Asian Power

ISSUE 61 | DISPLAY TO 28 FEB 2014 | www.asian-power.com | A Charlton Media Group publication

US$360P.A.

myanmar’s POWER PAUSE after 50 YEARS IN THE HEART OF DARKNESS, CAN THE COUNTRY GET 2,500 VILLAGES BACK ONTO THE GRID?

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U Ken Tun

Chief Executive Officer Parami Energy

MICA(P) 248/07/2011

Country Report Myanmar emerges from the dark

analysis India’s new solar policies daunt investors

case study South Korea’s first IPP continues its track of innovation

OPINION Achieving competitiveness in the solar industry

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FROM THE EDITOR Much has been said about Myanmar’s potential to become one of Asia’s rising business hubs as it opens its economy to foreign investors. From tourism to agriculture, telco, education and health, Myanmar is seen to paint a promising picture. But with frequent outages plaguing even its capital Yangon, the energy sector is feared to be a major hindrance for business growth and development.

Publisher & EDITOR-IN-CHIEF Tim Charlton ASSOCIATE PUBLISHER Laarni Salazar-Navida Art Director Jonn Martin Herman Editorial Assistant Queenie Chan Editorial Assistant Alex Wong ADVERTISING CONTACTS Laarni Salazar-Navida lanie@charltonmediamail.com

In this issue, Asian Power brings you an assessment of Myanmar’s energy sector. Our channel checks revealed that that there is indeed much to be done, especially that only a quarter of the country’s population currently has access to a regular supply of electricity.

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While Myanmar is endowed with abundant energy resources, many of which go beyond oil and gas to renewable alternatives like hydro, biomass, wind and solar, investors remain wary over the government’s capability to put its grand plans into motion. Foreign investors lured by the lucrative projects in Myanmar’s power industry are meanwhile advised to do so with a critical eye, especially on four important factors tax policies, lender security, lack of gas fields, and project financing.

To get a brighter picture of Myanmar’s power potential, Asian Power also caught up with one of the leaders in the industry - the Parami Energy. Its CEO U Ken Tun believes that fears of foreign investors over Myanmar’s power sector are overstated. He bets on Myanmar so much that he believes it could transform into a virtual breadbasket with government policies geared at developing the sector in place.

This issue is also filled with stories about China power. Flip through the pages and find an interesting discussion about the sector’s possible slowdown in 2014 through 2020 after years of unprecedented rapid growth. With weakening demand and a pressure to reduce water consumption, where is China’s power sector finding hope? Are China’s solar PV projects offering brighter prospects?

Enjoy the issue!

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ASIAN POWER 3

CONTENTS

Electricity shortages 08 FIRST plague the Philippines

REPORT 16 COUNTRY Myanmar emerges from the dark

12 FIRST check out why Japan’s photovoltaic market is set to boom in 2020

FIRST 08 CLP unfazed by tighter regulation 09 China power generation to slow 09 The Chartist: China’s power utilization 10 China loosens tariff regime

OPINION 30 JOHN GOSS: Increasing demands drive

China’s natural gas industries

FEATURE 14 India’s new solar policies daunt investors 22 case study: South Korea’s first IPP continues its

10 SGX powers up Asia’s first electricity futures market

track record of innovation

10 Indonesia’s 100 MW small scale hydropower plants

24 China’s solar PV market moves towards supply-demand equilibrium

12 Malaysia’s power generation to grow

less than 5% in 2014

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

4 ASIAN POWER

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

REGULATION

Asia’s power sector predicted to be stable in 2014 In a release, Moody’s Investors Service says that the overall outlook is stable for the power sector in Asia (ex-Japan) in 2014, mainly because of supportive regulatory policies, which result in stable market structures and low probabilities of adverse adjustments to tariff structures or returns.

However, the Indian power sector remains an outlier. Moody’s outlook for the Indian market is negative in 2014, due to the structural challenges in the entire value chain. The outlook for India’s power sector was also negative in 2013.

6 ASIAN POWER

POWER UTILITY

220 MW gas-based power plant all set to kickoff in India According to a release, GAIL India Ltd has received environmental clearance to build a 220 MW combined cycle gas-based power plant at Raigad in Maharashtra, India.

The cost of the project is expected to be around$16m.

The Environmental Impact Assessment Authority gave the go signal.

GAIL plans to set up the combined cycle gas based power plant within the existing LPG plant boundary. Electricity generated at the plant will be sold to Maharashtra.

POWER UTILITY

China to finance $6.5b nuke power plants in Pakistan According to a report, China has agreed to finance a project to develop two nuclear power plants in Karachi, Pakistan. This deal will enable Pakistan to boost its power capacity by 15 per cent.

“The $6.5bn loan is for the K-2 and K-3 nuclear power plants which began construction last year. Pakistani officials revealed on Wednesday that loans for the project would be provided by state-owned China Exim Bank, in a deal that would be repaid over the next 20 years,” the report said.

FIRST CLP unfazed by tighter regulation

The magnitude of CLP’s future tariff hikes may be reduced with new rule but will not hurt its purse at all. Moody’s Investors Service says that modifications in the Hong Kong government’s interim review of the Scheme of Control Agreement (SoC) released on 21 November will have a minimal financial impact on CLP Holdings (CLPH) and CLP Power HK (CLPP), given the moderate extent of the modifications.

Nevertheless, Moody’s caution that the reduction on the cap for the tariff stabilization fund balance and the change in depreciation period of transmission and distribution assets imply that the government is exploring ways to minimize the size of future tariff hikes. “CLPH will likely face increasing pressure against raising tariffs in the future due to the political and social climate, as was the case with the last tariff hike for 2013,” it said.

The main modifications include (1) setting up an energy efficiency fund totaling approximately HKD100 million, of which CLPP will contribute some HKD70 million on a matching basis over four years to provide subsidies to non-commercial buildings; (2) lowering the cap on the tariff stabilization fund balance to 5% from 8% of the annual total revenue from sales of electricity to Hong Kong consumers; and (3) lengthening the depreciation period of transmission and distribution assets.

Fitch Ratings also does not expect any adverse developments from the changes. “ The SoC is in place until 2018 and allows a permitted return and full operating cost-pass-through. The SoC remains one of the most supportive and transparent regulatory frameworks in Asia. While CLP HK can fully pass through fuel costs under the SoC, corresponding tariff increases from higher gas costs - if too large - could be politically sensitive,” said Fitch analyst Isabelle Katsumata.

Financial profile stability According to Moody’s, the projected size of injection into the energy efficiency fund -comprising an average of HKD17.5 million per year -- is small when compared to the net profit of CLPH of HKD8.3 billion in 2012. So, CLPH and CLPP will have adequate financial cushions to provide financial assistance for improvement works to enhance the energy efficiency of noncommercial buildings.

Furthermore, Moody’s expects there will be estimated cost savings for customers of about HKD350 million over the next five years after a lengthening of the deprecation period for the transmission and distribution assets. Depreciation expenses are one of the items considered in deriving the basic tariff charged by CLPP. Although the magnitude of CLPP’s future tariff hike may be reduced after lengthening of deprecation period for its transmission and distribution assets, Moody’s does not expect a material impact on cash flows from the regulated Hong Kong operation.

8 ASIAN POWER

Typhoon Haiyan-hit areas in the Philippines

Electricity shortages plague the Philippines

T

he worst is not over yet for the Philippines after super typhoon Haiyan wreaked havoc with the power sector suffering heavy damage.

According to Business Monitor International (BMI), the threat of power outages and electricity shortages plagues the Philippines’ energy sector.

The government, meanwhile, warns that the country’s generating capacity would struggle to meet demand if any projects face delays in being implemented, underlining the need for new electricity capacity.

According to Philippines’ Department of Energy, the Visayas grid lost an average of 500-MW a week after the storm wreaked havoc with the non-operation of the Unified Leyte Geothermal Power Plant complex. The field, consists of four major plants is owned by Energy Development Corp (EDC) and accounts for 56% of the company’s overall generating capacity.

Lopez-owned EDC said the following equipment have been rendered inoperable: Cooling towers of the 232-megawatt (MW) Malitbog, 112.5-MW Tongonan and 180-MW Mahanagdong power plants; Part of the cooling system of 130-MW Upper Mahiao power plant; and Control systems of Tongonan, Mahanagdong and Upper Mahiao power plants.

Consequently, none of the main power plants constituting the 650-MW are

The country’s generating capacity would struggle to meet demand if any projects face delays in being implemented.

currently operable, said EDC. Besides the said equipment, Unified Leyte’s small optimization plants -- consisting of the 15-MW Tongonan Topping Cycle and the 16-MW Malitbog Bottoming Cycle -- are undergoing assessment for any damage. BMI noted that while the Philippines had other power priorities prior to the storm, it now has to repair the damage that Haiyan has left behind before it can address those. Other concerns, the research firm added, include delays in payment, with smaller power cooperatives cut off from the grid.

Elsewhere, the last quarter has seen a number of new power projects announced, including thermal and renewable energy investments.

One other key development is the introduction of Retail Competition and Open Access, which came into force in June 2013. BMI said that this should boost competition in the electricity end-user market, help lower prices and generate investment in efficiencies across the country. Manila’s Meralco, however, has gone against the tide, announcing electricity rate increases in November 2013.

Power generation BMI forecasts electricity generation in the Philippines to grow by 3.8% in 2013, to reach 73.0 terawatt hours(TWh). It expects that coal and gas-fired sources of electricity will meet the majority of demand over 10-year forecast period, but it believes new renewables projects will see alternative sources of energy gaining ground.

“Electricity generated by gas-fired power stations will be responsible for the majority of this growth,and natural gas will outperform the market as a whole, climbing by 5.5% over 2013.

Oil-fired power stations will see their contribution to electricity generation decline slightly, by just under 0.1% in 2013.”

Transmission lines and facilities affected by typhoon Haiyan

Source: National Grid Corporation of the Philippines

FIRST We forecast thermal power generation growth to slow to 4% YoY through 2020 due to slowing industrial demand growth.

