37 minute read
What is at stake if carbon pricing is not imposed?
VOX POP What is at stake if carbon pricing is not imposed?
ASIA PACIFIC
Aman Modi Boston Consulting Group, Managing Director and Partner:
Carbon price/tax is only one of the many tools to enable or accelerate the transition to cleaner energy. The reason carbon price/tax gets disproportionate attention is that it is the most secular measure. Asia is far from being the only place with limited such mechanisms, and the picture across Asia needs to be deaveraged.
As of 2022, 68 different carbon pricing initiatives (Carbon Tax/ETS) have been implemented, covering 46 national jurisdictions and 12GtCO2e or 23% of global emissions – Asia-Pacific nations such as China, South Korea, and New Zealand have deployed a national carbon pricing initiative.
Further, countries such as Singapore and Indonesia have already announced carbon taxes, albeit starting with low bases of $5 per tonne or below before rising to higher numbers – several other countries such as Japan, Thailand, Malaysia, and Vietnam are actively considering implementing a tax or Emissions Trading Scheme (ETS).
As the EU starts implementing measures such as CBAM to charge carbon taxes on goods sold in the EU regardless of the location of production, we expect an acceleration in the application of carbon taxes in export-oriented economies across the world, including in Asia – this will be critical to maintaining the competitiveness of these economies.
Sharad Somani KPMG Asia, Partner and Head of Infrastructure:
The majority of jurisdictions in the Asia Pacific are still considering carbon pricing initiatives or have yet to implement scheduled initiatives. With the Asia Pacific responsible for about 40% of global emissions, much more can be done in implementing carbon pricing in the region.
According to the World Bank carbon pricing dashboard, there were 33 national jurisdictions covered by already implemented carbon pricing initiatives globally as of 1 April 2022. Only a handful of these is seen to be within the Asia Pacific region.
Most countries in Asia are expected to include a carbon pricing policy to help meet their net-zero aspirations. However, a single carbon price may be difficult to impose as it will have to be tailored to each country’s national circumstances and economic context. By most estimates, a target carbon pricing of US$100 per tonne is expected to help fast-track the decarbonisation and energy efficiency as well as the green agenda better. However, it will take around a decade to reach that level of carbon pricing in Asia.
Ideally, if countries can start anywhere between US$10 – US$30 per tonne in the short term and ramp it up to US$100 per tonne by 2030, it will provide the right signals to industries to decarbonise the value chain whilst also promoting cleaner energy options across the economy.
Putra Adhiguna IEEFA, Energy Analyst:
When it comes to clean energy transition policy, the carbon price is the elephant in the room that many politicians tend to dodge. But one way or another, some forms of pricing will need to be embedded in the emissions to support the transition. Some companies choose to embed ‘internal carbon price’ in their decision process, but there is no substitute to sound government policy in attaching a price on emissions to level the playing field.
No country will find carbon pricing is easy to implement, but it’s best to get prepared sooner rather than later.
China’s emission trading scheme establishment has marked a significant milestone. Whilst the scope and carbon price are largely still limited, with prices fluctuating below $10/tonne, the signal is very clear that change is underway. South Korea has the most well-established carbon pricing regime in the Asia-Pacific region.
In 2022, Singapore’s finance minister stated the plan to aggressively increase their carbon price from sub $4/tonne to reach between $37-60/tonne in 2030. Indonesia’s plan for a $2/tonne carbon price for the power sector faced some delays but is expected to be rolled out this year.
Each APAC country will undoubtedly look at its peers in anticipating future changes, as the world pays greater attention to carbon emissions.
Yvonne Lam Rystad Energy, analyst:
In General, the carbon prices in APAC are very low compared to Europe. Developed nations in the region, such as Japan, Korea, and Singapore, have already implemented carbon pricing for years, whilst China just started its national ETS last year. There have been some hurdles in China’s ETS system, and the pricing remains relatively low ($10/tonne). SEA countries plan to implement carbon pricing in this decade, but it is also expected to be at a low level.
Carbon pricing is very crucial in the energy transition. It is basically putting a price on emissions, making it a commodity, and creating a market that was absent previously. A high penalty for carbon emissions could accelerate the energy transition, especially for heavy emitters. For technology such as carbon capture, which doesn’t generate any revenue and only adds cost to emitters, the carbon price justifies the investment. To see a change in behavior and also a change in attitude towards climate change, the ideal price would be above $75 per tonne. Still, for some countries whereby citizens are struggling even to have food on the table, this can be a considerable challenge. [Without carbon pricing, the world risks] missing climate goals and, subsequently, people suffering from the impact of climate change.
