FINANCING ASIA’S
ELECTRICITY SECTOR 2035:
Making It Happen
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Financing Asia’s Electricity Sector 2035: Making It Happen
FINANCING ASIA’S
ELECTRICITY SECTOR 2035:
Making It Happen
1
2
Table of Contents
4
Foreword: United States of America
Thomas R. Kuhn, President, Edison Electric Institute
6
Foreword: Singapore
Ng Wai Choong, Chief Executive, Energy Market Authority of Singapore
7
Introduction
Lawrence E. Jones, Ph.D., Vice-President, International Programs,
Edison Electric Institute
I. The Big Picture: Energy in Asia and the World
11
Asian Energy, Global Challenges
Lord Browne of Madingley, Executive Chairman, E1 Energy
16
Spurring the Growth of Southeast Asia’s Power Sector
Antonio Castellano, Ee Huei Koh and Michele Pani, McKinsey & Company
20
Meeting Asian Power Demand in a Low-Carbon World
Dale Probasco, Managing Director, Navigant Consulting Inc.
28
Power’s Big Transition: From Thomas Edison to Elon Musk to...
Richard Lancaster, Chief Executive Officer, CLP Holdings
31
Global Energy Interconnection: An Essential Way Toward a Sustainable
Energy Future
State Grid Corporation of China & Global Energy Interconnection Development
and Cooperation Organization Team
35
Building Climate Resilience in Electricity Systems through Networks of
Innovation
Lawrence E. Jones, Ph.D., Vice-President, International Programs,
Edison Electric Institute
II. A Clean Energy Future for Asia
41
Renewables: A Promising Future
Philip Graham, Managing Director and Co-Head of Energy, Power and Utilities,
Asia-Pacific, Citibank Group
50
A Decentralized Future for Asia
Csilla Kohalmi-Monfils, Executive Vice President, Strategy & New Business,
ENGIE Asia Pacific
54
South Australia: An Unintended Experiment in the Future of Clean
Electricity
Matthew Warren, Chief Executive, Australian Energy Council
59
LNG-to-Power: A Clean Energy Solution
Marat Zapparov, Director, Infrastructure
Ted Low, Associate Director, Infrastructure, Clifford Capital
63
US LNG Exports to Japan: Addressing Supply Scarcity in the Face of
Market Reform
Robert W. Gee, President, Gee Strategies Group LLC
Financing Asia’s Electricity Sector 2035: Making It Happen
III. Power Sector Reform: Attracting and Sustaining Investment
69
Regional Co-operation for Clean, Affordable, and Secure Energy in South Asia
Priyantha D.C. Wijayatunga, Ph.D., Principal Energy Specialist, Sustainable
Development and Climate Change Department, Asian Development Bank
74
How Will Power Sector Liberalization Change the Face of Japan’s Fuel Mix
and Corporate Landscape?
Nicholas Browne, Director, Wood Mackenzie
Bikal Pokharel, Ph.D., Principal Analyst, Wood Mackenzie
79
Power Sector Reforms: Lessons from South Asia
Priyantha D.C. Wijayatunga, Ph.D., Principal Energy Specialist, Sustainable
Development and Climate Change Department, Asian Development Bank
83
Promoting Demand-Side Management in Asia and the Pacific: Leading the
LED Way
Jiwan Acharya, Senior Energy Specialist, South Asia Department, Asian
Development Bank
89
Wasting Less Money on Decarbonization: Some Lessons from the Philippines
Sarah Fairhurst and Mike Thomas, Partners, Lantau Group
IV. Pathways to Capitalizing Asia’s Electricity Infrastructure
93
Catalyzing Low-Carbon Financing in Asia and the Pacific
Aiming Zhou, Ph.D., Senior Energy Specialist, South Asia Department, Asian
Development Bank
98
How OPIC’s Development Finance Model is Expanding Access to Energy in
India and Beyond
Elizabeth L. Littlefield, President and CEO, Overseas Private Investment
Corporation (OPIC)
101
Ensuring Compatibility between Sustainable Electricity Supply and
Environmental Preservation in Asia
Kazunori Ogawa, Director General, New Energy and Power Finance Dept. II,
Japan Bank for International Cooperation (JBIC)
105
Dire Straits? Using IFI Financing in the Post-Basel III World
William A. Wilson III, Partner, Wilson Williams LLC
V. Biographies
110
Biographies
3
4
Foreword: United States of America
Thomas R. Kuhn
President, Edison Electric Institute
I
n working with Asian electric companies for more than two decades, the
Edison Electric Institute (EEI) has had opportunity to both learn and share
knowledge. From our Asian colleagues, we have learned how they
approach complicated business challenges universal to the electric companies
industry. In return, EEI has been able to share experience, analyses, and
perspectives from utilities in the United States. Together, I believe, we have
assisted one another in making great progress toward achieving our
environmental, growth, and financial goals, which collectively contribute to
global sustainable development.
An important vehicle for this knowledge exchange has been EEI’s well-received
Asian Energy Financial and Investment Conference (AEFIC), held during Singapore
International Energy Week (SIEW). The AEFIC has convened recognized thought
leaders from the region and around the globe to share state-of-the-art knowledge
and perspectives on the challenges and opportunities associated with financing
Asian energy infrastructure.
In line with the global outreach activity of EEI’s International Programs, we believe
it is important that discussions of the strategic issues relevant to developing Asia’s
electricity sector be shared widely. To this end, EEI decided to publish Financing
Asia’s Electricity Sector 2035: Making it Happen, a collection of essays authored by
thought leaders including several who have participated in the previous AEFIC.
This casebook provides a forward-thinking, focused and at times provocative
review of the current Asian energy investment climate, which clearly
demonstrates new challenges in building and maintaining Asia’s electricity
infrastructure. This book captures the most current thinking, experience, and
perspectives of the people who make investment decisions, fund projects,
and advise governments and electric companies.
Financing Asia’s Electricity Sector 2035: Making It Happen
We start with the ‘big picture’, including the global impact of Asia’s energy
development and how energy system transitions in other regions will affect
what happens in Asia. More specific essays explore diverse topics such as:
• future demand for electricity in Asia, and the role of infrastructure for
transmission and distribution
• financial lessons of decarbonization and catalyzing low-carbon financing
• the future of renewables, clean energy solutions, and the role of
increased liquefied natural gas (LNG)
• the dynamics of centralized and decentralized energy
• power sector liberalization and reform
• energy for sustainable development
• innovation in the electricity sector.
Asia’s electricity investment challenges are complicated and diverse; overcoming
them will require creativity, dedication, and determination. This casebook
demonstrates strong momentum for individual and collective action toward
shared goals of strengthening energy systems as a crucial step in boosting the
economic and political stability of the region while also enhancing environmental
integrity. With this in mind, we also touch on the importance of communication
to raise awareness of energy challenges in Asia and around the world.
I want to thank the authors for their time and support; their knowledge and
perspectives are essential to better understanding the current and emerging
dynamics of financing energy in Asia. EEI is also grateful to the Singapore
Energy Market Authority for the opportunity to participate in SIEW and to
launch this casebook at the conference.
5
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Foreword: Singapore
Ng Wai Choong
Chief Executive, Energy Market Authority of Singapore
A
sia will continue to lead in global energy demand growth into the coming
decades. According to the Institute of Energy Economics of Japan (IEEJ),
Asia alone will account for about 40% of the total increase in global
energy demand through to 2040. The Association of Southeast Asian Nations
(ASEAN) Center for Energy estimates that Southeast Asia’s energy needs will
grow by about 2.7 times by 2035 compared with 2013.
The need to strengthen the power infrastructure is one major challenge facing
Asia: over 450 million people in Asia-Pacific still do not have access to energy.
There is also much scope to enhance power connectivity, which will improve the
resilience of the region’s power system. All this will require substantial
investment: according to the International Energy Agency (IEA), Southeast Asia
alone will require about USD 1.3 trillion to meet power demand until 2040.
Financing for energy infrastructure is a critical gap.
Given these challenges, we welcome the latest efforts of the Edison Electric
Institute (EEI) to bring together energy leaders’ perspectives and case studies
on pressing energy and energy financing issues in Asia. With its deep
experience and strong networks in the global power sector, EEI continues to
facilitate better understanding of the power sector in Asia through its Asian
Energy Financial and Investment Conference at the Singapore International
Energy Week. We are grateful for its support and contributions since 2014.
Singapore also stands ready to share our experience to enhance energy cooperation in the region. As a global financial center, Singapore in particular can
play a key role in bridging the energy financing gap. We have a vibrant financial
system with various options for project financing, as well as a strong business
trust framework. We have also partnered with the Asian Development Bank in
setting up the Asia Infrastructure Centre of Excellence (AICOE) to help
structure projects with countries in the region.
I hope you will find the essays in this latest EEI publication useful and thoughtprovoking as you consider how we can move forward together toward a
sustainable energy future.
Financing Asia’s Electricity Sector 2035: Making It Happen
Introduction
Lawrence E. Jones, Ph.D.
Vice-President, International Programs, Edison Electric Institute
B
y 2035, Asia is projected to be home to the largest population of middleclass consumers in the world. Meeting the needs of several billion people
in the region will require more of everything—energy, water, food, etc. As
part of our shared global ecosystem, there is strong interdependence between
what happens in Asia and the rest of the world. The pathways Asian decisionmakers choose to achieve energy, water, and food security will ultimately
determine if we can shift the world to a sustainable track for future generations.
Access to clean, reliable, and affordable electricity is key to fueling economic
growth and prosperity throughout Asia, but that simple statement reflects a
remarkably complex challenge. The region comprises a diverse mix of
countries that share some common attributes, but each has a unique set of
local conditions: e.g. population demographic, geography, natural resources,
climate, and economic structure.
The same is true for energy sectors in Asia: diversity is the norm. Looking
specifically at the electricity sectors in these countries, the underlying
infrastructures are at different levels of maturity, and each one is undergoing
sector transformation in response to different drivers, including the burgeoning
middle class and the global bid to transition to a low-carbon economy.
