Asian Power Magazine (January to February 2016)

ISSUE 73 | DISPLAY TO 29 february 2016 | www.asian-power.com | A Charlton Media Group publication

US$360P.A.

gdf suez renames to engie CEO Mestrallet tackles the shift to digitalisation, decarbonisation, and decentralisation

MICA(P) 248/07/2011

first China stubbornly holds on to coal-fired power

country report Myanmar lavishes on power infrastructure

sector Report Indonesia to lead geothermal by 2024

first Thailand targets mega solar power

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PAGe 7

FROM THE EDITOR

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015 has closed, but troubles that ailed the power sector then has followed the industry to 2016. In this issue, Asian Power reveals that power-hungry China is awfully torn between pleasing the world with coal power reduction amdist growing discussion on climate change and further growing its export of coal-fired power plants. Furthermore, its thermal IPPs are grappling with disappointing profit margins as thermal power plant utilisation levels have tumbled downhill.

Publisher & EDITOR-IN-CHIEF Tim Charlton production editor Roxanne Primo Uy art director Bryan Barrameda

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India’s power sector is not spared as its power distributors are gradually becoming poorer. These financially-stressed firms are finding it difficult to purchase power from power generators and analysts are getting worried about this alarming trend.

On quite figuratively the bright side, both Thailand and Singapore are making big steps in pushing for solar power’s inclusion in their energy mix. Thailand is getting serious on making the country a mega solar power hub despite investment challenges. Singapore, on the other hand, has forayed into the renewable energy bandwagon, determined to harness the power of the sun in fuelling an economic powerhouse that demands a great deal of power supply.

Myanmar is part of the good news as it focuses on power infrastructure development to spur economic improvement. The country currently has a lot on its plate with regards to the absolute amount of additional capacity needed, but it is dead set on making this happen. Will it succeed in its ambition?

Start flipping the pages and enjoy the Asian Power!

Tim Charlton

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ASIAN POWER 1

EDITORIAL CONTENTS

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ceo interview GDF Suez changes to ENGIE, zooms in on energy efficiency, decarbonisation, and digitalisation

FIRST 06 China stubbornly holds on to coal-fired power 07 Thailand targets mega solar power 08 Will coal power be outpaced by hydro & wind?

10 Philippines’ energy shift is taking too long

OPINION 32 JOHN GOSS: China topping the world table in renewable power STEPHEN WEBB: How the Paris Agreement will power Asia

Published Bi-monthly on the Second week of the Month by Charlton Media Group 101 Cecil St. #17-09 Tong Eng Building Singapore 069533

2 ASIAN POWER

22

PEOPLE PROFILE: VPOWER VPower zeroes in on ‘’cost-effective’’ power solutions to target the Asian energy market

16

sector report: GEOTHERMAL Indonesia basks in “hot spot” to be Asia’s largest geothermal market by 2024

ANALYSIS 26 Why everyone should watch out for the transformation of the Indian electricity sector

30 Vietnam struggles to solve unstoppable surge in energy demand

COUNTRY REPORT 14 Myanmar lavishes on power infrastructure 20 The Little Red Dot goes big on solar power

For the latest news on Asian power and energy, visit the website

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

IPP

CLP, HK Electric to slash net power tariff by 1% in 2016 CLP and HK Electric will cut their net power tariff by around 1% in 2016, according to company announcements. CLP’s net tariff will drop HK$ 0.01/kWh, or down 0.9% from 2015, while HK Electric’s net tariff will drop HK$ 0.015/kWh, or down 1.1% from 2015.

All of the reduction comes from a lower Fuel Clause Charge, which is used to cover the cost of fuel for power generation. According to Barclays, the magnitude of fuel clause tariff reduction was less than their expectation.

POWER UTILITY

Moody’s predicts stable outlook for Asian power sector Moody’s Investors Service says that its stable outlook for the power sector in Asia Pacific (ex-Japan) is underpinned by steady demand, low input costs for most countries and transparent tariff mechanisms for some countries.

However, the outlook for India’s power sector remains negative, reflecting structural challenges.

“Steady demand for electricity in most countries in the region, and low input costs under stable market structures will allow most power companies to recover capex,” says Mic Kang, Moody’s analyst.

POWER UTILITY

China failed to boost nuke installation capacity to 40GW in 2015 China has fallen behind its 12th FYP target to raise its nuclear installation capacity to 40GW by the end of 2015, with only 24.14GW installed as of 15 September. This is mainly attributed to the temporary suspension of inland nuclear project approvals.

Following the Fukushima accident in 2011, only two projects in coastal area have been approved. Evan Li, analyst at HSBC, said that although China is set to fall short of its target in 12th FYP, its target for 2020 has remained unchanged at 58GW, as laid out in the latest Energy Development Strategy.

Diamond Energy’s Smart Grid Solutions power new ground in Vietnam Pilot Demand Response programs implemented in Ho Chi Minh City generate savings for industrial and commercial electricity consumers who deliver electricity demand reductions when requested by the grid

4 ASIAN POWER

CO-PUBLISHED CORPORATE PROFILE

OWL Energy: Harnessing the region’s potential through expansion and diversification

Thanks to a dynamic corporate culture, one of Asia’s largest energy consultants is poised for growth in sites and services.

OWL’s managing director, Tony Segadelli

W

ith much of the Asian region’s economic climate turning cautious on China’s financial woes earlier this year, few companies saw the need for optimistic outlooks and began trimming potential expansions plans. Asia, after all, is still one of the world’s most competitive markets as far as economic potential is concerned, and where risks must always be weighed and leveraged.

Other firms, however, are opting to take a different course and strike out toward the path of determined growth. Power consultancy firm OWL Energy, Ltd., for instance, believes growth is possible within the East Asian region and even beyond, with new countries already identified for future operations beyond its current engineering offices in the Philippines, Thailand, and most recently, Japan.

“East Asia remains our key focus for the foreseeable future. I expect to be based in Tokyo until late 2017,” shares Tony Segadelli, OWL’s managing director, who, aside from a 20-year tenure in East Asia, possesses extensive experience in the power generation sector.

Expanding in Asia “The Thai office has for many years been able to take care of itself, and more recently, the Philippine operations have achieved the same status.

This means that I can spend time with OWL’s Japan team as we focus on expanding our business in Japan, where we are working

on a dozen solar projects and moving into wind, plus discussing geothermal and biomass opportunities,” Segadelli says.OWL does not expect to remain in Japan for too long, however, even with Segadelli’s base of operations there.

“Sometime next year we aim to open an office in ASEAN, with the most likely locations being Jakarta or Yangon, although we are also investigating alternatives,” Segadelli adds.

OWL, considered to be one of East Asia’s largest power consultants, provides a broad range of expertise in the power industry, covering mechanical, electrical, controls and instrumentation, shipping, mining, civil works, and water. For 2016, plans are already in the pipeline for the company’s further expansion.

More diversified projects “The key plans for OWL for 2016 are to further cement our business in each country. Regardless of where the new office is situated, OWL will be heavily focused on making the most of our early mover advantage in Myanmar and our strong knowledge of the Greater Mekong,” Segadelli notes, adding that OWL’s knowledge of Myanmar continues to expand.

OWL’s current presence in Asia is not

without any challenges, however, given the economic and political volatility.

“The global economy continues to be in doldrums, Thailand has replaced political risk with economic malaise, and the Philippines has a regulatory regime that results in a stopstart approach,” Segadelli recalls.

Aside from ensuring robust operations throughout Asia, OWL is also pushing for a broad diversification of its development portfolio to include projects linked to renewable energy projects, in addition to non-renewable energy projects.

For the longest time, OWL has taken a decisive lead in championing renewable energy, Segadelli claims. “Having worked on more solar projects in ASEAN than any of our competitors and being highly active in biomass, wind, WTE and large scale bioethanol sectors we expect to reinforce our advantage in these technologies,” he says.

“However we will also continue to work on fossil fuel projects throughout the project cycle. Oil, gas, and mining are not especially attractive markets at the moment; however, they will re-emerge within our planning time horizon (now to 2033),” he adds.

Aside from doing consulting work on projects, OWL is also aiming to create focus on more equity projects aside from its current wind farm and Napier grass projects.

“An area where we will diversify completely is into equity projects. These will be a smaller part of the business; however, it gives an opportunity to differentiate ourselves from the competition by proving that we walk the talk, plus it gives employees an opportunity to invest in ourselves,” Segadelli explains.

A strong corporate philosophy Critical to OWL’s current success and to its future plans is the company’s strong commitment to excellence and customer satisfaction.

“The WorldBank advises that there are major risks to emerging market economies; however, OWL has ‘weathered our way through this since our establishment and we will continue to grow based on our culture,” Segadelli says. “Our biggest differentiator is that quality of service is built into the very fabric of our business, as is enjoying ourselves whilst working. We have a strong culture of promoting good performance,” he adds.

“OWL Energy believes growth is possible within the East Asian region and even beyond, with new countries already identified for future corporate facilities.”

ASIAN POWER 5

FIRST power generation at home: coal-fired power generation this year will be at the same level as in 2011. In the meanwhile, power demand has grown 20%, and all of that growth has been covered by non-fossil energy. Coal use on the power sector peaked in 2013.

Going forward, power demand growth will be slower and renewable energy growth will be faster, meaning that coal use for power is in structural decline.

Evan Li, head of Utility & Alternative Energy Research, Asia Pacific, HSBC adds that in China’s 12th FYP (FiveYear Plan, 2011-15), it targets to control the emissions of coal-fired power plants by lowering per-unit intensity against GDP (from 2010-level) by 16% (SO2), 29% (nitrogen oxides) and 29% (CO2).

“These targets have already been achieved in 2014, ahead of schedule,” Li says.

India’s power players are getting poor

As if India’s power sector woes aren’t enough, its financially-stressed power distributors have become the country’s latest troublemakers as they continue to cut down on purchasing power. This inability to buy power from power generators has pushed the gencos to suffer low and declining capacity utilisation--and analysts are becoming wary about where this worrying trend will lead.

This underscores the importance of making sure that power distributors’ financial health is in tip-top shape.

“For the first half of the financial year ending March 2016, the overall coalfired plant load factor (PLF) in India fell 3.2pp YOY to 60%, with that of central-government-owned generation companies (gencos) falling 1pp YOY to 72%, state gencos falling 5pp to 55% and private gencos down 2.3pp to 57%,” says Rachna Jain, associate director, APAC Energy & Utilities, Fitch Ratings.

“The country’s gas-based PLF for the period was unchanged at a low level of around 22%. The 7pp increase in private gencos’ PLF to 19% was offset by the 5.3pp drop in central gencos’ PLF to 23% and a 2.9pp fall for state gencos to 23%. It is primarily fuel unavailability that led to gas-based capacity either stranded or operating at grossly suboptimal levels,” Jain adds.

The situation has prompted the government to introduce a “revival package” in November 2015 for the distressed distribution companies.