Powering up on maintenance to optimise power plants
After-sales and maintenance services are crucial for power plant optimisation.
Asian Power spoke to Ziad Khalaf, Senior Vice President, Operations for Mitsubishi Power, Asia Pacific for insights into how after-sales and maintenance services benefit power plant operators.
How have after-sales and maintenance services evolved over the years?
For the services and power plant sectors, we need to keep up with advancements in technology. When you install something for the first time, there is a learning process which involves a collaborative effort between equipment manufacturers and operators to identify problems and find solutions. We leverage our extensive experience to find these solutions efficiently, and any learnings end up being shared within the industry.
The equipment manufacturer has the main responsibility to evolve and develop improved solutions for the equipment. For example, gas turbines used to be maintained following a certain number of operating hours. Over time, we develop enough operating experience and knowledge of the behaviour of the machine and can stretch the maintenance cycle which reduces the downtime of the equipment. This saves money and avoids unnecessary maintenance.
How has Mitsubishi Power powered deep innovation in after-sales and maintenance service?
Technology advancements allow us to maintain power plants faster and cheaper through solutions such as robotic inspections of generators. Rather than having to disassemble the generator and spend a month crawling around in it, inspecting it, and risking causing damage, we use robots. These are little measuring instruments that can go into the generator, crawl on their own, and do the inspection. This can be done in three to four days, which saves a lot of money and avoids a month-long disassembly. We’ve done robotic inspections in Singapore as well as in other parts of the world.
What stands out about your after-sales and maintenance service in Asia?
We are a leading service provider with a strong presence and commitment in Asia. In the Philippines, we have capabilities that service the region and provide services to other parts of the world. This includes remote monitoring of power plants, advanced technologies of data collection, analytics and artificial intelligence. It is a self-learning system that monitors the power plant and provides feedback on how to improve the operation maintenance in the plant. It is therefore a system that learns, evolves, and supplies additional information to the power station.
Do you have data-based solutions?
We have TOMONI®, which is a package of different modules that leverage remote monitoring, advanced digital control systems, predictive analytics, and AI to optimise plants. We collect the data from the plant, monitor it remotely, analyse it; and then we provide customers with different services that would come out of this data collection and analysis process. It helps plants operate more reliably and achieve efficiency improvements. To execute this, we also have a global network of TOMONI HUBs with these services, including one in Alabang, Philippines.
How can a power plant operator justify the costs of after-sales services to their stakeholders?
The biggest cost in operating a power plant is the fuel consumed. Previously, in a plant I managed, about 80% of the cost of operating it came from fuel. So even if you take 50% to 60% of the operating cost of a plant which is fuel cost, and you can save 1% or 2% of that fuel you’re consuming, that is a lot of money. It will also lead to a significant reduction in CO2 emissions. When you do good service planning and execution, you can save money by improving efficiency. You’re saving on fuel consumption, saving money, and still producing the same energy that you’re expected to sell. Less fuel burned also means reduced emissions.
The maintenance, it’s always tied to the economics of the power plant and compliance with regulations and policies.
How do you help power plants in the region improve reliability?
The reliability of a power plant means that
the plant can keep running well and not unexpectedly shut down and be forced to stay down. We recommend for our customers to have good operating maintenance practices to improve and keep their plant reliability high. If we have a new product learning from our experience in a power plant somewhere in the world, we issue bulletins to all our customers worldwide to inform them of key updates.
We also have a global users group meeting that provides members with an opportunity to learn about new improvements or changes to improve reliability. We’re learning from each other and sharing information. Customers may be sharing information with one another. But if they send it back to us, we have access to all of these plant operators. When someone raises an issue about a problem in their plant and there is no solution for it yet, we take it on and solve it, and share the solution. That helps improve the reliability of power plants.
How does Mitsubishi Power encourage technology and skills transfer?
Skills transfer is happening at different levels of the business. A power plant operator that has our equipment needs to know how to operate it. We work with our customers to teach them and train their operators on how to operate the plant through the construction, warranty and troubleshooting phases. The customer may assign their operators to work with our technical experts across the lifecycle of the plant.
