Asian Power (April - June 2020)

ISSUE 96 | DISPLAY TO 30 JUNE 2020 | www.asian-power.com | A Charlton Media Group publication

SENOKO ENERGY’S

TECH-DRIVEN

INITIATIVES PRESIDENT AND CEO BERNARD ESSELINCKX IS INVESTING IN A WIDE RANGE OF INNOVATIONS

CAN CHINA REACH ITS 58GW NUCLEAR TARGET? WHAT’S HAMPERING MEKONG WATERS’ HYDROPOWER? JAPAN’S SOLAR AUCTIONS UNDERPERFORMING INSIDE CAMBODIA’S 2.4GW CROSS-BORDER HYDRO DEAL

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FROM THE EDITOR The second quarter of Asian Power in 2020 tackles the issues in deploying technologies that could potentially hamper China from meeting its 58GW nuclear target. The demand for safer 3G technology and the requirements for plants to have proven successful operations have resulted in first-of-a-kind reactors meeting schedule overruns and tech hurdles. Find out more on page 14.

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Going downstream, hydropower development on the Mekong river is facing threats ranging from droughts to cross-border tensions. Despite these, Vietnam is keen to bolster this sector through incentivising small-scale projects, and so far there are 138 under construction. Read more on page 12.

We also sat down with Senoko Energy president and CEO Bernard Esselinckx, who shared about the tech initiatives that have contributed to their success as one of the oldest power generation companies in Singapore. The firm is also looking to explore more environment-friendly alternatives such as importing green hydrogen in the future. Read more on what Esselinckx has to say on page 9.

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ASIAN POWER 1

CONTENTS

08

CEO INTERVIEW HOW SENOKO ENERGY BRINGS TECH INNOVATION IN SINGAPORE’S POWER SECTOR

FIRSTS 06 Japan struggles towards competitive auctions 07 China urged to retire 112GW coal fleet

12

SECTOR REPORT DROUGHTS AND REGULATORY MAYHEM TAINT HYDROPOWER DEVELOPMENT ON MEKONG WATERS

14

SECTOR REPORT TECH DEPLOYMENT DELAYS CRANK UP PRESSURE ON ASIA’S NUCLEAR MOMENTUM

CEO INTERVIEW 08 How Senoko Energy brings tech innovation in Singapore’s power sector

SECTOR REPORT 12 Droughts and regulatory mayhem taint hydropower development on Mekong waters

14 Tech deployment delays crank up pressure on Asia’s nuclear momentum

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YOU HAVE TO BE FLEXIBLE NOWADAYS. SO DOES YOUR ENERGY.

Jenbacher J412

Renewable energy is great. But with renewable energy comes the need for complementary power. And for that, you need INNIO. Our flexible gas engines already run on a variety of special fuels, and we’re working on more! Synthetic fuels, also called e-fuels — such as hydrogen, methanol and ammonia — also can complement renewable energy sources.

Stay tuned!

Flexible power solutions. That’s INNIO.

TOMORROW BELONGS TO THE BOLD.

News from asian-power.com Daily news from Asia MOST READ

POWER UTILITY

Asia’s renewable capacity expands 9.3% to 1.12TW in 2019 Asia’s renewable capacity expanded 9.3% or 95.5GW to reach 1.12TW in 2019, according to data from the International Renewable Energy Agency (IRENA). The region accounted for 54% of new capacity worldwide in 2019.

POWER UTILITY

South Australia to see growth in wind and solar generation in 2020-2021 Wind and solar generation are expected to rise in South Australia in 2020 to 2021, according to data from the Australian Energy Market Operator.

Assuming that there will be strong action on climate change, the state could see new wind farm projects bringing an additional 570MW capacity in 2023 to 2024.

4 ASIAN POWER

POWER UTILITY

India’s thermal plant efficiency to drop amidst commercial demand slump The power load factor (PLF) in India’s thermal power plants is projected to sink to below 53% in FY 2021, according to data from CARE Ratings.

PLF for thermal power plants further declined to 52.55% for March 2020 mainly on account of the lockdown.

POWER UTILITY

Strained discoms, weak competition drag India’s power sector The unpredictability of distribution companies’ (discoms) financial health coupled with a lack of competition is seen to undermine India’s power distribution and generation sectors, according to an IEEFA briefing note.

This could hinder new renewable energy investments.

POWER UTILITY

India’s electricity demand slump could last through May India’s electricity demand is projected to crash 30% through May before progressively improving, as the government extended the nationwide lockdown by 19 days until 3 May, according to a commentary from Wood Mackenzie.

REGULATION

Risks heighten for Malaysia’s new coal and gas plants Malaysia’s new coal and gas plants may be more exposed to market and pricing risks moving forward, as the government intends to discontinue the existing power purchase agreement (PPA) framework for future plant-ups of thermal power plants, according to a report by RAM Ratings.

ASIAN POWER 5

FIRST X INSIDE EDC’S 2.4GW DEALS SOUTHEAST ASIA CAMBODIA

Dr Bikal Kumar Pokharel, Wood Mackenzie Electricité du Cambodge’s hydropower asset

The dry months between October and April regularly paralyse Cambodia’s power generation capacity from its major electricity resource—hydropower. The Kingdom has been urgently securing electricity from other sources, such as solar photovoltaic (PV) and thermal resources, to address this shortage and cope with rising electrification, which grew to 89.07% in 2019 from 4.8% in 2003.

On 25 September 2019, Cambodia’s main electricity supplier Electricité du Cambodge (EDC) inked two cross-border deals with two Lao developers to secure 2,400MW of power for the next 30 years. The deals will allow the units of Lao IPPs, Xekong Thermal Power Plant Company Limited and TSBP Sekong Power and Mineral Company Limited, to come online between 2024 to 2027.

The deals were considered landmark transactions for Cambodia due to the size of the projects as well as their role in the Kingdom’s electricity needs. However, complexities were inevitable, according to Kohe Hasan and Bree Miechel, who are both partners at EDC’s legal counsel Reed Smith.

“As transnational projects involving the development of greenfield projects in Laos for the export of electricity across the border to Cambodia for 30 years, these are far more complex deals than domestic power sales. The deals required the support and cooperation of the governments of both countries which was delivered in terms of the concession agreements required in Laos as well as various intergovernmental arrangements,” Hasan and Miechel told Asian Power.

