnings have continued to see upward revisions by 25% since May 2013 driven by lower coal prices. We believe the latest shift in the coal-to-power cycle could be decisively in favour of power companies as the peak of thermal capacity addition growth rate in China appears behind us, while the coal sector is still reeling under a situation of acute overcapacity that we believe could take 3-4 years to normalise.

From a valuation standpoint, we expect two major positives to emerge in the next 12 months: 1) a valuation re-rating back to the historical average and 2) EV rebalancing story tailwind.

With China’s thermal power sector trading at its lowest valuation vs. global peers for the past five years, the focus of global investors is likely to shift to China thermal power stocks. With all these positives emerging as tangible positive catalysts, earnings sustainability is likely to remain the key driver of a sector re-rating and stock performance.

The utility sector globally is generally seen as a steady state cash flow sector with relatively higher earnings visibility. The key reason for this visibility is the business model, which is either based on regulated

return basis or set free to operate on market dynamics. The grand transition of the business model in China from a regulated one to a free market model has temporarily resulted in a hybrid model for the power sector, where raw materials as the main cost component are sourced at spot prices, while revenue set by on-grid tariffs are still decided by the government. This has brought an element of uncertainty to the earnings visibility for thermal power companies, in our view.

This uncertainty is reflected in sector valuations for China IPPs, currently trading at th elowest compared to the global utility sector valuations. While pending power sector reform could be used as a reason to justify the lower valuation, we highlight that a threefold upwards revision in earnings since 2011, improving visibility on long-term sustainability, and strong free cash flows make the China IPP sector difficult to ignore. The recently announced tariff cut in September 2014 has removed the uncertainty with regard to the magnitude of the cut and in fact we already factor in further cuts to our forecasts – both increasing our confidence on strengthening momentum for a sector re-rating in the next 12-18 months.

Changing power market dynamics China is by far the world’s largest power market with an installed capacity of 1250GW by the end of 2013. Its growth in installed capacity has been rapid and has grown in sync with economic growth over the last two decades. China added over 1100GW of capacity in the last two decades, averaging 50GW of addition every year (80-90GW per year in the last ten years), which is equal to building Australia’s entire installed capacity every year. While the country still has plans to continue adding between 75-100GW per

“Per capita consumption in China could surpass 4000 kWh/annum by the end of 2014 and 5000 kWh/annum by the end of this decade.”

year for the next 5-10 years, the growth rate is likely to slow due to a high base.

Coal fired power generation has been a dominant source of power globally ever since the power usage became commercialised. The significance of coal power was even more pronounced at the early stages of economic growth of large countries in the 20th Century.

However, transitional characteristics of the power market across the world have been unfavourable to thermal power at the later stage of economic growth. At the initial stage of economic growth (especially for industrialised economies), coal power is mostly at the centre of government planning, followed by a plateau during the growth saturation phase and then a decline in the growth moderation phase.

The China economy is also transitioning towards a growth moderation phase, which we believe will likely see a deceleration in growth of coal power, while other modes of renewable power should see rapid growth. This is reflected in the broad policy intent of the Chinese government and has also been reflected in power generation. The proportion of thermal power in the overall generation mix has fallen from about 85% to 80% in the past decade, and we expect it will come down further to 75% by the end of this decade. While the proportion of thermal power to overall is expected to decline, this by no means implies that absolute generation will decline. In fact, we expect thermal power generation to continue growing, albeit at a rate slower than overall generation growth.

The story and pattern of power consumption in China differs from other large world economies. We expect the per capita consumption in China to surpass 4000 kWh/annum by the end of 2014 and 5000 kWh/annum by the end of this decade. While this is likely to be significantly below the average per capita consumption level of developed economies, industrial per capita consumption in China has already

Coal IPP capacity addition in China (GW)

What should we expect as power shifts dynamics?

Source: Wind, CEIC, Barclays Research

ASIAN POWER 41

ANALYSIS: China’s ipps surpassed some developed economies, but residential per capita consumption lags significantly compared to developed or even a few developing countries.

The Bloomberg consensus is that overall power consumption in China will continue to grow but the magnitude of growth has a large spread. Most estimates point to Chinese power consumption saturating at current levels and failing to reach to the levels of developed countries. Our view in that context is slightly different. We believe overall power consumption should continue to grow in China, although the drivers of that growth will change. Industrial consumption has been at the forefront of power consumption growth over the last 2-3 decades, which we believe will see slowest growth in next 10-15 years, while growth in commercial and residential consumption should accelerate.

Power generators are the single biggest customers for coal miners and coal is the single biggest item of cost for thermal power companies. This makes power generators and thermal power companies interdependent and calling them a big cluster of operations in the coal-to-power value chain would not be an overstatement, in our view.