We also offer training opportunities, and it’s up to the customer to decide what they need. It’s a combination of technology transfer and the development of skills amongst people.
In the Philippines, we have training centres with hundreds of engineers and people with different skill sets working in our facilities. They’re all learning the technology. In Indonesia, we are hiring and training local engineers to become technical advisors to support the local market. We have a large installed base in Indonesia and manufacturing facilities in the Philippines. We invest a lot in local manpower in these countries to help them become skilled at solving problems. That includes technology transfer such as teaching new technical skills.
We also do a lot of research. In Indonesia, we work with PLN Group and the Institute of Technology in Bandung, Indonesia, to conduct feasibility studies and research on alternative energy technology and uses.
How can you support the energy transition?
Mitsubishi Power is helping to develop solutions for the energy transition. One major clean fuel that the company is focusing on to help customers transition to net-zero emissions is hydrogen. Emissions from producing hydrogen can vary, with green hydrogen-producing zero missions. Hence, we are advancing our natural gas turbine technology to co-fire with hydrogen, which will lower the overall emissions of gasfired plants. For example, we are increasing the ratio of hydrogen co-firing into gas turbines – our J-series gas turbines are already capable of operating on a gas and hydrogen mix of 70% and 30% respectively, which helps reduce around 10% of CO2 emissions. We also have plans that by the year 2025, firing will reach 100% commercially.
Can you talk about your regional presence?
We’ve been in the region for more than 50 years, providing equipment which ensures the stable, reliable, and efficient supply of energy to countries around the Asia Pacific.
We have taken significant steps and increased our local support network — hiring people in each country to be closer to our customers. We stand by our equipment and spend a lot of effort in our production and research facilities to improve existing technologies or develop new technologies to improve plant performance.
We know what our customers need – efficiency, availability and reliability are important. They also have to save costs and produce as much energy as possible to meet demand. With time, there will be new needs for these power plants, whether it’s additional environmental enforcement or the impact of upcoming climate agreements. We can provide solutions to keep the plants running while reducing emissions — you don’t have to tear them down to put in something new. For example, you can clean up the gas coming out of the plant to comply with standards. All of that can fall into the service side of things. Also, we are a major player in new technology solutions. So, as power plants transition to more advanced technologies, whether it’s renewable or hydrogen-based, we can help.
In Indonesia, we’re planning to help customers integrate biomass burning into their thermal plants. There is a limit to how much you can do without changing anything in the power plant. Later, if you want to introduce more biomass or other clean fuels such as ammonia, you might need to make modifications. This falls into aftersales services. So you have the immediate needs of reliable operation and efficient operation and the future needs, which is the energy transition that Mitsubishi Power can support.
Mitsubishi Power’s TOMONI HUB helps make power plants more reliable and profitable
INTERVIEW Masdar gains foothold in SEA with solar project
It is set to launch what would be the largest floating solar PV plant in Indonesia this year.
Masdar has been critical in keeping the United Arab Emirates’ stance as a global leader in the energy sector. Now, the company has set its sights on expanding into Southeast Asia. But out of all the renewable energy markets in the region, why did Masdar start with Indonesia?
Masdar President Director for Indonesia Eng. Fatima Al Suwaidi shared with Asian Power her recent move to Indonesia to oversee the completion of the Cirata floating solar photovoltaic (FPV) power plant, the first of many projects the company had lined up for the region. She also discussed the ropes the company had to learn as it entered the Southeast Asian market, beginning with Indonesia.
“Masdar [has] a footprint in almost 40 countries. We’re looking at probably doubling or tripling our existing gigawatts in the next five or 10 years,” Al Suwaidi said.
“The Cirata project was our first investment in Southeast Asia, and it’s not going to be our last.”
Tell us more about the Cirata floating solar photovoltaic power plant in Indonesia. How will floating solar power benefit the country?
The Cirata project is considered to be one of the largest floating solar projects in the region, and one of the largest also in the world. If I’m not mistaken, it’s number five in terms of size. Once fully operational, it will be the largest in Indonesia. This project, of course, demonstrates Masdar’s capacity as an innovator to deploy the latest technologies at scale across diverse geographies.
This project is tailored toward Indonesia’s characteristics. As we know, Indonesia is unique from the perspective of the geography, the environment, and the regulatory framework, as well as where there is limited land availability. The project is solving a problem that is seen in many parts of the region, actually in Asia Pacific, and in nations dependent on coal and gas power—it will contribute to the reduction of carbon emissions.
