Asian Power

ISSUE 62 | DISPLAY TO 30 APRIL 2014 | www.asian-power.com | A Charlton Media Group publication

US$360P.A.

taiwan’s price problem power shortage looms as taiwan’s low-priced elecTricity persists

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Praveer Sinha Chief executive officer TPDDL

MICA(P) 248/07/2011

sector Report China’s solar sector: charging through bushes

feature The Philippines’ growing appetite for energy

first Japan pressured to return to nuclear power

OPINION A new energy strategy for China

PAge 16

PAge 22

PAGE 08

PAge 30

FROM THE EDITOR The controversy of deploying nuclear power has been well discussed in Taiwanese society after the Fukushima Incident in Japan. This has case doubt over whether nuclear power is an energy solution worth pursuing in Taiwan; a decision which will significantly influence the fate of nuclear power plants in the country for decades to come. In this issue, Asian Power sought comments from several industry experts regarding the matter, on top of other perennial problems being faced by Taiwan power sector.

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Taiwan is making moves towards the goals of integrating larger amounts of renewable energy and reducing greenhouse gas emissions, but experts agree that a primary impediment to industry reform is Taiwan’s artificially low-priced electricity rates.Taiwan’s unsustainable system of electricity subsidies is not a new problem, and whether the country could forgo low pricing is still under debate. Experts regard this as an urgent matter to decide on as Taiwan’s uncompetitive power sector not only spoils its consumers with artificially low prices, but they also argue that it compromises long-term prospects for the industry.

This issue is also filled with outlook stories in different power markets in Asia. Check out various investment opportunities in the Philippines as it joins other Asian countries with a healthy hunger for power and an insatiable drive for prosperity. Will it be able to achieve its ambitious renewable energy capacity targets for 2030, from 5,000MW to 15,000MW? Japan’s reactors are currently idle and plans to restart them still face opposition. But why do experts believe that Japan’s return to nuclear energy is both necessary and inevitable?

Enjoy the issue!

Tim Charlton

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ASIAN POWER 3

CONTENTS

Three key factors paramount to 12 FIRST Asian energy security

20

10 FIRST India’s 50% power tariff cut to hurt yearly hikes of SEBs

COUNTRY REPORT Switching off status quo in the power sector

FIRST 08 Indonesia energy crisis looms

OPINION 30 JOHN GOSS: A new energy strategy for China

08 Japan pressured to return to nuclear power

FEATURE

09 HK utilities pursue aggressive M&A 09 The Chartist: India’s power capacity addition to taper off

14 CEO Interview: TPDDL assures sufficient power till 2018

10 China boosts renewables

16 China’s solar sector: charging through bushes

10 Sembcorp Industries acquires Indian plant 10 Aboitiz expansion plans under way

22 The Philippines’ growing appetite for energy offers vast

investment opportunities

12 China to stop knocking the wind out of the turbine

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

4 ASIAN POWER

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

PROJECT

58 group companies of Mitsubishi Hitachi Power Systems launched In a release, Mitsubishi Heavy Industries, Ltd. and Hitachi, Ltd. announced that Mitsubishi Hitachi Power Systems, Ltd. (MHPS) , the new company to be established by the business integration centered on the thermal power generation systems of MHI and Hitachi in tandem with the launch on February 1, 2014, will launch 58 MHPS group companies (nine companies in Japan and 49 companies in other countries). Among them, four companies, including MHPS, will be newly established, and 30 companies will simultaneously undergo a change of their corporate name.

6 ASIAN POWER

POWER UTILITY

Thailand, Philippines, India “very worried” over future energy needs According to a survey by Shell, Thailand, the Philippines and India top a list of nine Asian countries that say they are very concerned about future energy needs, amid increasing pressure for more energy, water and food to keep up with increased population growth.

80 percent of the respondents ranked longer-term future energy needs alongside everyday concerns like public education and cost of living as important. The surveys covered 8,446 people in 31 cities and 9 regional areas. These concerns have arisen amid growing energy pressures globally.

PROJECT

Nearly 320MW of generation capacity to be added to Philippine grid According to reports, the recent go signal given to the Feed-In-Tariff (FIT) Disbursement and Collection Guidelines paved the way for heftier investments in renewable energy plants that are powered by solar, biomass, wind, and run-of-river hydro.

As of the moment, roughly 320 mega watts of the necessary generation capacity will be added to the grid under the Department of Energy’s first-come, first-served FIT policy. As a result, direct investments flow has jumped to $800m which in turn made around 3,500 construction jobs open to locals.

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ASIAN POWER 7

FIRST safety standards are well under way, pointing to a possible restart by spring, brokerage firm CLSA. CLSA’s Penn Bowers says there is a practical need for Japan’s Western side of the grid to return to nuclear before electricity demand hits its peak in summer. “Not doing so will prompt mandated power reductions.”

Indonesia energy crisis looms

You may think that Indonesia sleeps easily at night, knowing it can rely on vast energy resources to sustain its booming economy – but far from it. There is palpable fear it may not realize its full potential as an energy production powerhouse, especially if it fails to implement vast reforms in the coming years. “The country is rich in energy resources and historically it has exported oil, gas and other fuels to the rest of the world. Times are changing, however. Unless it can significantly increase its oil and gas production, or do much more to exploit its extensive renewable resources, Indonesia will have to get used to being a net importer of energy,” says Nick Owen, Contributing Editor, The Economist Intelligence Unit.

If it fails to boost energy production to meet soaring local demand, Indonesia faces the risk of an energy crisis in the foreseeable future, warns Lukman Mahfoedz, President, Indonesian Petroleum Association.

Renewable energy Aside from oil and gas, Indonesia must start developing its renewable energy if it hopes to build a successful long-term energy strategy. “There is considerable scope for Indonesia to exploit renewable energy,” says Hanan Nugroho, Senior Planner, National Development Planning Agency.

But the share of renewables in the country’s energy mix remains low, owing mainly to heavily subsidized domestic oil prices, the challenges of adapting to a rapidly evolving legal and regulatory environment, and the high costs of renewable energy technologies.”

Indonesia has been footing the bill for enormous energy subsidies, but this money is best spent elsewhere such as essential infrastructure, argues Ndiame Diop, Lead Economist, Indonesia, World Bank. This is notwithstanding the fact that subsidies “disproportionately” benefit richer households overpoorer ones.

Finally, investors are still wary of backing projects due to prevailing legal and regulatory roadblocks, notes Stephen Norris, Senior Analyst, Asia-Pacific, Control Risks. “Rising economic nationalism and uncertainty surrounding production-sharing contracts, domestic-market obligations, cost-recovery procedures and tax obligations are clouding investor perceptions of the sector. All of this is undermining the government’s efforts to attract investment and boost exploration.”

8 ASIAN POWER

Restarting requires the public’s stamp of approval

Japan pressured to return to nuclear power

I

t’s been three years since a massive tsunami hit Japan and its nuclear power plant in Fukushima, triggering a nuclear disaster that prompted the shutdown of Japan’s nuclear power plants. The country has since been reliant on fossil fuel imports, which are both expensive and contributive to greenhouse gas emissions. Faced with a seemingly less viable alternative, Japan’s return to nuclear energy seems both necessary and inevitable, according to experts.

“Returning Japan’s nuclear power plants to service, once they have been through appropriate checks, upgrades and regulatory approvals, is the right choice to make,” says Dr. Jonathan Cobb, senior advisor at the World Nuclear Association. Cobb notes however, that restarting requires a stamp of approval from the public, especially those living within the immediate vicinity of the doomed power plants.

Uphill battle Clara Gillispie, an expert at the National Bureau of Asian Research, sees that the push to reopen the power plants is an uphill battle. “All of Japan’s reactors are currently idle and plans to restart them still face opposition,” she says.

While the clean-up process is expected to last decades, applications for safety certification under the new

All of Japan’s reactors are currently idle and plans to restart them still face opposition.

Idle nuclear reactors Aside from potential power cuts, Japan’s idle nuclear reactors have also prevented the expansion of the country’s industrial production, as large demands for power could not be met.

Japan’s industrial production, which makes up two-thirds of the country’s overall power demand, puts more pressure on the government not to mandate power cuts, Bowers says.

“The first thing that should happen is initial safety signoffs on reactors from the Nuclear Regulation Authority (NRA), with the likely initial candidates at Kyushu and Shikoku. Subsequent to that the hurdle will be local signoffs.