Although Jain is positive that it will provide some breathing space, she warns that successful implementation of adequate and timely tariff hikes, and lower aggregate technical and commercial (AT&C) losses will be essential to sustain structural improvement.

Separately, the country’s thermal power-generation capacity has increased by an impressive 11% over the last year to 194GW driven by the addition of coal-fired power plants and privately owned facilities.

6 ASIAN POWER

China clings tight to coal power

China stubbornly holds on to coal-fired power

W

hen the OECD agreed to restrict subsidies for coal-fired power plants’ exports, both investors and the press had a field day. It was a big step in curbing the growth of global coal-fired power generation and it could have been a phenomenal day for the power industry--except that China, the biggest elephant in the room, was missing when the coal power reduction pact was made.

The world’s coal-fired power generation fleet is almost 1,900GW and half of it is China’s. “That in itself should make any deal less groundbreaking than it initially appears,” Ephrem Ravi, analyst at Barclays, says.

“The average utilisation rate of Chinese coal-fired power plants has been 49% YTD and the current project pipeline will add c.5% per annum to capacity over the next two years. So Chinese capacity growth itself could offset any retirement in old coal fired power plants in developed countries, let alone the degree of overcapacity in power generation domestically in the first place.”

On the bright side In China’s defence, Lauri Myllyvirta, senior global campaigner at Greenpeace, says that the power giant has already accomplished a completely amazing feat in reducing coal-fired

Evan Li

Lauri Myllyvirta

China’s schizo role in power “The problem that we have highlighted is that Chinese state-owned companies and local governments have failed to scale back investment in coalfired power plants in response to the triumph of clean energy and to the slower power demand growth stemming from fundamental structural changes in the economy,” Myllyvirta clarifies. “Hence China is still building more than one coal-fired power plant per week while coal-fired capacity is already sitting idle half the time.”

As an overseas supplier of power generating infrastructure and finance, China plays a slightly schizophrenic role as the largest producer of wind and solar power equipment in the world on one hand, and as a growing exporter of dirty coal-fired power plants on the other, Myllyvirta says. Wawa Wang of CEE Network agrees to this, saying that the recent US-China high level joint statement spells out China’s determination to ‘’strictly control’’ public financing projects of high pollution and carbon emissions both domestically and internationally.

Installed capacity mix as of October 2015

Source: WIND, Barclays Research

FIRST Thailand expects to increase its solar capacity to 6,000MW by 2036, which would account for 9 percent of total electricity generation and help provide electricity for 3 million households.

Solar panels in Chiang Mai, Thailand

Thailand targets mega solar power

I

f there’s one blessing in disguise Thailand must be grateful for, it should be their country’s year-round scorching heat. The tropical country’s natural gas reserves are likely to run out in a decade and this has forced them to gamble their efforts on solar energy.

Now, Thailand is making aggressive steps to be the region’s mega solar power hub and they are dead set on making this happen by 2036.

By end-2015, Thailand will have more solar power capacity than the rest of southeast Asia combined. In less than ten years, solar energy has gone from accounting for less than 2MW to about

1300MW in 2014. This year, capacity is projected to increase to between 2500MW and 2800MW, which would mean an increase six times higher than the year before.

“Looking into the future, Thailand expects to increase its solar capacity to 6,000MW by 2036, which would account for 9 percent of total electricity generation and help provide electricity for 3 million households,” notes Fernando Vidaurri from Dezan Shira & Associates. “The continuous interest of the Thai government to develop this industry and to provide subsidies presents investment opportunities in a

sector that has barely been developed by its neighbors.”

In fact, it has particularly piqued the interest of Chinese solar energy developers and manufacturers. Georgina Hayden, senior energy & infrastructure analyst at BMI Research, says that project announcements over the past months attest to this, with Hong Kong-based Symbior Solar announcing in August 2015 that it will develop three new solar projects in Thailand, adding to Symbior Solar’s capacity portfolio of six solar facilities with a combined capacity of 30MW across Thailand.

“Thailand’s SPCG maintains a large pipeline of commercial solar projects.

Even though SPCG has already completed 36 solar power projects with a combined capacity of around 260MW over the past four years, the pipeline for solar power projects remains large,” Hayden adds.

However, Dr. Sopitsuda Tongsopit from Energy Research Institute, Chulalongkorn University warns that the current market for solar power in Thailand is non-competitive and can limit the role of the private sector.

“The lack of competition in Thailand’s solar market has meant a high risk environment for investors,” she says.

Solar on the rise

e/f= BMI estimate/forecast Source: National Sources, BMI

the chartist: HOW WILL LOWER GAS PRICES IMPACT CHINA’S POWER SECTOR? Lower prices of natural gas globally will boost gas-fired power generation in many major countries including China in 2016 and result in an uptick in the share of gas in the global power mix. In China, BMI Research predicts the trend will be driven by the government’s decision to reduce natural gas prices for power generators and its commitment to curbing more polluting coalfired power generation. China’s National Development and Reform Commission announced in November 2015 that gas prices for business and industrial users will be cut by an average of 28.0% across the whole country - a necessary move to alleviate growing risks of a supply overhang in China’s heavily contracted gas market.

BMI forecasts Chinese gas-fired power generation to expand by 15.7% in 2016, totalling 103.87TWh.

Lower prices, green policies to boost gas power

e/f= BMI estimate/forecast Source: EIA, BMI

Gas to be increasingly important in global power mix

f= BMI forecast Source: EIA, BMI ASIAN POWER 7

FIRST

Will coal power be outpaced by hydro & wind?

IPP WATCH

CGN New Energy expands wind and solar power assets

W

hen it comes to power generation in Asia, coal is still undeniably the king. But growing investor interest in hydroelectric and wind power has got analysts thinking that maybe coal is being dethroned very, very slowly.

Now may not be the time for investors to turn their noses up at coal as overall investment is still hitting almost US$900b, however, Neil Martin, manager at Timetric’s Construction Intelligence Center, says that renewable energy such as hydroelectric and wind power is getting increased prominence in the Asia-Pacific region, currently valued at US$389.3bn and US$184.7bn respectively.

“China, although increasing investment in renewable energy, is still spending heavily in coal and nuclear power generation with projects valued at US$104bn and US$203bn respectively. Moderating growth in the economy and environmental concerns in the large cities is beginning to have an effect, so the growth of coal power generation has peaked,” Martin says. It currently accounts for 77% of capacity and will continue to provide the majority of power generation for the coming years.

Hydroelectric, in second place

Coal power plant in Indonesia

after coal, will make inroads into hydrocarbon fuels’ share of power generation. “While in countries such as Nepal and Laos it is the predominant power generation source; however, India, China and Pakistan dominate the value of projects for hydroelectric, with India accounting for a value of US$97bn,” Martin says.

Developing nations enjoyed a 24% increase in wind investment to $58.2 billion last year, their share of this technology expanding to 59%. With $38.6 billion, China alone accounted for over two-thirds of the wind financing in developing countries, driven in part by anticipated reductions in the feed-in tariff.

Bloomberg New Energy Finance claims in a report that taking the middle of the 2014 range, and an average capital cost of $1.75 million per MW, as estimated by BNEF, would be equivalent to investment of around $31 billion last year.

CGN New Energy Holdings Co., formerly CHN Meiya Power, has completed the acquisition of 13 wind power projects companies and 6 solar power projects companies with an aggregate operational installed capacity of approximately 1,400MW. CGN New Energy is focussing on the integration and assimilation of these wind and solar power assets with its existing projects.

Renewable energy such as hydroelectric and wind power is getting increased prominence in the Asia-Pacific region, currently valued at US$389.3bn and US$184.7bn respectively.

Malaysia is still immature for nuclear power use If the big “yes” is finally revealed for the construction of two nuclear plants in Malaysia, it will soon be joining the nuke bandwagon by 2030. This is despite apparent protests from activist groups and the absence of a final detailed timeframe for the nuclear plants’ actual construction.

The development of the two plants is estimated to cost RM23.1bil (S$7.68bil) and will be able to generate 1,000 MW. With these numbers in mind, will Malaysia be able to make this happen? Nuclear engineer and energy expert Akira Tokuhiro says that although this plan is impressive, it is overly ambitious.

“Realistically, as nuclear energy requires a high-educated engineering workforce as well as a construction technology workforce adhering to high standards of quality and verified workmanship, this infrastructural challenge can easily take 15 years itself,” he says.

The main challenge, he says, is infrastructure-both in terms of a skilled/educated engineering and technology workforce and larger, heavy industrial concerns that can meet the high standards in construction, operations, maintenance and management needed for nuclear power.

8 ASIAN POWER

Sembcorp forms joint venture in Chongging, China

Sembcorp has formed a joint venture in Chongqing, China, to invest in a 1,620MW coal-fired power project. it has injected CNY925m of equity into ChongQing SongZao Sembcorp Electric Power for a 49% stake in the JV, which has an operational 300MW plant and a 1,320MW plant which will commence operations by 1Q17. The majority share is held in effect by the Chongqing Municipal Government.

Indo Wind to build Indonesia’s first utility-scale wind farm

Kuala Lumpur, Malaysia

Going online soon Malaysia may have to wait until it’s ready for nuclear

Indo Wind Power Holdings, a subsidiary of Asia Green Capital Partner, has signed an EPC agreement for its Jeneponto 1 - 62.5 MW Wind Power Project in Indonesia with Vestas Wind Systems. The project will be the first large utility-scale wind farm in Indonesia and construction is expected to start in May 2016. Indo Wind Power Holdings expects to sign the contract for its other two wind farms in Indonesia in the coming months.

FIRST

Philippines’ energy shift is taking too long

J

ust like its neighbouring countries, the Philippines is setting its eyes on shifting to renewable energy sources and slowly shedding its dependence on coal, oil, and gas for its energy needs.

The country’s market, in theory, is a bright spot for investors along with Thailand and Indonesia, but its attractiveness is marred by policy loopholes that leave analysts frustrated with its potential.

Recent project announcements attest to the Philippines’ investment appeal including the 92.5MW module shipment from Chinese manufacturer, JA Solar Holdings. This represents JA Solar’s first entry into the Philippine renewables market and is representative of analysts’ view that Chinese solar manufacturers will increasingly turn to rapidly expanding Asian renewables markets in order to offset some of the overcapacity in their domestic market.

Renewables developer, Conergy also announced in October 2015 that it is developing over 200MW of solar capacity across the Philippines.

“We have previously noted in our analysis that the ongoing power supply issues in the Philippines will gradually improve over the coming years as a robust power project pipeline is commissioned. Although the project pipeline is dominated by coal, the pipeline for renewable energy is also strengthening, on the back of the strong regulatory environment in place to attract renewables developers into the market,” says Georgina Hayden, senior energy & infrastructure

analyst, BMI Research.

The government seems to be committed to expanding the domestic renewables industry and has implemented a number of policies to encourage investment. These include tax incentives, duty free imports of equipment, a feed-in tariff programme (FIT), net metering and utility quotas - amongst other regulations.