The deals had to take into consideration that both projects by the IPPs were mine mouth projects. “The deals also carried a higher level of technical risk in some respects to other thermal projects. This required additional work and concessions on all sides to set these projects up for successful financing and development in the future,” they added.

Another significant hurdle for the deals was the slow time to close power purchase agreements (PPA) for thermal plants in neighbouring countries which, Hasan and Miechel said, can take up to eight years.

“The timeframe within which the agreements were concluded is almost unparalleled for conventional projects of this scale and in this region. All parties were committed to meeting the agreement execution deadline so as to prevent any delay in the financing and development of these projects to meet Cambodia’s five year energy plan,” they added.

6 ASIAN POWER

Japan’s Ministry of Economy, Trade and Industry.

Japan struggles towards competitive auctions

J

JAPAN

apan’s recent group of competitive auctions has underperformed, potentially slowing down its solar expansion and transition away from feed-in tariffs (FiT), according to a note

by Fitch Solutions.

Japan’s Ministry of Economy, Trade and Industry (METI) announced the results from the country’s fifth solar auction, and only 39.8MW was allocated after receiving bids worth a combined 185.6MW. This is despite a 416MW auction size (including the additional capacity that was not awarded under the fourth auction carried over into this round).

Fitch Solutions noted that the prices registered in Japan’s first five solar capacity auctions meant that Japanese solar capacity remains very uncompetitive on the international stage, a point cemented by the failure of the second auction and the high prices registered in the third auction.

“Whilst the fourth and fifth auction registered some improvements in cost, we stress that Japan has yet to see the same type of cost reductions elsewhere in the region, and costs remain much higher than regional peers. As such, Japan has struggled to manage the transition to an auctions system, with less capacity than expected having been awarded and cost deflation having been limited,” the firm wrote.

Fitch Solutions attributed the

Japan has yet to see the same type of cost reductions elsewhere in the region, and costs remain much higher than regional peers.

underperformance of the auctions to some key challenges facing large-scale solar projects. The awarded projects in this round’s solar auctions only ranged from 0.792MW-2MW, with an evident lack of any large-scale solar projects, which could have contributed to the significant drop in this round’s capacity allocation.

“This is in line with our expectation that smaller facilities, notably distributed in nature, will dominate Japan’s renewables expansion over the coming decade,” it added.

Larger projects have to overcome limitations to grid capacity availability and difficulties in acquiring land in suitable locations. An elevated bid price can also be attributed to significant security deposit requirements and generally high labour costs.

The METI signalled intentions to abolish the country’s FiT programme, and to revise a related law in FY2020 to adopt a competitive bidding system for large-scale electricity generation.

“The ministry is likely to undergo in-depth discussions of an overhaul of their FiT system over the coming months. As such, whilst a backlog of FiT projects will sustain robust solar capacity growth rates over the next two years until it has run its course, we expect growth to slow from 2021 onward. We forecast solar capacity to grow at an annual average of 4.8% between 2021 and 2029, to reach over 100GW by 2029, a significant reduction from historic double digit growth rates over the past decade,” Fitch Solutions commented.

Whilst the progress of utility-scale projects are stuck in the doldrums, continued solar growth in Japan will remain supported by distributed solar capacity development as households and industry look to boost selfgeneration in order to reduce their reliance on retail electricity. In line with increasing retail electricity prices, consumers could also look to deploy their own solar capacity.

Retail electricity prices rose post-Fukushima

Source: Fitch Solutions

FIRST Any new construction of conventional coal plants is not in line with China’s long-term deep decarbonisation pathways.

China’s coal plants are mainly concentrated in Hebei, Heilongjiang, Shanghai, and Shandong.

China urged to retire 112GW coal fleet

C

CHINA

hina could face an urgency to retire 18% of its existing coalfired power plants with 112GW of capacity in order to achieve a 2°C compatible coal power phaseout by 20502055, which would only bring a minimal economic impact, according to a report by the Center for Global Sustainability in the University of Maryland.

“These plants often have operated for more than 10 years, have a smaller size less than 600MW, and use the less efficient subcritical combustion technologies. Self-use plants have a larger share identified as low-hanging fruit than power only and CHP plants,” the report explains.

Across provinces, more than 60% of these plants, a total of 68GW, are located

in Shandong, Inner Mongolia, Henan, Hebei, Jiangsu and Shanxi. Amongst these locations, Hebei, Heilongjiang, Shanghai, and Shandong have a larger percentage, with more than 20% of their capacity identified as low-hanging fruit.

The retirement of coal plants is just one of the steps China needs to take.

The report said any new construction of conventional coal plants is not in line with China’s long-term deep decarbonisation pathways.

A total of 121GW of coal plants are currently under construction and 74GW planned, in addition to the 160GW suspended. “Building these new coal plants would largely increase the risk of stranded assets and shorten the lifetimes of all coal units,” the report said.

Two roadmaps Fitch Solutions established two goals for China that are in line with the retirement of its coal fleet.

The roadmap for retirement compatible with a well-below-2°C goal is based on an immediate halt to new construction of conventional coal plants, near-term retirement of low-hanging fruit, and then a gradual retirement of remaining plants based on three things: an immediate rank score but with a minimum operational lifetime of 30 years.

“Applying this guaranteed lifetime will lower the average operating hours from today’s 4,350 hours to 3,750, 2,500, and below 1,000 hours in 2030, 2040 and 2050, respectively, if not retrofitting for [carbon capture and storage (CCS)],” the Fitch Solutions report said.

Meanwhile, the roadmap for retirement compatible with a 1.5°C goal reduces the guaranteed lifetime to 20 years.

“Operating hours on average will decline to 2,640, 1,680 and zero hours in 2030, 2040, and 2045, respectively. Plants that want to operate at longer hours or continue operating beyond the phaseout schedule will need to be equipped with CCS, which, however, may not be viable for about 86GW of early retired coal plants in Guangdong, Fujian, Guangxi, and Hainan provinces due to lack of onshore storage capacity,” the report added.

