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FROM THE EDITOR This issue is a very special one for the Asian Power team as this will be making the rounds in one of the biggest power conferences in the region, the PowerGen Asia 2016. Please swing by Booth A25 so our teams can catch up on each other. We are looking forward to meet you not only at the PowerGen Asia, but also at the Asian Power Awards 2016. We are as excited as everyone is in anticipation of who will bag the awards.
Publisher & EDITOR-IN-CHIEF Tim Charlton production editor Karen Lou Mesina Graphic Artist Elizabeth Indoy
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But before the merriments, let us take you through the sectoral issues we tackled in the magazine. We probed two of the most highly advanced power market giants and put them in this issue’s limelight. We found out that Korea’s plan to hike up renewables’ share in its energy mix is surrounded by doubts, as the massive $27.4b investment the government has set aside may not be enough to make the ambition a reality. In Japan, we found from channel checks with experts that most of them believe that the country has learned from its mistakes, but they warn that less experienced countries in the region might become emboldened by Japan’s return and pursue their programmes with increased recklessness. Check the country reports to find out more. This issue also zeroes in on the current status of solar power sector in the region. Given that solar is new and growing, investments are in the low range of capital financings. Financers are still acting cautiously and are reluctant to assist solar SMEs in some countries. We also got in touch with Suzlon’s chairman Tulsi Tanti to get his views on India’s repowering policy for the wind energy sector. How will players benefit from the government’s move? Find out the answer in Vendor View. Start turning the pages and enjoy!
Tim Charlton
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*If you’re reading the small print you may be missing the big picture
ASIAN POWER 1
CONTENTs
22
SECTOR REPORT Walking on sunshine: Are Asian countries being trapped by lower solar energy costs?
FIRST 06 Singapore is ripe for a liberalised market 06 Financers get jittery in Philippine projects 08 Can India hit 100GW solar power by 2022? 10 It’s been a long time coming for budget cuts in Indonesia’s power sector
14
COUNTRY REPORT: KOREA CAN KOREA COMMIT TO RENEWABLE ENERGY USE?
18
COUNTRY REPORT: JAPAN Is Japan ready for a nuclear bounce-back?
ANALYSIS 12 China gears up for deeper set of energy reforms in its 13th Five-Year Plan
26 Can India boost the weakest link in its power value chain? 28 Can Malaysia keep up with ASEAN countries’ race to using nuclear energy?
VENDOR VIEW OPINION 30 China’s nuclear power sector continues to expand
20 Will India’s repowering policy for wind power projects breathe life into the sector?
32 Hybridisation – energy sources, intelligence, and human consumption
Published Bi-monthly on the Second week of the Month by Charlton Media Group 101 Cecil St. #17-09 Tong Eng Building Singapore 069533
2 ASIAN POWER
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News from asian-power.com Daily news from Asia most read
PROJECT
India to inject $232m for thermal plants’ supercritical technology The Indian government finally gave its nod to invest $232m in R&D to develop advanced ultra supercritical technology. Bharat Heavy Electricals Limited (BHEL), Indira Gandhi Centre of Atomic Research (IGCAR) and National Thermal Power Corporation (NTPC) are the three government agencies that proposed this.
IPP
Australia blocks foreign bids for Ausgrid Australia has blocked foreign bids for power grid Ausgrid in NSW, Australia, Citi Research said. The next sizeable acquisition opportunity for CKI and Power Assets could be gas distribution assets to be sold by National Grid in the UK in 1Q17E.
4 ASIAN POWER
IPP
Thailand’s Ratchaburi hikes capacity target to 10,000MW by 2023 Ratchaburi (RATCH) revealed a “redefined business plan” wherein its growth strategy will focus more on expansion into new business besides power and energy, and overseas investment. It targets to achieve the equivalent capacity goal of 10,000 MW by 2023, and 20-percent renewable energy capacity out of the target.
IPP
No looming power crisis in the Philippines: energy department The Philippines’ Department of Energy (DOE) officials assured the public that there is no need to worry about a power crisis amidst series of power outages that pounded Luzon. The minister ensured there is ample supply to avoid a power crisis.
IPP
Malaysia to open its first 30MW geothermal power plant Tawau Green Energy Sdn Bhd will be developing Malaysia’s first geothermal power plant in Sabah. The plant will be exporting 30 MW to the Sabah Electricity Sdn Bhd grid under the existing FiT scheme. This geothermal power plant has been lauded as its technology is considered “green” and has extremely low carbon footprints.
IPP
Korea’s power consumption surge to a record high at 80GW Korea’s power consumption broke through the roof at 80.22 million kilowatts. The Ministry of Trade, Industry, and Energy assured consumers that there will be no shortages as it has over 10% of reserved power versus demand.
Thought Leadership Article
GE Power delivers flowing electricity to Indonesia’s diving hotspot, Gorontalo
The four units for the Gorontalo province will provide 100MW of power and will be used for grid stability and expected power demand increases from the people of Sulawesi. output in the hot Indonesian climate—enough to power the equivalent of approximately 25,000 homes,” he adds. The gas-fired power plant has improved the province’s electrification ratio to 84.4%. “We believe this improvement will further foster economic growth in the region and improve the quality of life of the people in Gorontalo,” he adds.
PLTG Gorontalo
L
ocals say the sunset in the Indonesian province of Gorontalo is nothing short of breathtaking, but for a significant number of the province’s households, night time is a burden. This is because Gorontalo’s electrification ratio stood at 77.58%, meaning about 60 households in the locale did not have access to electricity at all, according to the Ministry of Energy and Mineral Resources in October 2015. Across Indonesia today, around 15% of the country’s 250 million residents don’t have access to electricity - about 37 million people. This rate is the lowest in the region. To remedy this, Indonesian president Joko Widodo launched a program designed to provide an additional 35 gigawatts (GW) of power capacity by 2019 to cope with electricity shortages, and has found an ideal technological partner in GE Power. According to Fajar Akbar, Sales Director, Gas Power Systems, GE Power Indonesia, the TM2500 generator sets that are used in Gorontalo include GE’s LM2500 gas turbine, one of the most installed and successful gas turbines in its class with more than 75 million operating hours. A unique electrification plan “Dual-fuel capability allows initial operation with diesel and eventual conversion to natural gas. The mobility of the units allows future deployment at alternative locations,” he says. “Also, these can be converted to combined cycle operation at a later date for more power at greater efficiency.” He adds that TM2500s have been a leading
technology for fast and emergency power applications over the past 10 years, with more than 200 units delivered globally and less than half the installation time of other similarlysized power solution. As the world’s largest archipelago with more than 15,000 islands, Indonesia poses a unique challenge when it comes to its electricity demand. It requires smaller and more localised power generation solutions, such is the case with Gorontalo. “Altogether, the four units for the Gorontalo province will provide 100 megawatts (MW) of power and will be used for grid stability and expected power demand increases from the people of Sulawesi in the coming years,” Akbar says. Generating reliable power in a short time frame Since Indonesia’s state-owned electricity provider Perusahaan Listrik Negara (PLN) set a target to finish the project in only six months, Akbar says a solution that is easy to deploy and able to generate reliable power quickly is the key to achieve that goal. This is where the TM2500 perfectly fits. “The TM2500 generator set, which is trailer mounted and can be installed faster than traditional power plants, is ideally suited to meet Gorontalo’s growth plans,” he says. “Each TM2500 generator set can produce more than 25 MW of power
Finishing on time Akbar says the largest challenge GE Power and the rest of the team had to overcome was the relatively short time-frame. “We were committed to deliver at the soonest time possible, by delivering the ready stock gas turbines as soon as the contract was effective, providing all the necessary supporting instruments (mechanical and electrical BOP) built in modular concept, and providing the best and most efficient manpower,” Akbar says. The power plant is currently located in Maleo Village, Paguat District, Pohuwato Regency, and has been operating since March 2016 – the total project was completed in six months. The power from the plant will be distributed through Gardu Induk (GI) Marisa to Gorontalo and North Sulawesi power system. As a result, Akbar says GE Power, with the support and collaboration of PLN and PP, successfully completed the project in a third of the time of regular open-cycle power plant development. “We are proud to work with the Indonesian government to provide our best mobile power solution, the TM2500 aeroderivative gas turbine generator set, to the Gorontalo province,” he says. Looking ahead But GE Power’s mission to power the rest of the archipelago doesn’t stop in Gorontalo’s beautiful shores as bigger plans for electrification are in the pipeline. “Based on the success of 100 MW Gorontalo Mobile Power Plant, we are now working with PLN Batam to develop 500 MW in more locations in Indonesia. In this 500 MW Fast Power project, we’re not only bringing our mobile power plant technology, TM2500, but also a complete power plant solutions (transmission and distribution) and financing from GE.,” he says. “In Indonesia, GE is committed to support the government’s plan to add 35GW of power capacity by 2019.”
“We believe this improvement will further foster economic growth in the region and improve the quality of life of the people in Gorontalo.” ASIAN POWER 5
FIRST NAPOCOR assets in 2001, generators could deal directly with distribution utilities.
Singapore is ripe for a liberalised market
When electricity retailer iSwitch got queries from corporate clients asking if they can sign up with the firm for their individual homes, managing director David Maher knew that it is a concrete sign that Singapore is ready for energy liberalisation. “For more than 10 years, Singapore has been in the process of progressively liberalising the electricity market in tranches. The Energy Market Authority’s (EMA) encouragement and the introduction of new retailers such help create a fresh layer of competition. There is no doubt that the consumer market is ready,” he says. “But the framework required is significant and must be designed carefully to ensure that all participants are ready.” EMA says that since 2001, it has progressively opened the retail electricity market to competition to give consumers more options to manage their energy cost. “Currently, a commercial or industrial consumer with an average monthly electricity consumption of at least 2,000 kWh (the monthly electricity bill is about $400) is eligible to become contestable. The contestability threshold was lowered to 2,000 kWh from 4,000 kWh on 1 July 2015. In total, about 89,500 accounts are eligible to be contestable,” it adds. How close is Singapore to its goal? Maher believes that Singapore is very close to achieving full openness of competition. Since the liberalisation of Singapore’s electricity market in 2001, there has been a notable growth trend of new electricity retailers participating to offer electricity packages to contestable customers. “EMA and SP Services are working particularly hard, through a series of regular consultations and information sessions, to ensure that the industry will be ready. iSwitch has seen that the EMA, retailers, software providers, and associated industries are working in close collaboration in order for the market to be ready for Full Retail Contestability (FRC) in 2018,” he adds. 6 ASIAN POWER
Bigger flip sides outweigh positive changes
Financers get jittery on Philippine projects
W PHILIPPINES
hen the Electric Power Industry Reform Act (EPIRA) was passed by Philippine legislators in 2001, the sweeping reforms which accompanied the bill promised to achieve two goals: foster healthy competition among power players, and bring down skyrocketing electricity rates which were a great burden for consumers. “EPIRA mandated the transfer of National Power Corporation (NPC) generating assets and management of NPC’s liabilities in the main grids to the Power Assets and Liabilities and Management Corporation (PSALM),” explains Urbano C. Mendiola Jr., vice-president, corporate affairs at the Philippines’ National Power Corporation. Mendiola adds that the EPIRA also reduced the mandate of the NPC to electrify highly rural areas, and the operation of NPC generating assets pending disposal by PSALM. Positive changes Fast forward to 15 years later, and the EPIRA seems to be getting to its desired goal. Jaime T. Azurin, CFO and EVP for Business Development & Commercial at the Global Business Power, says the EPIRA was successful in fostering a more competitive environment for industry players. “After the privatisation of a number of
Lawrence Fernandez
Urbano C. Mendiola Jr.
