Asian Power (July to August 2015)

ISSUE 70 | DISPLAY TO 31 AUGUST 2015 | www.asian-power.com | A Charlton Media Group publication

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senoko energy’s growth plans ceo paul maguire focuses on singapore’s move to full retail contestability

MICA(P) 248/07/2011

country report Korea wields double-edged nuclear sword

sector Report Hydropower industry set to take over the Asian market

first Singapore solar tariff still in the shade

ANALYSIS Investment opportunities in the electricity sector

PAGE 14

page 20

page 6

PAGe 28

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FROM THE EDITOR In this issue, we give you a comprehensive report on Korea’s power industry. Through our conversations with analysts, we found out that despite safety concerns and opposition from stakeholders, South Korea is looking towards nuclear power as the most realistic solution to its energy woes. Korea’s second National Energy Master Plan details a strategy to increase the country’s nuclear generation capacity by as much as 29% by 2035.

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Meanwhile, in Thailand, the government also met public opposition when it announced a plan involving a shift to more clean coal-fired power plants, wherein coal power will be more than tripled from 7% to 25%. Analysts are suggesting some ways for the government to respond to the heavy opposition, and they also revealed other pertinent trends in the country’s energy sector.

You will also find a three-page report on hydropower in this issue where we discuss the catalysts for this renewable source’s prominence worldwide and where it is headed for the coming years.

SINGAPORE Charlton Media Group Pte Ltd. 101 Cecil St. #17-09 Tong Eng Building Singapore 069533 +65 62237660

Lastly, we did an exclusive interview with Senoko Energy’s new CEO Paul Maguire, where he shared that his growth strategy is focused on Singapore’s continued move to full retail contestability, distributed electricity generation and meeting customer’s needs through the provision of other services.

Enjoy!

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ASIAN POWER 1

EDITORIAL CONTENTS

26

22

ceo interview Senoko Energy’s new CEO focused on Singapore’s continued move to full retail contestability

20

FIRST 06 Singapore solar tariff still in the shade 06 Malaysia’ lower tariffs here to stay

post-event REPORT: asian utility week Challenges in smart grid and smart metering implementation

sector report Hydropower industry set to take over the Asian market

ANALYSIS 28 What are the business and investment opportunities

in a changing electricity sector?

07 Manning China’s nuclear behemoth

COUNTRY REPORT

08 Indon’s geo thermal surge

OPINION 32 JOHN GOSS: China a world leader in renewable energy

14 Korea wields double-edged nuclear sword 18 Here’s the biggest problem in Thailand’s grand

20-year power development plan

ARTHUR MITCHELL: Boom or bust in Japanese renewables

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

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

IPP

Philippines’ Malaya thermal plant concludes rehab by end-June According to a research note from Maybank Kim Eng, the Power Sector Assets and Liabilities Management Corp had awarded to STX Marine Service Co. the operation and maintenance service contract of the Rizal-based power plant’s Unit 1.

The project had an approved budget of PHP94m.

IPP

China’s hydropower usage dropped to just 276 hours in May China’s National Energy Administration has reported national power utilization figures for May, which revealed utilization of only 276 hours for hydro power plants in the month. According to Barclays, this is 11% below the 7-year average of 310 hours in May.

4 ASIAN POWER

IPP

Asia’s carbon reduction policies moving along A strong regulatory environment which encourages the incorporation of cleaner energy fuels into the regional power mix - nuclear and renewable energy in particular - will lessen Asia’s reliance on carbon-intensive coal. BMI Research notes that governments across Asia are keen to expand their domestic nuclear industries.

IPP

More power plants schedule maintenance shutdowns In June, the total capacity on outage in the Philippines is 1,125MW and there are power plants that are scheduled to go on shutdown or are still on shutdown soon. In July, the power plants on shutdown will translate to a capacity outage of 1,425MW.

IPP

Huadian Power International unveils asset injection of 5.1GW from parent Huadian Power International Co. has announced an asset injection of 5.1GW from its parent company, and it is expected the transaction will be 6.5% accretive to Barclays’ 2015E earnings.

According to Barclays, the company will acquire 82.5627% interest in Hubei Power Generation Co. from its parent company, for RMB 3.85bn.

IPP

JA Solar inks MOU on 5,000MW PV joint venture JA Solar Holdings Co., Ltd. (JA Solar), one of the world’s largest manufacturers of high-performance solar power products, has announced that it has signed a Memorandum of Understanding with its Indian business partner, Essel Infraprojects Limited.

Powering Businesses To a

Brighter Future

PacificLight is a Singapore-based power generator and electricity retailer.

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www.pacificlight.com.sg

FIRST cost for solar systems remains a common bottleneck to the technology’s uptake; however, there are a number of financing models now available to consumers,” says Richards.

Households can choose from direct ownership, hire purchase agreements or solar leasing to suit their financial situation. Another catalyst to Singapore’s rooftop solar boom is the rise of private sector involvement. Solar leasing companies such as Sunseap Leasing, REC Solar, and Sun Electric have started to develop and operate more rooftop solar projects.

But Richards warns that 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 South East Asia region, which have more favourable regulatory environments for renewable energy.”

malaysia’ lower tariffs here to stay

The Malaysian Minister of Energy, Green Technology and Water shocked the country when it announced electricity tariff cuts of 2.25sen/kWh in Peninsula Malaysia effective from March to June. After the announcement, Nomura analyst Euben Paracuelles said it was unclear whether there will be any fiscal impact as the government appears to be passing on cost savings to consumers.

A month after the expiration of the cut, analysts still believe lower electricity tariffs will be here to stay.

According to George Teng, associate analyst at Moody’s Investors Service, lower fuel costs are expected to keep electricity tariffs depressed over the next 12 to 18 months in Malaysia, given their outlook for weaker thermal coal and crude oil prices. “Moreover, the increased use of coal-based capacities and cheaper coal imports, which are replacing the more expensive liquefied natural gas (LNG), have reduced generation costs,” he says.

Coal-based capacity to surge Teng notes that an upcoming change in fuel mix will further reduce costs for utilities and support the lower electricity tariff in the longer term. Teng says coal will soon overtake gas as the main source of fuel in Peninsular Malaysia by 2017. This is because of an additional 3,010MW in coal-based capacity expected to come on-stream by 2017.

In April 2015, Tenaga Nasional Berhad completed the construction of the Janamanjung Unit 4, a 1,010MW coalfired power plant.

A further 1,000MW from Tanjung Bin Unit 4 – belonging to Malakoff Corporation Berhad – is expected to come on-stream in March 2016, and an additional 1,000MW from Janamanjung Unit 5 – belonging to Tenaga – in October 2017. “The new capacity will be fuelled by imported coal. This additional 3,010MW in coal-based capacity well exceeds the 2,485.7MW in gas-based capacity expected to come on-stream over the same period,” adds Teng.

6 ASIAN POWER

Solar panels installed at Poh Ern Shih Temple’s rooftops

Singapore solar tariff still in the shade

W

hen Singapore introduced a commercial solar tariff earlier this year, it was welcomed as a means to reduce the country’s fossil fuel reliance, but it also brought up a prickly question: What about residential? Analysts view the absence of a feed-in tariff as one of two major factors holding back a residential solar renaissance in Singapore, along with the island’s constricted space for solar installations. “High electricity prices, decreasing solar technology costs and a growing number of household installation options are driving the uptake of residential solar systems in Singapore,” says Emma Richards, oil analyst at BMI Research.

“However, the potential is capped given the limited land space in the country and the absence of a feedin tariff, which could push some companies to invest in other, more attractive South East Asian renewables markets,” she adds.

In particular, Richards expresses a sunny outlook for the roof-top solar market in Singapore, expecting strong growth in the segment over the next decade due to increasingly cost-competitive solar technology and financing flexibility for installations.

The breadth of financing options is particularly accommodative for households interested in adopting solar technology. “The upfront capital

Yu Tat Ming

Emma Richards

Commercial leads the way The lack of tariff support for residential solar is in stark contrast to Singapore’s introduction of a commercial solar tariff last March. Commercial and industrial users that consume at least 4,000 kilowatt-hours per month can avail from PacificLight and REC a blended rate of both solar and grid electricity tariffs. These consumers can even decide on what percentage of solar they would like included in the tariff calculation, says Yu Tat Ming, CEO at PacificLight.

Yu notes that a big advantage afforded by the new commercial solar tariff is in limiting the exposure of such consumers from price fluctuations.

“Customers obtain the benefit of locking in their electricity tariff rate for up to 3 years coupled with the benefit of incorporating renewable energy into their energy usage. Once a customer has entered an arrangement with PacificLight their tariff will remain fixed for the contract period regardless of the grid energy charge rate fluctuations,” says Yu.

Technology costs falling

Levelized cost of energy - Solar PV (by technology), 2009-2014

Source: Bloomberg

FIRST China is projected to reach 250GW of nuclear capacity by 2050, or more than twice the installed capacity in the United States in that year.

Having a skilled nuclear workforce is a challenge

Manning China’s nuclear behemoth

B

y 2030 China could surpass the United States in nuclear capacity, but this fast pace of development comes with a tall challenge: Can the country train a workforce skilled enough to keep all those new nuclear power plants running safely and smoothly?

“Continued training and development of a skilled nuclear workforce focused on safety culture will be the biggest challenge to meeting China’s ambitious nuclear targets,” says the Nuclear Energy Agency and International Energy Agency in a joint 2015 report.

China has accelerated nuclear power development mainly due to the

alarming rise of air pollution from coalfired plants. With its promise of lower environmental impact and attractive economics, nuclear power has risen to become a shining alternative to coal-fired power.

In fact, China is projected to reach 250GW of nuclear capacity by 2050, or more than twice the installed capacity in the United States in that year.

But the forecasted boom in Chinese nuclear power plants would need to be supported by an intensive training program for nuclear plant operators and engineers. This is to prevent a catastrophic disaster that could unravel

all the momentum for nuclear power.

“We believe the biggest risk to China’s nuclear program and nuclear power operators is a severe nuclear power accident at a scale similar to Fukushima or Chernobyl, which could trigger a knee-jerk reaction by the Chinese government to shut down all its nuclear power plants for safety checks and reconfiguration, similar to what happened in Japan after Tepco mismanaged the accident,” says Ephrem Ravi, analyst at Barclays Bank in Hong Kong.

Ravi warns that an accident will also raise public opposition to nuclear power, which is trickier to address than improving safety upgrades in power plants. “As nuclear safety and radiation are difficult to explain, the general public is unlikely to proactively support nuclear power if another accident were to occur, in our view,” says Ravi.