Barclays forecasts 155GW thermal capacity growth in China

China power generation to slow

C

hina’s power generation data continues to provide bottom up data confirmation that aggregate economic activity has maintained healthy growth on a YoY basis starting from the March 2013 low.

Looking ahead, Maybank’s KimEng believes that the higher comparable year ago data means that YoY growth in electricity generation is likely to slow to 5-7% at year-end, and much lower in Jan 2014 due to the early CNY. China’s power generation increased 10.5% YoY in October,

roughly flat with the 10.3% YoY increase in September, but down from the August hot weather high.

Thermal power generation was quite strong, up 16.1% YoY, followed by nuclear power, up 11.8% YoY. Hydro power generation was down 6.3% YoY due to seasonal factors.

Longer-term forecast According to KimEng analyst Alexander Latzer, longer-term forecast assumes sustainable power generation growth in China materially slows to 6% YoY

through 2020. “We forecast thermal power generation growth to slow to 4% YoY through 2020 due to sweakening industrial demand growth and market share losses to hydro, nuclear, wind, gas, and solar,” he said.

Barclays expects coal fired power to be the “plug” for new power capacity requirement, ie, only being installed when power demand growth cannot be satisfied by other sources of power, as it sees clear directions from the Chinese government to shift power plant mix to cleaner sources.

“We forecast 155GW thermal capacity growth in China over 2013-16, with annual installation declining to 35GW in 2015E/16E vs 51GW in 2012,” said Barclays analyst Yang Song.

“We do not expect to see a material increase in WTG installation in 2013-15E, despite the fact that curtailment for wind generation declined materially from 16% in 2012 to 8.8% during 9M13,” added Song.

China power consumption growth

Source: National energy administration, CLSA, Asia Pacific markets

The Chartist: China’s power utilization Barclays expects thermal power utilization to be 4,957 hours in 2013E, translating to 57% capacity factor, slightly lower than in 2012 and at a level indicating plenty of potential for improvement (or excess capacity) considering the utilization hours figure was well above 5,500 (63% in capacity factor) in 2003-06.

On a positive note, Barclays said that there is an improving trend in wind power utilization during 2013, due to progress made in wind farm connectivity to the grid . For 9M13, WTG utilization hours increased 10% vs 9M12, to 1,522 hours from 1,384 hours, or 2.1ppt expansion in capacity . Barclays doubts on whether WTG installation will see material increase in 2013-15, despite curtailment for wind generation declining materially from 16% in 2012 to 8.8% during 9M13, since it believes the improvement has resulted from: 1) better coal/ wind generation coordination and 2) slower wind capacity growth as wind farm operators focus on profitability rather than scale.

China - thermal power utilization

Source: CEIC, Barclays Research estimates

China - wind power utilization

Source: CEIC, Barclays Research estimates

ASIAN POWER 9

FIRST

China loosens tariff regime

IPP WATCH

Indonesia’s 100 MW small scale hydropower plants

C

hina appears responding to pressures of reforming and liberalizing its tight power tariff regime to attract investors.

Isabelle Katsumata, Fitch’s Singapore-based utilities analyst, said that China is moving towards a more market reflective tariff regime for energy, including electricity. The wholesale electricity tariff for coalfired IPPs has already been revised downwards in October 2013 to reflect the lower coal prices since the last revision about a year ago; ongrid prices for gas fired generation were increased in 2013. This, she said, will trim the profitability of thermal power producers, who have seen improved margins since the last upward tariff revision and low coal prices and hence, future tariff adjustment can likely be more frequent.

Katsumata also notes that the state is also moving to a regime where they are using differential tariffs to end customers - together with provision of subsidies - to encourage cleaner energy and to control polluting industrials plants and capacity of industries with over-capacity. “Subsidies for low Co2 emitting generation (hydro, gas, wind, solar) are likely to be maintained at similar levels to 2013 with minimal volume risk due

Tariff for coal-fired IPPs revised downwards

to priority purchase by the grid companies,” she said.

Gas tariffs in China in 2014 Fitch also expects gas tariffs to continue to increase and such increases to be much broad based relative to the past revisions.

According to Katsumata, the recent increase in city-gate level prices for gas distribution companies was mild and was limited to Commercial and Industrial (C&I) customers.

Fitch, she said, expects future gas price adjustments to impact the residential segment as well. “City gas distributors, such as ENN Holdings Limited and China Resources Gas Group Limited have managed to pass through the recent cost increases to the majority of their customers. However, operators may face pressure on margins in the future as the government further liberalizes, albeit gradually, the gas sector and pricing”.

China is moving towards a more market reflective tariff regime for energy, including electricity.

Power firm TIRASA and international engineering and project management consultancy Royal HaskoningDHV signed a deal in late November with intention to collaborate in developing a total of 100 MW of small scale hydropower plants in Indonesia in the next 5 years. An estimated 350,000 people and 80,000 homes could benefit from these hydropower plants.

Differ Group Report in 2012 stated that Indonesia’s electricity generation capacities are outdated and insufficient, operating at an average capacity factor of 66%. It also stresses that the country experiences daily blackouts lasting on average 4 hours a day and claims that more than 86 million Indonesians still lack even the basic access to electricity. Similarly, the World Bank identifies that the provision of reliable electricity in Indonesia is a pressing issue. In a 2011 report, it ranked Indonesia as being 161st amongst 183 countries surveyed as to the ease of getting reliable electricity supply for business.

Singapore to install largest-to-date solar project

SGX powers up Asia’s first electricity futures market Singapore Exchange (SGX) is developing Asia’s first electricity futures market with a targeted launch by end-2014.

SGX said the futures market will help electricity generating companies and other market participants improve asset optimization and better manage risks.

“As Asia’s appetite for energy continues apace, wholesale electricity products and investors will require efficient solutions to enable resource and capital investment allocation. Customers can also enjoy cross-margining benefits from a broad range of SGX energy products. We will continue to provide our clients a trusted and flexible platform to manage the complexity of Asia’s evolving market structure,” said Michael Syn, Head of Derivatives, SGX. By transacting at SGX’s electricity futures market, the power industry can effectively manage its risks, and benefit from price discovery and the ability to optimise capital-intensive assets. The new futures market is supported by main generators who have indicated their interest to be market makers, including YTL PowerSeraya, Senoko Energy, Tuas Power Generation, Sembcorp Cogen, Keppel Merlimau Cogen, and Tuaspring. The physical spot market, through which Singapore’s electricity is traded, is operated by Energy Market Company and regulated by Energy Market Authority.

SGX has more than 40% of companies listed on SGX originating outside of Singapore.

10 ASIAN POWER

Two utility-scale solar energy projects for self consumption will be installed in Singapore.

Developed and operated by REC’s partner Phoenix Solar, the two rooftop installations – one for supermarket giant Sheng Siong Group, the other at the new Singapore Sports Hub – are expected to generate a collective 2,359 MWh of power and save 1,189 tonnes of CO2 each year.

The project for the Singapore retailer will be located at CMM Marketing Management and will be Singapore’s largest solar power facility yet.

Phoenix Solar will install this system and has optimised every available corner of the rooftop to create an 11,000 m2, of at least 1.2 MW solar power plant that will generate enough energy to meet at least 15% of CMM’s electricity needs.

It will also offset at least 730 tonnes of CO2 annually from gas-fired power stations.

The Sports Hub itself offers ample space for the 7,000 m2 rooftop installation. The system will generate over 919,100kWh of energy every year, enough for approximately 183 Singapore households, and will mitigate around 459 tonnes of CO2 annually.

FIRST

Check out why Japan’s photovoltaic market is set to boom in 2020

E

urope’s loss in the photovoltaic market is Japan’s gain. According to research firm IHS, interest now has shifted away from Europe toward Japan from global PV suppliers, who see the country as representing a huge opportunity. Japan is forecast to install $20 billion worth of PV systems in 2013, up 82 % from $11 billion in 2012. In contrast, the global market is set for tepid 4 % growth, said IHS. The strong revenue performance for Japan this year is partly driven by the high solar prices in the country.

“High system prices in Japan have always resulted in the country accounting for a significant proportion of PV system revenues,” said Sam Wilkinson, solar research manager at IHS. “Now these high prices are making Japan the world’s No. 1 market—and attracting the attention of global suppliers in the process.”

Japan. Despite some unfavorable conditions, Market Intelligence reported that Japan’s PV installed in 2011 has reached 1296MW and is expected to usher in greater development.

“The official goal is to be reached in 2020 28GW, and the real size of the market may be higher. In 2030, the Japanese government plans to get 40% of the national demand for electricity from renewable energy, which the Photovoltaic should account for at least 53GW. At the same time, the country’s authorities estimated that the real potential for PV in Japan is about 230GW,” Market Intelligence said in a report.

As of 2010, the residential PV systems accounted for 95% of the Japanese market, but in 2011, a variety of installed systems toward balance, residential systems accounted for about 80%, more than 16% of commercial and industrial roofing.

Real potential for PV in Japan is ~230GW

Official goal According to Market Intelligence, another research firm, PV technology was immature before Japan began the development of PV power generation.

Over the years, the rapid development of the Japanese PV market resulted to 990MW photovoltaic power generation system having been installed in 2010. The Fukushima nuclear disaster in March 2011 have pushed the government to re-adjust the energy strategy in

Challenges IHS however warned that The PV market in Japan is not without challenge. While huge growth opportunities exist in the country, capitalizing on them is not a straightforward task for international suppliers. Strict certification requirements, particularly for inverters, make it difficult for suppliers to release products.

Furthermore, a strong preference for Japanese brands—particularly in the residential market, which will account for nearly 40 % of demand in

2013—means that forging partnerships with local suppliers is essential.

“Although international suppliers have only been able to win limited business in the residential sector, mostly by supplying local suppliers through agreements with original equipment manufacturers, the situation for larger systems is quite different,” Wilkinson said.

“The fastest-growing market segment is forecast to be systems larger than 1 megawatt, which is expected to grow by more than 500 % in 2013.”

Malaysia’s power generation to grow less than 5% in 2014 Things appear not as good as they can get for Malaysia’s power sector. The long-term outlook of Business Monitor International (BMI) for the sector remains relatively sanguine at 4.6% average growth per annum between 2013 and 2022 amidst modest economic growth.