Developed countries like the US and Japan have adopted a market based framework for both coal and power, while countries like India have a heavily regulated framework for both coal and power. China has adopted a hybrid framework in which coal prices have been gradually liberalised from regulated to market based while power prices are still determined by the government.

Coal price: Value transfer Cyclical movements in the profitability of coal IPP companies in China are greatly influenced by coal prices, in our view.

The business model adopted by China as a country is the prime basis for that, in our view, with market driven coal pricing for power companies. Transition from annual contract pricing to almost spot based coal pricing in the last 2-3 years and a lack of corresponding power pricing reform has meant higher influence of coal prices on coal IPP profitability.

If we were to look at coal mining and power generation as one cluster, then individual share in the profitability pool would largely be determined by coal prices because coal mining costs are less elastic to shorter term cycles than coal price itself, while changes in power prices just alter the size of overall pooled profitability. This profit pooling favoured coal miners between 2003 and 2010, when rapid capacity expansion by power companies led to a demand spurt for coal, while follow up expansion by miners 42 ASIAN POWER

coupled with slowing expansion by IPPs has gradually re-balanced the pooling in favour of power companies since 2011.

A higher economic growth rate for China in the past two decades has fuelled industrialisation in the country, which had a consequential impact on its energy needs. Until 2002, the country was adding power capacity at a steady pace of 15-20GW per year. However, a pickup in infrastructure investment driven economic growth and the government’s push to increase self sufficiency for processed industrial commodities has increased the energy intensity of China’s growth. Coal being a quick and economic source of power supply was given precedence to fulfil growing energy needs, as evident in annual capacity addition increase to over 100GW in 2006.

While total capacity addition in China continues to grow by between 90-100GW a year, coal fired power plants have taken a back seat with renewable energy being the key priority for the country.

This is reflected in the share of coal in total capacity addition falling to c40% in 2013, while hydro and wind power have seen an increasing proportion.

Slowing thermal capacity addition should get reflected in the power generation mix with a lag of 1 to 2 years. Despite this lag effect, strong hydro power capacity addition has largely been a key driver for the declining proportion of coal power generation in the overall generation mix of China over the last 5-6 years.

Commissioning and ramp up of power plants built in that period has diluted the overall utilisation hours to below 5000 since 2008. So even if capacity addition were to stay lower, any incremental demand for power could be met by better capacity utilisation from existing power plants.

Higher utilisation is generally thought to be a positive for coal demand; however we note that most of the older power plants were set up at the coal pit head and have access to captive coal. So even if these plants with captive coal were to increase capacity utilisation, spot coal markets are unlikely to see greater strain driving the prices materially higher.

Despite being the coal capital of the world, China has been a net importer of coal over the last 5-6 years and has been one of the key swing buyers, thus making it a key driver for seaborne coal prices as well. Chinese imports are not restricted to thermal coal and includes steel making coal. However, China is only a swing buyer of thermal coal rather than a base load buyer. Key reasons for Chinese demand for seaborne coal is pricing arbitrage, which is used by its coastal power plants to minimise their

Utilisation for coal IPPs has also slowed in the last five years

Source: Wind, CEIC, Barclays Research

China IPPs under coverage expected to turn cash positive between 2013 and 2020E

Source: Company data, Barclays Research

“China implies that there is overcapacity of about 300 million tonnes, which could be brought online should coal prices recover.”

cost of coal procured. China has its own domestic coastal market, which competes head to head with the seaborne coal.

The peak rate of coal production in China implies that there is overcapacity of about 300 million tonnes, which could be brought online should coal prices recover. This capacity is more than enough to feed about 100-125GW of coal IPP capacity, hence would likely work as a cap on any material movement in coal prices on the upside.

In addition to the implied 300 million tonnes of excess capacity, coal inventory at two of the major constituents of coal value chain, i.e. coal mine and power plants, have over 140-150 million tonnes of system inventory lying in their backyard. While this entire inventory is not the excess, we estimate that a significant proportion is just stockpiling. Assuming c50% of this is excess inventory, this could be enough to feed 25-30GW of power capacity.

With the confluence of slowing capacity additions, lower utilisation rates, excess capacity in coal mining, and higher system inventories, we do not see the fundamentals of the coal power value chain turning in favour of coal miners, leading us to believe that the pricing outlook for coal is likely to remain subdued until overcapacity and excess inventory are filtered through the supply chain. by Ephrem Ravi, Barclays Research

ASIAN POWER 43

OPINION

DEBAJIT DAS

Powering Asia’s next 100 million

BY Debajit Das Regional Director Aggreko

between governments and companies, who together must identify the optimal combination of long-term, strategic planning and immediate, tactical responses.