Compared to alternative policy design, the retirement roadmaps with the guaranteed lifetimes of coal plants lower total stranded assets to about $34b under 1.5°C and $9.3b under well-below-2°C. However, the trade-off for the avoided stranded assets is that the coal plants will earn less profits during the operation period, by $64b under 1.5°C and $51b under well-below-2°C.

THE CHARTIST: CHINA’S JAPAN’S SOLAR GENERATION INDUSTRY IS DIMMER SURGED WITH 12% WHILST JUST 20GW OTHER PROJECTED FUEL SOURCES TO COME SUFFERED ONLINE Despite Japan’s solar the overall powerdemand sector will shock expand for at power robustinrates China, through solar power to 2020 generation as a large x Total generation in China by fuel type rose backlog 12%ofYoY projects in January supported and February, by feedbased in tariffs on data comefrom online. theAfter National 2020, Energy BMI Administration.

Research said that Generation the transition for allto other a categories reverse auctions of fuelsystem sourceswill contracted slow growth, as over the Japanese the samegovernment period. looks to regulate capacity According additions to Fitch inSolutions, order to reduce this subsidy may costs have andbeen support largely griddue stability. to solar’s grid“We access expect priority, Japanas to the register government robust solar pushed capacity togrowth reducethrough curtailment to 2020 rates as a result for of the renewables. implementation The lockdowns, of a substantial which resulted pipeline in ofthe projects country’s thatemissions benefit from to a plummet, generousmight feed-in have tariff also support improved scheme. solar’s capacity Our forecast due to is reduced that out of smog a 50GW that backlog blocks out of such the sunlight. projects, only 20GW will actually come China’s online, power as most consumption will not be growth able to for take 2020 advantage is projected of theto FiT ease subsidies to 3% amid due Source: Fitch Solutions to stringent prolonged government disruptionrequirements to the globaland Source: BMI Research economy delays in amidst development, the pandemic. ” BMI Research added.

x Power consumption growth in China

Source: Fitch Solutions Source: BMI Research

ASIAN POWER 7

We are the first energy provider to adopt the Singapore Quick Response Code and we hope it will make the e-payment process for our customers simple and faster.

Bernard Esselinckx CEO and President Seneko 8 ASIAN POWER

CEO INTERVIEW

How Senoko Energy brings tech innovation in Singapore’s power sector The company recently launched the Singapore quick response code for electronic bills payment, amongst other initiatives.

B

eing one of the oldest does not mean lagging behind the times for Senoko Energy’s CEO Bernard Esselinckx, who cited the company’s pursuit for innovation as a driver of their success. They launched an SGQR code in November 2019 that can be used for paying bills, the first amongst energy providers in Singapore.

Another industry-first they are working on is a pilot test for peer-to-peer trading of renewable energy.

In an interview with Asian Power, Senoko Energy’s president and CEO shares how they have incorporated technology to their energy solutions, as well as their initiatives in promoting sustainability through their first solar project last June.

What strategies have you employed to drive Senoko Energy to success over the years?

As one of Singapore’s oldest and largest power generation companies, we have played an instrumental role in powering the nation through its developing years. Our business strategy through the years can be summed up in three words—sustainability, innovation and talent.

Sustainability is at the core of our business and we aim to be an energy provider with a positive impact on the environment. We were the first genco in Singapore to use 100% natural gas for power generation back in 1992 and the first to repower our plants in 1996. We believe our success can partly be attributed to our industryfirst initiatives to drive Singapore’s energy industry to a sustainable future.

We are also constantly exploring ways to deliver innovative energy solutions to businesses and households and address the challenges of the transforming energy landscape. For example, the Senoko Energy Management System helps businesses enhance energy efficiency and reduce overall electricity costs using wireless sensors and cloud. Last year, we launched the Senoko Energy mobile app to help our customers monitor their energy consumption in near real-time, so that they can better manage it. Our willingness and ability to evolve with the times and constantly offer innovative energy solutions to our customers has been instrumental in our success.

We recognise that our people are our biggest asset, and we have invested heavily over the years to find and develop the right talent. We have been an ITE Certified On-the-Job Training Centre (COJTC) since 1997 and were selected for the COJTC Distinguished Partner Award in 2019. We have also launched an eLearning platform, WizLearn, to complement classroom training. We also strive to encourage our employees to take responsibility for their learning through initiatives such as the Nithiah Nandan Award, which recognises employees who have made exceptional efforts to pursue skills mastery.

What are you working on for the rest of 2020? By the numbers, how much is Senoko Energy’s investment in these projects?

Our focus for 2019 and 2020 is to develop and deliver more choice and convenience for customers, helping them reduce their cost of energy through new smart energy solutions. We are investing in new offerings for

businesses and households, as well as in testing new energy innovations, and we are looking forward to rolling out our pipeline of initiatives and projects over the course of the coming year.

Starting in November 2019, we have launched the SGQR code that our customers are able to use to pay their bills.

We are the first energy provider in Singapore to adopt the SGQR and we hope it will make the e-payment process for our customers simple and faster. We also hope that by eliminating the time-consuming and confusing process of choosing from multiple QR codes, more of our customers will be incentivised to adopt e-payments.

Another exciting project that we are working on currently is a pilot test in the area of peer-to-peer trading for renewable energy—an industry-first in Singapore. The goal is to develop a next-generation energy-management mechanism for the smart grid that empowers consumers to trade renewable energy they produce and drives greater adoption of renewables.

Besides these new initiatives, we will also continue to look at ways to improve efficiency and reduce cost in our assets, as well as help develop technical and leadership skills in our people.

We are investing significantly in these projects in terms of finances, resources, manpower and time, in order to deliver on our commitment to provide smart energy solutions to Singapore businesses and households, as well as to help strengthen Singapore’s position as a global energy leader.

How is Senoko Energy doing its part in Singapore’s energy transition?

As one of Singapore’s oldest and largest power generation companies, providing almost one-fifth of the nation’s electricity, we are committed to doing our part in helping Singapore transition to a low-carbon future. We have always been advocates of doing business in a sustainable manner. We led the way by being the first genco in Singapore to use 100% natural gas for power generation back in 1992 and the first to repower our plants in 1996.

Our sustainability efforts have led to a 42% reduction in carbon emissions since 2000.