Market jitters But why are power project financers still jittery after these positive developments? Industry leaders say these changes were far outweighed by the bigger flip sides. According to Lawrence Fernandez, head of utility economics at the Manila Electric Company (Meralco), the Philippines used to be second to Japan in terms of highest power prices. Fernandez says this means Philippine prices are close to prices in Japan, Singapore, and Australia where retail power prices reflect what it costs to provide electric service. “Where prices are lower than in the above countries, eg, Indonesia, Malaysia, Thailand, power service is subsidised by the government, so consumers pay less than what it actually costs,” Fernandez adds. Additionally, Azurin says another one of the drastic changes brought about by the EPIRA included the change from a single offtaker to multiple off-takers. Market risks have significantly skyrocketed, he says, as private utility numbers hit 21, electric cooperatives reached 123 and commercial and industrial customers hit 1,402 from a previously government-owned scenario. “How do you sell the idea of portfolio of assets considering that banks were used to single off-takers and take-or-pay arrangement? How do we mix portfolio assets and how to mix commercial and industrial customers given that they have different demands, load factors, electricity usage?,” Azurin asks. The unprecedented plurality of the off-takers created additional business costs as well as issues with the Philippines’ local tax body, the Bureau of Internal Revenue.
The Philippines’ RE policy development vs RE implementation
Source: ASEAN Renewable Energy Policies
FIRST of weak power demand and the unpredictability of wind generation,” Li says. The issue may be dire, but it is fixable, says Li. In fact, the NDRC and the NEA have announced a series of firm policies in March 2016 which would bring down the wind curtailment rate in the next few years. “The NDRC and the NEA will focus on ensuring power dispatch for renewables to tackle the problem of curtailment for wind and solar power,” says Nur Bekri, director of the National Energy Administration. Supportive government policies On the other hand, Aswani Srivatsava, GlobalData’s power analyst, says supportive government policies that include an attractive concessional program and the availability of low-cost financing from government banks are the main reasons for the success of the Chinese wind power market despite the curtailment. Li adds that he estimates wind and solar generation to grow at a CAGR of 20% between 2016 and 2020, implying wind and solar plant utilisation hours will grow at a 1.9% CAGR (or an aggregate 10%) over the same period.
The will of the wind: China windfarms resist curtailment
China’s wind sector hobbled by curtailment from local communities
C
CHINA
hina may have the highest wind power capacity globally, accounting for a third of cumulative capacity worldwide, but a serious form of capping is lurking beneath all the figures. According to Evan Li, head of utility & alternative energy research, Asia Pacific, at HSBC, the wind curtailment rate in China has averaged 15%, the highest since 2012, resulting to reduced capacity factors. “We believe a significant portion of the curtailment results from the local grid’s unwillingness to dispatch generation for renewable energy,” Li says. Michael Davidson, a PhD candidate at the Massachusetts Institute of Technology,
said reduced capacity factors have been attributed to high amounts of forced curtailment, which reached as high as 50% in some regions last year. “The causes of curtailment are manifold: high penetrations of wind in provinces far from load centers, inflexibility of the coal-heavy generation mix, and institutional barriers owing to incomplete power deregulation,” Davidson says. Li explains that local governments are not incentivised to prioritise wind generation, as renewable energy projects are mandated by the central government to receive tax concessions. “The situation is exacerbated by an environment
Evan Li
How wind farm operators are exposed to provinces with serious curtailment problems
Source: CEC, HSBC
the chartist: Are asean countries completely missing their hydro potentials? With hydropower projects dropping to just 0.044 USD/kWh, with the lowest value reaching 0.029 USD/kWh, it’s a wonder why ASEAN countries aren’t maximising the opportunity. According to Dr Sanjayan Velautham, executive director of ASEAN Centre for Energy, finding the best business model to access finance is the main challenge for small scale hydro. This is because small hydro can be more expensive than large hydro with longer payback period. But Vietnam was a bright spot in the ASEAN scene as it had successfully installed new power capacity of small hydropower up to six times from its 2009 capacity. According to the ASEAN Renewable Energy Development study, Vietnam develops hydro as renewable source, which has 48% share of all electricity generation sources, bigger than gas or coal electricity generation.
Percent of power capacity by water availability for India, Malaysia, Philippines, Thailand and Vietnam
Hydropower capacity by country
Source: World Resources Institute
Source: ASEAN Renewable Energy Development
ASIAN POWER 7
FIRST
Analysts doubt India’s gigantic solar plan
plant WATCH
Jimah East Power plant construction kicks off
W
INDIA
hen PM Narendra Modi announced a goal to boost solar power capacity to 100GW by 2020, analysts were naturally skeptical if India can indeed hit a target that’s five times bigger than the previous one. How does India aim to do this? Trina Solar, the largest module manufacturer globally based out of China, will soon be surpassing 6GW in actual module production in 2016, higher than the capacity of all Indian module manufacturers combined. It’s also planning to invest US$200-300m in a manufacturing facility in Andhra Pradesh, and plans to manufacture 700MW of cell and 500MW of module line capacity. Adani Group also plans to invest US$2b in developing a 3GW solar manufacturing plant over a threeyear period. Existing domestic manufacturers, meanwhile, are also planning to expand their manufacturing capacityies A tough goal to achieve But why the aggressive expansion? “The 2022 target is extremely ambitious (the world’s total installed solar power capacity was 181 GW in 2014) and would make India a global leader in renewable energy,” Katherine
Firms are on a mission to get power from the Indian sun
Ross, research analyst at World Resources Institute says. Easier said than done However, this target is easier said than done. To meet these goals, Bloomberg New Energy Finance says India will need to hasten its pace of renewables capacity addition by seven times, from an average 3GW per year, to a gargantuan 20+GW per year. “We believe these targets are very difficult to achieve in the given timeframe and will need serious overhaul of the power infrastructure as well as new incentives to drive investment,” it says. Meanwhile, India has been on track, as solar’s share in its energy mix jumped to 15.82%, according to CARE Ratings. The firm says out of total installed renewables capacity of 42,750 as of March 31, solar energy’s share hiked to 15.82%, a 2.02ppt increase versus the 13.8% share in 2014-2015.
Coal-fire plant in Philippines gets go signal to operate These targets are very difficult to achieve in the given timeframe and will need serious overhaul of the power infrastructure.
Singapore shipbuilders turn to wind farms as profits sink When oil prices collapsed, many Singaporelisted shipbuilders and vessel charterers scrambled to diversify in order to stay afloat as client demand dried up and their traditional income sources vanished. Offshore player Ezion, for instance, has turned to wind farms in a bid to diversify its dwindling earnings base. Ezion has formed a joint venture with a Chinese stateowned enterprise to deploy its service rigs to support the offshore wind farm market. Others have joined the bandwagon: Keppel Corporation has delivered the Seafox 5, a multi-purpose self-elevating platform for wind turbine installation and maintenance, while Keppel Verolme has also built a mobile offshore accommodation barge for a German wind farm. Sembcorp Marine has also designed and built an offshore substation platform for the Dudgeon Offshore Wind Farm, amongst other works. However, analyst Foo Zhi Wei of UOB Kay Hian worries, “Offshore wind farms cost twice that of onshore wind farms. Wind farm developers are currently running on government subsidies – which take as much as 6-12 months to arrive – so cash flow will become an issue. The projects are likely to run into financing issues that will slow down installation progress .“ 8 ASIAN POWER
Construction of the RM12 billion Jimah East Power (JEP) plant project has kicked off with a recent first concrete pouring ceremony in Jimah, Port Dickson, a strategic site crucial to the security of power supply in Peninsula Malaysia. Two greenfield power units to be constructed at the site will add another 2,000 MW of capacity and will eventually increase Tenaga Nasional Berhad’s (TNB) generation capacity from the current 22,747.53 MW to 25,198.53 MW by end 2020.
Philippines’ Energy Regulatory Commission has given certificate of compliance to Palm Concepcion Power Corp to operate a 135-MW coal-fired power plant in Iloilo province. The 2x135MW circulating fluidized bed combustion coal-fired power plant was 99.5% completed by end-July 2016. It willl supply power to the now stable Visayas Grid.
Unit-3 of Teesta low dam hydro project gets plugged in
Sinking shipbuilders turn to wind farms for help
Going online soon Will wind farms amp up their earnings?
India’s NHPC announced that commercial operations of Teesta Low Dam Hydro Electric Project’s third unit has started. “Consequent upon successful trial run of Unit no 3 of Teesta Low Dam HE Project Stage IV (4 x 40 MW) at its installed capacity of 40 MW for continuous 12 hours on July 12, 2016, the unit 3 is hereby declared under commercial operation with effect from 00:00 hours of July 17, 2016,” NHPC said in a statement.