Furthermore, Hayden says, the Philippines has some of the highest electricity tariffs in the southeast Asia region, which allow for attractive returns for prospective developers.

These scenarios seem pretty decent and enticing for investors, but Roberto S. Verzola, executive director, Center for Renewable Electricity Strategies (CREST), thinks otherwise.

The Philippine Energy Plan 2012-2030 “business-as-usual” scenario expects peak demand to increase to 23,158 MW by 2030. To cover the peak demand plus the required reserve margin, a capacity of at least 25,788 MW must be ready by that year.

Verzola says that with 1,767MW of capacity additions already committed, the plan still requires new additions of 11,400 MW over the planning period, to bring the total capacity by 2030 to 27,714MW. This is 1,926MW above the necessary supply of 25,788MW, presumably to cover for the retirement of aging power plants. “If we scaled down the demand using energy efficiency measures and covered the scaled-down demand with renewables only, then peak demand will

Chinese thermal IPP’s profit margins are burning out China’s thermal power plants have been making the rounds among headlines quite frequently as of late due to issues on coal use that are being constantly thrown at them. Unbeknownst to many, IPPs are grappling with another mishap as thermal power plant utilisation levels have dropped alarmingly, making profitability vulnerable to risks. It is true that IPPs with coal-fired plants benefit from low coal prices and higher on-grid tariffs, which support their profitability. Thermal-power plant utilisation levels, however, are under pressure because of lower electricity demand growth, capacity additions and the increasing share of renewable and nuclear energy in the generation mix.

To make matters worse, any further cuts to on-grid tariffs will be negative for the profitability of coal-fired electricity generators. The latest coal-fired power tariff adjustments - the last was in April 2015 - have not followed changes in coal prices in proportion, as China gave thermal IPPs some room to repair damage to their balance sheets that was caused by tariff controls during 3Q08-2010, when coal prices increased substantially.

However, Penny Chen, associate director, Corporate Ratings, Fitch Ratings warns that with the weakening of China’s economic growth and industrial users under some stress, cost of power will be a concern for policy makers.

“A cut in coal-fired power tariffs, when utilisation levels are under pressure, will hurt thermal generators’ margins and delay deleveraging of these entities.

However, bigger-scale and more cost-efficient companies will be better off,” Chen says.

10 ASIAN POWER

Power plant in Laguna, Philippines

have risen more slowly than usual and the renewables-only additions will have sufficed until 2030 to cover the peak demand plus reserve requirements with 670MW to spare, based purely on existing government plans in 2012,” he asserts.

“Sadly,” he adds, “the Philippine government went instead on a construction binge of 23 coal plants that is scheduled to go on until at least 2020, squandering a golden opportunity for the country to show the world how to make an early energy transition to renewable electricity.”

Thermal utilization hours in China have continued to decline in 2015 so far

Source: Company Data, Barclays Research Estimates

We factor in a further decline in utilization hours in over the next two years in our estimates

Source: Company Data, Barclays Research Estimates

ASIAN POWER 11

Gerard Mestrallet CEO ENGIE

12 ASIAN POWER

CEO INTERVIEW

GDF Suez changes to ENGIE, zooms in on energy efficiency, decarbonisation, and digitalisation Structural changes are taking place in the energy market and Engie is already leading the way.

A

s the world moves towards a cleaner energy environment, Engie remains a prime mover in making the transition to being wwwwwwww one of the largest power & gas producers in the world. 2015 was a pivotal year for the world’s energy stakeholders, as the 2015 United Nations Climate Change Conference (COP21) marked the beginning of structural changes in the way power companies do business. At the COP21, nations agreed to targeting zero greenhouse emissions for the second half of the century, which means that power producers have huge changes to make in the way that they build their generation capacity.

Engie seeks to drive this movement forward through innovation of power & gas infrastructure technology and increasing emphasis on large-scale renewable generation. At the helm is CEO Gerard Mestrallet, a veteran of the energy sector who began his career in the industry in 1984 with Suez.

Asian Power had the chance to speak to Mr. Mestrallet about the re-brand of GDF Suez, his outlook on the industry and his plans for the future of Engie.

GDF SUEZ has adopted a new name: ENGIE. What are the Group’s motives for this name change?

The world is shifting towards a new energy reality because of developments in technologies, as well as changes in people’s behaviour and attitude: they want to understand, manage, and in some cases, produce their own energy. The energy transition around the world is happening at a fast pace, and ENGIE takes leadership in this movement. This new reality has prompted our Group to reorganize our businesses and to accelerate innovation, based on digitalisation, decarbonisation, decentralisation and energy efficiency.

Our name change reflects our Group’s transformation and expresses our corporate ambition: to be the energy transition leader and the benchmark energy player in fast growing markets. Our new name, ENGIE, is a powerful and easy name, through which we affirm that energy is everyone’s business: employees, shareholders, partners and customers.

Collectively, we are the architects of the energy future; we are called upon to act together, to be optimistic, and to seek solutions that will improve people’s lives.

In addition to renaming our corporate name, we are also streamlining and simplifying our brand portfolio. In Thailand, for example, our operational company Glow will henceforth reflect a clearer connection to the Group in its logo. Also, our service businesses in Asia-Pacific, known as Cofely, will adopt the ENGIE brand. In streamlining our brand portfolio, we will increase our visibility towards our external stakeholders, and create a genuine spirit of belonging and unity internally.

How do you see Asia transitioning into the new energy world in view of COP21’s agreement?

The COP21 agreement shows that there is a worldwide political consensus for the need to reduce greenhouse gas (GHG) emissions. Asian governments have played an important role in achieving the agreement, such as The Philippines in its leadership role as the chair of the Climate Vulnerable Forum, pushing successfully for the inclusion of a 1.5 degree goal rather than a 2 degree one. Indonesia and Thailand, whose combined GHG emissions represent 70% of ASEAN’s total emissions, have committed to reducing 29% and 20% respectively of their emissions by 2030.

Apart from the political will, there are also important economic drivers for Asia and the Pacific to transition to clean energy. Ongoing economic growth, the strong urbanization trend, a growing middle class and a young population will drive a spectacular increase in the energy demand.Today, cutting GHG emission no longer equals restricting future growth potential.

There will not be just one solution, but a mix of solutions, including solar, geothermal, wind, biomass, gas and decentralised generation. Diversifying the energy mix will be critical for Asia’s economic growth outlook and the private sector will play a crucial role to implement the energy transition. New, disruptive technologies will positively affect the uptake of large-scale renewable energy solutions, as prices drop below those of traditional channels of supply. With decentralized generation and storage systems available at increasingly affordable cost, micro grids will become a more frequent feature in rural areas, bypassing the need for large connection infrastructure. In addition, innovation in battery storage has helped overcome intermittency problems that were the main barrier for wide deployment of solar and wind power.

Moreover, the digital revolution will have significant consequences on the control and optimization of energy systems. Whereas micro grids can substitute the need for costly transmission infrastructure in rural areas, smart grids will replace traditional one-way transmission and distribution grids in urban centers. Distributed generation will complement centralized generation as consumers also become generators.

Smart grids will have the potential to optimize the supply and demand in every minute at every location, while shaving peakcapacity demand in this participative energy system.

What are ENGIE’s ambitions for Asia?

Our strategy for Asia is in line with our Group’s global ambitions, and focuses on decarbonisation, decentralization, digitalization and energy efficiency. Thanks to our global expertise across the energy and gas value chains, we are well-positioned to develop large-scale power and gas infrastructure, and thus securing the energy supply that is critical to Asia’s economic expansion.

Furthermore, the region’s renewable energy potential holds promising prospects, and our technical capabilities and experience can be applied to maximize the output and return on investment. In addition, our energy services businesses have growth opportunities for energy efficiency services as many Asian countries currently consume more than twice the amount of energy per unit of GDP than the OECD average.

And last but not least, our Group can bring in solutions to megacities that will help them to cope with the impacts of rapid urbanization.

How do you plan to achieve these goals and what do you consider the key success factors?

Not only is our business offer changing, so is the way we do business. Through creating stronger roots locally, and becoming a multi-local group, we will enhance our dialogue with our customers and stakeholders, with the aim to cocreate solutions and to design energy solutions for the future.

In an entrepreneurial spirit, we aim to innovate with a digital and energy mix, showcasing the most modern technologies.

ASIAN POWER 13

Country report 1: MYANMAR

Power may be Myanmar’s economic launch pad

Myanmar lavishes on power infrastructure

Tapping Myanmar’s power sector and developing its infrastructure could catalyse the country’s economic lift-off

T

he 2010 election marked the start of Myanmar’s transition from a predominantly military-ruled government into one that was democratic and open. After being stagnant for almost 60 years, indications pointed towards the economy finally getting off the ground, and appetite from investors and donors is only likely to keep improving as the country progresses.

Since then, the country has achieved a number of milestones such as the EU and US lifting economic sanctions on Myanmar in 2012, and key legislation for business and capital markets development being passed in the subsequent years.

However, the turnaround has not been without headwinds as physical

The country currently has an installed capacity of only 4,422MW and a firm capacity of 1,655MW versus a peak demand in 2014 of 2,400MW.

Electricity use per capita in selected ASEAN countries, 2013 (kWh per capita)

14 ASIAN POWER

infrastructure has yet to catch up to the rapidly improving regulatory environment. One key component of infrastructure that has been lagging for Myanmar is power, especially in terms of total installed capacity. The country, although small, currently has an installed capacity of only 4,422MW and a firm capacity of 1,655MW versus a peak demand in 2014 of 2,400MW. Soaring demand Demand has been growing at a CAGR of 15% since 2009, and think tank, KRW International expects this to continue growing at 10-15% or twice projected GDP. Capacity, on the other hand has not been growing at the same pace with total installed capacity staying flat at around 3,500MW from 2009-2013 and increasing to current levels in 2014, which implies a CAGR of 4.8%. Capacity buffer looks quite tight with the peak load much greater than firm capacity, which manifested in demand exceeding total available capacity multiple times in the past few years.

This, in addition to unstable frequency control and load shedding between 8-11am led to certain regions seeing 1216 hour blackouts according to a recent report by the Asian Development Bank.

Power is a key component of economic development and governance, and could hamper the growth of a high-potential

emerging market such as Myanmar.

The ubiquity of electrification is the backbone of key development drivers such as education, healthcare and industrial development, along with other sectors such as tourism, telecommunications and financial services. In response, the Myanmar government has been making efforts in order to engage investors and development partners such as the World Bank, ADB and Japan International Cooperation Agency (JICA) to gather the resources to undertake large infrastructure additions.

According to KRW, investor appetite has been healthy, as “foreign leaders, executives, investors and other parties’ crowd Yango and Naypyitaw to position themselves for this major infrastructure upgrade, and to partake in the decades of strong growth forecast in Myanmar moving forward.”