Given that Kansai has gone through this process once post Fukushima, its timeline could accelerate here,” Bowers explains. He says that reviews should subsequently begin at units applied for

by Tepco, Chugoku and Tohoku, as well as the Rokkashomura reprocessing plant. CLSA expects Chubu will file for Hamaoka Units 3 and 4 this fiscal year, completing the second round of applications.

“We find little to get us fundamentally excited about the early-restart plays (Shikoku, Kansai and Kyushu), but suggest a trade likely exists in the next couple of months.

We continue to like Chubu with a tariff hike likely to come through by the start of FY3/15 and profits set to normalise.

J-Power is also a favourite choice with another year of overseas growth, and a very favourable energy policy coming into play,” Bowers adds.

GW of nuclear safety certifications

Source: CLSA, NRA, company data

FIRST Although no new generating capacity is included in the capex plans, we believe the new 2020 fuel-mix target for HK power generation, which are planned to be finalized in 2014-15, will include a higher proportion of gas-fired power generation.

CLP may have more of a challenge in M&A

HK utilities pursue aggressive M&A

P

ower Assets Holdings (PAH) and CLP Power Hong Kong (CLP) capex plans for 201418 have been approved by the Hong Kong government, so the earnings of the industry should remain stable and may even improve, what with interest rates increasing in the near future, say experts. “Although no new generating capacity is included in the capex plans, we believe the new 2020 fuel-mix target for HK power generation, which are planned to be finalized in 2014-15, will include a higher proportion of gas-fired power

generation,” says Gary Chiu of Macquarie Equities Research. This may mean approval of PAH’s new gas-fired power unit in the coming years. To really improve, however, PAH and CLP have to spearhead aggressive expansion outside the country.

Overseas expansions are paramount to driving higher earnings for Hong Kong utilities, and PAH and CKI (Cheung Kong Infrastructure Holdings), with their strong balance sheets (23% net gearing and 12% net gearing, respectively) are likely to acquire

sizable assets to further enhance earnings, say experts. CLP may have more of a challenge when it comes to M&A. Overseas M&A’s significance is echoed by Daiwa Capital analyst Dennis Ip. According to Ip, PAH should focus on overseas M&A on power and gas energy. With large amounts spent on overseas M&A since 2010, a decline in net proceeds from transactions in 201213 is being observed.

During the global financial crisis, European owners were more than willing to sell assets to ensure the health of their finances. Currently, however, with “subsequent quantitative easing and low-cost financing available, those owners no longer seem willing to sell assets cheaply,” says Ip. And even though M&A opportunities due to privatization efforts of governments such as those in the UK and Australia, Hong Kong is seemingly facing increasing competition brought on by the low interest rate environment.

CKI and PAH: net profit

Source: Company, Daiwa forecasts

The Chartist: India’s power capacity addition to taper off CLSA expects ~75GW generation capacity addition in India’s 12th Five year plan. However, unlike most of the earlier plan periods, CLSA expects the 12th plan to be front ended. “With most of the private developers not announcing fresh capex plans for last 12-18 months the capacity addition is likely to taper off in FY17-18.

There is likelihood that the near term capacity addition might also see some delays as a number of power projects are already being executed at a very slow pace,” says CLSA analyst Abishek Tyagi.

This, he says, is also reflected in sluggish revenue growth and poor order booking for EPC players such as BHEL, L&T etc in the power sector.

CLSA also expects the transmission capex to remain strong mainly led by Power Grid. It also expects strong capitalization numbers for Power Grid over next 3-4 years. Tyagi, however, notes that the ordering activity from Power Grid side would see a decline, as nearly all projects targeted for the 12th plan are already under construction.

PWGR’s Net profit, Capex and FCF over the years

Source: CLSA

Year wise power capacity addition, energy and peak power deficit

Source: CLSA

ASIAN POWER 9

FIRST

China boosts renewables

IPP WATCH

Aboitiz expansion plans under way

C

hina is finally planning to wash its dirty laundry by increasing renewable energy sources in its power mix. While the demand for coal is expected to increase this year energy-hungry developing countries, energy editor Martin Adams of the Economist Intelligence Unit says China will help generate growth in the renewables sector with its clear objectives and enticing incentives.

Coal will remain a resilient and high-demand commodity in 2014 but renewables such as solar, wind and hydropower are getting a muchneeded boost through higher tariffs and increased targets, he notes.

Change in energy mix China’s National Energy Administration (NEA) is targeting a reduction in the share of coal in the country’s energy mix to 65% in 2014, a year earlier than its original projection.

China also eyes a total capacity growth of almost 24% for new added wind capacity. Meanwhile, photovoltaic solar capacity is expected to increase by 67%, banking on the quick response of Chinese solar manufacturers to government incentives meant to spur domestic demand and spare them from unpredictable

Solar capacity seen to increase by 67% Aboitiz Power targets around 1,195 MW additional beneficial capacity over the next five years. This includes three greenfield projects with a total of 328 MW capacity, the biggest of which is the 300 MW coal-fired power plant in Davao planned, expected to be operational by 2015. The firm is spending P78 billion this year for the expansionary plans. The amount accounts for the bulk of the P88-billion capital expenditure budget earmarked by holding company Aboitiz.Equity Ventures.

export markets. Fitch Ratings also sees positive changes for the hydropower industry as the National Development and Reform Commission unveiled its new tariff pricing mechanism. There is much potential in hydropower, which is the most cost-efficient among renewable energy sources.

Shifting tides China’s hydropower tariff will be based on the average on-grid tariff of all energy sources for each province. The new mechanism will be adopted by all future commissioned hydropower plants.

Earlier, the tariff was based on a cost-plus computation, taking into account the investment and projected operating costs.

With nearly 70% of China’s energy consumption fed by coal-fired power plants, such moves are expected to shift the tide towards renewables.

Sembcorp Industries acquires Indian plant China also eyes a total capacity growth of almost 24% for new added wind capacity.

India’s 50% power tariff cut to hurt yearly hikes of SEBs 2013 saw India implement energy reforms decided by the government and regulators; now they can see what effects these decisions will yield. Brokerage firm CLSA says that while most effects are expected to be positive, a certain reform in the past year may prove to be an obstacle for the power sector this year.

According to CLSA, Delhi’s decision to cut power tariffs by 50% will affect the yearly tariff hikes of SEBs, and any state planning on tariff revisions or private distribution will have to find a way to do so without causing too much strife.

Tata Power Delhi Distribution Ltd. (TPDDL) CEO Praveer Sinha believes that despite reforms, vicious circle of unsustainability will plague the sector. To make the sector viable, he suggests the government needs to relook at the development of peaking capacity, possibility of pooling of energy sources, oversee development of infrastructure (ports and associated rail connectivity) to support coal imports , expand the transmission corridor, tariff needs to cover the power procurement cost and needs to come up with action plan for unrecovered cost.

10 ASIAN POWER

Sembcorp Industries (SCI) signed a deal to acquire a 45% stake in a 1,320 MW coal-fired power plant under construction in India. Per SCI, it will double SCI’s power generation capacity in India. According to Nomura, the acquisition will benefit from its proximity to SCI’s existing TPCIL plant in India and management targets IRR in the high teens from the project.

China Wind Power signed 5GW solar project deals

CWP, which started developing and operating utility scale solar power projects in China, signed 5GW MOU of solar projects, of which 420MW is to be developed in 2014. By end-2013 it was operating 150MW of solar power plants, notes Macquarie Equities Research.

Management indicates that in 2014 CWP’s operating solar capacity with an equity IRR of over 17% could account for 40–50% of its attributable power capacity.

FIRST

China to stop knocking the wind out of the turbine as grid construction picks up

W

ith much wind taken out of its sails in the past years, experts expect China’s turbine industry to get its second wind soon. Nomura analyst Joseph Lam believes the curtailment of wind power will improve this year as China’s grid construction picks up.

“Wind-power generation output maintained its strong growth at +36.3% y-y in 2013 (2012: +35.5% y-y). We expect wind farm operators such as Longyuan, Huaneng RE, and Datang RE to maintain robust output growth in the medium-term on the back of China’s wind capacity target of 200GW by 2020F,” Lam, citing China’s Wind Energy Development Roadmap, adds.

China wind farms’ loss In 2012, China wind farms lost $1.6bn in revenues because of serious curtailment. But a number of factors, including mechanisms encouraging coal fired power plants to give way to wind, will result in an improved situation in 2014, says Barclays analyst Yang Song.

In Inner Mongolia, the local government has issued rules requiring coal plants to reduce their generation whenever wind curtailment arises.

Song says the resulting compensation will be negotiated between the coal power plant and the wind farm.