ASIAN POWER 9
FIRST
Scared investors are scurrying away from Myanmar’s unstable hydropower sector Myanmar
W
hen Aung Zaw Naing, managing director of construction and hydropower conglomerate Shwe Taung Group of Companies, saw how lacking Myanmar’s hydropower sector is when it comes to sustainability, he worked on forming the Hydropower Developers’ Working Group (HDWG) to address this. Myanmar’s hydropower potential is more than 100 GW, but only 3GW has been developed so far. Hydropower currently comprises two-thirds of its energy mix according to International Hydropower Association, with 3,151 MW of installed capacity from 25 operational projects. Another 46 GW of technically feasible potential has been identified so far, and a number of these projects are now under construction or at the advanced planning stage. With these numbers in mind, why has Myanmar not fully harnessed its resources? One big challenge dogging the sector is sustainability. Aung Zaw Naing, also the HDWG president, says Myanmar has to get its act together in engaging stakeholders to keep investments flowing in. “Sustainability is not achieved overnight; it’s going to require everyone working together,” he says. “Our businesses rely on more sustainable operations if they are going to have a higher return in the long-term.” He adds that in HDWG, Myanmar members will benefit from
accessibility to international developers who have tremendous experience working globally. These developers would be able to help raise the level of awareness of international best practices in environmental, social and corporate governance standards. “The coming together of the local and regional companies will strengthen the overall sector and ensure we have world-class hydropower companies operating in Myanmar coupled with local companies with improved knowhow,” he says. Vikram Kumar, International Finance Corporation’s country manager for Myanmar, echoes this sentiment. “A more sustainable hydropower sector – one with solid environmental and social guidelines, will definitely help improve the investment climate here in Myanmar.” He adds that resource sharing needs to be improved to benefit local stakeholders as well. Plagued by project delays As if sustainability issues aren’t enough, Myanmar also faces serious problems with project delays, keeping it among the least-powered countries in Asia. Is it still possible to achieve its nationwide electrification target by 2030? Kumar admits that this is a daunting ambition. “To achieve this, we are going to need to focus on ramping up grid connectivity and accessibility. At the moment,
It’s been a long time coming for budget cuts in Indonesia’s power sector When Indonesia’s Energy and Mineral Resources Ministry announced that it would slash US$67m (IDR900b) from its budget this year, Indonesian households were concerned about priority electrification programs, which powered 12,659 villages in the country’s remote regions. A third of the proposed budget cut would be slashed from its new and renewable energy (EBKTE) directorate general. According to Rida Mulyana, EBTKE director general, the department would be left with a measly US$128m (IDR1.7t) from the US4158m (IDR2.1t) originally stipulated in the 2016 revised budget. Rida assures that the priority programs will be held in check. A bold and timely move But what is the logic behind the budget cuts? According to the International Institute for Sustainable Development, the long-standing electricity subsidy has been provided via the state power company PT Perusahaan Listrik Negara. However, the number of current recipients of this tariff rate listed at around 44m households, which is much larger than the number of households estimated to be living in poverty, around 15.5m. Meanwhile, World Bank lead economist for Indonesia Ndiame Diop lauds the move, saying that it was a bold and timely policy to transform Indonesia. “The magnitude of the energy subsidies reduces Indonesia’s available fiscal space, while the country’s sensitivity to volatile global oil prices and exchange rates blurs the its fiscal outlook. Reducing the fiscal and trade balance exposure to global oil price risks is the prudent option,” he says. 10 ASIAN POWER
Vikram Kumar
Aung Zaw Naing
two-thirds of the population is not connected to the national electricity grid, and 84 percent of rural households lack access to electricity. These numbers are challenging, considering that only 200,000 customers were connected in 2013. According to the National Electrification Plan, Myanmar needs to increase this number to 500,000 new connections a year until 2030,” he explains. Kumar adds that public resources aren’t enough to finance all the needs of Myanmar’s power sector, which drives the issue back to the country’s sustainability challenges. “Driving private sector investments to help develop the sector sustainably is key and will also help improve the sector efficiently,” he says.
Indonesia’s energy and non-energy subsidy, 2004-2016 (RP Trillion)
Source: Ministry of Finance
Indonesia’s key thematic expenditures, 2004-2016 (% of total budget)
Source: Ministry of Finance
ANALYSIS: CHINA’S ENERGY FUTURE
How serious is China in its green ambitions?
China gears up for deeper set of energy reforms in its 13th Five-Year Plan
It outlines China’s dedication to green development and increased share of cleaner energy sources in its energy mix.
C
hina’s newly adopted 13th FiveYear Plan for the years 2016 to 2020 reaffirms our long-held view that cleaner energy sources, notably natural gas, will claim a greater share of the country’s total energy mix over the coming years. The plan’s emphasis on greater private participation and privatisation reiterates the government’s commitment to reforming its oil and gas sector at a time when spare capacity is putting a lot of pressure on the operations of its heavy industry SOEs. In particular, it reaffirms our long-held view that cleaner energy sources, such as natural gas, will claim a large share of the total power mix over the coming years, as China pursues a more sustainable and environmentally conscious means to economic growth, rather than the previously favoured growth-at-all-costs strategy. Moreover, it suggests that the China targets greener energy mix
Source: EIA, BMI
12 ASIAN POWER
It will pave the way for greater investment in low-carbon energy generation, namely nuclear, non-hydro renewables and natural gas.
government’s ongoing rhetoric regarding the de-monopolisation of its O&G sector is on course to be realised, paving the way for more private sector inclusion and greater reforms of SOEs. Emphasis on cleaner fuels to persist The 13th FYP outlines China’s commitment to green development, as it seeks to significantly cut down on greenhouse gas emissions and increase the share of cleaner energy sources in its overall energy mix. This will accelerate the ongoing shift away from more pollutant fuels, notably coal, the prominence of which is already coming under pressure from a government-led consolidation campaign and rising environmental concerns. It will pave the way for greater investment in low-carbon energy generation, namely nuclear, non-hydro renewables and natural gas. Based on our Power team’s forecasts, we anticipate their combined share in China’s total power mix to increase from 11.0% in 2016 to 23.0% in 2025. This is aligned with our view for China’s natural gas consumption growth to remain robust over the next five years. The government has already implemented several policies to increase domestic gas consumption, including slashing gas prices for non-
residential consumers by an average of 28.0% in November 2015. Furthermore, it has revealed plans to introduce a national carbon cap-and-trade system by 2017, which will force domestic firms to buy permits to cover their emissions and disincentivise the use of more carbonintensive fuels. Market privatisation to continue Another principle emphasised in the 13th FYP is that of openness, as China seeks to create an environment conducive to greater market competition and increased private investment in several national monopoly sectors, including O&G. The government is looking to decrease its role in the sector over the coming years, and instead plans to create more room for private investment to fill the void. This will be facilitated by opening up more SOEs to mixed ownership, though the state will continue to hold the absolute controlling interest. Moreover, SOEs’ large presence along the O&G sector value chain will be whittled down, through the incorporation of competitive market mechanisms. From Industry Trend Analysis - 13th Five-Year Plan: NPC Sets Stage For Deeper Energy Sector Reforms by Peter Lee, Oil & Gas Analyst, BMI Research
ASIAN POWER 13
Country report 1: KOREA
Korea’s vow to go green is plagued with woes
Can Korea commit to renewable energy use?
The world’s fourth largest importer of coal and heavy user of fossil fuels is eyeing a bigger chunk of renewables in its energy mix, but colossal amounts of investments and long adjustment time are badly needed.
W
hen oil-dependent Korea revealed plans to inject a massive $27.4b (KRW30 trillion) in renewable energy, experts cocked their head and wondered how the country can achieve this given that it still has energy security concerns to address. The government plans to raise the ratio of energy that must be supplied by renewables in the Renewable Portfolio Standard, a globally accepted tool aimed at facilitating renewable energy, by between 0.5 and 1.0 percentage points and allow unlimited grid access to small-scale investments in renewables of less than 1 megawatt. “Korea confronts
Most fundamentally, Korea lacks domestic sources of energy to fuel its remarkable, rapidly growing, and energyintensive economy.
South Korea coal-fired power plant capacity
Source: THE HANKYOREH 1 14 ASIAN POWER
some of the most severe energysecurity dilemmas in the world, and these dilemmas form an unusual triad combination, intensifying the challenge that they present to the country’s economic future,” says Kent E. Calder, director of Edwin O. Reischauer Center for East Asian Studies. “Most fundamentally, Korea lacks domestic sources of energy to fuel its remarkable, rapidly growing, and energyintensive economy. To make matters worse, it is unusually dependent on oil as a fuel source. In addition, most of Korea’s oil, together with much of its natural gas, comes from the volatile Middle East.” Despite the birth pains, these new renewables initiatives just might save Korea from its energy security woes, or at least keep them from getting out of hand. Renewables push Vice minister for Energy and Trade Woo Tae-Hee says that the Ministry of Industry, Trade and Energy has been formulating policies to develop new energy businesses and putting them into practice with the aim of not only fighting climate change, but also nurturing the nation’s new growth engine. He adds that the ministry will soon unveil its “green energy towns” project. The project is aimed at turning unwelcome and
unwanted facilities into environmentallyfriendly ones that generate green energy using renewables. So far, the Korean government has created a total of 19 green energy towns nationwide. The World Energy Council (WEC) estimates that Korea, a relatively small country with one of the most energy-dependent economies in the world, is heavily reliant on imported oil, especially from the Middle East. This makes the country especially vulnerable to oil shock when prices fluctuate. “The global recession which is closely followed by the ongoing drop in oil prices have caused difficulties in projecting the future energy price and situation and therefore perceived to be another key uncertainty,” says the WEC report. “In the past, low oil prices were beneficial for the Korean economy because people could increase consumption and businesses could save expenditure on production costs. However, the ongoing drop in oil price is now resulted in weak demand due to global economic slump, causing revenue loss in most industries that exports products by using crude oil as a raw material,” which includes the Korean petrochemical and shipbuilding companies. The government has been attempting
Country report 1: KOREA South Korea’s coal consumption, highest in the OECD
Kent E. Calder
Source: THE HANKYOREH 1
to build up its renewable energy sector in order to lower its dependence on imported oil, but this has been hampered by the natural geography of South Korea, which is mostly mountainous and lacking in natural resources required for costeffective renewable energy generation, says Korean Energy Economics Institute (KEEI). In 2013, renewable energy supply amounted to 9.879 million TOE in Korea, or a mere 3.52% of the primary energy supply, with waste, bioenergy and hydropower accounting for 90% of renewable energy production, while photovoltaic (PV) and wind energy account for 6%. Korea’s gross electricity production from renewables amounted to 21.4TWh, making up 3.86% of the nation’s total electricity production. Waste and hydropower accounted for 74% in the renewable electricity production, although globally, hydropower is the primary source of renewable electricity at 81.6%. Economic growth driver “The renewable energy sector has emerged as a growth driver of the Korean economy; opportunities are up for grabs for companies, especially for small and medium-sized companies, and the outlook is strong for job creation,” says KEEI. Renewable energy producers rose to 200 in 2012 from 134 in 2008 at a CAGR of 11%, and KEEI says the increasing supply in renewable energy has been helping support Korea’s economic growth by powering industries and creating new jobs. Job creation has accelerated to 11,836 in 2008 from 6,496 in 2012, at a CAGR of 16%, revenues have expanded to $6.5bn from $3.3bn at a CAGR of 19%, and exports have risen to $2.5bn from $1.7bn at a CAGR of 10%. Despite the growth of the renewables sector in recent years, KEEI explains that the share of renewable energy in the nation’s energy portfolio remains low due to its limited potential in renewable
Woo Tae-Hee
energy, at least compared to other countries, and the dominance of energyintensive sectors in the national economy. “With large steel, shipbuilding, and petrochemical sectors, the Republic of Korea has one of the most energy intensive industrial structures on Earth; and it is still growing rapidly, which of late has naturally intensified energy use, particularly electricity,” says Calder. “Korea’s energy insecurities are deeply rooted despite the remarkable job that its policy process and private sector have done in recent years of coping with the underlying domestic energy problems that the country faces,” he adds. Calder cites how the government and companies have worked together to develop new, low-energy-consumption sectors such as computers and telecommunications. In fact, gross domestic product elasticity of demand for energy has steadily declined since 2000 in part because of this trend. But WEC warns that Korean energy leaders will have to watch out for how well the Chinese economy fares as it is closely linked to Korea’s, and that a slowdown will dampen the latter’s economic growth as well. China is Korea’s biggest trade partner based on geographical proximity with annual trade between the two countries rising to US$227 billion from US$118 billion over the last 10 years. “Weak demand from China and the US has led to a slowdown in South Korean economic growth, which is expected to result in a more modest outlook for power demand growth, particularly in the industrial sector. End-use power demand is expected to average 1.4% per year through 2035, less than half the pace of the previous ten years,” says research firm Wood Mackenzie. Energy efficiency In 2016 alone, the Korean government plans to spend over one billion dollars to foster the growth of the new energy sector such as energy-efficient smart plants, smart grid and ESS. For its part,
the private sector also has a plan to invest about US$15.8 billion in the new energy sector over the next 5 years. “Energy efficiency is a crucial player in Korea’s future to achieve climate target and creating new energy market. Particularly, the new energy sector developed by cutting-edge technologies which include energy efficient systems, smart grid, ESS, and e-vehicles are highlighted as the future growth engine of Korea,” says WEC. Particularly noteworthy for WEC is Korea’s successful effort in developing innovative smart grid technologies, making it one of the cutting-edge leaders in the field. The government and private companies plan to launch a new business for expanding the smart grid infrastructure in 2016, which will then be supported with the creation of 13 hubs for the smart grid system by 2018 and a nationwide rollout by 2025. “Korea is expecting its clear and constructed plan for developing smart grid to be one of a key instrument to clean energy future of the country,” says the WEC report. Public and private opposition The Korean government’s plan to boost renewable energy production and energy efficiency might be coming together nicely, but there remains significant public and private opposition. Regulatory measures, which continue to remain place in part due to significant public opposition to renewable energy production and its inconveniences, have thwarted the sector’s expansion. “The renewable energy sector is struggling with the public’s resistance due to a lack of consensus on renewable electricity generation,” says KEEI. “Largescale wind farm construction projects have faced growing resistance from the neighborhoods and increasing complaints about noise, vibration and high frequency.” Korea will also be struggling to muster corporate support for its climate change initiatives.