Meeting growing energy demand while reducing energy-related environmental
impacts implies a massive transformation. Achieving these development and
climate goals requires significant investments—and quickly.
Since the 1990s, the Edison Electric Institute (EEI), through its International
Programs department, has developed activities that create opportunity for
dialogue among the electric utilities in the United States of America and Asia.
The utilities exchange knowledge and share experiences to address complicated
technical, business, and policy challenges that are universal to the industry.
For the past two years, for example, EEI has organized the Asian Energy Financial
and Investment Conference (AEFIC) within the context of Singapore International
Energy Week (SIEW). The AEFIC creates value by bringing together recognized
thought leaders from the region and around the globe to share state-of-the-art
knowledge and perspectives on challenges and opportunities specific to financing
Asian energy infrastructure.
7
8
In 2016, EEI is pleased to add this casebook, Financing Asia’s Electricity Sector
2035: Making It Happen, as a direct extension of the AEFIC. The casebook is
part of EEI’s thought leadership and global outreach activities, which seek to
provide relevant, strategic business information about developing Asia’s
electricity sector to a broader audience.
A collection of essays authored by thought leaders, including several who
have participated in previous AEFIC events, the casebook establishes a
forward-thinking, focused, and at times provocative review of the current
Asian energy investment climate. Across four sections, the essays capture the
most current informed thinking, experience, and perspectives about the
challenges, intricacies, and opportunities associated with financing Asia’s
electricity sector.
In Part I, The Big Picture: Energy in Asia and World, four essays probe the
current state and future outlook for energy in Asia, emphasizing the reality
that how Asia meets growing demand will determine whether the shared
aims of the COP21 Paris Agreement can be achieved. The remaining essays
explore bold visions and provide critical insights on the role of innovation in
steering a clean energy transition for Asia’s electricity sector regionally,
nationally, and at the utility level.
The essays in Part II, A Clean Energy Future for Asia, focus on the importance
of resource diversity in Asia’s energy future. The contributions examine different
future scenarios that involve both renewable and conventional generation, as
well as a hybrid mix of centralized and decentralized power supply systems. The
geopolitical dimensions of achieving energy security are discussed within the
context of the Asia-Pacific region.
Part III, Power Sector Reform: Attracting and Sustaining Investment,
drives home the point that the lack of sound, realistic energy policies and
stable regulatory regimes has been a major impediment to financing electricity
infrastructure, not only in Asia but around the world. In response, various
governments have attempted to undertake different reforms. The five essays
in the section offer perspectives, including lessons learned, on power sector
reforms in India, Japan, and the Philippines as well as at the regional level.
Finally, in Part IV, Pathways to Capitalizing Asia's Electricity Infrastructure,
the essays explore different mechanisms and instruments to both access and
leverage capital for investment in electricity. Leading international and regional
financial institutions put forth multiple options available to governments,
utilities, and project developers.
Financing Asia’s Electricity Sector 2035: Making It Happen
The success of any endeavor that attempts to gather viewpoints from diverse
stakeholders can lead to cacophony or create a clear set of messages that are
relevant to all. Thus, while this casebook consists of essays generously written by
thought leaders with different expertise, the final product would not have been
possible without a skilled editºr. In this regard, it has been a pleasure working
with Marilyn Smith, Founder of The Energy Action Project (EnAct/www.en-act.org)
and former chief editor at the International Energy Agency. Having recognized
two social challenges associated with energy—i.e. high levels of energy poverty
and low levels of energy literacy—through EnAct, Marilyn is developing new
communication approaches to raise awareness of action that targets energy
access and builds public understanding of energy more broadly.
I hope that this casebook will stimulate debate and inform decision-making by
policymakers, utilities, developers, and investors in navigating the challenges
and harnessing the opportunities in Asia’s electricity sector.
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I. The Big Picture:
Energy in Asia
and the World
Financing Asia’s Electricity Sector 2035: Making It Happen
Asian Energy, Global Challenges
Lord Browne of Madingley
Executive Chairman, E1 Energy
A
sia is transforming the scale and
pattern of global energy demand.
Today, just two nations, China and
India, account for 37% of the world’s
population,1 28% of the world’s primary
energy consumption,2 and 18% of global
gross domestic product (GDP).3 By 2025,
almost half of the world’s economic growth
will come from 450 cities in emerging
economies, mainly in China, India, and
Southeast Asia.4
Rapid urbanization brings with it challenges
in forecasting how the pattern of
consumption will change, but in the next
decade, the growing demand of households
from Chennai to Chongqing will be one of
the most significant factors shaping global
energy markets.
I first visited China in 1979, as a junior
manager in BP, when the country had just
opened its doors to companies beyond its
borders. I remember looking out of my
hotel window during that first visit and
feeling as far from the wealth and vibrancy
of the world’s major cities as it was possible
to be. No one expected to witness the
dramatic transformation that has taken
place since then.
The scope and scale
of economic growth
and rising energy
demand in Asia are
poised to shape the
future for the entire
globe. Four elements
will determine
whether the impacts
will be positive or
devastating: support
for global climate
policy, securing
energy imports,
participation in
global energy
governance, and
strategic application
of technology.
1
World Bank 2015 Global Population.
2
BP Statistical Review of World Energy 2016.
3
World Bank 2015 Global GDP.
4
McKinsey Global Institute “Urban World: Cities and the rise of the consuming class”.
11
12
Even as China adjusts to slower rates of growth as it reorients the economy
towards greater domestic consumption in the coming years, the long-term
trajectory suggests a huge shift in the balance of global economic power. By
2030, China’s middle class, those earning between USD 10 and USD 100 per
day, is forecast to grow to more than one billion people. By then, more than
60% of the world’s middle-class population will live in Asia.5
This shift is perhaps the world’s largest-ever economic event. Since 1979, China’s
consumption of oil has grown by a factor of five, GDP has grown by a factor of six,
and more than 500 million people have been lifted out of poverty.
However, the scale of this continuing transformation poses challenges for
Asia and the wider world. Economic growth, and demand for energy, will
have to be balanced against supply vulnerability and the global threat posed
by climate change.
Asia is currently facing a future of increased dependency on energy markets
beyond its borders. The International Energy Agency (IEA) predicts that by
2040, Southeast Asia’s net oil imports will more than double to 6.7 million
barrels per day (mb/d).6 Already roughly 85% of the crude oil travelling through
the Straits of Hormuz is destined for Asia.7 The prospect of continued
reductions in America’s need for imports means more of Middle East oil
exports will go to Asia in years to come.
Stability in the Middle East should therefore be of increasing concern to Asia.
Today, global supply abundance means that terrorism and political tensions in
the region are not forcing oil prices higher. However, in years to come, should
instability remain while the gap between oil supply and demand decreases,
Asia will be vulnerable to high energy prices that reduce its competitiveness
and impede its development.
When it comes to the environment, India and China are responsible for over
one-third of global carbon dioxide (CO2) emissions—a figure that could grow
further.8 Though China’s per-capita emissions are already greater than the
European Union average,9 a Chinese household on average consumes roughly
half the electricity of a household in the United Kingdom.10
5
Brookings Institute ‘The emerging middle-class in developing countries’ and EY ‘Entering the global middle class’.
6
IEA, 2015, Special Report South East Asia.
7
EIA, World Oil Transit Chokepoints.
8
World Bank CO2 Emissions.
9
www.bbc.co.uk/news/science-environment-29239194.
10 :RUOG(QHUJ\&RXQFLO$YHUDJHHOHFWULFLW\FRQVXPSWLRQSHUHOHFWULƓHGKRXVHKROG
Financing Asia’s Electricity Sector 2035: Making It Happen
India, meanwhile, generates electricity using its large coal reserves (the fifthlargest in the world), and is seeking to supply electricity to the one in five
citizens who currently do not have access.11 If India is successful and the gap in
consumption between households in Asia and Europe continues to close, it will
mean a significant increase in fossil fuel consumption. On this current path, it
will be very difficult to keep global temperatures below the 2°C target agreed
in the COP21 Paris Agreement at the end of 2015.
Both these scenarios suggest Asia’s growing demand for energy will pose
problems for Asia and the wider world. However, I think four key developments
could ensure that Asia has better governed and lower carbon energy markets in
the decades to come.
First, public pressure is having an effect on climate policy.
As CEO of BP in 2003, I took a break from business meetings to walk along the
bridge that connects the Summer Palace in Beijing with a central island on
Kunming Lake. The air was filled with acrid yellow smog. From the middle of the
lake, both shorelines had become invisible, and my throat was raw and
inflamed. These negative health problems were not a new phenomenon. For
residents of northern China during the 1990s, it was estimated that local air
pollution reduced their life expectancy by 5.5 years.12
Growing dissatisfaction with pollution has been nudging governments and
businesses to take greater care of the environment. The campaigning of
Chinese journalist Ma Jun, who founded the Institute of Public and
Environmental Affairs, for example, is having an effect. Enlisting volunteers to
analyze previously indigestible government data, the Institute has exposed
almost 100 000 instances of environmental non-compliance and pressured
more than 500 companies to draw up road maps toward more environmentally
friendly business practices.
Hazardous pollution levels in Beijing still lead to school closures, suspended
factory operations, and limits on the use of cars. But concerns about pollution
are now part of the political debate and change is coming. China’s decision to
review and ratify the COP21 Paris Agreement is an important step.
11
IEO WEO 2015.
12
Financial Times, 8 July 2013.
13
14
Second, the challenge of securing energy imports to meet rising demand is
forging new bonds of trust with oil-exporting nations outside the Middle East.
While at BP in 2004, I suggested to Vladimir Putin (who was then president of
the Russian Federation) the possibility of constructing a gas pipeline from the
east of Siberia into China. A pipeline between the world’s biggest hydrocarbon
producer and the world’s largest energy consumer seemed an obvious choice,
but a lack of mutual trust scuppered any possible deal.