“We forecast that electricity generation in Malaysia will grow by 4.6% in 2014. This is lower than our growth estimate for 2013 of 6.1%, owing to the poor economic outlook and an impending increase in the price of electricity,” National power distributor Tenaga Nasional Bhd (TNB) is raising electricity charges for the first time in more than two years beginning January 1 as the government cuts state subsidies.

Charges will be raised by around 15% on average to 38.53 sen/ kwh.

Malaysia will allow national power distributor Tenaga Nasional Bhd. (TNB) to raise electricity charges for the first time in more than two years, adding to business and living costs as the government cuts state subsidies. Consequently, tariffs are seen to rise by an average 16.9 % to 34.52 sen/kwh in the country’s eastern state of Sabah, he said.

“We retain our modest long-term outlook for the sector as we expect economicgrowth, positive demographics, and an improving business environment to drive growth beyond 2014,” BMI said in a report.

According to BMI, this growth potential is encapsulated in the country’s Economic Transformation Programme (ETP), announced by the government in September 2010. The programme is aimed at attractingUS$444bn worth of investments between 2011 and 2020, and the uncertainties towards the ETP are dissipating due to the return to power by the BN coalition BMI said that as most of the projects under the ETP are located in Peninsular Malaysia, electricity demand for the region is likely to surge should these projects be realised.

12 ASIAN POWER

Sanguine outlook for Malaysia’s power sector

Electricity charges will be raised by around 15%

co-published Corporate profile

Rochem’s FYREWASH F3 takes the market by storm

A 16,000-liter order was recently secured from PacificLight Power.

FYREWASH F3, a water-based gas turbine compressor cleaner. PacificLight Power is a Singapore-based integrated energy company that aims to be a one-stop energy partner for businesses. The company has a 800 MW Combined Cycle Gas Turbine (CCGT) Power Plant in Singapore that has been in operation since year 2013. PacificLight is a joint venture between FPM Power Holdings and Petronas Power. FPM Power Holdings is a joint venture between First Pacific Company and Meralco PowerGen Corporation.

As one of the market leaders in energy generation and retail with a strong regional presence, PacificLight chose to trust Rochem and its chemicals. This is another testament to Rochem being a first-rate brand and a household name among companies in the region.

A

s a member of the Rochem group of companies, Rochem Technical Services has been leading the market in gas turbine and process compressor cleaning technology, cleaning chemicals and associated equipment since 1978. It is the only company in the world that designs, manufactures, markets and supports its own systems and chemicals on a worldwide basis.

Rochem’s gas turbine and process compressor cleaning systems and chemicals are available and well-known worldwide under the trade names FYREWASH for on-line cleaning systems and KRANKWASH for off-line/on-crank cleaning systems and chemicals.

Based on a unique atomising injection nozzle system design, Rochem’s patented cleaning system technology is perfect for every make and type of gas turbine and process compressor.

The FYREWASH System currently holds two U.S. Patents number 5,011,540 and 5,273,395 which covers the method and apparatus for cleaning a gas turbine compressor while the engine is operating at up to normal speed and full load.

Rochem’s wide range of FYREWASH on-line and off-line concentrated chemicals are available in 25 or 210 litre drums and 1,000 litre tote bins.

RTS always provides the best chemical storage and handling systems for integration with manual or automated compressor wash skids, and its systems will ensure operations safety and avoid unnecessary pollution risks.

Biggest customers Being in the market for more than three decades, RTS’ customer/installation reference list is at least four times greater than its nearest rival. Siemens, General Electric, Rolls Royce, and Alstom are just some of the biggest gas turbine manufacturers and packagers that incorporate Rochem’s FYREWASH (chemicals).

Rochem’s most recent achievement is the PacificLight Power’s 16,000-liter order of

“LOREM LOREM LOREM LOREM”

Setting the standard FYREWASH F3 is an ultra pure, biodegradable water-based detergent that provides maximum possible cleaning efficiency for on-line and offline compressors from a non-solvent formulation.

It meets the most stringent requirements of gas turbine manufacturers and US MIL specs.

Rochem notes that while developing and testing FYREWASH F3, the chemists evaluated all other leading non-solvent water-based chemicals to make sure that F3 would have superior cleaning qualities. This resulted in a non-hazardous, userfriendly and highly biodegradable water-based cleaner which now sets the standard against which the performance and cost effectiveness of all other true nonsolvent water-based gas turbine compressor cleaners can be judged.

Fyrewash F3 is also available in containers of 200 pcs of 38 x 16cm lint-free wipes. Treated with Fyrewash F3 gas turbine compliant cleaning chemical these wipes are ideal for hand cleaning of gas turbines blades and other gas turbine parts.

According to Rochem, on-line cleaning is normally performed by mixing one part FYREWASH F3 concentrate with 4 parts of distilled or deionized water as specified by the turbine’s manufacturer. The volume of chemical solution needed per wash and the optimum cleaning frequency will depend on the size of the engine, fouling tendency and other factors.

FYREWASH F3 can be used with any online/off-line injection system but for optimum cleaning results and economic usage of chemicals, Rochem offers a full range of patented manual or fully automatic atomising injection systems to suit any engine type.

U Ken Tun Chief Executive Officer Parami Energy

14 ASIAN POWER

CEO INTERVIEW

Parami Energy seizes Myanmar’s power potential Parami Energy CEO U Ken Tun believes Myanmar will reward the patient investor and penalize those who come with short term horizons or opportunitistic agendas.

A

sian Power recently caught up with Parami Energy’s chief executive officer U Ken Tun to talk about Myanmar’s power potential. He also shared how independent power producers (IPP) benefit from various government policies geared at developing the sector as the country opens its economy for foreign investors.

Parami Energy was established in 2004 and is now a group of companies with core operations in the oil-and-gas, power, and construction and finance sectors. From a humble roots in the services sector of the critical infrastructure market, it has been able to grow the Company by expanding capacity to local Engineering, Procurement, Construction (EPC) contracts. It has also been successful in securing concessions for three onshore oil and gas exploration blocks and have secured several interim power generation contracts.

The Ministry of Electrical Power (MOEP) is making grand ambitions with Myanmar’s power sector. How are you dealing with this basket of opportunities?

With a high volume of foreign direct investments (FDI) in manufacturing industry coupled with 70% of our population needing access to reliable electricity, I believe the demand for electricity is far more than 15%. That creates ample opportunities. I also understand a new national energy plan

“Parami has lost rental projects recently, but we are pleased with how the government and MOEP managed the process with fairness and transparency. “ is under consideration, which will aid in setting the roadmap for future electrical power deployment in Myanmar. This foresight and open tendering process has resulted in significant international involvement with 17 parties having placed tender bids in for the MyinChan IPP project.

MOEP has also recently announced that they are planning to add 2,000 to 3,000 MW to address short-term power requirements. I also see NGOs and multilateral and developmental finance organizations such as the International Finance Corp (IFC) and the Asian Development Bank entering Myanmar to support the growth of the power market and help stabilize the market and planned growth. In fact, the country saves lots of money for having an open and transparent bidding process.

The government plans to use its budget or use overseas development assistance (ODA) for expansion of national grid to encourage Private sector investment and operatorship in IPP and in distribution business. We see more competitions and we also see the market size to grow enormously.

How do you respond to foreign investors who are wary over Myanmar’s power potentials?

I understand that investors are wary because Myanmar is such a new market and there has been a lot of talk, much of which is simply rumor. I think however that it is important to do two things. First, come to Myanmar and assess the market yourself.

Understand the challenges and opportunities. Second, be patient and manage expectations. Myanmar will reward the patient investor and penalize those who come with short term horizons or opportunistic agendas.

This hesitancy can be seen in the market. For example, several

hydropower projects currently under development are expected to generate 40 GW when finally online. Sadly these projects are moving slowly or going nowhere due to investor concerns. We need to address this very seriously. This is where I believe the multilateral and development agencies should become involved to reduce the uncertainties and hasten the decision process on whether to allow the project to move forward or to have the project’s terminated.

If the decision is to stop, then just stop and if it is okay to move forward, then we would need to expedite the project development to meet the demand for energy. Myanmar’s total installed capacity is merely 4,000 MW or approximately 10% of that of Thailand. One can only imagine the potential for project development given the unmet demand in Myanmar.

What are the major hurdles you encounter in securing and executing projects and how do you address such?

Managing expectations and understanding that short term horizons are not generally realistic in a country that is newly emerging like Myanmar. People want power now, but the objective should be sustainable energy that makes economic sense over the long term.

Human resources exist, but it needs to be evaluated and selected carefully. Investors need to understand that the financial sector is still weak and reforms are a work in process.

These will be sorted out over the long term, but create short term risks. However, the long term gains far exceed the growth pains of our newly open economy, thus rewarding the patient investor with a long term horizon.

From a business-specific perspective, we need to successfully integrate our historical, local business practices with western business practices. In our experience, we have had to deal with the compliance and due diligence requirements of potential international partners.

This is at times painful as business leaders here are not used to the detailed requirements of such due diligence reviews. It is particularly painful to re-pats such as myself as we often feel guilty until proven innocent based on no particular facts.

Also, the process of securing projects has changed and is no longer as easy as in the past. However, this is not a bad thing.

The transparency created by the tender process is a positive development for Myanmar.

Parami has lost rental projects recently, but we are pleased with how the government and MOEP managed the process with fairness and transparency.

Finally, updating and modernizing the legal framework to ensure that legal documents are drawn at international standards and the enforcement of laws and contracts can be assured is critical to everyone’s success.

All of these hurdles are simply items that require address and will be successfully overcome by companies such as Parami, which have long term horizons and managed expectations.

In the beginning, it was quite a challenge to have partner which can impart their knowhow and capability along the way to make Parami Energy to be independent player.

What can we expect from Parami Energy in the next 5-10 years?

We aim to become a top 5 player in our core business segments, expand locally with an eye to regional expansion in the coming years.