South Korea’s electricity sector
Source: THE HANKYOREH 1 ASIAN POWER 15
KVB Reddy CEO Essar Power 16 ASIAN POWER
CEO INTERVIEW
Essar Power’s CEO KVB Reddy doubles the company’s efforts to crush project delays Non-completion of assets have long been plaguing Essar Power, consequently causing negative cash-flows, and Essar Power’s CEO is having none of these as he vows to stop project delays and catalyse profit turnaround.
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viz. 3 units of Paradeep power plant, 1 unit of Hazira power plant, Stage II of Mahan-Sipat transmission line, stabilise Unit II of Mahan power plant and complete Tori 1200 MW power plant. These assets once completed and operational, will generate positive cash flows, thereby improving the financial position of the company. Secondly, ensure off-take from our plants in any scenario of the industry cycle. For this, our strategy involves improving operational efficiencies so that we can produce power at the lowest cost. Since the commodity cycle is currently favourable, we intend to take advantage by securing fuel for stranded gas based assets and other coal based assets. Lastly, align repayment to lenders to the life of the assets and ease the initial cash flow mismatch. RBI’s 5/25 flexible scheme, and related initiatives are helping us achieve this objective.
ndia’s power sector is currently battling transmission and distribution issues, aggregate technical and commercial losses, power theft, and project delays piling up. Essar Power has had its fair share of delayed projects, and CEO KVB Reddy is fully determined to keep it at bay and consequently put a stop to negative cash-flows. Asian Power recently caught up with CEO Reddy, a power industry veteran with over 32 years of experience, as he discussed Essar Power’s biggest challenges and his plans to overcome these. How long have you been in the industry and how long have you been with Essar Power? I have more than 32 years of experience in the power industry and have had the privilege of being involved in executing all the power projects of Essar. From nurturing projects from scratch to seeing them turn around into PAT positive companies that are powering the nation’s future, it has indeed been an eventful journey. And it is a journey that has been a constant source of motivation. Essar Power’s resurgence fills me with an immense sense of satisfaction. Over the years, we have successfully identified opportunities and have persevered despite challenges. Having joined Essar Power in 1995, I have been responsible for formulating and directing the overall strategy of the Power Business Group. I started my career with NTPC (National Thermal Power Corporation) in 1983 as Engineer Executive Trainee and rose within the ranks to become Manager. At that stage, I looked after NTPC’s first 3 combined cycle gas-based power plants—right from concept to commissioning. Since then, there has been no looking back. Every new challenge has brought with it countless opportunities to break new ground and utilise past learnings. What were the previous positions you held and how did these help you in leading the company? Prior to my current stint, I was Chief Operating Officer (COO) of Power Business Group. In that capacity, I was responsible for leading both the operations and projects team towards building a sustainable platform to cater to Essar’s expansion plans. I worked along with the operations and maintenance teams across all plants to direct the investments, resources and management of the Power Business group towards delivering higher value solutions to all our suppliers and customers—internal as well external. My experience of working in varied value chains of gas and coal based power plants has been instrumental in shaping a 360-degree perspective. It aided my decision making capabilities. I have tried to utilise all these learnings towards ensuring the future growth of our business. What are your top three priorities for Essar Power? The power industry has entered a makeover phase, and we plan to take as much benefit as we can from the initiatives and policies which the Government of India is implementing for improving the sector’s health. Our top priority for Essar Power remains the following: Firstly, complete the balance units of subsidiaries’ assets
What are the biggest challenges Essar Power is facing? What steps are you taking to deal with these? The first challenge is managing regulatory challenges. The deallocation of certain coal blocks and the corresponding delays in project completions resulted in negative cash flows. While we had aligned the repayments of debt from the revenues of the assets, non-completion of assets is creating a mismatch and causing negative cash flows. The other challenge is obtaining fuel at an economical price for both gas and coal assets and being able to sell power at viable rates. The motivation to ensure that these challenges are being met comes from the changes afoot in the industry itself. From the industry side, many benefits are imminent.Many of the initiatives are in their nascent stage but we hope that these will be realised in due course and will have a long-term benefit for the industry. We recently had a positive turnaround in the parent company of Salaya power plant, i.e. Essar Power Gujarat Limited (EPGL). The company, for the first time since inception of the plant, stood PAT positive in FY 15-16. This was possible majorly due to utilizing the perk of declining trend of international coal cost and exploring various origins of international coal. So, this was our first step towards making the financials of our company healthier and we are even more motivated with this achievement.
We have found that by reaching for what appears to be the impossible, we often actually do the impossible.
What is Essar Power’s biggest plan to date? What should the industry be excited about? The biggest plan to date is making the subsidiaries profitable by maximum utilisation of resources that are ours and the ones provided by the government. We are on track in achieving this plan and have made one of our subsidiaries (EPGL) profitable in the last fiscal period. Currently, the industry is showing signs of growth and improvement. New initiatives of the power ministry are catalysing a turnaround. The industry should be excited about the reforms that the government is planning to bring in all the sub sectors, right from fuel to delivering the end-product to the consumer. Also, the renewed enthusiasm around renewable energy is making an impact in the industry. We hope that the industry strikes the right balance among all the sources of power generation and optimises value for the producers. ASIAN POWER 17
Country report 2: JAPAN
ASEAN forms a crowd watching Japan make a nuclear reset
Is Japan ready for a nuclear bounce-back?
Five years after the Fukushima Daichii disaster, Japan is looking to restart its nuclear game, and ASEAN neighbors are watching with potentially foolish excitement.
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hen the Fukushima Daichii accident brought Japan’s nuclear industry to its knees, it also sent out a chilling effect across other national nuclear programmes worldwide. However, a warm glow is now spreading in Asia as Japan preps to restart operations. Experts believe that Japan has learned from its mistakes, but they warn that less experienced countries in the region might become emboldened by Japan’s return and pursue their programmes with increased recklessness. As a complement to galvanising its nuclear industry, Japan also has an option to strengthen its renewables to further reduce its dependence on fossil fuels. Is Japan ready? The past five years have been a learning post-disaster period for Japan, says David Repka, partner at Winston & Strawn. The country has learned from its mistakes and enacted measures to prevent future disasters, so the time is ripe for the experienced nuclear operator to resume operations. “Japanese operators and regulators have completed a rigorous self-examination process and made significant improvements in the plants and the regulatory oversight program since Fukushima,” says Repka. Resuming operations will be an uphill battle for Japan since the disaster has shattered confidence in nuclear energy. But operators will be banking 18 ASIAN POWER
There’s nothing fundamentally wrong with nuclear energy technology.
on the intrinsic benefits that come with using nuclear energy which, although diminished in light of the disaster’s terrible aftereffects, have remained undeniable. “There’s nothing fundamentally wrong with nuclear energy technology,” says Collin Koh Swee Lean, associate research fellow at S. Rajaratnam School of International Studies in Singapore. “The Fukushima debacle may have been a sorry affair, but it doesn’t nullify the benefits one can obtain from nuclear energy.” Koh suggests that based on the post-Fukushima government report, the disaster had more to do with a lack of regulation and oversight than the risk of nuclear energy. Vigilant safety culture Experts believe that Japan, for all its vaunted diligence and technological prowess, still overlooked or underprepared for a remote but high-risk disaster scenario. This was evident in the low protective breakwaters and poorly situated emergency diesel generators. The disaster also highlighted the need for more vigilance and an increased multi-sectoral strategy to safety. It is no longer the government’s sole responsibility to make sure that nuclear energy use is safe and sound, but other stakeholders must be actively involved as watchdogs that are not afraid to point out any lax in security. This enables countries to keep security standards at the
highest standards, and equips them with cutting-edge emergency protocols that can be activated swiftly and smoothly, but seemed to have been lacking when the Fukushima disaster struck. “The Fukushima incident would not have gotten the press mileage if the event could have been contained within the station premises and salvage work had gone apace,” says Shah Nawaz Ahmad, senior advisor for India, Middle East and South East Asia at World Nuclear Association. ASEAN ripple As Japan enacts measures to win back confidence and resume operations, nuclear newcomers in the Association of Southeast Asian Nations might take this as a signal to ramp up their own national nuclear power programmes, but insiders warn that these upstarts must proceed with caution. “We see several major challenges that may hamper the development of these programmes, in particular, issues of safety, financing, infrastructure development and public acceptance,” says Egor Simonov, director, Asia at Rosatom. He expresses concern that the new nuclear entrants in Southeast Asia may have not possess robust regulatory frameworks and safety policies required to implement such complex programmes. “Generally, for the existing nuclear energy users in Asia the mastery of nuclear energy technology can be said to
Country report 2: JAPAN 2030 Japan electricity generation mix
Collin Koh Swee Lean
David Repka
Source: JAPAN ATOMIC INDUSTRIAL FORUM
have matured, whereas the new aspirants are in various stages of getting towards their dreams,” says Koh. “However, we need to note that not all aspirants may have the proper infrastructure and regulatory mechanisms to implement such complex programmes effectively.” Crisis response is one such critical mechanism that needs to be in place among ASEAN nuclear newcomers, and could prevent future Fukushima disasters from happening. Like a muscle, crisis response must be conditioned through continuous people training and sufficient infrastructure investment, but these tend to take a backseat. “The nuclear energy industry needs to pay greater attention to the supportive aspects such as infrastructure development and human capital investments,” says Koh. “Providing nuclear energy to countries that can well afford it financially is one thing, but it’s quite another if the country concerned does not possess the requisite infrastructure and human capital pool to support this energy use.” But Koh reckons that by learning from Japan and other established nuclear energy vendor states as well as keen oversight from IAEA and other international regulators, ASEAN nuclear aspirants have a chance of implementing their programmes in a safe manner and lead to a blossoming of nuclear energy in the region. Clean energy potential One thing going for nuclear energy is that it widely viewed as a generally safer and more sustainable alternative to fossil-fuel use, but in Japan, a growing contender is rising in the form of clean energy. “Japan has the technological prowess to lead the clean energy sector,” says Hikaru Hiranuma, research fellow & project manager, The Tokyo Foundation in a proposal paper. “In order to tap this know-how and become a major player in this sector, greater use of clean energy
must be promoted domestically so as to build up a home market for the industry. This is another reason for Japan to keep abreast of developments in the global energy shift and to reflect such trends in its energy mix.” Hiranuma reckons the clean energy shift movement is rising globally and will challenge Japan to keep up with the rest of the world. In December 2015 at the Paris climate conference, participating countries adopted the Paris Agreement by consensus which signaled their intention to shift completely away from fossil fuels and expand clean energy use despite the lowering price of crude oil. “Through this energy shift, countries are aiming to improve their competitive positions by investing in clean energy sources and seeking to establish technologies and reduce costs, while also building up their clean energy industries. The clean energy sector is expected to grow to a scale comparable to that of the global auto industry, and Japan cannot let itself fall behind in this field,” says Hiranuma. Solar power Among renewable energy sources, solar has a bright future in Japan with almost US$20 billion invested annually in new solar developments that are bringing 8 GW of solar-powered electricity online per year, Japan is one of the three largest solar installation markets globally, according to Tim Buckley, director of energy finance studies, Australasia at Institute for Energy Economics and Financial Analysis (IEEFA). Japan was one of the three largest solar installation markets globally in 2014 and again in 2015, says Buckley, with IEEFA estimating 2015 installs having reached 8 GW behind China’s estimated 15 GW of installs but ahead of the United States’ estimated 7.5 GW. Total Japanese solar installations are estimated to have reached nearly 30 GW at the end 2015, on track to exceed 50 GW by 2020.