Electricity access problem Myanmar currently has a lot on its plate with regards to the absolute amount of additional capacity needed, but also has a long way to go in terms of penetration of electricity access in the county. The World Bank estimates that only 52.4% of the total population has access to electricity, and this figure is even lower in rural areas where the rate is only 32%. A recent census conducted by the country’s

Country report 1: MYANMAR The Ministry of Electric Power (MOEP) has been actively identifying sources of additional capacity, already identifying 302 hydropower projects representing potential capacity of 46,330MW

Myanmar needs consistent power sources

Department of Population indicated that about 69% of the population was still using kerosene, candles or batteries as the main energy sources for their lighting needs.

The Center for Strategic International Studies (CSIS) notes three key points for the development of the country’s power situation - addressing the supply-demand balance, extending the national grid, and creating the proper legal and regulatory framework to encourage and incentivise investment.

Capacity additions must be addressed In response to the need to increase capacity, the Ministry of Electric Power (MOEP) has been actively identifying sources of additional capacity, already identifying 302 hydropower projects representing potential capacity of 46,330MW and another potential 40,000MW of projects from other sources that could be constructed near the Thai Border. Hydro is currently the largest source and represents 68% of total capacity, or 3,005MW. This represents a challenge given that only 33% of this capacity, or 986MW, is rated as firm capacity, given that the dry season massively impacts the ability of these plants to generate.

More consistent sources of power represent a much lower portion of the total energy mix, with gas at only 28%, and coal only at 3% of total installed capacity. The country is looking to continue growing the percentage coming from sources that have a higher percentage of “firm capacity” such as coal and gas. The 405MW coal-fired Mai Khot plant is already under construction, which should provide a 9% increase to total installed capacity.

An additional 600MW of coal power is already in the pre-permit development

stage, and more than additional 4,000MW in the feasibility study stage.

There has also already been a tender request for the 200MW Yangon plant and 75MW Myingyan plant, which are both gas-fired.

Increasing electrification rate As to increasing electricity penetration, grid extension and localisation of power sources present two solutions to the country’s very low electrification rate.

According to KRW, “extending the national grid to rural populations is the most efficient strategy for national electrification, both economically and technically speaking.”

The think tank notes that this would be much easier to scale, which both helps affordability by reducing generation cost per unit, along with having the ability to draw and distribute power from multiple sources. The key downside to this would be the large capital requirements to cover the entirety of the country, which may be a tough sell given that investors are likely to choose projects which cover urban centres and industrial zones.

The bankability of projects will be a key consideration, and areas where demand and incomes are higher are more likely to be able to provide adequate returns on capital invested. Off-grid electrification may be a more feasible solution, given the effort and cost involved in expanding grids to these remote regions. For the rural areas of Myanmar, “off-grid systems such as solar panels, micro-hydropower turbines, generators and traditional biomass must be examined.”

According to KRW. solar power is continuing to gain traction as a popular means of off-grid electrification with 130 villages already tapping this source as of 2013, supported by regional governments’ cost sharing programs.

Perhaps the most common headwind to private-sector led infrastructure development in emerging markets is the regulatory environment, and the enforceability of contracts, especially with regards to tariff or rate increases.

Supporting infrastructure According to the CSIS, “entrants remain cautious as Myanmar’s power sector does not yet have standardized practices for joint ventures and power purchase agreements (PPAs) and thus requires time-consuming, case-by-case negotiations.” Sunaloob Renewable Energy managing director, Evan Scandling, notes that the abundance of opportunity may be balanced out by uncertainty.

“There is no model PPA. There are no feed-in-tariffs. Even securing a suitable bank loan is next to impossible for many companies,” says Scandling. However, April 2015 marked an important milestone with regards to development of the country’s regulatory infrastructure as it completed the first competitive bidding for an IPP. Singaporean company, Sembcorp Industries won a bid to operate a 225MW gas-fired plant under a 22-year PPE with a MOEP-backed take-or-pay agreement for the offtake of Myanmar Electric Power Enterprise.

This is expected to serve as the template for future agreements, which helps to allay much of the uncertainty. Financing will be another key component of the support infrastructure that will be vital to the success of this sector. Accessing capital to undertake these large projects remains a challenge, given that most borrowers, especially local energy entrepreneurs, are currently limited to one-year loans at 13% according to CSIS. This presents a huge asset-liability mismatch given the S-curve shaped cash flows of power projects, in addition to the expensive financing rate hiking up the hurdle rate. Financial reforms are currently in place, such as the liberalisation of the banking sector.

Myanmar’s total primary energy supply, 2000-2013

Source: Ministry of Electric Power

ASIAN POWER 15

sector report: GEOTHERMAL

Indonesia is taking great strides

Indonesia basks in “hot spot” to be Asia’s largest geothermal market by 2024

Despite several challenges, the world’s third-largest geothermal market expects to build new geothermal capacity.

I

ndonesia, in more ways than one, may just find itself in a “hot spot” at present, with much potential simmering just under the cover, waiting to peak in the next few years. Aside from the title of the world’s third-largest geothermal market (second only to the United States and the Philippines), the country’s robust geothermal sector is poised to grow by leaps and bounds in the short-term, thanks to a mix of local and international efforts to boost this sector.

The Government of Indonesia plans to achieve around 6,000 MW of installed geothermal power capacity by 2020, a more than a fourfold increase of the end-2012 capacity of 1,335 MW. This ambitious plan will require strong government support to materialise. Any shortfall in the expansion of geothermal power generation capacity willmost likely be met by additional coalfired power plants,” says a 2015 joint Asian Development BankWorld Bank (ADB-WB) report entitled “Unlocking Indonesia’s Geothermal Potential.”

For one, industry sources expect Indonesia to take the lead in global geothermal production by the next decade, with capacity seen to account for nearly 90% of Indonesia’s total renewable installed capacity by 2024, says BMI Research in an Industry Trend Analysis report.

“Indonesia’s renewables industry expansion will be driven by growth in the geothermal segment, resulting in Indonesia emerging as Asia’s largest geothermal market by the end of our forecast period in 2024,” says BMI Research. A burgeoning demand for electricity, coupled with a strong government drive to diversify energy resources, is buoying the country’s geothermal sector, the report noted.

BMI Research expects annual average growth rates in nonhydro renewables generation of 12.1% between 2015 and 2024, resulting in a doubling of non-hydro renewables generation in the country by the end of the forecast period. Similarly, it expects 16 ASIAN POWER

Indonesia’s renewables industry expansion will be driven by growth in the geothermal segment, resulting in Indonesia emerging as Asia’s largest geothermal market by the end of our forecast period in 2024.

non-hydro renewables capacity to surge from a current level of just under 2GW to 4.4GW by 2024. BMI notes that this growth will be primarily driven by the expansion of Indonesia’s already well-developed geothermal industry and it expects geothermal capacity to account for nearly 88% of the total renewables capacity installed in the country by 2024. Much smaller contributions will come from the solar (5%), wind (6%) and biomass (1%) sectors, it says.

A ‘stalled’ sector Indonesia is located at the convergence of several tectonic plates in Southeast Asia, giving it significant geothermal potential, although most of its potential reserves remain unexplored. According to US Energy Information Administration, Indonesia added about 540 megawatts (MW) of geothermal capacity in the decade leading up to 2013, bringing its installed electric capacity to more than 1.3 GW. Indonesia’s current geothermal plants are scattered around Java, North Sumatra, and North Sulawesi and make up less than 3% of total installed generation capacity.

To promote geothermal development, the country’sfast-track electrification plan calls for an additional 5 GW of geothermal capacity by 2022, to be operated primarily by IPPs and private companies. The new government’s 35 GW Electricity Program, launched in mid-2015, includes 1.2 GW of additional geothermal capacity by 2019. The government signed a cooperation agreement with New Zealand in 2012 for joint development of geothermal energy projects. PT Medco Power Indonesia plans to commission the 330-MW Sarulla power plant, which will be the world’s largest geothermal plant by 2018.

Indonesia’s geothermal sector is promising but progress in exploring its huge potential is a mixed bag. While already considered to be a geothermal powerhouse, with geothermal potential estimated at around 28 GW, or 40% of the world’s geothermal

sector report: GEOTHERMAL Indonesia has significant potential to increase geothermal electricity production

Total geothermal capacity by country, MW, 2015 and 2024

Source: U.S. Energy Information Administration

f= BMI forecast Source: EIA, BMI

potential, utilisation, however, is only at around 1.5 GW. EIA in a report, says that “Indonesia’s energy industry has faced challenges in recent years from regulatory uncertainty and inadequate investment.”

“Although Indonesia’s electricity generating capacity doubled in the past decade, the country has a low electrification ratio compared to countries with similar income levels. In 2014, about 84% of Indonesia’s population had access to electricity compared to less than 68% in 2010,” US EIA analyst Candace Dunn says, citing state-owned electric utility, Perusahaan Listrik Negara.

Indonesia’s latest energy policy aims to achieve nearly complete electrification of the country by 2020. In recent years, electricity capacity additions have not kept pace with electricity demand growth, leading to power shortages in grid-connected areas. Dunna adds that inadequate infrastructure as a result of insufficient investment and regulatory hurdles contributes to lower electrification rates, primarily in eastern Indonesia.

Fossil fuels power most of the electricity generation in Indonesia (88%), while renewables, primarily in the form of hydropower and geothermal resources, account for the remainder.

Indonesia intends to use domestic fuel sources and diversify its fuel portfolio to include more renewable power. Plans to increase renewable energy use to at least 23% of the energy portfolio by 2025 depend heavily on further developing the country’s geothermal and hydropower resources.

According to Dunn, Indonesia has included several geothermal power plants in its fast-track program, which is meant to accelerate the development of more than 27 GW of total power capacity in the next several years. Indonesia has focused on geothermal in particular, signing an agreement with New Zealand in 2012 for joint development of geothermal energy projects.

The ADB-WB joint report is more blunt in its assessment of Indonesia’s geothermal sector, noting widespread perceptions that Indonesia’s geothermal program has essentially “stalled”: “From 2010–2013, just 135 MW was added, and best estimates suggest that by the end of 2016, no more than an additional 190 MW is likely. No power purchase agreements (PPAs) were signed under the 2012 FIT (Feed-In Tariff). Nevertheless, even with these hurdles, the country’s non-hydro sector—which includes geothermal—is expected to grow by double digits in terms of generation and capacity by the next decade.

“Despite these efforts, progress in the last few years has been slow. The perception that the Indonesian geothermal program has stalled is widespread, and exists among all stakeholders. A step change in the pace of development for even 4,000 MW to be reached by 2020 is therefore required, achievable only by a focused action program by government to resolve institutional, regulatory, and tariff constraints,” says ADB-WB report.

Local policies fueling geothermal growth What seems to be driving this growth? On the home front, a

number of government policies implemented under the administration of President Joko Widodo, elected last year, already seem tobe boding well for Indonesia’s geothermal industry, BMI Research notes.

Firstly, a fast-track electrification plan currently calls for an additional 5 GW of geothermal capacity by 2022, to be operated primarily by IPPs (independent power producers) and private companies, in addition to the Widodo administration’s 35 GW electricity program that is expected to add 1.2 GW of additional geothermal capacity by 2019.