ASIAN POWER 15

COUNTRY REPORT: MYANMAR

Myanmar targets 16,000 MW capacity by 2030

Myanmar emerges from the dark

With nationwide electrification becoming a top priority, Myanmar’s future is literally lighting up.

T

he Myanmar government is pushing for an ambitious power development plan, which could connect as many as 12,500 villages to the national grid in the next 5 years.

This will be a huge achievement in advancing the conflict-torn country’s economy, which has been stunted by poor electrification levels. Currently only 26% -- or roughly 1 in 4 of people – in Myanmar has access to electricity.

“Electricity is considered most important for socio-economic development of the country,” said Rakesh Goyal, Director at Tetra Tech, on why the government is keen on improving electricity access and countrywide industrialization.

The winds of change came as the government started opening up the country in the past couple of years, and began reaching out beyond its borders for help in modernizing its poorly developed power industry.

Global power firms and investors have responded by increasing their presence in Myanmar – or at least giving the country a serious glance – but with ample caution due to the lingering risks in politics and doing business.

Lowest electrification Myanmar’s electrification level and per capita electricity consumption are among the lowest in Asia, which means a vast potential for power development.

16 ASIAN POWER

“In 2012, only 10,000 million kWh of electricity was produced or less than 40% of the demand.”

Electricity access is concentrated in major cities such as Yangon, Mandalay and Nay Pyi Taw. In rural areas, where around 70% of the population and the majority of the poor reside, only 16% of households have access to grid-based electricity, according to the World Bank.

Myanmar has a low installed capacity of around 3500 megawatts (MW), of which only about 60 % is reliably available. Three-quarters of this is hydropower, further noted Sharad Somani, Partner and ASPAC Head of Power & Utilities, KPMG. “It is not surprising therefore that the country has to ‘ration’ its power supply to industries during the summer, with scheduled and unscheduled power cuts,” said Somani.

Myanmar’s Ministry of Electric Power (MOEP) estimates that demand growth for electricity will double in less than a decade to 25,683 million kWh in 2018-19 from 12,459 million kWh in 2012-13.

But production has not been keeping up with the demand. In 2012, only 10,000 million kWh of electricity was produced or less than 40% of the demand. The deficit further widens after subtracting the 1,700 million kWh the country exports.

Given this massive shortfall, production for domestic use would have to jump by 42% to equal the expected demand, noted David Dapice, a researcher at the Ash Center for Democratic Governance

and Innovation, Harvard Kennedy School, in a report after visiting the country in 2012.

This led the Myanmar government to announce a goal of increasing capacity by 16,000 MW by 2030, with the master plan for this ambitious target already in the works and due to release in 2014.

“Acknowledging the critical need for industrialization to enable the country to achieve its ambitious growth targets, the government has made the provision of a reliable supply one of the focus areas of its policy framework,” said Somani.

Citing MOEP estimates presented in early January, Somani said there are 12 thermal power plants aggregating to a capacity of 2,288MW to be developed within the next 5 years. Seven hydro power plants aggregating to a capacity of 520MW are also under proposal.

Of this, the government plans to develop 315MW of gas fired capacity and 180MW of hydro capacity. Wind capacity aggregating to 5,500MW and solar of 100MW are also under consideration, reckoned Somani.

Initially, gas-fired projects seem to be taking the lead among these, said Mayer Brown partner Ben Thompson.

Mayer Brown JSM is currently advising Toyo-Thai on their development of a 120MW gas-fired combined-cycle power project in Yangon, said to be the most progressed independent power producer

COUNTRY REPORT: MYANMAR months from engagement of advisors, access to property rights and enforceabil“Foreign develsaid Thompson. ity of contracts,” he added. opers are workThe third phase involves the MOEP Somani concedes though that ongoing ing around the and DEP granting the developer a financial sector reforms are underway, shortage of Memorandum of Agreement (MOA), effectively making it easier for domestic domestic lendusually within 4-6 months of completion banks to begin providing non-balance ing in their own of the feasibility study. Thompson said sheet loans to infrastructure projects. ways.” the MOA will specify project details such “As and when these banks have sufas the length of the concession period ficient clarity to be able to price risks and granted, the time period for construction begin lending, projects in the power secof the project, the manner for determintor would be one of the first beneficiaries,” ing the tariff, the obligation of the GOM he said. to provide the project site and any tax In the meantime, foreign developers are exemptions to be granted. working around the shortage of domestic “In order to achieve this key milestone, lending in their own ways. which is a binding agreement, a devel“Japanese, South Korean, Chinese and oper will usually require a clear funding Thai developers are working with leading strategy and developed financial model, lenders in their home countries to devise a satisfactory ESIA and a viable tariff financing options for their Myanmar proposal,” said Thompson. projects,” said Somani.

The final phase involves finalizing the Goyal argues that the rash of investterms of the project documents, including ment interest in the country is a result of the power purchase agreement with the the recent improvement in the country’s Myanmar Electric Power Enterprise. This political climate. Although he reckons is also the point where a financing term that an important turning point will be sheet will be negotiated with the lenders, when the government starts putting in leading to the negotiation of the finance place solid legal and regulatory framedocuments and the financial close. works to support and protect investors.

Potential investors must know the Investor and developer caution intricacies of power projects in Myanmar, Foreign investors lured by the lucrative which typically progress through four key phases, according to Thompson.

Installed Capacity (MW) of Plants in Progress Projects begin with the preliminary phase where a Memorandum of Understanding (MOU) is signed with the government. Unlike most other countries, Myanmar does not yet follow formal bidding procedures, said Thompson, and instead projects are granted on the basis of bilateral negotiations with the Department of Electric Power under MOEP. Daunting task Once the MOU is executed, the deWhile Myanmar is teeming with potential veloper will undertake a feasibility study, for energy projects, analysts believe the in conjunction with an environmental country has a tough road ahead in putting and social impact assessment (ESIA).

Source: U.S. Energy information its grand plans into motion, especially in This phase will usually take around four the area of project financing.

“In trying to achieve these rather ambitious targets with limited finances and managerial capacity constraints, the sector is faced with a daunting task. To make matters more difficult, the sector lacks access to private debt, both domestic and foreign,” said Somani.

Since less than 10% of the population deposit their money in domestic banks, project developers will not be able to secure loans with tenures greater than one year.

“Domestic debt will remain inaccessible to project developers till the time the people of Myanmar gain more confidence in the banking system and the system itself is enabled to lend for longer tenures,” said Somani.

“Foreign banks too have not been very forthcoming with loans to the sector, Myanmar’s electrification level and per capita electricity consumption are among the lowest in Asia primarily because of lack of clarity around in the country.

Thompson listed other similar projects such as the 500MW gas-fired power project in Tharkayta being developed by a Korean consortium (comprising Busan Korea Biotechnology Co, Korea Western Power Co, Hyundai E&C, Hana Daewoo Securities Co and Hexa International Co) and three locally developed power projects of 50MW each.

Myanmar also has hydropower potential of around 100,000MW, although analysts have noted that this is relatively unreliable due to the seasonality of rain.

Still, this has not discouraged developers from engaging in more hydropower projects.

“Although such projects remain less popular due to seasonality issues affecting power supply and resettlement issues, the sector is seeing some activity, with around 39,720MW having so far been identified for possible development,” said Thompson.

For his part, Goyal estimates that there is 48GW of untapped hydro potential in the country – a wellspring that may be too large to ignore.

Last but not the least, Myanmar may see a rise of renewables to support its smaller off-grid systems, said Thompson.

He said this trend has been driven by the discovery of suitable sites for solar and biomass power projects across the country.

“However, a successful renewables sector requires a solid underlying regulatory framework, and there are no plans as yet to implement a feed-in tariff, for example,” cautions Thompson.

ASIAN POWER 17

COUNTRY REPORT: MYANMAR

Ben Thompson

David Dapice

Myanmar faces tough road ahead, especially in project financing projects in Myanmar’s power industry must do so with a critical eye, especially on four important factors, according to Thompson.

First, potential investors must consider Myanmar’s policy to impose a 15% withholding tax on loan interest payments to overseas lenders payable by a Myanmar company, which can significantly impact the economics of a project, he said.

“The project and financing will likely require structuring to avoid or reduce such payments. Singapore has the most advantageous double taxation treaty, which brings the withholding tax rate down to 8% if the interest is received by a bank or financial institution,” he added.

Second, Myanmar has strict lender security. Myanmar law does not allow foreign lenders to take security over land and local law advice will be essential in establishing a robust security structure.

Third, potential investors, specifically in gas-fired projects, should take into account that the while Myanmar holds significant gas reserves, a large portion of it is already contractually committed to Thailand and China. This means potential gas-fired projects will likely have to wait for new gas fields come on stream.

Fourth and last is the fact that the MEPE has a short record of off-take payments from which lenders can take comfort. “Therefore, structuring the project to provide such comfort (through political risk insurance for example) will be key,” said Thompson.

Speaking of risks, developers must also grapple with prevailing risks that threaten to undermine their project plans and timelines. They must also consider sensitivities that, if not addressed, could spell the doom of a project.

18 ASIAN POWER

Social and environmental concerns, especially for large hydro projects, are an especially important sensitivity. Somani cited recent reports where the government halted the development of the 800MW hydro power project at Dawei because of flooding risk to 61,000 acres of farms and lands in the area.

The government now seems to place a notably higher premium on how a project will impact the local population. This is in stark contrast to the Yeywa Dam, Myanmar’s largest power-generation facility, which was given the go signal during the time of the junta despite the dam displacing whole villages.

ADB and World Bank While more risk-averse corporate investors wait in the wings until such frameworks are secured, the ADB and the World Bank have been helping lay the groundwork for Myanmar’s modernized power grid.

Since re-engaging in the country in March 2012, ADB has created three proposed projects in its pipeline. The first is a power distribution project that will rehabilitate the distribution network in more than a dozen townships and districts in Yangon, Mandalay, Sagaing and Magway regions. The project aims to reduce system losses and increase electricity supply to the covered populations.

The second is a power transmission improvement project, which will help cut down the technical and non-technical losses in Myanmar’s transmission and distribution systems, some of which reach as high as 27% in 2011.