Today, however, one-third of China’s oil imports come from Russia and a
recent deal with Gazprom will see a gas pipeline built from Siberia to the
Chinese border, providing China with up to 38 billion cubic metres of natural
gas per year.13 This deal might not have happened 10 years ago, but the need
to secure energy supply and demand from new sources has brought these
nations closer together.
Third, global energy governance institutions are becoming more inclusive of
Asia’s major developing economies.
Energy crises of the past demonstrate the importance of co-operation through
established international institutions. Excluding nations that shape the global
energy market so significantly cannot be good for energy security in Asia or the
rest of the world.
In 2015, I led a Steering Committee for a research project by the Grantham
Institute and the China Energy Research Institute, which looked at strengthening
Asia’s role in global energy governance. Important progress has been made in
this area. China was one of the first countries to activate Association status with
the IEA, and further collaboration is in discussion. Economies such as India and
Indonesia in particular must also be included to build stronger ties between the
developed and developing world.
Fourth, technology is our greatest enabler: it offers Asia the best opportunity
to overcome energy security and environmental challenges.
China already leads the way in renewable energy investment, spending 36% of
the USD 286 billion invested globally in 2015, more than twice the investment
made by the United States.
13
www.bbc.co.uk/news/business-27503017.
Financing Asia’s Electricity Sector 2035: Making It Happen
The results have been positive, with the cost of solar power falling by 75% and
wind power falling by almost 50% over the past five years.14 Further investment
will make these technologies even more cost-competitive.
The challenge, in China at least, now lies at a policy level. The country has been
building two wind turbines per day, meeting the nation’s entire annual increase
in energy demand. But excess coal capacity, with preferential access to the grid,
means that the wind turbines are switched off for the equivalent of one day a
week.15 Strong decisions to increase grid access for wind power and a phaseout of old coal power are required.
Increasing access to renewable energy, through reduced costs, improved
storage and widespread transmission, will enrich the lives of Asia’s population,
ensure its energy is cleaner and more secure, and make its foreign policies less
beholden to petro-politics.
As Asia’s remarkable transformation continues in the coming decade, global
energy markets will have to overcome profound economic, technological and
political challenges. History shows, however, that Asia has the will, ability, and
dynamism to develop the solutions to overcome them.
14
www.lazard.com/media/2390/lazards-levelized-cost-of-energy-analysis-90.pdf.
15
www.bbc.co.uk/news/science-environment-37409069.
15
16
Spurring the Growth of Southeast Asia’s
Power Sector
Antonio Castellano, Ee Huei Koh, and Michele Pani
McKinsey & Company
The Southeast Asian power sector is at a crossroads.
Demand is rising throughout the region, putting increasing
financial pressure on governments that subsidize electricity
prices. In addition, the region has been less aggressive
than elsewhere in its pursuit of renewable energy.
Meantime, investment is lagging, reflecting private
investor concerns about risk and reward.
The power sector today
The characteristics described above add up to a big challenge for regulators of
the Southeast Asian power sector. Considering the current market and the
hurdles that must be overcome, it is valid to examine how regulators could work
with other stakeholders to meet the energy needs of the region.
Southeast Asian power markets vary considerably but, on average, have
progressed significantly in security of supply and affordability. Similarly,
diverse challenges remain in finding the right models to promote economic
attractiveness and environmental sustainability in different contexts.
The state of security of supply: Electrification rates have grown in the region,
although countries such as Cambodia, Indonesia, Laos, Myanmar, and Vietnam
have still a way to go. Outage rates are well below those of other developing
geographies such as Africa and India, but reliability is not yet in line with Europe
or the United States (with the exception of countries like Malaysia and Singapore).
Affordability: Prices around the region are competitive, with the exception of
Cambodia, the Philippines, and Singapore. However, electricity subsidies have
played a stronger role than cost efficiencies in controlling end-user prices. In
Financing Asia’s Electricity Sector 2035: Making It Happen
Indonesia alone, total subsidies exceeded IDR1 101 trillion (USD 7 billion) in
2013 (or 3% of GDP), according to estimates by the Asian Development Bank.
Efficiency efforts in the sector remain less aggressive than in other places such
as Europe and Australia.
In general, the Southeast Asian power sector is characterized by high operating
costs, limited competition, and a suboptimal fuel mix. For example, fuel oil still
comprises more than 5% of the total primary energy used in industrial plants in
Indonesia and the Philippines versus close to 0% in mature economies.
Economic attractiveness: While private investors (e.g. independent power
producers) have achieved reasonable, albeit declining, returns in Southeast Asia
power markets, many incumbent state-owned enterprises do not earn their cost
of capital. Financial transparency is low because of limited account unbundling
of most incumbents, few public listings, and multiple mechanisms to award new
investments (e.g. competitive auctions vs. direct appointments). The result is
market uncertainty about future returns, risks, and overall long-term financial
sustainability. On a more positive note, most Southeast Asian offtake contracts
are designed around long-term power purchase agreements that reduce
commercial risk of investments and increase the ‘bankability’ of power projects.
Environmental sustainability: The percentage of renewables in the production
mix in Southeast Asia remains low—about 5% of total capacity—compared with
20% in the United States and 40% in the European Union, and even with 15% in
India and 10% in China. Long-term plans foresee an increase of renewable
capacity, at least in principle. But the future is quite uncertain, with most additions
forecast through to 2030.
The challenges ahead
In the near future, local and technological disruptions will further challenge the
status quo in the Southeast Asia power sector. Three, in particular, will require
increased attention from regulators.
First, growth in demand for electricity will put pressure on regulators to move
toward tariffs that reflect the true cost of supplying power. Government budgets
will be unable to afford the rising costs of subsidies that demand growth will
force. At the same time, current price levels and the resulting low returns for
state-owned enterprises will limit their ability to raise sufficient capital to fund
1
IDR = Indonesian rupiah. USD = US dollar.
17
18
infrastructure. One result could be increased pressure on regulators to
encourage more transparency in the industry and to level the playing field to
attract private players.
Capturing the full economic benefits of new technologies, a second major
challenge, will require a significant shift in regulatory policies. So far, most
regulators have been quite conservative in their support of renewable energy.
For example, net metering schemes are not commonly adopted and neither are
‘grid-of-the-future’ technologies (such as smart meters or charging stations).
Third, regulators should focus on efficient implementation of market models
and liberalization mechanisms. Various approaches have been announced,
including the liberalization of the Vietnamese electricity sector and the
potential introduction of competition in electricity generation in Malaysia. Still,
real impact and speed of implementation remain uncertain. The effectiveness
of these initiatives will depend on the ability to develop tailored and innovative
solutions adapted to local needs. In reality, market models seem to be aging
quickly in the rapidly evolving sector.
Five priorities for the Southeast Asian power sector
Taking account of the various forces at work, regulators must address five
priorities to assure the future of the sector. Specifically, they should take the
following actions.
Encourage efficiency on both supply and demand sides. On the supply side,
regulators should promote the adoption of a better fuel mix and support
competitive auctions for new capacity. They should also accelerate introduction
of incentive-based regulation mechanisms, and facilitate the deployment of
new technologies to upgrade and repower existing plants. On the demand
side, they should support more energy efficiency measures.
Ensure a smooth transition between short- and long-term needs. The
near-term need is for the rapid build-up of baseload power at a competitive
cost—which is likely to lead to greater reliance on fossil fuels such as coal. Over
the longer term, the imperative is to increase the use of sustainable energy
(including clear targets for renewable energy).
Define a clear plan and relevant policies. This may include measures (such as
differentiated regulated returns) to support adoption of new technologies
(including the grid of the future and smart city infrastructure technologies)
needed to increase the productivity and reliability of the system while enabling
customer choice.
Financing Asia’s Electricity Sector 2035: Making It Happen
Complete ongoing efforts to remove subsidies. This might involve a
transition from ‘blanket’ to targeted subsidies only for specific categories (such
as low-income households and selected strategic industries), and to automated
fuel-cost-pass-through mechanisms. Moving now, while anticipating potential
fuel-cost increases, would allow regulators to take advantage of the current
environment of low commodity prices (i.e. subsidies could be removed with
limited impact on consumers).
Selectively introduce market reforms, including transparent competitive
bidding and ring fencing of independent operators (e.g. introduce single buyer
and single operator, where not yet done).
Regulators hold the key to the ability of the Southeast Asia power sector to
meet the energy needs of its people and businesses. Some progress is evident,
but regulators throughout the region must move more aggressively to ensure
that the energy marketplace grows in a sustainable way.
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Meeting Asian Power Demand
in a Low-Carbon World
Dale Probasco
Managing Director, Navigant Consulting, Inc.
R
educing the carbon footprint of power generation, individually and/or
collectively, has become a major focus of the electric utility industry in
recent years. In many regions of the world, significant incentives and
regulations have compelled utilities to closely evaluate their generation mix.
In many cases, the evaluation has resulted in several key changes such as fuel
switching to lower-emission fuels, installing environmental equipment and
closing plants.
Additional regulations and programs
to reduce carbon dioxide (CO2)
emissions continue to impact how
utilities operate and how they serve
their customers. Government
mandates and incentives for
renewable energy, increased
implementation of energy efficiency
programs, and lower natural gas
prices all influence power
generation in significant ways. Over
the last ten-plus years, billions of
dollars have been spent installing
environmental equipment to meet
new regulations around the world,
and to move toward meeting the
COP21 environmental goals.
In the context of rapidly
changing technologies
and global efforts to curb
energy-related emissions,
Asian countries that had
anticipated using domestic,
low-cost coal to meet
growing energy demand
face a challenging future.
Opportunity exists to learn
from transitions underway
in Europe and the United
States, but also to develop
locally relevant strategies.
