Asian Power (May-June 2015)

ISSUE 69 | DISPLAY TO 30 JUNE 2015 | www.asian-power.com | A Charlton Media Group publication

US$360P.A.

revolutionizing china energy The country’s energy strategy action plan until 2020 prompts China to diversify away from coal

MICA(P) 248/07/2011

country report China’s energy shift and its effects on the economy

sector Report Vietnam eases legislation to tap 400 GW wind power

first Indon energy demand banks on new FiT policy

ANALYSIS Shaky RE power generation costs heighten policy support

PAGE 14

page 20

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FROM THE EDITOR Renewables are all the rage in the power sector this year, with the Indian government setting ambitiously high targets and Vietnam easing regulations to attract investors.

Publisher & EDITOR-IN-CHIEF Tim Charlton production editor Roxanne Primo Uy Editorial Assistant Joana Rizza Bagano

This issue presents an array of topics about how countries are making more room for renewables in their energy mixes, with a significant focus on power generation.

ADVERTISING CONTACTS Rochelle Romero rochelle@charltonmediamail.com

It covers Indonesia’s mini hydro FiT policy, Thailand’s solar PV potential, and India’s RE targets. We also take a look at how energy shortfalls are being addressed in the Philippines this year.

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

Flip through the pages to learn about the effect of China’s energy shift on its economy and cost mitigation in renewable power generation.

Lastly, take a look at Southeast Asian smart grids and how the region is slated to become a smart power hub following a USD 13.6 billion investment.

This year is definitely exciting for the power industry in the region, so we encourage you to be on close watch.

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ASIAN POWER 1

EDITORIAL CONTENTS

28

22

ANALYSIS Shaky RE power generation costs force governments to boost policy support

PH energy battles shortfalls 10 First

FIRST 06 Big growth in small hydro in Indonesia 06 Procurement amid ASEAN power woes 07 Thai solar potential gets hammered

ANALYSIS 18 How China’s strong project pipeline bolsters

32 JOHN GOSS: A new impetus for China’s nuclear power sector

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

wind power potential

COUNTRY REPORT 12 Monetizing India’s electricity shortage problems in the

OPINION

the country’s nuke dreams

20 Vietnam finally eases legislation to tap 400GW

08 India’s stiff RE targets 08 Japan’s nuclear restarts: two steps forward, one step back

Analysis Myanmar’s rural electrification goals marred by inadequate regulations

rural communities

14 How China’s energy shift will affect the country’s

decelerating economy

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

www.asian-power.com

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

IPP

China Shenhua Energy Co warns of 50% crash in 1H15 bottom line China Shenhua Energy Co., Ltd.’s EPS for 1Q at RMB0.34 was 3% lower than Barclays’ estimates and declined 19% q/q. According to a research note from Barclays, although the operating profit was 11% lower than its estimates, the lower than expected tax rate offset the impact on the bottom line. It is likely to dive lower amidst power tariff cuts.

IPP

Longyuan capacity addition to pick up in 2Q15 According to Barclays, power generation together with wind power capacity additions were flat q/q.

Capacity additions are expected to pick up in 2Q15 given the company has guided for 1GW of capacity addition in first half of the year.

4 ASIAN POWER

POWER UTILITY

Datang International’s power generation down 14% to 38.9b kWh Datang International Power Generation Co.’s reported EPS of RMBc5.8 was 21% lower than Barclays’ estimates, which it believes was driven by losses in its coal-to-chemical business. According to Barclays, however, despite lower-than-expected operating profit, operating cash flow was 28% ahead of estimates.

IPP

Huaneng banking on cash flow for power sector reform opportunities The company was realistic about the prospects of coal-fired power generation growth in China. According to Barclays, the company also said it is using the cash flow generated today to take advantage of the opportunities presented by power sector reform.

power utility

Trina Solar to provide 48MW of solar modules to Indian firm Trina Solar Limited has signed an agreement to supply 48MW of solar modules to ACME Cleantech Solutions Ltd (ACME). According to a release from Trina Solar, based on the agreement, approximately 188,000 Pieces of Honey modules TSM-PC05A will be installed on two groundmounted solar power plants in India.

IPP

CLP India issues credit enhanced bonds for Jhajjar Power Plant CLP India, one of the largest foreign investors in the Indian power sector, announced that it’s wholly-owned subsidiary, Jhajjar Power Limited has issued corporate non-convertible bonds for their biggest asset in the country.

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FIRST energy growing at a similar pace. In recent years, there has been upward pressure on the country’s energy supply to meet the power-hungry population’s growing needs, and this pressure has been coupled with hopes that renewable energy will be given a priority amid heavy dependence on fossil fuels.

procurement amidst asean power woes

As Asia Pacific’s power & utilities (P&U) sector rapidly developed, procurement processes also became more mature with their function taking on a more centralized structure. According to a report by KPMG, two trends are coming out of the function’s growing maturity: strategic sourcing is displacing tactical sourcing, and the implementation of eProcurement is gathering momentum.

However, KPMG notes that the wider regional landscape remains vast, complex and diverse. All nations across Southeast Asia complain of a wide number of energy issues. At present, there are still 30 million in the region who do not have access to electricity.

P&U organizations in the region face the further challenge of the politicization of electricity prices, often causing electricity rates to lag behind fuel prices. This, coupled with prevalence of subsidies, acts to suppress profit margins further and deter potential investment.

Tailored solutions P&U companies can play a lead role in developing the improving security of supply through global sourcing, enhancing operational efficiency through automation, and building regional grid connectivity.

In response to growing political, environment, and economic considerations, P&U suppliers are having to adapt their energy mix, which has a direct impact on category sourcing. KPMG adds that investment requirements into new technologies and infrastructure will be an enormous cost for the P&U industry.

Efficiency and risk management can be enhanced through the automation of operational purchasing and implementation of procurement processes through obligatory usage of electronic procurement systems.

Further supply chain enhancement can be made by adopting spend analytics, P2P and SRM measures.

6 ASIAN POWER

Mini hydros go big

Big growth in small hydro in Indonesia

W

hen Indonesia’s new feedin tariff (FiT) policy was implemented, the number of mini hydro projects surged alongside renewed investor interest in the small sector. The previous FiT policy, in place until 2012, prevented commercial viability for most of these projects because either the local demand or the project capacity did not reach the required minimum.

The installed capacity of Indonesia’s mini hydro projects with capacity of 1 - 10 MW grew by 25.4% from 61.46 GW to 77.05 GW following the implementation of the FiT policy. On the other hand, projects with capacity under 1 MW soared by 342% from 6.71 MW to 29.69 MW. In 2014, Energy and Mineral Resources minister Jero Wacik signed a new regulation that set the new tariff at Rp 1,075 per kWh, up from the previous tariff of Rp 656. Kanya Satwika, a partner at Assegaf Hamzah & Partners, believes that the FiT will be increased again in 2015 after an increase in 2014. Indonesian president Joko Widodo’s administration has been vocal about developing the country’s infrastructure, promising an additional 35,000 MW of electricity generating capacity over the next five years.

Indonesia’s economy is forecast to grow at an annual rate of 7% over the next few years, with the demand in

Kanya Satwika

Shamim Razavi

Untapped potential “In its 2014 statistical report, the Ministry of Energy and Mineral Resources identified 35,610 MW of potential hydro resources. However, only 9.4% of this is currently being harnessed,” says Satwika, who also mentions that the tariff, despite being a big help, is not the be-all and end-all of ensuring that the country’s resources are put to good use.

Development of mini hydro projects may also hasten rural electrification, as many of these projects are built in the countryside where a lot of homes still do not have access to electricity, according to Adjie Harisandi, analyst at PT Bank Mandiri.

Shamim Razavi, senior foreign counsel at Norton Rose Fulbright, agrees that the significant FiT hike is an important adjustment to the regulatory regime for mini hydro power projects in Indonesia. He says that the increase in activity in the mini hydro space may be attributed to a willingness on the part of the regulators to respond to the present market realities.

However, Harisandi believes that caution should be exercised with the new FiT policy. Since it is a fixed rate mechanism, the benefits for project developers will still depend on the results of the feasibility study of each project.

Razavi echoes the same sentiment.

“This endeavour cannot by itself be the panacea to meet the country’s electricity demands – to do that requires a number of measures both in terms of power generation and transmission,” he says.

Unused RE potential in Indonesia

Source: GBG Indonesia

FIRST The country’s action plans involve a public-private collaboration in capacity building and in the employment of local people to allow technology transfer.

Wider solar farms

Thai solar potential gets hammered

T

hailand remains Southeast Asia’s most power-hungry nation, and the rapidly growing country has been looking to its untapped solar potential to solve its ever-increasing energy needs. In fact, Thailand aims to soon become the ASEAN leader in the solar PV value chain by decreasing reliance on natural gas in favour of power generation through solar PV. Sopitsuda Tongsopit, researcher at the Energy Research Institute of Chulalongkorn University, says the solar PV enhances energy security by reducing dependence on fossil fuels and focusing on green power sources. The

country’s Ministry of Energy has pegged Thailand’s technical potential for solar energy at 42,356 MW. “294 solar farms have started selling 1.32 GW to the grid, while 14 with total capacity of 296 megawatts have signed sales contracts but have yet to supply the power. There are 178 that have applied to sell 1.01 GW. However, green energy excellence depends more on the quality, not the quantity,” says Ulrich Eder, lawyer and CEO at PUGNATORIUS. The road to solar greatness The Ministry of Energy’s Solar Energy Map shows that almost all of Thailand is

benefitting from strong solar radiation all year-round, with the northeast region benefitting the most. Despite this huge potential, Thailand is unable to move forward due to a number of issues that have yet to be addressed.

A survey conducted in 2014 revealed that Thailand’s solar PV development faces inconsistent support due to political reasons, lack of a clear vision, lack of a monitoring and evaluation system for policy improvement, lack of proper participation from all stakeholders on top-down planning, and lack of integration between relevant agencies, among other reasons.

Currently, the solar installed capacity amounts to 2% of the total installed capacity. Tongsopit reports that at the end of 2020, the expected target is 10%, set to triple at the end of 2035. The country’s action plans involve a publicprivate collaboration in capacity building and in the employment of local people to allow technology transfer.

Tongsopit suggests that for Thailand to realize its solar PV goals, the government has to: design solar power support policy for certainty and continuity and design solar policy and regulation that is transparent, accountable, and encourages competition.

The sudden rise in solar

Source: EGAT

falling costs of renewables result in increased renewable power across the globe China is expected to be the largest source of growth between 2013 and 2035, surpassing the EU (European Union) and almost matched by the US, despite the EU being the leader in promoting renewable power and Europe leading the way in terms of renewables share.

According to a report by BP, falling costs enable renewables to continue to gain share in Europe and encourage the spread of renewables to other regions. The European Union (EU) has paved the way for renewable power, but the size of the subsidy burden has become a constraint on growth in some markets. Falling costs will relax this constraint.

Outside the EU, renewables are still scaling up – the US will not reach the current EU level of renewables penetration until 2030, and it will take even longer for China.

Renewables’ share of power

Source: BP Power

Renewables growth 2013-2035

Source: BP Power

ASIAN POWER 7

FIRST

India’s stiff RE ambitions

IPP WATCH

ET Solar to develop 70 MW solar power plant in PH

W

hen India’s government appointed new renewable energy targets for 2022, the announcement was met with raised eyebrows and suspicion. The country is planning to jack up its renewable energy capacity to an ambitious 175 GW in seven years, a target four times its current capacity.

Emilie Ditton, head of Asia Pacific Energy Insights and Vertical Markets at IDC Australia, describes the targets as “aggressive” and “most likely unachievable,” despite gaining a great deal of attention from the international investment community.

“If we look at the solar component, India currently has around 3-4 GW of installed solar capacity; reaching 100 GW by 2022 would quite obviously require an enormous rate of annual growth to 2022,” says Ditton. The question of whether India can or cannot achieve its new targets is yet to be answered, and will remain a risk to the country’s success.

The German example The global energy industry does not lack good RE practices that India could have thoroughly reviewed before setting its own targets.