“Mechanisms such as these that leverage on market forces to better align market participants’

interests have greatly increased the willingness of coal fired power plants to step down for wind generation, in our view,” says Song.

Wind curtailment wanes The Chinese Wind Energy Association reveals that wind curtailment has been waning with wind power utilization improving by 10% or 1,522 hours for the first nine months of 2013.

Deutsche Bank Markets Research also believes wind power curtailment will further fall with the construction of more transmission lines, which had been aptly delegated to local authorities instead of the central government.

It says grid curtailment could be completely resolved in the long term as China “laid out grand plans to invest in a grid infrastructure network.”

The improvements in wind utilization are expected to result in an EPS CAGR of more than 30% for the next two years, it adds. With China setting higher tariffs and a 50% valueadded tax rebate for the solar industry, similar advancements are expected in the wind sector.

The NEA has also awarded a significant number of “preliminary approved” projects for the 2011 to 2015 period, resulting in capacity growth over the next few years.

In Asia, China remains the leader in installed wind power capacity, with its figures rising to 91,424MW by the end of 2013, a substantial

Three key factors paramount to Asian energy security The growth of energy demand in Asia is staggering, and experts are convinced that in two decades’ time, half of energy consumption worldwide will occur in the region.

But with all this predicted (and likely) consumption, will Asia be able to float its own boat?

National Bureau of Asian Research expert Carla Gillispie says that three factors are paramount to Asian energy security: Energy policies in the U.S., the progress and activity (or lack thereof) of nuclear energy in the region, and China’s energy reforms.

The U.S. is already playing a big role as an exporter of energy to Asia, but certain policies and environmental concerns are stopping the U.S. from becoming an even bigger and more significant player in the energy export scene. Japan, Taiwan, and South Korea are considering utilizing nuclear energy more efficiently, but most operations are slow, opposed, or have not yet started.

Utilization of nuclear plants depends greatly on policies regarding citizens’ safety, among others. BP Energy Outlook 2035 echoes this seemingly stagnant state of nuclear energy, stating that renewable energy will overtake nuclear in the global consumption mix.

China is planning to double its gas consumption by 2015 but BP Energy Outlook 2035 sees China as slowly fading, with India slowly surpassing it in terms of energy consumption growth.

A large amount of the energy Asia will be consuming in the foreseeable future, however, will be imported. Gillispie predicts that Asia will be the largest importer of fossil fuels by 2020. Source: BP Energy Outlook 2035 12 ASIAN POWER

China’s still the leader in wind power capacity

increase from 75,324MW in 2012, according to the Global Wind Energy Council. In fact, it has the greatest installed capacity for the whole world in both 2012 and 2013, a reflection of its increasing energy demands.

With the construction of additional transmission lines and wind farms, as well as much-anticipated incentives, things are looking up for the wind industry. It’s time for China, known for its air pollution, to hoist its sail up to fairer and cleaner winds.

Praveer Sinha CEO, TPDDL

14 ASIAN POWER

CEO INTERVIEW

TPDDL assures sufficient power till 2018 CEO Praveer Sinha does not foresee a challenge of power crisis in its licensed area, and says the company has strengthened its network to ensure future load growth requirements.

Y

ear 2013 was a banner year for Tata Power Delhi Distribution (TPDDL), a joint venture of Tata Power and Government of Delhi. Its chief executive officer and executive director Praveer Sinha shared to Asian Power that TPDDL, in terms of operational excellence, have attained several achievements such as AT&C losses being brought down to 10.78% and reliability of power supply enhanced through strengthening the existing network and augmentation of new grids and network length.

Apart from this TPDDL have added various services to enhance consumer conveniences such as enhanced number of payment avenues and touch points, Integrated Call Centre supported by SAP-BCM, and outage Management System (OMS) to instantly identify and repair the fault. As part of its growth strategy, Sinha also shared that the firm has ventured into project management consultancy assignments in new and promising markets.

2014 is seen to be another breakthrough year for the firm although the CEO admits that there are huge challenges ahead, from a looming power crisis in India to some political parties threatening to oust private power distributors in New Delhi.

Find out more from this exclusive interview.

What are your major plans this year?

TPDDL is embarking on its Smart Grid journey. It will be taking projects like Advanced Metering Infrastructure, Enterprise Service Bus, Business Intelligence/Analytics, Integrated Communication Network, Field Force Automation and Demand Response. TPDDL is the first utility to have initiated an Advanced Metering Infrastructure based ADR program in the country which will help in managing the peak demand and grid stress situations.

Apart from this, sustaining and further reduction of loss

these regulatory assets through debt /losses from banks. The Regulatory Asset of TPDDL is Rs. 4,712 crs and for Delhi it stands at approx. Rs. 17,400 crs. as on 31 March 2013. If the entire amount has to be recovered from the retail tariff, it will create an immense burden on the consumers. In order to therefore create a situation by which large regulatory assets in the books of distribution companies could be at least partially liquidated and hence the burden of carrying the same could be mitigated to reasonable extent,various possible solutions have been proposed to the regulator, state government and power department, GONCTD How are you competing with other power distribution companies given the looming power crisis in Delhi?

TPDDL, as of now, do not foresee a challenge of power crisis in its licensed area as we have tied up sufficient power till FY 2018 and have taken care of our payment obligations towards generation and transmission companies. Apart from this we have strengthened our network to ensure future load growth requirements. The organization is prepared to meet the surge in demand especially during summer months.

It has been reported that Tata Power faces a huge challenge in recovering dues worth Rs 5,000 crore. How will this affect your operations?

As mentioned earlier,TPDDL’s regulatory overhang stood at Rs. 4712 crs. in FY 2013 which is duly recognized by the regulator.

However the challenge is to liquidate the same without adding any more regulatory assets and also without creating much burden on the consumers. Hence, various proposals have been put up for the suitable liquidation of the regulatory assets.

level is a mammoth task which will be taken care of by various technological interventions such real time energy auditing, reactive power management, smart meters, condition based monitoring at LT level. We are also planning to expand our footprints in various countries in Africa, Asia, Europe, and Australia.

What is your comment on the issue of open access in power distribution in India?

Despite the Open Access (OA) framework being in place, as well as a legal opinion from Ministry of Power stating that consumers with a load of more than one megawatt are mandatorily covered under OA, there is no meaningful competition. This is primarily on account of the supply deficit, presence of large cross subsidies, issues pertaining to last mile connectivity and non-cost reflective tariffs arousing no significant benefit for consumer to scout for OA. Hence, the consumer’s only motivation to adopt OA would be a differentiation in service which is not a sufficiently strong driver as on date.

TPDDL has sought a debt recast package earlier this February.

Tell us about this move and its possible impact on your consumers?

Power distribution companies/ State Electricity Boards have for a long time faced the problem of electricity tariffs not matching with the increasing cost of procurement of power.

The gap between cost of procurement and electricity tariff is resulting into the accumulation of regulatory assets in the books of DISCOMs. These regulatory assets are to be adjusted against the tariff hikes in the future. Because the tariff is to be recovered after a certain period of time, the interest on the financing charges are accrued and are recovered from consumers via future increases in the tariff.

However, for the utility, it poses a challenge as funding

What is your near-term outlook on Indian power?

The sector has been plagued by vicious cycle of unsustainability wherein the increase in fuel cost and non-cost reflective tariffs are affecting the financial health of the Discoms which is, in turn, affecting the viability of Gencos and quality of power supply and services offered to consumers.

This is in turn leading to dissatisfied consumers and hampering their ability to pay for the supply and services.

To make the sector viable one needs to the development of peaking capacity and the possibility of pooling of energy sources, oversee development of infrastructure (ports and associated rail connectivity) to support coal imports , expand the transmission corridor, impose a tariff that can cover the power procurement cost and come up with action plan for unrecovered cost.

“TPDDL, as of now, do not foresee a challenge of power crisis in its licensed area as we have tied up sufficient power till FY 18.”

ASIAN POWER 15

sector report: CHINA SOLAR

Chinese government aims for a 35GW solar power capacity by 2015

China’s solar sector: charging through bushes

There is a possibility that China could experiment with solar REITs this year which would be a major catalyst for solar IPPs. By Patrick Dai, Analyst, Macquarie Capital Securities

W

e believe China’s new solar power installations will continue to rise at a ~45% CAGR from 7GW in 2013 to 12GW in 2015, and cumulative solar power installations at a 70% CAGR in 2013-15 to 36.5GW by 2015. We maintain our positive view on China’s solar sector and our forecast of 10.5GW in 2014 is based on our bottomup analysis which differentiates our work from consensus, lower than the government’s guide of 11.8GW; we believe at least half of the installations are utilityscale solar farms with an over 20GW pipeline in 2013-15.