ADB’s third project is an off-grid renewable energy demonstration project which includes helping support the

Rakesh Goyal

Sharad Somani

creation of rural infrastructure for clean energy-based systems, mostly solar PV and biomass-based systems.

Somani adds that the ADB together with funding support from the Norwegian government has initiated a reform and restructuring process to make the Myanmar power sector commercially viable.

The World Bank, meanwhile, has recently supported the installation of a high-efficiency power plant in Mon State.

The project will replace aging gas turbines with new units and aims to produce 250% more electricity with the same amount of gas, while also reducing emissions. The project is funded through a $140 million interest-free credit from the International Development Association.

“Replacing existing gas turbines to make them run cleaner, greener and more efficiently is the fastest, cheapest approach to increase electricity production,” said the World Bank. In addition to the power plant project, the financial institution said it is working to pull in more private sector investments in power generation and distribution.

Reforms But in the end, most of the work will still come from government rolling out reforms designed to create a stable and efficient Myanmar power sector -- one that is also accommodative for developers and investors. For starters, Somani recommends that Myanmar should look at reducing its overdependence on hydropower. Private finance and transmission and distributions networks should also be scrutinized. “Not only would this help stabilize supply, it would also help manage environmental concerns and public mistrust of large land acquisitions. Retaining a larger share of its substantial natural gas resources for its own gas-fired plants and sourcing coal from the region to offer base load at relatively low costs could be possible alternatives,” he said.

“At the same time, the country needs to provide an enabling environment for private finance, and strengthen its transmission and distribution network,” he added.

Electrification and unit consumption

Source: ADB Estimates, Ministry of Electric Power

co-published Corporate profile

Rochem’s FYREWASH F3 takes the market by storm

Rochem’s most recent achievement is the PacificLight Power’s 16,000-liter order of FYREWASH F3, a water-based gas turbine compressor cleaner.

A

s a member of the Rochem group of companies, Rochem Technical Services has been leading the market in gas turbine and process compressor cleaning technology, cleaning chemicals and associated equipment since 1978. It is the only company in the world that designs, manufactures, markets and supports its own systems and chemicals on a worldwide basis.

Rochem’s gas turbine and process compressor cleaning systems and chemicals are available and well-known worldwide under the trade names FYREWASH for on-line cleaning systems and KRANKWASH for off-line/on-crank cleaning systems and chemicals.

Based on a unique atomising injection nozzle system design, Rochem’s patented cleaning system technology is perfect for every make and type of gas turbine and process compressor.

The FYREWASH System currently holds two U.S. Patents number 5,011,540 and 5,273,395 which covers the method and apparatus for cleaning a gas turbine compressor while the engine is operating at up to normal speed and full load.

Rochem’s wide range of FYREWASH on-line and off-line concentrated chemicals are available in 25 or 210 litre drums and 1,000 litre tote bins.

RTS always provides the best chemical storage and handling systems for integration with manual or automated compressor wash skids, and its systems will ensure operations safety and avoid unnecessary pollution risks.

Biggest customers Being in the market for more than three decades, RTS’ customer/installation reference list is at least four times greater than its nearest rival. Siemens, General Electric, Rolls Royce, and Alstom are just some of the biggest gas turbine manufacturers and packagers that incorporate

Rochem’s FYREWASH (chemicals).

Rochem’s most recent achievement is the PacificLight Power’s 16,000-liter order of FYREWASH F3, a water-based gas turbine compressor cleaner. PacificLight Power is a Singapore-based integrated energy company that aims to be a one-stop energy partner for businesses. The company has a 800 MW Combined Cycle Gas Turbine (CCGT) Power Ferouz Ali, Rochem’s Business Development Plant in Singapore that has been in operation Manager/Regional Director since year 2013. PacificLight is a joint venture between FPM Power Holdings and Petronas Power. FPM Power Holdings is a joint venture testing FYREWASH F3, the chemists evaluated all between First Pacific Company and Meralco other leading non-solvent water-based chemicals PowerGen Corporation. to make sure that F3 would have superior cleaning As one of the market leaders in energy qualities. This resulted in a non-hazardous, usergeneration and retail with a strong regional friendly and highly biodegradable water-based presence, PacificLight chose to trust Rochem cleaner which now sets the standard against and its chemicals. This is another testament to which the performance and cost effectiveness Rochem being a first-rate brand and a household of all other true nonsolvent water-based gas name among companies in the region. turbine compressor cleaners can be judged.

Fyrewash F3 is also available in containers of Setting the standard 200 pcs of 38 x 16cm lint-free wipes. Treated FYREWASH F3 is an ultra pure, biodegradable with Fyrewash F3 gas turbine compliant cleaning water-based detergent that provides maximum chemical these wipes are ideal for hand cleaning possible cleaning efficiency for on-line and offof gas turbines blades and other gas turbine line compressors from a non-solvent formulation. parts.

It meets the most stringent requirements of gas According to Rochem, on-line cleaning turbine manufacturers and US MIL specs. is normally performed by mixing one part Rochem notes that while developing and FYREWASH F3 concentrate with 4 parts of distilled or deionized water as specified by the turbine’s manufacturer. The volume of chemical FYREWASH F3 is an ultra solution needed per wash and the optimum cleaning frequency will depend on the size of pure, biodegradable the engine, fouling tendency and other factors. water-based detergent FYREWASH F3 can be used with any onthat provides maximum line/off-line injection system but for optimum possible cleaning cleaning results and economic usage of efficiency for on-line and chemicals, Rochem offers a full range of off-line compressors from patented manual or fully automatic atomising a non-solvent formulation. injection systems to suit any engine type.

ASIAN POWER 19

ANALYSIS: INDIA POWER

Development of solar power in India is still weak

Investors scared off Indian solar by local rules In the face of challenged economy, India is sending the wrong message to investors with the anti-dumping tariff case and domestic content requirements.

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olar, although still weak in India, has been gaining ground in the country as a potential major source of power.

In the year 2014, all eyes are set on how the National Solar Mission under the National Action Plan on Climate Change achieve a 20,000-MW additional solar capacity target by 2020.

The country’s power situation The power market of India is considered fifth largest in the world. It is accorded high priority as it offers tremendous potential for investments based on market size and return on investment.

For instance, foreign direct investment (FDI) of up to 100 % is permitted in India under automatic route for electricity generation, transmission, distribution, and power trading projects.

Major contributors as of May 2013 are France, Mauritius, Singapore, UAE, United Kingdom, USA and Morocco, Corporate Catalyst India said in a report.

As of 31 January 2013, the installed generation capacity, including capacity from RES, stands at 211,766.22 MW. Coal comprised over half or 57 % of total installed capacity, followed by hydro at 19 %. RES only covered 12 % of installed generation capacity, equivalent to 25,856.14 MW. The growth in the power sector is reflected in the fast development of renew20 ASIAN POWER

“In just three years, India has successfully developed the potential of abundant solar power. ”

able energy sector. The need to increase the use of renewable energy sources for sustainable energy development has been recognized by the government of India.

“There has been significant thrust to research, development and induction of renewable energy technologies in different sectors,” Corporate Catalyst India noted.

Data show that current renewable energy sources (RES) installed capacity is dominated by wind at 11,807 MW, followed by biomass/biofuels at 866 MW and solar at 10 MW. Development of Solar Power in India In just three years, India has successfully developed the potential of abundant solar power.

According to World Bank, India has added capacity at a commendable pace, successfully reducing the costs of solar energy to around $0.12 per kWh for solar photo voltaic (PV) and $0.21 per kWh for Concentrated Solar Power (CSP).

This, the Bank said, has made India amongst the lowest cost destinations for grid-connected solar power in the world.

“Growth in the energy sector is key for India as more than 300 million of the country’s people still lack access to electricity, and industry cites energy shortages as a critical barrier to growth,” World Bank said.

“The development of solar power will help India produce clean energy and contribute to reducing emissions per unit of GDP by 20 % to 25 % by 2020, over 2005 levels,” the Bank added.

India’s shot at developing solar power commenced in January 2010 when it launched the Jawaharlal Nehru National Solar Mission (JNNSM) as one of the eight missions under the country’s National Action Plan for Climate Change.

The Mission intended to deploy solar power on a large scale and position India as a major world power in solar manufacturing as well as research and development.

The first phase of JNNSM (2010-13) was welcomed with enthusiasm by local and foreign investors in the grid-connected segment.

“The strategy adopted the innovative mechanism of bundling relatively expensive solar power with power from the unallocated quota of the Government of India’s thermal power stations, which is relatively cheaper,” according to World Bank.

It also followed a reverse bidding mechanism that enabled qualified bidders to benefit from declining global prices for solar components, thereby reducing the purchase price of both solar PV and CSP for the utilities.

However, the fundamentals of the solar

ANALYSIS: IndIA POWER sector have shifted.

“After years of panel price drops, module prices have gone up this year by about 10 %, while the rupee has fallen about nine %,” Mercom Capital Group Chief Executive Officer Raj Prabhu said.

Given these developments, India’s solar power policy, with all its changes and delays, has fallen behind the rapidly changing solar market environment.

There has been a total of 622 MW of installations in India in the first seven months of 2013, with only 73 MW installed in the last three months.

“Solar has tremendous promise as one of the most attainable sources of power in India and represents a great future for the economy, industry, jobs, and environment. To achieve this future, India needs to avoid distractions and maintain focus on creating a fertile policy environment for private and foreign investments in the power sector,” Prabhu noted.

state policies,” Prabhu emphasized.

Unlike manufacturers, Indian project developers are not as well organized and lack a unified voice and leverage, a necessary factor when it comes to policy decisions.

“The decisions made by India to pursue anti-dumping investigations and DCR have all but paralyzed the sector. Nobody knows what is coming next. The Indian economy continues to face challenges with slow growth, high interest rates and a weak rupee, making life harder for solar developers,” Prabhu stressed.

With the need to entice foreign investors to lift the economy, Prabhu said India is sending the wrong message to investors with the anti-dumping case and DCRs. “Instead, they should provide longterm policy visibility and a growth roadmap,” he added.