Winfried Damm, head of the IndoGerman Energy Programme, says, “German ‘Energiewende’ is a solid business case for the economic

Infrastructure boom

viability of renewable energy sources, especially since prices for solar and wind have been dropping significantly.”

“The targets go beyond those of other countries that have placed a very strong focus on renewable investments and demonstrated success in managing their energy requirements this way, for example Germany. Even Germany, the world leader in installed solar, only targets 66 GW of solar capacity by 2030,” adds Ditton.

Meanwhile, Anthony Jude, energy division director at the Asian Development Bank, does not discredit the good intentions behind the Indian government’s targets. Jude says that it is good for renewable energy development to have clear directions from the head of a government.

“However, to achieve or even partly achieve these targets will require a more detailed bottom-up analysis of what is achievable,” he cautions.

ET Solar has recently announced that it has executed an agreement to build a 70 MW solar power project in the Philippines, along with local partner GATE SOLAR PHILIPPINES CORP., to develop, invest, finance, construct and operate the project.

ET Solar will be the co-development partner and technology sponsor, as well as the investor in the project. Commercial operation is slated for March 2016.

MAXpower backs up Indonesia’s industrial port

Winfried Damm

Emilie Ditton

Japan’s nuclear restarts: Two steps forward, one step back Despite heavy public opposition to nuclear energy, reactors are still set to go online by the end of the year. According to a report by BMI Research, the government’s pro-nuclear stance underpins the outlook for nuclear restarts in the country. Switching off nuclear resulted in significant implications for the government, which had to rely more heavily on costly imported diesel and liquefied natural gas (LNG) to fill the nuclear void.

“The supportive stance towards nuclear was reiterated in the release of a draft proposal by the Ministry of Economy, Trade and Industry in April 2015, which outlined plans for Japan’ s power mix targets for 2030. According to the proposal, nuclear will account for over 20% of the total electricity mix by 2030 , with non-hydro renewables ris ing to nearly 15%, with a planned reduction across all thermal power sources , notably gas and oil,” says BMI Research.

BMI expects roughly 20 reactors to be restarted over the course of the 10-year forecast period to 2024, representing around 10% of the generation mix in Japan – still a noticeable reduction from the 27% contribution made by nuclear before the disaster.

8 ASIAN POWER

PT MAXpower Indonesia, MAXpower’s independent power producer business, has signed an agreement with PT Lamong Energi Indonesia to supply 15 MW of gas-fired power capacity to Terminal Teluk Lamong Industrial Port in the Surabaya region of East Java, Indonesia.

Terminal Teluk Lamong is one of Indonesia’s fastest growing industrial ports and the first in Asia to employ fully automated container handling systems.

Alstom to supply 12 generators for Thai power plants

How about renewables?

Going online soon

Toyo Engineering Corporation awarded Alstom a contract worth about €65 million to supply 12 units of 35 MW to 45 MW Geared steam turbine (GRT) generators, its auxiliaries as well as the condensers to 12 different power plants to Gulf MP Company Limited, in Thailand.

According to a recent announcement made by the company, the contract was awarded in the frame of the third phase of Thailand’s SPP scheme.

co-published Corporate profile

Introducing the Symphony Plus SD Series, the energy-efficient automation solution

Green automation solution reduces energy consumption, lowers hardware requirements and withstands extreme operating conditions.

Symphony Plus SD Series

I

n most industries today, energy consumption represents a very significant operating expense in the production process. So reducing energy consumption leads directly to improved bottom line profits.

Even in less energy-intensive industries, improvements in energy efficiency help maintain competitive advantages. For power producers, between 4 and 15 percent of a power plant`s entire output is used to power auxiliary systems, from water treatment, fuel preparation, and environmental systems to lighting and air conditioning.

Without these systems, the plant can’t run, but every watt of electricity saved by improving energy efficiency can be sold to generate higher revenues or lower fuel consumption to reduce operating costs.

Symphony Plus SD Series Introducing ABB’s Symphony® Plus SD Series, a flexible and scalable portfolio of control and I/O products that are designed to improve efficiency and productivity in diverse operating environments within the power and water industries.

SD Series is the latest addition to the Symphony Plus S+ Control and I/O family.

This family, which also includes the HR Series (Harmony Rack) and MR Series (Melody Rack), provides Symphony Plus with a comprehensive offering to meet the needs of new and existing customers from all segments and all regions.

The SD Series features modular DIN rail packaging; a flexible, fast ethernet-based plant network; intelligent electrical and field device integration; PROFIBUS, HART, IEC 61850 and Modbus TCP communication

protocols; and an integrated turbine control solution.

The SD Series also protects investments made in previous controllers, while delivering higher performance, reliability and capacity.

SD Series products have a modular, highdensity design and streamlined architecture that reduce control and I/O hardware requirements and cabinet footprint, thus lowering design, installation and operating costs.

It is a green automation solution that provides significant energy savings with low 24 VDC power consumption and lead-free RoHS-certified modules.

SD Series products are designed to withstand extreme environmental conditions, which makes them ideal for remote I/O applications. Their G3 coating and 70 °C temperature rating eliminate the need for fans, louvers, air filters, purging systems, or other environment controlling techniques.

Significantly higher efficiency means lower power consumption, less heat dissipation requirements, and less need for cooling systems. This eliminates the use of parts that can affect reliability and productivity, thereby reducing footprint and lowering

“The SD Series maximizes uptime and production with a scalable family of highperformance and highly reliable controllers and control loop integration of secondary smart field device.”

installation costs. These features can make a huge difference in installation expenditure by reducing the need for climate-controlled buildings or cabinets. Once in operation, the reduced volume of parts and equipment improves reliability and cuts maintenance costs.

The SD Series maximizes uptime and production with a scalable family of highperformance and highly reliable controllers and control loop integration of secondary smart field device. They protect intellectual investment in existing INFI 90 / Harmony systems - one of the most widely used control systems in power generation worldwide - by enabling the easy reuse of existing INFI 90 control strategies.

Backwards and forwards compatibility ensures smooth integration with existing and future systems, enabling customers to protect previous investments by reusing fieldproven solutions and avoiding rip and replace alternatives.

SD Series products SD Series is a suite of flexible control and I/O products that work across the entire control landscape, providing total plant automation regardless of application type, size or location.

The suite includes a set of highperformance, scalable process controllers that support the plant’s total control requirements, from discrete and continuous to batch and advanced control applications. Supported by a comprehensive range of I/O options, SD Series delivers powerful, versatile and scalable automation solutions for plant applications of all sizes and requirements.

The SD Series portfolio comprises: Controllers - HPC800: Large controller for large and/or complex installations - SPC700: Mid-range controller for

medium-sized and small installations Communication interface modules - PDP800: PROFIBUS DPV2 interface - CI850: IEC 61850 electrical integration

interface I/O modules - Analog I/O: AI0x and AO0x - HART I/O: HAI805 and HAO805 - Digital I/O: DI0x, DO0x and PI0x Control network communication - PN800: Fast Ethernet-based plant network To learn more about the Symphony Plus SD Series, contact your local ABB office or visit new.abb.com/symphony-plus-sd-series ASIAN POWER 9

FIRST

Philippines still battling energy shortfalls

E

nergy consumption spikes are expected to hound the Philippines’ energy sector, and concerns of power outages have kept both energy producers and consumers closely watching the government’s next steps. Luzon, the largest island in the country, has a daily net surplus of 1,461 MW, while the margins in Visayas and Mindanao are very slim. As the summer peaks every May, it is very likely that the margins in Luzon will reduce further with power outages plaguing the country’s southernmost region, Mindanao.

Anthony Jude, director of the energy division at the Asian Development Bank, says that Luzon can keep the power outages at bay. Once a shortage looms, the region can tap into the interruptible load program (ILP) of about 1,100 MW. “Under ILP, which the Department of Energy (DOE) and Energy Regulatory Commission (ERC) are implementing, registered participants would be disconnected from the Luzon grid and forced to use their own generators whenever there is a “red alert” or an imminent power shortage,” says Jude.

Multi-sourcing Meanwhile,Visayas and Mindanao, the second and third largest regions in the Philippines, would have to explore additional sources of energy. “The Mindanao grid will continue to face power outage challenges as it had led to power curtailments in some parts of the grid.

The projected peak demand in the region is 1,300 MW, while the available capacity for Mindanao is only 1,110 MW (excluding the 200 MW power barge),” adds Jude.

Steven Yap, Deloitte Southeast Asia energy and resources leader, says that Mindanao has particularly suffered due to its dependence on hydropower. The region has been experiencing rotating brownouts over the past several years, but that is about to change.

“From 2015 electricity cooperatives and coalfired plants will help shoulder more of the burden which should reduce the frequent brownouts,” Yap says. Almost a year ago, the Philippine government assured an expectant public that there would be no more shortages in 2015. This declaration could have been made out of blind optimism, and the sudden announcement of imminent shortages could be due to unreliable baseload plants.

Underestimations Tony Segadelli, managing director of OWL Energy, says that the regulatory process is a major obstacle. Segadelli cites excessive bureaucracy as an example whereby 130 signatures are required in order to start construction of a project.

Another issue is the lack of clarity on the tariffs for solar and wind projects, which have resulted in a lot of construction postponements. Segadelli also bemoans the 40% foreign ownership limit, which disincentives foreign investment.

“A starting point for overcoming the issues

Evaluating the Modi government’s energy priority, one year on It has been a year since Prime Minister Modi’s election victory, and the progress that has occurred since then cannot be ignored. However. challenges remain, especially with considerable opposition to the land reform bill.

In a report, BMI research says that notable progress has been made in the power market. This should not be a surprise, as the Modi government has openly declared the power sector as a priority.

BMI has observed progress in three areas: improving the fuel availability for thermal projects, development of renewable energy, and reducing the red tape for power projects. Modi has succeeded in increasing the availability of coal domestically, while the ambitious renewable targets set for 2022 are helping to drive growth. Lastly, the government has relaxed several environmental rules to make it easier for companies to develop new projects.

On the other hand, BMI believes there are still important issues to tackle, chiefly improving the quality of electricity supply, along with the electricity consumption per capita, and tackling India’s lack of energy independence. “We believe the government will increasingly turn its focus to reforming the power distribution segment and boosting India’s energy independence,” says BMI Research.

Ultimately, energy independence will shape India’s energy policy trajectory, as the country’s growing reliance on thermal imports is becoming increasingly costly.

10 ASIAN POWER

Shedding light on renewables

Modi-fying the energy mix

More plants needed (c) Damarre

is to establish a one stop shop for permitting and to implement the policies that have already been established for renewable projects and are outlined in the Implementing Rules and Regulations from the Department of Energy,” suggests Segadelli.

“New wind power and solar power projects will help – albeit incrementally in the short term – and the government could still lease extra capacity through public bidding to cover the shortfall,” concludes Yap.s

co-published Corporate profile

Take a clear window look into turbine control logic with Emerson’s Ovation Turbine control system

The control design boasts of improved reliability, unit stability, responsiveness, and operational flexibility while reducing system complexity.

I

ncreasing competitive pressures in the power generation industry have driven dramatic changes in the operational needs of power plants. Power plants need to enhance reliability, avoid unplanned outages, reduce maintenance costs and improve unit responsiveness, all of which are not possible with legacy turbine control technology.

Emerson’s years of experience and dedication to the power industry understand the impact of efficient turbine control in achieving the maximum levels of reliability and availability.

Emerson’s Ovation™ technology uses the same hardware and software platform for turbine control as it uses for other plant controls such as boiler or HRSG controls, burner management systems, combustion controls, and balance-of-plant. Emerson’s fully integrated turbine control system achieves unit-wide compatibility, which reduces time and costs.

Emerson has specifically designed I/O modules for turbine control applications.

Ovation Speed Detector and Valve Positioner I/O modules provide accurate monitoring, control and protection of turbine process to maximize the life of turbines. Ovation turbine-specific I/O modules interface seamlessly to existing magnetic speed pickups, position feedback devices, and servo valve actuator coils.