“It is not impossible for China to suspend nuclear power generation should public opinion against it strengthen,” the analyst adds, citing an incident in 2013 where China scrapped a plan to build a uranium processing plant at Heshan, Guangdong, after more than 1,000 demonstrators protested outside government offices.

Support for nuclear power dropped dramatically in most countries after the Fukushima accident

Source: BBC, Barclays Research

the chartist: china’s nuclear capacity increases at the expense of thermal power China’s nuclear installed capacity is predicted to increase from 20GW in 2014 to 58GW by 2020, but at the expense of thermal power. With capacity for nuclear energy being ramped up, it has become more dominant in the country’s generation mix while thermal power utilization has reached the low levels seen way back in 2009.

According to Barclays analyst Ephrem Ravi, thermal power infrastructure spending increased 11% y/y in the first four months of 2015 to RMB 22bn, even though power generation and utilization hours have steadily declined over the past two years. “We believe this is driven by the need to replace inefficient power plants with new units, as well as capex spent on installing environmental facilities to reduce emissions,” says Ravi.

Cumulative thermal power utilization hours

Source: WIND, Barclays Research

Cumulative thermal power infrastructure spend

Source: WIND, Barclays Research

ASIAN POWER 7

FIRST

Indon’s geo thermal surge

IPP WATCH

NTPC extends bidding deadline for 420MW projects

I

ndonesia’s renewable sector will see brisk expansion over the next decade, and it will be driven largely by the geothermal sector although analysts warn that several barriers could slow down its surge.

“We expect strong growth across the renewables sector, primarily in the geothermal segment - driven by vast natural resources, the government’s strong commitment to diversifying the power mix, and growing electricity demand across the country,” says Georgina Hayden, senior energy and infrastructure analyst at BMI Research.

She forecasts non-hydropower renewable generation to grow by an annual average of 8.1% between 2015 and 2024, reaching nearly 24TWh by the end of the forecast period.

Renewables capacity is also projected to reach annual average growth rates of 7.5% over the same time period, with an installed capacity base of over 4GW by 2024.

Geothermal capacity will contribute the bulk of the total non-hydro renewables capacity mix, at nearly 80%, but Hayden also notes project announcements in the biomass, solar and wind sectors. But licensing for new geothermal capacity in Indonesia has been held back by several barriers, says Janet Sawin, lead author of the Renewables 2015 Global Status

Low payments hinder geothermal expansion

Report.

Specifically, fossil fuel subsidies in power generation and unsustainably low payments for geothermal power have been detrimental to geothermal capacity expansion. “Restrictions on projects in protected forest areas, nature reserves and national parks may have played a role as well; at the same time, the industry acknowledges the need to protect the forest environment and hydrology to sustain geothermal installations,” says Sawin.

Indonesia completed approximately 640MW of new geothermal power generating capacity in 2014, bringing total global capacity close to 12.8GW. In that year, Indonesia ranked third in the world among countries that added such capacity. At the end of 2014, Indonesia also ranked third among countries with the largest amounts of geothermal electric generating capacity with 1.4GW, trailing the United States’ 3.5GW and the Philippines’ 1.9GW.

The National Thermal Power Corporation (NTPC), India’s largest government-owned energy conglomerate, recently announced that the deadline for submission of online bids for developing 420MW of solar photovoltaic projects in Rajasthan, India, has been extended to August 18, 2015.

The company seeks to build six 70MW plants at Bhadla Phase II solar complex in Jodhpur district.

Titan Wind plans 300MW project in Xinjiang

Geothermal capacity will contribute the bulk of the total non-hydro renewables capacity mix, at nearly 80%.

Solar PV remains the largest renewable energy employer Renewables represented approximately 59% of net additions to global power capacity in 2014, and by year’s end, REN21 notes that renewables comprised an estimated 27.7% of the world’s power generating capacity. With renewables adding such great capacity to meet global energy demands, it only follows that the industry also requires much-needed manpower to keep all systems running.

IRENA estimates that the renewable energy sector employed 7.7 million people, directly or indirectly, around the world in 2014 (excluding large hydropower). This is an 18% increase from the number reported last year.

According to IRENA’s Renewable Energy and Jobs Annual Review 2015, Solar PV is the largest renewable energy employer, accounting for 2.5 million jobs. “China remains the top solar energy job market, retaining its undisputed lead in manufacturing while also expanding its domestic market. Jobs in Japan increased to 210,000 in 2013. Manufacturing jobs are on the rise in Malaysia, the Republic of Korea and other regional industrial hubs, but those markets are presently too limited to support considerable employment in the installation segment of the Solar PV supply chain,” the report said.

8 ASIAN POWER

Renewable energy employment by technology

Chinese company Titan Wind Energy plans to spend around USD351mn to develop a 300MW wind project in the eastern parts of China’s Xinjiang Uygur autonomous region.

The company seeks to increase its installed green capacity to 2,000MW within the next three to five years.

Titan Wind Energy’s subsidiary in Hami city will construct the farm by end 2015. It will obtain the required project funding via financial leasing deals and bank loans.

100MW solar farm to be built in Negros Occidental, Phils.

Renewable energy employment in selected countries

Going online soon

Philippines-based Gregorio Araneta has announced plans to build a 100MW solar farm in Cadiz, Negros Occidental, Philippines. According to local news reports, it will entail an investment of around USD175mn. The project is expected to start delivering electricity to the national grid by 2016. The company has already developed the 30MW Ormoc solar plant in Leyte province. The plant started commercial operations earlier in 2015.

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FIRST

RE investments set to peak at year-end

J

ust because renewable energy saw an impressive 13% increase in global investments last year does not necessarily mean it would fare just as well this year. After posting an impressive USD 301 billion in investments last 2014, RE ventures hit a rough patch during this year’s opening quarter as it sputtered in major Asian economies. According to the Renewables Energy Policy Network for the 21st Century’s Global Status Report, this year’s first three months was 10% slower compared to last year’s USD 59.9 billion start. China’s first quarter RE portfolio went down by 23% YOY, Japan’s by 3%, and the rest of the Asia-Oceania region grounded to a -43% outing. India was the region’s sole silver lining as it increased RE funding by 59% over the same period last year.

While these decreases are the result of frugal spending on large-scale plants, rooftop solar photovoltaic systems saw a larger following that’s 11-percent more YOY to USD 20.3 billion. This indicates a major shift in the consumers’ energy paradigm as they are now looking for ways to be independent from the national grid.

Spearheading Asia’s clean charge However, as RE continues its stride towards being a major greenification factor in many countries, we can expect investments to peak before the year ends. According to the Centre for Economics and Business Research, renewables ended 2014 on a high note even as oil importation became more affordable, and

spearheading this clean charge on the Asian front were China, Japan, and India.

China notched various renewable energy feats last year. It doled out 63% of the entire globe’s developing country RE investment, investing 39% more last 2014 (USD 83.3 billion) than 2013 (USD 62.6 billion). Additionally, it was one of the few countries to significantly develop hydropower, connecting USD 2.4 billion of small-scale and 22 GW of large-scale water-borne power to their national grid.

Most other developing economies in the region were also major proponents of solar, wind, small hydro, and geothermal power courtesy of their favorable geographical locations. Offshore locations were particularly busy as ocean-based wind farms and wave-driven energy ramp up their paces. Meanwhile, both Japan and India ventured a total of USD 34.3 billion and USD 7.4 billion respectively into renewable energy.

Majority of both funds were used in augmenting the countries’ solar scene.

Other investment drivers In hopes of further boosting renewable energy ventures, 23 Asian countries, excluding Japan and South Korea, moved to create the Asian Infrastructure Investment Bank. It will operate with an initial balance of USD 50 billion—mostly provided by China— and its operation will start before the year ends.

However, a trilateral agreement between the nations of Indonesia, Thailand, and Vietnam

One in two power and utilities executives eye pushing for M&As It will be a robust year for mergers and acquisitions in the power industry, thanks to the increasing confidence of the key executives in the global economy. According to EY’s latest Global Capital Confidence Barometer survey, 45% of power and utilities (P&U) executives are planning to pursue acquisitions in the next 12 months.

EY notes that this sentiment follows a strong 2014, where M&A activity in the sector achieved record levels — total deal value (US$177.1b) and volume (474 deals) climbed to four- and five-year highs, respectively.

This year also started on a positive note, with Q1 2015 recording the highest first-quarter total deal value of the last four years.

“It’s clear that the transformation of the P&U sector is reflected in the M&A strategies of utilities. We are seeing an increased focus on customer-centric, technology-oriented and decentralized business models and growing competition from non-traditional players. Utilities are looking to build capabilities beyond conventional business strategies to stay relevant and compete in this changing environment. P&U executives have expressed a strong preference for innovative acquisitions — 64% of respondents say that their next planned M&A activity is likely to be outside their core businesses,” adds Matt Rennie, EY’s global transactions public & utilities leader. Emerging markets such as Asia are expected to attract interest from investors across the globe. Moreover, EY expects China’s focus on consolidation and planned reforms in various markets to make 2015 a robust year for transactions.

10 ASIAN POWER

How will the investments soar?

will greatly set back the region’s greenification effort. Indonesia’s coal reserves which has been a major driver for China’s coal-fired plants will be diverted to the two partner nations as China cracks down on its carbon emission figures.

Indonesian President Joko Widodo has seen fit to tap the land’s natural resources to offset any energy deficit while profiting from exports.

Making things worse, Chinese lenders are also planning to fund various coal plants throughout the ASEAN region.

Has your M&A strategy changed as a result of the increased deal activity in 2014?

Your planned M&A activity will mostly be:

Paul Maguire

CEO, Senoko Energy

12 ASIAN POWER

CEO INTERVIEW

Senoko Energy’s new CEO focused on Singapore’s continued move to full retail contestability Paul Maguire shares his three main goals, key business philosophies, and management approach.

S

enoko Energy provides more than a quarter of Singapore’s electricity needs and was the first power generation company in Singapore to import clean natural gas for power generation in 1992. The company is owned by an international consortium comprising Marubeni Corporation (30%), GDF SUEZ S.A. (30%), The Kansai Electric Power Co., Inc. (15%), Kyushu Electric Power Co., Inc. (15%) and Japan Bank for International Cooperation (10%).

In September 2014, Senoko Energy announced that the company will be helmed by Paul Maguire as the new president & CEO effective 1 October 2014. Maguire left his position as CEO at Simply Energy, the retail arm of GDF SUEZ Australian Energy. Prior to this role, he was the finance director of GDF SUEZ Australian Energy.