As a company’s generation assets
represent a significant portion of
its overall value, changes to the generation fleet (shut down, devaluation,
new additions, etc.) must be managed carefully. The energy company E.ON
recently had a write-down of approximately USD 4 billion on its conventional
generating assets, which have been directed to a new company, Uniper.
Other companies have had, or may have in the future, significant write-downs
on their generation assets.
Financing Asia’s Electricity Sector 2035: Making It Happen
In the United States alone, more than 78 gigawatts (GW) of capacity have been
shut down, with more slated for closure. Use of existing US coal plants has
declined significantly: a recent analysis by Navigant Consulting shows that the
net capacity factor (NCF) for overall coal plant usage has dropped from 74.7%
in 2006 to 46.3% in 2015 (Figure 1). For smaller plants (200 megawatt [MW] or
less), the decline was even greater: from 68.6% in 2006 to 32.3% in 2015.
Figure 1 • Reduced coal plant usage in United States,
measured by net capacity factor
2004–13
2004–13
Source: Navigant analysis of Navigant’s Generation Knowledge Service data.
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Recent data from the US Energy Information Administration (EIA) confirm that
this decline is continuing, with natural gas generation surpassing coal
generation in the United States in 2016 (Figure 2).
Figure 2 • US electricity generation by fuel, 2006–17
projections
Source: EIA, Short-Term Energy Outlook, September 2016.
The growth of distributed energy resources (DER) is placing additional pressure
on all central generation sources. As these technologies continue to expand,
DER will promote further decline in the use of coal as well as in other central
generation resources. Deployment of DER, supported by smart grids, forms the
basis of what Navigant Consulting has coined ‘the energy cloud’. These new
technologies will allow customers greater control in selecting what sources will
be used to meet their energy needs, with the resulting impact affecting the
central generators. Recent Navigant Consulting forecasts for growth of DER for
the United States and Europe are shown in Figure 3.
Financing Asia’s Electricity Sector 2035: Making It Happen
Figure 3 • Forecast expansion of distributed energy resources,
to 2024
Source: Navigant Consulting Research, Distributed Energy Resources Global Forecast, Q4 2015.
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With all these issues facing the power generation sector, it is clear that the future
will belong to those who can best adapt. This raises the question of how these
trends will impact power generation in Asia, particularly fossil fuel-based plants.
Some countries belonging to the Association of Southeast Asian Nations
(ASEAN) have emerged as the fastest-growing economies in the world, with a
high need for economical electricity. Economic growth projections for the
ASEAN region are between 4% and 6% annually. The International Energy
Agency (IEA) Southeast Asia Energy Outlook 2015 estimates that the energy
infrastructure needed to support this growth will cost USD 100 billion.
The business-as-usual case in the 4th ASEAN Energy Outlook 2013–2035
forecasts that coal-fired generation capacity in the region will more than triple
by 2035. An April 2016 New York Times article (“China Curbs Plans for More
Coal-Fired Plants”) noted that China currently has at least 190 GW of coal plant
capacity under construction.
To deal with this increase in coal generation, Asia will have to carefully consider
the future. Understanding the experiences and consequences from other parts
of the world, such as North America and much of Europe, can provide
important insights. Three key issues Asia faces in managing this growth in
coal-fired generation are:
• the impact of new coal-fired generation on CO2 emissions
and COP21 goals
• the impacts of DER, energy efficiency, and renewable generation on
the need for (and use of) coal and other central generation plants
• the availability of financing for coal-fired plants.
Carbon impact
Significant global commitment to meet the COP21 goals is putting the use of
coal-fired generation under increased scrutiny. The need for power generation
resources to meet the needs of emerging economies in Asia is a major concern,
and some steps are already being taken to help minimize the carbon impact of
the required generation.
Financing Asia’s Electricity Sector 2035: Making It Happen
Some Asian countries are shifting from subcritical coal plants to the more
efficient and carbon-friendly technologies of supercritical (SC) and ultrasupercritical (USC) plants to reduce CO2 emissions. These tested technologies
are readily available and can be implemented effectively. In addition, Asia is
home to several renewable energy projects:
• 330 MW of renewable capacity to be added through geothermal
energy in Indonesia
• a 25 MW solar energy facility on Geogeum Island in South Korea
• the Welspun Energy solar farm in India, a 151 MW facility.
These projects demonstrate the region’s commitment to pursuing renewable
energy as part of its energy mix.
Need for and use of coal generation
As has been seen in other parts of the world, the application of new
technologies offers both opportunities and challenges. The innovations of this
‘fourth industrial revolution’ can have dramatic impacts in the energy sector.
As DER expands globally, it will have a notable impact on the use of central
generation and on coal-fired generation in particular. As indicated in the
Navigant Research forecast, nearly 30 GW of DER is slated for installation by
2024 in the United States. DER growth in Asia may also be significant,
impacting the need for and use of central generation. This means some of the
forecast growth in coal generation will likely not happen, and coal plants that
are built may well be used less than originally anticipated.
With increased renewable energy comes the challenge of integrating variable
resources into the overall mix. As has been demonstrated in the United States,
this can create a significant shift in resource demand in a very short time. In
what is commonly called the ‘duck curve’, for example, California shows that
variable generation resources—primarily wind and solar—may not fill the need
for more reliable sources of generation (Figure 4). In effect, the curve
demonstrates a shift of about 13 000 MW of capacity from variable to fossilbased resources in a three-hour time frame. This is clearly an issue that needs
to be considered.
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Figure 4 • Power demand distribution for California
Source: California Independent System Operator, “Flexible Resources to Help Renewables”, Fast Facts, 29 April 2016.
As noted above, employing DER and improving energy efficiency will likely
reduce the overall usage of operating coal plants or move them into a cycling
mode. Obviously, reduced use entails lower revenue and a potential impact on
the long-term financial viability of these plants. With cycling, not only is revenue
reduced but, unless the plant is designed for that type of operation, the cost of
plant maintenance increases. This double impact compromises the plant’s
long-term financial viability.
3ODQWƓQDQFLQJ
Obtaining financing for the construction of new coal-fired plants may also be a
challenge. The World Bank and the United States government have decided to
limit their involvement in the financing of coal plants, except in some of the
poorest countries. This position may significantly reduce the possibility to
access funding for new projects. As noted above, the anticipated consequences
of reduced new plant usage will also undermine any business case to support
plant funding.
Financing Asia’s Electricity Sector 2035: Making It Happen
New business models may have to be developed to demonstrate the ability of
the plant to meet financial obligations in the long term. These new business and
operating models typically involve noted reductions in plant operating costs
through the sharing of resources, and more effective and lower-cost outage
schedules, etc. In North America and Europe, coal plants have taken these
types of steps to reduce overall operating expenses while maintaining reliability
to meet market needs.
Conclusion
Overall, there is great promise that Asia will effectively satisfy the energy needs
of its emerging markets, even as it encounters both challenges and
opportunities along the way. Long-term strategies must, however, take into
account the various factors noted above. For example, a safe and secure
30-year time frame for a central generation plant to operate as a baseload
facility can no longer be assumed; this standard will most likely be modified in
the future.
Additionally, it may be necessary to build new plants with the capability for
more variable operations rather than baseload only. Additional investments in
new plants to make them operate in an effective manner may well be
worthwhile. With these challenges, life-cycle costs may reveal issues that will
need to be addressed up front in the future.
Project experience in the Asian market builds confidence in the prospect of
meeting the multiple demands of increasing energy needs through the
effective use of technology and long-term planning. Looking to countries that
have already begun this journey, and learning from their mistakes and
successes, will help ensure successful economic growth in Asia.
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Power’s Big Transition:
From Thomas Edison to Elon Musk to...
Richard Lancaster
Chief Executive Officer, CLP Holdings
A
fter Thomas Edison demonstrated the electric light bulb nearly 140 years
ago, he said, “We will make electricity so cheap that only the rich will
burn candles.” We know he was right about this. Because electricity is so
readily, reliably, and cheaply available today, we use it without much thinking of
the consequences. Edison’s comment reflects more than a determination to
make electricity a household staple. It holds a sense of excitement at launching
a transformative change that would make so much difference in people’s lives.
Our industry has seen a great deal of change over the decades, but the
transformation that came with the development of electric light and power
stands out as exceptional—at least until today.
Today, we find ourselves in urgent need of change on a comparable scale. This
need to change comes from two driving forces: the energy sector’s clear role in
tackling climate change, and the opportunity to harness and put the digital
revolution to work for energy.
On climate change, recognizing that current patterns of energy production and
consumption are a large part of the problem, those of us in the energy business
have to be leaders in finding solutions.
We have made a good start in the way our industry has embraced the targets
of the COP21 Paris Agreement. However, we all know that an embrace is only
the beginning of a relationship and that large-scale challenges usually need a
diverse team to resolve. Industry alone cannot meet the agreed climate change
mitigation targets. It will require collaborative effort by industry, government
and non-government players alike.
To stabilize global warming at any temperature means achieving net-zero
greenhouse gas emissions. Anything less would see those emission
concentrations and, consequently, temperatures continue to rise.
Financing Asia’s Electricity Sector 2035: Making It Happen
This is easier said than done. A huge number of complicated elements need to
come together, on many levels: how we establish a sustainable mix of
conventional and renewable energy sources; how we establish regulatory
structures that support transition to a cleaner energy mix; and how we access
the required financing, which is not unsubstantial.
While industry is ready to roll up its sleeves and do its part, we must also accept
that different parts of the world will require different solutions. In developing
economies, coal will inevitably remain a dominant primary energy source for
some time. This is where we in the industry must share our expertise and
technological know-how to hasten deployment of the best available
technologies to reduce known environmental impacts.
With all these factors coming into play, it is important to realize that the
transformation won’t happen overnight. A balance has to be struck that allows
the energy industry to work towards carbon neutrality at a pace that does not
tear away the structure of our complex business and, indeed, put at risk the
provision of energy services.