Emerson’s Ovation Valve Positioner I/O module provides closed-loop position control of major servo-operated valves. The Valve Positioner I/O module serves as the interface between the ovation controller and an electro-hydraulic servo valve actuator on a single turbine valve. The Valve Positioner I/O module features include PI control loop with

Computer control center

10 millisecond loop time. These specifically designed I/O modules decrease project risk and cycle time so that the unit can be more quickly returned to service while executing turbine control modernization projects.

Emerson offers huge retrofit capability for steam, gas and hydro turbine control systems. The steam turbine control replacements include speed and load control, rotor stress and automatic turbine startup and sequencing, vibration monitoring, protection and prediction as well as mechanical and hydraulic system upgrades.

The gas turbine control replacements include automatic turbine startup and sequencing, precise control of turbine acceleration and temperature, speed and load control, accurate spread monitoring of all exhaust temperatures, integrated vibration monitoring, integrated turbine protection and prediction, fuel system conversions, water injection systems, mechanical upgrades, electrical system refurbishments, and control system upgrades based on specific OEM modification recommendations.

Emerson’s Ovation control technology replaces unreliable, vintage turbine governor controllers to offer the highest level of water

“Emerson’s years of experience and dedication to the power industry understand the impact of efficient turbine control in achieving maximum levels of reliability and availability.”

control and management, maximizing turbine life. With Ovation technology, hydroelectric plant operators have access to a clear, concise view of key turbine parameters. With Emerson’s hydroelectric control solutions, generating units can be automatically started or stopped with a single click, which initiates a sequence that starts auxiliaries, operates valves, performs safety checks, and synchronizes to the power grid.

Unlocking the black box Emerson’s Ovation Turbine control solution has built-in redundancies and safety logic control design like two-out-of-three logic for tripping and overspeed protection independent of turbine speed governor.

It offers consistent use of hardware and software plant-wide enabling common engineering and operator environment with power plant DCS hence eliminates additional cost of training and spare parts.

Emerson’s Ovation Turbine control system provides ease of operation for fast troubleshooting to prevent outages before they occur. It accesses data that indicates when turbine acceleration is passing through vibration criticality, views text prompts of critical time check milestones (such as time remaining during startup), and sees all temperatures in a single graphic.

Ovation collects trends of important turbine information. Descriptive alarms at Ovation workstations allow operators to monitor overall turbine activities and respond to problematic conditions including rotor stress and vibration monitoring information.

Ovation provides safe turbine shutdown or runback regardless of turbine supplier.

Emerson’s CSI6500 Machinery Health Monitor is Ovation integrated Protection, Prediction and Monitoring device. It provides a simple graphical view of process parameters, machinery protection parameters, machinery health information and machine performance information.

The CSI 6500 Machinery Health Monitor is the ideal solution for plants looking to replace their existing protection system while also leveraging the benefits of predictive diagnostics and real-time monitoring. It builds on Emerson’s proven foundation of providing protection and prediction solutions for both steam and gas turbines.

Emerson’s Ovation Turbine control system provides a clear window into turbine control logic and lets user manage and optimize their own process rather than relying on the turbine OEM to ‘unlock the black box’.

ASIAN POWER 11

country report: india

More accessible solar

Monetizing India’s electricity shortage problems in the rural communities

The unmet demand for electricity presents a huge opportunity for solar lanterns, SHS and DRE systems.

I

ndia currently has 77 million households (about 360 million people) who lack adequate access to grid-electricity, and another 20 million underserved households (approximately 95 million people) who receive less than four hours of electricity in a day. While grid connectivity is expected to improve over the next 10 years, at the current rate of grid expansion, urbanization and population growth, 7075 million households will still lack access to grid electricity by 2024. Since 90% of these households live in rural areas, a significant reduction in the 83 million rural households who are currently not served or underserved by the grid is unlikely.

More than half of the total underserved rural population lives in five states: Uttar Pradesh, Bihar, Odisha, West Bengal and Madhya Pradesh.

Rural underserved households are not equally distributed across India.

Large sections of Northern and Eastern India have significant underserved populations. Furthermore, two-thirds of the underserved rural population, or ~55 million households, live in the states of Uttar Pradesh, Bihar, Odisha, West Bengal and Madhya Pradesh. The Climate Group, through its Bijli project, works with local delivery partners in Uttar 12 ASIAN POWER

DRE models use a renewable energy source like solar, wind, hybrid, or biomass to provide electricity to multiple homes as a mini-utility.

Pradesh, West Bengal and Maharashtra.

Market penetration for solar lanterns is expected to grow from around 5-6% today to nearly 35% of the total underserved market by 2018. However, while solar lanterns are affordable and can address the customer needs of today, they cannot meet the evolving needs of rural consumers beyond basic lighting.

Today, a customer with no prior access to electricity is willing to pay for just basic lighting and mobile charging, but tomorrow that same customer is likely to want to move up the energy ladder and use higher wattage appliances like fans and TVs. The unmet demand for electricity presents a huge opportunity for solutions like solar lanterns, solar home systems (SHS), and distributed renewable energy (DRE) systems.

Off-grid systems SHS and DRE systems allow for a wider range of consumption at different price points. Solar home systems consist of solar panels fixed on a building or open land that powers a nearby home or business. Systems range in size from 10 W to more than 200 W and can cost anywhere from US$20 to over US$500.

Depending on the size of the system, consumers can power CFL and LED

lights as well as higher wattage products like fans and TVs. DRE models use a renewable energy source like solar, wind, hybrid, or biomass to provide electricity to multiple homes as a mini-utility. Plant sizes span a large range, from 200 W to more than 100 kW. While DRE models can include large-capacity renewable energy power plants that feed electricity into the grid, off-grid models tend to be smaller.

Most of these DRE models only provide enough electricity for basic lighting and mobile charging, though some have begun offering enough for higher wattage appliances and AC connections.

Consumers typically pay US$2-8 per month depending on their consumption.

Rural services There is a large concentration of enterprises in Uttar Pradesh and Bihar where the largest underserved populations live. Additionally, a number of SHS players are operating in South India, particularly in Karnataka, where greater microfinance institution (MFI) and rural bank penetration makes consumer financing easier in the southern states. Most early stage enterprises are currently focusing on one region, while some relatively older companies we spoke

country REPORT: india to have plans to expand to other regions as well.

The majority of SHS and DRE players are only 5-10 years old. Within this time, these businesses have undergone multiple iterations of their business models to arrive at their current scale. At present, the average SHS enterprise sells about 1,000 units per year, and the average DRE enterprise serves 1,000–2,000 households through total installed capacity.

However, SHS and DRE enterprises understand that the off-grid market is still largely untapped and are optimistic about their future growth. SHS and DRE enterprises have projected annual growth as high as 400% and 250% respectively, and even conservative estimates show annual growth rates ranging from 4070%.

Costing and financing options While margins on individual SHS are thin, early stage enterprises are confident of making substantial profits as they scale and reduce overheads. Early stage SHS assemblers have kept profit margins low to keep their products competitive and affordable. They typically pay 70-80% of total retail price on procuring necessary SHS components from manufacturers, resulting in gross margins of 10-25%.

Though the price of solar PV panels has fallen dramatically in the last decade, they account for half of total component costs. The cost of the battery is about 15% of the total retail cost, and the remaining material costs are for wiring, lights and other product add-ons. Technology advancements in energy storage are likely to bring down battery costs in the future. However, after factoring in transportation, marketing, distribution and installation costs, the remaining profit margin on an SHS product is only 1-4%. SHS enterprises are thus focused on growing sales volume in order to make larger profits.

Given the large ticket size of SHS, most companies offer some sort of financing option for their customers. Even with low margins, SHS products are more expensive than small solar lanterns. An average simple solar lantern is priced at US$13 (INR 800), a multiple functional lantern with added features on average is priced at US$23 (INR 1,400) and a smaller SHS is priced at US$65 (INR 4,000).

While rural consumers are willing to buy such products, their limited and irregular incomes make it difficult to make large purchases. Consumer financing options are therefore an integral part of the SHS product offering, and companies have developed various ways of supporting consumer purchases. Most companies are looking to develop strong

relationships with banks and microfinance institutions in order to ensure access to finance for the consumer, while a few others have launched installment based or pay-as-you-go models for payment.

With financing support, we estimate 7.2 million under-electrified households will be able to afford a solar home system by 2018. Consumer finance in the SHS market allows low-income consumers to buy basic and standard SHS and allows middle-income consumers to buy higher price advanced systems. Better models for consumer finance alongside large demand and rising incomes, will drive the current potential SHS market of 3.3 million households to more than 7.2 million households by 2018.

Widening access Given increasing affordability and consumer demand for SHS, there is likely to be greater competition from new and existing solar players. Rising rural incomes mean that households will demand and be able to afford products beyond basic lighting. We expect the number of households that can afford an SHS to increase by more than 20% per year over the next five years. Solar lantern enterprises have noticed this trend and are now also entering the solar home system space. Established lantern enterprises already have the networks in rural areas to reach customers, and can easily gain a part of the growing SHS market, because the technology is easy to replicate.

While the consumers of today are primarily concerned with lighting and mobile charging, the consumers of tomorrow will want more fans, TVs and other appliances. Enterprises focused on the evolving consumer will be wellpositioned for success. Rural consumers have heterogeneous and evolving needs. A

SHS and DRE enterprises have projected annual growth as high as 400% and 250% respectively.

number of SHS enterprises like ONergy have already begun offering low wattage DC TVs and fans. SHS enterprises will need to develop a wide variety of consumer offerings and build greater trust, for people to buy their products.

And we have already seen some players begin to do this. Enterprises will also need to invest in continuous innovation to stay relevant. In order to develop products designed for their evolving consumers, enterprises will need to incorporate real-time consumer feedback into their product design.

A good product is important but insufficient; enterprises need to develop long-term customer relationships. A SHS is a large purchase for a poor, rural household — even with financing. It is risky for them to spend so much money on a product they are not sure will work and with an enterprise they know very little about. Consumers are more likely to do future business with brands they know and trust. To this end, enterprises have used various forms of after-sales support, including providing warranties on their products, free servicing and financing that reduces the risk to the consumer.

by The Climate Group, Goldman Sachs

Underserved rural households in least electrified states

Source: Electrification data from India Census 2011

Rising rural incomes demand more energy ASIAN POWER 13

Country report: china

Is it the twilight of the coal industry?

How China’s energy shift will affect the country’s decelerating economy

Economic and environmental uncertainties linger as the world’s largest energy user generates more renewables.

I

f CGN Power is expected to commission 4.4 GW of nuclear power capacity this year, then it will play a significant role in fulfilling China’s 12th Five-Year-Plan, which aims to reduce the carbon intensity per unit of GDP in the country by 17% from 2010 to 2015.

Another milestone in the energy sector was the establishment of Shanghai Petroleum and Natural Gas Trading Center funded by the Xinhua Financial Investment Co. Ltd and other companies in January 2015. This Center, according to Anthony Jude, director of Energy Division at Asian Development Bank, is instrumental in improving the energy pricing system, and the pricing reform of natural gas.

However, analysts believe that revolutionizing China’s energy profile is not as simple as rolling out clean energy efforts, as the performance of the power sector is heavily tied not only to energy demand but also to the country’s economic activities. If PRC’s economic growth weakens from 7.4% in 2014 to 7% this year, then a chain of changes is in the wind.

Energy demand will enter a new phase characterized by steady slower growth in total energy demand, says Jude. Because of this, China’s energy 14 ASIAN POWER

Energy consumption may transfer from industry to the residential and transport sectors as services and consumption start driving the economy.

sector is likely to face challenges brought by the new growth pattern.

Jude forecasts the industry executing actions, such as “adjustment and optimization of the energy structure, adoption of innovative energy systems and mechanisms, initiatives of energy efficiency improvement, and accelerated development of clean energy, and enhanced security of energy supply to support PRC’s economic transformation.”

Different slants But not all forecasts of energy demand growth in China are the same. Adnan Z. Amin, International Renewable Energy Agency (IRENA) director-general, reports in the agency’s Remap 2030 analysis titled “Renewable Energy Prospects: China” that China’s total energy demand in 2010 was 57 EJ (1,950 Mtce) of which 59% was consumed by industry, 21% by the building sector and 13% by the transport sector. Remap 2030, which is IRENA’s global renewable energy roadmap, cited a review of 10 energy models showing that the total energy demand of China would rise between 50% and 125% by 2030 compared with 2010 levels.