We see the following challenges to demand growth in China in 2014 over two to three quarters: first, China’s distributed solar projects may not grow quickly in 2014 as it still lacks a clear business model between rooftop owners, solar developers and solar power users due to a shortage of qualified rooftops, fragmented power users and the difficulty of negotiating power prices.

Second, the significant growth of solar farms in Gansu, Xinjiang and Qinghai could face insufficient local power consumption and lack of grid transmission capacity, resulting in possible solar power curtailment. Given China’s demand should account for ~25% of global demand of 42GW in 2014E, any change in new installations in China could alter the 16 ASIAN POWER

“China may launch solar REITs: stock exchanges in China and financial institutions are actively exploring new financing tools for solar power projects.”

supply-demand balance globally.

within 5%.

Oversupply to be reduced, not removed In November 2013, the Ministry of Industry and Information Technology published a draft list of enterprises in compliance with PV industry standards.

The list contains 134 solar manufacturers that comply with strict standards published in October, including minimum capacity, product quality (degradation), product efficiency (conversion rate), and energy consumption efficiency.

We believe Chinese solar manufacturing capacity could be reduced by 15%-20% through the value chain in 2014. Considering the capacity expansion plans from leading producers, we estimate global effective capacities to remain at 50GW-60GW versus global demand of 42GW. Our price forecasts are $18.8/kg average headline spot in 4Q13, and $17.519.0/kg for spot prices during 2014.

We expect wafer and cell prices to be stable at US$0.21- 0.23/W and US$0.36-0.38/W. We also expect the module price in the Japan market to fall off to US$0.68/W in 2014 due to lower demand, the price in the EU to increase to US$0.71/W due to floor pricing policy for Chinese exporters, the price in China to rise to US$0.65/W and the price in the US to remain at US$0.70/W. We expect pricing volatility due to seasonality to be

Catalysts for the sector in 2014 The first catalyst will be China’s official 2014 target. The NEA’s guide of 11.8GW new solar power installations has been sent to each province for opinions and detailed project planning. We expect the final summary of the target and breakdowns to be announced in Jan/Feb 2014, which could increase the portion of solar farms from the draft 4GW. Secondly, China may continue to approve distributed solar projects: following the first batch approval of 1.8GW distributed solar projects, we expect NEA to approve more batches of distributed solar projects to support the above target. China may launch solar REITs: stock exchanges in China and financial institutions are actively exploring new financing tools for solar power projects. In 2014, there is a possibility that China could experiment with solar REITs which would be a major catalyst for solar IPPs. Downside risk – lower China demand: given the challenges for developing distributedsolar projects in China (detailed discussion in following sections), we think there is a risk that China might install less solar power in 2014. The worst case scenario is that China might only install 7-8GW in 2014, implying 20% downside risk to our China demand fore-

sector report: CHINA SOLAR cast and 10% downside risk to our global demand forecast. If this happens, the oversupply may become material again.

China demand to grow despite challenges The government wants to boost demand and reduce supply: in 2013 the Chinese government supported the solar industry by: (1) increasing solar power generation in China to mitigate the air pollution caused by the coal fire power; and (2) reducing the oversupply of Chinese solar module production and helping leading manufacturers consolidate the market.

Year to date, China has published 16 important policies depicting the target, strategy and tasks to materialize the above goals in restructuring China’s solar sector.

We maintain 10.5GW installation forecast but are concerned about the slow progress of distributed solar projects (rooftops).

From the government’s published policies and draft target for 2014, we see the strong intention of the Chinese government to develop solar rooftops in the coastal regions instead of developing solar farms in western China. However, we think the business environment for are distributed solar power projects is not mature enough to support a quick rampup of the solar power demand in China.

By the end of October 2013, the China Electricity Council reported the new gridconnected solar power capacity amounted to 3.61GW, accounting for 11% of the newly installed renewable power capacity (hydro/wind/solar).

We maintain our forecast of 10.5GW in 2014 although the National Energy Administration (NEA) recently released an aggressive draft target of 11.8GW new installation in 2014, of which 7.6GW distributed solar projects (rooftops) and 4.2GW utility scale solar projects (solar farms).

Our projection is based on a sum of individual projects that have been granted preliminary approval by the local NDRC, and our estimated rooftop distributed projects, with a split of 50:50. The Street is concerned that China demand will be far off track if the Chinese government caps 4GW solar farm installations in 2014. We do not believe the government will cap 4GW solar farm installations in 2014, but are concerned the slower-than-expected progress of distributed solar projects may result in downside risk in China solar installations.

The bottom line is that the Chinese government has set a clear goal to achieve over 35GW cumulative installation of solar power capacity by 2015, implying ~45% CAGR in annual new installations and over 70% CAGR in cumulative solar power installations in China in 2013-15.

Solar farms in western China still the key growth driver in 2014 On August 30, the National Energy Administration circulated an urgent notice titled “Use pricing leverage to promote healthy development of solar industry”. The solar farm projects that are approved after September 1, 2013 or that are approved before September 1 but start operation after January 1, 2014 will be subject to the new benchmark FiTs. In contrast to the slow progress of distributed solar projects development, we think the rush installation also implies the solar farms should still be a key demand driver in 2014.

Over 20GW solar farm project pipeline prepared in 2011-15: in 2012, before NDRC/State Council raised the solar installation target from 21GW to 35GW by 2015, provincial governments, particularly Qinghai, Gansu, Ningxia, and Xinjiang, had actively planned the solar farm development at the city/county level.

Based on our ground research, we found over 20GW solar farm projects have been in various stages from MOU, preliminary approval to final approval since 2012. The large project reserve and straight forward business model allow developers to start constructing solar farms at any time when they think the project return could be most optimal due to low module price, high subsidy, better tax treatment or access to favourable bank loans.

Attractive project return even after cut in feed-in tariff Although we forecast 3.8GW and 4.7GW installations of solar farms in China respectively in 2014 and 2015 (up 19% and 24% YoY), we think there might be upside risk to our estimates of solar farm installations once the government realizes the slow progress of distributed solar projects development may jeopardize the installation target for 2014.

The key reason why solar developers prefer to develop solar farms is the attractive return on the projects when the module price has fallen to Rmb3.5-4/W and total investment to Rmb8-10/W. We conducted a survey on more than 30 live projects of large solar developers. We are surprised to derive an 8%-14% unlevered internal rate of return has been proven by the live projects, which can be translated to 13%-21% levered IRR. The rush installation of solar farms occurred in 4Q13 because the cut off feed-in tariff from Rmb1/kwh to Rmb0.95 and Rmb0.90/kwh may reduce the equity IRR by 3-5ppt. However, our sensitivity analysis shows even after the cut in feedin tariff, the solar farm projects can still generate at least 12%-16% levered IRR. With decreasing module cost/investment

“Chinese government sets a clear goal to achieve over 35GW cumulative installation of solar power capacity by 2015.”

from Rmb9/W, the equity IRR could further increase.

Potential grid issues that might lead to solar power curtailment We think the reason that the NEA heavily promotes distributed solar rooftop projects is the potential grid issues in the west of China that might lead to solar power curtailment. Given the project pipeline in Qinghai and Gansu represents 29% and 33% respectively by the end of 2012, we read through the grid development 12th Five-Year-Plans of these provinces by 2015 and discover: First, Qinghai provincial and related lower-level governments have developed a comprehensive grid development plan that is customized for the development of solar farms in Qinghai.

The annual installation of 1-2GW solar farm projects will less likely lead to solar power curtailment due to grid transmission bottleneck or the lower power demand.

Second, Gansu’s grid plan was primarily designed for the transmission of wind power from Jiuquan region and the transmission of hydro power in the southern Gansu, without consideration of the booming solar farm development across the province.

We are concerned that the rapid growth of solar power in certain regions such as Jiayuguan may lead to curtailment if it cannot be transmitted by the lines constructed by wind power.

Estimates of cumulative solar power capacity by region (end of 2013)

Source: NEA, Macquarie Research, January 2014

China solar annual new installations and cumulative installations’ growth

Source: CEIC, China PV association, Macquire Research, January 2014

ASIAN POWER 17

co-published Corporate profile

FYREWASH No. 1 leading brand in gas turbine compressor cleaner Rochem’s most recent achievement is the PacificLight Power’s 16,000-liter order of FYREWASH F3, a water-based gas turbine compressor cleaner.