The scheduled commercial operation date of Cirata is in the second half of this year. This is as per the requirement in the power purchase agreement with PLN. Also, this technology is quite interesting and attractive to a number of other countries in Asia Pacific region that we know are looking into floating solar PV plants as a solution to the scarcity of land with expanding populations, meaning land resources become more and more obsolete, right? Land is becoming much more allocated for other critical needs, such as agriculture and food security of countries, and even housing. So going forward, we’re looking at growing a floating solar portfolio significantly in this region, given the need and the interest.
Another benefit that comes to Indonesia out of this project is that, once Cirata is completed, it will save approximately 40% of the fuel required by the local diesel power plant. From the environmental perspective, we’re going to be powering around 50,000 homes in the West Java province. Cirata, being the first and the largest, is becoming a showcase for the government that such a unique technology can be deployed at scale. Also, considering the unique challenges of the Cirata reservoir, once it’s fully operational, it will demonstrate to the government that such challenges have solutions. Masdar can address such constraints by looking at the specifics of the location of the country of the technology and making sure we are able to connect all the dots and we look ahead and we’re able to benefit the country as a whole.
You mentioned it is targeted to be operational by the second half of this year, is Masdar on track?
We are working very closely with the contractor to be able to achieve all the requirements of the power purchase agreement that we have with PLN. We also have a very good support system in Indonesia— the government, all different stakeholders from the Ministry of Energy, Ministry of Industry, Ministry of Investment, PLN, of course, as an off-taker, and our partner in the joint venture. We have quite a good support system that allows us to be confident that our timeline should be achieved. In any project, there are challenges, we make sure that we’re able to mitigate potential risks before they happen. We are, of course, working in unforeseen circumstances with the pandemic. Also, the different regulations that different countries would impose because of the pandemic present a unique circumstance to the project. However, again, we’re working very closely with the team on-site, on the ground. I’m talking to you from Jakarta. I’m already based in Jakarta to oversee the project so there’s a lot of commitment from everyone involved. Our partner PJBI, which is a subsidiary of PLN, has been very much supportive of the project so far and has been able to help us maneuver and find a way around the challenges that we’re facing.
Aside from the Cirata floating solar power plant, Masdar also signed a memorandum of understanding to explore the exportation of renewable energy from Indonesia to Singapore. What were the reasons behind this move to tap Indonesia during this exploration for Singapore’s energy resources.
Yes, our portfolio strategy, which has served us extremely well to date, is growing into more than 40 countries, with a capacity of
Eng. Fatima Al Suwaidi, President Director for Indonesia, Masdar
The Cirata project was our first investment in Southeast Asia, and it’s not going to be our last
almost 14 gigawatts (GW) of operation and under development of renewable energy. That equates to around $20b of investment. It is to grow assets to a meaningful scale, in relevant geographic and technology verticals, meaning that we are expanding exponentially across the globe. We are able to see synergies between different countries, we are also able to assess in a much more efficient manner, how we can contribute to countries that are moving in the direction of renewable energy, climate change, and climate action, right? We’re looking into doubling down in key geographies and technologies we know very well. We seek long term bankable projects with clearly defined risk boundaries, as well as strong partnerships in the countries where we operate. We rely on our expertise in Abu Dhabi which also extends across the globe. Our local presence and our ability to scale to make the right connections and find the right opportunities, wherever we find them. This specific opportunity with Indonesia and Singapore was established from the relationships between the countries. Different players are also proposing to bid on this project. From our side, we have participated in a very strong consortium of partners that we have right now. We’re looking at this very strategic project from many angles. One angle is the huge benefit it brings to the Singaporean energy market, as well as on the other side of the Indonesian side. We’re using the expertise and the knowledge that we’ve gathered so far through the Cirata project, and our presence in Indonesia to help us facilitate such collaboration. We see this to be quite a strategic project as well, because, if I’m not mistaken, it probably will be the first of its kind, throwing cables from Indonesia to Singapore. And we’re talking about up to 1.2 GW of solar. It’s not going to be easy for sure. But we’re known to venture into challenging areas that we’re able to pioneer and innovate and to also amplify our existence and presence in those countries.
Given these two projects, why did Masdar choose Indonesia in implementing these renewable energy projects?