Paul Maguire talks to Asian Power for an exclusive interview where he shares his management approach, business philosophies, and future plans for Senoko Energy.

What three goals are you focused on?

When I joined Senoko, I knew it to be a well-run company with a strong retail position and well-built, well-maintained plant.

More importantly, we have a team of experienced, competent and dedicated employees. The challenges for us arise from the rapid pace of change in the energy sector. We need to ‘futureproof’ our business by optimising what we have today and positioning our company for the future.

From a very broad perspective, the local energy industry is heading into uncharted waters. The generation overcapacity and gas oversupply situation in Singapore is well known and this is something all vertically-integrated power companies need to deal with as the margins from our traditional revenue streams come under pressure.

The landscape of the electricity market is also changing with the emergence of non-traditional energy efficiency & energy management outfits offering niche services like demand response, the opportunity to ‘grow your own electricity’ through solar and the provision of financial services to facilitate investments of this sort.

These activities attract varying levels of government support in Singapore. For Senoko – an established player with a traditional set-up – the questions that we are addressing are: How do we respond to these changes?; How do we successfully differentiate a generic product through meeting customer needs and supporting government initiatives and still provide a commercial return to our shareholders?

These are strategic, high-risk decisions requiring careful consideration but ignoring these externalities is not an option.

So apart from optimising what we have today and positioning for the future, the third area of focus is our people.

We need to ensure that our culture embodies nimbleness, innovation and considered risk-taking and that we arm our team with the right skills, competencies and resources to execute the necessary strategies.

How do you plan to accelerate Senoko Energy’s growth?

There are limited opportunities for large-scale centralised electricity generation in Singapore for the reasons I have already described. Hence, our growth will be focused on Singapore’s continued move to full retail contestability, distributed electricity generation and meeting customer’s needs through the provision of other services.

What is your management approach in your new role?

One of a CEO’s primary responsibilities is the strategic direction of the business. Without this, an organisation does not have a ‘destination’ to strive for and often ends up as a collection of people pursuing a confusion of individual goals.

So, as the CEO, I need to very clearly communicate the key mission and values of the business, not just in words but also through my actions.

In practical terms, I see my role as setting broad direction, major targets and guidance for my management team and staff. I also need to ensure they are supported by the necessary resources to maximise our chances of successfully executing our strategies.

It would be impossible and indeed unproductive for me to be involved in the minutiae, day-to-day decisions of the business.

There are, of course, some areas that I pay particular attention to but I have a talented team in place. They know what they need to do, they do it well and my job is to make sure they have an environment in which they can succeed.

Management is of course multi-directional and so it is also important to communicate regularly and work closely with shareholders and other stakeholders such as our unions and government agencies.

What are your key business philosophies?

There are several adages I go by and they have served me quite well so far. I often reflect on the following three.

Focus on the customer. It seems obvious but in a large organisation it is easy to lose touch with the customer. It’s critical to focus every element of the product, every aspect of service delivery on what customers need and want and to be constantly alert to the voice of the customer. I personally find it annoying when in conversation terms like ‘users’ or ‘connections’ are used instead of customers.

Know why you exist and where you are going. This is about strategy, understanding your value proposition and what success looks like.

Let’s try it. This is about taking considered risks and accepting that not all will be successful.

What previous positions prepared you for this one and how?

I am fortunate to have been based in Australia and have over 20 years of experience in utilities businesses. Most of these businesses have been owned by multi-national companies that are active in various parts of the world including Europe, Asia and North America which has given me a broad perspective on energy investments around the world.

That exposure enabled me to compare the Australian market for retailing power and gas to overseas counterparts.

The Australian power and gas market is characterised by competition which is intense and by Australians being ‘early adopters’ of technology – the rate of take-up of solar by Australian households leads the world.

The energy industry in Australia also started the reform process quite some time ago and the electricity and gas businesses – from production to retail – are close to fully liberalised.

I learned a great deal from witnessing the Australian industry’s ‘growing pains’. That being said, the Singapore market is different and I am also learning a lot as my experience in Singapore grows.

ASIAN POWER 13

Country report 1: south korea

Korea Wolsong Nuclear Power Plant

Korea wields double-edged nuclear sword Korea’s national government is intent on deploying more nuclear plants; Seoul’s local leadership has other ideas.

I

f you think that South Korea’s nuclear prowess will wane as plants near the twilight of their life, then you underestimate just how crucial nuclear power is to the country’s day-to-day operations. With the nation being the 11th largest energy consumer in the world and the ninth largest carbon dioxide emitter, Korea is looking towards nuclear energy as the most realistic solution to its energy woes.

“We believe that new-build nuclear reactors will continue to come online in South Korea over the coming years, despite safety concerns and nuclear opposition,” says Georgina Hayden, a Senior Energy and Infrastructure Analyst at BMI Research. She cites the country’s dilapidated reactors, increasing energy demand, cost of other power sources and the growing concern for toxic emissions as the key factors backing the government’s nuclear agenda.

Nuclear emergency Hayden hails nuclear power as the most realistic solution that will not only answer South Korea’s energy needs, but will also present a cleaner, low-carbon power source. Out of South Korea’s 23 active nuclear reactors, about a third will reach their estimated 30-year efficient operational lifespan by 2020 and another third will have reached the same status after ten years. Hayden predicts that 14 ASIAN POWER

The renewed initiative details a strategy to increase the country’s nuclear generation capacity by as much as 29% by 2035.

many of these veteran reactors will apply for extensions, but as of right now, it is unclear how many will continue running for a further prolonged stretch.

The anticipated retirement of a significant number of reactors will obviously create a huge discrepancy between energy supply and demand.

Analysts expect that electricity consumption will continue on a skyward trajectory and though the government has taken steps towards curbing unnecessary power depletion, a long-lasting solution is still needed to support economic growth.

Meanwhile, the continued importation of most of the country’s energy feedstock—an expensive endeavor—is expected to lose its steam in a few decades, not only because of the rising prices of petroleum, coal and liquefied natural gas, but also because of their degenerative impact on the environment.

The country has doubled its annual carbon emissions in metric tonnes per capita in a mere two decades (from 1990 to 2010), as well as increased its coal consumption by around 50% throughout the same period.

Dr. John Byrne, founder and chairman of the Foundation for Renewable Energy and Environment, notes that these are the main reasons behind Korea’s second National Energy Master Plan. The renewed initiative details a strategy to increase the country’s nuclear generation

capacity by as much as 29% by 2035.

To complete this goal on time, a total of 16 additional reactors have to be constructed, with 11 of these needing to be up and running by 2024.

Through this effort, South Korea will be hoping to cut its total carbon emissions by 30% before 2020, with the power sector pegged to lessen emissions by 26.7% in the same year. Coupled with an improved emission trading scheme and renewable energy standard, nuclear power will be a crucial player in achieving the aforementioned goals given the scalability of technology.

Radioactive roadblocks “Another outbreak of concern over the safety of nuclear energy (in South Korea or the wider region) would temporarily halt the move towards nuclear power in South Korea,” says Hayden, citing the recent Fukushima nuclear disaster in Japan and the country’s own safety scandal in 2012 as the main obstacles to large-scale nuclear deployment.

“When arguably the most technically sophisticated nuclear society could not avert disaster and could not control of its consequences, we must reflect on our reliance on this source of energy,” adds Byrne.

Despite these issues, the nuclear industry has been experiencing an upward swing as of late, with two nuclear

Country report 1: south korea power plants already in the pipeline.

However, the suburban location of current and planned facilities, in addition to the populated areas surrounding highvoltage transmission lines that connect large-scale plants and urban areas, have drawn the ire of affected citizens.

“Recent conflicts over the construction of transmission towers in Milyang show one of the potential justice issues emerging from the country’s expansion plans,” comments Byrne.

Additionally, plants that will be built in Samcheok are drawing flack from local citizens who would rather be as far away as possible from a meltdown. The populace is also protesting the expected growth of radioactive waste stockpiles.

Though nuclear power is stereotyped as bringing low cost energy and reduced greenhouse gas emissions, it bears another hidden problem. According to Byrne, “Lazard Investment Bank finds the unsubsidized cost of nuclear power to be among the most expensive options for electricity supply.” Indeed, even as nuclear power provides 40% of the country’s electric load, imported energy figures have been largely unchanged during the last three decades.

Surprisingly, Korean emissions are also continuing to rise despite a huge chunk of the country’s power needs coming from “clean” nuclears. “The explanation for these empirical contradictions is simple: nuclear power has enabled Korea to become one of the most energy-intensive economies in the OECD. Using more energy cannot solve the problem,” says Byrne.

Due to these factors, Byrne is skeptical about the national government’s nuclear plans. He says, “Considering the country’s limited storage for nuclear wastes, growing social opposition to new nuclear power plants and the much lower cost and less risky alternatives for low-carbon development, I doubt the country will build 16 new plants in the next 20 years.”

Meanwhile, Hayden admits that it will be difficult to predict the program’s longterm success due to logistic, technical, and political challenges,but she’s certain that most reactors will file for extensions when their 30 years are up. “However, whether the new nuclear reactors will be built on schedule is debatable, given the history of delays in the global nuclear industry.”

One less nuclear power plant While Korea’s national government is dead set on erecting as many nuclear plants as the country needs, Seoul’s metropolitan government is headed in a completely different direction as it launches the “One Less Nuclear Power Plant” initiative.

The newer power plants in Korea are

located in the east (nuclear) and west coasts (thermal). Connecting these generators to the mainland cities are 69 newly-built transmission towers carrying 765kV spanning from Singori to Miryang to the third largest city, Daegu.

Then-mayoral candidate Won-Soon Park emphasized that the deployment of nuclear plants and transmission lines in the countryside, while benefiting large cities, are debilitating to people living in the countryside. “Seoul must come up with responsible energy policies in order to seek mutual co-existence with rural areas.”

OLNPP seeks to relieve the city of dependence on one nuclear power plant by 2020 in an effort to rethink energy policy while leading Korea’s transition to a more sustainable and equitable power structure. It emphasizes critical efforts in energy conservation, energy efficiency and renewable energy to strike the disproportionate supply-demand ratio from the country’s power-producing regions.

Seoul’s OLNPP initiative was borne out of four main reasons: the mass blackout which affected 656,000 homes in 2011; the nuclear phase-outs legitimized by other countries; the misfortune of having those in far flung areas live near nuclear plants and transmission lines and lastly, the election of civic activist Won-Soon Park who strongly opposes the government’s plan to build nuclear waste repositories in rural locales. It is unique in that, while most countries measure change targets via greenhouse gas emissions, Seoul will be advocating the need for fewer nuclear plants.