Other Issues in the Solar Power Sector Based on consultations with key stakeGovernment supports local manufacholders, World Bank identified some turers, deters investors issues that hinder the expansion of solar Amid criticisms on India’s obsolete solar power sector. power policy, the government’s domestic There is a need to attract commercial content requirements (DCR) and antibanks as most of the financing in the solar dumping tariffs were introduced. power sector were taken up by export According to Prabhu, developers and credit agencies, multilateral financial instiEPCs (engineering, procurement and tutions, and some nonbanking financial construction) in India do not oppose institutions took up most of the financing. locally-manufactured products.

As raised earlier, there has been a “If anything it would make procuregrowing concern about L1 bidding being ment much easier,” Prabhu said. adopted by states as it is seen as a “race to The problem raised, he mentioned, is the bottom” with bidders required to meet the kind of warranties of their products the lowest bid. that is not comparable to those provided “Banks see very thin margins with

by European and American panels. these low bids and are concerned that The price and efficiency parameters corners will be cut in order to keep costs offered by local manufacturers failed low, resulting in poor project quality,” to match those of their European and Prabhu said.

American counterparts, Prabhu said.

Another huge concern is the financial “Developers also allege that local health of the off-takers as state utilities manufacturers themselves import panels, struggle financially, maintaining doubtful and place their own label/stamp on it,” he credit worthiness, he raised. added.

“It is up to the government to have a Weak rupee, high inflation and the payment guarantee mechanism in place recent panel price increases also hit to give confidence to financers. Of the developers. financial institutions we spoke with, most These challenges, when combined said they are taking a slow and deliberate with government insisting on L1 bidding approach as the policies are ‘too compli(matching the lowest bid), serve as double cated and unpredictable.’” Prabhu noted. whammy for developers.

Land acquisition and grid evacuation L1 bidding adds even more pressure, issues were the other major concerns making the project financing extremely raised. challenging as banks question project World Bank has a similar observation viability due to low tariff levels. arguing that the provision of publicly Lack of knowledge among state agendeveloped infrastructure frees private cies was also raised by developers as providers to focus on solar power develmany states insist that developers match opment, increases efficiency, and lowers the lowest bids from other states without costs. understanding the differences between Prabhu said land acquisitions are getstates in solar insolation, land costs and ting more complicated causing further other issues. delays. “Lenders prefer a system similar “L1 bidding has become the number to Gujarat’s, where the state government one hurdle in financing projects through helped with land acquisition and ensured

“India’s solar power policy, with all its changes and delays, has fallen behind the rapidly changing solar market environment. ”

evacuation,” he explained.

Gujarat was the first state to declare a solar policy (2009) and today, is at the forefront of solar power generation in India.

Its first solar park, developed on waste land in Charanka (Patan district), has the largest solar capacity in Asia. The park provides developers with already developed land along with critical infrastructure, including facilities for power evacuation and transmission, roads and water, thereby ensuring the rapid development of solar projects.

Meanwhile, World Bank noted that India has to use its comparative advantage to develop a niche in the manufacturing value chain.“India’s solar PV manufacturing capacity is limited and does not straddle the higher technological echelons of the industry,” World Bank said.

It explained that India’s manufacturers lack the raw materials, do not have access to low-cost financing, and face underdeveloped supply chains.

In CSP, where local manufacturing is more complex, India has not been able to manufacture some critical components.

Either technology suppliers are limited and their products patented or the lack of natural resources poses an impediment.

“India should therefore seek to define and develop its manufacturing capabilities in specific parts of the value chain where it enjoys a comparative advantage and can emerge as a globally competitive producer,” the Bank said.

India is planning a major solar-power initiative

Source: International Energy Agency

Indian solar PV Growth in MW

Source: Solar Plaza ASIAN POWER 21

FEATURE: China Solar Power

China targets solar installation of 35 GW by 2015

The sun still shines for China’s solar industry but where is the money for investors?

Increasing government support for China’s solar industry is developing blazing interest from investors.

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ubsidies available for solar photovoltaic (PV) projects in China have increased tremendously amid the government’s intention to support its labor-intensive manufacturing sector and to address its air pollution problem.

“The poet Percy Bysshe Shelley wrote in Ode to the West Wind, ‘If winter comes, can spring be far behind?’ This is a good description of the current solar PV industry in China,” Edwin Lee, associate at Chadbourne and Parke said.

Global Solar Forecast “After years of overcapacity, bankruptcies and record low prices we are now seeing price stabilization, higher capacity utilization rates and a move towards supply-demand equilibrium,” Raj Prabhu, Co-Founder and CEO of research firm Mercom Capital Group, said.

He pointed to the settlement of one of the big overhangs--the China-European Union (EU) trade case--as a development that delivered the much-needed certainty in the market. This case, if left unresolved, could have set off an all-out trade war. Under the settlement terms, a rate of €0.56 (~$0.74) per watt was the agreed upon pricing for Chinese panels coming into the EU. 22 ASIAN POWER

“Investors looking for solar opportunities in China should keep in mind that there is differential pricing for solar electricity based on the project location.”

Also, China will be allowed to meet half of Europe’s panel demand (7 GW) without being subject to tariffs. China, on the other hand, imposed antidumping duties on the U.S. and South Korean polysilicon manufacturers, but not on polysilicon from the EU. “Although trade skirmishes will likely continue, this settlement is a relief for the markets,” Prabhu noted.

Apart from the resolution of the ChinaEU trade case, Japan’s rapid move to diversify its energy generation sources after the Fukushima disaster is driving upswing in global solar market. Japan’s one of the most generous solar tariffs in the world at ~¥37.8 (~$0.38)/kWh is driving installations, having added 1,240 MW in solar installations in just two months, April and May. “With a 2013 forecast of 8.5 GW and 7 GW respectively, China and Japan are on pace to be the top installers this year,” Prabhu stressed.

PV installations in the United States continue to grow and are forecasted to reach about 4.5 GW in 2013. Other major markets forecasted in 2013 are Germany at 4 GW, Italy at 2 GW, UK at 1.5 GW and India at 1 GW. China’s Solar Industry Recent policies by the Chinese govern-

ment represent both economic and environmental policies to support the local solar industry. “China’s push towards stronger domestic demand is primarily driven by the necessity to help its domestic manufacturing industry and solve its air pollution problem,” Prabhu said.

The Chinese State Council has raised anew the solar installation targets with the new goal of installing 35 GW by 2015 or about 10 GW each year.

Apart from raising installation targets, Chinese State Council also announced several other measures to support China’s solar industry. These measures include: i) controlling uninhibited capacity expansions; ii) new efficiency standards of 20 % for monocrystalline; iii) 18 % for polycrystalline and 12 % for thin film that have to be met for new capacity addition; iv) shutting down inefficient operations and incentivizing consolidation through tax breaks; and v) encouraging selfconsumption among homeowners and businesses.

Further, the National Development and Reform Commission recently announced new tariffs for distributed solar projects, the first of its kind, at a rate of 0.42 Yuan ($0.07)/kWh. “Encouraging still, is the strong push to address pollution problems

FEATURE: China Solar Power prompted by growing public discontent,” Prabhu mentioned, adding that China launched its first of seven pilot emission trading schemes (ETS) with expansion plans at the national level. “Though there will be growing pains, this is a small but significant step towards a carbon or capand-trade market with a goal of reducing CO2 emissions by 40-45 % by 2020 from its 2005 levels,” he noted.

The government has mandated installation of equipment to remove nitrogen oxide from coal power plants. Subsidies will be given to power plants that will comply with the new rule while severe punishment awaits those that will not comply.

Further incentives will be granted to coal power plants that will upgrade their facilities to reduce pollution.

A goal has also been set to reduce sulfur dioxide by 16 % and nitrogen dioxide by 29 % by 2013.

solar market. The new Feed-in-Tariffs exceeds what was originally proposed in the disclosure draft and is higher than the market expectation. “The new level of Feed-in-Tariff will be more proportionate because it is determined by the level of solar radiation in each region. The New Feed-in-Tariff Proposals are aimed at ensuring an IRR of more than 8% across all four regions,” Dong explained.

There is also an additional Feed-inTariff specifically aimed at improving the market for distributed Solar PV projects.

For distributed solar PV projects, the new Policy has proposed an additional 0.42 RMB/kWh Feed-in-Tariff on top of the local electricity tariff to be paid by the grid companies to the project companies. This additional Feed-in-Tariff will generally be for a 20 year period.

Apart from higher Feed-in-Tariff, tax incentives, development of distributed generation and simplifying the project Regulatory Framework approval procedures were also introduced “Government subsidies for solar PV following the issue of the State Council’s projects in China are granted through policy on improving the Chinese solar special programs, such as the PV Building PV industry in July 2013. “China’s strong Demonstration Program, the Golden Sun government support of its domestic solar Program and the Feed-in-Tariff,” Carolyn downstream market has exceeded the Dong, DLA Piper’s Head of Energy in market’s expectation and resulted in a China, said. lot of attention from both domestic and China has one of the largest markets of foreign investors,” Dong pointed out. renewables in the world and has rich solar Currently, there are at least 15 legislaresources across its territory. Although tive provisions concerning the Chinese China has been initially slow in develrenewable industry. The most recent ones oping its own solar market, the start of are: the Notice of the Ministry of Finance 2010 saw the solar energy market start to on the VAT Policies on Solar PV Power gather momentum.

Generation issued on 29 September 2013; In January this year, China raised its so- the Notice of the National Energy Adminlar target for the fourth time in two years istration on Application of Large-scale to 35GW of solar by 20151. At around Usage Demonstration Area of Distributed the same time, China also announced a Solar PV Power Generation issued on 10GW installation goal for 20132.

28 September 2013; the Notice of the She added that China is currently National Development and Reform Comchanging the present solar Feed-in-Tariff mission on Improving the Development in order to further improve the domestic of Solar PV Industry by Utilizing the Price

Carolyn Dong

Edwin Lee

Raj Prabhu

Leverage Effect issued on 30 August 2013; the National Energy Administration’s Temporary Administration Rules of Solar PV Power Generation Plants issued on 29 August 2013; among others. The National Development and Reform Commission (NDRC) and/or its competent local counterparts are in charge of approval of all solar PV projects. It is China’s national authority for accepting and approving all fixed-asset investment projects including renewable projects and the National Energy Administration is the department within the NDRC primarily in charge of energy related projects.