A Ferouz Ali Rochem’s Business Development Manager/Regional Director

“FYREWASH F3 is an ultra pure, biodegradable waterbased detergent that provides maximum possible cleaning efficiency for on-line and offline compressors from a non-solvent formulation.”

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

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

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

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

RTS provides the best chemical storage and handling systems for integration.

Biggest customers Being in the market for more than three decades, RTS’ customer/ installation reference list is at least

18 ASIAN POWER

four times greater than its nearest rival. Siemens, General Electric, Rolls Royce, and Alstom are just some of the biggest gas turbine manufacturers and packagers that incorporate Rochem’s FYREWASH (chemicals).

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

PacificLight Power is a Singaporebased integrated energy company that aims to be a one-stop energy partner for businesses.

The company has a 800 MW Combined Cycle Gas Turbine (CCGT) Power Plant in Singapore that has been in operation since year 2013. PacificLight is a joint venture between FPM Power Holdings and Petronas Power.

FPM Power Holdings is a joint venture between First Pacific Company and Meralco PowerGen Corporation.

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

Setting the standard FYREWASH F3 is an ultra pure, biodegradable water-based detergent that provides maximum possible cleaning efficiency for on-line and off-line compressors

from a non-solvent formulation.

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

Rochem notes that while developing and testing FYREwWASH F3, the chemists evaluated all other leading nonsolvent water-based chemicals to make sure that F3 would have superior cleaning qualities.

This resulted in a nonhazardous, user-friendly and highly biodegradable waterbased cleaner which now sets the standard against which the performance and cost effectiveness of all other true nonsolvent water-based gas turbine compressor cleaners can be judged.

According to Rochem, on-line cleaning is normally performed by mixing one part FYREWASH F3 concentrate with 4 parts of distilled or deionized water as specified by the turbine’s manufacturer.

The volume of chemical solution needed per wash and the optimum cleaning frequency will depend on the size of the engine, fouling tendency and other factors. FYREWASH F3 can be used with any on-line/off-line injection system but for optimum cleaning results and economic usage of chemicals, Rochem offers a full range of patented manual or fully automatic atomising injection systems to suit any engine type.

co-published Corporate profile

Importance of Asset Management for Electrical Power Utilities Find out how Alstom Grid offers a comprehensive business solution to maximize the value obtained from assets.

From field works to enterprise integration with expert support; e-terraasetcare dashboard

A

s owner of power generation electrical equipment, an efficient asset management program supports company objectives in terms of: • Reliability: reduction of outages, assessment , mitigation of operational risks and optimization of production revenue • Cost efficiency: maximise asset life while optimising maintenance costs and with particular care taken for ageing infrastructures • Strategy: get the information you need to establish your corporate asset investment plans and performance objectives with your regulator or shareholders • Organisation: capitalise the electrical know-how in a context of ageing or increasing work force, and align your departments toward consistent goals for increased efficiency.

From field works to enterprise integration with an expert Based on 130 years of experience and expertise across the world, Alstom manufactures electrical equipment, delivers automation devices and on-line condition monitoring tools, integrates mission critical IT systems, and services fleets of electrical assets.

Alstom Grid offers a comprehensive business solution to maximize the value obtained from assets, by optimising the maintenance and asset replacement strategies. It takes into account the assets condition, the company budget constraints and the criticality of each piece of equipment.

A partnership with a strong original equipment

manufacturer (OEM) supplier will support decision making in term of maintenance and replacement strategies, objectives and plans of the power provider. Some areas of support might include, but are not limited to: • Information and knowledge management • Risk assessment and management • Maintenance, inspection, condition and performance monitoring • Life cycle costing • Contingency planning and emergencies • Asset modifications, refurbishment, replacement, disposal and recycling • Spares, materials and purchasing To ensure consistency and avoid potential loss in performance, organisations looking to optimise their asset management approach should be looking to their OEM partner to assist in reducing overall maintenance costs, decrease downtime and maximise uptime through regular expert maintenance and diagnostics. To achieve that, a holistic view of the performance of all assets is essential. e-terraassetcare is the Alstom Grid’s advanced software platform for asset health management.

This central repository provides consolidation of all sources of asset related data, including real-time

“An asset management system is vital for maintenance schedule and efficiency optimimization.”

data and manual data and implementation of powerful and customised analytics such as Asset Health Indices AHI and end-of-life calculations, criticality and risk assessment. The platform allows data monitoring, actions tracking, digital document management and supports reporting mechanisms.

The platform integrates Alstom Grid’s expertise in electrical equipment. As an example, the Asset Health Model for power transformers is can be implemented with a standard set of condition parameters to represent the overall health of such assets.

The analytics and key indices prepared by e-terraassetcare can be used by maintenance departments to establish priorities for actions, and take decisions for condition-based and reliability centred maintenance. The system is also designed for managers and financial departments to build longer term, strategic plans.

An asset management system is crucial in identifying an optimal maintenance schedule. Instead of the traditional scheduled maintenance that does not take into account the real condition of the asset. The asset owner will then benefit from an extended asset life and reduced probability of failures, proactive operations for increased efficiency, reduction of OPEX and CAPEX cost while improving its business processes and condition assessment consistency across the company.

A reliable and world-class partner with such an integrated service system will help utilities deliver the high levels of reliability demanded from end users whilst maximising returns on their initial investment by ensuring assets enjoy the longest life possible.

ASIAN POWER 19

country report: TAIWAN

“Heavy” power users to be penalized by paying higher rates

Switching off status quo in the power sector Will Taiwan forego low pricing for sustained supply?

T

aiwan’s decision to pay less on power may result in long-term power shortage. This has been the consensus among power experts amid controversies surrounding the shaky energy sources, coupled with, monopoly of the market by state-owned Taiwan Power Co. or Taipower. The ballooning consumption is not helping the situation since a power rate hike is politically impossible.

Those complaining of nonstop power rate hikes may dash immediately to Taiwan as residents in the state enjoy electricity prices considered to be among the lowest in the world. However, power experts are not as pleased as the consumers, seeing the “artificially low-priced electricity” as a barrier to what is supposed to be a lively current of investments for the lucrative sector, or so they say.

Low price, high consumption Benjamin Fox, a former energy analyst intern with the US Department of Energy in Beijing, is firm in saying that this unruly system in Taiwan’s power sector is impeding industry reforms. “By failing to adopt a market-based electricity-pricing regime, the Taiwanese government supports an ongoing cycle of energy inefficiency and waste,” he notes. According to Fox, government subsidies ensure that Taiwan’s electricity prices remain some of the cheapest worldwide, making Taiwan20 ASIAN POWER

Benjamin Fox

Jonathan Cobb

Huei-Chu Liao

Michael Wang

ese per capita electricity consumption the highest in Asia. Data show that per capita electricity consumption in Taiwan was 10,424 kWh in 2012.

Fox says the disparity between high electricity usage and non-rationalized pricing was absorbed by Taipower, resulting in the state-owned firm facing a serious losing streak over the years. “Although the government has periodically raised electricity price rates over the past decade, including a forty percent increase in July 2012, Taipower still announced a NT $200 billion deficit in 2013,” he stresses.

Fox argues that the government, for its part, has recently implemented some reforms such as the “user pays” principle, spread over three phases.

Under the plan, rates for residential users consuming below 500 kilowatt hours (kwh) per month as well as small businesses using less than 1,500 kwh per month will remain frozen, sparing the bulk of Taiwanese power users. Only a small chunk of power users, tagged as “heavy” users, will pay higher rates as what appears to be a penalty for their hefty energy consumption. “As a result, the current price changes do not represent a shift toward true market pricing and are unlikely to place Taipower on a long-term financially sustainable path,” Fox says.

Despite the glaring policy flaws in the power rates, nothing substantial has been done to correct them. “This failure to act

can be largely attributed to the obvious political unpopularity of raising the electricity rates of Taiwanese voters,” he suggests.

Huei-Chu Liao, professor at the Department of Economics in Tamkang University, also points to energy pricing mechanisms as one of the major challenges in the power sector. “Current electricity price is too low to induce investments.

Reasonable price should be built up,” he notes. Given this wearisome situation in the demand side of the power sector, some power experts are shifting their curious gaze to the industry players.

Uncompetitive power industry The multi-billion dollar power industry – generation, transmission and distribution – is monopolized by the state-owned firm Taipower. “Taipower still dominates the whole power market. All power generated by the private power plants must sell to Taipower [and] all power buyers must buy from Taipower. Taipower controls all power transmission and distribution system,” Liao says.