I would say the projects choose their location, more or less, right? We believe in partnerships. Partnerships bring projects and projects would really define the location. Indonesia is quite a strong market. It has huge potential on the renewable side, they also have quite high targets in achieving new and renewable energy, as we know, 23% by 2025 and also to expand or grow more over the next 10 years.
The new renewable energy plan, also known as RUPTL, in Indonesia, has quite a lot of targets for renewable energy on the solar, wind, hydropower, and geothermal side. Indonesia is definitely one of the key markets, it’s one of the most populous countries in the world and brings with it a lot of potential. The UAE and Indonesia have established and are also strengthening their bilateral relationships. That would definitely boost the collaboration opportunities between both countries.
Especially for Indonesia, the market that a lot of the investors are actually quite interested to invest in its development. And you see the regulation moving towards more flexibility as we saw from the release of the omnibus law, for example, that would be much more flexible for foreign investors. We see the government putting a lot of effort into providing a welcoming regulatory framework for foreign investors to be able to boost innovation, and advance clean technologies within the market. The same thing we see in other countries in this region.
Having said that, Indonesia is not the only country on our radar, we are also planning to grow quite a lot in the Asia Pacific and Southeast Asia. We have a dedicated team focused on that. We have high ambitions and targets to significantly grow our presence in this market. And for us, Indonesia is just a start.
What are the challenges faced by Masdar in pursuing these projects in Indonesia? And as well as in the ASEAN region? And how did the company address these?
Other countries might be more advanced when it comes to the implementation of renewable energy, such as Vietnam, Thailand, and Singapore. We see that this region, again, just like any other region, requires constant presence from our teams. Hence, for example, I’m based here, and we have a team based in Indonesia and in Singapore. This is because it’s very important that we maintain the momentum, we understand the market from within, we understand what sort of dynamics this market brings, who are the influential stakeholders we need to understand and partner with, what sort of considerations we need to keep in mind. We are making sure that when we venture into a market, we’re really taking into account all the local factors that need to be considered for us to succeed in that market. Because when we come in, our objective is to come in for the long term. We want to make sure that we are building a local team with a local presence in a way that will not only support the economy of that country but also boost Masdar’s portfolio in that region.
What kind of plans does Masdar have to tap into the renewables potential of Indonesia and Southeast Asian regions in services like to share with us?
In terms of Indonesia, we have a lot of plans and even in the Asia Pacific, we have quite a long pipeline in the making. In Indonesia, we have partnered recently with an Indonesian conglomerate and created a joint venture called Solar Radiance. Solar Radiance is a developer of solar installations that are behind the meter, for example solar rooftop, and ground mount. This is focused on the commercial and industrial (C&I) sector. This is following the regulations that we see opening up in the C&I market. That market is emerging quite quickly, there is huge potential and we are tapping into it through this joint venture.
We believe that this will give us quite a wide reach around Indonesia, because we’re talking about solar installations for the C&I market that is spread across Indonesia. Indonesia is a big market and that is the same for the other Asian countries that we’re looking at. We’re also contemplating, maybe going into hydropower. As I mentioned, the Indonesia renewable plan has quite a big chunk dedicated to hydropower energy. And from the Masdar perspective, when we venture into a market, we try to understand how the market is functioning, and also what sort of directions they’re moving forward to and we see whether it aligns with Masdar’s interests and mandate or not. So Indonesia has quite a lot of potential on hydropower, that could be one venue that we would venture in if opportunities arise.
Of course, we will continue to be participating in IPP tenders that are issued by PLN. That is, of course, one venue that we are always prepared to participate in the Asia Pacific. There are quite a lot of opportunities that are being discussed on a B2B basis. In some parts, in some countries, depending on the bilateral relations, we’re also looking at G2G partnerships.
We are able to assess how we can contribute to countries that are moving towards renewable energy and climate action
INDUSTRY INSIGHT: CCUS Southeast Asia faces uphill battle in CCUS deployment without carbon pricing
It is unlikely that the carbon price in the region could reach $40 per tonne of carbon dioxide.
There is no getting around the need for a carbon price in funding the deployment of carbon capture, usage, and storage (CCUS) technology, the Institute for Energy Economics and Financial Analysis (IEEFA) said. And this is a hurdle faced by economies taking part in the clean energy transition, more so in Southeast Asia where only Singapore has so far imposed a carbon price.