Solar project a viable business?

“Investors looking for solar opportunities in China should keep in mind that there is differential pricing for solar electricity based on the project location. The PV notice establishes three categories of benchmark on-grid prices for solar power,” Chadbourne & Parke’s Lee said.

According to him, these are the price levels paid by solar power generators to state-owned utilities. Given these prices, solar power suppliers are able to sell at a profit since modules are cheap due to overcapacity among solar panel manufacturers and technological advances.

He noted that the difference between the benchmark on-grid price for solar power and coal-fired power is paid by the National Renewable Energy Development Fund (NREDF).Lee also stressed that the benchmark on-grid prices are higher by a fifth than what the industry expected and will help solar panel manufacturers by creating additional demand for their products.“The condition of major manufacturers should be improved by around 80 % if all the provisions in the PV notice are implemented as planned.

On the other hand, this may attract more investment in the manufacturing sector,” he said. Lee further said that the distribution business will also become “hot” given the revised benchmark on-grid prices combined with lifting of the need for approval for construction of residential PV systems.

Loans, credit facilities, strategic financing and framework agreements involving chinese banks to chinese solar companies 2012-2013 YTD (US$ in Million)

China and Japan on pace to be the top solar installers in 2013

Source: Mercom Capital Group

CASE STUDY: Dangjin 3 CCPP

GS EPS continues its story of innovation in Dangjin, South Korea

South Korea’s first IPP continues its track record of innovation

Siemens Energy and its partner, GS E&C handed over the most efficient fossil-fuelled power plant in Asia to South Korea’s GS EPS Co. Ltd. By John Goss

T

he economic growth and development of Korea, from one of the poorest countries in the world during the 1960’s to its statues an industrialized nation today, is truly incredible.

It was during 2004 that South Korea became a member of the elite trillion-dollar club of world economies and is currently ranked as the twelfth largest economy in the world.

A major challenge faced by Korea’s energy sector, during this rapid pace of development, has been the country’s dependence upon imported energy resources. Korea is low in domestic energy resources and is consequently the second largest importer of liquefied natural gas (LNG) worldwide. This is a key factor as there are now many gas-fired power generation units being constructed, and planned, in cities throughout Korea which are aimed at satisfying the nation’s increasing demands for reliable supplies of electricity.

Power producers in Korea are experiencing a rapid increase in the nation’s demands for electrical energy, which is why the country is planning to expand its power generation capacity from 95 gigawatts (GW) today to more than 150 24 ASIAN POWER

“South Korea is planning to expand its power generation capacity from 95 GW today to more than 150 GW by 2030.”

GW by 2030. Gas-fired power plants are expected to account for approximately one-third of this amount. The country says that its CO2 emissions are set to decrease by a third over the same period, although power consumption has been forecasted to increase by around 25 % over the same period.

Independent power producers (IPP) are playing an increasingly important role in South Korea with their primary fuel to date being liquefied natural gas (LNG).

Given the increasing share of renewable energy, in the future gas will also remain the fuel of choice because gas-fired combined cycle power plants unite the highest fuel efficiencies with the lowest emissions of CO2 and NOX per produced kWh. They also provide the highest operating flexibility, the lowest investment costs per kW and a comparably small footprint.

South Korea’s GS EPS is leading the way In this highly demanding energy market environment, South Korea’s first IPP, GS EPS, is operating successfully and continues its track record of innovation. It was in October, 1997 that GS EPS awarded a contract for a new, innovative power plant at their site in Dangjin-City, Chungchong

Nam-do Province, which is approximately 120 kilometers south of Seoul. This power plant, Dangjin 1 (formerly Bugok 1) was the first pioneering step. It was the first power plant in Korea to feature F-Class gas turbines and the first in Korea and to utilize the Siemens SGT6-4000F. At the time of its commissioning in 2000, Dangjin 1 became the most efficient power plant in Korea.

Then in 2006, GS EPS awarded Siemens a follow-up order for an extension of the Dangjin Power Plant, the Dangjin 2 project. This power plant, featuring an upgraded model of the same SGT6-4000F gas turbine, was supplied on a turnkey basis in collaboration with GS E&C as a consortium partner. The installation and commissioning were completed one month ahead of schedule in February 2008. The Dangjin 2 CCPP, in a “2+1” multi-shaft arrangement with a net capacity of 565 MW and a net efficiency of 58.6 %, became the most efficient and environmentally-friendly power plant in Korea.

Continuing its story of innovation in Dangjin, at their Bugok site, GS EPS and Siemens partnered again in March 2010 in a joint venture to bring the very latest gas turbine technology to Korea.

CASE STUDY: Dangjin 3 CCPP In collaboration with GS Engineering & Construction (GS E&C), Siemens has supplied a complete turnkey H-Class single-shaft combined cycle plant for Dangjin 3. This is the first deployment of the Siemens new groundbreaking H-Class gas turbine SGT6-8000H and the corresponding combined cycle technology in a single-shaft arrangement (SCC6-8000H 1S) which will yield a combined cycle efficiency rate of over 60 % (LHV basis/ net). This 60 % efficiency level at Dangjin 3 serves to help the Korean operator, GS EPS to save up to 20,000 cbm of natural gas per year.

The new Dangjin 3 (formerly Bugok 3) embodies some of the most advanced features available today in combined cycle technology, producing over 415 MW on one shaft. The plant is capable of an efficiency rate of over 60 % (LHV basis) with highly advanced steam conditions. At the same time, it has enormous operational flexibility and is able to start up in less than 30 minutes to full load (hot start on-the-fly condition), and to de-load very quickly to provide excellent frequency response capabilities. The plant’s HRSG with its Benson®-type HP stage contributes to the fast cycling performance characteristics. In overall terms this configuration represents an optimal balance between the capital cost and plant design, performance and operation, and maintenance factors.

When Dangjin 2 was commissioned in 2008, it was recognized as the country’s most efficient plant. Its two Siemens SGT-4000F gas turbines and SGT6-5000 steam turbine are producing a combined electrical output of 565 MW at an efficiency level of 58.6 %. Compared with this already exceptional baseline, the new Dangjin 3 Power Plant’s single gas turbine and steam turbine will produce almost 75 % of Dangjin 2’s power capacity, produc-

ing 415 MW at an efficiency rate greater than 60 %. These high efficiency levels have a significant impact on both the economics and the environmental friendliness of the plants.

Annually, the Dangjin 3 plant will save more than three % of its natural gas fuel per kilowatt hour compared with the Dangjin 2 plant. Assuming operation at base-load, this will result in significant savings of up to 20,000 cubic meters of natural gas per year. In comparison, a typical LNG tanker carries four to five tanks of LNG of approximately 35,000 cubic meters, This means that Dangjin 3 will save one tank of LNG every two years, one complete LNG tanker load every eight years, or three LNG tanker loads over its projected 25-year economic lifespan.

World-record efficiency for Asia The Dangjin 3 Combined Cycle Power plant (CCPP) was commissioned in August 2013. Siemens Energy and its partner, GS E&C handed over the most efficient fossil-fuelled power plant in Asia to South Korea’s GS EPS Co. Ltd. The handover of Dangjin 3 breaks the 60 % efficiency barrier for the first time in Asia.

Since commissioning, the plant has been operating almost uninterrupted to supply power to the grid.

The single shaft configuration, in which both the gas turbine and the steam turbine operate on the same generator, was implemented for the first time in Korea.

The location of the SSS clutch, between the generator and the steam turbine, supports flexible start-up in the single shaft configuration.

With the new Dangjin 3 power plant, Korea will have the most efficient, economical, and environmentally-friendly combined cycle power plant in Asia. This continues the strong history of innovation

“Annually, the Dangjin 3 plant will save more than three % of its natural gas fuel per kilowatt hour compared with the Dangjin 2 plant.”

between Korea’s GS EPS and Siemens, and again positions both companies at the leading edge of the power industry in Korea. Dangjin 3 has set the trend for the power industry in Korea, where today another four power plants based on the same technology are under construction with plans for more in development.

The introduction of this technology in Korea will reduce LNG consumption, lower electricity rates and reduce emissions, contributing its part to making Korea a greener and more prosperous country. Together with GS E&C, Siemens sought out many other local companies as suppliers for the major components, equipment and services. This approach has meant that Dangjin 3 Power Plant has become a real Korean product, representing another benchmark in Siemens close collaboration with Korea.

ASIAN POWER 25

FEATURE: WATER SHORTAGE

The power sector has been c10% of China’s water use

Warnings that China’s water crisis could curb plant builds

HSBC estimates 1.8mt of water could be saved from consumption if China adds only 50-84% of planned coal power capacity by 2015.

C

hina is under pressure to reconcile converging trends of energy demand and resource scarcity. The coal industry, from mining to power generation and coal-to-chemicals conversion, accounted for roughly one-sixth of China’s water withdrawals in 2011. HSBC however warns that this level of water use is not sustainable with water tables declining and in some areas coal mining is already being constrained.

In a scenario analysis to assess future coal-related water withdrawals, HSBC found that China should be able to reduce its coal-related water use, even compared to 2008 levels, if it adopts energy efficient growth policies (restricting coal use to c2020 levels) and better technologies.

Power sector’s water use Historically the power sector has been c10% of China’s water use. HSBC expects this proportion to fall as the growth rate of thermal new power station falls and renewable energy (which uses minimal water) continues to take a larger share of total new build, though in absolute terms this is expected to rise over the next few years as China’s use of coal-fired power increases.

According to HSBC, China has continued to improve the efficiency of water use in thermoelectric power plants with unit

26 ASIAN POWER

water consumption rates declining from 3.9 kg/KWh in 2001 to 2.34kg/KWh in 2011, down 40% over the decade.

The government set a higher growth target for thermal power installed capacity than national water withdraw caps during 2010-20.

HSBC believes China will continue to introduce more water efficient technology and management in order to replenish the strict water intake requirement. Less coal power new-build will also reduce water use.