China touts that its per capita energy consumption is still much lower than advanced economies, says Damien Ma, a

fellow at the Paulson Institute and author of the paper “Rebalancing China’s Energy Strategy”.

“The Chinese government has historically concerned itself with supplying enough energy for the entire country and has hardly focused on managing end-user consumer demand.

Yet at the same time, energy demand is rising rapidly among the Chinese urban middle class as they buy cars and homes.

Residential demand will be a key driver of natural gas consumption as urbanization progresses,” Ma explains.

He points to management consultancy McKinsey & Company’s prediction that China will become the world’s largest car market by 2020. He attributes this growth to China becoming 60% dependent on crude oil imports.

“How and to what extent the auto market grows in China will certainly have profound impacts on consumer energy demand. Two chief aspects will overwhelmingly determine how the transport sector will shape China’s future energy demand: the vehicle penetration rate and the type of fuel that will fill those vehicles,” Ma says.

Energy consumption may transfer from industry to the residential and transport sectors as services and consumption start

Country report: china driving the economy. However, Ma notes that “it is not yet clear whether a more consumption-driven Chinese economy will help facilitate an energy transition or simply alter the character of China’s energy consumption.”

Is coal still king?

Industrial growth in China, according to Ma, shapes the country’s overall energy profile and remains largely coal-based.

His report shows that in 2012, China delivered annual steel production that was eight times that of US production, constituting 46% of the world’s steel production, and is the source of 45% of the world’s aluminum and nearly 60% of its cement.

“What is striking, however, is just how sharply China’s energy mix is skewed toward coal, especially when compared with other major economies,” he says.

Ma stated that the share of coal in China’s power generation in 2012 may have been as high as 75 to 77. “When placed next to fellow BRICS countries, such as Brazil and Russia, China’s outsized reliance on coal stands out.

Already, the Chinese economy consumes nearly as much coal as the rest of the world combined. The majority of power generation in China relies on coal, and the steel industry consumes large amounts of coking coal, a specific type that is of higher caloric content,” he adds.

But those numbers will be greatly affected by the country’s 2014-2020 energy strategy action plan. Ma states that top Chinese leaders have started welcoming an energy strategy to diversify away from coal, boost industrial energy efficiency, and support clean energy and pollution mitigation.

The actions of the Chinese government have notably targeted the coal market.

Jude mentions that these programs include the “Guideline on Deepening Market-oriented Reform of the Thermal Coal Sector” which allow the market to decide thermal coal prices and the tax reforms for coal resources administered by the Ministry of Finance and State Administration of Taxation.

The government is forcibly shutting down small producers, while requiring industrial consolidation to operate super-producers with scale and improved efficiency, according to Ma. He adds that these new movements will have an impact on global commodity prices, from coal and iron ore to copper.

“This means that the relative decline of coal in China’s general energy mix and in the power sector, in particular, will yield a corresponding ramp up of just about every other energy resource — particularly natural gas, hydropower, nuclear power, and renewables,” he says.

In his report for the Economic and Security Review Commission titled “China’s Wind and Solar Sector: Trends in Deployment, Manufacturing, and Energy Policy”, Iacob Koch-Weser, former policy analyst of Economics and Trade, reveals that on top of China’s list are the following: the domestic deployment of solar power; the improvement of grid connectivity for wind farms; and the easing of curtailment of renewable electricity by grid operators.

Comparing China and the US, KochWeser says that the former is following the US’ lead in the use of smart grid technology, improving grid flexibility in ways that facilitate the wind and solar sectors.

“China is also ahead of the United States in building ultra-high voltage (UHV) transmission lines that reduce power loss over long distances. UHV lines help transmit wind and solar power generated in China’s western regions to population centres further east,” he adds.

Building technology Wind power, according to Ephrem Ravi of Barclays Bank – Hong Kong, can surpass its 2014 addition of 20 GW and may become the country’s second largest contributor of power capacity growth despite its low base.

Meanwhile, Amin notes that China’s renewable energy policy touches mandatory market share for renewables by sector and technology, tariff-based support mechanisms, and government financial support for renewable energy.

China runs a large wind turbine and solar PV production capacity.” The massive scale-up of solar PV production in the country has contributed significantly to the rapid decrease of solar PV investment costs. Some two-thirds of all solar water heaters and 90% of biogas

Damien Ma

Anthony Jude

Iacob Koch-Weser

installations are also located in China,” Amin says.

Based on Remap 2030, China, being a global leader in solar thermal, is likely to increase its installed six-fold under Remap 2030: 30% in manufacturing and 70% in residential and commercial buildings.

Emissions trading is also one way to achieve efficiency and carbon emissions cuts across the country’s industry sector, according to Amin. He said that this can also improve air quality and reduce the country’s contribution to climate change.

The government is also studying the possible implementation of a national cap and trade scheme, a carbon tax, or pollution limits.

For Ma, technology is not enough for China to meet its energy goals. He believes that diversifying away from coal can cause changes in the country’s energy profile and eventually ease its part in global emissions. “The commitment and political capital behind economic restructuring need to be maintained, while more creative and sophisticated policies will also be required, including rationalizing and marketizing energy prices,” Ma says.

China energy consumption by type, 1965 - 2025f

Source: Historicals - BP, Forecast - ARC Financial Research

Source:

Mining for efficiency ASIAN POWER 15

CO-PUBLISHED CORPORATE PROFILE

OWL Energy unveils aggressive expansion plans as Philippine renewables boom

After proving its mettle in the solar energy sector, OWL is now eyeing more diversification opportunities in the local market.

M

any investors were skeptical when the Philippines first unveiled the feed-in tariffs for its renewable energy program. Fear was rife that first movers might end up earning nothing for their trouble, and many developers chose to hold back. Two years ago it was hard to get anyone to commit to a renewable energy project, particularly solar.

Now, the Philippines’ renewable energy drive has become a resounding success. Dave Maslin, country manager of OWL Energy’s Philippines operations, sat down with Asian Power and discussed the archipelago’s booming renewable energy sector, the unique challenges that arise from operating in the country, and the company’s role in the Philippines’ renewable energy sector.

“If you were to ask, has it been successful, there is only one answer and that is yes. It has been incredibly successful in terms of wind and solar. The renewable energy sector in the Philippines is undergoing a record rate of growth and transformation,” Maslin says.

Cashing in on the solar boom One of the key drivers of growth in the solar market is the 22 MW power plant by San Carlos Solar Energy (SaCaSol). SaCaSol is the country’s first large-scale commercially financed and commissioned solar power plant, and OWL helped bring it to life by managing its design and construction.

Maslin narrates that when SaCaSol took the first big dip into the solar market, all the other potential developers saw that the country’s drive for renewables is real. SaCaSol achieved the promised FiT and showed that the government is living up to its word.

SaCaSol went on to win a number of distinctions, foremost among which is the Solar Power Project of the Year award at the Asian Power Awards 2014. OWL has since bagged various solar ventures such as solar rooftops and solar analysis, along with a wide range of other projects.

Despite its success in solar, Maslin says the OWL is not going to rest on its laurels.

He intends to expand into all aspects of the Philippine power market and diversify OWL’s project base for long-term growth.

“At the moment 90% of our work is coming from the solar industry. My intention is that next year that will be 60%, and in 2-3 years’ time around 30%. However, the amount of solar work won’t get smaller, it’s just that work in other technologies is going to get bigger. I have the intention of doubling

16 ASIAN POWER

the size of the office in a year. The vision is that we get into all of the other areas in the Philippine market, which is predominantly coal,” he says.

OWL has made headway in its goal to get a slice of the thermal energy pie. The company has been working to build its name among the other conglomerates that run thermal plants, relying on the reputation and caliber of its manpower to earn their customers’ trust.

“The big companies that operate those plants don’t really know OWL. Fortunately, they do know many of our people who they have worked with before joining OWL. What we’ve been doing is winning niche type jobs with big firms to get their confidence. We’re getting our reputation known and we’re getting invited to more thermal projects,” he says.

Penetrating the Philippine market Here’s a curious truth about the Philippines:

“Developers looking to dip into the intricacies of the PH market need to act fast. The boom isn’t going to last forever, and there are a horde of competitors eyeing the same prize.”

San Carlos Solar Energy

technology that works elsewhere may not necessarily make the cut in this stormravaged archipelago.

“The biggest issue for a solar farm here is not putting things on the ground. It’s keeping them there. We’re working with developers coming from Europe and the Americas and their standard designs aren’t suitable here because they’re not built for winds as strong as 250 kph. We really need to provide solutions that are tailor-made for the market,” Maslin shares.

He adds that it could also be tough to find good solar engineers in the country due to the push for more solar projects, but OWL gets around this limitation by drawing on the six years’ worth of expertise brought by their sizeable team in Thailand.

Developers looking to dip into the intricacies of the Philippine renewable energy market need to act fast. The boom isn’t going to last forever, and there are a horde of competitors eyeing the same prize.

“The message we’re giving to developers is this: you better start moving. There are a lot of issues out there and the owners and the developers are waking up to them. They’re seeing that companies with people who have a lot of experience, like OWL, can come and help them. We’re a young company, but we’re not all young people and we have an impressive portfolio to show for it,” Maslin says.

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

ANALYSIS: asian nuclear

Taishan nuclear reactor

How China’s strong project pipeline bolsters the country’s nuke dreams Nuclear power will remain an integral part of Chinese energy policy as the country looks to meet rising demand.

C

hina has the largest new-build programme for nuclear power in the world, with 23 nuclear reactors in operation, 26 under construction and more slated to start construction. In fact, it was announced in January that at least five reactors (with a combined capacity exceeding 5GW) will enter into the construction phase during 2015.

This strong project pipeline strengthens the outlook for China’s nuclear industry, which has previously suffered from regulatory headwinds, stemming from the decision by the government to suspend approvals for nuclear reactors until a re-examination of plans has been concluded after the 2011 Japanese Fukushima disaster. Although China’s nuclear policy has undoubtedly been toned down in the aftermath of Fukushima, China continues to be the global frontrunner in terms of its nuclear ambitions; aiming to have 58GW of nuclear capacity in operation by 2020 and 30GW under construction.

In November 2014, Chinese President Xi Jinping announced that China will cap its emissions output by 2030 and increase its use of energy from zero-emissions sources to 20% by the same year. The government is also keen to export Chinese nuclear technology abroad, highlighted by the recent investments by Chinese nuclear 18 ASIAN POWER

China has the largest new-build programme for nuclear power in the world.

companies in the UK and Argentina.

China-led sector Given this robust government commitment to expanding the domestic nuclear industry and the strong project pipeline, we hold an optimistic outlook on China’s nuclear sector - and anticipate installed capacity to total nearly 79GW by 2024.

This will contribute over 6% to the country’s total power generation mix.

Our bullish view towards the Chinese nuclear industry seemingly matches the bullish sentiment that investors bear towards the sector, evidenced by the strong interest in the initial public offering (IPO) conducted by China General Nuclear Power (CGN) on December 2 2014 in Hong Kong. The state-owned company sold 8.8bn shares at HKD2.78 (USD0.36) each - at the top end of an indicative price range of HKD2.43-2.78 - which will net the company USD3.16bn. The shares were oversubscribed by 286 times - with frozen capital of over USD350bn.

We note that the listing of CGN is another boost for the industry. Listing would increase the capital base of the company, which would allow it to increase capital expenditure and take on more projects. Access to and management of capital remains a challenge given

the long turnaround time and extremely high costs of nuclear projects.

China is the clear outperformer in terms of the projected growth of its nuclear industry over the next decade, both in Asia and globally. The government remains committed to expanding domestic nuclear capacity, as the technology is viewed as a fundamental element in meeting rising power demand while also tackling emissions and pollution issues.

China has the largest new-build programme for nuclear power in the world and it was announced in January 2015 that at least five reactors (with a combined capacity exceeding 5GW) will enter into the construction phase during 2015.