On the regulatory side, the adoption of the country’s FiT for geothermal, is expected to offset the high capital costs associated with geothermal development and encourage further investment in the field, and is deemed a good initial step for the geothermal sector. “The problem of mobilising equity is primarily one of the adequacy of tariffs to enable the upfront equity needed for exploration—much more costly than in other countries where much of the upfront exploration effort was funded as a pure public good,” ADB-WB noted.

General reform on the tariff policy is still needed, however, with ADB-WB recommending tariff-setting to continue by tender, but with improvements to the tendering process and power purchase agreements, and the non-adoption of fixed FITS based on production costs due to their lack of economic efficiency.

BMI Research also agrees that the adoption of a FiT for geothermal is essential given the high capital costs of developing geothermal energy and the government- regulated electricity tariffs which are set artificially low, thus restricting returns on offer and discouraging investment.

A fast-track electrification plan currently calls for an additional 5 GW of geothermal capacity by 2022, to be operated primarily

by IPPs (independent power producers) and private companies.

Restrictions lifted In addition, the passage of Indonesia’s geothermal bill last year that reclassifies mining activities, is seen as a step forward as it will ease restrictions on developments in protected forest and conservation areas, where about 60% of Indonesia’s geothermal resources are located, according to BMI Research. Previously, the definition of geothermal development as a mining activity “restricted new projects in conservation areas,” according to US EIA analyst Candace Dunn..

“Indonesia passed a new Geothermal Law in 2014 that eliminated this regulation for geothermal development. The law also attempts to raise investment in geothermal projects by making the price more closely match developments costs. Also, the law limits the permitting process to review only by the central government and alleviates land acquisition issues by providing benefits for the local populations,” Dunn explains.

As a result of these sector-friendly initiatives, Indonesia’s power plant pipeline appears to be full in the near term, another industry group noted. “More than 60 projects are underway in Indonesia, including 13 geothermal projects in the construction phase on the islands of Java, Sumatra, Sulawesi and Maluku-AmASIAN POWER 17

sector report: GEOTHERMAL bon, as well as close to 50 projects in early or prospective phases,” according to Yasmin Romitti of the US-based Geothermal Energy Association in a May 2015 report, noting that Indonesia, together with the Philippines and New Zealand, “the South Pacific region has the second-most MW of installed geothermal power capacity behind North America, at 4,318 MW, in addition to the 5,503 MW of developing capacity additions and 9,575 MW of developing resource.”

According to BMI Research, geothermal activities have been lawfully defined as ‘mining activities’ since 2003 under Law No. 27 2003, preventing development in protected forest and conservation areas which are estimated to contain 60% of the country’s geothermal potential.

BMI Research notes that the improving regulatory environment for the Indonesian geothermal sector is evidenced by the growing private sector interest in the market. The country have seen investment announcements by French firm Alstom in February 2015 and Japan-based Inpex Corporation in June 2015. “Overall, we expect geothermal capacity to total 3.8GW by 2024, resulting in Indonesia emerging as Asia’s largest geothermal market by installed capacity by the end of our forecast period in 2024,” says BMI Research.

Geothermal energy represents one of the key options for Indonesia to achieve a comprehensive approach to national energy development.

The haze crisis: catalyst for geothermal development Aside from active state involvement in the geothermal sector, the international community is also being drawn to invest and contribute their share to Indonesia’s geothermal future—driven, in part, by the country’s air pollution woes. “The southeast Asian haze crisis, driven by slash-and-burn clearing in Indonesia which has caused severe air pollution in neighboring countries - has turned the spotlight on Indonesia’s environmental sustainability practices,” BMI Research said in a separate report. The report went on further to note that, citing the World Resources Institute, Indonesia’s fires have already released more greenhouse gases (GHG) every day compared to the United States.

The Indonesian government is beginning to realise this threat and has identified geothermal energy as a clear alternative to non-renewable resources at present.

“Geothermal energy represents one of the key options for Indonesia to achieve a comprehensive approach to national energy development. The rapid increase in fossil-fuel based energy consumption, which is subject to volatility in the world oil market, is the main challenge facing the country’s energy supply. At the same time, growing GHG emissions from the use of fossil fuels imposes costs on the economy and society,” says Rida Mulyana, directorate general of New, Renewable Energy, and Energy Conservation of Indonesia’s Ministry of Energy and Mineral Resources.

Geothermal dominating renewables mix Indonesia- non-hydro renewables capacity by type & non-hydro renewables generation contribution

* e/f=BMI estimate/forecast Source: EIA, BMI

18 ASIAN POWER

The growing recognition of the emissions problem in Indonesia, catalyzed by the haze crisis and the country’s thermal-heavy energy profile, is putting greater international pressure on Indonesia to adopt more stringent environmental policy. According to BMI Research, the Indonesian government already has targets in place to reduce emissions and increase the share of renewable sources in the energy mix. However, it believe this mounting environmental pressure will boost the country’s renewable energy industry and facilitate greater inflows of investment from international financial institutions (IFIs) and governments - increasing the chances of these climate change targets to be realised.

“We have already seen this view play out, as the US government announced on 26 October that there would be greater cooperation between both countries in the energy sector, following President Joko ‘Jokowi’ Widodo’s visit to the White House, which he had to cut short due to the haze crisis,” says BMI Research.

The agreement primarily focuses on promoting investment into clean energy technologies, developing policies that reduce GHG and creating risk reduction programmes. BMI Research believes the Indonesia geothermal sector will be a key beneficiary of this partnership, and can capitalise on US companies’ wealth of experience in developing geothermal projects. The US is the largest geothermal market in the world by capacity.

Reducing fossil fuel dependence, jumpstarting investments BMI Research, for its part, has welcomed the Indonesian government’s recent moves to implement emission reduction targets and boost renewable sources in the country’s energy portfolio.

“We believe this mounting environmental pressure will boost the country’s renewable energy industry and facilitate greater inflows of investment from international financial institutions (IFIs) and governments - increasing the chances of these climate change targets to be realised,” BMI Research said.

Last October, following President Widodo’s White House visit (cut short due to the haze crisis), the USgovernment pledged cooperation in developing Indonesia’s geothermal industry through major investments in clean energy technologies and the development of policies that aim to reduce GHG, as well as various risk reduction programs. “We believe the Indonesian geothermal sector will be a key beneficiary of this partnership, and can capitalise on US companies ‘ wealth of experience in developing geothermal projects. The US is the largest geothermal market in the world by capacity,” BMI Research said.

In the region, the Asian Development Bank has also lent financial muscle to Indonesia’s geothermal development, committing a $350 million financial package for the construction of the 320-MW Sarulla Geothermal Power Development in north Sumatra, expected to be the world’s largest geothermal plant upon its completion in 2018, according to Dunn. “We expect the Indonesian geothermal industry to be a key recipient of ADB funding over the coming decade, as the development bank targets annual climate financing of $6 billion by 2020,” BMI Research noted.

What else needs to be done?

According to ADB-WB joint report, only concerted and coordinated action in all areas simultaneously will unlock Indonesia’s geothermal sector. The report highlights that the underlying problem is reallyone of capital mobilization for a generating option that is unusually capital intensive: just to achieve an additional 3,000 MW geothermal capacity in the foreseeable future will require $4 billion in equity and $9.5 billion in debt finance (assuming $4,500/ kW total cost, and 30% equity).

“The problem of mobilizing equity is primarily one of the adequacy of tariffs to enable the upfront equity needed for exploration—much more costly than in other countries where much of the up-front exploration effort was funded as a pure public good,” says the report.

Country report 2: SINGAPORE

The island nation seeks to diversify its energy mix

The Little Red Dot goes big on solar power Small as it may seem, Singapore is taking big strides in including solar power in its energy mix.

B

eing a small country that is short on natural resources, Singapore has thrown itself onto the renewable energy bandwagon, determined to harness the power of the sun, among others, in fuelling an economic powerhouse that demands a great deal of power supply.

Goh Chee Kiong, executive director both at Cleantech and Building and Infrastructure Solutions at the Singapore Economic Development Board, says Singapore has identified the field of clean energy, with emphasis on solar energy, as a key growth industry. The city-state is also positioned as a clean energy hub to serve the Asian region. “Many international solar companies such as Solar PV installations

Source: Energy Market Authority 20 ASIAN POWER

The average electricity tariff for a household in Singapore is SGD0.26/ kWh (USD0.21), while the tariff in Malaysia ranges from USD0.06-0.14/ kWh.

Hanergy, Juwi, Phoenix Solar, REC Solar, SunEdison, Trina Solar and Yingli Solar have since established their regional operations in Singapore,” Goh says.

According to the Economist Intelligence Unit (EIU), the city-state does not have many options in developing alternative energy sources owing to its limited space. The bulk of the country’s energy is generated from natural gas piped from its nearest neighbours, Indonesia and Malaysia. Data from BMI Research show that, given the country’s heavy reliance on imported fuels, electricity prices are relatively high. For example, the average electricity tariff for a household in Singapore is SGD0.26/kWh (USD0.21), while the tariff in Malaysia ranges from USD0.06-0.14/kWh. Singapore has opened its first liquefied natural gas terminal in 2013 on Jurong Island, and at the opening ceremony, Prime Minister Lee Hsien Loong said the government would consider other energy options. Among these is harnessing energy from the sun.

Taking the necessary strides Goh says Singapore has a two-pronged strategy in growing the solar power industry. First, the country has made substantial public research and development (R&D) investments, including the establishment of the Solar Energy Research Institute of Singapore

(SERIS), now regarded as one of the top R&D centres in Asia. The institute focuses on solar cells, modules and systems R&D, with differentiated expertise in optimising systems performance in the tropics.

One key research frontier is to develop system-level solutions to manage the intermittency arising from solar energy.

Secondly, Singapore is also fast becoming a favoured location to base project development and financing activities for clean energy, Goh says.

“Singapore Exchange is also being viewed as a conducive location to list renewable energy business trusts which can help developers recycle their capital,” he says.

Dr. Thomas Reindl, deputy chief executive officer and cluster director at SERIS, claims that since 2014, Singapore has reached the so-called “grid parity” for larger photovoltaic (PV) system, which means that the cost of electricity of a solar system (around 25 years) is equal to or less than the published electricity rate, even when including the cost of financing.

Reindl says achieving grid parity has triggered an enormous interest in PV systems in Singapore and new business models like “solar leasing” have evolved.

Under such schemes, an investor would use the roof space of a building (mostly commercial and industrial properties at the moment) to install and operate a solar system, while selling the electricity

Country report 2: SINGAPORE

Goh Chee Kiong

Krishnandan Kumar Singh

Challenges are ahead for solar power in Singapore

to the building’s owner at a discounted rate compared to the prevailing electricity tariff.

“This ends up to be a ‘win-win-win’ situation for the building owner (who enjoys a cheaper electricity rate), the solar leasing company (which makes profit over time) and the environment, due to reduced carbon dioxide emissions,” Reindl says. The market for solar power in Singapore over the next eight or 10 years is in the range of gigawatts of PV installations, he adds.