HSBC believes that China needs only 50-84% planned new generation capacity by 2015, reflecting the maturing economy and more efficient use of existing coal-fired power station fleet. Very broadly, it estimates 1.8mt of water could be saved from consumption if China adds only 50-84% of planned coal power capacity by 2015.

Alternative energy uses less water HSBC believes increasing renewable energy could help to save water to some degree.

Hydropower uses water as its fuel by running it through turbines and discharging it to a water body further downstream. In this process, the water remains unpolluted and the hydropower production process is therefore by definition non-consumptive.

Wind and solar power generation use vir-

Coal power still contributes c80% of total power generation despite a gradual decline in its share of total capacity.

tually no water. Hydro and coal fuel sources have dominated China’s installed power capacity for the past two decades.

HSBC notes that coal power still contributes c80% of total power generation despite a gradual decline in its share of total capacity (74% of total capacity in 2005 vs. 69% in 2011) because it has a higher utilisation rate than other forms of power generation.

China saw a fuel mix change in the past decade, as the number of coal new-builds was capped by environmental concerns and a desire to diversify fuel sources.

According to HSBC, there has been a significant increase in renewable energy new-builds, especially wind (6% of total installed capacity in 2012 versus none in 2005), solar, and gas.

Total renewable installed capacity (excluding hydro) accounted for 9% of total capacity in 2011 (7% of generation) versus 2% of total capacity (2% of generation) in 2005.

On 8 January 2013, in China’s annual national energy work conference, Liu Tienan, Director of National Energy Administration, said China would add an additional 18GW wind and 10GW solar capacity in 2013, which beat market expectations.

HSBC believes this affirmed the new government’s encouraging attitude to alternative energy development.

Water source – fresh or recycled?

HSBC notes that China has strong policy support and targets to improve treatment capacity by 2015 which will likely increase the supply of recycled water available and help the power sector to meet its targets.

According to Frost & Sullivan, of the 71bn tons of water used by the thermal power industry in China in 2008, about 65-75% of water is used in the cooling process and 75-80% of the cooling water was recycled from wastewater.

In other words, more than half of the water used by thermal power comes from recycled sources.

China’s State Council has issued the “Norm of water in take” act for thermal power industry in April 2010 to strictly control the water usage.

China new builds by fuel type HSBC forecasts vs officials

Source: HSBC estimates, CEC, NEA

OPINION

WILLIAM BYUN

Achieving market competitiveness in the solar industry

BY WILLIAM BYUN Managing Director Asia Renewables - Singapore

W

ith the season for New Year’s resolutions also comes the inevitable resigned sighs of policymakers in the region approaching solar. Yes it is good for you.

Yes, I will exercise and quit smoking and lose weight this year and support solar etc etc. And yes, with that sigh, it needs a FiT prop without which its competitiveness against baseload isn’t quite there.

For the rapidly growing economies of Asia, especially in ASEAN, renewables in general pose a conundrum of conflicting desires and pains. The strong economic growth simply requires more generation capacity, and renewables could deliver quick MWs on the ground without the concern about imported energy security.

On top of it, renewables are socially popular too. However, in addition to a host of niggling aches such as occasionality and size, simply they are more expensive than fossil alternatives.

Solar in particular highlights these issues due to the limited output restricted to sunny daylight hours, scale of acreage needed per MW, and its cost. Even with the recent drastic price falls in panel costs, the cost comparison for solar is still roughly 12 cents/kwh vs 4 for coal, give or take some variance.

As a result of such conflicting pressures, various countries have or are in the process of, rolling out FiT support programs for solar development in the region.

The most successful of these has been the program in Thailand under the straightforward VSPP program where solar tariff adders of 5.5 Baht per kwh as well as simplified PPA and grid interconnect has resulted in a successful rollouts of numerous 10+MW solar farms, ongoing support programs for additional solar, an umbrella program for 800MW over local villages, and an ambitious target of 3000MW by 2021.

The comprehensive and established nature of the program gives confidence to developers and investors to pursue solar development in the country. Simply, it works.

Other entrants such as the Philippines and Malaysia have introduced new solar support programs. However, these still have various teething issues such as a highly segmented and stratified cascade of FiT prices over different KW and MW outputs as well as declining price support over time.

Most challenging, an overall cap on the total MW eligible for the FiT supports (for example 50MW in the case of the Philippines) means that there is less of an overall market growth incentive than a narrow niche play to grab a very limited real estate. Especially for operators and investors needing scale, shaving the pie thinly may raise transaction costs and uncertainty.

In the case of Indonesia, the situation is even more complex due to some additional layers of uncertainty due to the governance between local PLN and central PLN over the scope and applicability of the renewables FiT terms, the ongoing ownership structural questions involving the scope of foreign and domestic entities, and the upcoming Presidential election cycle. The complexity of Indonesia though, may also provide a key into where renewables, even solar, may be able to achieve market competitiveness.

Indonesia is a sprawling archipelagic nation of 17,000 islands across a geographic distance spanning New York to California.

However, the number of islands connected to a backbone grid is 28 ASIAN POWER

just “3”, in effect leaving thousands of major island population and business centers dependent on local spider grid networks and too often on expensive and limited imported diesel gensets.

Therein lies the opportunity for renewables to finally achieve market competitiveness on its own. The avoided costs of such fuel oil generation then sets the market competitiveness threshold at between 14 to 20 cents per kwh which suddenly makes even solar, a viable cost alternative.

There are enough such concentrations of demand of 50+MW to make solar plants scalable across multiple locations. Even in a “cup half-full half-empty” outlook, while Indonesia has a comparatively low electrification rate of 65% with over 90 million people without electricity, it also means that due to the island nature of the country, that over 140 million people and businesses do have access in concentrated economic geographies and for those locations, even daylight augmentation by solar could help ease the strain on the existing local genset and fuel oil generation systems.

The more local the spider grid too the more compact the way potential load and wheeling issues could be addressed too.

Finally, similar to the private-sector driver for solar in parts of India, the island demand pockets also encompass significant concentrations of corporate demand (including even some export industries). In turn, such concentrations could be creditworthy or financeable in their own right, and hence the financial profile of potential supply projects would then be based on private sector demand rather than only on a national FiT basis.

Pricey renewables

ASIAN POWER 29

OPINION

JOHN GOSS

Increasing demands drive China’s natural gas industries john.goss@ceejay.com.hk

G

reater than ever demands for natural gas supplies across China could increase the nation’s imports for this less polluting energy resource as high as 50 % by 2020, say industry experts. The country’s dynamic expansion of both its economy and urbanization has provided growth markets for the consumption of natural gas.

This rapid growth in the utilization of natural gas is making it problematic for its domestic production capacity to develop at the same pace. Natural Gas imports into the country doubled in the first seven months of last year to 16.8 billion cu m, according to the National Development and Reform Commission (NDRC).

The NDRC said that apparent demand, including domestic production plus net imports, stood at 73.8 billion cu m in the period January to July last year.

China’s domestic demands for the cleaner burning fuel have been projected to rise 25 % a year during the 12th Five Year Plan (2010-2015) period. This figure would indicate that domestic consumption will exceed 260 billion cu m by the year 2015.

When comparing this figure with China’s average annual production of the gas over recent years of 100 billion cu m, with slower growth rates year by year, there is clearly a sizeable disparity.

Industry analysts say that the supply gap will surpass 120 billion cu m by the end of 2015. They say that with this situation on the horizon China will have to increase its levels of natural gas imports.

However, the country’s natural gas industry will continue to grow at a high speed through to 2025 with clean energy driven power generation showing increasing importance. This situation will bring massive opportunities for both foreign and domestic power equipment manufacturers and suppliers. The sectors that present massive opportunities are: distributed power generation, technology, exploration, production and transportation.

In recent years, the Chinese Central Government has been taking positive steps towards reducing the county’s carbon emissions and setting far stricter standards for a number of key industries for their levels of emissions which is presenting real opportunities for distributed power generation programs that the Central Government actively encourages.

Boosting unconvential gas output Unconventional gas exploration activities across China are being significantly increased by the country’s upstream gas producers.

These forecasted increases into exploration and production have been triggered by a nationwide natural gas price increase. Reports say that China will almost triple its domestic output of unconventional gases, such as: coal-bed methane, shale gas and tight gas, by 2020.

The domestic supplies of unconventional gas in China have been estimated to rise to 120 billion cubic meters per year by 2020, says China Petroleum & National Corp. in a newsletter posted on its website. The country’s gas suppliers may be encouraged to boost their production of unconventional gasses after the prices were increased, say industry analysts. China raised its City-Gate prices for non-resident users by an average of 15 % recently, which was the first such increase for three years.

The recent completion of a natural gas pipeline in the southern

30 ASIAN POWER

province of Guangdong means that domestically produced gas resources in the South China Sea and imported liquefied natural gas (LNG) can now be supplied to the energy hungry Pearl River delta (PRD) in south east China.

The new gas pipeline is expected to be delivering around four billion cu m of natural gas produced by CNOOC’s Liwan 3-1 block in South China Sea, says the General Manager of the Guangdong Natural Gas Grid Co Ltd., Wang Ge. This reported volume of natural gas will be in addition to the three billion cu m of LNG imports being delivered by the LNG receiving terminal in Zuhai. The natural gas is being delivered to the southern megacities of Zuhai and Zhongshan annually.

Power plants in the region will be receiving around 60 % of the total seven billion cubic meters of the natural gas available with the remaining gas being supplied for residential use, said Wang. During the current 12th Five Year Plan (2010 – 2015), the company is planning to construct a new natural gas pipeline of around 2,000 kilometers which, when completed, will then enable an annual delivery capacity of 60 billion cubic meters to the PRD. At this moment in time the news in China is full of reports and articles about the growth and utilization of natural gas and unconventional natural gas across the country. This energy boom is being driven by the urgent need to reduce the nation’s carbon emissions and environmental footprint. The sheer pace of change and the resources being put into this new thinking and operating is very impressive and encouraging, especially if you live in China.

Unconventional gas exploration activities set to boost

ASIAN POWER 31

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