Egor Simonov
Buckley reckons further growth in solar power is likely, especially in light of the Japan Photovoltaic Energy Association publishing a strategy document in April that outlined how the country can reach 100 GW of installed photovoltaic generation capacity by 2030. He adds that this would imply generation of over 110TWh annually of solar production, equating to 15% of Japan’s total electricity demand. This shows the potential of Japan to lower its dependence on fossil fuels. He reckons that even though Japan has a record 47 coal-fired power plants in the pipeline, these plants are at the risk becoming stranded assets. “If Japan builds excessive new coalfired power plants, the outcome will be underutilisation of the whole fleet,” warns Buckley. “This pattern has already occurred in China where the average coal-fired power plant utilization rate has declined to a record low 49.4% in 2015 from just over 60% in 2011. A more efficient Japanese electricity system less dependent on fossil fuel imports would improve Japan’s energy security needs and would also serve to avoid significant stranded fossil fuel asset risks,” he says.
Japan’s energy mix
Source: JAPAN ATOMIC INDUSTRIAL FORUM
Japan’s energy mix
Source: JAPAN ATOMIC INDUSTRIAL FORUM ASIAN POWER 19
VENDOR VIEW: INDIA’S REPOWERING POLICY
It’s time for a cool change in the wind power sector
Will India’s repowering policy for wind power projects breathe life into the sector?
It will revamp old turbines that are currently operating with below 500kW capacities but are located in project sites with very high wind energy potential.
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hen the Narendra Modi government revealed a new policy for the repowering of wind power projects, wind turbine supplier Suzlon is among the first firms that started to pop the champagne. Repowering means that ageing wind turbines will be replaced with more powerful, more advanced, and modern units to hike up generation figures at refurbished wind sites. Most of India’s wind turbines installed until 2000 have sub-500kW capacities and are located at sites with impressive wind energy
Creating a facilitative framework for repowering is only the first step.
Showing timeline of size and capacity of wind turbines
Source: Future of Wind Energy in India by Dr Manoj Kumar Bhambu
20 ASIAN POWER
potential. The Ministry of New & Renewable Energy (MNRE) estimates that over 3000MW capacity installation are from turbines of around 500kW or below. Suzlon is the custodian of ~30% wind assets of the 3000MW repowering potential identified by MNRE. “We have the existing infrastructure and the latest technology to repower the older fleet. Repowering enables utilizing the same land parcel to generate double the energy by deploying next generation wind turbines which give higher Plant Load Factor (PLF),” explains Tulsi Tanti, chairman and managing director, Suzlon Group. Manoj Singh, renewable energy expert at India Power Corporation, adds that the repowering might boost investment in wind sectors. “This is especially so in the states of Tamilnadu, Karnataka, Gujarat and Andhra Pradesh where good wind sites are available but not being utilised at full potential due to installation of low capacity wind turbines,” he adds. Fresh air for the sector The policy was unveiled in hopes of giving India’s wind energy sector some fresh air, given that the policy can potentially turn around a big chunk of the 27,000MW of existing installed
wind generation capacity in India. “It also enables the early investors in wind energy to come forward to leverage this opportunity and contribute towards India’s energy security,” Tanti says. The approval on the repowering policy by the government is a step in the right direction. Tanti says that Suzlon is glad that the MNRE has directed the state nodal agencies to extend their support especially for infrastructure augmentation of pooling stations wherever required and land acquisition. “However, creating a facilitative framework for repowering is only the first step,” he warns. “With the initial implementation experience, we are confident other challenges will be addressed in the subsequent revisions of the policy.” Hitting the target FY16 was a historic year for the Indian renewable industry according to Tanti. Wind energy has surpassed all its previous records with ~3300MW installation. The previous highest installation was ~3196MW in 2011. India’s sector has witnessed unprecedented acceleration last year as the growth was way higher than the industry estimates of 30 to 40% as technology advancements benefit the sector, Tanti adds.
Thought Leadership Article
Burgos Integrated Wind and Solar Farm
OWL Energy swoops in on solar opportunities in Southeast Asia
OWL Energy has been busy pushing forward solar projects in the region and promoting the power of the sun.
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he future of solar power in Asia is undoubtedly bright. Although solar costs have been dropping, the rate of decrease has slowed down. “From a technical and project management perspective, solar is relatively straightforward to install and operate, and construction times are short, therefore financiers are keen on it,” says Tony Segadelli, Chief Engineer and Managing Director of consultancy firm OWL Energy. He continues: “These positive attributes all mean that the future of solar is bright.” Several markets in Southeast Asia in particular show great promise. Segadelli and OWL Energy know this, because they have been on the ground in these countries, working on projects that have been addressing respective energy concerns. Forging on despite difficulties This is not to say that there are no pressing challenges in the Southeast Asia countries where opportunities abound. Cambodia, for example, contains abundant land although there is a risk of UXO, especially on uncultivated land. The electricity tariff paid by large consumers is significantly above the cost of solar generated power, Segadelli notes. “Therefore, an opportunity exists to sell directly to industrial estates or large offtakers,” he says. “However, the rate for selling power directly to EDC is below the current lifecycle cost for solar power generation.”OWL Energy has been Technical Advisor on solar projects in Cambodia however none have been implemented to date. This is partly because of the lack of government support for solar projects. Importance of support In the Philippines, too, there are issues caused by the overcapacity of solar and lack of forward planning in the renewable energy sector. Tony
also notes that with the current situation in the country, bilateral agreements with local distribution companies would be the only option for new solar projects. “Future solar plants will need to be sited on locations where curtailment will be less of an issue, in Luzon, for example,” he says. Segadelli notes, though, that the current administration does not appear to be a supporter of solar power. “Some of the solar developers are claiming that Philippines’ solar is cheaper than coal, which provides the base capacity for the Philippines,” he says. This does not appear to be factually correct, Segadelli notes, but it may flow into government policy. This would mean that a third FIT round (the Philippines has had two rounds of FIT) would be unlikely, he notes. “In this event bilateral agreements with local distribution companies would be the only option for new solar projects,” he says. Solid Thailand presence Meanwhile OWL Energy continues to perform strongly in Thailand. The Thai solar sector, for instance, has been growing since the end of the last decade. There are currently numerous embedded players, both local and foreign. Thai solar companies are also very ambitious in terms of growing their portfolios both within Thailand and internationally. The country has a plan to increase the installed capacity from the current 1,600MW to 6,000MW -- an annual increase of 6.8%. This means there is significant opportunity for more solar power projects to be built, installed, and commissioned. “OWL has worked on many hundreds of MW of solar in Thailand
SaCaSol – First Solar Project in Philippines
in a range of roles that cover development, construction and operations,” shares Segadelli. “In fact, OWL has probably worked on more Thai and SE Asian solar projects than any of our competitors.” These have involved, he says, being the Technical Advisor, Owner’s Engineer, Lenders’ Engineer and even the EPC(M) Contractor. OWL’s role as EPC(M) Contractor have enabled clients to reduce the installed cost of projects by using our engineering and project management skills while absorbing a slightly higher level of risk on their balance sheet, he says. Powering Myanmar In Myanmar, meanwhile, OWL is engaged in a couple of ongoing solar projects that, when completed, will be considered as some of the largest globally. The company is Lenders’ Engineer for the 220MW solar project being developed by Green Earth Power, and provided technical support for a 300MW solar project. “Myanmar is plagued by intermittent power and so backup generators are common especially in Yangon,” notes Tony. “Significant opportunities exist for both household and off grid installation of solar power.” However, he notes that the intermittent nature of the Myanmar Grid means that this cannot be used as backup (or nighttime main source) especially during the dry season when demand peaks and supply declines, due to lack of hydropower. Tony mentions the key to increasing solar penetration, especially for off grid applications, through battery technology, though he also noted this is currently an expensive option.
“From a technical and project management perspective, solar is relatively straightforward to install and operate, therefore financiers are keen on it.” ASIAN POWER 21
sector report: SOLAR
Lower costs are simply too attractive to ignore
Walking on sunshine: Are Asian countries being trapped by lower solar energy costs?
Solar players are lured by slashed costs, but financers and developers are still cautious in joining the bandwagon.