In one of Brooking’s Taiwan-U.S. Quarterly Analysis, Liao says the energy market, largely controlled by Taipower and, to some extent, Chinese Petroleum Corp., is in dire need of reform. “Given their poor financial circumstances and aging equipment, however, they can no longer take all responsibility for managing

country report: TAIWAN electricity mix, supports secure and reliof numerous other efforts slated to catch “Another able supply. up to the lost years of Taiwan power dilemma hauntJonathan Cobb, senior advisor of industry. As an indication of this commiting the island World Nuclear Association, says the ment, the government, intends to create is that only a growing demand for energy could be 12,502MW (accounting for 16.1% of total few indepenmet by nuclear power, which is still far power generation installation capacity) dent power cheaper than alternatives. “Nuclear power of renewable energy for Taiwan by 2030. producers (IPP) is growing globally, but needs to grow Of which, offshore wind will represent 25 manage to get faster if the world is to meet future energy percent (>3,000MW) of the total installed through its demand and at the same time avoid the capacity of renewable energy. “Taiwan is hostile power worst effects of climate change. Nuclear is currently one of the very few countries in generation essential as it provides affordable, reliable Asia which has established any regulatory environment.” and clean energy,” he emphasises. framework for renewable energy developNuclear power has been a significant ment,” Wang points out. part of the electricity supply for two Without wanting to sound adversarial decades and now provides one quarter of in the middle of a chorus of optimistic base-load power and 16 percent overall. well-wishers for renewable energy, Liao Taiwan’s three nuclear power plants, all emphasises that the share of this environoperated by Taipower, have four General ment-friendly energy resource only acElectric boiling water reactors and two counted for 1.89 percent of Taiwan’s total Westinghouse pressurised water reactors. energy supply in 2012. “Among renewable All these, with the first unit constructed sources, the Taiwan government currently in 1972, were expected to have 40-year prioritises wind and solar power, but both lifetimes. The six reactors’ licences would Diversifying power sources face development obstacles,” he noted. have all expired by 2025; the earliest in For an industrializing economy, reliable According to Liao, Taiwan’s terrain 2018. Aiming to extend the lifespan of energy supply is a critical prerequisite to and small size limit suitable locations for these plants, Taipower had expected to sustainable growth. This is not the case for building up onshore wind power facilities seek 20-year licence renewals for all six Taiwan where more than 98 percent of its while the generation cost of solar PV reactors. Taipower in 2009 said that if energy is imported – most oil and gas is power is two to three times that of fossil given life extensions by Atomic Energy bought from the Middle East. energy. “The poor economic, environCouncil, it planned to replace the steam Liao says relying on imported fossil fu- mental and geographic conditions in Taigenerators of the two Maanshan PWR els for 90 percent of its energy mix drags wan limit the possibilities for renewable reactors in 2020.

Taiwan’s economic development-particenergy, and it will be all but impossible to ularly in recent years when international reach the aim of 100 percent renewable Operating Taiwan nuclear power reactors fossil energy prices have increased rapidly energy use before 2050,” Liao concluded.

According to Liao, energy imports as While a full-blown thrust for renewable a share of total imports increased from energy is still an aspirational target for 10.28 percent in 2002 to 25.41 percent in Taiwan, nuclear power still poses as a low2012, and as noted above, increased from hanging fruit that will temporarily solve about 4 percent of Taiwan’s gross domes- the island’s power deficit. tic product (GDP) over 14 percent in this same period.

Nuclear power still part of the solution Realizing this inefficiency, the market While gunning for diversity of power saw vigour in the government’s thrust for sources is undoubtedly a practical move renewable energy in the last three years. towards energy security, there is no quesSource: World Nuclear Association “In the past decade, Taiwan power market tion that nuclear, as part of a balanced did not have significant improvements on efficiency, independency and carbon reduction whereas now the government is more ambitious on achieving these strategic goals [set] in the past few years,” according to Michael Wang, project manager for business development of Taiwan Generations Corp. He says this ambitious stance was fired up with the passage of the Renewable Energy Act in 2009, which sets out the off-taking regime with 20-year feed-in-tariff as the stimulus for the renewable energy development of the island.

In 2011, the government promoted solar power and wind power as strategic resources for Taiwan, pushing to develop the next-generation energy portfolio with the program me of “Million Solar Rooftop PVs and Thousand Wind Turbine Promotions”. The market should Nuclear power needs to grow faster so as to meet future demands see these milestones as simply the start the energy market,” he notes.

Liao echoes Fox’s argument that more rational pricing to cover production costs is a tough decision to make in the current political environment of Taiwan. “Despite the political and economic difficulties, reform and liberalization with the aim of creating a more rational and efficient energy market must be undertaken,” he stresses.

Taiwan’s uncompetitive power sector not only spoils its consumers with artificially low prices and hurt Taipower’s coffers; it also compromises long-term prospects for the industry.

Another dilemma haunting the island is that only a few independent power producers (IPP) manage to get through its hostile power generation environment.

This poses a threat to the electricity-savvy but imports-dependent power market in Taiwan.

ASIAN POWER 21

FEATURE: PHILIPPINE energy

Power demand likely to grow between 8.6% and 14%

The Philippines’ growing appetite for energy offers vast investment opportunities About US$25 billion worth of investment opportunity awaits, but bureaucratic red tape constrains potential.

I

nvestors may soon be flocking to Philippine shores – and not just to get the perfect tan while lying on its pristine white beaches. If things continue to go well, the next few years may keep everyone busy as a bee and happy as a clam at high tide.

The Philippines is growing. And like any other growing child, its appetite is increasing. It joins other Asian countries with a healthy hunger for power and an insatiable drive for prosperity. With continuous growth and increasing demand for energy, investors have a lot to look forward to.

“The Philippine power sectors offer a great many opportunities for the private sector (both domestic and international) in years to come,” says Sharad Somani, KPMG executive director for infrastructure and projects.

“In the generation sector, capacity addition of over 13GW, coupled with setting up of high capacity interconnectors between different parts of this huge archipelago, would mean large opportunities for investment by the private sector.”

Somani estimates an aggregate investment opportunity of US$25 billion in the period to 2030 for 22 ASIAN POWER

“The country’s current installed capacity of 16,250MW is expected to reach 25,800MW (a 60% increase) in 2030 ”

the Philippines’ energy sector.

According to the Philippine Energy Plan (PEP) 2012-2030, the country’s current installed capacity of 16,250MW is expected to reach 25,800MW (a 60% increase) in 2030. But this number is still lower than the projected demand of 29,330MW in 2030.

A grimmer picture is painted by OWL Energy president Tony Segadelli who says the government is giving a low projection, which might in turn distort the market supply/demand curve and result in energy supply shortages, as well as higher power costs.

“Based on typical elasticity and ADB growth estimates the power demand is likely to grow between 8.6% and 14% per year up to 2030. These higher values are consistent with power demand growth rates in comparable countries in ASEAN,” Segadelli says of the projected 60% increase by 2030 (or an average of 2.75% growth per year starting 2013).

Ernst & Young (EY) agrees that the pressing need for the generation sector to hit the projected demand will become a challenge for the industry.

But EY assurance partner Ladislao Avila Jr. says new and existing players are willing to invest and support the growing

demand. “We believe, however, that in order to sustain this investor confidence, the government needs to ensure the stability and consistency of government policies, regulations and actions affecting the power industry,” he says.

Bottlenecks Experts say the country’s potential is being constrained by bureaucratic red tape.

Segadelli says the Philippines is plagued by “excessive bureaucracy”, and for the power industry this means obtaining approximately 130 signatures before a power plant can start operation,” he says.

The country has been notorious for its tedious process of acquiring business permits and clearances; the days required in opening and closing a business surpassing that of its neighbors.

However, the Philippines’ ranking in the Ease of Doing Business increased by 30 places for 2014, catapulting the country to the 108th spot.

National Power Corporation (Napocor) Senior Vice President Pio Benavidez, on the other hand, says government should be more consistent in enforcing laws and guidelines, especially those pertaining to privatization of public assets under the Electric Power

FEATURE: PHILIPPINE energy Industry Reform Act (Epira). The government should at the same time strike a “healthy balance” between being firm and open-minded, he says.

For years, the Philippines has struggled to attract investors into the country.

Amid the many resources ripe for the picking, foreign businessmen are especially interested in changes in the country’s ownership requirement.

The Philippine Constitution requires 60% ownership by Filipinos. However, Benavidez says the rule prevents foreign investors from acquiring a controlling interest in any joint venture.

Another issue faced by investors is the relatively high real estate taxes, Benavidez adds.