According to the country’s Energy Market Authority (EMA), as of end 2014, the western region of Singapore had the highest concentration of solar PV, with a combined capacity of 8.2 MWac (32%) distributed across 106 installations. This was followed closely by the north-eastern region, with a combined capacity of 6.5 MWac (25%) from 202 systems. Most solar PV systems were located in the north-east (202 installations) and central regions (195 installations). As many of these are residential installations, which are significantly smaller in capacity, the combined share of installed capacity in these two regions was disproportionately smaller (44%) compared with its corresponding share of the total number of installed systems (62%).

As Singapore has no resources of its own, solar energy is the most promising of all renewable technologies identified by the EMA, says Krishnandan Kumar Singh, associate analyst covering power at GlobalData. “The EMA supports the use of solar energy, and has been taking proactive steps to facilitate its deployment while ensuring power system stability is maintained,” he says.

Singh adds that novel financial instruments, such as project bonds and green business trusts, are also being developed and implemented in the

country’s bid to add more alternative sources of power into its energy mix.

“In addition, innovative financing and business models are being piloted which will address high upfront costs and further encourage the adoption of solar technologies,” he says. Other innovative approaches include the exploration of offsite power purchase agreements and an ongoing floating PV pilot project on Singapore’s reservoirs, which seeks to find alternatives to rooftops.

BMI Research notes that increased flexibility in terms of the options available to household consumers when adopting solar technology is boosting the viability and affordability of residential solar systems in Singapore. Moreover, private sector involvement in the rooftop solar sector has ticked up considerably over the last few years, in line with the strengthening conditions underpinning the industry.

It’s not always a sunny day Despite the strides, bottlenecks still hinder Singapore from fully maximising its solar energy potential. “Despite this positive growth momentum, we note that the potential is capped, owing primarily to the limited land availability in the country.

Furthermore, the lack of a feed-in tariff for solar technology in Singapore could result in companies shifting their focus to more attractive renewables markets in the southeast Asia region, which have more favourable regulatory environments for renewable energy,” BMI Research says, singling out Malaysia, the Philippines and Indonesia.

Singh says Singapore’s future energy mix, in terms of installed capacity by 2020, will comprise of 93% fossil fuels, with the rest coming from renewable technologies, mainly solar and biomass.

Weather conditions such as cloud

Dr. Thomas Reindl

movement impact changes in solar irradiance and result in fluctuations in power output, which is a major drawback for investors and the government. As such, the country will continue to use thermal technologies for generating electricity over the coming years.

“The main hurdles in Singapore for developing solar power are the low availability of land and the climate of Singapore. There is much cloud movement, which has to be analysed,” he says. EIU notes that at present, solar power capacity in the city-state is minuscule relative to Singapore’s overall energy needs. According to the EMA, the capacity of the grid-connected solar power systems was 25.5 megawatts (mw) at the end of 2014, up from 11.8 mw the year before. The EMA noted that, by the end of 2014, there was a total of 636 solar photovoltaic (PV) installations across Singapore.

Government boost EIU adds that with the government’s support, the solar energy industry in Singapore has been growing steadily in recent years. “In June 2015 the Housing and Development Board (HDB) called the largest-ever solar-leasing tender in Singapore. It will allow the HDB and other agencies in the tender to purchase solar power at a preferential rate, below the retail electricity tariff rate,” it says.

The tender was called under the government-led solar demand programme, SolarNova, which is driven by the Economic Development Board (EDB). Under this initiative, the EDB encourages government agencies to come together to harness solar energy for their own use. This is the first tender to be launched under the programme, which aims to have solar power contribute 350 MW to Singapore’s power grid by 2020, EIU notes. As part of the tender, PV systems will be installed in eight Ministry of Home Affairs buildings and other public sites, as well as 900 HDB buildings across the island.

Solar PV installations by planning region

Source: Energy Market Authority

ASIAN POWER 21

PEOPLE PROFILE

VPower zeroes in on ‘’cost-effective’’ power solutions to target the Asian energy market Utilising domestic natural gas resources and ditching imported diesel makes VPower’s model remarkably more cost-effective

Rorce Au-Yeung and Jason Lee CEOs VPower Group

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sian Power recently caught up with Rorce Au-Yeung and Jason Lee from VPower Group as they talked about the company’s plans in target the Asia Pacific market and its foray into the Indonesian power sector.

VPower has won 3 awards at the Asian Power Awards 2015 –“Gas Power Project of the Year” and “FastTrack Power Plant of the Year” for the Myanmar Electric Power Enterprise (MEPE) 230kV Substation project in Kyauk Phyu, and “Power Utility of the Year – Indonesia” for PLN Diesel to Gas Plant Upgrade in Pekanbaru.

It was also just recently that the company acquired two more milestone projects for a total capacity of 223MW for Myanmar. The CEOs further elaborated these and the challenges they are facing.

AP: How do you describe your performance over the past years? What were your major breakthroughs?

Jason Lee: VPower has been in the generator set design, manufacture and sales business for over 20 years.

We take care of everything from system integration to O&M and EPC services around the world to growing economies globally. Now we go one step further and actively invests in fast track mobilized power plants, offered under short fixed term Power Purchase Agreements which can be 22 ASIAN POWER

extended only when needed. Under this new IBO business model, our customers now get the same full project development capabilities and much better flexibility. We now have about 2GW in the pipeline in the next year alone.

capability, overcoming the unique challenges of deploying at an isolated location where the power units can only be reached by sea. We are looking to bring another 45MW online 2016 Q1, bring a total capacity of 223MW

by VPower to date.

AP: You are positioning VPower to target APAC growing market, what competitive advantages does your company have over the competition on meeting the power demands of emerging economies?

Rorce Au-Yeung: We complement our new IBO business line with our existing system integration and sales business line to create a synergy that improves our fleet availability.

This helps maximize our asset value and coverage for different market segments globally. Also, having a dual line synergistic business development, we learn about the new markets before entry, we believe the better we understand our business environment, the better we can advise our customers, providing energy solutions that give them a competitive advantage over the market.

Together with our strategic global partnership with Rolls Royce & MTU, which gives us the priority access to high quality engine supplies, superior service arrangements and some of the lowest capital cost in the industry.

We empower our customers with the quickest and most cost-effective parts and services to keep the operations going.

AP: How does entering into Indonesia market a milestone for VPower?

Jason Lee: In 2012, VPower launched its first 12MW power plant in Pekanbaru. It is among the very first gas-powered plants in the country by a Distributed Power Producer, and VPower adopted nine MTU 16V400 gas engines, introducing the latest technology from Germany at the time, and greatly improved the power generation performance.

Indonesia has one of the world’s highest demands for distributed power. Making use of the vast domestic natural gas resources instead of imported diesel makes gas-powered distributed model significantly more cost-effective and less damaging on the environment. We have mobilized fast-track power fleets, deploying turnkey power of 50MW and up in a matter of months at key fast-growing cities in Indonesia. This is a part of our strategy and brings us closer to realize our vision of becoming a leading global leaders to provide reliable, clean and cost effective turnkey power and energy solutions to where they are needed the most.

AP: Your recent power plant in Kyauk Phyu is a milestone project for VPower, how was that?

Jason Lee: The 45 MW power project is in many ways, a first for VPower, and in many ways, a first for Myanmar, Kyauk Phyu also. It went from greenfield to operation in just under 3 months, our best record to date; It connects directly to Myanmar’s 230 kV transmission grid; it won not one but two Asian Power Awards this year.

The project is important in demonstrating our rapid design, installation and commissioning

VPower has been in the generator set design, manufacture and sales business for over 20 years.

AP: Where will VPower focus on over the next 5 years?

Rorce Au-Yeung: VPower has a vision to build towards an effectively un distributed power network and believes the most cost-effective and eco-conscience power solutions will make up more than half of the power to be supplied in the very near future.

We will focus on growing the developing economies through a mature power technology, encouraging the technical expertise exchange that comes from the on-site power installation will help build a sound foundation for self-sustained generated power, for years to come.

post-event coverage: korea energy show 2015 managers, and other executives were allowed to hold business meetings with the exhibitors of their interest through the “Biz-Matching zone.” A networking dinner was also held for all the buyers and exhibitors to further foster good relationships among the executives.

Korea Energy Show 2015 - Opening Ceremony

Deals worth USD122.4m inked at The Korea Energy Show 2015 There were 12,491 domestic buyers and 313 foreign buyers at the event with new investments coming in at home and abroad.

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he Korea Energy Show is the biggest government-hosted energy exhibition in Korea organized by the Korea Energy Agency. Hosted by the Ministry Of Trade Industry & Energy, the event was held last November 17-20, 2015 at the Korea International Exhibition Center. Since 1981, the Korea Energy Show has been a trade venue for global buyers and manufacturers to find reliable partners in Korea.

The event aims to bring together the past and future of the energy industry by gathering various thought leaders and industry players from around the world and providing a conducive platform for insightful discussions.

This year’s event was beyond successful in promoting partnerships between companies devoted to energy efficiency improvement and renewable energy.

There were 12,491 domestic buyers and 313 foreign buyers at the event.

This impressive visitor turnout resulted in a total contracted amount of about USD39.6 million which is five times higher than last year. There were also 17 memorandums of agreement signed during the event, amounting to about USD122.4 million. There were 262 exhibitors, a number that is twice as big as last 24 ASIAN POWER

The impressive visitor turnout resulted in a total contracted amount of about USD39.6 million which is five times higher than last year.

year. Some of the main exhibitors were Korean companies such as Hanwha and S-Energy, as well as LG Chemical and Samsung SDI - leaders in the energy storage system sector. They introduced their new business field of secondary battery with their technologies.

BEGINS Co., a company specialising in automatic battery swapping electric bus / electric car service, also showcased a new type of electric bus at the exhibition. Window and interior-specialists LG Hausys and Eagon Windows and Doors also presented some of their products for the zero-energy buildings. During the week-long event, foreign buyers, energy

Energy Korea Forum 2015

Energy Korea Forum As part of the Korea Energy Show, the Energy Korea Forum 2015 was held at the KINTEX Grand Ballroom. The keynote speeches and panel discussions tackled various topics with the theme “Future to be Shaped by New Energy Industry.”

Among the speakers at the forum were JB Straubel, chief technical officer and cofounder of Tesla Motors; Samuel Thomas, senior program manager of the Energy Efficiency Division of the International Energy Agency; Guihyun Lee, director of new industry promotion division at MOTIE; Ha Tae Seok, vice president of LG CNS hi-tech business division innovative energy business unit; Park Junseok, CEO of Begins; and many more.

In his welcome remarks, KEA president Byun Jong-rip said that while climate change remains to be one of the biggest challenges that the energy industry has to face, it also promotes having a growing momentum for change. He noted that the Korean government has been implementing some changes in order to overcome the various market challenges. “In Korea, we promote innovation as well as private industry-led market mechanisms for the energy industry,” he added.