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f Singapore’s solar power dreams don’t push through, its banks have some explaining to do. Singapore is aggressively ramping up its solar energy capacity to 350MWp by 2020, but inadequate access to funding for solar generation companies might prove to be a significant roadblock for the city-state’s renewable energy agenda. “The main challenge for solar financing in Singapore is the familiarity of some financial institutions to the solar PV renewable business model and that unfamiliarity tends to heighten the risk aversion and lessen competitive financing terms,” says Camillus Yang, vice president, corporate development and finance at Sunseap, a local clean energy provider. Jacqueline Tao, energy analyst at the Energy Studies Institute (ESI), noted that solar PV SMEs typically face higher financing costs compared to conventional power generation players. For instance, larger energy players have a debt-to-equity ratio of 50/50, much lower compared with 70/30 for solar PV SMEs. “Meanwhile, the cost of equity for traditional players is just 6%, while that for SMEs ranges from 9% to 15%. Banks also charge an interest rate of 4% for conventional players with a credit rating of Baa, but SMEs need to grapple with interest rates as high as 5.6%. Larger firms can also tap bond markets, which are offlimits to solar PV SMEs due to size restrictions,” she notes. Matthew Peloso, CEO of solar energy generation company Sun Electric, says that they usually have to come equipped with a detailed explanation about their unique business model whenever they approach bankers for loans. “Our model requires explanation and understanding on the part of the financial institutions. In addition, there is a relatively low supply of capital toward new innovations which are riskier but offer higher returns,” he explained. Sun Electric’s business model involves connecting rooftop owners with clean energy customers. Peloso added that the potentially higher cost for solar firms is partly balanced by good support from Singapore’s various public and private grants, as well as interest in supporting the 22 ASIAN POWER
Given that solar is new and growing, investments are in the low range of capital financings.
development of technology, which can bridge a part of the initial funding gap. “Another point that can be made is in regard the asset size and cost to the financial institutions. Due to their fixed costs, institutions wish to fund large projects. Given that solar is new and growing, investments are in the low range of capital financings. This is a temporary situation,” he said. Despite existing difficulties, Peloso noted that the industry is making progress when it comes to improving access to funding for solar SMEs. “A local bank has been working hard to provide us with a pretty cost effective package. However, as we are new it has taken time to analyse this. I cannot disclose full details but the facility would be pretty close to the cost of a conventional utility. We are making progress,” he said. Meanwhile, Sunseap’s Yang shared that solar PV SMEs should explore new ways of clinching funding in order to lower costs. “For financing of solar in Singapore and the region, Sunseap is working towards a more sustainable financial ecosystem of asset-backed securitisation for completed projects or long term portfolio project financing coupled with the concept of a revolving credit facility for inconstruction projects. This ecosystem assists in lowering LCOE, allows capital recycling, and drives scalability for greater solar PV adoption into the region. We look forward to launching this soon in the second half of 2016,” he said. Vietnam eyeing opportunity Several countries across the Asia Pacific are also taking steps to improve solar energy capabilities. For instance, Vietnam is a nation with high solar power potential, especially in the central and southern parts of the country. The average solar energy intensity is 5 kWh/m2. The average sunshine at 150kcal/m2 in Vietnam is between 2,000 to 5,000 hours, leading to a theoretical potential of 43.9 billion TOE. “This is an advantage for Vietnam in its effort to develop a solar power industry, in the context of the increasing demand for electricity,” says Dr. Do Huu Hao, chairman, Vietnam Energy
sector report: solAR Total increase in solar power capacity by country(2008 to 2014)
Solar electricity generation in 2006 - 2014
Source: ASEAN RENEWABLE ENERGY DEVELOPMENT (2006-2014)
Source: ASEAN RENEWABLE ENERGY DEVELOPMENT (2006-2014)
and Energy Efficiency Association. Among noteworthy solar projects there include the 500kWp Rooftop Solar by ECC HCM in Ho Chi Minh City, the 2MWp Solar power plant by ECC HCM in Phu Yen Province, the 1MWp Solar Power by Thanh Thanh Cong Group also in Ho Chi Minh City, and the 300 MWp Solar Power by Thanh Thanh Cong Group in Binh Thuan Province. “The world’s demand for energy is growing and set to increase by 56% between 2010 and 2040,” says Dr. Hao. “In this context, Vietnam also needs to find a new energy resource, and solar power is one of the best alternative energy that Vietnam has.” According to the Decision NO. 2068/QD-TTg on the development strategy of Vietnam’s renewable energy by 2030 and vision to 2050, Vietnam’s solar power production will increase by 1.4 billion kWh in 2020; approximately 35.4 billion kWh in 2030 and 210 billion kWh in 2050. “This is a good chance for all local and international enterprises to invest in Vietnam now,” notes Dr. Hao. Rapid development in China China, too, is boosting its solar power capabilities. With newly installed 14 GW solar panels in the country, China easily became the largest solar panel market in 2015 as it grabbed a whopping 25% share of the world’s total 55 GW additional solar panel installations. “This rapid expansion of investment into solar energy can be attributed to the generous incentive programs that the country offers, as well as the government’s five-year plan to hit 100 gigawatt installations by 2020,” says Jake Liddle of Dezan Shira & Associates. Other studies, such as one conducted by Xinhua, forecast an even brighter outlook for the industry, with figures as large as 150 gigawatts by 2020 predicted. Revenue in China’s solar power generation industry rose at an annual rate of 145.3% between 2010 and 2015, totaling US$2.6 billion. This amount was largely spurred by rising household demand for electricity, which has caused several cases of power supply shortages in the past and brought exceptional demand for solar power generation. “Environmental consciousness and pollution problems have also contributed to the want to shift from a reliance on imported fossil fuels to renewable energies,” says Liddle. Under the twelfth five-year plan, the State Energy Administration made aims to increase solar power generation capacity from 860 megawatts to 21 gigawatts. China’s solar panel manufacturing industry has also been developing at a fast pace: from 2010 to 2015, the industry saw an annual growth rate of 2.4% with revenue totaling US$29.8 billion. Over the same period, Chinese solar cell output has been increasing by 21.3% per year, with an estimated output of 27.6 gigawatts in 2015. Corporate investment in solar installations is met with generous policies and incentives. In 2013, the Chinese
government introduced new feed-in tariffs (FITs), deployed at both state and provincial levels to fuel the growth of distributed solar rooftop installations. The central government currently provides 20-year subsidies of US$0.06 per kilowatt-hour of output from solar rooftop projects. For surplus power, RMB 0.40 per kilowatt-hour is awarded from the state grid, for any surplus power they generate. “Two factors are combining to incentivize the Chinese government to strengthen the solar panel industry,” says Liddle. “Increasing awareness of environmental pollution, and concerns over power supply and generation.”
Jacqueline Tao
Agostinho Miguel Garcia
Matthew Peloso
Realistic energy mix Meanwhile, in the Philippines, Bienvenido S. Oplas, Jr., head of Minimal Government Thinkers and a SEANET Fellow, says solar power consumption in Asia remains very small. He says less than 0.05 TWh in 2015 for six of the 12 economies — Vietnam, Hong Kong, Malaysia, Philippines, Singapore and Thailand. “Thus, statements that many Asian economies have significantly embraced new renewables like solar, and their use of coal power is declining as they shift towards more solar and wind power – are preposterous,” says Oplas. “The recent heightened interest in renewables is understandable. But let me say this: for now, renewables cost more than conventional power, which means higher power prices. There’s a cost to protecting our environment — no such thing as free lunch.” He added that the Philippines is heading towards sufficient power capacity and majority of these power plants are coal. In India, the country has been thinking of setting up solar parks to address blackouts. “The solar park concept is similar to an economic zone dedicated to the generation of power through solar energy and also to the manufacturing of solar energy components,” says Agostinho Miguel Garcia, chief of development and engineering at Sun Business Development Lda. A solar park will hold a number of solar power plants and manufacturing outfits, each developed by separate or the same groups/promoters. The concept aims to accelerate the development of solar power generation projects, by providing developers an area that is well characterised, properly infrastructured, and where the risk of the projects can be minimised as well as facilitation of the permitting process. As part of plans to end blackouts, India aims to set up solar parks with a combined capacity of 22 gigawatts. The Solar Energy Corporation of India (SECI) on behalf of Government of India and the Ministry of New and Renewable Energy handles the funds to be made available under the Scheme for development of Solar Parks and Ultra Mega Solar Power Projects. “The deployable technologies are PV with and without tracking, CPV, and CSP,” says Garcia. “The manufacturing hub can be for any of the components of these technologies or for the whole ASIAN POWER 23
sector report: SOLAR assembly of products or systems – PV, CPV, and solar field of CSP technologies.” Concentrated zones of development may also serve as centres for the deployment of new technologies to be scaled up by setting up appropriate research and development facilities and may also provide targeted economic and employment opportunities, and growth for specific locales or regions. Garcia notes that a solar park will apply any of the same principles as an SEZ. He says: “Generally speaking we will have one or more blocks of land will be designated and pre-permitted as a concentrated zone for solar development; individual solar plants will be constructed on the land in a clustered fashion; common transmission and infrastructure.” It will also have economies of scale, use of less expensive, domestically-manufactured components: structures, pressure vessels, turbines; manufacturing of components locally, and large-scale demand. Challenges ahead ADB president Takehiko Nakao said that growth in a speech that in the past five years, exponential growth in solar energy deployment across Asia and the Pacific has been witnessed. At the end of 2015, solar energy capacity exceeded 75 gigawatt (GW), up from 1 GW in 2010 in the Asia and Pacific region including Australia, Japan, and New Zealand. And for the PRC, it held more than half of the region’s capacity at the end of last year. “The cost of solar energy globally has fallen by about 70% since 2010,” says Nakao. “This enormous achievement is due to efficiency gains in energy conversion, economies of scale driven by government policies and subsidies, and financing from commercial banks and international financial institutions including ADB.” He also notes that ADB has contributed significantly to the region’s rapid solar energy growth. ADB’s Asia Solar Energy Initiative was launched in May 2010 to strengthen our support to developing member countries. For example, ADB has supported a large-scale solar park in Gujarat and Rajasthan in India and grid-connected solar Photovoltaic (PV) in Uzbekistan, Thailand, and the Solomon Islands. ADB has helped to pilot off-grid hybrid solar-wind systems in Nepal and solar PV in small island nations such as Tonga and Maldives. In addition, ADB has supported the PRC’s first major concentrated solar energy plant. “Despite these achievements, we must not become complacent,” Nakao says. “In my view, there are three key challenges to expanding solar energy further and reaping its potential in Asia and the Pacific.” First, he notes, money matters. In Asia, more than 400 million people do not have access to any form of electricity. Bringing clean energy to them, including solar energy, will require substantial investments. Second, although the cost of solar energy has fallen significantly, it is still too expensive for many developing countries in Asia. “Third, given that solar
file:///E:/ISSUES/AP/2016/SeptOct2016/links/India_Energy_Map_v4-03.png
India sets year-onyear targets to reach ambitious 2022 solar goals
Source: World Resources Institure
The manufacturing hub can be for any of the components of these technologies or for the whole assembly of products or systems – PV, CPV, and solar field of CSP technologies.