High power prices Meanwhile, the Philippines’ power tariffs remains among the highest in any world. A 2012 study by the International Energy Consultants (IEC), commissioned by distribution utility Manila Electric Co. (Meralco), reveals that power retail tariffs are at US$0.2026 per kilowatt hour (kWh) or P8.82. With such figures, the country was ranked as having the ninth highest tariffs in the world, and second in Asia – after Japan.

More than half of the tariff goes to generation charge. Meralco says of the weighted average tariff of 21.99c per kWh 14.4c goes to the generation sector, 1.91c to transmission, 3.54c to distribution, 1.73c to value-added tax and 0.41c to other charges and taxes.

But the IEC believes the amount reflects the actual costs of supply. It says the Philippines will most definitely have high electricity rates since its Asian neighbors – Thailand, Indonesia, Malaysia, Korea and Taiwan – have operations heavily subsidized by their governments. “These subsidies take the form of government-

imposed tariff and fuel cost caps and direct government subsidies for utility losses, including forex losses, which the IEC considers ‘bad economic practice and ultimately unsustainable’,” says John Molina, KPMG audit services partner.

The high supply cost is also due to the country’s dependence on imported fossil fuels. The situation, however, is unlikely to change in the long run, unless the country finds cheap and domestic fossil fuel alternatives.

The high cost of electricity in the country has resulted in complaints from both residential consumers and businesses.

Segadelli says the high tariffs are also caused by a lack of competition in large distribution areas and grid constraints due to the difficulty of building large and highly efficient plants. “The implications of the high prices are two-fold. On the negative side they will cause the economy to grow at a slower rate than is optimal. On the positive side there is an opportunity for new build, which will consist of large, highly efficient coal plants plus distributed power in the form of renewable energy, especially on the smaller islands,” he adds.

Another year for renewable energy?

Last year was “The Year of Renewable Energy in the Philippines,” says Michael Guarin, KPMG head of transactions & restructuring, advisory services.

Philippine Energy Secretary Carlos Jericho Petilla says they had updated the PEP 2012-2030 to reflect the DOE’s tripling of RE capacity targets for 2030, from 5,000MW to 15,000MW. He says the RE projects committed

by January 2014 will ensure 190MW of additional capacity by 2017.

For a country rich in natural resources, it is no surprise that the

Pio Benavidez

Michael Guarin

Ladislao Avila

Jericho Petilla

Sharad Somani

Tony Segadelli

Philippines has a lot of potential when it comes to renewable energy (RE) development. But while the environment is rife with possibilities, investors remain wary of the risks attributed to the relatively young RE sector.

Guarin cites the Energy Regulatory Commission’s (ERC) guidelines on the procedural framework for the payment of Feed-in Tariffs (FIT) to RE developers as key to encouraging more investors into the country.

Early in 2013, the Department of Energy (DOE) announced a ‘first come-first served’ policy in terms of FIT eligibility. It is supposed to weed out speculators from the serious players.

‘Ambitious’ RE targets On the other hand, OWL Energy says 2013 is a good year for RE because of the construction of notable solar and wind projects in the country. However, because the capacity of solar projects developed in 2013 was lower than expected, the sector will have to adjust its capacity caps and build more RE projects, it adds.

Guarin says that while the DOE’s RE targets are ambitious (with a target RE-power based capacity of 15,304MW by 2030), the last five years since the approval of the RE law have been encouraging.“Things are finally moving on the RE front,” he says.

Everyone else is positive that 2014 will see the continuous growth of the RE sector. Petilla recently announced that streamlined processing of RE applications has resulted in 130 newly awarded projects. As of December, the government has awarded a total of 390 contracts to RE developers.

“There is strong impetus going into 2014 for more biomass and solar projects with OWL actively talking to more than a dozen developers both on the main grid and off grid,” OWL Energy says.

Avila of EY, on the other hand, says focus on RE will continue in the next years “as the impact of increased renewable power wgeneration is yet to be felt, especially on wind and solar.”

Dependable Capacity = 13,902 MW Bangui Wind Farm in Ilocos Norte, Philippines

Source: Department of Energy

ASIAN POWER 23

co-published Corporate profile

Membrane Contactors Can Lower Operating Costs

by Reducing Corrosion and Blow Down Frequency Find out how Liqui-Cel® Membrane Contactors help powerplants save $8,500.00 per year while also adopting 100% chemical-free treatments

P

roper treatment of boiler feed water is an important component of a boiler system. As steam is produced, dissolved solids become concentrated and deposit inside the boiler. This leads to poor heat transfer and efficiency reduction of the boiler. Degassing is an important step for protecting the boiler. Chemical treatment is widely used to control dissolved oxygen in a boiler. The cost of operating a chemical treatment program consists of chemical costs and blow down costs. Periodically the water in the boiler must be flushed out to remove non-volatile compounds. Chemical addition to the water can increase the frequency of blow down, which increases the operating cost of the boiler.

Liqui-Cel® Membrane Contactors can help reduce corrosion and pitting in boilers and piping and also reduce blow down frequency by removing CO2 and O2 from feedwater without using chemicals.

These small, compact devices are capable of removing O2 to < 1ppb and CO2 to < 1ppm and are displacing conventional deaeration technologies, such as forced draft dearators and vacuum towers, as the technology of choice. Older vacuum tower and forced draft technologies are larger and are not as efficient as Liqui-Cel® Contactors and they cannot remove as much gas without the use of chemicals.

Membrane Contactors utilize microporous membranes to create 10X the surface area compared to mechanical technologies. Membrane contactors are highly efficient, compact and can be used inline under pressure.

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

Membrane System Operating Cost The operating cost of a membrane degassing system is comprised of electricity and seal water for the vacuum pump. When comparing this to the chemical treatment system, a $2,170.00 per year savings can be realized. When the savings associated with blow down is included, the operating costs savings can be more than $8,500.00 per year. A typical membrane system designed to degas the water outlined in this example can have a payback of less than two years. The details and equations used to calculate the operating savings can be found in the full technical paper available at www.liqui-cel.com.

24 ASIAN POWER

THE GLOBAL PLATFORM TO SHARE AND CO-CREATE INNOVATIVE WATER SOLUTIONS SANDS EXPO & CONVENTION CENTER, MARINA BAY SANDS 1–5 JUNE 2014

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More than 19,000 visitors and 750 participating companies expected

co-published Corporate profile

Flexible Service Solutions: ServiceGridSM

ABB offers a complete portfolio of flexible service solutions that meet the diverse requirements of customers, their plants and the market conditions in which they operate.

F

lexibility is key in today’s power generation industry, where the effects of global economic slowdown, the uncertainty surrounding the future of nuclear power generation and the escalating growth of renewables are transforming many electricity markets. In developed economies, power generators are extending the operating life of their plants longer than originally planned.

Many of these plants were designed to operate constantly at full load; now their output has to be frequently adapted in response to the fluctuating production of wind and solar power.

As a result of these and other factors, power generation companies are under constant pressure to adapt to changing market conditions. They have to be flexible and their power plants have to operate with flexibility as well.

ABB recognizes the need for flexibility and structured our flexible service offerings to meet the different needs of individual customers and plants, which consists of flexible plant evolution service packages, with which we service and evolve the plant’s electrical and automation assets as the customer’s needs and budget dictates. One example of this package is ServiceGrid.

ServiceGridSM ServiceGrid is a comprehensive program of service products that enables customers to choose the number of products and level of support that best meets their requirements. These range from basic services like spare parts and repairs to advanced products like power plant tuning and software evolution.

Launched in North America in mid-2011, this comprehensive portfolio of ABB service products and expertise has quickly become a huge success.

Recent metrics show that it has boosted the already high levels of customer satisfaction that ABB is scoring in service. More significantly, almost 100 percent of customers who signed ServiceGrid contracts in the opening 18 months have opted to renew them.

Big benefits ServiceGrid brings vast offering of critical plant 26 ASIAN POWER

technologies under a single service contract and with a single ABB point of contact. ServiceGrid is geared to deliver five principal benefits: – Maximize plant performance and efficiency – Minimize the risk of unplanned and unexpected outages – Extend the life cycle of ABB products and systems – Complement the plant’s existing technical and service resources – Protect the customer’s financial and intellectual investments in ABB technologies It delivers these benefits through a comprehensive choice of four different levels of participation Core, Select, ProActive, and Enterprise.

Core: provides customers with a series of

“Almost 100 percent of customers who signed ServiceGridSM contracts in the opening 18 months have opted to renew them.”

core service products for plants that are selfmaintaining, have limited budgets or limited running time, but that still require services that only an OEM can deliver. These service products range from software updates and DCS on-site support to repairs and spare parts.