Lee Guihyun, director of New Energy Industry Promotion Division, Ministry of Trade, Industry and Energy, said that two of the major trends affecting the energy industry today are climate change and low oil prices.

In 2015, Korea implemented new industry promotion plans that aim to reduce energy consumption and expand the centralised grid structure. With these in mind, Lee said the government coined a new term: “New Energy Industry.” It means that in the future, energy-rich countries will not only be rich in resources, but also rich in solutions.

ASIAN POWER 25

analysis: INDIan electricity

Krishnarajsagar dam at the South-Indian river Kaveri

Why everyone should watch out for the transformation of the Indian electricity sector Sparks are flying as India’s electricity sector undergoes a period of transition and monumental change.

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he electricity sector in India is going through a period of significant growth and change. Among other aspects, the government is focussed on providing universal access and 24x7 supply. The primary fuel sector has been revamped with the auction of coal mines; energy efficiency in sectors from lighting to transport is being addressed; and a major attempt at transforming the energy mix—with a goal of 175 GW of renewable energy by 2022—is under way.

Electricity production has crossed a landmark with 1,048 TWh (2014-15)—with a growth of 5.9% over the last decade (2005-15). India is now the third largest electricity producer in the world, just surpassing Japan and Russia. The generation capacity of 267 GW, which has grown at a rapid 11% in the last five years, makes India the fourth largest electricity market in the world. Furthermore, growing urbanisation, universal access, and government push for infrastructure development and local manufacturing is expected to generate significant new demand for electricity.

Power deficits have been significantly but not entirely overcome. In the past year, India suffered an energy and peak deficit of 3.6% and 4.7% respectively, down from 8.7% and 9% two years back. The industry expects deficits to recur as growth picks up and rural areas are connected. For these reasons, capacity addition remains a priority for the government. The National Electricity Plan 2012 targets a new capacity build of 80 GW for 2012-2017, of which 61 GW (72%) has been achieved.

The private sector has been at the forefront of this growth (21.7% growth over 2005-15) and now owns 38% (104 GW) of all generation capacity. The private sector has also invested in transmission (e.g. Adani, Sterlite, Reliance, L&T, KEC, Kalpataru, and Tata) and distribution (e.g., Tata, Reliance, Torrent Power, Essel) businesses. However, there have been fewer such opportunities so far.

26 ASIAN POWER

Electricity production has crossed a landmark with 1,048 TWh (2014-15)—with a growth of 5.9% over the last decade (2005-15).

Although FDI continues to grow—from 157 million USD (2007) to 657 million USD (2015)—it is far below potential. The electricity sector accounts for a mere 4% of all FDI inflows but the renewable energy segment has been a league apart, with both strategic and financial investors looking to actively invest.

Changes in policy, regulation and industry structure The Electricity Act, 2003, (hereinafter the Act) which has facilitated development in the sector, and is being amended to introduce new elements to, inter alia, enhance competition and reform the energy mix.

The proposed amendments aim to reform the distribution business by segregating the network and supply business, with the latter to be opened to other players to bring in efficiency and competition. It will also allow consumers to choose their suppliers by eliminating the existing barrivvers to open access.

The national budget (2015) announced a five-fold ramp-up of renewable energy targets to 175 GW by 2022. This comprises 100 GW solar, 60 GW wind, 10 GW biomass and 5 GW small hydropower capacity supported by a substantial budgetary allocation. The existing generation capacity is dominated by conventional coal-fired thermal power (192 GW, 70% of total capacity). Non-fossil fuel generation includes renewables (36 GW, 13%), large hydro (42 GW, 15%) and nuclear (6 GW, 2%).

The government yet again doubled the clean energy access from 100 INR to 200 INR per tonne of coal.

Key challenges and actions taken The policy amendments will drive the energy mix change through mandatory targets. The RPO for solar power is to be upped from the current 3% to 8% by 2022. Furthermore, a new RGO has been proposed. It requires fossil fuel plants to produce 10% of their capacity through renewable sources, and allows them to bundle renewable and conventional supply in a single

analysis: INDIan electricity contract. The regulators are to be empowered to deal with noncompliance of RPOs and limit cross-subsidy surcharge to 15% of relevant tariff.

The institutional support to achieve these renewable energy goals is addressed in the new draft of the renewable energy law.

These institutions include the National Renewable Energy Committee, the National Renewable Energy Advisory Group, and the Renewable Energy Corporation of India. Actions to build the supporting ecosystem are also addressed—resource assessment, testing facilities and a monitoring and verification programme, and policies to promote local manufacturing.

Solar parks (25 parks, each with 500-1,000 MW capacity, totalling 20 GW) are to be developed to benefit small, independent, or international investors who may prefer predeveloped land and infrastructure in which to set up their solar projects. In the initial stage, 10 solar parks are to be taken up in these states—Madhya Pradesh, Andhra Pradesh, Rajasthan, Uttar Pradesh, Gujarat, Telangana, Karnataka, Jammu and Kashmir, Meghalaya, and Punjab.

To enhance the flow of international finance, the government is exploring a new model that allows procurers to tender for solar power projects with tariffs denominated in USD, and to hedge the currency risk through a pool of funds (corpus of 60 billion INR) to be set up.

The distribution network connects about 200 million consumers with a total load of over 400 GW. It is served by 73 distribution companies, of which 17 are privately owned. Several of the distribution utilities suffer large volumetric losses and are financially distressed. This raises a significant counterparty riskwhich is manifested in delayed payments to generators and other suppliers. The cost under-recovery of state utilities is estimated at an accumulated 24,000 billion INR (2012), prompting the government to focus on severely distressed utilities for a turnaround programme.

Scale and technology developments The renewable energy sector in India has made remarkable progress, growing from 3.3% (2002) of the total generation capacity to 13.4% (2015). Production rose from 0.4% to 5.6% in this period. Of this, about two-third is from wind, and the balance is from small hydro, solar, biomass and waste to energy, and other sources.

The wind power sector has undergone a major shift in India, from tax-credit driven investment to mainstream IPPs. This has led to the setting up of large wind farms that deploy the latesttechnology and practices—larger MW class wind turbines, inclusive O&M practices for plant life, use of logistics tools for construction and maintenance, and seamless grid integration.

Electricity production in India (TWh)

Source: CEA

The renewable energy sector in India has made remarkable progress, growing from 3.3% (2002) of the total generation capacity to 13.4% (2015).

Further, the industry has gained from improvements in drivetrain technology, tower structure and use of advance power electronics, which add to overall cost effectiveness.

Turbine costs declined in late 1990s, but have since risen. This is due to a variety of factors—greater turbine dimensions and higher material costs. However, with design technology maturing and production stabilising, costs have started to decline from 2010.

Further gains are expected from the use of lightweight materials such as carbon-fibre reinforced plastic, better aerodynamic profile, on-site manufacturing, segmented blades, and variable diameter rotor can reduce costs and increase the capacity factor.

An US DOE study suggests that the adoption of advanced technology can increase the energy output between 21% to 61% with smaller changes (-36% to 21%) in capital cost.

Improved wind projects In India, in the last two decades, the hub height and rotor diameter of wind projects have increased fourfold, and the average WTG rating increased almost tenfold. This enhances the energy generated per turbine, thus reducing the overall levelised cost of electricity. Still, the top-end rotor and hub height installed for WTGs in India are 20-30% lower than the global standards, and have scope for improvement.

In solar, the vast majority of Indian projects have adopted crystalline silicon technology, with an average efficiency of 16-17%.

The thin-film technologies of cadmium-telluride and copperindium-gallium-selenide, with 14-15% efficiency, have been used selectively. The expectation is that ongoing scientific research will continue to increase the efficiency in the coming years.

The performance of the solar plants, irrespective of the technology used is higher than the average PLFs observed in southern Europe. Due to the better utilisation rates, LCOE is lower in India, and comparable to the conventional generation sources.

It is interesting to note that the PLF observed between the two prominent PV technologies- C-Si and Thin Film has not been different in Batch-2 of Indian National Solar Mission (NSM) while for the projects commissioned under Batch-1, the performance of C-Si is markedly better.

The higher power procurement costs are disproportionately borne by large commercial and industrial consumers on account of cross subsidies. This means that large users see renewable energy as a cheaper energy source, and in states with renewable energy potential, several have set up their own captive facilities or have entered into open access contracts. This is advantageous for renewable energy generators too, as it offers higher realisation and better tariffs than FIT. Economics of renewable energy The cost of power procured by distribution utilities from existing power generation contracts, largely fossil fuel-based projects, has increased over the years as the costs of fuel, transportation, maintenance spares and labour have risen.

The costs of contracting new long-term capacity have also increased in recent years, with a few occasional exceptions. This is because investors have started factoring in construction and fuel supply risks. Further, under the new DBFOO model, fuel price increases are directly passed to the procurers, in contrast to the past, when generators exercised that option based on their fuel supply contracts.

Renewable energy generators, it must be noted, incur additional costs on open access supply in the form of wheeling charges, imbalance levies and, in many cases, a cross-subsidy surcharge. However, if such arrangements are structured right, it is possible to contract at non-regulated prices that offer generators a better margin and the consumer-buyer, a lower cost.

In contrast, renewable energy tariffs have declined in real terms over the years. Solar tariffs, in particular, have fallen in ASIAN POWER 27

analysis: INDIan electricity nominal terms from 15 INR per kWh in 2009 to 5 INR per kWh in the recent bids in 2015, with a fall in module prices and improvement in capacity utilisation factors.

Annual capacity additions in India (GW)

Solar tariff trend in the last few years In Madhya Pradesh (July 2015), the lowest bid was 5.051 INR per kWh (6.9 EUR cents per kWh) for 50 MW and the average tariff for the 300 MW bid was 5.353 INR per kWh (7.4 EUR cents per kWh). In Telangana (August 2015, 2,000 MW tender), the lowest bid was 5.1729 INR per kWh (7.0 EUR cents per kWh) for 50 MW. These rates are comparable to the initial tariffs of long-term base load new generation capacity that distribution utilities potentially contract, and are well below the scheduled tariffs that large energy users must pay to utilities.

Investments and financing The market opportunities in renewable energy have attracted a number of strategic and financial investors to India. Many have leveraged international financing to build their initial portfolio and are now looking at alternative models for their operating assets.

These IPPs have been active in the secondary market too, taking advantage of renewable asset sales by several large corporates who built these earlier for a tax break or captive sourcing but who are now financially stressed or have decided to focus on their core business.

The government policies have been supportive to renewable energy companies seeking FDI, multilateral and development bank funds or external commercial borrowings. The government’s own direct support, however, has focussed on smaller projects, first-of-its-kind technologies and demonstration pilots.

The central bank has categorised renewable energy as a priority sector for bank lending from this year (commercial banks are obligated to lend a certain proportion to defined priority sectors such as agriculture, small enterprises and housing). If renewable energy, hypothetically, absorbed about 1.5% of net bank credit (within its allowed limit), it would meet the entire debt requirement for 150 GW up to 2022.