We see our role in supporting Singapore’s energy transition as being two-fold: help drive the clean energy shift and continue to ensure Singapore’s energy security during the transition period.

In recent years, we have expanded our portfolio to include renewables with the launch of our first solar project as well as sourcing and providing renewable energy certificates. Now we are looking beyond generation to incentivise the adoption of renewables on a consumer level. Our pilot test in peer-to-peer trading of renewables aims to test the commercialisation of this offering in Singapore. Having an open and transparent trading platform for renewable energy will also enable price discovery for locally produced renewable energy. On the supply side, we hope the resulting pricing transparency will encourage more investment in renewable infrastructure in Singapore.

At the same time, we recognise that with challenges ASIAN POWER 9

CEO INTERVIEW such as intermittency and land scarcity in Singapore, the integration of renewables in the energy mix will require time. We are committed to ensuring energy security and affordable power for Singaporeans during the transition phase at the lowest possible carbon footprint. We are constantly investing in advanced technology to further improve energy efficiency in our power plants. We also use one of the most efficient and optimal F-class power generation technologies in the market.

What innovations are you launching to retain and grow your share in Singapore’s saturated power market?

We believe that the key to staying competitive in this transforming landscape is to stay at the forefront of change by constantly innovating and diversifying our offerings to provide more choice and convenience for our customers. For instance, we have launched tenant management services for landlords of commercial buildings, condominiums and Management Corporation Strata Title, to help them optimise their electricity consumption and reduce cost. For households and SMEs, we are rolling out the SGQR code to provide our customers a smarter, easier and hassle-free method of paying their bills.

Besides servicing customers, we have adopted a forward-looking approach and are exploring new energy solutions in Singapore, such as peer-to-peer trading of renewable energy. We believe that such industry-first initiatives will be instrumental in helping us stay ahead of the curve and expand our business in the future with new revenue streams.

We also believe that in order to grow our market share, we also need to continually improve on our internal capabilities and processes. As such, we are continuing to invest in energy efficiency upgrades in our power plant as well as improvements in our O&M practices. For instance, we have launched Project Sunshine to overhaul SAP asset management in our operations for greater efficiency. We are also looking to introduce more training to upskill our workers and keep them up-to-date with latest technological advancements.

How should the public and private sector collaborate in determining Singapore’s energy mix?

The biggest challenge the energy industry faces today is the energy trilemma—finding the right balance between affordability, energy security and environmental sustainability. There is a need for a stable regulatory framework that balances these considerations. The public and private sector need to work together to find a way to make the sector sustainable and attractive for investors.

In terms of integration of renewables in the energy mix, collaboration between the sectors is crucial to address the challenges in the adoption of solar energy. One of the key concerns is the issue of intermittency in solar power generation, which could cause more frequent supplydemand imbalances and in turn greater price volatility in energy prices. As we look to increase the share of solar energy in Singapore’s energy mix, we need to balance it with adequate natural gas-fuelled combined cycle plants which meet most of the current energy demand.

At Senoko Energy, we are engaging with the EMA in its policy and market design for Forward Capacity Market and potential changes to National Electricity Market of Singapore to evaluate how power generation companies can sustainably continue to support Singapore’s energy security in the short to medium term as we make the transition to renewables.

10 ASIAN POWER

What are your ambitions for Singapore, and what are the key factors to achieve these?

During the recent Singapore International Energy Week, Trade and Industry Minister Chan Chun Sing highlighted four key areas of focus that will shape the future of Singapore’s energy industry—increased deployment of solar energy, investment in natural gas, development of a regional power grid, and exploring low-carbon technologies. At Senoko Energy, we are committed to helping Singapore attain this vision.

In line with Singapore’s solar ambitions, we have expanded our portfolio to launch our first solar project as well as REC trading capabilities. Our P2P pilot project is the next step in our efforts to drive the adoption of solar energy in Singapore.

At the same time, we are cognizant of the role natural gas will play in Singapore’s energy security to complement the intermittent nature of solar energy. As such, we have diversified our sources of natural gas supply, being the only genco in Singapore with three sources. We are also continuing to invest in efficiency upgrades in our power plants. On an industry level, we are engaging with the regulators to develop the necessary compensation mechanisms for power generation companies to be able to sustain the capacity needed for Singapore’s energy security.

We are looking to work with regulators and industry partners to see how we can leverage a regional grid to offer more renewable options in Singapore. However, whilst regional interconnection increases the overall system security by increasing the diversity of available resources, countries also need to balance this against independence in energy supply.

At Senoko Energy, we are looking to explore more carbon-free alternatives such as importing green hydrogen for power generation in the future. Being backed by a consortium of shareholders including Marubeni Corporation, ENGIE S.A., The Kansai Electric Power Co. Inc., Kyushu Electric Power Co. Inc. and Japan Bank for International Cooperation, we are well-positioned to leverage their presence in regional markets as well as their know-how in technologies, such as green hydrogen, to support the progress of Singapore’s energy industry.

Senoko Energy offered the first SGQR payment amongst Singapore’s energy providers.

CO-PUBLISHED CORPORATE PROFILE

PT GH EMM INDONESIA strengthens its foothold to drive sustainable growth The company is on a mission to provide green energy to Indonesia with a focus on innovation.

Fu Yue Long, President Director of PT GH EMM Indonesia

E

stablished on 11 March 2008, PT GH EMM Indonesia, a 70:30 consortium between China Shenhua Energy and PT Energi Musi Makmur, is committed to providing enough power for the national electricity company (PLN), the government and the Indonesian people.

As one of the independent power producers in Indonesia, the company owns Simpang Belimbing power plant, Indonesia’s first minemouth power plant located in the remote Muara Enim Regency of South Sumatra Province. With a net capacity of 2X150MW, the coal-fired steam power plant supplies 7% of the overall energy used by almost 8.5 million people in Central and South Sumatra.

Marrying the most advanced technology from China with the abundance of coal in South Sumatra, PH GHEMMI pioneered better usage of low-quality lignite coal as the main fuel for Simpang Belimbing. Fu Yue Long, President Director of PT GH EMMI, said that they are the only one in Indonesia that could successfully utilise this type of low-quality coal without having any negative effect on plant performance.