Through the OLNPP initiative, a couple of end-games have been set. First is the replacement of one nuclear plant (equivalent to two million tons of oil) with renewable energy sources. This

Georgina Hayden

John Byrne

includes the decline of 790,000 toe from electricity plus 1,210,000 toe from oil and city gas. Additionally, the city will be made more self-sufficient from the current 2.95% self-energy production to 20% independence in 2020.

OLNPP will utilize low head hydropower technologies, food-waste driven biogas plants, solar farms on rooftops and unused land, and wood and pellet heating to increase their share of renewable power, with subsidies given to small- and medium-sized owners to offset initial operating costs.

“We suggest that Seoul’s energy experimentation provides important policy implications for other cities and national governments to reorient their energy policies towards a sustainable energy future,” says Dr. Taewah Lee, a research professor at Yonsei University’s Institute for Legal Studies.

“The nuclear option is no longer economically and environmentally sustainable. Rather, investments in emerging renewable energy options like distributed solar photovoltaic generation and in conservation can be more beneficial for sustainable energy development in Korea,” says Byrne.

South Korea: Number one electricity consumer per capita in the Asia Pacific region Electricity demand per capita

Source: Wood Mackenzie Energy Markets Service

Source:

Shin Kori Nuclear Power Plant ASIAN POWER 15

CO-PUBLISHED CORPORATE PROFILE

OWL thrives in Thailand’s stable power market OWL’s managing director Tony Segadelli talks about Thailand’s shifting energy landscape and why the Kingdom’s expertise is fuelling the company’s growth.

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hen OWL’s managing director, Tony Segadelli, first established his company in Thailand almost six years ago, he expected to be doing a lot of work related to combined cycle power plants. But the Thai energy market changed dramatically shortly after the company commenced operations in the Kingdom, leading OWL down the lucrative path of solar energy. The company’s founding fortunately coincided with Thailand’s unprecedented solar boom, says Segadelli, which is why OWL has worked on more solar projects than any of its competitors throughout ASEAN. He notes that the solar tariff used to be at an unsustainably high level of THB 11 per kilowatt hour, which invited a horde of speculators into the market. The current tariff, which is pegged at just THB 5.66 per kwh, ensures greater stability and development for Thailand’s solar energy market.

“A lot of projects were cancelled because they were speculators coming into the market and that was driving the market in the wrong direction. People with the wrong incentives were getting into the market, while the people who actually had the intention to try and build projects had to buy PPAs at inflated rates from these speculators. Now there are safeguards in place so that PPAs are issued to real developers,” Segadelli says.

Although solar continues to be the most promising technology in Thailand, Segadelli notes that there are now more technologies coming to the fore. “Since the military takeover, waste-to-energy business is something that the new government has been very focused on. Although wind is a very limited resource in Thailand,

PFS for Coal Fired in Perlis – Malaysia 16 ASIAN POWER

technological advances, such as low-speed wind turbines, might drive the wind power sector in the country,” notes Segadelli.

Segadelli adds that while Thailand continues to be intensely reliant on natural gas, this dependence will soon become unsustainable as supply in the Gulf of Thailand is rapidly depleting.

“LNG is extremely expensive so alternative technologies are becoming cost-effective. If LNG becomes the predominant fuel, which it is likely to be, the price of CCGT-generated electricity will be above the cost of solargenerated electricity. So it makes sense to make the shift,” he says.

“The underlying principle has always been the same: security of fuel supply is critical. So it’s always about looking to find ways of diversifying the country’s energy sources, which is why there’s great interest in renewables,” he adds.

OWL has transformed along with Thailand’s power sector. From a small, solar-focused consultancy with just one office, OWL’s Thai office now has over fifty staff and has expanded into other areas outside power generation. The company also now has offices in three other countries across the region. “We have a lot of core expertise in Thailand that we export around the region.

We use Thai expertise in Manila and Japan, particularly for solar projects. The Greater Mekong Sub-region will be one of our

“Despite all the political issues, it’s still a well-run and well-regulated and formalized system of doing business.”

Tony Segadelli, Managing Director, OWL

growth drivers going forward, and we are actively working on projects around this region,” Segadelli says.

From its Thai office, OWL is working on projects for other mainland Southeast Asian countries such as Cambodia, Laos, Myanmar and Malaysia. It is currently working on development of a new city just outside Phnom Penh plus hydropower and mine studies in Laos. In Myanmar, the company is working with the Asian Development Bank (ADB) for the first project-financed CCGT project in the country. In Malaysia they are working on a coal and CCGT projects.

“Our home base will tend to grow organically and continue diversifying into related technologies such as bioethanol.

Although the Thai office will not necessarily change that much; what will change will be the company itself as we expand into more markets. Thailand will continue to lend its established expertise to our operations around the region,” he notes.

When asked about why he chose to establish his business in Thailand as opposed to other ASEAN countries, Segadelli has one thing to say: Thai governments of all colours have all supported and nurtured the power sector including private participation.

“The market is very well-regulated, EGAT has a very strong sovereign credit rating, the power sector is growing, the interconnection within Greater Mekong is expanding, and business is more straightforward than in neighbouring countries,” he notes. “Despite all the political issues, it’s still a well-run and well-regulated and formalized system of doing business. The power-development plan and the policies tend to be long term and modified rather than completely ripped up and changed over again.”

Generating Power through Wisdom The bird of wisdom continues to spread across East Asia.

As the only truly East Asian high end power engineering consultants OWL is fully aligned with their clients’ needs. OWL’s power plant capability includes both fossil (coal, CCGT and recips) and renewable energy projects (solar, wind, biomass from Napier grass, biogas and MSW).

On 8 May 2014 OWL opened its third office, this time in Tokyo. During this short period of time OWL has been engaged to work as Employer’s Representative on the largest solar project in Asia. In addition we are supporting other solar and wind companies in Japan.

In addition to power related projects OWL has diversified into associated sectors such as writing feasibility studies for coal mines and for the electrical portions of new cities being developed in ASEAN.OWL is capable of taking power plant and related projects from initial concept and turning them into profitable ventures. This covers development, design / construction, operations and into decommissioning.

For more details visit our website at www.owlenergy.biz or contact our Managing Director, Tony Segadelli, at +66 8 4637 2672 or at tony.seg@owlenergy.biz ASIAN POWER 17

Country report 2: thailand

Rasi Salai Dam in Thailand

Here’s the biggest problem in Thailand’s grand 20-year power development plan Just when the government thought things are about to go well, heavy opposition started pouring in.

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hen Thailand unveiled its new power development plan for the next two decades, it proudly declared that the country will drastically reduce its reliance on gas power generation, but environmental advocates soured at what for them was a troubling shift: The plan looks to more than triple coal power to 25% from 7%.

Thailand is looking to invest in 7,000MW of clean coal power plants, according to Saharath Boonpotipukdee, deputy governor – corporate social affairs at Electricity Generating Authority of Thailand (EGAT), as the country braces for the new reality of lower gas imports from Burma and insufficient domestic gas production, which would make it unsustainable to continue to rely so heavily on gas power generation.

But this recently publicised push towards coal fired utility scale power plants is being hampered by community perception that clean coal technology does not fully address pollution concerns associated with traditional coal fired power plants, says Christopher Osborne, partner at Watson Farley & Williams (Thailand) Ltd. “A few gas and coal fired plants are being developed as captive power plants, however there is substantial grass roots 18 ASIAN POWER

Chris Osborne

Georgina Hayden

Saharath Boonpotipukdee

opposition to new utility scale coal fired power plants being commissioned, and local communities are emphasising that they do not want coal fired power plants built in their vicinity,” he adds.

This has put Thailand in quite a conundrum, and Osborne says the government could respond to the heavy opposition from environmental activists with a plan to instead invest in coal projects overseas, which would necessitate additional expenses in developing better infrastructure for larger coal imports. “Our Mining team does not expect significant potential for the construction of new coal mines domestically due to environmental concerns, and as such Thailand will have to increase coal imports, requiring improved port and rail infrastructure,” says Georgina Hayden, senior energy and infrastructure analyst at BMI Research.

Partly in response to this public opposition, construction of coal-fired power plants has been slow to move.

EGAT publicly stated in November 2014 that Thailand will have to build more coal-fired power plants to meet its future energy needs, but Hayden notes only one coal-fired power plant is in the pre-tender stage, an 800MW coal-fired power plant in Krabi which also comes with plans to construct a THB800mn (USD24.7mn)

tunnel for coal transportation.

But Hayden expects more coal-fired projects to be announced soon. Already in March 2015, a consortium comprising France-based Alstom and Japanese firm Marubeni signed a contract with EGAT to build a coal-fired unit at the Mae Moh power plant in Thailand, which will replace some existing units at Mae Moh and will produce 600MW of electricity once it is completed in 2018.

Thailand’s increased focus on coal power comes as the government looks to improve energy security and reduce its dependence on Myanmar, which currently contributes approximately 25% to Thailand’s total gas consumption, says Hayden. “The Burmese government is looking to cut down on export volumes as it retains more of its gas for domestic consumption to support its growing economy. Thailand’s strategy is also partly in view of the decline in Myanmar’s production volumes at long-running offshore fields Yadana and Yetagun, as well as rising production costs in developing new offshore fields,” she adds.

“With insufficient domestic gas production to satisfy demand, Thailand could choose to import more LNG. However, we believe that the government will favour more cost-competitive options

country report 2: thailand which consequently creates potential for alternative energy utilities infrastructure over the coming years.”

Renewables take the lead Those opposed to coal power have been urging the government to instead ramp up investment in renewables, which the Thai government has vowed to do in its new energy mix targets. In fact, the government has updated its green energy agenda with the Alternative Energy Development Plan (2012-2021) which states that 25% of total energy consumption must be derived from alternative energy sources by 2021, with targets of 2GW of solar capacity, 1.2GW of wind capacity and 3.63GW of biomass capacity.

By 2035, the government expects to have ramped up renewable energy projects to 19GW, according to EGAT’s Boonpotipukdee, including 6GW on solar power and 2.8GW on wind. And to promote renewable energy investment and affordable tariff to consumers, a bidding FiT scheme was announced in June 2015. Given these drivers and dozens of wind and solar projects in the pipeline, renewable energy should take the lead in development for the next decade as Thailand sorts out the hiccups in its coal power plans, according to analysts.

