The ASEAN Opportunity: ‘Magix’
ASEAN populations require an energy-mix that will be clean, quick and affordable. The region is facing challenges of energy supply adequacy, environmental sustainability, and affordable access. While growing energy demands need to be satisfied by increasing power generation sources, the recognition and implementation of energy-efficiency – as the “fifth fuel” – is equally important in these economies. Estimated need for investment in electricity infrastructure is around USD 4 billion per year up to 2035, while the need for transmission and distribution infrastructure is approximately USD 28 billion per year up to 2035 (IEA, 2014). The energy-efficiency market for ASEAN is estimated at about USD 10 billion per year until 2025. Expanding its energy supply in a way that is environmentally sustainable will require Asia to pursue a combination of renewable energy, cleaner non-renewable sources, and technologies to make carbon-based fuels cleaner to use.
Leaders in ASEAN must therefore find the ‘magix’, which is the “magic in the mix” of energy sources, being oil, natural gas, coal and clean and safe renewables. One technology alone will not be able to solve our growing energy demand.
In the energy markets in ASEAN there will be no space for government run ‘monopolists’ of power providers. There is no way that governments are able to finance future energy investment in their entirety, so there is a strong need for the private sector. Governments need to address two critical factors when looking at the energy needs of the future. The first is energy policy and strategy, and government strategy needs to build a structure based on the assumption that the private sector will be in the driver’s seat for future energy investment. Governments need to facilitate such shift and remove obstacles for investors.
Get Financial Markets out of their Old Protocols
The second factor is the need to expand and develop the banking sector and capital markets, including “crowd-funding”. These financial markets could range from pension funds to insurance funds, private investors, co-operatives, wealthy companies that want to expand into “green” options. In Germany, over 60% of a total of 72.9GW installed RE systems is owned by private individuals, farmers and project companies, while only 12% was owner by traditional power companies, 13% by investment funds and banks and 14% by industry (Trend research, April 2014). While Basel III, the global regulatory standard on bank capital adequacy and market liquidity risks is also affecting project financing in all its forms, there is an growing interests in ‘crowd-funds’ as individual investors are not willing to stay on the stock markets given the irresponsible and criminal acts committed by ‘big name’ companies.
Therefore, international financing institutions, such as the World Bank, Asian Development Bank and major investment banks must reform and change their own financing rules and procedures to set the stage for commercial banks, venture capital companies and community-financiers to operate smoothly. International commercial banks must change their traditional business-as-usual procedures and cut down transaction costs for equity or debt financing to facilitate relatively low-cost renewable energy projects to remain fairly profitable. Work with effective and knowledgeable experts for making a deal and stop hiring high-fee charging lawyers and finance professionals. Big-basket financiers (e.g. Bankers who are accustomed to say “we only do projects of above USD 25 million”) will lose business if they do not recognise the new reality that renewable energy technologies are becoming low-cost in nature and therefore require a different approach in financial sizing, structuring and securitisation. Currently, such financing institutions that are stuck in their ‘old protocols’ are hindering rapid expansion of decentralised electrification in ASEAN countries.
Government Readiness for Renewables
However, several other difficulties prevent a rapid expansion of renewables to make a major difference in Asia’s energy future. Some of the key obstacles include the lack of clear policy and transparency in decision-making to issue licenses, setting of tariffs, financial credibility of agencies, investment laws for foreign entities, protectionism of unqualified local players, speculating parties trading in licenses, inter-governmental clashes, corruption and shortcomings in the power infrastructure.
On the readiness of power infrastructure, current power distribution licensees need to invest in grid-management systems enabling intermittent power sources, such as solar PV and wind power, to feed in the grid. Both public and private power companies need to invest in designing and building ‘smart’ power infrastructure in a way that maintains system reliability, stability, and ability to quickly adjust output to minute-by-minute changes in system demand. Manufacturers of equipment need to boost their range of supporting products too, in particular to support rapid electrification through micro grids in countries such as the Philippines (25 million people with no access to power), Myanmar (40 million without electricity), and Indonesia (80 million without access to power).
The biggest challenge is to shift the minds of decision-makers, owners and board directors of large corporations and SME’s, owners of homes, architects, engineers and academia towards understanding that renewable is doable, can be done and must be done. They need to be made aware of the fact that renewable energy is not a matter of pilot-projects or something to learn about in laboratories, but that these technologies are mature and ready to be fully deployed and add value to the mix.
WEnergy Global: a developer and investor in the ASEAN Markets
WEnergy Global Pte. Ltd., based in Singapore (http://www.wenergyglobal.com), is one of the very few companies – a fully equipped, one-stop shop system integrator in renewable energy – with clear and focused actions on the ground in ASEAN countries. While the primary focus of WEnergy Global is “design build, finance, own and operate” (“DBFOO”) projects, the company is able to also execute “engineering, procurement and construction” (“EPC”) contracts in the construction of renewable energy power plants in South-East Asia. WEnergy Global has developed through its own network of professionals a total port-folio of about 160 MW with a total project value of USD300 million to be executed over the period 2016-2018. In particular its DBOO projects are focused on RE-hybrid micro-grids for off-grid electrification of communities and production facilities. WEnergy Global is operating in partnership with local individual power companies through joint-ventures and is currently establishing innovative financing structures and instruments. WEnergy Global supports government agencies, power companies, commercial banks and distribution utilities with strategy and policy advice and capacity building to speed up project approval and investment cycles. The company won the Erasmus Energy Business Award 2014 in The Netherlands for its technology design and business model of a 2.6MW RE-hybrid with 2.3 MWh of clean storage capacity for a 15km micro-grid in Palawan, the Philippines.