The message on climate change has to be that the energy sector needs a
greater sense of urgency regarding our role in an orderly transition to carbon
neutrality. We are in the best position to make this transition. We know our
business; we have the financial resources; we have the expertise; and we know
what needs to be done. We need to be the ones taking the lead.
In parallel, we have to acknowledge that we are now living in a digital age,
and we need to embrace it or be left behind. It is increasingly clear that the
digital revolution is going to change the face of our industry and offers many
exciting opportunities.
For example, look at how mobile phones have changed the way we live. The
information available to us is truly amazing. With a few swipes of a finger, we can
know exactly where we are on the planet and how to get to where we want to go
by the shortest, fastest, or cheapest means. Moreover, we can access
information from the internet and communicate by video, text, e-mail, or, for the
old-fashioned, voice. All this is fitted into a device we can carry in our pockets.
In some ways, transitioning the energy sector into the digital revolution is simple;
in other ways, it is deeply complex. The stunning capability of mobile phones is
driven by sensors that are so cheap; one can put them anywhere and everywhere.
The reality is that they can also be placed all over our electricity grids, on our
wind farms, in our power plants, and in the homes of our customers. Collectively,
they will gather a wealth of new information and place it at our fingertips.
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It is worth noting that energy customers will not be sitting idly by, waiting for a
digital revolution of energy to happen. They are already being proactive, as we
can see from sensors proliferating in homes to monitor and control everything
from heating and cooling to everyday electrical appliances.
Our digital-age customers are going to demand more services from us. We’re
not going to be just a big company that delivers electricity and sends someone
around to read the meter every so often. That Thomas Edison ‘electricity for
all’ business model needs to be stretched to fit the future. Digital technologies
are delivering phenomenal change that will revolutionize how we run the
electricity industry.
Already, a growing number are living in an age when smart cities and smart
homes are enabled by a reliable power network and a high-speed broadband
network. We have plenty of smart cities in Asia. The very crowded city of Hong
Kong, for example, enjoys 99% electricity supply reliability, and almost every
household has access to fast broadband.
Homes are getting smarter all the time. Forget switching on the light when you
open your front door. Sensors will tell the lights that you have entered the room
and calculate how much light you need based on the time of day and the
amount of natural light available. Similarly, your heating or air conditioner
adjusts because it knows you are approaching in your car but paces itself
according to where you are stuck in traffic on a given day. When you finally get
home, the security system recognizes you because it senses your phone or your
keys, and does a quick facial recognition check just to make sure. When you
walk in, the room is exactly the right temperature.
None of this is fanciful. Within the next ten years, the industry as we know it
today will not be recognizable because of digital technology.
I wonder what Thomas Edison would make of all this.
Financing Asia’s Electricity Sector 2035: Making It Happen
Global Energy Interconnection:
An Essential Way Toward
a Sustainable Energy Future
State Grid Corporation of China & Global Energy Interconnection
Development and Cooperation Organization
I
n essence, the GEI is ‘Smart
Grid + UHV Grid + Clean
Energy’. Smart grid is the
foundation, UHV grid is the key,
and clean energy is the priority.
Construction of the GEI will
facilitate efficient interconnection
and utilization of various
renewable energy resources
worldwide. This will lead to new
energy supply and consumption
patterns based on electric power,
with clean renewable energy as
the major source of energy. In
this way, the GEI could
fundamentally tackle the critical
challenges of resource constraint,
environmental pollution, and
climate change, which are
threatening the survival and
development of human beings.
The GEI can deliver significant
economic benefits and investment
opportunities. By 2050, when the
basic elements of the GEI are
established, the cumulative
investments will exceed USD 50
trillion. In turn, this foundation will
boost investment in several
sectors, including power source
The Global Energy
Interconnection (GEI) is a
globally interconnected
strong and smart grid, with
an ultra-high voltage (UHV)
grid as the backbone, which
will serve as a platform for
extensive development,
deployment and utilization of
clean energy globally.
Figure 1 • Schematic of the Global
Energy Interconnection (GEI)
Source: GEI.
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exploitation, power grid construction, and high-end equipment manufacturing,
each with tens of trillions USD investments. By increasing the efficiency of power
systems and profiting from regional differences in electricity prices, times and
seasons, the GEI will bring remarkable economic returns to investors, along with
technology progress and strategic industry incubations.
A case example of Northeast Asia provides insights into GEI’s potential.
Electricity tariffs in load centers in this region range from about USD 0.12 per
kilowatt-hour (/kWh) in East China to USD 0.19/kWh in Japan. By contrast, in
energy-abundant areas, such as Xinjiang province in China and hydro powerrich far east Russia, the generation cost is less than USD 0.05/kWh. Hence, the
price differences between supply side and demand side range from
USD 0.07/kWh to USD 0.14/kWh. Considering the transmission cost of a UHV
line extending 2 000 km to 3 000 km is about USD 0.016/kWh, interconnection
among these regions will bring promising returns with a large profit margin.
Figure 2 • Strategic planning for the Global Energy Interconnection
Source: GEI.
The concept of the GEI has received wide recognition and attention globally. On
29 March 2016, the Global Energy Interconnection Development and Cooperation
Organization (GEIDCO) was founded in Beijing. Its first 80 members are made up
of leading international non-governmental organizations, research institutions,
universities and enterprises from 14 countries, all of which are committed to
promoting GEI planning and construction worldwide.
Financing Asia’s Electricity Sector 2035: Making It Happen
In recent years, one priority area has achieved rapid development: the Asian
electrical energy interconnection initiative. Four partners—the State Grid
Corporation of China, the Korea Electric Power Corporation, the Rosseti Public
Joint Stock Company of Russia, and the Softbank Group—have signed a
memorandum of understanding and established a joint working group.
Together, they will carry out a study of the Northeast Asia power grid
interconnection and promote the China-Korea-Japan power grid interconnection
as the first phase of a demonstration project. The preliminary feasibility study is
to be completed by the end of 2016. With the aim of supporting sustainable
development of energy in Northeast Asia, the subsequent demonstration
project is expected to build a cross-border submarine electricity transmission
network with the largest capacity (2 gigawatts) of its kind in the world. In parallel,
GEIDCO and relevant organizations will undertake studies of interconnections of
Central Asia-China-Southern Asia and Africa-Europe-West Asia to promote
further intercontinental and cross-border energy interconnection development.
Figure 3 • Mapping potential interconnections
Source: GEI.
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With the end shared goal of achieving the United Nations’ aim of ‘Sustainable
Energy for All’, development and construction of the GEI requires the support
and participation of energy producers, consumers, investors and operators.
Ultimately, these parties will be the ‘prosumers’ and beneficiaries of sustainable
global energy development. To ensure efficient development of GEI, it is vital
to forge consensus and strengthen cooperation among diverse parties with
vested interests in a clean energy future.
Financing Asia’s Electricity Sector 2035: Making It Happen
Building Climate Resilience in Electricity
Systems through Networks of Innovation
Lawrence E. Jones, Ph.D.
Vice President, International Programs, Edison Electric Institute
I
n response to the increasingly urgent need to address global climate change,
policymakers in Asia and around the world have set ambitious goals to
transition to low-carbon energy systems. This is particularly challenging in
Asia, where energy demand is growing rapidly and fossil fuels are often the
most abundant resource available domestically.
An effect of this transition is that it is more and more difficult for Asian utilities
to secure the financing needed to build up clean energy electricity
infrastructure. There is a high level of uncertainty about what the future system
will consist of, not to mention whether it will be able to provide the level of
returns needed to attract investors.
At the same time, governments, utilities, and investors are becoming more aware
of the emerging need to make Asia’s electricity sector resilient to the impacts of
climate change. Thus, on top of the usual risks on which they make investment
decisions, those financing electricity
assets need to know how the sector
plans to manage the myriad of complex
To develop climaterisks associated with integrating aging
resilient electricity
and modernized infrastructures such
systems, the sector needs
that the overall system can withstand
to move into an ‘era of
projected impacts such as extreme
hybridity’, where more
weather and more frequent occurrence
of natural disasters.
actors play important
roles across networks
rather than along a linear
value chain. This creates
new opportunities to
quickly develop and
deploy innovation.
While the challenge is daunting, I
would make the case that the transition
we see starting in the sector bodes
well for finding ways to build both
climate-resilient systems and investor
confidence. A key aspect is the
growing ‘inter-connectedness’ of
system elements and recognition that
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innovations in one area deliver benefits—or indeed spur other innovations—
across other areas. In effect, there is evidence that we are moving from a ‘value
chain’ mindset to one that seeks to harness the power of innovation across
‘electricity value networks'. Let’s explore this fundamental shift further.
The basic architecture of the electricity sector today still resembles what existed
at the dawn of the industry, dating back to Thomas Edison and Nikola Tesla.
Under this paradigm, the process of creating, delivering and capturing the
value of electricity is based on a linear model, i.e. the value chain. A utility
company generates power at a centralized location and partners with others to
transmit it to customers. In fact, industry players still assess regulatory and
utility business models, as well as innovation diffusion, using this linear logic.
The flow of value—e.g. electricity, information, innovation—is one-way.
All of this is starting to change. Digitalization of electricity generation,
delivery and consumption, advances in technology, and other exogenous
factors are transforming both the architecture and operational paradigms of
electricity networks.
We have entered the ‘era of hybridity’ as power production, distribution, and
consumption are becoming hybridized on different levels. Production is
increasingly a mix of new decentralized, variable sources that need to be
integrated with incumbent centralized generation. At the traditional delivery point,
more end-use customers are capable of both consuming and producing energy.
As a result, it is more accurate to consider the flow of value to be multi-directional,
occurring across networks rather than in one direction along a single chain.
Thus, the emerging paradigm for value analysis in 21st century electricity
systems should be based on the concept of ‘electricity value networks’, which
reflect the interplay of aspects that are physical, institutional, regulatory, virtual,
etc., and the values of diverse players including customers, utilities, technology
companies, etc. In fact, the emerging electricity sector can be viewed as an
ecosystem of interconnected value networks.