Singapore, however, only imposes a mere $3.7 per tonne of carbon dioxide (tCO2), an amount much too small compared to the $60-100tCO2 cost incurred in power generation, IEEFA Energy Analyst Putra Adhiguna told Asian Power.
The International Energy Agency (IEA) had projected the high carbon price could to stand at $40tCO2 by 2070, down from $65 /tCO2 in 2020. But even then, he said that $40 is still costly.
“For the power generation, $40tCO2 is still expensive and we believe that it is unlikely for Southeast Asia to be able to keep up with this, keeping in mind that CCUS becomes mature in the next two decades, and the power plants will already be three decades or four decades [old], which is going to be another question,” IEEFA’s Adhiguna said.
Adhiguna explained countries that have been applying carbon capture for gas processing could work around existing finance infrastructure to secure a proper financing deal, which is not the case in power sectors.
“In the power sector, it’s very expensive and we do not believe that there is any other way to work around the question about the carbon price. In the absence of a proper carbon price and in the absence of a properly priced power to be distributed to the society, it’s very difficult to see that carbon capture in power generation will prevail,” he said.
Singapore and other markets
Whilst the $3.7 carbon price is still insufficient, Singapore serves as the exception as the IEEFA sees its potential to establish a CCUS hub. For one, Singapore is ahead of its neighbours in terms of carbon pricing as its government announced an “aggressive plan” to raise the carbon price to $18/ tCO2 by 2024 and to $37-60/tCO2 by 2030. Singapore also has a higher GDP compared to other Southeast Asian states, but above all, the market has a concentrated industrial base, such as refineries, and petrochemical industries.
“Because Singapore is a hub for many products, whether it’s exported or whether it’s being used domestically, it may present a quite an exemplary case if CCUS is going to be deployed there,” Adhiguna said, noting that the market enjoys substantial support from the government, particularly in R&D.
Aside from Singapore, Indonesia has also announced a cap-and-tax scheme with a $2.1/tCO2e which is set to commence in 2022; whilst Malaysia, the Philippines, Thailand, and Vietnam are all considering carbon pricing.
Outside Southeast Asia, the IEEFA noted in its Carbon Capture in the Southeast Asia Market Context report that Japan, China, and South Korea have the potential to become leaders in CCUS. Japan takes the lead in terms of developing CCUS technology both in Asia and across the globe with its technology being utilised by companies in the US.
China has small-scale CCUS capacity but has not seen strong development over the past decades. IEEFA also observed that CCUS development is not the government’s priority as China falls short in providing a clearer direction for a wide-scale development of CCUS.
South Korea, meanwhile, has laid out plans to invest in CCUS both within its borders and overseas. According to IEEFA, utility firm Korean Electric Power Corporation (KEPCO) planned to exit coal by 2050 and commercialise CCUS technology for 500MW of coal power and 150MW of gas power by 2030.
“It is important to know where these three countries are heading because where they go may give an indication of where Southeast Asia may be heading.”
Gas processing vs. power generation
Looking more closely, CCUS development in Southeast Asia is largely dominated by gas processing CCUS rather than CCUS for power generation. More than 60% of the current CCUS capacity deployed is for gas processing, which Adhiguna said is intended to support the oil and gas industry production. This is opposed to the ongoing discussions on CCUS as a way to reduce emissions.
“It will be very difficult for gas processing CCUS to be continually expanding because at the end of the day, as we move toward the net-zero target, there are two questions that cannot be answered by the gas processing CCUS– firstly, is that these gas are to support the oil and gas industry to produce,” he said.
“Secondly, we also need to keep in mind that whenever there’s a discussion about CCUS, and public funding is involved, the public will, in the end, ask the question, of whether they’re spending their tax money to support the transition toward net-zero, or whether they’re supporting a transition towards something that gives more long term liabilities than anything else.”
Putra Adhiguna
In the absence of a proper carbon price, it’s difficult to see that carbon capture in power generation will prevail
While IndianOil takes stride towards being an integrated energy company with increasing focus towards clean energy to realize India’s vision of net-zero emissions in the future, the company also lays equal emphasis on conservation of natural habitat. Adopting the Indian Single Horned Rhino as its Brand Mascot was indeed a step towards protecting this endangered species. The Corporation will also be steering the ‘Cheetah Introduction Project’ at Kuno National Park in Madhya Pradesh, India.