In terms of availability and reliability, the power plant has been at full capacity 94% of the time (equivalent availability factor or EAF), with an equivalent forced outage rate (EFOR) of less than 1%, since going online.

By focusing on the reliability and innovation of its power plants, PT GHEMMI has received numerous awards, including a trifecta at last year’s Asian Power Awards where they won

the Innovative Power Technology of the Year, Independent Power Producer of the Year and the Environmental Upgrade of the Year.

A project of this magnitude did not come without any challenges, Richard Sinambela, Deputy Manager of Operation Department mentioned, adding that they were plagued with obstacles in the beginning, such as coal plugging, dust pollution, and coal-self combustion. However, through innovation, upgrading, retrofit, and modification efforts, the power company overcame all the trouble and brought to life a reliable power plant, 8 months ahead of the agreed-upon timeline.

As new power plants emerge following the 35GW power generation target initiated by the Indonesian Government, PT GHEMMI persists in strengthening its foundation to engage in the electricity industry by securing a sustainable growth.

“The power plant business has now become more competitive. To secure the sustainable growth of our company, we always try to bring high standards for electricity and high performance in our power plants,” Fu Yue Long noted.

As such, PT GH EMM Indonesia has not stopped in maintaining excellent and reliable performance and implementing green business

practices in its operations.

“Our existence in Indonesia’s electricity sector is very essential. We aim to improve and strengthen our power plant management as well as become a trusted company in power generation with world-class standards,” he added.

To support the government in realising the 35GW target, Fu Yue Long shared that PT GHEMMI is preparing its manpower by enhancing and developing employee competence in the face of a more challenging industry in the coming years. “Quality and optimum human resources, as the result of effective management, hugely decides the line of a company’s business growth,” he said.

Aside from focusing on creating a competitive and healthy climate amongst employees by providing sufficient facilities like living quarters, sports and entertainment facilities, PT GHEMMI understands its role to achieve sustainable development goals in terms of the environment. With an “Environmental Awareness” commitment in carrying out every operational activity and maintenance of the power plant unit, the company conducts environmental management and monitoring regularly through measurement of air emissions, ambient, noise, waste water and raw water quality in each generation unit.

Realising that business growth can be achieved in line with the implementation of environmental responsibilities, PT GHEMMI monitors and aims to minimise the operational impacts from upstream to downstream and provides sustainable contributions to the community where they operate, including bridge and road repairs, enhancement of educational facilities, disaster support and aid, health and medical checkups, and other assistance to community-led activities.

For these social and sustainable initiatives, Fu Yue Long expressed great pride after PT GHEMMI bagged the Environmental Upgrade of Year at the Asian Power Awards 2019: “Environmental sustainability is a global issue demanding care and responsibility from all parties including corporations such as PT GHEMM Indonesia. Our company puts great concern on efficient and environmentally friendly technology and environment upgrade.

Our company tries to always take a role and be involved in environmental efforts. We commit to bring green energy for Indonesia.”

“Quality and optimum human resources, as the result of effective management, hugely decides the line of a company’s business growth.”

ASIAN POWER 11

SECTOR REPORT 1: HYDROPOWER

EVN has invested $397.92m in expanding the Hoa Binh Hydropower Plant.

Droughts and regulatory mayhem taint hydropower development on Mekong waters Projects are still getting greenlighted as Mekong River nations struggle to meet climbing power demand, but concerns on their environmental, social, and economic effects are also mounting.

W

hilst the Mekong River has always been a key power resource for the countries that it runs through, governments and utilities are becoming more cautious in developing projects on the river. At the heels of continuous development, there are threats of drought, depletion of river biodiversity, as well as local and crossborder tensions between governments and their constituents.

One of the countries along the Mekong, Vietnam, is being held back from its goal to raise hydropower capacity by depleting water levels, as data showed that its large reservoirs have only accumulated 61% of total volume capacity. Low water levels resulting from climate change may also create a deficiency of 6.4 billion kWh, according to EVN. Amidst drought issues, hydropower remains vital to Vietnam’s energy security, so the country continued to bolster this sector with some of the largest power projects in 2019. EVN invested $397.92m (VND9.22t) into the expansion of Hoa Binh Hydropower Plant in order to increase capacity. It has also invested 12 ASIAN POWER

Power plants that have been issued with power generation license and have a capacity larger than 30MW must register and directly participate in the VWEM.

$276.21m (VND6.4t) into the expansion of Ialy Hydropower Plant, which is scheduled to break ground a year after the expansion of the Hoa Binh plant.

Vietnam’s mini-hydro push After 2019, Vietnam will cease to have large-scale projects in its pipeline as it has already deployed those with over 100MW capacity. As a result, the attention of Vietnam’s developers is now focused on small-scale projects, said Dang Chi Lieu, partner at Baker McKenzie Vietnam.

By far, up to 138 small-scaled projects are being constructed and 299 projects in investment study phases, according to data from the Ministry of Industry and Trade (MOIT).

The government is promoting small-scale hydro by placing new law amendments geared towards incentivising their development. It eyes limiting the project size that can be covered by the EVN’s obligation to purchase generated electricity through an expandable 20-year PPA, ratified through its Avoided Cost Tariffs (ACT). With the new mechanism, ACT is only applied to

renewable energy projects with capacities no larger than 30MW. Limits on the ACT mechanism were imposed to improve consistency in the regulations for the Vietnam Wholesale Electricity Market (VWEM), Dang explained. “Particularly, according to Circular No. 45/2018/TT-BCT, power plants that have been issued with power generation license and have the capacity of larger than 30MW must register and directly participate in the VWEM. Hence, according to the new proposed limits, plants which are participating in the VWEM shall not be eligible for ACT mechanism,” he said.

This new regulation provides incentives to small-scaled hydropower plants in their early stages. It also requires such plants to participate in accordance with market standards if and when they expand their capacity, he added.”

For a cluster of cascade hydropower plants for which their ACT PPAs are signed before 1 January 2020, the power developer (seller) may continue the signed ACT PPAs, Dang said. “The impact of the new regulation therefore depends on

SECTOR REPORT 1: HYDROPOWER East Asia and Pacific hydropower capacity

Source: International Hydropower Association 2019 Hydropower Status Report

whether the project has signed the PPA or not,” Dang advised.