Innovation is one of the most critical factors as Asian countries seek to transition
to low-carbon energy systems. However, the electricity sector is known to be
slow compared with other sectors to adopt innovative solutions. A salient
question, then, is how to accelerate the pace of innovation, and of the adoption
or adaptation of innovative solutions, to build climate-resilient energy systems
in Asia? The answer, I would argue, lies in adopting this network-centric view in
which innovations are created at multiple nodes (e.g. people, institutions) and
levels, and then diffused in a multi-directional manner.
Financing Asia’s Electricity Sector 2035: Making It Happen
In the spirit of The Network Imperative by Barry Libert, Megan Beck, and Jerry
Wind, embracing the network approach to innovation requires utility executives
to adopt a different mindset than is associated with the linear value chain
approach. For example, this approach recognizes that:
• customers and other stakeholders have value (innovation) to offer
• there is value in co-innovating among customers and partners
• complex problems can be solved faster and more cost-effectively
through collaboration and open-source innovation.
Greater connectivity within and among existing innovation networks could
create a new global electricity innovation ecosystem that could provide many
opportunities for all kinds of inventions and facilitate their rapid diffusion.
As highlighted in the following essays, some recent examples of technology
innovations include smart grids, high voltage direct current transmission, wind
and solar generation, LED lighting, and distributed generation. But innovation is
not limited to technology. New ideas and approaches also arise in policy and
regulation, business models and processes, investment and financial
instruments, analytical tools and methods for planning, etc.
As countries in Asia make existing and new electricity infrastructure climateresilient, it is important to consider innovations that present opportunities to
‘leapfrog’ over approaches and tools that are no longer necessary.
A known hurdle to innovation in the sector is that electricity infrastructure is
made up of long-life assets. At present, a major challenge is how to unlock the
significant capital required for modernizing Asia’s electricity sector? Evidence
shows the region can benefit from innovation across several networks, including
in technology, public policy, and regulation. But innovations in these areas
change the equations for risk and reward, and require innovation also in
investment and finance.
Innovations around climate resilience are being studied by different networks of
actors. For example, on the subject of financing, governments and businesses
in countries belonging to the Organization for Economic Co-operation and
Development (OECD) are working with international financial institutions to
design and implement new measures and practices. These groups have
developed tools to model infrastructure investment risks that include the
potential impacts of extreme weather events and other climate-related
phenomena. Their work confirms that the solutions must be based on the
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38
assessment of future climate-related risks which, in turn, will require access to
advance computational tools and other technological innovations that lay
beyond the traditional scope of the electricity sector. The sector needs to
expand into or partner with leaders in the areas of big data, predictive
analytics, machine learning, and visualization tools.
Several governments have put forth innovative public policies and regulations
to mainstream climate resilience as a requirement within public-private
partnership (PPP) financing of electricity projects. This is particularly important
in Asia’s emerging market countries, where private companies and investors
typically manage infrastructure projects through PPPs.
Finally, as electricity is linked with several other sectors including water,
transportation, gas, and information and communication technologies,
financing climate-resilient infrastructure should also consider these cross-sector
interdependencies. The energy-water nexus, for example, means that the
impact of climate change on water flow in a river can affect the output from a
power plant. Conversely, growing demand for clean water could significantly
increase the amount of electricity needed for water desalination. Innovation
should also seek to interconnect networks across different sectors.
Financing climate-resilient electricity systems in Asia and the world at large
entails complex risks, but also offers many new opportunities. The key to
unlocking these is through multi-directional creation, delivery, and capture of
innovations within and among networks.
Financing Asia’s Electricity Sector 2035: Making It Happen
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II. A Clean Energy
Future for Asia
Financing Asia’s Electricity Sector 2035: Making It Happen
Renewables: A Promising Future
Philip Graham
Managing Director and Co-Head of Energy, Power and Utilities,
Asia-Pacific, Citibank Group
COP21 has delivered momentum
In recent years, the
feasibility of renewable
energy having a major role
in the global energy system
has improved dramatically.
An overview of advances
in policy, technology, and
financing provides strong
indications that remaining
barriers will also be
overcome in the near future.
Globally, governmental policy,
including most recently the Paris
Agreement, and reductions in
installed cost have prompted a
steady shift toward renewable energy
sources. Recent data demonstrate
that the scale of the task of meeting
the 2°C target will prove challenging,
partly in that it requires 10 terawatts
(TW) of zero-carbon capacity
additions and an investment of
USD15 trillion (Figure 1).1 In fact,
some would label the target as
“extremely difficult or infeasible”.2
Figure 1 • Zero-carbon capacity additions and investment
required under a 2°C scenario
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Source: Bloomberg New Energy Finance.
%ORRPEHUJ1HZ(QHUJ\)LQDQFH%1()New Energy Outlook 2016: Global Overview, p. 52.
&OLPDWH$FWLRQ7UDFNHUEmissions Gap: How Close are INDCs to 2 and 1.5º Pathways? available at: http://climateactiontracker.org/.
41
42
Nonetheless, commitment to the Agreement from key global players has
delivered significant momentum to the renewables sector. China and the United
States, the two largest greenhouse gas (GHG) emitters, moved to ratify the
Agreement in September 2016, and other major Asia-Pacific countries have
signed, including Australia, Thailand, and Indonesia. To become binding
international law, the Agreement needs to be ratified by 55 countries
accounting for 55% of global emissions. As of September 2016, additional
support from countries accounting for about 15% of emissions is now required
to succeed.
Governments have become enablers
As of 2015, 173 governments globally have set renewable energy targets
supported by regulatory and fiscal deployment policies to promote
investment.3 Yet private investors still require firm, long-term governmental
commitment to incentivize capital deployment.
China is an example for other countries on the benefits of government policy to
promote renewables growth. Over the last ten years, China has made the
largest investment in renewables—including USD 103 billion in 2015 alone
(more than double that of the United States) (Figure 2).4 It follows that China
also has the fastest pace for increasing installations of renewables capacity; in
2015, a record 46 gigawatts (GW) of wind and solar power was installed.5
5(1Renewables 2016: Global Status Report, p.19.
)UDQNIXUW6FKRROŊ81(3&HQWUH%1()Global Trends in Renewable Energy 2016, available at: http://www.fs-unep-centre.org/.
5(1Renewables 2016: Global Status Report, pp. 63, 77.
Financing Asia’s Electricity Sector 2035: Making It Happen
Figure 2 • Global New Investment in Renewable Energy by Region
(2004–15, USD billion)
Sources: UNEP, Bloomberg New Energy Finance.
To date, subsidizing renewable power through feed-in-tariffs (FITs) has been the
main policy tool enabling clean energy growth in China and across Asia-Pacific.
The Chinese government recently reduced FITs to regulate development, with a
view to achieving grid parity by 2020; Japan, the Philippines and Thailand have
also reduced tariffs to better align subsidies with improvements in technology
and the maturation of renewable energy markets.6
Governments are now transitioning to promoting large-scale clean energy
investment through other means, notably market-based mechanisms such as
renewable energy auctions. In 2015, China issued a 1 GW solar photovoltaic
(PV) tender; Australia has held multiple wind farm auctions to help meet its
renewable energy target of 33 TWh by 2020. These competitive bidding
processes allow investors to benefit from greater regulatory and price certainty
from policy makers,7 and the outcomes of auctions for long-term power
purchase agreements (PPAs) are increasingly cost-competitive (Figure 3).8
5(1Renewables 2016: Global Status Report, p.109.
,5(1$DQG&(0Renewable Energy Auctions: A Guide to Design, p. 15.
7KH(FRQRPLVWFollow the Sun, available at: www.economist.com
43
44
Figure 3 • Renewable energy auctions: long-term contract prices
for 2016–19 project commissioning
Cana
Ca
Canada
USD 66/MWh
United States
USD 47/MWh
USD 65-70/MWh
Germany
USD 67-100/MWh
US
USD 87/MWh
Morocco
USD 30-35/MWh
Peru
USD 38/MWh
USD 49/MWh
Turkey
USD 73/MWh
China
USD 80-91/MWh
India
USD 67-94/MWh
Jordan
USD 61-77/MWh
United Arab
Emirates
USD 58/MWh
Egypt
USD 41-50/MWh
Brazil
USD 49/MWh
W
USD 81/MWh
Chile
USD 65-68/MWh
South Africa
USD 51/MWh
USD 65/MWh
hƟůŝƚLJͲƐĐĂůĞƐoůĂƌWs
Australia
USD 69/MWh
Onshore wind
Source: International Energy Agency.
Cost curve reductions have delivered affordability
Reductions in equipment costs, technological improvements and economies of
scale have also spurred renewables growth. This is particularly true for solar,
which has seen costs decline from USD 72 per watt (/W) in 1976 to USD 0.6/W
in 2015.9 Over this period, every doubling of capacity has corresponded with a
26.5% reduction in cost. Improving module efficiency is key, as more efficient
cells mean manufacturers require less material to produce the same capacity.
This has a trickle-down effect in reducing costs along the entire supply chain.
Recent studies estimate the electricity price required to achieve an acceptable
return on a new-build solar project is becoming increasingly competitive with
fossil fuels (Figure 4). In Australia, a new onshore wind project is already
cheaper on a levelized cost basis than a new natural gas plant,10 and these costs
are forecast to decrease by an additional 15% to 35% by 2030.11
%1()New Energy Outlook 2016: Global Overview, p. 20.
10 %1()Australia 2015 LCOE Update, p.1.
11 %1()Australia 2015 LCOE UpdateVOLGH
Financing Asia’s Electricity Sector 2035: Making It Happen
Figure 4 • Levelized cost of energy comparison: renewables and
fossil fuels (USD/MWh)
"
$
" #"%!
!"%!
Source: Citi Research.