“The government has now earmarked Gas: Potential for further downside

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

Total net generation, by type TWh

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

By 2035, the government expects to have ramped up renewable energy projects to 19GW, including 6GW on solar power and 2.8GW on wind.

thousands of megawatts of renewable energy PPAs to be issued under a competitive bidding model and we are optimistic that this will see the beginning of a renewable energy renaissance for Thailand.

Renewable energy will take the lead in satisfying Thailand’s increasing demand for electricity over the next decade while Thailand develops and implements a financially sustainable model for baseline power using coal or gas or a combination of these,” says Osborne. He adds that the previously awarded round of large scale gas fired power plants does not appear to have progressed and complications in gas supply and pricing appear to have put gas fired plants on hold for the time being.

Dr. Jai Govind Singh, assistant professor and coordinator of energy field of study at the Asian Institute of Technology, says Thailand is working aggressively to harness renewable energy sources since high energy imports are already taking a significant part of the country’s GDP. “Thailand’s own resources are not enough so its energy portfolio is highly dependent upon net import which is quite vulnerable to soaring energy prices in international markets as well as any possible crunch in energy supply system in future,” he adds.

Regulators take action In its effort to support the renewables sector, the government’s Energy Regulatory Commission (ERC) has also ordered Thailand’s state owned electricity distributors to cease offering PPAs to power producers generating less than 10MW – known as very small power producers -- and instead issue PPAs based on the ERC’s FiT subsidy program.

Osborne notes that PPAs issued for VSPPs in the future are now likely to be issued exclusively on the basis of FiT, although some applications for PPAs which were lodged prior to the ERC’s announcement can still be eligible for an adder rate PPA. He also cites ERC’s issuance of a notification which gives VSPPs with adder rate PPAs, other than solar power producers, the option to convert their PPAs to FiT PPAs, which are for a 20 year term for all eligible forms of renewable energy with the exception of landfill, for which a ten year PPA is offered.

“For some projects, the prospect of a 20 year fixed rate will provide financial certainty over a period twice as long as the existing PPA and in the case of wind farms producing substantial amounts of electricity during off peak periods (and subject to a lower off peak wholesale rate), a single fixed FiT may provide greater financial returns than the price payable under an adder rate PPA,” says Osborne.

Among renewable development in the

short term, solar stands out following the Thai government’s decision to introduce a FiT programme for rooftop and villagebased solar energy projects. Under the programme, 25-year PPAs with tariffs as high as THB9.75/kWh would be awarded to 1,000MW of rooftop and village-based projects, completed before 2015, says Hayden.

“We believe the programme would bring about a substantial increase in solar projects over the short term. This is because the tariffs on offer to residential projects are significantly higher than the tariffs offered to commercial projects. The PPAs offered to residential projects are also longer that the PPAs for commercial projects, allowing residential investors to benefit from a longer guaranteed purchase period,” adds Hayden.

Solar shines Critics point to a lack of land for solar farm development which should dampen the pace of growth in the sector, but Boonpotipukdee insists that many solar farm projects can be condensed in some areas and notes increased efforts to set up zones for future solar farm development.

Solar power has also been galvanized due to a flow of investment from local private developers.

“Thai private developers (several of whom are listed on the stock exchange) have led the way in the solar photovoltaic and wind sectors while PPP models have been used for metropolitan solid waste incinerators,” says Osborne.

The majority of debt finance has been provided by the Thai banks because of their ability to offer project finance terms to developers. This is not to say that foreign banks are not interested in offering financing to the Thai energy sector, but given that their preferred currencies of US dollars or Euro do not match the currency of the PPAs in Thai Baht, the cost of hedging facilities can add to the cost of the loan, which proves to be a deterrent, explains Osborne.

A further catalyst for renewable energy is the fact that Thai banks are becoming increasingly sophisticated in project finance in the energy sector and may have an appetite to provide loan finance to foreign developers.

“If this happens, we will see foreign developers taking an increased stake in the Thai power sector,” says Osborne. But investors can choose to take a pass on Thailand if it fails to stabilize its regulatory environment – the country scores poorly in terms of policy continuity in the BMI Risk/Reward Index, says Hayden. Investors are also wary of the high levels of corruption and lack of transparency with regards to the tendering process.

ASIAN POWER 19

sector report: hydropower

Hydropower a potent energy source for Asia

It’s a waterworld after all: Hydropower industry set to take over the Asian market With China firmly in lead, the development of hydropower in Asia is set to accelerate.

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hen the Chinese government announced the construction of the Baihetan Dam hydropower plant complex in Sichuan and Yunnan provinces, many believed that this firmly ensconced China’s status as a global superpower, not just in terms of the economy, but in the hydropower industry as well. Baihetan Dam, after all, is no ordinary hydropower plant. Upon its forecasted completion in 2019, the Baihetan Dam, sitting on the banks of the mighty Jinsha River, is expected to generate a whopping 13,050 megawatts (MW) of electricity, easily making it the world’s largest hydropower plant in terms of output, according to the World Energy Resources 2015 Hydropower Status report.

“As in years past, China dominated the market for new development and total installed capacity,” the International Hydropower Association (IHA) said in its 2015 Key Trends in Hydropower report last May. The Baihetan Dam is but one example of China’s emerging clout in Asia’s hydropower industry.In the last decade, China’s influence in the hydropower sphere has vastly expanded in step with the industry’s growth in the region. “The Asia Pacific region really punches above its weight in the hydropower stakes, comprising around 32% of the total global hydropower generation. Clearly, hydro has a strong role to play in the future of the Asia Pacific region,” says Matt Rennie, global energy reform and unbundling leader at EY. Hydropower’s prominence, Rennie says, comes “as governments are clearly weighing the pressures of upwards movements in electricity demand as they develop, with their stated intentions to diversify into low-carbon sources of electricity.”

The last 10 years have proved to be a growth period for this renewable energy source. Catalysts for hydropower’s prominence worldwide include a “general increase in demand not just for electricity, but also for particular qualities such as reliable, local, 20 ASIAN POWER

The Asia Pacific region really punches above its weight in the hydropower stakes, comprising around 32% of the total global hydropower generation.

clean and affordable power,” the IHA said.

“Since 2004, hydropower development has seen resurgence, particularly in emerging markets and less developed countries,” said Marie-José Nadeau, chairperson of the World Energy Council, in the latter’s report entitled World Energy Resources: Charting the Upsurge in Hydropower Development 2015.

Ashok Bhargava, director, energy division, East Asia department at the Asian Development Bank, argues that “today, hydropower provides more electricity in the region than all other renewable energy [forms] combined, a reality that is unlikely to change in next 10 to 15 years. So, we expect hydropower to play a dominant role in the regional renewable energy mix.”

Worldwide, there exists several opportunities for hydropower development Nadeau declares, and “although there is no clear consensus, estimates indicate approximately 10,000 terawatthours per year of remaining hydropower potential worldwide.”

Hydropower: a potent energy source for Asia Hydropower brings a wide range of benefits to the Asian electricity market, a diverse region whose demand for power mirrors its economic growth potential. Nadeau notes that “significant new development is concentrated in the markets of Asia, Latin America and Africa, where hydropower offers an opportunity to bring much needed electricity supply to underserved populations and a growing industrial base, while at the same time providing a range of complementary benefits associated with multi-purpose projects.”

In addition, hydropower also complements other forms of renewable energy in the market by providing enough capacity to offset any load deficits. “As other renewable energy such as wind and solar grows rapidly in the region, there will be more demand for hydropower to enable integration of intermittent electricity generation produced from solar and wind in the system,”

sector report: hydropower Capacity added in 2014 and total installed capacity in key countries (in GW)

Global total hydropower generation since 1980

Source: IHA, EIA, REN21 - Renewables 2014 Global Status Report

Source: International Hydropower Association

Bhargava claims. Sawin agrees, adding “complementing existing hydro-dependent energy systems with non-hydro systems is one approach to reducing vulnerabilities.”

Meanwhile, another industry group believes that despite the already strong presence of hydropower worldwide, growth in the region is still certain in the next few years. “Looking forward, there remains significant undeveloped potential across all world regions, particularly in Asia, Africa and Latin America. Demand for electricity and other related reservoir services is also high in these areas, forming a strong foundation for continued growth in hydropower.In 2014, hydropower development continued its strong growth trend, with an estimated 39 gigawatts (GW) of pure hydropower capacity put into operation – bringing the world’s total installed capacity to 1,055 GW,” IHA said.

In the next 15 years, the combined percentage of hydropower generation relative to total power generation is expected to surge to 96% from 80% in countries such as Cambodia, Laos and Myanmar, claims Rennie—reflecting the huge, sustained demand for hydropower.

China: a prime mover in hydropower It is within this attractive climate that China finds itself thriving, flexing its muscle and adding significantly to the region’s—and the world’s—growing hydropower portfolio. For instance, China accounted for a sizable chunk of the world’s total installed hydropower capacity last year, “adding 21.85 GW of new capacity within its borders,” IHA said. Without question, China leads in hydropower capacity worldwide, assuming global frontrunner status by double-digits. “In recent years China has taken centre stage for hydropower capacity, accounting for 26% of global installed capacity as of 2013, far ahead of Brazil (8.6%), USA (7.8%) and Canada (7.6%). China has strengthened its dominant position by adding 29 GW in 2013, well over three times the new capacity of the next five countries combined,” Nadeau reveals.

With its place on top of the hydropower food chain secured, it is unlikely China will find itself backpedaling on hydropower anytime soon, with the country’s total capacity of pure hydropower and pumped storage forecast to hit 350 GW and 70 GW, respectively, in five years, Nadeau says.

“China is expected to maintain its lead in 2015 as well, with new developments completed at Xiloudu (13.9 GW), Xiangjiaba (6.4 GW), and Nuozhadu (5.9 GW),” Nadeau adds. These three plants, which form a chunk of China’s sizable $15.6 billion investment in hydropower infrastructure, are significant for their sheer size and output—concrete testaments to China’s seriousness and drive in hydropower development.

“The Xiluodu plant (13.86 GW), which started operations with two-thirds of its full capacity in 2013,was completed in 2014, becoming the third largest hydropower plant in the world after China’s Three Gorges and Brazil’s Itaipu,”according to Janet Sawin of Sunna Research, and lead author of the Renewables

2015 Global Status Report of the Renewable Energy Policy Network for the 21st Century. The Xiangjiaba plant, which houses the world’s highest capacity hydro units, is China’s third-largest hydropower plant, while the Nuozhadu plant became the fourthlargest with the latter’s final generating units coming on-stream last June.