Their approach will centre on: • Driving greater collaboration between countries • Addressing policy challenges • Bridging the power gap through temporary power

Pushing for higher electrification levels

44 ASIAN POWER

O

ver one-fifth of Southeast Asia’s 600 million people do not have access to electricity. This lack of readily-accessible power means basic needs go unfulfilled and long-term quality of life remains low, with business productivity hindered in markets expected to drive the region’s continued economic growth.

As a result, companies and governments are realising the urgency in addressing shortfalls, taking positive steps toward powering Southeast Asia’s next 100 million people.

Efforts to drive higher electrification levels have already shown benefits across the region, playing a vital role in improving health and reducing poverty in key markets.

Grid electrification has increased household incomes by at least 25 percent in Vietnam while rural electrification investment in Thailand has had a greater positive effect on poverty than any other form of public investment.

Increased electricity levels have also driven increased business performance, with reliable power access facilitating large-scale technical efficiency for firms in Indonesia. Despite these proven advantages, a regional power gap persists due to a range of variables that include changeable political circumstance, ageing infrastructure and hefty investment requirements. While improvements are being made, countries like Cambodia and Myanmar still suffer from electrification rates of just 34 percent and 49 percent respectively.

The regional power picture, therefore, is characterised by varied long and short-term requirements across markets. This makes a definitive, one-size-fits-all approach impossible.

Solutions will depend on continued cooperation

Regional cooperation is already increasing, with thirteen new interconnections between countries’ power grids expected over the next decade. This drives enhanced reliability – particularly in locations far from potential suppliers – and lowers costs by allowing markets to take advantage of the cheapest resources and sharing reserve margins where possible.

Grid integration of this nature is a central objective under the ASEAN Plan of Action on Energy Cooperation for 2010-2015, and will continue to optimise available supplies on a more regional and collective basis.

Countries are also addressing policies that have created market distortions, such as fossil-fuel subsidies. Contrary to the intended goal of providing economically-viable energy supplies, these subsidies have created false pricing perceptions, deterred investment, and hampered renewables efforts.

By decreasing the dependence on such subsidies, utilities will have greater access to capital for modern infrastructure and efficient technologies.

Other policy development examples include Thailand’s plan to drive nuclear-powered electricity before 2030 and the adoption of renewables capacity and generation targets by most ASEAN countries.

Indonesia, Malaysia, the Philippines, and Thailand also have financial support measures in place to accelerate renewables development.

Temporary power is also playing a vital role in eliminating immediate-term power challenges to help markets meet long-term goals. This flexible solution remedies erratic supply and reinforces inadequate grid capacity.

In addition, it delivers power to remote areas that lack easy access to electricity grids, within rapid timeframes not possible by more permanent solutions, allowing results of benefiting communities to make an impact promptly. This is particularly important in the context of Southeast Asia, where 80 percent of all people without electricity access happen to reside in lowdensity rural areas.

These measures have already helped to deliver electricity access to an additional 60 million people since 2002. Indonesia, Vietnam, Laos, and Cambodia have all significantly increased their own electricity access rates, while other markets have set ambitious but achievable access targets.

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OPINION

ARTHUR MITCHELL

Will there be a continued boom or bust for Japanese renewables?

Just when is there too much solar?

46 ASIAN POWER

W

hen Japan instituted the Renewable Energy Act (REA) in 2012, the stated policy was to encourage the development of renewable energy but to avoid the ‘boom and bust’ cycles seen in other countries. Looking back, there is no question that the government created a booming market; particularly in solar. It is now reasonable to ask whether we are about to see a bust.

According to figures from the Ministry of Economy, Trade and Industry (METI), 11 GW of new renewable energy, or about 4% of the entire installed capacity, was installed in the first two years of the program. During the same period, METI approved 71 GW of renewable energy, or about 25% of the total electric supply. Most of the approved projects involved PV solar, but it is widely acknowledged that many of the projects that have not already commenced construction will never be built.

METI, the government regulator, initiated the program with very limited eligibility requirements and generous feed-in tariffs (FIT), thereby creating an unexpected market boom.

The utilities, senior politicians, and some bureaucrats now think that too much interest has been focused on

BY ARTHUR MITCHELL Senior Counselor White & Case LLP

solar and they would like to shift attention to wind and geothermal.

In reality, METI has gradually tightened the regulations on solar by requiring that sites be secured and panels placed on order prior to issuance of the FIT. It has also imposed a rule that projects must be completed within 180 days of the issuance of the FIT approval, and has begun to cancel authorizations for projects that are not likely to be completed.

On the whole, this is probably a good market clearing exercise which will allow the remaining grid capacity to be used by developers who have the actual capability to supply power; however it is not being done in a transparent way.

Five utilities have announced that they will no longer accept applications for new solar deals by arguing that they will reach grid capacity limits for renewables if all of the approved projects come online. METI has announced that it is doing a top to bottom review of the program and will propose amendments to the REA in 2015, if necessary.