Outcomes from recent competitive auctions support these levelized cost
studies. Contracts for new solar PV projects have been struck at USD 60 per
megawatt hour (/MWh) to USD 80/MWh, while some onshore wind deals have
contracted for as low as USD 40/MWh to USD 50/MWh.12 To realize the full
growth potential of renewables, such cost reductions must be supported by
improved system networks and robust policy.
What is holding back renewables growth?
Renewable energy is not without drawbacks. While reliable on sunny or windy
days, on its own it is not a stable source of primary energy supply. Regions with
a high penetration of renewable energy, such as in South Australia and
Germany, have encountered challenges. In cloudy or calm periods, from an
emissions perspective, gas-fired generation would be ideal to counter
intermittent renewable supply. However, as coal is cheaper, most countries with
high renewables penetration use coal to meet peak load requirements and
ensure system stability.
12 ,($Tracking Clean Energy Progress, IEA/OECD, Paris, p. 20.
45
46
Large-scale energy storage solutions will be required to mitigate variability of
renewables. Significant progress has been made in energy storage, notably
batteries; however, while the cost of lithium ion batteries is falling fast, the
technology to provide cheap, grid-scale storage remains in its infancy. More
effective demand-side management (such as smart meters) can also improve
system reliability; by flattening the load curve, it can help renewable energy
serve as a more reliable baseload generation.
In countries like Australia, renewables are also having an impact on bidding in
energy markets, particularly as they approach competitiveness with fossil fuels.
Once operational, the short-run marginal cost of renewable energy is zero; thus,
as more renewable capacity enters a market, it can be bid at the lowest cost,
driving down the market clearing price. Coal generation is generally next in line;
given their relative fuel costs, coal can often be bid at lower prices than cleaner
gas-fired generation. In Australia, with a priority to deliver liquefied natural gas
(LNG) to higher-value export markets, domestic gas supply is tight and costs
have spiked, putting gas plants out of operation and forcing dependency on
coal. From a cost perspective, supercritical coal systems coming on line are
often the more suitable complement to renewable energy.
Grid interconnectivity is another challenge for renewables growth in Asia. In
China, most wind farms are located in remote windy areas in the west, while
demand comes from densely populated areas in the east. Large-scale
transmission lines now carry wind power a distance of more than 2 000 km.
China is establishing a highly connected grid for clean energy. The State Grid
Corporation of China (a state-owned enterprise or SOE), is rapidly developing
zero line-loss transmission capability and has set a strategy to connect
renewable resources with demand centers. Linking supply and demand may
prove more challenging in other Asian countries. Indonesia’s archipelagic
topography, for example, will likely prevent the creation of a connected grid.
Solutions promoting renewables must be country-specific.
Financing a renewable future: a focus on green bonds,
ESG principles, lenders, and M&A
New financial products tailored to encourage investment in clean energy are
vital to deployment. Such products boost investment by delivering project
proponents cheaper sources of capital, thereby improving the competitiveness
of clean energy funding relative to fossil fuels. This is helping to increase the
role of renewable energy in the global fuel mix. It also highlights how financial
innovation can help achieve global energy targets.
Financing Asia’s Electricity Sector 2035: Making It Happen
The green bond industry is one example of how financial innovation facilitates
renewable energy investment. Green bonds differ from traditional fixed income
instruments as their proceeds are directed toward ‘green’ activities with
environmentally sustainable benefits. The Green Bond Principles (GBP), drafted by
Citi and certain other financial institutions, help create this market which sets out
voluntary guidelines on developing the green bond market while encouraging
transparency, disclosure, and integrity. Since its inception in 2014, Citi and its
co-founders have been joined by 118 other members.13 While the definition of
what constitutes a green activity is subject to debate, this has not discouraged
investors: USD 48 billion in green bonds was issued in 2015 alone.14 Bloomberg
New Energy Finance forecasts the green bond market will grow to USD 76 billion
in 2016. These proceeds are being used to support a broad range of activities,
such as renewable energy, clean transportation, energy efficiency, and sustainable
water management.
Figure 5 • Annual green bond issuance by issuer type (USD billion)
Source: Bloomberg New Energy Finance.
The rapid growth in green bond issuances has been underpinned by increased
investor demand for socially responsible investment opportunities. For funds,
green bonds satisfy environmental, social, and governance (ESG) requirements,
which along with clean investment mandates have become increasingly
commonplace as fund managers face pressure from investors to deploy capital in
environmentally sustainable ventures. To help identify and track ESG-compliant
investments, funds often use formal ESG research carried out by global banks.
13
www.icmagroup.org; Green Bond Principles membership as of 23 August 2016.
14
BNEF, Green Bonds Monthly, August 2016.
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The field of ESG research began in 2006, when Citi appointed the world’s
first ESG research analyst, Elaine Prior. It has since grown to become a critical
research function in the investment community. For example, Citi’s annual
report on the carbon footprint of Australia’s 100 largest companies helps
fund managers identify their carbon exposure and identifies risks associated
with investing in carbon-intensive equities. Funds are now able to track the
impact of their portfolio on the environment and direct capital toward
ESG-compliant investments.
Large financial institutions play a critical role in scaling up renewable energy by
providing investors with access to finance. In 2015, Citi announced a USD 100
billion commitment over ten years to finance activities that reduce the impacts
of climate change and create environmental solutions. Global banks such as Citi
are uniquely positioned to drive momentum toward renewable energy given
the breadth of funding solutions they can offer such as initial public offerings
(IPOs), project finance, green bonds, corporate loans, foreign exchange (FX),
and hedging instruments. Banks are also actively reducing their own
environmental footprint through initiatives such as setting company-level
renewable energy targets.15
Financial institutions also play a key role in advising companies on mergers and
acquisitions (M&A) in the renewables sector. M&A activity is expected to be
significant in the near term as utilities add operational renewable assets to
reweight their generation mix and reduce fossil fuel exposure. Financial
investors, such as infrastructure funds, are also targeting ESG-compliant assets.
In Australia, QIC (along with AGL, an energy utility) recently established an
AUD 3 billion renewable energy fund targeting wind and solar investment.
China has sharpened the SOE focus to acquiring clean energy assets and
targeted outbound power transactions to renewable generation, notably hydro.
Chinese SOEs are often willing to pay high multiples to acquire portfolios of
scale. In 2015, for example, the State Power Investment Corporation acquired
the Australian and South American-based renewables company Pacific Hydro
for USD 2.2 billion. With ready access to cheap sources of capital and a healthy
appetite for renewables, such transactions are expected to become increasingly
commonplace. Given the quantum of ‘dry powder’ that sits in the world’s
infrastructure and sovereign wealth funds, transaction activity will increase
dramatically, allowing developers to recycle capital via M&A.
15
Citi has established environmental footprint goals for 2020, including 35% reduction in GHG emissions, 30% reduction in energy
DQGZDWHUXVHDQGUHGXFWLRQLQZDVWHDOODJDLQVWDEDVHOLQH&LWLōVLQLWLDWLYHDOVRLQFOXGHVDORQJHUWHUPUHGXFWLRQLQ
GHG emissions by 2050.
Financing Asia’s Electricity Sector 2035: Making It Happen
Conclusion
Positive change is underway. In response to the Paris Agreement, governments
are increasingly active in setting policy frameworks and pushing the clean
energy agenda, which has provided investors with the comfort needed to
deploy more capital. In parallel, advances in technology, a strong forecast
demand for electricity in Asia’s emerging markets and ready access to capital
also support the cause. The finance required to support investment is flowing
through new financial products, as increasingly environmentally conscious
investors and strong commitment from lending institutions set the stage for
dedicated, sector-focused capital and liquidity.
Renewable energy, however, is a young industry and still faces significant
headwinds. Thus, if global energy targets are to be achieved, different players
must fulfil specific roles: governments must provide policy certainty; developers
will need to ensure continued cost efficiency; and private and public capital
must be mobilized to meet the significant capital expenditure requirements.
Despite these considerations, the renewable energy industry has clearly found
its feet—and its future has never looked more promising.
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50
A Decentralized Future for Asia
Csilla Kohalmi-Monfils
Executive Vice President, Strategy & New Business, ENGIE Asia Pacific
T
he energy transition is in full swing around the globe. Traditional utilities are
weathering the storm as their businesses, like many others, are disrupted by
new players with new technologies and new business models.
So what does this mean for Asia? It is the region where the largest new capacity
is expected to be built in the next two decades, and 60% of that is expected to
be off-grid electrification.
What is a painful disruption for utilities in Europe, the United States and other
developed markets is a game-changing opportunity for countries still lacking
basic infrastructure to electrify their disparate islands and remote communities.
It is now possible to electrify these regions with decentralized renewable
energy systems at a fraction of the cost of conventional infrastructure.
With more than 400
million households still
lacking electricity in Asia,
decentralization is an
opportunity to leap into the
future on a fundamentally
different energy pathway.
Micro-grids are expected to
make up 40% of capacity
additions in the region;
determining where they
are the right solution and
overcoming final hurdles
are critical next steps.
For a region that still has more than
400 million non-electrified households,
this is an opportunity not to be missed
to take a leap into the future. Not only
has the cost of solar panels
plummeted, micro-grid technology
evolved, and battery technology
become next in line to achieve higher
efficiencies at lower cost, but
information and communications
technologies are also enabling pay-asyou-go mobile payment solutions, and
energy-efficient appliances are now
able to harness more power from less
electricity. The advent of energy for all
provides opportunities for growth and
is now a reality without the need for
expensive transmission infrastructure
or heavy metering, invoicing, and
collections operations.
Financing Asia’s Electricity Sector 2035: Making It Happen
The United Nations declared 2014–24 the ‘Decade of Sustainable Energy for
All’, underscoring the importance of energy issues for sustainable development.