But over 470 small-scaled hydropower projects have also been proposed for removal as provincial people’s committees review the pipeline under the eighth Power Development Plan in Vietnam.

“The MOIT inspects the investor’s compliance in dam safety, replacement forestation, environmental service fee payment, water reservoir operation process and other requirements on licenses (water surface exploitation, power generation),” Dang added.

Tensions in Lower Mekong With some of the world’s most important rivers strewn across its landscape, Cambodia is one of the countries that is best placed to use hydropower as a stable source of electricity. But data from the International Hydropower Association (IHA) revealed that the Kingdom has only tapped into 20% of the resource’s technical potential.

The presence of 63 possible sites for small and large projects throughout the country, coupled with rapidly rising electrification rates, has pushed Cambodia to support some of its most ambitious hydropower projects to date.

Its 400MW Lower Sesan II project, commissioned in 2018, will boost electricity production by 20% with the power being sold to Electricité du Cambodge (EDC) at a base price of 0.0695 cents per kWh. Getting this ambitious project across required collaboration with crossborder developers. The Lower Sesan II project is a joint venture between China’s Hydrolancang International Energy (holding a 51% stake), Cambodia’s Royal Group (39% stake), and Vietnam’s EVN International Joint Stock Company (10% stake).

This pattern of cross-border collaborations appears across several other hydropower projects. In fact, with the Lower Sesan II entering into

operation, Chinese-built hydropower projects in Cambodia have an installed capacity of over 1,300MW and account for half of the country’s total installed capacity from all energy sources.

But cross-border collaboration for the ambitious hydropower projects across Mekong River countries is fraught with tensions. A Fitch Solutions report pointed out that government pushbacks in the upstream countries could intensify for some projects.

The negative public sentiment towards Cambodia, after the collapse of the XePian Xe-Namnoy dam in 2018 that killed about 71 people and displaced 25,000, could prompt government to view Laotian hydropower construction like the planned Luang Prabang Hydropower Project less sympathetically and heighten the risk of inter-state tensions in 2020, Fitch Solutions said.

Concerns over Cambodia’s reliance on Chinese developers’ support for its hydropower projects have also stained local sentiment, highlighted by the government’s move to keep a report on the Sambor hydropower dam under wraps as the period for local elections approached. The report, made by the USbased National Heritage Institute (HNI) and commissioned by the Cambodian government, argued that the Sambor hydropower dam “is probably the largest and most destructive dam in the Mekong River basin.” It argues that further development could destroy migratory fish reproduction in the site.

Even with controversies in its midst, IHA noted that the government views the Sambor dam as an opportunity to generate revenue through exporting its electricity to neighbouring countries, including Vietnam and Thailand where regional interconnectors are already in operation. But with environmental and social concerns on its path, a final decision on its future is still to be made.

Apart from Cambodia, Myanmar also made strides in sizing up its hydropower

Several notices to proceed [in Myanmar] were signed by the government and sponsors with respect to hydropower projects over the past few years.

sector. After some delay, the government issued a notice to proceed for both the 1,050MW Shweli 3 and the 60MW Deeoke projects. Shweli 3 in Shan State is considered to be a priority project in order to meet the energy needs of the country over the medium term and will be developed by a consortium led by French utility firm EDF. IHA noted that the International Finance Corporation also released a Strategic Environmental Assessment (SEA) of Myanmar’s hydropower sector, the culmination of a two-year process, which is seeking to help guide sustainable hydropower development with a strong focus on the need for basin-level planning.

Over the past few years, tax advisory firm VDB Loi’s counsel Maxim Kobzev observed the attraction towards Myanmar’s renewables sector. In a note, he said, “renewables projects have a broader potential lender group, as more and more international lenders shift and prioritise green finance, whilst reducing or completely excluding from their portfolio transactions that relate to fossil fuels. Myanmar is a great illustration of this, as several notices to proceed were signed by the government and sponsors with respect to hydropower projects over the past few years.”

The potential of hydropower also remains unavoidable for Lao PDR, as according to the Mekong River Commission, the country obtains practically all its supply from hydropower in the Lower Mekong Basin.

According to VDB Loi senior counsel Sornpheth Douangdy, development financiers such as Asian Development Bank and World Bank, as well as Belt and Road financiers, also play a big role on the lender side in Laos.

“As for sponsors, Lao Holding State Enterprise, Électricité du Laos, and Generation Public Company are the three entities representing the state’s investment in the power sector and are the major players in this sector. A number of hydropower plants, particularly small and medium-sized hydropower plants, are developed by companies that are owned

by Lao nationals and businesses,” he said.

The country commissioned a further 254MW in capacity in 2019, but the sector experienced a very difficult year due to the collapse of Xe-Pian Xe-Nam’s saddle dam in July 2018. “Following the collapse, the Laotian government announced an investigation into its causes, a review of all existing and underconstruction dams and a halt to proposed projects. The government also established a centre for dam safety management in order to prevent such incidents occurring in the future,” IHA said.

ASIAN POWER 13

SECTOR REPORT 2: NUCLEAR

The EPR reactor Taishan was delayed by three years, with an estimated 30% cost overrun.

Tech deployment delays crank up pressure on Asia’s nuclear momentum China seeks to raise total nuclear capacity to 58GW by 2020, but whether this capacity target will be a hit or miss affair relies on the pace of equipment upgrades and capacity oversupply, with delays traced back to an existing industry slowdown.

C

hina’s nuclear power behemoth is pushing for the indigenous development of power plant technology in order to raise its operational capacity from 48.6GW in September 2019 to 58GW by 2020.

Whether this target will be hit on time remains in suspense, however, as developers are faced with delayed technology deployment and capacity oversupply.

Gloria Lu, senior director for corporate & infrastructure ratings at S&P Global Ratings, argued that China may slightly miss its 58GW goal and 30GW in construction by 2020, as it has not approved any new builds during 20162018. “After the Fukushima nuclear accident, China requires third-generation (3G) or more advanced reactors for new builds,” Lu said.

Three first-of-its-kind (AP1000 and EPR) 3G reactors of foreign design have been completed and started commercial operation in the second half of 2018, but they incurred significant delays and cost overruns. This made policymakers very prudent in approving new builds.

