Asian banks’ energy financing remains low

ENERGY FINANCING

The share of renewable energy in Asian banks’ energy financing remained low at only 14% in the past six years with no significant upward trend. In a report, Fair Finance Asia and Stockholm Environment Institute also found that only 21% of all outstanding energy investments by investors in the region were for renewable energy projects, as of September 2022.

“The conclusions from our new report confirm that no meaningful shift in energy financing and investments across Asia is contributing to neither a just nor any actual transition since the Paris Agreement,” Bernadette Victorio, Program Lead, FFA, said.

“Funding decisions toward continued fossil fuels financing, as well as unambitious plans to achieve net-zero emissions by Asian governments, derail Asia from aligning with the 1.5 degrees Celsius target. FFA calls on the Asian financial sector and leaders to develop and urgently implement policies that facilitate a real shift from fossil fuels to renewables, while ensuring that the rights and well-being of the most vulnerable communities are safeguarded.”

The report assessed 13 Asian markets, particularly Cambodia, India, Indonesia, Japan, Pakistan, Philippines, Thailand, Vietnam, Bangladesh, China, Malaysia, Singapore, and South Korea.

It found that on average, the respondents from the 13 key markets depend on coal, oil, natural gas to meet 77% of their electricity needs and more than half relied on fossil fuels for at least 80% of their power generation.

Some of the challenges faced by those countries to implement their energy transition include their climate commitments that do not result in a “sizeable” reduction of their greenhouse gas emissions.

Other problems also include the struggle of archipelagic countries such as Indonesia and the Philippines and nations in the Mekong region with their underdeveloped national and cross-border power grids. The report added that very few Asian financial institutions have fully committed to halting coal financing.

Energy addition

The report said the region is experiencing “energy addition” instead of “energy transition” because of the slow implementation of climate and energy policies adopted by policymakers and financial regulators. Under this, the new renewables installation are added to the “dirty and fossil-intensive” grids and do not result in the reduction of global greenhouse gas emissions.

“Adding renewable energy alternatives alongside more coal-fired power plants will not limit global temperatures from rising above 1.5 degrees Celsius,” said Niall O’Connor, Centre Director, SEI Asia.

“Without stronger government policies that chart a clear, inclusive, and equitable path from fossil fuels to renewables, Asia will continue to experience an ‘energy addition,’ as opposed to a ‘just energy transition.’ The most vulnerable and underprivileged communities are already paying the greatest price.”

To expedite the energy transition in the region, the report recommended that there should be no financing for new coal projects for electricity generation and existing coal-based power generation should be phasedout. Countries should also develop a “time-bound” transition” away from other fossil fuels and have an active investment in renewables.

They should come up with longterm plans and strategies to mitigate the adverse environmental and social impacts of renewables. There should also be respect for land rights and Free, Prior and Informed Consent (FPIC), and clear policies for community participation, gender sensitivity and consultation with civil society organisations in large energy projects. The rights of workers should be protected, whilst the health, livelihoods, culture and heritage of communities affected by continued fossil fuels use must be safeguarded. Engagement and participation of women in the energy transition and investment in access to electricity for all should be ensured.

Indonesia could install around 550MW wind capacity by 2027

Indonesia is expected to install 450 megawatts (MW) of wind capacity between 2023 and 2027, but if deployment is accelerated and barriers are removed, it could add 550MW capacity, according to a report by the Global Wind Energy Council (GWEC).

The country has 150MW of installed onshore wind capacity and is expected to deploy around 75MW to 100MW a year under the business-as-usual scenario. However, the wind sector is facing barriers to policy frameworks, transmission infrastructure and permitting schemes which if resolved, would enable Indonesia to install 26% more onshore wind energy capacity in the next five years.

GWEC cited the inadequate project screening in Indonesia as projects can secure offtake deals without the need to show permitting, feasibility, or sufficient need sources. Alongside this, there is also a lack of penalties for those who failed to deliver, resulting in projects that are not credible or robust securing offtake agreements. “This presents a challenge to Indonesia’s ability to hit its renewable energy targets and potentially damages trust in the wind industry,” it said.

Indonesia is also facing challenges in grid planning which is “complicated by the nature of the country’s archipelagic geography,” the report read, adding that having a centralised is difficult and

RAPID GROWTH SEEN IN ASIA’S OFFSHORE WIND CAPACITY: REPORT Asia’s

offshore wind capacity is expected to “rapidly” grow by an annual rate of 15.3% to 109 gigawatts (GW) in 2031, Fitch Solutions reported.

This is up from only 27GW by the end of 2021. Fitch noted this will be underpinned by some 128GW of offshore wind projects underway.

In this light, Asia is considered as amongst the key growth drivers of offshore wind in the region. Fitch said it is home to several large coastal cities that provide opportunities for offshore wind developments close to demand centres, and has a supportive policy environment. “We expect Asia and North America and Western Europe (NAWE) to drive growth as established markets in these regions expand on existing capacity and newcomer markets emerge with their first projects,” the report read in part.

Globally, installed capacity is projected to climb to 228GW in 2031. This is driven by the declining project costs and technology improvements which raises the attractiveness of the projects to developers globally. The sector’s growth is also supported by the increasing policy support of governments that plan to ramp up their low-carbon power capacity and decarbonise their power sectors. Per market, Mainland China and the US are expected to see the rapid deployment of offshore wind, with China expected to see the offshore wind sector reach 97GW in 2031 and an annual growth rate of 14.3%. Its capacity will account for about 87% of Asia’s total and 39% of the global growth over the forecast period. Western Europe is also expected to add some 60GW of installed capacity, estimated to account for 40%. impractical for the country.

“The EU has a set a target of 60GW of installed offshore capacity by 2030 and 300GW by 2050,” the report also said.

“This was recently increased by the North Sea Energy Cooperation Group, a collection of seven nations which agreed to non-binding targets of just under 80GW of installed offshore wind capacity by 2030 and 260GW by 2050.” On the other hand, markets lacking regulatory frameworks to attract investment will see slower growth in offshore wind.

“An opportunity from this would be to implement smaller decentralised micro grids with wind energy as a key generator. This allows for the reliance on fossil fuel generators to be negated and increase energy security within these isolated regions,” GWEC said.

Indonesia’s Law 112 of 2022 addresses bottlenecks in renewables development and lays down the framework for renewable energy procurement. This allows state-owned electricity firm PLN to enter offtake deals of up to 30 years with generators of selected projects. The law also prohibits new coal-fired plants and establishes a framework for the early retirement of coal assets, amongst others.

Accelerating wind deployment

The council said Indonesia should have more comprehensive pre-qualification criteria set to participate in procurement rounds as this would help assure a more viable project pipeline for the country. The criteria should cover metrics related to resource analysis, permitting status, stakeholder engagement status, site control and procurement, transportation, and logistics plans.

A government-funded study should also be commissioned to identify suitable locations for wind energy projects which could be ringfenced for wind development only. GWEC said this will not only increase investor confidence but will also give developers ample time to plan and develop their projects.

The government should also increase spending commitments grid modernisation and expansion to promote a reliable operations and prevent bottlenecks. Diversification fo the energy mix and competitive procurement processes should also be promoted to assure a lowcost renewable energy supply to achieve decarbonisation commitments.

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