We expect China to account for more than 50% of the region’s total nuclear capacity at the end of our forecast period in 2024. Although nuclear power will play a relatively minor role in the overall Asian electricity mix compared to thermal sources, we still expect nuclear capacity to increase by over 80% between 2015 and 2024.

A rosy outlook?

The outlook for the Asian nuclear sector is strengthened further by the weakening outlook for nuclear elsewhere in the world. With our downbeat view on

ANALYSIS: asian nuclear nuclear in Europe and the US firmly in play, the Asian region is in comparison a far more attractive market for investment.

For example, in the US, nuclear power is finding it increasingly difficult to be cost-competitive, given the low natural gas prices.

Our outlook for mature nuclear markets in Europe - primarily France and the UK - is muted given the policy uncertainty prevalent in both countries.

A number of companies exposed to these mature and struggling nuclear markets are trying to increase their exposure to the Asian markets in order to offset the challenges in their domestic industries; French company Areva is ramping up its presence in China to capitalise on the growth there. However, given the high level of competition in the Asian nuclear sector already, we believe it will be fairly difficult for international firms to gain a foothold in these high growth markets.

We believe that the bulk of new nuclear projects in Asia will continue to be funded by governments. This will be due to three key factors: restrictions on private ownership of nuclear plants, high construction risk and non-participation of multilateral financial institutions.

Given that we expect the fiscal position of many Asian governments to remain weak, funding will have to come from

Political undercurrents and social and environmental implications associated with nuclear power will continue to hinder the participation of multilateral financial institutes.

Nuclear power project pipeline by country (10 years)

Source: World Nuclear Association, Bloomberg, BMI

China - total nuclear capacity and generation (2014-2024)

Source: EIA, BMI

international partners, as well as alternative sources of financing via state-owned utility companies.

Governments and nuclear Most nuclear power plant projects in Asia - with the notable exception being Japan - are led by governments through state-owned utility companies, with little or no private equity ownership. This is largely due to governments’ preferences to maintain ownership of their domestic nuclear sector through policy restrictions on foreign or private ownership.

In China, for example, based on the Catalogue for the Guidance of Foreign Investment Industries, Chinese companies must have a majority share in the construction and management of nuclear power plants. Similarly in India, the 1962 Atomic Energy Act prohibits private control of nuclear power generation, though it allows minority investment. Hence, the scope for private sector investment and ownership of nuclear power plants will remain fairly limited - especially since China and India are the largest markets for nuclear power plant construction in the region.

With governments unlikely to open up the nuclear sector to private players, construction risks hindering private financing, as well as a lack of funding from multilateral agencies, we believe funding for Asian power plant projects will have to come from public sources. The sourcing of this public financing will however be hindered by the weak fiscal position of many Asian governments; meaning future nuclear projects will have to increasingly rely on funding from international partners, or the issuance of debt and equity via state-owned utilities.

Construction risks and political undercurrents At the same time, we believe the high construction risks in the development of nuclear projects will also deter commercial banks from funding nuclear projects through non-recourse loans (project finance). The long construction period for nuclear plants and potential for delays, the large upfront capital required, as well as uncertain political and regulatory environments - while typical of nuclear developments globally are particularly pertinent to construction risk in Asia.

Construction of nuclear plants typically takes five to seven years, not including the time required for planning and licensing. This compares with large coal plants, which can be built in about three to four years, while the construction for natural gas-fired plants can be completed in less than two years.

This means that investors are subjected

to an extended delay between committing capital to a project and the commencement of its operations and the ability to receive tangible returns.

Nuclear projects are extremely vulnerable to delays in entering the operational phase given their highly technical nature as well as strict regulatory environments.

A case in point is Vietnam’s first nuclear plant, construction of which has been delayed from late 2014 until at least 2020 or 2022, as announced by the country’s Trade Ministry in September. The delay has been attributed to the additional time needed to ensure the safety of the plant.

Similarly, China’s Taishan nuclear reactors (Taishan 1 and Taishan 2) have both been subjected to multiple delays and are now expected to be completed in 2015 and 2016 – despite being slated for completion in 2013 and 2014 respectively. These construction risks are exacerbated by other country-specific business environment issues within many of the Asian economies.

Land disputes, public resistance and uncertain political climates are among the many issues not specific to the nuclear sector that will continue to hinder construction activity. The longer this delay is, the greater the costs of interest expense due to loans taken to fund the plant construction.

Political undercurrents and social and environmental implications associated with nuclear power will continue to hinder the participation of multilateral financial institutes. Multilateral agencies such as the World Bank, the International Finance Corporation and the Asian Development Bank (ADB) have policies of not lending to new nuclear projects, and World Bank President Jim Yong Kim publicly stated in November 2013 that nuclear power is an extremely political issue and the World Bank will not provide support for nuclear power. A publication by the World Bank also states that it will not finance nuclear power generation or provide specific technical assistance for its assessment and development as safety of nuclear facilities and non-proliferation are not in the WBG’s areas of expertise.

Meanwhile, the ADB’s energy policy dictates that the bank will not be involved in financing nuclear power generation.

Besides foreign government support, we expect other forms of funding to come from corporate financing by state-owned utility companies, either through the issuance of shares (through initial public offerings) or debt (loans or issuance of bonds). This will in turn allow private investors opportunities to gain indirect exposure to the growing sector in Asia.

by BMI Research ASIAN POWER 19

SECTOR REPORT: vietnam wind energy

Air to the throne?

Vietnam finally eases legislation to tap 400GW wind power potential

Reforms in tariffs, licensing process, and overall power regime will see an influx of investors in Vietnam’s RE sector.

E

ven though Vietnam’s government understands the important role of independent power producers in filling the gaps in the country’s national electricity grid, policies and regulations have been anything but helpful in attracting domestic and foreign investors. While investment incentives have been reformulated again and again, whole ventures have been set back by a needlessly complicated institutional structure, both at the national and local levels. This, not to mention redundancies in the application process, red tape in customs, and unprofitable renewable energy rates, sees project after project backing out, with a critical wind power development initiative about to be the latest casualty in the string of legislative inefficiency.

Viet Nam Electricity (EVN), the country’s leader in power generation, transmission, and distribution, estimates that energy production has grown from 26,562 GWh in 2000 to around 100,000 GWh in 2010, an average yearly increase of 13%. The amount was mainly sourced from hydro power, coal-fired power, oil-fired power, gas-fired and turbine gas, diesel and others, and energy imports. Of these, 39% were used in non-coal based thermal power plants, 36% in hydro 20 ASIAN POWER

power generation, and 10.5% in coalbased power plants.

Sarah Randolph

Peter Cattelaens

Running out of steam Meanwhile, renewable energy’s miniscule contribution to the national power grid comes from small hydro, wind, solar, biogas, and biomass sources. The noncommercial biomass sees a popular use in rural areas where 70% of the population is located, with households therein consuming 60% of the national biomass utilization. Its unprofitable nature has dragged down its development, though, and it will likely take years before technology allows investors to realize its potential.

In contrast, solar power, hydro power, and wind power have seen significant progress towards commercialization, with energy produced as of 2009 equivalent to 17,732 kilotonnes of oil, growing 0.4% annually from 2000 to 2009. However impressive that may be, it pales in contrast to solid, liquid, and gaseous energy sources, which combined saw a 40.8% annual increase.

Of this energy reservoir, Vietnam’s industrial sector consumes the most energy at 39.9%, residential areas at 33.4%, transport at 22%, commerce and services at 3.5%, and agriculture at 1.2%.

Demand has significantly increased over the years, and is only expected to grow further.

Recent shortcomings in the national electricity grid have thankfully shifted the government’s focus towards developing cleaner and more environment-friendly energy plants. In fact, it has boldly targeted a 5% grid contribution from renewable sources by the year 2020, gradually increasing to 11% by 2050.

Wind power is of particular note here.

Currently EVN’s sixth man, it is slated to produce a sustained load of 1,000 MW by 2020, and 6,200 MW by 2030.

Affirming this faith in the winds is Peter Cattelaens, wind energy technical advisor at The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).

According to Cattelaens, “Vietnam has an enormous potential for the development of wind power projects. With 3,500 kilometers of coastline, in particular the central and southern regions provide good wind regimes. According to some estimates, the theoretical potential of areas with wind speeds of more than 5m/s at 80 metres height is beyond 400 GW.” Winds of change A number of projects looking to harvest the wind have been initiated in recent

SECTOR REPORT: vietnam wind energy years. A USD 70 million plant in Binh Thuan province was completed in 2011, connecting five wind turbines and 27 MW capacity of electricity to the power grid. Another in Bac Lieu province, valued at USD 228 million, sees 62 turbines with a combined capacity of 99.2 MW and annual production of 320 million kWh ready for grid connection.

Other noteworthy examples are the hybrid, 6 MW plant on Phuy Quy Island, and 30 MW onshore plant in Tuy Phong.

“In the short term, wind power generation in Vietnam can have a beneficial effect on the increase of the overall power generation capacities; some of them close to centres of dynamic economic development. In the medium term, wind power can even make a positive contribution to the average power generation costs in the sector,” adds Cattelaens.

Legislative turbulence and crosswinds Given the perks of this renewable energy source, why has there been no major, game-changing move in the wind power department? According to a study conducted by Pham Khanh Nam et al. of the International Institute for Sustainable Development (IISD), the dynamic nature of the energy sector has made it difficult for investors to confidently fund power plants. Ann-Mari Lillejord, a foreign investor, acknowledges that investment incentives such as financial, fiscal, and infrastructure concessions do little to sway them. Rather, they give premium to “a predictable power system regime where market competition is appreciated.”

The problem is compounded by an ambiguous legal framework that actually contradicts itself as well as industry regulations. What is saved from duty exemptions are, and in some cases, negated altogether by red tape, under the table dealings, and lengthy government accreditation. Add the need to jump through at least 10 hoops, and legislation might as well not have any investment incentives. The numerous authorities businesses need to consult sees applicants submitting the same information multiple times on different dates, making for a highly inefficient process that results in high transaction costs.

The low price at which EVN purchases renewable electricity also puts IPPs on the losing end of the deal. The amount is currently lower than the production costs, and government subsidies are far too minimal to result in a promising balance sheet. Cattelaens recognizes this, saying “One of the main obstacles seems to be the discrepancy between an electricity sector with low although rising average generation costs on the one hand, and an immaturity of the wind power market

on the other hand. The current tariff of USD 0.078/kWh for wind power that has been set in Vietnam does not seem high enough to trigger the desired investment level yet.”

An aerodynamic plan “There is no better way to demonstrate the potential and the viability of wind power in Vietnam than through erecting turbines,” says Cattelaens. That’s why the USTDA has allotted USD 1 million dollars to expand the Bac Lieu wind farm’s sustained capacity by 300 MW. The funding is expected to address the challenges associated with large-scale industry projects, specifically the technical and logistical barriers in the context of Vietnam’s energy scene.

For the project to be realized, Sarah Randolph, country manager of the U.S. Trade and Development Agency – Southeast Asia (USTDA), recommends there to be sufficient revenue assurance and effective cooperation between all stakeholders. The government should also provide more legal and financial assistance to IPPs to allow them to take full advantage of Vietnam’s plentiful natural resources and ideal climate.

Furthermore, the entire legislative and administrative hierarchy should be knowledgeable about wind power to ensure that installations are of high quality and are properly connected to the grid.

This in turn requires expert personnel at the forefront of building, operating, and servicing projects.

Luckily, the country’s Ministry of Industry and Trade and General Directorate of Energy, in cooperation with GIZ, has taken steps to address the problems that plague the renewable energy sector. The reforms are expected to bring more favorable feed-in tariffs, an easier and more transparent licensing

“The government should also provide more legal and financial assistance to IPPs so they could take full advantage of Viet Nam’s plentiful natural resources and impeccable climate.”

process, and a more competent administrative body which can help regulate, maintain, and eventually integrate IPPs in the national grid connection.

Nam also suggests that the power system regime be made stable for a more attractive market wherein competition is the norm. “The Vietnamese government should support the development of an energy market that treats all investors equally and allows investment incentives to work.”

Ultimately though, the EVN should be given more financial leeway to purchase electricity from IPPs. In doing so, Vietnam can secure a steady energy supply, reduce dependence on energy imports and expensive fossil fuels, and provide energy access to remote rural areas.