14 ASIAN POWER

China still appears committed to its nuclear programme and has made more progress behindthe-scenes than might first seem.

“The AP1000 pressurised water reactors Sanmen-1 (designed by now bankrupt US Westinghouse) was delayed by four years and incurred 70% cost overruns, whilst the European pressurised reactor Taishan (EPR designed by EDF’s Framatome) was delayed by three years, with an estimated 30% cost overrun,” S&P’s Lu added.

These delays can be traced back to an existing industry slowdown. David Fishman, consultant at The Lantau Group, noted that after a multi-year run of rapid and successful power project development from 2008 to 2013, the years since 2014 have seen China struggle with missed targets for capacity installation, and an expanding and already three-year gap since the last commercial power reactor broke ground (2016-present).

Missed chances China’s nuclear power targets for 2020 had been rising until Japan’s Fukushima incident. The new 58GWe target was issued only in 2014 and had been repeated by industry players until the China Electricity Council (CEC) formally

acknowledged in 2019 that a 53GWe capacity by 2020 is a more realistic figure.

“The final tally will thus miss the mark, but not by far, with a shortfall of less than 10%,” Fishman said.

Missing this target was surely an industry setback, but it is also easy to read too much into it, Fishman said. “There was no associated weakness or failure of Chinese construction capabilities or a loss of policy support for nuclear in general. Meeting the 2020 goal would have required a significantly higher number of new reactors to pour concrete back in 2014-2016, but this didn’t happen.”

Instead, Fishman cited that the shortfall was caused by two specific industry initiatives working in tandem. “Firstly, China’s post-Fukushima nuclear plan designated safer 3G technology to be preferred over 2G or 2G+ units, and that no further 2G+ units would be approved (several 2G+ units began construction in 2015, but they were grandfathered in from approval prior to 2013).”

The Chinese industry also follows a “demonstration plant first, mass deployment second” development model.

SECTOR REPORT 2: NUCLEAR China’s postFukushima nuclear plan designated safer 3G technology to be preferred over 2G or 2G+ units.

Nuclear power plants in China

Source: The Lantau Group

In this model, all under-construction first-of-a-kind (FOAK) plants are required to prove successful commercial operation before they could proceed with what the industry calls “Nth of a kind” (NOAK) construction.

Taken together, this meant that China’s already under-construction 3G units needed to be completed before any new builds could be approved.

“Unfortunately, the FOAK 3G reactors under construction at the time in China met with numerous schedule overruns, supply chain hiccups, and technological hurdles—hardly atypical for FOAK technology. FOAK reactors have greater risk of taking longer and costing more to build than NOAK reactors, and particularly in this case, where the underlying technology shift is major (e.g., from 2G to 3G),” Fishman said.

When the Chinese-designed 3G reactor HPR1000 had its design finalised and approved in 2015, it was allowed to swiftly begin construction of demonstration sites. The result was that from 2013 to 2019, the entirety of China’s underconstruction fleet consisted of either grandfathered 2G+ reactors that would be the last of their kind, or demonstration plants for 3G designs that were the first of their kind.

“With no proven 3G technologies available for batch deployment, it was inevitable that China would miss its 2020 deployment goals, but without any kind of policy shift or change of leadership commitment to nuclear energy,” Fishman explained to Asian Power.

Another factor that could slow down the industry and threaten the profitability of Chinese nuclear power operators is the increasing volume of generation traded on a competitive market basis, according to S&P Global Ratings’ Lu. “The volume not under market trade (still about three-quarters of the total) is protected by the preset on-grid tariffs.

In 2018, China General Nuclear Power Corp. (CGNPC) had 23.8% nuclear

power generation traded on market, the ratio was 27.0% for China National Nuclear Corp. (CNNC). Against the backdrop of increasing competition in the power market, prices of market-traded volumes generally have to be discounted, tending to weaken the profitability of operators,” she said.

Whilst Fishman acknowledged the slowdown of development in recent years, an uptick in nuclear sector activity could be more likely looking ahead. “China still appears committed to its nuclear programme and has made more progress behind-the-scenes managing technology shifts and deployment plans than might first seem,” he said.

In Q3 2019, China’s nuclear power industry comprised 47 operational power reactors, for a gross installed total of roughly 49GW of electricity. Three different companies are responsible for nuclear power plant development, with the majority of the fleet split between China General Nuclear (CGN) and China National Nuclear Company (CNNC) and the third company—the State Power Investment Company (SPIC)—just starting out with its first reactor sites.

Government support As a source of clean energy and base load electricity, nuclear power is well supported by the government in generation dispatch to grids with priority before coal power, noted Lu. Much of China’s progress in nuclear development from the past decade resulted in an increased cost-competitiveness compared with costs of other fuel types.

“The regulator also sets the provincebased minimum utilisation hours policy to ensure reasonable consumption of nuclear power for maintaining relatively high operational efficiency,” Lu said.

“In 2018, the average utilisation of nuclear power was 80%, compared with 50% for thermal power, 24% for wind, and 13% for solar.”

She also cited Datang Power-backed

research that said the levelised cost of energy (LCOE) of nuclear power is ranked the second lowest in China, only higher than hydropower. “The current regulatory regime essentially places nuclear power as cost-competitive as coal power as it defines the on-grid tariffs of nuclear power as the lower of RMB0.43/ kWh and local benchmark coal power tariffs,” she said.

Construction costs of recently completed Generation II reactors were between RMB14,000-15,000 per kW (equivalent to roughly $2,000/kW, well below new build costs in developed markets), whilst new Generation III reactors are budgeted at RMB17,00018,000 (about $2,500-$2,600). This compares to construction costs of RMB6,000-7,000 per kW for wind and RMB4,000-5,000 per kilowatt for solar in China at present.

Projects still on track In contrast, the construction of China’s own 3G HPR1000 reactors are on track with scheduled commission as early as in 2020. In 2019, three units of new reactors (totalling 3.4GW) were approved for construction, in which two are HPR1000 reactors (developed from G-II PWR or pressurised water reactor long used in China) and another is the CAP1400, the enlarged version of AP1000 with Chinese intellectual property rights.