CEO INTERVIEW Private firms eclipse the PH’s solar power industry
Solar Philippines flagged the lack of foresight amongst businesses to meet high demand.
With only around 1,370 megawatts (MW) of installed solar capacity, the Philippines still has a long way to go before meeting its 20-gigawatt target by 2030. This is even as the government has provided enough support to enable the industry, leaving the fault to the private sector for having a supply that falls short of meeting high demand.
Solar Philippines CEO and Founder Leandro Leviste told Asian Power what holds the development of solar power in the country back lies not in the hand of the government, but amongst businesses that failed to see the demand growth potential.
“The limiting factor is that the private sector has lacked the forward-thinking to prepare solar projects for the time when the solar projects are already needed now. And that’s where our company comes in,” Leviste said.
Solar Philippines was founded in 2013, at a time when the Philippines only had 4MW of installed solar power. It has since added some 400MW installed solar capacity, either in operation or under construction. Solar Philippines completed its first utility-scale project in 2016 with a capacity of 63MW, after the Department of Energy announced its feed-in tariff (FiT) scheme. The company then persisted in developing more projects post-FiT, entering into power supply agreements with major distribution electric companies, such as Meralco. This allowed Solar Philippines to reduce the price of solar to 2.99 centavos per kilowatt-hour from around 9.68 centavos initially.
“That resulted in even lower prices for solar, which we think paved the way for a lot more large-scale solar developments up to where we are now, where, hopefully, it can be seen that the [seeds] that we have been planting over the years are now bearing fruit.”
Tell us more about Solar Philippines, its subsidiary, Solar Philippines Nueva Ecija Corporation Corp. (SPNEC), and the share-swap agreement between the two.
The defining characteristic of our company is that we’re very entrepreneurial and responsive to market conditions. We did the first IPO of a pure-play solar company in the Philippines in December 2021, and wanted to see how the market would respond. I think it showed that there was a lot of demand for a pure-play solar company in the Philippines, and saw that as good timing to fold in the rest of our developments to also respond to what many people were asking for, which was the listing of the rest of our developments, all in one company. So now our investors have also shown that it’s an even better proposition that you have some operating assets, some contracted assets, and the rest of the pipeline. We hope that stock reception will continue to be strong as we will partner with our public shareholders to expand the solar projects of our company and the solar power industry of the Philippines at large.
What projects can we expect from Solar Philippines/SPNEC this year and in the following years?
The proceeds of our IPO are financing the Nueva Ecija solar farm, which we have positioned as the largest solar project in Southeast Asia because it has two phases. The second phase should be also constructed next year, for a total of 500MW. In the same general area, we are acquiring expansion land, so that the total development can supply even 4,000MW, which is possible
Leandro Leviste, CEO and Founder, Solar Philippines
The private sector has lacked the forwardthinking to prepare solar projects
because of the availability of land that is unproductive in the area, as well as its proximity to the demand of Metro Manila. It’s all in the general area of Nueva Ecija. But it includes some in the neighboring province of Bulacan because the project will eventually connect to a substation in Bulacan, which is the drawdown point for the demand of Metro Manila.
So that is really the value proposition and the business model of our company, which is to go to the place where you can build very large scale solar projects, if only you have a few years of a head start to consolidate the land, the permits, and the right of way for the transmission.
You recently signed a PPA for a 50MW solar farm in Indonesia. What other markets will you tap into?
It is not significant in scale compared to our other projects. But it is, we hope, reflective of number one, our company’s ability to develop projects, even outside of the Philippines. So, if we can do it in Indonesia, or more hopefully we can do it in the Philippines, and there are so many opportunities. I think that Indonesia is the second most attractive market in the region for our business model, which is to focus on the places where there is a huge future potential, very limited land, and an underdeveloped solar industry. Because where there’s already a lot of solar, we think there is little value to be added. But where there is a challenging market, and where land is scarce in islands or densely populated areas of Southeast Asia, that’s where we see there is value to be created in solar development. But of course, as our name suggests, we are focused on solar in the Philippines.
We actually have [also] constructed a mini-grid project in Shan State, Myanmar. But our bread and butter is solar in the Philippines. We do the other things just to learn more about other markets in hopes that when we have saturated the market in the Philippines, we may have new markets to enter. But the principle is for as long as the highest value that we can add is right here in our backyard, then we should devote as much as possible of our resources to saturating our backyard.