“Manufacturers and technology providers involved in projects such as Bac Lieu, are in a good position to formulate their views on the broad-based development of the sector, in particular a widely accessible, attractive political framework, transparency in processes, and the development of capacities at all levels,” concludes Cattelaens.

Targets for wind power and biomass power

Source: Vietnam Power Development Plan

Preparing Bac Lieu Wind Farm © USTDA ASIAN POWER 21

ANALYSIS: renewable costs

Counting the costs

Shaky RE power generation costs force governments to boost policy support

Perceptions that RE generation technologies are expensive or uncompetitive are outdated and fallacious.

T

he cost-competitiveness of renewable power generation technologies has reached historic levels. Biomass for power, hydropower, geothermal and onshore wind can all now provide electricity competitive to fossil fuel-fired power generation. Most impressively, the levelised cost of electricity (LCOE) of solar PV has halved between 2010 and 2014, so that solar photovoltaics (PV) is also increasingly competitive at the utility scale.

Installed costs for onshore wind power, solar PV and concentrating solar power (CSP) have continued to fall, while their performance has improved. Biomass for power, geothermal and hydropower have provided lowcost electricity – where untapped economic resources exist – for many years.

Solar PV module prices in 2014 were around 75% lower than their levels at the end of 2009. Between 2010 and 2014 the total installed costs of utility-scale PV systems have fallen by 29% to 65%, depending on the region. The LCOE of utility-scale solar PV has fallen by half in four years.

The most competitive utility-scale solar PV projects are now regularly delivering electricity for just USD 0.08 per kilowatthour (kWh) without financial support, compared with a range of USD 0.045 to USD 0.14/kWh for fossil fuel power plants. Even lower costs for utility-scale solar PV, down to USD 0.06/kWh, are possible where excellent resources and low-cost finance are available.

Onshore wind is now one of the most competitive sources of electricity available. Technology improvements, occurring simultaneously with the continuing decline in installed costs, mean that the LCOE of onshore wind is now within the same cost range as or even lower than fossil fuels. The best wind projects around the world are consistently delivering electricity for USD 0.05/kWh without financial support. LCOEs of the more mature renewable power generation technologies – biomass for power, 22 ASIAN POWER

Renewable power generation is increasingly competing head-to-head with fossil fuels, without financial support.

geothermal and hydropower – have been broadly stable since 2010. However, where untapped, economic resources remain, these mature technologies can provide some of the cheapest electricity of any source.

Measuring the range Regional, weighted average costs of electricity from biomass for power, geothermal, hydropower and onshore wind are all now in the range of or even span a lower range than estimated fossil fuel-fired electricity generation costs. Due to striking LCOE reductions, solar PV costs also increasingly fall within that range.

Given the installed costs and the performance of today’s renewable technologies, and the costs of conventional technologies, renewable power generation is increasingly competing head-tohead with fossil fuels, without financial support. The weighted average LCOE of utility-scale solar PV in China and North America – the world’s two largest power-consuming markets – and in South America, has also now fallen into the range of fossil fuel-fired electricity costs. For utility-scale solar PV projects installed in 2013 and 2014, the weighted average LCOE by region ranged from a low of around USD 0.11 to USD 0.12/kWh (in South and North America, respectively) to over USD 0.31/kWh (in Central America and the Caribbean).

But for individual projects, the range of costs is much wider. In various countries with good solar resources, projects are now being built with an LCOE of USD 0.08/kWh, while a recent tender in Dubai, in the United Arab Emirates, resulted in a successful bid for a solar PV power purchase agreement (PPA) for just USD 0.06/kWh, without financial support. Where good resources exist and low-cost financing is available, utility-scale solar PV projects that are now being built (eg in Dubai and Chile) will provide electricity at a lower cost than fossil fuels, without any financial support. PV’s growing competitiveness holds just as

ANALYSIS: renewable costs true in regions where indigenous fossil fuels are abundant.

Onshore wind costs continue to decline, albeit more slowly than for solar PV. The weighted average LCOE for wind ranged from a low of USD 0.06/kWh in China and Asia to a high of USD 0.09/kWh in Africa. North America also has very competitive wind projects, with a weighted average LCOE of USD 0.07/ kWh due to excellent resources and a good cost structure. For hydropower, the estimated weighted average LCOE by region varies between USD 0.04/kWh in Asia and South America to a high of USD 0.12/kWh in Oceania.

CSP and offshore wind are still typically more expensive than fossil fuel-fired power generation options, with the exception of offshore wind in tidal flats. But these technologies are in their infancy in terms of deployment, with 5 GW of CSP and 8 GW of offshore wind installed worldwide at the end of 2014. Both represent important renewable power sources that will play an increasing part in the future energy mix as costs come down.

The weighted average LCOE of CSP by region varied from a low of USD 0.20/kWh in Asia to a high of USD 0.25/kWh in Europe. However, as costs fall further, projects are being built with LCOEs of USD 0.17/kWh, and power purchase agreements are being signed at even lower values where low-cost financing is available.

The story of increased competitiveness, however, remains a nuanced one. This is because renewable power generation LCOEs per project span a wide range, due to site-specific cost factors (eg availability of existing infrastructure, grid connection costs, and local labour rates) and the fact that the quality of the renewable resource varies from one site to another. What is clear is that most renewable energy projects being built today, even with less mature technologies, are highly competitive in market terms.

There are no technical barriers to the increased integration of variable renewable resources, such as solar and wind energy. At Total power generation lending by the World Bank, 2014

Source: World Bank

Photovoltaic cost of energy

Source: Tribal Energy Program

Most renewable energy projects being built today, even with less mature technologies, are highly competitive in market terms.

low levels of penetration, the grid integration costs will be negative or modest, but can rise as penetration increases. Even so, when the local and global environmental costs of fossil fuels are taken into account, grid integration costs look considerably less daunting, even with variable renewable sources providing 40% of the power supply. In other words, with a level playing field and all externalities considered, renewables remain fundamentally competitive.

The cost of electricity from different power generation technologies can be measured in a number of ways, and each accounting method has its merits. LCOE is a static measure of costs, which provides useful insights, but to determine the true least-cost pathway for any country’s electricity sector requires detailed system modelling. Variable renewables raise different questions for the electricity system, but the principle is the same: a mix of technologies in a range of locations will be required to meet demand that varies every day.

Cost implications Hydropower, biomass for power, geothermal and CSP, with thermal energy storage to allow dispatchability, pose no special problems for grid operation. There are no insurmountable technical hurdles to the integration of the variable technologies of solar PV and wind power either, and additional system costs that might be considered over and above the LCOE are modest.

Cost implications for transmission and distribution systems are typically minimal.

However, additional spinning reserve to meet voltage fluctuations, to allow for intermittency and provide the capacity to ride out longer periods of low sunshine or wind, can add to overall system costs. Estimates of these costs depend on a range of factors, including: the specific electricity-system configuration, existing generation assets, share of variable renewable penetration, distribution of renewable resources and their covariance, and existing market structures.

However, estimated values are in the range of USD 0.035 to USD 0.05/kWh with variable renewable penetration of around 40%. While these figures must be treated with caution and are not a substitute for detailed system modelling, they give an idea of the order of magnitude to be expected. However, even taking a systems-based approach does not adequately address the environmental and health externalities of the fossil fuels used for power generation. Without such analysis, renewables do not face a level playing field.

If damage to human health from fossil fuels in power generation is considered in economic terms, along with the externalities associated with CO2 emissions (assuming USD 20 to USD 80/ tonne of CO2 ), the cost of fossil fuel-fired power generation rises

by USD 0.01 to USD 0.13/kWh, depending on the country and technology. In an analysis covering 26 countries that represent about three-quarters of global power consumption (IRENA, 2014), the cost of fossil fuel-fired electricity rises to between USD 0.07 and USD 0.19/kWh if these health and environmental factors are taken into account.

The power generation sector is being actively transformed, in a virtuous cycle with support policies stimulating increased deployment, which in turn results in technological improvements as well as continual cost reductions. Despite this, deployment is not increasing fast enough to meet the world’s ambitious goals for a truly sustainable power system. This transformation is being driven by the high learning rates for a range of renewable power generation technologies, particularly solar PV. For instance, with every doubling of cumulative installed capacity, solar PV module prices are expected to fall by 18% to 22%.

The LCOE of a power generation technology reflects multiple factors: resource quality, equipment cost and performance (including capacity factor), the balance of project costs, fuel costs (if any), operation and maintenance costs, the economic lifespan ASIAN POWER 23

ANALYSIS: renewable costs of the project, and the cost of capital.

Renewable power generation equipment costs are falling, even as the technologies themselves continue to become more efficient. The combination of these two factors has led to the continual, often rapid, decline in the cost of electricity from renewable-based technologies. Supported by forward-looking policies, learning investments in renewables have now paid off, and renewables are now highly competitive in a range of markets.

Case-to-case basis Despite renewable technologies accounting for around half or more of new power generation capacity additions globally from 2011 onwards, deployment is not increasing fast enough to achieve the Sustainable Energy for All goal of doubling the share of renewable energy in the global energy mix by 2030.

Total installed costs of renewable power generation technologies vary significantly by country and region, as well as between technologies. The systematic collection of comprehensive installed cost data is necessary if electricity costs and cost-reduction potential are to be analysed with confidence.

Despite the convergence in costs of renewable technologies, they can still vary widely; not only within each country, but also between countries. Collecting national data to analyse current costs and the cost reduction potential of renewable power technologies, therefore, is crucial and needs to be a policy priority.

Such information is necessary not only to identify the reasons for differences in electricity costs, but to make policy recommendations for how to reach efficient cost levels.

The approach taken in this report is to analyse equipment costs, total installed costs, and LCOE, in order to break down changes in competitiveness into distinct factors.

Total installed costs in China and India are typically lower than in the rest of the world and range within a narrower band. Average total installed costs for renewable power generation technologies in the countries of the Organisation for Economic Cooperation and Development (OECD) are higher than in China and India, with the rest of the world lying somewhere in between — except for onshore wind and solar PV, where installed costs in the rest of the world are higher.

In China and India, average installed costs for biomass for power, hydropower and onshore wind average between USD 1,240 and USD 1,390/kW. Remarkably, given that module costs alone averaged USD 2,646/kW in the fourth quarter of 2009, average installed costs for large-scale solar PV have fallen dramatically in China and India, to around USD 1,670/kW in 2013 and 2014. In the OECD, average total installed wind costs are estimated to be around USD 2,000/kW, with average installed costs for utility-scale solar PV of around USD 2,330/kW. Renewable power generation technologies are now the economic solution for isolated off-grid and small-scale electricity systems, such as those on islands, that are reliant on diesel-fired Counting the cost of energy (global statistics)

Source: EIA, Annual Energy Outlook 2011 24 ASIAN POWER

Renewables are likely to remain the most economic off-grid electricity solution, despite the recent drop in oil prices.

generation. The volatility of oil prices and the high costs of smallscale diesel-fired electricity generation are further exacerbated in remote locations, where poor, or even non-existent, infrastructure can mean that transport costs increase the cost of diesel by 10% to 100% compared with prices in major cities.

For islands or other markets facing comparable energy challenges, the recent decline in the LCOE of renewable power generation technologies represents a historic development. For many of the more than 1.3 billion people worldwide who currently lack electricity access, renewable energy can provide their first introduction to modern energy services, largely through decentralised off-grid and mini-grid solutions. Moreover, this crucial transformation can be justified on purely economic grounds.

However, it is not just off-grid electricity systems that remain dependent on diesel at present. Given the trend in technology costs, electricity systems based predominantly on oil-fired generation – such as on most islands and in a number of mainland countries – will witness reduced system generation costs with the integration of renewables.

Shifting the cost reduction focus Renewables are likely to remain the most economic off-grid electricity solution, despite the recent drop in oil prices at the end of 2014 and the beginning of 2015. Oil prices remain volatile. Over 2014, they averaged around USD 98/barrel despite the drop, and they remain much higher than they were 15 years earlier. As with any commodity market, the difference between undersupply and oversupply is often on a knife edge, and price swings can be dramatic.