Recently, METI has also decided to halt new applications for solar and any plans to expand existing projects. Importantly, however, there is no suggestion that the 20-year effective period of the FIT will be affected or that projects which have already received confirmation of grid access from the utility will be cancelled.

METI is conferring with an outside committee of industry experts about how to reform the program so that renewables can play an important and sustained role in Japan’s energy mix.

METI has also floated a number of proposals in the press, all of which have the purpose of restraining the pace at which solar resources are entering the system. Some of these projects are as follows: applying quantitative caps on solar projects; moving the effective date of the FIT back to the project’s commercial operation date rather than the date on which the paperwork is completed; adjusting the FIT every six months rather than once per year; extending the curtailment period (during which the utility can refuse to take solar power without compensation) beyond the current 30 day period; and introducing a ‘bidding system’ whereby project developers would propose a tariff to the utility.

So far, the abovementioned ideas are only under discussion, and it is expected that some clarity will emerge by the end of this year. Similar proposals have been advanced and even adopted in other countries, but it is hoped that Japan will weed out speculators who cannot deliver by imposing reasonable qualitative standards or eligibility requirements, rather than creating uncertainties which will make project financing even more difficult. Some of the proposals, if adopted, could do just that.

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OPINION

JOHN GOSS

A visionary energy strategy for China

john.goss@ceejay.com.hk

A

completely revamped energy strategy for China, that serves to highlight innovative and cleaner energy sources and calls for a transformation of the country’s industries, has been outlined by China’s leading think tank.

In a recent article in The People’s Daily, the flagship newspaper of the Communist Party of China, titled ‘Foreseeing and Analyzing China’s Future Energy Development’, the Head of the Development Research Centre of the State Council, Li Wei, said that China must aim to transform itself into a country of security, greenery and efficiency by 2030.

Li said that a failure to transform the country’s energy sources may see China facing erratic energy supplies and insurmountable environmental challenges.

This hard-hitting article was based on two years of continued research, led by China’s Development Research Centre of the State Council and supported by a large team of experts from many global and Chinese contributors, including Harvard University, Royal Dutch Shell, China’s Tsinghua University, and many others.

This informative article said that the rapid growth of China’s energy demands will slow down significantly due to the cooling down of its economy.

On the other hand, the country will experience a much higher dependence on oil and gas as its dependence on coal decreases. This situation will mean that China’s dependence on imports of natural gas from overseas suppliers will rise rapidly.

The report went on to warn that this ever-increasing dependence on imports of natural gas from foreign suppliers will create serious energy security concerns. Li Wei was previously a senior official of China’s highly influential State Council. During his time at the State Council he positioned energy security in a much wider global and Chinese perspective.

There seems to be a general consensus in the energy industry that, by 2030, global energy supplies will remain consistent whilst the demands for energy will keep growing.

This growth will be driven by the need for cleaner energy, plus the energy needs of the emerging economies’ rapid pace of industrialization.

A new Five-Year Plan for renewable energy in China The 13th Five-Year Plan (2016-2020) for China’s energy sector will raise wind and solar power targets and expand energy exploration in offshore regions. A senior official in China’s National Energy Administration (NEA) says that China will increase offshore exploration for oil and gas, and will raise the output targets of renewable power sources; especially wind and solar power.

The Deputy Head of the NEA’s planning department, He Yongjian, says that China will be increasing its offshore oil and gas activities in the Bohai Sea, the East China Sea and the northern part of the South China Sea. He was speaking at a recent energy forum in China, according to a report in the China Daily newspaper.

The Chinese government and energy authorities will be focusing on raising the country’s energy output, improving its energy supply structure and accelerating the nation’s development and 48 ASIAN POWER

utilization of renewable energy resources. China will establish five energy production centres: Shanxi province, Ordos Basin, eastern Inner Mongolia, Southwestern China and the Xinjiang Uygur autonomous region.

The country will also be establishing a nuclear power development belt in Eastern China and an offshore energy exploration belt along the coast. The total installed capacity of wind power will reach 200 million kilowatts by 2020. T This wind power total will double the 12th Five-Year Plan figure and the solar power resources will be quintupled to more than 100 million.

He adds that 53 million kilowatts of nuclear power installation capacity are expected to be in operation by 2020. Energy consumption controls will continue to be the major task during the new 13th Five-Year Plan’s period. It is forecast that national energy consumption will have reached 4.8 million metric tons of coal by 2020.

The government will be continuing to increase China’s supplies of natural gas to replace coal consumption in coming years. The Chayandin and Kovyktin gas fields in Eastern Siberia will become major sources of natural gas supply to China in 2018.

With the 13th Five-Year Plan for energy development across China about to be implemented, together with all of the other recently announced developments in renewable power and natural gas-fired power plants, it seems that the Chinese government is on the right track.

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