Beyond its expansive borders, China is also playing a key role in the development of Asia’s hydropower industry by extending infrastructure assistance to regional neighbors. “Chinese companies are also playing leading roles in developing hydropower beyond China’s own borders; in Laos, Cambodia, Myanmar and other Asian countries, as well as increasing their presence in Africa and Latin America,” Nadeau adds.

Ashok Bhargava

Matt Rennie

Spending for and working in hydropower In addition to being a leader in hydropower plant construction, China is also making inroads in other crucial facets of hydropower development, namely in financing and employment. Hydropower plants, like any other infrastructure-related undertaking, require significant amount of capital to even get off the ground. Funding is sometimes hard to get.

“Hydropower projects are enormously capital intensive and involve very significant social and environmental considerations to be overcome. This combination of very large upfront capital costs, political risk, environmental and social issues provide governments and financiers with considerable uncertainty and risk to work through in the various stages of project development,” Rennie says.

In this case, China-based Asian Infrastructure Investment Bank (AIIB) emerges as a key financial institution that seeks to provide fresh funding for such projects. Despite being a relative newcomer to the region’s banking industry, the multilateral lender “has signaled its intent to include hydropower in its investment portfolio,” the IHA said. The AIIB, which describes itself on its website as a “modern, knowledge-based institution,” includes energy and power as one of the sectors it aims to develop in Asia.

Meanwhile, a first-ever global estimate by the International Renewable Energy Agencyearlier this year revealed the presence of about 1.5 million direct jobs in hydropower, mostly in Asian countries such as China and India. “Most jobs are found in construction and manufacturing, followed by operations and maintenance,” Sawin said.

Once again, China ranks first in the world in this area: “China has firmed up its position as the leading renewable energy employer, with 3.4 million jobs. It has a commanding position in solar PV, solar water heating, wind power, small hydro and biogas.” As Asia’s hydropower market matures in the next few years, power companies are also expected to take on additional risks and expand the output of the plants they build, both in terms of scale and output. Easier access to financing, coupled with an attractive investment climate should usher in larger-scale projects ASIAN POWER 21

sector report: hydropower in the near future. “Moving ahead, many mega hydropower projects in Asia also will have to be viewed and formulated with a regional perspective for investments to flow,” Bhargava says.

Rennie concurs. “We see a strong appetite for investors to take stakes in generation projects over 1,000 MW, provided that long term sovereign-backed PPAs can be put in place, or the financing risks otherwise dealt with,” he says.

Meanwhile, far from being a static and monolithic sector, the hydropower industry in Asia continues to innovate, with power companies moving toward the development of flexible, efficient, and reliable facilities, according to Sawin. For example, brisk demand for greater efficiency coupled with narrower generating costs “has contributed to the development of very large machines to achieve high operating efficiencies,” Sawin notes, citing the two 800MW units installed at China’s Xiangjiaba plant.

We see a strong appetite for investors to take stakes in generation projects over 1,000 MW, provided that long term sovereignbacked PPAs can be put in place, or the financing risks otherwise dealt with.

Private sector support Aside from the strong involvement of governments in the development of hydropower projects, the private sector is also expected to seize key opportunities and jumpstart their own developments as well. “Previously, projects used to be developed through public sector or government-backed financing. With the renewed emphasis across Asia on renewable and clean energy, private sector investments have become more prevalent,” Bhargava observes.

Bhargava notes that ADB, for one, has provided nearly $2 billion in investments from 2009 to 2013 for hydropower development, over a third of which was channeled through private sector operations. This is clear proof of the private sector’s willingness to invest heavily in hydropower development in the region, especially among “developing countries which face funding shortfalls in financing and developing these projects, and limited infrastructure, which provides further challenges for both the private and public sectors.” He adds that this is a welcome trend and should continue further as the need for clean and renewable energy gains more momentum, and the regulatory framework further improves throughout Asia, providing much needed impetus for private investments. “Moving ahead, many mega hydropower projects in Asia will also have to be viewed and formulated with a regional perspective for investments to flow.”

IHA has noted a similar trend in the Indian subcontinent. “We have long been aware of an increasing role for the private sector in hydropower, and the evidence continues to mount in support of this trend,” the IHA said, citing some 19 Gw of hydro projects taking place in Bhutan, India, and Nepal that are being supported Global hydropower technical potential, generation and installed capacity by region. Pumped storage is shown in brackets.

Source: International Hydropower Association 22 ASIAN POWER

by private financing.

Many of these projects are being realised under the independent power producer model, and based on long-term powerpurchase agreements. In the case of Bhutan and Nepal, these include cross-border trade with India. Within India, a few developers are currently considering the business model of operating as merchant plants, depending on confidence in market price projections,” IHA said.

Hydropower adapts to climate change Little by little, Asia’s hydropower industry is also adapting to mitigate the impact of hydropower plants on the environment in the face of increasing concern over climate change. “The topic of sustainability remains prominent in the context of hydropower development,” Sawin notes, adding that in general, there is increased research into “associated vulnerabilities” and the incorporation of climate change resilience into project design and operations. The Hydropower Sustainability Assessment Protocol, launched in 2011, is one such initiative, being recognized last year by the World Bank as a useful gauge in developing sustainable hydropower projects alongside its own policies and safeguards.

However, due to the overall emphasis on climate change, a number of hydropower plants in Asia—both planned and existing—have been subjected to closer scrutiny by their respective stakeholders. Earlier this year, for example, the United States government blocked the World Bank’s funding of the 108-MW Gulpur hydropower plant in Pakistan “on grounds of inaccurate and inadequate environmental risk assessment”, while in Vietnam, “allegations of illegal land acquisitions and mismanagement prompted authorities to consider revoking licenses,” Sawin noted.

In Turkey, the potential flooding of ancient archeological sites affected the operation of the 1.2GW Ilisu dam on the Tigris River, while in India, the 2GW Lower Subansiri project was further postponed on the back of local opposition there.

“On the issue of vulnerabilities, financial institutions are seeking more assurances of hydropower’s climate resilience before lending, highlighting the need for more robust analysis at the company and individual station level,” IHA said.

Bhargava acknowledges the hurdles when hydropower projects seek to meet sustainability standards. “Well-formulated hydropower projects have significant development impacts. But, environmental and social challenges go hand in hand with meeting development needs. In order for projects to develop on time and sustain operation, there needs to be good buy-in from local communities and support from downstream users of water,” he says. Moving forward, how will these affect the development of future hydropower projects? For one, hydropower plant developers are bound to be keener when it comes to demonstrating the climate resilience of their projects during the earlier development stages in order to meet financial and regulatory approval, Nadeau argues. “This may include provision of improved data analysis on climate change impacts, increased flexibility in project design to accommodate uncertainty, increased storage volumes, and revised operational regimes,” Nadeau adds.

In fact, hydropower plants may also serve a key role in addressing certain challenges brought about by climate change. “As a renewable energy, hydropower can serve as a tool for climate mitigation, where it is an accepted offset for fossil fuel technologies under UNFCCC (United Nations Framework Convention on Climate Change) methodologies,” Nadeau says.

Because it harnesses the power of water in providing electricity, hydropower plants may also protect against floods and drought.

“In addition to providing a carbon offset when developed in place of fossil fuel technology, we see a greater recognition of hydropower’s ability to provide flood protection and mitigate drought impacts in the face of increasing extreme hydrological events,” the IHA said.

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Advanced membrane degassing technology for corrosion control in nuclear power plants

Find out more about the Liqui-Cel® Membrane Contactor Technology.

D

issolved gas control in a nuclear power plant’s water system, including the primary make-up water storage tank and refueling water storage tank, can be essential to reduce radiation source term (defined as a release of radioactive material). Controlling dissolved gases can also help reduce the formation of unwanted radionuclides, such as 14C and oxides of 60Co, and alleviate Primary Water Stress Corrosion Cracking (PWSCC).

14 C nuclides are produced by neutroninduced reactions on isotopes of carbon, nitrogen and oxygen molecules. Since these elements are present in the fuel, cladding, coolant, moderator and structural materials of nuclear reactors, removing the dissolved gases from the process water can reduce the formation of 14C nuclides.

60 Co and 58Co nuclides are generated by a neutron reaction with steel alloy components within the reactor. 60Co oxide is formed when 60Co is exposed to the dissolved oxygen in the reactor water. Reducing the concentration of dissolved oxygen in the reactor coolant system (water cooling system) can aid in reducing the production of these corrosion products in the reactor.

CRUD (Corrosion Related Unidentified Deposit), such as 60/58CoNiFe2O3, is known to be a primary cause of radiation buildup in nuclear power plants. This type of corrosion product should be removed in order to reduce employee exposure during plant overhaul and decommissioning.

Reducing the concentration of dissolved oxygen in the reactor make-up water storage

tank (RMWST) and refueling water tank (RWT) can reduce the production of these radioactive corrosion products.

During normal operating conditions nuclear power plants produce various nuclides.

Although nuclear plants are designed to contain and minimize the release of gaseous radionuclides into the environment, small quantities do escape the systems. Some nuclides are typically discharged in gaseous effluents. A small amount of 14C is released through normal effluent gaseous discharge paths such as plant vent stacks with 14CO2 and 14CH4 chemical forms. Due to the long half-life (5730 years) of 14C nuclides, the isotope remains in the environment for a long time and is assimilated into the cells of plants and animals.

Recently, several nuclear power plants have installed Liqui-Cel® Membrane Contactors into their water systems to remove dissolved gases to help reduce the formation of radionuclides. This can protect operator and the environment. Liqui-Cel® degassing membrane systems are compact and can be installed virtually anywhere inside the plant due to their small footprint and flexible system design.

Liqui-Cel® Membrane Contactor Technology Liqui-Cel Membrane Contactors use a microporous hollow fiber membrane to remove gases from or add gases to liquids.

Gas flows across one side of the membrane and liquid is on the other side. Because the membrane is hydrophobic only the gases can

pass through the pores.

Applying a vacuum or using an inert sweep gas will lower the partial pressure of the gas and allow the dissolved gases in the liquid to easily transfer through pores in the membrane wall of the hollow fiber. The excess gases are then carried away into the vacuum.