“In our view, the prolonged trade tension between the US and China and the expected long-term technology confrontation of two nations may reshape China’s choice of nuclear power technology. We gauge China may prioritise the reactors of HPR1000 and CAP1400 for new builds,” Lu said.

The Lantau Group also noted that amongst the approved and planned reactors are at least 36 units located in inland regions where development has been frozen since the Fukushima accident in 2011. This includes approved inland sites that were just months away from pouring concrete in 2011 but will now have to wait until the next 14th FYP period begins in 2021 to start construction. All currently underconstruction and future PWR reactors will be at the gigawatt level or larger.

Aside from under-construction units, 45 units have already secured site approval and are in various stages of preconstruction standby, including several that have already completed all necessary preparations to begin pouring concrete and are simply waiting for issuance of their construction license. “Beyond this, the long-term pipeline includes at least 60 more reactor units proposed by provincial governments or local municipalities currently making their way through the ASIAN POWER 15

SECTOR REPORT 2: NUCLEAR regulatory requirements for site approval (seismic safety reports, environmental impact evaluations etc),” Fishman said.

Japan falls short With China on track to revive its nuclear power industry, things aren’t looking up for its neighbour Japan. Nearly a decade after the Fukushima nuclear plant accident, Japan is still struggling to restart its idle nuclear reactors. The government has even cut back on its objective of raising the share of nuclear power back to about 20% by 2030 from the current 5%.

Whilst analysts are severely bearish about the country hitting its nuclear targets, S&P Global Platts’ Lu projects that nuclear generation will only represent a 9% share by 2030, whilst Fitch Solutions is forecasting 8.4% by 2029. The noose around new nuclear projects is tightening not only because of public opposition but also because of toughening regulatory demands and rising restart costs.

The Nuclear Regulation Authority’s (NRA’s) tough stance on counterterrorism measures will weigh on generation from operational nuclear power plants in the near term, according to Fitch Solutions. In mid-2019, the NRA rejected applications to extend deadlines for the installation of additional security measures at a number of the country’s nuclear power plants and approved new rules that would allow the suspension of operations at facilities whose back-up control centres were not completed by their individually-specified deadlines.

As a result, both Kansai Electric Power and Kyushu Electric Power recently announced that they had powered-down their respective nuclear reactors with the expectation that they would miss their NRA deadlines. Kyushu Electric Power has announced a halt on Sendai No. 1 and No.2 for 8 months from March and May 2020 respectively, whilst KEPCO will suspend operations at Takahama No. 3 from 2 August to 22 December 2020, and Takahama No. 4 from 7 October 2020 to 10 February 2021.

According to S&P Global Platts, hitting the 20% target will enlist 30 nuclear reactor restarts, but such an effort will require additional huge costs, which will weaken their profitability and operating cash flow over the years to come. “The necessary capex and expenses for Japan’s nuclear operators to meet the regulators’ additional safety standards to protect against potential severe natural disasters or terrorist attacks are estimated at around $44b (JPY4.8t) in total, three times the 2013 level,” Lu said.

The pressure on Japanese utilities could only be somewhat mitigated by the Japanese government’s supportive pricing scheme for decommissioning.

16 ASIAN POWER

“The regulator recently allowed the nuclear reactor operators to pass decommissioning costs through to tariffs over the long term. As a result, in our view government support could somewhat mitigate the additional cost burden for the nuclear reactor operators,” Lu added.

ASEAN’s nuclear question As the approach to nuclear power transforms in East Asia, regulators in the nearby Southeast region are still in a deadlock over how to inject the resource into their respective power mixes. One of the Southeast Asian nations with suspended development plans is Vietnam.

Previously, its National Assembly in 2009 approved the investment policies for a project that comprised two nuclear power plants in southern central Vietnam, Ninh Thuan 1 and Ninh Thuan 2, each with 2GW installed capacity. It eventually issued a resolution to suspend this project in November 2016.

Whilst Vietnam has no ongoing nuclear power project, Baker McKenzie’s partner Dang Chi Lieu said that in the long term, the resource will not be completely out of question as the cost efficiency of other resources for baseload power is being scrutinised.

“In the Vietnam Energy Forum held by the Ministry of Industry and Trade (MOIT) back in August, there have been proposals that due to high energy demand, further imports of LNG and coal is inevitable, which may not be cost efficient as well as create environmental risks, especially with coal. Additionally, although renewable energy poses high potential, its instability due to being weather-dependent would be an issue,” Dang said.

Vietnam also previously laid out in its Power Development Plan (PDP) VII that the first nuclear power generator may commence operation in 2028. By 2030, nuclear power sources should reach the capacity of 4,600MW and produce Share of power generation in Japan by source

Source: Fitch Solutions

According to Vietnam’s Power Development Plan VIII, nuclear power will take up to 5.7% of total power production by 2030.

about 32.5 billion kWh. Accordingly, in 2030, nuclear power would take up to 5.7% of total power production. Dang noted, however, that this is relatively low compared to coal-fired thermal power (53.2%), gas power—including LNG (16.8%), hydropower (12,4%) and other renewable sources (10.7%).

The targets and the possible resumption of nuclear power development would still be subject to national policies, which is to be regulated by the new PDP VIII for the period of 2021-2030, with a vision towards 2045. The MOIT is expected to complete this plan in 2021, Dang said.

Another nuclear programme is also in the works further east in the Philippines.

Its energy minister has proposed a formal executive order to the President’s Office to include nuclear power in the country’s energy mix, as the country deals with surging power demand over the coming years. Congress is allegedly considering the establishment of an independent regulatory body and has drafted legislation to address nuclear safety and security issues.

“These developments were however criticised for not being more transparent in the Senate, which is set to begin an inquiry into the DoE’s nuclear power agenda,” Fitch Solutions said.

To support the Philippines’ nuclear potential, foreign suppliers of equipment from the US, Japan, Russia, France and South Korea have already expressed interest in recent years to invest in its nuclear power sector.

The country’s Department of Energy (DoE) also signed a memorandum of understanding with Russia’s state-owned Rosatom for a pre-feasibility study on the construction of nuclear power plants in the country.

“As such, should the government decide to progress with its nuclear plans, with adequate resources given, they do have the capacity to ramp up the sector relatively quickly,” Fitch Solutions added.

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