Select: builds on the Core foundation and increases the extent of ABB’s support. It provides a range of services for customers who want to continue to work on their own but who also want the peace of mind provided by a global OEM. In addition to Core, it includes aspects like software upgrades and annual life cycle reports.

ProActive and Enterprise: premium programs for customers who recognize the benefits of a service partnership with a global OEM. Both levels include all the products available in Core and Select, with the addition of high-value services like a designated technical account manager (TAM), application/ process support, and quarterly reports and reviews.

ProActive is for customers who wish to partner ABB on a single plant; Enterprise for companies with multiple sites who want to reap the benefits of ServiceGrid across their entire fleet.

To learn more about ABB’s ServiceGrid, contact your local ABB power generation office or go to www.abb.com/powergeneration.

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CEO INTERVIEW

vendor view

Gas-Insulated Substation – The Most Effective Solution

Substations are key elements in the electrical chain transport from generation, transmission and distribution to consumers.

145kV GIS Switchgear (F35) at the Shuqaia HV substation in Saudi Arabia

Latest version of F35 145kV GIS, the most compact in the 145kV market

The assembly line of B105 substations at Suzhou factory in China

V

oltage levels dictate the insulation clearance between electrical components and the environment. Natural insulation media is atmospheric air which has been replaced for certain applications by compressed air, oil, vacuum or sulphur hexafluoride (SF6) gas.

Out of the four, air requires a too high pressure level, vacuum is not yet commercially viable for high voltage applications and oil carries some risk. An oil insulated substation may present a fire hazard.

The superior dielectric gas used in GIS – sulphur hexafluoride (SF6), is five times as dense as air at atmospheric pressure. When used compressed in enclosures, SF6 reduces isolating distances by 15 to 30 times, making compact substation possible.

Air-insulated substations (AIS) and SF6 gas-insulated solutions (GIS) are more effective as they carry less risk and are commercially viable today.

Main difference between AIS and GIS is the required space for the installation: GIS footprint is up to twenty times smaller than that of AIS. Hence, when the location of the substation represents geographical challenges in the design and construction, GIS is definitively the way to go to overcome space constraints (mountains, urban zones, harsh environments…).

While initial capital outlay for a GIS is slightly higher, one needs to take into account long term savings due to higher reliability and lower maintenance costs. This is due to the fact that the critical components are housed within sealed compartments, and are thus protected from environmental elements 28 ASIAN POWER

Close up of a GIS

(humidity, pollution, salinity, vandalism…..)

Certainly SF6 is listed as one of the six greenhouse gases contributing to global warming. To ensure that the environment is protected, the standards imposed by government and international regulatory bodies require gas emissions from substations using SF6 to be no more than 0.5% a year.

Alstom, with 50 years of worldwide and fielddriven experience, use original patented gaskets to keep emissions well below the required 0.5% mark.

Furthermore their world-class monitoring system for SF6 management and trend analysis enables to bring down the emissions below 0.1% per year.

Their range of gas-insulated substations are optimal for all kinds of applications; such as replacing an existing AIS solution to free up land space or under severe conditions like altitude and corrosive environments. In emergencies, Alstom have a ready-made, plug and play solution in the form of a mobile substation to ensure the distribution grid is not affected.

Alstom currently have five GIS manufacturing plants worldwide. The Suzhou factory in China was inaugurated in 2007. The plant has more than 200 employees and they manufacture high voltage GIS substations ranging from 72.5 to 550 kV. The Suzhou plant is compliant with international

“Alstom use original patented gaskets to keep emissions well below the required 0.5% mark.”

standards in areas such as workplace safety and environmental management to name a few. It is also backed by a solid “Alstom quality control system” to guaranty the same quality level across its manufacturing plants worldwide. The quality and reliability of Alstom’s Suzhou plant is evinced by the number of countries it has successfully provided GIS solutions to. The plant has supplied these substations across the world - from Argentina, Chile and Mexico to Australia, Japan and Singapore.

Alstom are committed to innovation and being at the forefront of technology. Since the inauguration of the world’s first 245kV substation in France in 1966, Alstom have successfully provided more than 20,000 bays in 2,500 substations in 100 countries across all five continents, under varying environmental factors.

Alstom then subsequently rolled out the world’s first 420kV, 550kV and 800kV solutions to meet the world’s requirement for greater loads. These substations have withstood the test of time and are a true testament to Alstom’s cutting-edge technology.

Notes: 50 years of worldwide and field-proven experience • First experiments in 1960 • 20,000 GIS bays in 2500 substations in 100 countries • 200 km of gas-insulated lines • Complete bays assembled and tested in factory by experts to ensure quality at site World-class quality at Suzhou GIS factory : •One quality system certified as per ISO and OHSAS for all Alstom GIS factories worldwide • Severe type tests in the Alstom Shanghai technology centre with test facilities up to 1200 kV • Routine tests performed beyond international standards requirements

OPINION

JOHN GOSS

A new energy strategy for China john.goss@ceejay.com.hk

T

he country must transform itself into a nation of “security, greenery, and efficiency” by the year 2030, or China will be facing seriously unreliable energy supplies and many insurmountable environmental challenges, says The State Council, China’s leading think tank, which has outlined a revamped energy strategy highlighting new energy and calling for industrial transformation.

A recent article titled “Foreseeing and Analyzing China’s Future Energy Development” published by the People’s Daily, the flagship newspaper of the Communist Party of China, on February 13th, The Head of China’s Development Research Center of the State Council, Li Wei said the country must transform itself into a nation of “security, greenery and efficiency” by 2030 or be faced with erratic supplies and insurmountable environmental challenges.

The article by Li is based on two years of extensive research, which was led by the center and supported by more than 70 experts from Royal Dutch Shell Plc, Harvard University in the US and China’s Tsinghua University, among others, report’s China Daily. The report says that the growth of China’s energy demand will slow remarkably due mainly to the cooling of the country’s economy.

However, there will be a higher dependency on impact of oil and natural gas.

By 2030, as much as 75 percent of the country’s oil may have to be imported. Dependency on imports of natural gas will also rise rapidly, bringing with it grave energy security concerns, Li’s article warned. Li, who is a former senior official of the State Council, also put energy security into a wider global context. By 2030, the world’s energy supply will be much the same while demand will keep growing, partly because of the steady industrialization of emerging economies.

There is also a steady shifting within the world’s energy supply, with its energy consumption gravitating towards the east and production steadily moving westward. By 2030, India and China are expected to be accounting for around half of the world’s oil consumption. At the same time, the US will most likely be the center for world oil production by 2020. China’s energy supply risks might be aggravated by complicated and volatile geopolitical situations, cautions Li. Looking to the future The report says that Li wants a “secure, green and efficient” system of energy production and use. The increasing risks for energy transportation routes will pose new challenges which will be directly affected by geopolitical risks in the neighboring regions, the Middle East and Africa.

It also warns of the environmental challenge of increasing fossil fuel consumption. China’s oil consumption will keep rising and reach six billion metric tons by 2020 and eight billion metric tons by 2030 if it goes unchecked.

China should be exploring new energy resources and natural gas. It be aiming at stabilizing its domestic oil production and softly promoting oil made from coal, and the coal chemistry industry.

This move would secure supplies and avoid a sharp drop in energy self-sufficiency Li says that the “Secure and effective” utilization of international 30 ASIAN POWER

resources requires the nation to set clear strategic goals to limit its dependency on foreign oil and natural gas. He recommends the diversification of oil imports and less dependence on the Middle East as an oil supplier and the Strait of Malacca as a supply route.

By 2030, the efficiency rate should reach the “international advanced level” and energy consumption per capita of gross domestic production must be 30 percent lower than the 2020 level. The nation should work to cap carbon dioxide emissions from energy consumption below 10 billion metric tons by 2030. The challenge of rising levels of urbanization is that it needs to be “green” and low-carbon in its implementation.

The urbanized population of China could reach 65 percent of its total by 2030. This means there will be another 300 million people in cities. Per capita urban energy use is normally about three times higher than that in rural areas. An increase of just one percentage point in the nation’s urbanization rate would mean an increased energy consumption of 60 million metric tons of standard coal.

The report recommends market-oriented reforms as an effective solution. While promoting energy conservation, the government could be allowing the market to play a decisive role in the market as part of the solution.

So what will happen in the future? Nobody knows for sure. However, this report and article are encouraging as many issues are being identified and discussed openly. What the world does know is that when this powerful nation decides to do something, the necessary resources are made available and the job gets done.

China goes green!

Use your mobile phone’s QR reader to scan the QR code.

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