Degasification opportunities in a nuclear power plant The Reactor Make-up Water Storage Tank (RMWST) typically uses a bladder or floating disk to prevent ambient air from entering the tank. Some plants use a nitrogen bubbling process to extract the dissolved oxygen from this tank. These technologies may not adequately prevent air from entering the tank and may increase the dissolved nitrogen level in the water. This make-up water is fed back into the Reactor Coolant System (RCS) to control the reactivity. Dissolved nitrogen and oxygen in the primary make-up water can increase the formation of 14C and CRUD. Membrane contactors efficiently remove and reduce the amount of dissolved oxygen and nitrogen in the primary make-up water system. Water can either be re-circulated back through the membrane contactor system and into the RMWST or water can make a single pass through the degassing system and then back into the RCS. Boric acid is used to control reactor power in a Pressurized Water Reactor (PWR) plant.

During the boration and dilution process, a large volume of diluted water is stored in a hold-up tank. Most nuclear power plants use a boric acid evaporator for the recovery of boron. When a power plant operates a boric acid recovery system, water from the boric acid recovery condenser is pumped back to the RMWST. This condensed water contains slightly elevated concentrations of dissolved oxygen and nitrogen that can lead to the formation of 14C and corrosion products. To help alleviate this issue, Liqui-Cel Membrane Contactors are installed to reduce the amount of dissolved oxygen and nitrogen in the condensed water.

“Liqui-Cel® degassing membrane systems are compact and can be installed virtually anywhere inside the plant due to their small footprint and flexible system design.”

24 ASIAN POWER

post-event report: asian utility week 2015

Challenges in smart grid and smart metering implementation With electricity demand projected to increase 80% by 2035, Asian utilities scramble to get their hands on the most effective solutions.

T

he Asian utility industry is fraught with multiple challenges including supply-demand imbalance, technological innovations,and regulatory hurdles, among others. While each country has unique energy infrastructures that require varying levels of strategic management, the advantages of learning from what others are doing and engaging in insightful dialogues are undeniable.

The Asian Utility Week is one of the largest events in the region which brings together utilities, regulators and IPPs interested in the latest developments in the industry and who acquire valuable insights to make their operations more efficient and sustainable. Nearly 2,000 attendees from 581 companies, 56 utilities and 48 countries gathered in Bangkok, Thailand to take part in this two-day event last June.

The conference sessions, forums and round tables tackled key utility trends in metering, customer engagement, transmission and distribution, smart grids, clean power generation, renewables integration and energy storage.

In one of the key sessions, it was noted that by 2035, 65% of the population in Southeast Asia will live in urban areas. With the middle class growing 26 ASIAN POWER

It is estimated that over 500 million smart meters will be installed in Asia Pacific alone by 2020.

at an unprecedented pace and with GDP expected to triple, it comes as no surprise that electricity demand is predicted to increase by a whopping 80%.

This surge in demand is deemed one of the most pressing challenges in the region today and the smart grid plays a fundamental role in this environment.

In his presentation, Bryan Spear, managing director, Asia Pacific at Trilliant Singapore, cited a report by Pike Research which revealed that communications could be used to improve reliability and efficiency, reduce CO2 emissions, improve energy security, conserve energy and save costs.

A study by the US Department of Energy showed that just by giving consumers access to their electricity consumption information, they are able to reduce their power bills by 10% and able to reduce their usage during peak times by 15%.

To address the burgeoning electricity demand, Pike Research recommends creating a comprehensive smart grid structure, developing clean and renewable energy sources, using AMI networks to enable these benefits and upgrading systems continuously. These improvements could cut demand by

15% by 2035, an amount exceeding Thailand’s current demand.

In Indonesia, national electricity demand growth is predicted to be 8.7% per year from 2015 to 2024, which means there must be 42.9GW of projects in 2014-2025. PT PLN Indonesia, a government-owned corporation that supplies electricity in the country, is currently developing opportunities in PV and wind but is now focusing on three areas of power generation only: geothermal, hydro and biomass.

According to Ignatius Rendroyoko, senior manager, strategic program of corporate delivery unit and head of smart grid initiatives at PT PLN Indonesia, they have at least five smart grid projects ongoing: the Jakarta Distribution Network Pilot Project, Karimun Jawa Island Pilot Project, Bali Island Pilot Project, Bangka Island Power Project, and Sumba Island Micro Grid Project.

“These are PLN’s smart grid pilot projects concerning the implementations of AMI system, integration of biomass fuel generation, development of hybrid power generation plants, integration of transmission and distribution smart grid and local energy resources development,” said Rendroyoko.

Smart meter implementation When talking about electricity generation and distribution, smart metering is definitely one of the hottest topics.

According to Spear, it is estimated that over 500 million smart meters will be installed in Asia Pacific alone by 2020. “With all these smart meters come opportunities for a ubiquitous network that has the capability to do far more than smart grid or smart metering,” he added. However, smart metering implementation faces the challenges of system, data and process changes that utilities must overcome.

Dato’ Mohandass S Nair, smart billing project director at Tenaga Nasional Berhad Malaysia, said that when it comes to smart meter implementations, regulatory hurdles come into play. “We have meters installed inside the houses of customers. So we have to get into their homes to replace the meters. This is where the regulatory framework comes in. At the moment we do not have any mandate from the government to undertake smart meter rollout. It is done by private companies. We’re looking at rolling out 8 million meters so it’s going to be a nightmare,” he added.

Asian utilities face heaps of challenges across all fronts, but Spear is optimistic and noted that, “There’s a short term window to capture a long term value that could be quite significant. I believe utilities are in the best position to do that today.”

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analysis: investing in the electricity sector

New technologies creating opportunities

What are the business and investment opportunities in a changing electricity sector?

Incumbents that generate, transmit and distribute electricity face challenging economics.

E

xecutives working in today’s electricity sector might rue the ancient curse, “May you live in interesting times.”

The sector is undergoing an unprecedented transition that is bringing tremendous challenges, but also a wide range of opportunities. In the past, the sector was able to provide affordable, secure and reliable electricity by attracting investors with low-risk, stable returns. Over the past decade, policy initiatives have added the imperative to reduce the sector’s carbon output and its dependence on imported fuels by generating more power from renewable sources and encouraging more efficient use of electricity.

A great deal of money has already been spent on this transition—about $3 trillion since 2000, according to the International Energy Agency. But more—at least another $8 trillion—will be required over the next 25 years to complete it. To get there, the sector will need to remain viable and attractive for investors, which has become more difficult in recent years in some parts of the value chain.

The Future of Electricity, a recent initiative by the World Economic Forum, in partnership with Bain & Company, identifies significant issues that policy makers and regulators will need to address to attract this investment and also details ample opportunities for incumbents and new businesses.

Much of the new investment will need to be made in traditional thermal generation or generation from renewable sources.

Another large portion will be invested in transmission and distribution (T&D), including smart grids that improve capacity and capabilities, and interconnections between grids. New business and investment opportunities are also emerging in services that are much closer to electricity customers. These include services and products that help customers manage and reduce their electricity consumption or help them generate their own power.

Electricity executives are working on several fronts to shape 28 ASIAN POWER

Even by 2040, forecasters predict that only about one-quarter of generation will come from nonhydro renewables (mostly solar, wind, biomass).

the sector and their own organizations, so they can take advantage of the wide range of new possibilities. They continue to work with policy makers and regulators to find the best ways to balance risk and return to attract the required investment. Together, executives and regulators should identify the most efficient paths for achieving policy goals while designing markets that send clear signals to investors, with a minimum of intervention.

With those structures in place, executives will be able to read the market signals appropriately and allocate their investments to the most promising areas that most closely align with their capabilities, goals and risk profiles. Investors and executives will also continue to work with financial institutions and others to develop new types of investment structures to finance ventures with differing risk profiles across the electricity value chain.

Centralized generation: Getting the mix right Despite the rise of distributed generation in some markets— as much as 40% of capacity in Germany and about 5% in the US—traditional systems (central generation, conventional T&D lines, retail delivery) will still deliver most of the electricity 20 years from now. Even by 2040, forecasters predict that only about one-quarter of generation will come from non-hydro renewables (mostly solar, wind, biomass), and that will be a mix of centralized and decentralized. The rest, aside from some industrial cogeneration of heat and power (CHP), will come from centralized power generation.

The risk-return profile of centralized generation, however, is changing. As technologies evolve and the generation mix diversifies, it becomes more difficult to predict the optimal composition of a power generation portfolio. At the same time, new entrants are increasing competition, eroding the stability of the incumbent generation markets.

Meanwhile, returns are declining, particularly for thermal gen-

analysis: investing in the electricity sector eration. Growth has been undermined by energy efficiency and distributed generation. As low-marginal-cost renewables have contributed to overcapacity, load factors and wholesale prices have declined in many markets. In the US, returns on capital invested in utilities fell 1.3 percentage points from 2006 to 2013 due to flattening or even declining demand and decreased load factors, despite lower gas prices. In the EU, returns fell 4.8 percentage points from 2006 to 2013 as a result of falling demand, significant overcapacity, reduced load factors and declining wholesale prices.

Executives also need to help policy makers shape the market, sending clear signals for their desired mix. Currently, electricity markets suffer from a lack of effective market mechanisms, particularly with regard to carbon pricing. The existing carbon pricing mechanisms are conceptually simple, but also politically and practically complicated to implement. For example, the EU Emissions Trading System (ETS) failed to deliver a carbon cost sufficient to drive adoption of renewable energy. In generation, the increasing penetration of low-marginal-cost and intermittent renewables in Europe has lowered wholesale prices and raised the debate over whether markets that remunerate generators and T&D operators solely based on load can ensure reliability without interventions. Without clear signals, policy makers risk shortfalls in electricity supply, such as we have seen in the UK. To remain viable for new investment, power generators will need to ensure they are targeting the right mix in their generation portfolio. Turbulence in some markets is already leading incumbents to reevaluate the role of central generation in their businesses. E.ON has divided its central generation plants from the rest of its business and plans to spin it off. Centrica is seeking to sell some of its centralized generation assets, while RWE has taken another tack, centralizing the management of its generation fleet. Power generators can also take “no regrets” actions like improving the efficiency of their generation assets by reducing external costs, seeking out new revenue sources and reorganizing to increase efficiency. They can also improve their position by investing to increase the flexibility of thermal plants.

Transmission and distribution: Ready for change?

T&D will require another $2 trillion through 2035. About 60% of that will be needed for refurbishing existing lines. New lines will also be required to connect renewable generation sources like offshore wind or solar arrays, which are in remote locations, and to connect the base-load and backup generation to support intermittent renewables. New policies and technologies that enable smart grids may further increase investment requirements.