Growth of solar power cpacity against growth of all RE technologies
Source: ASEAN RENEWABLE ENERGY DEVELOPMENT (2006-2014) 24 ASIAN POWER
energy is intermittent, electricity grid systems will need to be upgraded with new technologies to absorb the solar energy,” he says. “This is particularly important in small power systems.” Nakao also notes that ADB is working with its developing member countries to address these challenges. First, ADB is scaling up its financial support for clean energy, he says. “Last September, I announced a doubling of ADB’s climate financing from the current $3 billion to $6 billion per year by 2020,” he says. “Out of this $6 billion total, $4 billion is for mitigation including renewable energy and energy efficiency.” Clean energy investments including solar will be increased from the current $2 billion to $3 billion a year by 2020, he notes. Second, Nakao says ADB expects the cost of solar energy to fall further as solar energy installations are scaled up and local manufacturing capacity is increased. “It is also important to pursue innovative business solutions to bring affordable solar energy to the poor,” he says. As an example, he says that in India, ADB has supported a private sector company to install solar panels at low-income households in rural areas. Energy from the solar panels will be delivered to households initially without any payment via the system of electricity credits, Nakao shares. Doing solar PV differently Garcia from Sun Business Development adds that many of the PV industry players have already wished for opportunities that were faster, easier, and better defined than actually develop a PV project from zero, though some of the players have developed pretty neat skills doing exactly this. “I have already commented on solar parks and their impact, which so far has been remarkable in PV and CSP. Another interesting way has been devised by the International Finance Corporation (IFC), part of the World Bank Group (WBG). The programme is called Scaling Solar. IFC has developed a product that uses several separate products from the WBG as World Bank supports country governments with financing and advice, IFC leveraging the private sector and the Multilateral Investment Guarantee Agency (MIGA) providing a range of political risk insurance products to attract private capital into emerging markets,” he says. The cost of solar photovoltaic technology has fallen more than 80% in the past six years. Still, many countries have struggled to develop utility-scale solar plants due to limited capacity to manage, structure, and negotiate private power concessions; small and distinct power markets can deter investors and small grids can only absorb small projects; power projects are not competitively tendered; individually negotiated contracts have high transaction costs and poor credit utility offtakers as well as political risks increase the cost of capital, driving up the tariff “This results in less attractive projects and in the end, and mostly shady deals are done that benefit only some while the value of PV is not obtained,” he adds.
ASIAN POWER 25
Analysis: INDIAN DISCOMS states in carrying the scheme in spirit and intent as well as key premises underlying the scheme holding true. The UDAY is a far more comprehensive scheme as it addresses DISCOM problems in the past, present and future. DISCOMs in the past have accumulated losses due to high AT&C losses and lack of costreflective tariffs, mandating the states to take over accumulated losses. It also focuses on resolving present problems like coal supply concerns and aims to make DISCOMs efficient.UDAY scheme’s success critical for overall sustainability of the Power sector & for setting up base for the next phase of reforms.
Time for a reality check in Indian DISCOMs
Can India boost the weakest link in its power value chain?
DISCOMs have always burdened the Indian power sector and have always been highly vulnerable to aggregate technical commercial losses.
I
n India, for decades together, DISCOMs have remained as the weakest link in the Power sector value chain due to 1) high Aggregate Technical Commercial (AT&C) losses (national average of ~22-23% in FY14), 2) lack of cost-reflective tariffs and 3) absence of timely support by the states. Resultantly, DISCOMs have built up huge pile of debt (~Rs.4.3 trillion as on Mar-15) to fund their accumulated losses. In November 2015, Government of India (GoI) with an objective of financial turnaround of DISCOMs launched Ujawal DISCOM Assurance Yojana (UDAY) to improve their operational and financial efficiencies. Through this scheme, the GoI intends to achieve four key milestones a) reduction in debt burden through phased takeover of outstanding debt, b) improve operational efficiencies of DISCOMs, c) reduction in cost of power generation through various measures and d) enforcing financial discipline on State DISCOMs to achieve alignment with State Finances. Additionally, the scheme also envisages benefits to the participating DISCOMs such as 1) access to additional/ priority funding for capital expenditure from the Central Schemes2 and 2) higher share of cheaper power from Central Power utilities. This scheme remains optional for the states. Under the scheme, tripartite Memoranda of Understanding (MoUs) were signed amongst states, DISCOMs 26 ASIAN POWER
The likelihood of UDAY achieving desired results to make DISCOMs sustainable and improve overall health of Power sector appears high.
and GoI clearly stipulating their responsibilities for achieving operational and financial milestones. The UDAY scheme is more comprehensive than earlier Financial Restructuring Package (FRP) schemes as it encompasses all the three elements i.e. 1) clearing up past debt burden, 2) provide financial roadmap to shift to cost reflective tariff regime by FY19 and 3) provide enough deterrents for the states to eliminate future losses of DISCOMs post FY18 as it starts impacting their Fiscal Responsibility and Budget Management (FRBM) limits. Desired results from UDAY To date thirteen states have signed UDAY MoUs. The likelihood of UDAY achieving desired results to make DISCOMs sustainable and improve overall health of Power sector appears high. CARE believes its success would depend upon support it receives from the participating DISCOM losses during FY10-H1FY16
Source: Ministry of Power, CARE Ratings
Dependence of success However, its success hinges upon participating states’ 1) willingness and ability to adhere to key operational milestones, 2) reducing overall cost of power by sourcing power through optimal mix of generation sources and building adequate intrastate transmission capacity, 3) Improvement in sustainability of DISCOMs by moving to cost-reflective tariff regime (viz. quarterly/monthly automatic fuel adjustment), 4) supporting DISCOMs through timely payment of subsidies and 5)proactive resolution of other critical issues such as lowering cross subsidization in power tariffs to boost Industrial/commercial demand, accurate determination of AT&C losses etc. The implementation of Central Schemes for feeder separation and sustainable reduction in AT&C losses also assume importance in this backdrop. While these milestones are being achieved, the other Distribution reforms also needs to be expedited bringing in competition in the power distribution segment by creating division of State DISCOMs into carriage and content subsidiaries and inviting private participation in the supply business along with incumbent for creating vibrant multi-buyer and multi-seller power market. From “Impact analysis: DISCOMs, the weakest link in the Power value chain – Can it be strengthened? A reality check....” by CARE Ratings
ASIAN POWER 27
analysis: MALAYSIAN NUCLEAR ENERGY
Commitment is not enough to catalyze nuclear power
Going nuclear in ASEAN: Can Malaysia keep up with the race to nuclear energy use?
Malaysia’s commitment to turning to nuclear power is without doubt, but a myriad of roadblocks could delay the country from achieving its nuke ambition and becoming a nuclear powerhouse.
I
n January of 2011, two months before the paradigm-shifting Fukushima incident, Malaysia, ASEAN’s third richest nation, and third largest economy, took the bold step in the “go nuclear” route to establish its state-backed nuclear energy organisation, NEPIO (Nuclear Energy Programme Implementing Organisation. Dr Zamzam Jaafar, one of the nation’s leading energy experts, who already boasted a greater than three decade career at the Tenaga Nasional Berhad (the national power utility), was asked to take the reigns as NEPIO’s CEO. He was the obvious choice. Holding a PhD in nuclear engineering, Zamzam
While there is no doubt that Malaysia is committed, a lot must occur before the nation’s first operational NPP opens its doors.
Nuclear timeline of selected Southeast Asian countries
Source: Southeast Asia’s Nuclear Energy Future: Promises and Perils 28 ASIAN POWER
helmed the nuclear unit of the Malaysian power supplier long before NEPIO was conceived. Everything was ahead of the fledgling organisation, including the problems that were about to arrive, albeit vicariously, due to Fukushima. But NEPIO and Dr Zamzam have steered a steady course and Malaysia’s nuclear energy industry is prevailing. In his sixth year as CEO, Zamzam describes the Malaysian government’s commitment to its nuclear programme as “a long-haul assignment… but we have been working with the IAEA since we started, and before that too when I was head of the nuclear energy unit at Tenaga Nasional.” Next big move Zamzam labels both Vietnam and Bangladesh as the next movers and shakers in the Asian nuclear industry, with Bangladesh, interestingly, leading the way. Although if one considers Bangladesh in context, it is an obvious contender to go nuclear sooner rather than later, a massive, swelling, power hungry population inhabiting a relatively small land area, an under-developed economy but one which enjoys relatively stable government and has a middleclass on the precipice of exploding in
size. “Last December Bangladesh signed a government-to-government contract with Russia, and the Bangladeshi nuclear authority issued a construction licence for 2017. I think the target is for the operation date of the first unit is 2023, and the second unit in 2024.” Malaysia’s own aspirations While regional co-operation is bound to continue to the benefit of all nuclear newcomers in Asia, Malaysia (or more precisely the Malaysian Ministry of Energy, Green Technology and Water) has just take the lead in chairing the development of a ASEAN nuclear energy cooperation body. “For our part, we have already decided to proceed with what we call the IAEA Integrated Nuclear Infrastructure Review Mission, due for roll-out later this year” says Zamzam. Under this framework the International Atomic Energy Agency is set to provide some highly detailed analysis and follow-on advice based on the moved that have been made in ASEAN nuclear over the last five years. “We are hoping that the IAEA will provide us with counsel for proceeding with the programme, what we have done correctly, what we need to improve on, and so on.” With reports from Simon Hyett
NUCLEAR FORUM.ASIA STORIES
Projects
AERB gives permit for power start-up of Kudankulam 2 Atomic Energy Regulatory Body (AERB) has finally given a permit for the power rise of the reactor plant’s second unit, thus, the Nuclear Power Corporation of India obtained from the atomic regulator the permit for power start-up of Kudankulam NPP second unit. The supervisory body believes that the unit may be operated safely.
Projects
Hitachi-GE to unveil nuclear energy course in Malaysia Japan’s Hitachi-GE Nuclear Energy has renewed an agreement with two Malaysian universities under which it will conduct a new international human resources development program to train workers for the nuclear power industry.
POLICY & INFRASTRUCTURE
Russia plugs in new generation reactor “This event is our great victory, which crowns a huge amount of work in installation and adjustment of equipment, and complex process operations. It can be stated that all works were done reliably and safely. The operating personnel clearly understands the process, equipment operates safely and reliably,” Andrey Petrov, General Director of Rosenergoatom (a Rosatom subsidiary), said.
NEW BUILD
Indonesia’s Batan names Bangka Belitong as recommended site for nuke plant Indonesia’s National Atomic Energy Agency proposed building nuclear power plants in Bangka Belitong Province. Bangka Belitong, lying at the east of Sumatra, is composed of granite and thus, has the ability and strength to endure nuclear power plant construction.
Projects
China suspends work on $15b nuke waste projects amidst protests Coastal city Lianyungang crumbled under protesters’ pressure as it halted work on a proposed $15b nuclear waste processing plant amidst residents’ protests on the project’s health risks. Protests began over the weekend as Lianyungang was to be chosen as the site for the project, which was slated to begin construction by 2020.