How would you assess the Philippines compared to other Southeast Asian countries in terms of its clean energy transition, particularly in terms of solar power?
In terms of demand, the Philippines should have at least the highest percentage of potential solar, because it has the highest price of electricity in Southeast Asia. In terms of supply, it should have the most difficult environment because of its density in population and general difficulty in repairing project sites, which, of course, both make it a very attractive market for those that are able to get things done in the Philippines. And it’s for that reason why, yes, we are focused on solar in the Philippines.
In what ways can the government, as well as energy firms like Solar Philippines, help the country is shifting to renewables?
In other countries, the question of what the government can do is more appropriate, because, without government intervention, people will not go solar, because it’s not commercially viable. In the Philippines, government intervention is not the limiting factor. Without government intervention, it already makes economic sense. The limiting factor is that the private sector has lacked the forward-thinking to prepare solar projects for the time when the solar projects are already needed now. And that’s where our company comes in. Because we have been developing these projects years in advance. And we hope that the time to harvest what we have sown is now that the country is entering a power crisis and solar technology has become cost-competitive. But compared to our colleagues in the industry, we really think that the regulatory environment has already been laid out. Unlike in other countries, we have a very pro-renewable energy policy here. And it’s really just up to the private sector to execute on this opportunity.
How can the Philippines balance meeting its energy transition goals whilst also maintaining energy security amid the impact of the Russia-Ukraine conflict?
By going renewable. It’s obvious that around the world, the external shocks from the origin of natural gas and other fossil fuels have given impetus to accelerate the transition to renewable energy. But more so in the Philippines, where we do not have significant reserves of coal, oil, or gas. So I think if there is a country that should become energy independent through renewables first, it should be a country like the Philippines.
If there is a country that should become energy independent through renewables first, it’s the Philippines
Solar power shines brighter in the PH as it accelerates decarbonisation
Clean energy sources will account for 35% of PH’s power mix by 2030
Solar power in the Philippines could expect more focus as the country is poised to accelerate the decarbonisation of its energy sector amidst increasing investor interest and a rapidly expanding project pipeline, according to Fitch Solutions.
The Philippines’ solar power grew significantly as Fitch Solutions’ Key Projects Database showed more than a ten-fold increase in capacity in the project pipeline with some valued at over US$30m, compared to what was recorded in March 2021.
This growth was also driven by efforts of the government with initiatives such as launching a 2-gigawatt (GW) tender in January 2022, including 130 megawatts (MW) of hydro, 1.26GW of solar, 380MW of wind, and 230MW of biomass. These projects will be located across Luzon, Visayas, and Mindanao. Fitch added that these also mark a shift away from the existing feed-in-tariff scheme.
“We believe the growing investor interests in the renewables sector is largely underpinned by the improving regulatory environment for the sector,” the report read.
“The Department of Energy has been working on two key renewable energy policies—the Renewable Portfolio Standard and the Green Energy Option—to encourage the development of the market.”
New decarbonisation targets
The energy department has also set new targets for renewable energy, under the National Renewable Energy Program. Under the program, clean energy sources are expected to account for 35% of the country’s power mix by 2030. This is targeted to be further raised to 50% by 2040.
On top of this, the latest draft of the Philippines Energy Plan (2040) suggested there will likely be a stronger focus on the development of solar projects with plans to increase its capacity by nearly 10.2GW. This is much higher than the planned increases in other renewable fuel types, such as wind (2.8GW), biomass (343MW), and geothermal (200MW). The draft also covered plans for a 500MW battery energy storage system.
“We now forecast non-hydro renewables capacity to total 10.2GW by 2031, from an estimated 4GW as of the end of 2021, driven largely by wind and solar projects,” Fitch noted. “This is subject to further upside risks, although we will await the establishment of concrete policy and incentives to achieve growth first.”
Aside from its 2040 plan, the department also launched the Green Energy Pricing Programme that seeks to set a ceiling price for renewable energy, helping generators secure favourable power supply agreements.
In light of the growth potential seen in renewable energy and efforts to deviate from coal, Fitch sees the Philippines will rely less on coal generation even as the energy source is expected to remain dominant.
The Philippine government is amongst the countries that participated in the Asia Development Bank’s Energy Transition Mechanism facility. The facility seeks to acquire existing coalfired power plants with the intent of retiring them ahead of the end of their operational life cycle.