The traditional economics of the grid have been disrupted in some countries due largely to decentralized generation, which Summary of investability across value chain

Source: Bain & Company

The traditional economics of the grid have been disrupted in some countries due largely to decentralized generation, which has reduced the load on the grid, and net metering.

has reduced the load on the grid, and net metering. Net metering allows customers to trade back the electricity they generate (through solar panels, for example) against the electricity they consume. It provides an effective incentive for investment in decentralized generation, but it does not adequately reflect the value or cost of a grid connection.

To help meet the sector’s needs, transmission and distribution providers should be in discussions with regulators about incentives and regulatory structures to support the rollout of renewables, without undermining investments in T&D capacity and smarter grids. This is typically a more complex discussion than the regular negotiation of rate base and rates of return, and agreements can often take years to achieve. Proposals are coming not only from utilities but also from regulators: New York State’s Reforming the Energy Vision initiative aims to move the sector toward a more decentralized model. The changes across the electricity sector are likely to result in new remuneration models for T&D operators: from rates based on kilowatts delivered per hour to models that recognize not only the electricity delivered, but also the value of the grid’s role as a backup for microgrids and other distributed energy systems.

T&D operators will also want to hone their capabilities as some face the largest investment and network upgrades in more than a generation. In addition to the technological and financial challenges, many will face talent shortages of both experienced engineers and field forces.

Retail: A digital story Retail electricity businesses, which are not as capital intensive as generation or transmission and distribution, are not suffering from the same investment viability concerns. Instead, electricity retailers are on a journey of digitization—following in the footsteps of companies in media, finance and other industries— which will require them to develop new products and services to keep up with competitors.

Smart meters and a wealth of new data about electricity usage create new possibilities to help customers manage and control their power consumption. Better data could help create new pricing models that depend on time of day or day of week to encourage customers to use appliances when demand is lower—free usage in the evenings, for example. And an unusually high level of overnight electricity use might prompt an automatic email alerting the customer (“you may be leaving too many devices on standby”) and suggesting ways to conserve.

Electricity retailers will have to upgrade their customer interfaces and billing systems to take full advantage of frequent and more accurate metering; this could improve their collections percentages and reduce write-offs. If done right, all of these things could improve the customer experience and generate greater brand loyalty.

Energy services: New capabilities Customers are becoming more than consumers in the electricity value chain. Increasingly, many are “prosumers,” who produce or generate their own electricity and feed it back into the grid.

The sector’s value chain is evolving: Decarbonization policies; the need for greater flexibility; increasingly sophisticated digitization technologies; and customers’ eagerness for greater control over their ability to generate, monitor, exchange and consume electricity, with varying needs at different times of day, are bringing about this change.

Incumbent utilities and new entrants are considering these new consumer needs, as well as other new opportunities, to identify whether and where to play given technology trends, regulatory schemes and linkages with their core business. As in other industries that have faced policy goals limiting or cannibalizing their business, such as tobacco or alcohol, executives will want to work with regulators to ensure their companies can evolve to ASIAN POWER 29

analysis: investing in the electricity sector remain competitive in a rapidly changing sector.

These opportunities require new capabilities. In distributed generation businesses—like rooftop solar—a key requirement is the ability to craft and deliver a package that includes design, financing and installation, as well as the capability to collect grants and subsidies that make the venture economically positive.

Selling smart thermostats requires designing an ergonomic and attractive consumer product, along with product branding and marketing.

Most of these capabilities are quite different from those that have served traditional electricity retailers so well, such as the ability to meter and send out bills monthly or manage large field forces with infrequent customer contact. This is one reason that many new entrants, which don’t have to manage legacy organizations and have defined their capabilities specifically for these opportunities, have been at the forefront of these markets.

But incumbents have advantages, too, including large customer bases with long-standing relationships (often, but not always, as a trusted brand) and an experienced field force. Some utilities are moving into the energy efficiency business, either under their own brands or with subsidiaries and spin-offs. Their large customer base and field forces are well suited to delivering energy services to a wide range of customers. Cofely, a part of GDF SUEZ, and Dalkia, owned by EDF and Veolia, are two such subsidiaries. In some cases, utilities may want to partner with smaller firms that have closer ties with local businesses and that are sometimes better positioned to excel in installation, operations and maintenance.

Given the new capabilities required, utilities are taking a variety of routes to enter these new spaces.

Some companies can enter using their own brand, as several US utilities have done with demand-response services and as RWE did with its RWE SmartHome services.

Where different capabilities or branding is required, some utilities have created or bought separate business units with their own recruitment profile, skill set and brand identity. Consider again Cofely and Dalkia, two subsidiaries of larger utilities.

A third approach is strategic co-investment in smaller companies with unique capabilities or technologies to which utilities would like access. In most cases, they have taken a minority stake

Powering up the future 30 ASIAN POWER

New business and investment opportunities are emerging closer to the customer

Sources: Commonwealth Scientific and Industrial Research Organisation, 2013; “New Business Models for the Distribution Edge,” eLab, 2013

and have not integrated acquisitions into the traditional core business.

Finally, there are several examples of utilities providing new services to existing customers by partnering with specialist providers such as Nest Labs, which is now expanding outside the US with its smart thermostats, and Opower, which offers a suite of customer engagement services. New opportunities like smart-home services or distributed energy management will probably not compensate for losses in their core power generation businesses. And the ideal combination of businesses will vary across markets and according to each company’s existing portfolio and capability gaps. Each company will need to navigate its unique strategy, reacting to competitors—as other firms do the same.

Investors: Innovating and evolving The traditional mix of investors is evolving in response to the electricity sector’s changing risk-reward equations. In power generation and T&D, utilities and developers are partnering with infrastructure and pension funds, allowing them to invest directly in assets, particularly renewables with low-risk, price-guaranteed returns.

Closer to the customer, a new set of investors with different risk appetites is moving to take advantage of new opportunities. In distributed generation, private equity firms, hedge funds and private households are all investing in technology and deployment.

New types of financing are evolving to support investment.

Green bonds—bonds certified as promoting environmental sustainability by one of a number of entities, each with their own criteria—have had a successful year, including a record €2.5 billion bond issue by GDF SUEZ. Yieldcos—tax-efficient, low-risk investment structures—have become increasingly popular in the US, as a way for utilities to attract investment in renewables.

Their economic attractiveness hinges, however, on the continued growth of the renewables sector.

Distributed asset securitization, which is a similar structure to that used to package mortgages into tranches in the 2000s, has played a role in the success of rooftop solar providers, like SolarCity, by lowering financing costs.

All of these challenges to the traditional models of the electricity sector—in generation, transmission and distribution, retail and related services, and financing—are forcing change while opening up significant new possibilities. New entrants have a clear runway, and they are taking advantage of positive consumer sentiment, generous subsidies and investor enthusiasm. But incumbents also have real opportunities, and significant advantages in their customer bases and experienced field forces, as they create new products, services and whole businesses. By Julian Critchlow, partner, Bain & Company

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6

OPINION

JOHN GOSS

China a world leader in renewable energy

john.goss@aod.com.hk

E

nergy consumption in China is expected to increase by 60% by 2030. This means that how China meets its energy supply needs will determine whether the world can curb climate change, says a recent report from the International Renewable Energy Agency (IRENA). The renewable energy report from the IRENA, working with the China National Renewable Energy Centre, titled: ‘Renewable Energy Prospects: China’, says that the nation could develop into the world’s largest renewable energy market by 2030. In order to achieve this position, China would need to double the ratio of renewable energy resources such as solar and wind in the nation’s total energy mix to 26%.

The agency commented that buy utilizing the opportunity of achieving this significant growth, China would be improving millions of lives and would be saving billions of dollars, when taking into account the increasing costs of healthcare, plus the significant savings that would be achieved by the reduction of harmful emissions.

The Director General of the IRENA, Adan Z.

Amin has been reported by the China Daily newspaper as saying that as the largest energy consumer in the world, China should be playing a pivotal role in the global transition to a sustainable energy future. China’s overall energy consumption has been forecasted to increase to 60% by 2030.

Chinese authorities have said that the country will be playing a leading role in fighting climate change by acting now to implement many more renewable energy projects within the country. The report states that China’s share of renewable energy in its energy mix will only rise to 17% by 2030 under its current policies. However, if the nation can speed up the pace, it could be achieving 26%.

The IRENA’s Director of Innovation and Technology Center, Dolf Gielen said that around two thirds of the investment would be going into the renewable power generation sectors including wind power, solar power and hydropower. In order to achieve the needed carbon reduction targets, the nuclear power and the hydropower sectors in China must be playing significant roles.

ARTHUR MITCHELL Continued boom or bust for Japanese renewables

W

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

According to figures from the Ministry of Economy, Trade and Industry (METI), 11 GW of new renewable energy was installed in the first two years of the program or about 4% of the entire installed capacity.

During the same period, METI approved 71GW of renewable energy or about 25% of the total electric supply. Most of the approved projects involved PV solar but it is widely acknowledged that many of the projects that have not commenced construction by now will never be built.

METI, the government regulator, initiated the 32 ASIAN POWER

program with very limited eligibility requirements and generous feed-in tariffs (FIT), thereby creating an unexpected market boom. The utilities, senior politicians, and some bureaucrats now think that too much interest has been focused on solar and they would like to shift attention to wind and geothermal.

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

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

Five utilities have announced that they will no longer accept applications for new solar deals by

Gielen continued by saying that China can be achieving the energy revelation it has been aiming for in an affordable way. The report’s estimates say that the higher share of renewable energy share will result in annual saving of $55 billion to $228 billion by 2030. These figures take into account such factors as human health and significantly reduced levels of emissions.

The Director of new energy and new energy department at China’s National Energy Administration (NEA) Shi Lishan said that Renewable Energy is China’s preferred choice to ensure the country’s energy supply and to solve pollution problems.

However, there are still a number of solar power and wind power, plus some hydropower plants which cannot be connected to China’s power transmission grid. These ‘grid connection’ problems represent s a ‘huge obstacle to the in the development of the country’s nascent renewable energy sector.

Plus, the solar power technologies still require significant improvements.

The five year plan for renewable power Chinese authorities said the country’s 13th Five Year Plan (2016-2020) will aim to increase offshore oil and gas exploration and raise output targets of renewable power sources with a focus upon wind power and solar power, according to the NEA. According to this new Five year Plan, China will be focusing upon raising its energy output, improving its energy supply infrastructure and accelerating the development of renewable energy resources. The plan says that China will be focusing upon forming five energy production bases. arguing that they will reach grid capacity limits for renewables if all of the approved projects come online. METI has announced that it is doing a top to bottom review of the program and will propose amendments to the REA in 2015, if necessary.

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

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

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

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