However, history has shown that periods of low oil prices tend to be transitory, as long as the world’s thirst for these finite resources rises. So for an investment with a lifetime of 25 years or more, today’s oil prices are not an accurate measure on which to base an investment decision in electricity generation. For renewables, further cost reductions can still be expected into the future, which will further lower the weighted average LCOE. With equipment costs reaching low levels, future cost reductions could be driven by reduced balance-of-project costs, lower operation and maintenance and finance costs.

Hydropower, geothermal and most biomass-combustion technologies are mature, with limited cost-reduction potential. The technologies with the largest remaining cost-reduction potential are CSP, solar PV and wind power. With today’s low equipment costs, cost reduction opportunities in absolute terms will increasingly hinge on non-equipment factors, such as balance-of-project, operations and maintenance and finance costs.

The industry is already shifting its cost reduction focus to these areas. Yet much more detailed cost data is required, so that ongoing cost analysis can support policy makers in ensuring that policy and regulatory frameworks are streamlined and optimised. This is particularly important, because future cost reductions will be more difficult to unlock and will depend on a more diverse range of stakeholders, not just equipment manufacturers.

In line with cost reductions for solar PV modules, small-scale residential solar PV costs have also declined rapidly in recent years, so that “plug parity” or “socket parity” is increasingly the norm. Germany and China have developed, on average, the most competitive small-scale residential rooftop systems in the world.

Germany’s residential system costs have fallen from just over USD 7,200/kW in the first quarter of 2008 to USD 2 ,00/kW in the first quarter of 2014, a decline of 70%.

Between 2008 and 2014, the average solar PV LCOE in Australia, China, Germany, Italy and the United States fell by between 42% and 64%. The average LCOE of many systems in Germany is now up to 40% lower than the residential price.

Residential-scale solar PV’s continuing cost reductions pose significant challenges to the traditional utility model.

by International Renewable Energy Agency

Water footprint: more than volume

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ANALYSIS: Asia’s smart grids

Suffering run-down infrastructure

USD 13.6 billion investment to make SEA the world’s next smart power hub

Southeast Asia’s developing nations and their respective power industries are now expected to greatly benefit from the ‘smart wave’, but the lingering question is: “ Is the region ready?”

M

odern electrical grids have existed since the late 1800s and the technology is at the end of its lifecycle. For technology that is more than a century old, its shortcomings have been causing more and more problems worldwide, with emerging economies bearing the brunt of its inefficiency. Necessity is the mother invention-or in this case, evolution-and after washing over phones, watches, cars, and appliances, the smart wave has finally crashed on the power industry. Southeast Asia’s developing nations are expected to greatly benefit from this digitization, but the lingering question is, “Is the region ready?”

Experts think it is. Ben Gardner, president of Northeast Group, estimates that countries in SEA will spend upwards of USD 13.6 billion in smart grid infrastructure within the next decade, an amount that can shift the spotlight from endeavours in North America and Europe to the region.

Though the area has lagged behind other emerging markets in recent years, recent electrification projects have quickly closed the gap, with trends pointing to a continued growth in not only the power sector, but the whole economy. Gardner

26 ASIAN POWER

Martin Hauske

Simon Currie

predicts a 6% gross domestic product (GDP) growth rate each year until 2018, and by 2024, an electricity profile almost similar to that of the smart systems in Latin America and Eastern Europe.

Singapore is currently leading the local race, but Indonesia, Malaysia, Philippines, Thailand, and Vietnam are all likely to establish significant smart grid systems within a decade. The hope is for the deployment of 37.3 million smart meters (USD 8.8 billion investment), modernization of the entire transmission system (USD 2.5 billion), and the automation of distribution networks, sensors, communication modules, software, and other smart grid segments (USD 2.2 billion), all within 10 years.

Old grids can’t handle renewables As ASEAN economies continue to improve – including the development of industries and higher standards of living – what is now a balanced electricity supply-demand ratio will face deficiency problems as loads increase in the future.

However, the impending energy shortage may come sooner rather than later as fossil fuel prices continue to skyrocket.

Experts are hopeful that even though SEA countries are bereft of traditional

energy sources, the recent inclination towards renewable power will continue to adequately support industrial growth.

“In mature Asia-Pacific economies, such as Japan and Australia, distribution grids may carry fewer loads in the future but, overall, loads across Asia will increase. So in developing economies like Indonesia or Thailand, integrating renewables would complement the countries’ growth and could help enhance energy security, energy access, resilience, and sustainability,” says Martin Hauske, managing director of Accenture Smart Grid Services in Asia Pacific.

Despite this, national grids as they stand are not equipped to handle the two realities of sustainable power plants: remote locations and variable power generation. Harvesters are usually located in far-flung areas such as mountains in the case of wind and geothermal plants, or distant fields in the case of solar plants. Undoubtedly, the distance and terrain conditions will merit a physical infrastructure that’s costly to develop and maintain. Additionally, these energy sources often produce fluctuating amounts of power, something traditional grids are not fully equipped to handle.

Europe provides an excellent precedent

ANALYSIS: asia’s smart grids for the integration of RE. The countries combined the different grids together into one efficient smart system, ensuring that the region has a secure energy supply, even with the variable power generation of wind and solar farms. The smart grid automatically balances power fluctuations, redirects power to where it is needed, isolates potential blackouts, and ensures that there’s always a steady supply of electricity to services that need it.

Good practices Australia is another case study for effective RE management. As the country experiences sunny weather for the most part, harvesting solar power is easily the best option for providing electricity to far-flung areas. Utilizing microgrids, companies have lowered the cost of powering remote areas, while at the same time improving access and reliability.

North America felt the negative effect of non-smart grids during the great blackout of 2003. The traditional grids often act like rivers where power can only flow in one direction – from the providers to the consumers – with little to no possibility of control from operators.

Should a part of this system overflow or go dry, there is no way to redirect power to or away from the problem points. The result was the whole grid going down, crippling parts of Canada and the US. According to Hauske, shifting to smarter grid systems will give Southeast Asian utility providers the prime opportunity to achieve more with less. Besides the effective and proper implementation of RE to the existing grid, the transformation will lead to improved power reliability and access, more manageable network investments, and cost-efficient systems.

Advanced analytics will also help providers adapt to the evolving energy demands of the region’s consumers.

Beyond energy security, smart grids can also help utility providers attend to structural weaknesses and problems before they become a major concern. The efficiency will eventually carry over to customers who will proactively fill their homes with energy-saving, advanced electronics.

“If you are in the energy industry you would be foolish in the extreme to ignore the rapid transformational moves on the customer side of the grid,” says Simon Currie, partner and global head of energy at Norton Rose Fulbright Sydney.

Those who are already enjoying smart meters have found it easier to track their electricity usage and subsequently, control their electric bills without needing to wait for statements from the utility provider. This is complemented by the emergence of consumer-grade

smart appliances which likewise sends consumption reports to their owners, all the while communicating with the smart grid to automatically determine best load settings.

“We are moving to more customer engagement at all levels – the best utilities and suppliers are looking at the models used in other industries and are giving customers greater access to handheld and remote solutions. Ones to watch include Samsung’s SmartHomes and Google’s Nest and its partnership with a wide range of innovative suppliers,” Currie adds.

Energy storage is also another big mover in the region’s power scene, surprising experts as it grew faster and became affordable quicker than expected.

In fact, automakers and semi-conductor corporations have been building megafactories for the production of lithiumion batteries. These will complement traditional and non-traditional energy sources by serving as a rechargeable buffer in the event of a supply shortage.

Technologies regarding green mobility, industries, and other nonpower infrastructures will further benefit from the smart grid, sparking the drive for more intelligent and sustainable cities in the region.

Gridlock improbable Hauske predicts that smart grid adaptation in the region will come in stages. Some governments are already tapping providers to come up with roadmaps and business cases, and soon enough, systems will be upgraded and complemented by other technologies in energy storage, virtual power plants, and smart metering.

These nations can take a page out of New York’s playbook, where their “Reforming the Energy Vision” initiatives saw the governor and regulators requiring

Shifting to smarter grid systems will give SEA utility providers the prime opportunity of achieving more with less.

energy players to keep up with the pace of technology and go digital. Besides this, Currie is also looking to countries such as Korea, Singapore, Australia, Japan, and China to lead this smart revolution and serve as a blueprint for other markets.

During the phases, market liberalization is expected to be the norm in the region. Tight competition between utility providers will no doubt attract foreign investors and technology suppliers from developed markets.

“Almost all developing countries (including SEA) have investment capital issues as their per capita consumption is very low compared with the West affecting the feasibility of the business case. Hence, the products costs have to be made much lower cost towards a huge market volume,” notes Ravi Seethapathy, manager of Systems Innovation and Advanced Grid Development at Hydra One Networks, Canada.

“With stronger regulatory models to follow and indicators pointing towards greater savings from smart grid, deployments will be well developed in all major Southeast Asian countries by early in the next decade,” guarantees Gardner.

Smart grid revenue by region, world markets: 2012-2020

Source: Navigant Research

How smart is ‘smart?’

ASIAN POWER 27

ANALYSIS: myanmar’s power woes

A model of the future © KWR International

Myanmar’s rural electrification goals marred by inadequate regulations Myanmar is blessed with natural and human resources, revealing the pressing need to upgrade its power sector.

F

ollowing Myanmar’s 2010 election, the nation began to move from military rule and almost 60 years of stagnation, toward democratic government and a more open economy. Foreign and domestic stakeholders are gradually overcoming their concerns over whether this transition is sincere, initiating efforts to pursue emerging opportunities as well as to address numerous challenges. Blessed with abundant natural and human resources in a country that once possessed Southeast Asia’s most dynamic economy, perhaps no economic issue is as pressing as the need to upgrade Myanmar’s antiquated power sector. Presently, it is believed Myanmar’s power grid connects to only about 30% of its 51 million people. More than half the wiring – in this country about the size of Texas – is estimated to be at least seventy years old.

National electrification is profoundly important. It is a central element and foundation upon which to achieve needed advances in education, healthcare, industrial and regional development. Job creation, tourism, telecommunications, financial services and governance are also 28 ASIAN POWER

More than half the wiring – in this country that is about the size of Texas – is estimated to be at least seventy years old.

affected by power generation. So is the country’s ability to raise incomes and living standards and to create a more inclusive and equitable society.

Myanmar’s government, development partners such as the World Bank, Asian Development Bank (ADB), the Japan International Cooperation Agency (JICA) and others are allocating substantial resources to support the design and development of a coherent and viable national electrification plan and energy development strategy. At the same time foreign leaders, executives, investors and other parties crowd Yangon and Naypyidaw to position themselves for this major infrastructure upgrade, and to partake in the decades of strong growth forecast for Myanmar.

No single solution A variety of geographic, economic, social, political and demographic characteristics influence choices regarding optimal primary, secondary and often hybrid and multidimensional electricity solutions.

For example, a village may be lucky to be in a politically important area, such as Kyaukpyu and benefit from a government-led electrification

initiative, while another may be just outside the reach of the grid extension mandate or located on an island or other difficult terrain that makes grid connection unfeasible. Another village may have the money collectively to connect to the grid but lack the leadership and cohesiveness needed to organize and meet the 24 conditions for grid connection, or vice versa.

These differences must be addressed in conjunction with the availability of physical and financial resources and relevant time factors. While hybrid solutions were not explicitly addressed in the comparative cost calculations included in this study, given the immense additional complexity it would entail, village-level recommendations did in some cases include such recommendations. The most notable example is the suggested use of solar as an auxiliary source to supplement small diesel micro-grids and/or to provide occasional backup and relief from the high cost of diesel.

Optimal and feasible While steps need to be taken to advance rural electrification beyond installation of the least expensive generators, gasifiers and solar panels

ANALYSIS: myanmar’s power woes with no regard for quality, life-span or environmental concerns, one must also acknowledge the realities that exist in rural villages, and seek incremental and feasible improvements. That is one of the lessons of the Chaungthar hybrid facility, where cutting-edge technology was installed without sufficient attention to the ability of local caretakers to provide adequate operational and maintenance care.