This is unlikely, however, as individual loans are capped at 150

Wind and solar in India have taken great strides

28 ASIAN POWER

Source: CEA

million INR per project.

A more realistic prospect is concessional or long-term finance.

The sector financial institution, Rural Electrification Corporation, now extends loans to renewable energy projects at 75 basis points below that to comparable conventional generation projects.

Market opportunity The imperative to add substantial new generation capacity to meet social and economic needs is helping India reshape its energy mix towards renewables quicker than other regions.

Power utilities and retail consumers alike are contracting with large-scale renewable energy suppliers to meet their basic energy needs.

India’s per capita energy consumption is very low, in fact, it is about one-third of the world’s average and below other comparable developing countries. The growth picked up in recent years rising from 612 kWh to 1,010 kWh over last decade (20052015)—a growth of 5.1% per annum.

Rural electrification and provision of 24X7 power supply is a key priority for the government. Based on available statistics 19,706 villages lack access (2015), and a large proportion of households (33%) do not own an electricity connection (2010 Census).

In most states rural power supply is intermittent and of poor quality. New generation capacity must be built, and given the affordability and concerns of marginal consumers, renewables with minimal cost inflation suit it best. Urban centres, too, have grown rapidly and India, which is relatively less urbanised with only 31% of population in cities, is moving in the direction of other developing nations such as China (50% urban population) and Brazil (87%).

Urban areas are significantly more energy intensive and constitute a key driver of demand growth. Energy security is a prominent policy concern. Primary fuels are India’s single largest import, accounting for 37-40% (2013-2015) of total imports and periods of high commodity prices have resulted in constrained supplies, budgetary deficits, and fuelled inflation.

Climate change is a key consideration too with coal responsible for 76% of electricity produced. The government’s drive to build 175 GW of renewable energy by 2022 will help achieve energy security and reform energy mix. The policy proposes to use RPO and RGO targets to develop this, and regulators are seen to take steps to improve enforcement.

The government has set in place a robust procurement model in the form of auctions and standard bidding documents (RFQ, RFP, PPA) to facilitate a quick, harmonised, and transparent bidding process for solar power development. By Kameswara Rao, Partner and Energy, Utilities & Mining Leader, PwC India

Side Event Co-organised by The Top lnternational Organizations APEC Workshop “Is Nuclear Power Still a Viable Option for the APEC Region?”

Organised by Ministry of Energy ,Nuclear Society of Thailand ,Chulalongkorn University Solar Technology Seminar Organised by Thai Photovoltaic Industries Association ERIN Workshop "Energy Security Workshop " Organised by Energy Research Institute Network (ERIN) “Sustainable Pathways to Low Carbon Energy Societies “ Organised by Thailand Greenhouse Gas Management Organization Electrical Vehicle Technology Workshop Organised by Thai Electric Vehicle Association Thailand Energy Forum Organised by PTT group & The Nation Multimedia

ASIAN POWER 29

analysis: vietnam

Da Nhim hydropower plant in Vietnam

Vietnam struggles to solve unstoppable surge in energy demand Progress has been slow in Vietnam’s attempts to achieve targets in its energy development plan.

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ietnam’s energy sector in its next stage of development will face the following challenges in meeting the rapidly rising demand: coping with the rapid change in energy supply structure; maximizing the use of domestic energy resources efficiently and lowering imports, adopting new technologies; mitigating environmental impacts and achieving the set targets in sustainable green development; enhancing energy efficiency; trengthening institutional capacities; diversifying energy supply, including that of renewable energies; and increasing energy prices to its socially and environmentally acceptable level to cover

Electricity tariff has been set at a low level for many years, hereby seriously undermining EVN’s financial position and private sector investments in the power subsector.

Planned power generation capacity mix in 2015, 2020,2025 and 2030

HPP = hydropwerplant, PSPP = pumped storage power plant, SHPP = small hydropower plant, RE = renewable energy Source: Asian Development Bank based on the statistics of Government of Vietnam, 2015. Revised Power Development Plan 2011-2020.

30 ASIAN POWER

full costs.

Poor energy resource management Vietnam does not have a holistic energy sectorwide policy that sets out a systematic and long-term approach to integrated energy planning, policy formulation, and sector development.

In addition, an integrated energy master plan is yet to be prepared.

As a consequence, energy resource management is inefficient and there is a serious lack of infrastructure.

The current development planning approach is largely focused on the development of the power subsector in isolation from coal, oil, and gas development planning, whereas the power subsector consumes major portion of these scarce resources. Because of much reliance on energy based on coal, gas, and oil, Vietnam will have a greater dependence on imported coal, natural gas, and oil, leading to more vulnerability and fluctuations in energy costs, thereby affecting its energy security.

Inadequate infrastructure Huge investments are required to develop infrastructure to meet the rapidly increasing energy demand. In the oil and gas subsectors, there is a big involvement

of international companies. However, the regulatory environment in Vietnam still has several aspects that are disconcerting to private sector investors: the dual role of PetroVietnam, as a commercial entity and an instrument of state policy, is confusing and private partners face difficulties in distinguishing between the two roles. The same difficulty is likely to arise in the coal subsector.

Insufficient revenue in the power and coal subsectors Because of inadequate tariffs, the revenue is not sufficient for financial autonomy of the power and coal subsectors. The government has committed to gradually orient price setting toward a marketbased approach, and legal frameworks are in place for increasing the pricing of coal, oil, gas, and electricity. However, the recent increases in coal price and retail electricity tariff were just to catch up with the inflation rate, but in constant value, they are still considered to be priced below the cost of production.

In the power subsector, the electricity tariff has been set at a low level for many years, thereby seriously undermining EVN’s financial position and private sector investments in the power subsector.

By Asian Development Bank

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6

OPINION

JOHN GOSS

China topping the world table in renewable power

john.goss@aod.com.hk

C

hina currently leads the world in new renewable energy power installations and investments into the country’s renewable energy infrastructure. These notable gains are being delivered despite the nation’s current economic transition and industrial overcapacity, says a recent renewable energy industry report.

Current data in the Global Status Report, from the UN-backed Renewable Energy Policy Network for the 21st Century, says that China led the world’s investments into hydropower, wind power and solar power. Direct investments into China’s renewable energy sector during 2014 were $83.3 billion. This high level of investment compares most favorably with the $62.2 billion invested by the country during 2013.

Landmark investment The twin concepts of “Ecological Civilization” and “A Beautiful China” were announced by the country’s leaders back in 2003. These concepts form one of the five pillars of China’s society. This investment

into the country’s renewable energy industry during 2014 was considerably higher than the $57.5 billion of renewable energy investment in Europe and the $38.3 billion in the US, according to the report. A pledge has been made by China to increase the overall share of non-fossil fuel of non-fossil fuels in the primary energy mix to 15 percent by 2020 and then increasing the share to 20 percent by 2030.

A set of targets have made by the State Council in November that aim at limiting energy use to the equivalent of the annual usage of 4.8 billion metric tons of standard coal by 2020. The first decline in China’s coal output, after some 15 year of consecutive growth, was experienced last year.

China Coal still accounts for 66% of the nation’s energy consumption. Solar power and wind power have both experienced rapid expansion over recent years in the country. A medium term report on renewable energy from the International Energy Agency says that China now accounts for some 40% of global renewable energy capacity growth.

The country’s total energy consumption increased

STEPHEN WEBB

How the Paris Agreement will power Asia

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he following issues have been well-covered in the press recently: “The Paris Agreement”, “climate change”, “COP21”, “1.5°C”, “INDCs”. Despite the clear enthusiasm and momentum generated from the Paris Agreement on December 12, interpreting what and when change will come is less certain. DLA Piper, the largest global law firm, had a number of teams at COP21 acting for governments and for a key business coalition. They have started to decipher what it really means in practice.

What the Paris Agreement really means for the power sector in Asia needs to be broken down into sectors, countries and time frames. The wider business community wanted certainty, wide ranging consensus and a clear commitment for the long term. It not only got all of that, it got more ambitious commitments than most thought possible. It was an outstanding outcome relative to the disappointing years since Kyoto. In terms of timing of any Paris inspired change, the impact on the power 32 ASIAN POWER

sector is likely to be “negligible” in the short term, “significant” in the medium term (as well as for current planning for the longer term) and “game changing” in the longer term (i.e. 15- 20 years plus).

Greater momentum for investment In terms of sectors, the focus of the Paris Agreement is much wider than expected. It deals with, and is likely to provide momentum for, not only the expansion of renewable energy generation which is well advanced, but in relative terms, greater momentum for investment in energy efficiency, storage, carbon sinks (including sequestration if coal-fired generation is to survive in the long term).

Public finance and support for capacity building, research and development into carbon sinks, energy efficiency and storage will likely be significant over the next five years leading up to the 2020 commencement of the Paris Agreement.

Only at that stage are the more significant funds and financing commitments likely to commence at

0.7% during the first half of 2015 compared with the same period in 2014, reported the National Energy Administration (NEA). It seems that a reduction in the use of coal was offset by increases in oil, natural gas and renewable energy consumption. The NEA said that energy consumption was likely to have inched up further during the second half.

Sustainable growth and development Despite not giving any absolute numbers for the nation’s total primary energy use during the second half period, energy consumption was likely to have risen further during the second half period. The country’s energy consumption has tripled in just two decades.

The share of non-fossil fuels in China’s power generation capacity reached 22.9%. This figure shows an increase of three percentage points from the same period in 2014.

China’s current development route will assist the country in tackling the increasing pressures being created by the constant resource consumption and environmental degradation in the country. China is in fact showing the rest of the world, especially other countries undergoing growth and development, that it is possible to have aggressive development together with a more sustainable and climate friendly energy policy.

My own experiences have shown me that public awareness of these issues in China is very high.

Both the public and energy industry professionals are very aware of the need to address the issues of environmental degradation together with pollution and climate change. a much greater level - supported by the $100 billion developed country pledge.

In terms of analysing the impact in the Asian region, this is more difficult given that individual countries lodged their separate commitments to targets (INDCs) - some being more ambitious than others. These are to be reviewed every five years with a view to making them more ambitious.

Given the differentiation between developing and developed countries and who receives and gives financial support, the region should be a net beneficiary for a greater and faster roll-out of climate friendly initiatives and technology than ever before. At least after 2020 - although expect to see change of local policy to strengthen government commitments and encourage the private sector to lower emissions before then. Major commitments were made on reporting and transparency which will flow through to obligations on companies in the region to do likewise.

It was abundantly clear in Paris that the private sector and governments were generally talking the same language. Business for Social Responsibility and the We Mean Business Coalition were instrumental in bringing business together for a relatively balanced and consistent voice in the drive for a “certain and clear” agreement. They later reflected on the outcome in upbeat terms and described Paris as an important instrument in creating the confidence and certainty for unleashing a wave of private sector investment, in the trillions, to meet the ambitious goals.