NEW BUILD
Japan predicted to restart 19 nuclear reactors by March 2018 Seven Japanese nuclear power reactors are likely to be in operation by the end of next March and 12 more one year later, according to an estimate by the Institute of Energy Economics, Japan (IEEJ). Judicial rulings and local consents will influence the rate of restart. ASIAN POWER 29
OPINION
JOHN GOSS
China’s nuclear power sector continues to expand
john.goss@aod.com.hk
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ajor targets have been set by Chinese authorities to improve the nation’s nuclear energy security and to control its nuclear energy capacity and resources. The current 13th Five Year Plan (2016-20) features the nation’s nuclear power development for the first time. This addition to the Chinese Central Government’s plan for future development has happened as the country becomes a global nuclear energy player. A recent media report in China Daily said that China currently has 30 nuclear reactors operating with another 26 reactors currently under construction, according to the head of China’s nuclear energy security supervision, under the Ministry of Environmental Protection, Tang Bo. The report says that the total number of reactors in China has exceeded the number of reactors in Japan which has 54 reactors. China’s nuclear energy sector continues to make headlines in the domestic media as the media report on the many conferences and interviews with high-ranking
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aturing into its ten years of commercial operations, the Wholesale Electricity Spot Market (WESM) has seen its share of volatility and regulatory intervention. Spot prices in WESM have been strongly driven by events, spiking on an almost annual basis on plant maintenance shutdown, typhoons, or fuel shortages. Volatile spot market prices which are susceptible to market power problems make up the physical characteristics of an electricity market. This behaviour of electricity prices is due to the fact that electricity is scarcely storable. With limited storage capacity such as reservoir hydropower plants and pump storage facilities, the consequences of this non-storability is evident in the enormous price fluctuations which can be observed in most electricity markets. As the competitive but volatile electricity market matures, generators, retailers, and consumers seek certainty in their costs and revenues through a mix of hedging practices, contracting, and active trading. The introduction of a (derivative) forward market, which allows buyers and sellers to trade now for delivery in the future, locking-in a price in advance, can significantly increase competition and benefit consumers. As forward markets provide certainty to future price swings, it is a complete hedging tool, limiting uncertaintyinthefuture.Aforwardmarketmanages the risk of uncertain future demand and in doing so changes the producers’ strategic incentives in a way that enhances efficiency, increasing liquidity while reducing volatility. 30 ASIAN POWER
officials linked to the nuclear energy sector. In my journalist role, I receive many press releases from both domestic companies and global companies on developments in the Chinese nuclear energy sector, together with other related radiation industries, such as the medical sector. More nuclear energy opportunities A global energy major that has an impressive foot print in China is the US based firm Westinghouse Electric Co. The company is expecting to begin fuel loading operations at the world’s first AP1000 nuclear plant during November. The nuclear facility in China’s Sanmen, which is in Zhejiang Province is close to becoming operational. It has been reported that the plant will become operational early in 2017. The president for Westinghouse in Asia, Gavin Liu told the media that this move will pave the way for more nuclear energy opportunities for the company in this booming nuclear energy market. Liu said that there are more than 100 nuclear power
plants planned in the future coming decades. He told the media that the company is planning for further expansion into this region. The chief engineer of China’s State Power Investment Corp, Wang Jun has said that if everything goes smoothly the Sanmen One unit will be operating in 2016. The future of nuclear energy in China Many of China’s nuclear energy projects were delayed for more than three years due in part to the supply problems with key components plus the negative impact of the Fukushima nuclear disaster in Japan. In general terms the Fukushima nuclear disaster created a an understandable pause on the nuclear energy industry globally. However, many nuclear power analysts have said that many lessons have been learnt and new safety features have been developed and incorporated into the industry. Another futuristic nuclear energy technology that is being developed and is already being incorporated into actual projects which are currently being designed and will be built in China very soon are:- floating nuclear reactor power generation platforms . These nuclear powered vessels will have the potential to be used in future offshore projects. The country is swiftly approaching the building its first floating nuclear power plant. This groundbreaking plant will be installed in a vessel which would be capable of providing stable, reliable power to remote waterside regions such as in the South China Sea, recent reports in China Daily say.
ERIC HO
Electricity derivative market for the Philippines Bidding behaviour The availability of a market-determined forward price signals future market tightness allowing producers to better plan generation and outages, and distributors securing the required volume. Competition can also be expected to increase as more players participate with improved understanding and appreciation of the forward market. Gaming or market power will also shrink with an alternative forward market to trade where information is transparent. Inthephysicalspotmarketwithinelasticdemand, a large generator can exercise market power either through reducing supply, or by differentiating between bid prices of different generating units to a profit-maximising strategy. As all generators will be paid the market clearing price i.e. the highest price bid to satisfy demand, large and opportunistic generators at the margin have an incentive in pursuing the differential bidding strategy. These generators will offer prices way above the marginal cost as the cost mark-up makes up for units not called upon for supply. In the presence
of hedging contracts, large generators lose their incentive to exercise market power over spot market prices. Electricity generators who hedge their positions in the spot market are protected with a future revenue stream which allows them to pursue an aggressive pricing policy in the spot market and counter threats of new entrants, thus maintaining market share. Financial derivatives also help to push prices closer to marginal cost by making the supply side more contestable. On the flip side, with sufficient generating capacity, large generators can easily deter new entrants by using contract cover as an instrument for dumping. By lowering electricity prices and hence profits of individual generators in the near term, new market entrants are deterred and generators stand to have higher prices in the long run. Derivatives can also be used as a commitment device to prevent regulatory intervention and to increase future market share. The effects of derivatives on the spot market price depend crucially on the level of hedging by the generators.
C
M
Y
CM
MY
CY
CMY
K
ASIAN POWER 31
OPINION
AKIRA TOKUHIRO
S
Hybridisation – energy sources, intelligence, and human consumption
everal months ago, I happened to see an NHK World’s web-based documentary on a Japanese city called Kashiwa-no-ha (KNH) “Smart City” – an institutional collaborative initiative partnering municipal (Chiba Prefecture, Kashiwa City), commercial/business, and educational (universities) entities. The three broad objectives of this initiative is as follows; that is, to move Kashiwa-no-ha to be: 1) an EnvironmentalSymbiotic City that is environmentally friendly, 2) a City of New Industry Creation that fosters commercial growth that generates new vitality for Japan, and 3) a City of Health and Longevity with people of all ages enjoying healthy and secure lives. Kashiwa-no-ha hopes to leverage both tangible and intangible means including the enthusiasm of its residents (and visitors) to pursue ‘optimal solutions’ along these objectives to materialise a “NewVisionfortheCitiesofTomorrow”.Firstofall,I commend initiatives such as these in municipalities on the outskirts of what I call “world cities”. They are symbolic relative the present state-of-affairs that
M
any of the PV industry players have already wished for opportunities that were faster, easier, and better defined than actually develop a PV project from zero, though some of us have developed pretty neat skills doing exactly this. I have already commented on solar parks and their impact, which so far has been remarkable in PV and CSP. Another interesting way has been devised by the International Finance Corporation (IFC), part of the World Bank Group (WBG). The programme is called Scaling Solar. IFC has developed a product that uses several separate products from the WBG as World Bank supports country governments with financing and advice, IFC leveraging the private sector and the Multilateral Investment Guarantee Agency (MIGA) providing a range of political risk insurance products to attract private capital into emerging markets. In a nutshell we have advisory, financing capacity for the private sector, financing for the public sector, and partial risk guarantees to serve as sovereign guarantees. This builds up the most loved word in the industry: bankable projects! The cost of solar photovoltaic technology has fallen more than 80% in the past six years. Still, many countries have struggled to develop utilityscale solar plants due to limited capacity to manage, structure, and negotiate private power concessions; small and distinct power markets can deter investors and small grids can only absorb small projects; power projects are not competitively tendered; individually negotiated contracts have
32 ASIAN POWER
is simply wasteful and unsustainable. However, as often said in English, “the devil is in the details” – the tangible is often challenging to implement because as I noted before in my previous column, the interaction of humans, machines determine the outcome. Allow me to provide additional perspective. Managing energy needs In terms of “energy”, KNH is trying to manage its energy needs in a way that changes the statusquo of producing and consuming electricity. That is, in contrast to a dated, decoupled approach, the objective now includes an environmentally friendly and cost-efficient technology at its “core”; that is, simply a power management network that integrates both conventional and renewable power sources with emerging storage and distribution systems. KNH’s “Smart Center”, a control center that measures/monitors and displays “energy flows”, has already reported reduction of peak power consumption by some 26%. KNH claims
the obvious – that energy is conserved and CO2 emissions have been reduced. KNH key technology component is Japan’s biggest lithium-ion storage cell systems2, as well as solar and emergency gas-powered generators. The facility integrates power generation, conservation, and storage, and was the first in Japan to share power beyond a private grid. The installed NAS battery system is equipped to function as an emergency power source during a power outage or to reduce peak demand during routine operations. The system has a rated output of 1,800 kW and a rated capacity of 12,960 kWh at a 7.2-hour discharge period. Let me now focus on the research-oriented aspects using the overarching concept of LENDIT (length, energy, number, distribution, information, and time) I previously noted in Asian Power. It seems that regardless of the primary energy source (typically energy plants of larger scale, based on nuclear or fossil fuels), that now shares connection to an electricity grid with renewable sources (solar, wind, etc.), realisation of hybrid systems is a matter of optimising the supply and demand that characteristically vary in time and distribution. In fact, this is as simple as the weather itself – the solar cycle and the weather (wind, rain, etc.) that accompany it, versus human consumption of energy, perhaps quasi-synchronised with sunrise (in daily, initial consumption) but in modern societies equally consuming energy after sunset. Fortunately, most of humanity sleeps at some time over a 24-hour cyclic timespan.
Agostinho Miguel Garcia
Scaling solar – a new way of doing solar PV
high transaction costs and poor credit utility offtakers as well as political risks increase the cost of capital, driving up the tariff. Less attractive projects in the pipeline This results in less attractive projects and in the end mostly shady deals are done that benefit only some and the value of PV is not obtained. Scaling Solar aims at developing a PV project in less than two years (from zero to commissioning) at low tariffs by providing advice to assess the right size and location for solar PV power plants in a country’s grid, simple and fast tender process but ensuring strong competition from committed industry players, developed and tested bankable templates of power purchase agreements (PPA) and concession agreement, government support agreement (GSA) that can positively eliminate negotiation, competitive financing so that the cost of finance is affordable, and risk management tools to lower tariffs. This benefits all stakeholders. Governments
and utilities are able to deploy PV projects fast and with the enhanced probability of success attached to a low tariff that may contribute to reduce the common deficit of the utilities in developing countries. Project Developers and Investors are certain of looking at projects that have been developed with quality and are able to bid fast and efficiently reducing their development costs and risk perception, bidding low to get the projects. International Donors and Development Partners may provide financial support to projects that work and really make a difference leveraging their funds and maximising the results in developing countries by providing affordable clean energy. Asian investors should pay attention to Scaling Solar as to allow them to bid for PV projects in Africa with a reduced risk, assured quality, and financing availability. Asian manufacturers should team up with investors and EPC companies to deliver costeffective PV projects under well defined conditions, allowing for win-win situations.
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