In other cases, project lifecycle costs may dictate a choice of solar or gasification but a lack of financing options prevents installation of these technologies over generators, which have lower initial costs but, with the price of fuel and O&M, prove more costly over the long term.

That said, in terms of policies and guidance, it would appear best to promote progressive incremental improvement as well as knowledge dissemination. This is why the cost analysis conducted uses incrementally higher quality solar panels and equipment than what is commonly used in Myanmar, as the lower quality commonly found, requires lower up-front investment, but proves more expensive over the long term.

Financing and regulations From a technical standpoint, achieving universal electrification in Myanmar is fairly straight-forward. With the development of the National Electrification Plan, consensus is emerging over the promotion of national grid extension to most of the nation by 2030. It also suggests auxiliary movement to utilize solar and other renewable technologies to provide interim power to rural and other areas that are either beyond the reach of the grid or which will be electrified in later stages.

Financing these plans, however, will prove challenging.

While the country has a significant number of talented engineers, it lacks financial analysts, economists and bankers who could help structure projects in a way that would be financially viable from the standpoint of foreign investors.

Further, as yet there is no clarity about whether funding for grid extension plans will come from grants, loans, rate increases or other sources.

These financial challenges must be addressed as part of the broader electrification plans for Myanmar.

In the rush to add capacity, substantial attention is being devoted to development of new projects and installations in both urban and rural areas. Planning and

funding these projects will require extensive engineering and financial resources. At the same time there is seemingly little effort being placed into the development of mechanisms to teach villagers how to better maintain and operate facilities that are already in place. This would help to reduce losses and ensure equipment remains operational and efficient over its maximum life span.

Likewise, some analysts believe, simply replacing existing generators with more modern equipment could potentially double power output generated from the current energy supply. Recorded transmission losses, partially due to antiquated power lines, currently stand at about 20%.

Upgrades and efficiency measures do not need to depend on outside sources. To date, there has not been a thorough evaluation of Myanmar’s in-country capacity to support electrification, including the manufacturing of engines, solar cells, boilers, pipework, instrumentation, cable, insulators, switchgear, transformers, and other equipment.

Such manufacturing, in addition to benefitting electricity development and efficiency, can also play a role in creating jobs and boosting Myanmar’s developing economy.

Myanmar lacks adequate regulations and standards, environmental and otherwise, as well as an ability to monitor and enforce adherence.

This has negative consequences, as it impinges on the development of a coherent and integrated system and the ability of the government to introduce incentives to encourage efficiencies and the use of technologies, such as gasification, which are potentially advantageous but create risks as toxic waste and other undesirable outputs are introduced into the environment.

Even where standards do exist, such as those developed by the Myanmar Engineering Society, they are implemented on a voluntary basis. As a result, there is little provision for enforcement and oversight. In addition to ensuring greater health and safety, such regulatory provisions and guidelines and enforcement are necessary to encourage investment in the sector.

Public-private convergence It is critically important for the public and private sectors, both domestic and foreign, to work together to successfully develop policies that reward and facilitate private participation in the electricity sector. This includes

Myanmar lacks adequate regulations and standards, environmental and otherwise, as well as an ability to monitor and enforce adherence.

independent power provision and power purchase agreements.

In addition to clarifying legislation on these issues, adjustments could also be made to tariffs, microfinance laws, and other regulation to encourage a market-oriented approach that is less dependent on government directives. Passage of a Rural Electrification Act is also vital.

There is also a need for public and private actors to engage in dialogue to minimize duplication of efforts and to facilitate the development of public-private partnerships.

Toward this end, stakeholder meetings, such as those organized as part of this initiative, which bring together government officials, private sector leaders and other energy and electrification experts, should be expanded and continued.

Myanmar must carefully consider its options as it determines future policies and plans to meet growing demand for electricity while balancing a mix of reliable and sustainable energy technologies and sources.

Universal electrification through grid extension is the long-term goal for Myanmar, as envisioned by the World Bank and ADB. In the shortterm, off-grid solutions are also needed and must account for the possibility of eventually connecting off-grid sources to the grid system.

Off-grid initiatives should also consider that certain villages, due to geographic or financial constraints, may not be able to economically connect to the national grid for the foreseeable future and thus require alternatives that are reliable, affordable and sustainable over the long-term.

This is also one of the drivers why adoption of a Rural Electrification Act that can offer incentives and a structure to facilitate electrification activity on the village level.

This article is excerpted from a comprehensive report prepared by KWR International & ERIA

Myanmar power demand to 2030

Source: The Energy Collective ASIAN POWER 29

analysis: japan’s renewables retrospectively, and non-solar FITs are expected to remain unchanged.

That said, the inherent limitations on land availability given Japan’s population density and mountainous terrain reduce the potential for further large-scale solar arrays, prompting a focus on rooftops and contaminated land use.

Land limitations are also continuing to drive interest in Japan’s offshore wind sector, especially after a higher FIT was introduced in 2014. An estimated 900 MW of fixed-foundation offshore capacity is now under development at 11 locations. Despite significant potential, Japan’s wind sector is being marred by the lengthy environmental impact assessment (EIA) process and strict technical specifications, including typhoon and lightning protection that goes beyond international standards. According to the Japanese Wind Power Association, only 150 MW of onshore wind was installed in 2014, while 88 projects totalling almost 6.2 GW were caught up in the EIA process as of October last year.

Getting wind of RE benefits

Solar restrictions push Japan to look to offshore wind farms

The current review of renewable energy subsidies is likely to result in a reduction in the FiT for Japan’s solar projects.

T

he suspension of grid approvals for new solar projects by five of the country’s major utilities in late 2014 has triggered a series of measures to reform the country’s FiT regime and grid access control.

Utilities have been overwhelmed by the number of applications, with more than 72 GW of renewables capacity approved since the attractive tariffs were introduced in 2012, yet with many projects still to start generating power.

In response, the Japanese Ministry of Economy, Trade and Industry has expanded curtailment rules to give utilities greater control. For example, they will be able to strip a renewable energy provider of grid access if they miss the start date or fail to pay for access within a month of signing a contract. Further, the maximum period for this no compensation clause will be calculated hourly instead of daily to better reflect supply and demand.

Developers must also install remote control systems so they can adjust output throughout the day. Meanwhile, changes to FIT eligibility rules include a requirement for developers to lock in grid-connection contracts upfront rather than simply apply for 30 ASIAN POWER

A period of rationalization and weeding out unviable projects is inevitably required.

connection, and restricted ability to change the components used during construction of solar installations once the project has been approved.

The solar tariff has been reduced annually since the program was launched, and BNEF estimates the rate could drop by as much as 18% to reflect falling operating and maintenance costs.

Long-term view Under current legislation, the Government is required to review the system at least every three years and overhaul it by March 2021, prompting speculation that the review committee will also be discussing how to end or phase out FIT subsidies. However, while stricter curtailment rules and growing uncertainty around the FIT regime could dampen investor confidence slightly in the short term, a period of rationalization and weeding out of unviable projects is inevitably required to strengthen the sector and stabilize supply. Overly severe tariff reductions may also be unlikely given the knock-on impact on the Japanese solar equipment and manufacturing sector, already struggling to compete with China.

Further, the new rules will not be applied

Setting the agenda With Abe an advocate of nuclear power as long as its safety can be assured, and the Government estimating that regional power companies paid ¥3.6t (US$30.5b) more in fuel costs in FY2013 compared with 2010 due to reliance on expensive LNG imports, it is becoming increasingly likely that there will be a renewed push to restart Japan’s idled nuclear reactors, despite public opinion.

At the same time, the Government’s renewables policy remains somewhat vague, with a national energy plan released in 2014 failing to set specific technology targets and simply indicating that it would try to exceed a previous target of 20% renewable energy (including hydro) by 2020.

Notwithstanding this underlying uncertainty, it seems the financing community is becoming increasingly comfortable with Japan’s renewables expansion. Financial close on the 221 MW Setouchi Kirei facility in late 2014, Japan’s largest solar project to date, saw the commitment of US$870m by a syndicate of around 30 small regional Japanese funders led by three large domestic banks. The deal indicates a growing willingness by Japanese funders to lend on a non-recourse basis to foreign developers, previously a key barrier to accessing the Japanese renewables market.

With Goldman Sachs also reportedly helping Japanese solar companies by arranging low-priced A-rated bonds, the opening up of different funding solutions could support a wider range of renewables projects in the country.

by EY RECAI, March 2015

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OPINION

JOHN GOSS

A new impetus for China’s nuclear power sector

john.goss@aod.com.hk

C

hina’s nuclear power industry has been quiet for the last few years with very little activity being reported. This dormant period started soon after the devastating Fukushima nuclear power plant crisis in Japan during 2011. However, there is now a sense of optimism for the future of nuclear power industry in China; not only for the domestic market but for the global markets as well.

A new energy plan that focuses on having a more efficient, selfsufficient, greener and cleaner energy production and consumption focus for the country as a whole has been announced recently

by China’s influential State Council. The nation’s nuclear power industry features strongly in the plan.

The plan envisages the country as having 58 gigawatts (GW) of nuclear power in operation by 2020 and having at least 30 GW under construction by that date. Industry experts have been quoted as saying that the country needs at least another 10 GW of installed capacity.

The nation’s nuclear power sector currently accounts for just two percent of its total energy consumption, which will provide ample room for the growth of this sector. The China Nuclear Energy Association has just recently announced that the Chinese government will soon provide the go-ahead for the planning and construction of nuclear power plants in many of the country’s extensive coastal regions.

With the urgent need to reduce its heavy carbon emissions, China’s relevant authorities have been planning an ambitious nuclear power program. This plan for the nation’s nuclear power sector for the next five years will be within China’s 13th Five year Plan (2016–2020) according to industry experts. Coastal nuclear power projects that will be adopting the very highest international safety standards have been identified as one of the seven sectors that will be targeting private investments, says the Secretary General of China’s National Development and Reform Commission (NDRC), Li Pumin.

Li says that this is a positive signal for nuclear power companies in both the upstream and downstream sectors for the final ‘goahead’ from the State Council. Experts have told the media that the regulatory body has already drawn up a draft list of new nuclear power projects. The State Council is also working on the resumption of China’s nuclear energy development plan.

It would seem that even though the coastal nuclear power plants will be approved first, a rescheduling plan has also been made for inland projects such as the Taohuajiang plant in Hunan province, Xianning in Hubai province and Pengze in Jiangxi province. The Pengze nuclear power plant had previously been expected to have started construction before 2015.

Nuclear plant approvals and developments Recent media reports say that the fifth and sixth units at the Fuqing nuclear power plant, which is located in China’s Fujian province, have been given the ‘green light’ by China’s NDRC. The Fuqing nuclear power plant utilizes the Hualong One reactor design, which is known as ‘third generation’ nuclear technology.

The Fuqing nuclear power plant will finally comprise of six Chinese designed pressurized water reactors. The plant’s first four units are Chinese develop CPR-1000 reactors. Reports say that the 32 ASIAN POWER

plant’s Unit 2 is expected to start operating during August this year.

The Fuqing nuclear power plant’s first unit reached full capacity last year.

Another major step forward came with China’s State Council giving the ‘green light’ for new reactors at the Hongyan River nuclear power plant, which is located in the north eastern province of Liaoning. Units 5 and 6 of the nuclear power plant received construction approval from the State Council before this year’s Chinese Lunar New Year in February.

The Chairman of the China Nuclear Energy Association, Zhang Huan Zhu says that eight new nuclear reactors are set to go online this year, while six to eight others are expecting approval. China’s installed nuclear capacity will soon be approaching 50 GW. There are already 23 nuclear reactors in operation, with 26 still ongoing construction.

With the world’s largest number of nuclear power plants under construction, China is now embarking upon a program of new nuclear power projects. The aim of this drive towards nuclear power is to reduce the proportion of fossil fuels in the country’s power generation capacity.

The long awaited merger of China Power investment Corp and the State Nuclear Power Technology Corp has recently been given a ‘green light’ from the State Assets and Supervision and Administration Commission. It is generally thought that the looming nuclear focused merger will serve to initiate work on several new nuclear reactors. It will also serve to open the doors to many more global opportunities for China’s nuclear power industry.

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