A number of programs and funds have been put in place to realize the goal. So
far, most have been directed towards solar home systems, which are expected
to provide 20% of new capacity, and business-to-consumer business models,
which are less hindered by complex regulatory regimes. Although this
addresses the most basic needs for the consumers at the bottom of the
pyramid, it cannot increase economic development. Micro-grids can do that by
providing reliable, abundant electricity for productive uses to create and boost
local businesses.
In the future, these types of systems will make up over 40% of new capacity
additions, based on four main criteria:
Distance from the grid: If getting grid connection in the near future is likely,
this is still the best solution today, as it is more cost-effective than off-grid
set-ups.
Density of the population/households: Micro-grids best serve close-knit
communities, while solar home systems will be the right solution for dispersed,
stand-alone houses.
Productive use of energy: For small businesses to thrive and grow,
development of decentralized sources is important for lower cost and more
reliable electricity provision.
Mobile network: The existence of a mobile network is key to enable mobile
payments and the remote monitoring and operation of systems.
Telecommunication towers can also be great anchor customers for micro-grids.
Given the size of this opportunity, a few questions arise. Why is this space
currently predominantly occupied by social entrepreneurs and a few charity
organizations? Are the utilities—which are losing ground in their traditional
marketplaces—not interested in this market?
Developing these projects on a large scale would be beneficial to everyone, but
there are some challenges to overcome:
Financing: Project financing, which is a good solution to finance large
infrastructure projects, is too expensive for micro-grid developments. New
models based on impact investments, micro-financing, and crowdfunding have
to be developed, along with financial products to match unevenly distributed
collections from the bottom-of-the-pyramid population.
51
52
Market design: State monopolies in single-buyer markets, prevalent in the
region, typically have neither the financial means nor the skills and expertise
needed to achieve wide-scale micro-grid deployment in a reasonable time
frame. However, some countries are experimenting with these targeted
programs and are addressing this gap.
Subsidies: Currently, most countries in the region still have some sort of fossil
fuel subsidies in place. This puts a heavy burden on government budgets and
makes the deployment of renewable technologies less competitive. At a local
scale, the operating expenses spent on diesel fuel inhibit up-front capital
expenditure in renewable and micro-grid technologies. Separating these
welfare policies from energy policy could free up a large portion of national
budgets, which could be used to seed-fund energy access developments.
Regulatory framework: In order to achieve large-scale micro-grid deployment at
a fast pace, regulators must create a new micro-utility framework in which
participation is free for all, permitting is a one-stop-shop, tariffs are cost-reflective,
and the aggregation of projects is supported to achieve scale efficiencies in
operations. Such a framework would effectively invite private investments with
smart, efficient, and green technologies and consumer-oriented services to boost
economic development.
In developed markets, a complex economic puzzle of stranded or under-utilized
assets and abuse of market power by early entrants are key concerns for today’s
regulators of energy grid edge technologies. This is not an issue in developing
markets. There are no legacy assets displaced by new technologies (save for a few
old diesel generation sets) and little to no competition to electrify thousands of
off-grid remote villages. Therefore, the role of the regulator is that of an enabler or
promoter, rather than a referee looking for foul play.
As enablers, regulators could simplify existing procedures and provide necessary
data and insight to interested market participants. As such, they essentially allow
for transparent market forces to shape development, and costly incentive schemes
are not necessary. The regulator can also set minimum performance standards,
but these should be based on true consumer expectations in the given context
rather than complex requirements imported from existing regulations originally
drawn up for much larger systems. These should be regularly reviewed in line with
the emergence of new technologies, trends, and expectations.
Financing Asia’s Electricity Sector 2035: Making It Happen
There is an army of technology solutions and solution providers ready to provide
energy services to this market. Behind them is the strong, united will of public
and private sectors and civil society with sufficient funds available for running this
last mile toward full electrification.
Those governments that manage to remove regulatory and bureaucratic
hurdles, and support this joint effort, will benefit by being first to achieve their
electrification targets, thereby enabling economic and social development
across all levels of society.
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54
South Australia:
An Unintended Experiment
in the Future of Clean Electricity
Matthew Warren
Chief Executive, Australian Energy Council
A
ustralia has found itself an unlikely and somewhat unexpected pioneer
of integrating high variable generation into a modern electricity grid.
The experience is revealing new technical challenges that need to be
considered and resolved to reduce the carbon footprint of electricity systems.
The unlikely test case is the state of South Australia, home to around 1.5 million
people and the capital city of Adelaide. South Australia sits at the edge of the
National Electricity Market (NEM), created at the end of the 20th century by
connecting five state energy grids across Australia’s eastern seaboard. The
NEM comprises a balancing spot market, which is settled every 30 minutes and
run by an independent market operator. Prices are set by fluctuations in
demand and supply in any trading interval. Electricity is dispatched based on a
least-cost method—competition between generators ensures the prices bid
into the market are at least cost.
As a result of abundant, high-quality wind and sunshine and a combination of
national and state-based climate, energy, and planning policies over the past
decade, South Australia now has 41% of its generation coming from variable wind
(38%) and solar (3%) energy. These policy measures include a national renewable
energy target of 20% by 2020, solar feed-in tariffs and other subsidies, and
streamlining of planning approvals for wind farms. South Australia now has higher
wind generation per capita than Denmark and the highest level of private solar
photovoltaic (PV) in the world.
This is all in an electricity grid that is only partially connected to the rest of the
market: the maximum output from two interconnectors can supply around 25%
of South Australia’s peak demand (Figure 1).
Financing Asia’s Electricity Sector 2035: Making It Happen
Figure 1 • South Australian generation mix*
6 RXWK$XVWUDOLDQJHQHUDWLRQPL[VKRZLQJHOHFWULFLW\JHQHUDWHGE\VRXUFHZLWKLQWKHVWDWHSLHFKDUWDVZHOODVWKHFDSDFLW\RIWKHWUDQVPLVVLRQLQWHUFRQQHFWRUOLQNVZLWKWKHUHVWRI$XVWUDOLDōV1DWLRQDO(OHFWULFLW\0DUNHWWZRZD\DUURZVVKRZFDSDFLW\OLPLWVRIHQHUJ\ŴRZV
6RXWK$XVWUDOLDōVSHDNHQHUJ\GHPDQGRIPHJDZDWWV0:ZDVLQ-DQXDU\ZKLFKLVWKHVXPPHUSHULRGLQ$XVWUDOLD
The state’s remaining firm generators are now mostly gas-fueled, anchored by
two baseload gas-steam and combined-cycle generators and a number of
intermediate and peaking generators. South Australia has no hydro, and no
other firm zero-emissions generation. It also has very little fast-responding
synchronous generation or storage capacity. All of these factors have combined
to place pressure on the regional wholesale market and prices.
It is not the renewable nature of these new generators that is the issue, but their
variability. At low levels of penetration, their effects were marginal—effectively
displacing thermal generators during periods of wind and clear sunshine. But as
the share of variable generation has increased, it has had real and emerging
impacts on the South Australian electricity grid and market.
First, spot prices have become progressively more volatile, particularly
influenced by wind speeds across the state. Strong prevailing winds from the
Southern Ocean have increased wind generation (which runs regardless of
price), creating oversupply, which in turn weakens spot prices; increased
deployment of new wind farms has amplified this supply volatility. Firm
generators have continued to reduce output and revenue during these wind
events, and then sought to recover costs during periods of still weather.
55
56
These increasingly variable conditions are less than ideal for baseload
generators. The state’s last two brown coal generators were progressively
mothballed and closed over the past five years, with final operation of the
coal-fired Northern Power Station occurring in May 2016. This was influenced
partly by their age, but also by the challenges of operating this type of
generation commercially in an increasingly variable generation market. Half of
the remaining gas generators were also either mothballed or scheduled to be
mothballed, but are now being brought back on line, although conditions
remain marginal.
The effect of these brown-coal closures was to reduce emissions, but also
increase both volatility and the forward contract price for baseload generation
required by industrial customers and retailers. So while the spot price was
trending downward with regular wind events, the contract price increased with
the scarcity of available firm generators.
Figure 2 • Future baseload wholesale prices, 2017
6RXUFH*OREDO5RDP1(0)XWXUHV6HSWHPEHUKWWSKRPHJOREDOURDPFRP
Financing Asia’s Electricity Sector 2035: Making It Happen
A tight domestic gas market in Australia has exacerbated these conditions.
This is somewhat ironic given Australia’s emergence as a world-leading
exporter of liquefied natural gas (LNG). Slower-than-anticipated flow rates on
a number of tight gas fields has meant most spare gas in eastern Australia
has been diverted to Gladstone in Queensland to help fill the three LNG
trains operating there. This has resulted in tight conditions for domestic gas
buyers, including generators, who are typically required to sign take-or-pay
contracts to access gas. These contracting conditions can impose additional
costs on baseload gas generators in an increasingly variable generation
market. Recent decisions by state governments to ban extraction of tight
onshore gas will only further exacerbate gas market conditions and increase
the marginal nature of remaining gas generators.
The closure of firm generation in South Australia increases the risk of capacity
shortages during periods of peak demand. These are typically experienced
during summer heat waves in January and February, although there are also
periods of high demand during winter (July–August). A cold snap coinciding
with near-zero wind generation in July drove dramatic increases in wholesale
spot prices, leaving many industrial customers exposed (unhedged), triggering
an energy crisis in South Australia.
The next summer (January–February 2017) will be the first following a significant
reduction in firm generation and only modest upgrades to the main
interconnector linking South Australia to neighboring Victoria. Peak demand
capacity may be tested.
Prior to this peak demand period, South Australia experienced a ‘Black System’—
i.e. the loss of all power across the state—following a severe weather event on 28
September 2016.
Damaging winds resulted in the loss of key transmission infrastructure in the
north of the state, which led to six wind farms becoming disconnected from the
grid. The sudden, uncontrolled loss of generation led to an overloading of the
interconnector with Victoria and the consequent loss of all power across the
state. Just before the loss of the transmission infrastructure, the state was being
supplied by a combination of local thermal generation (330 MW), local wind
farms (883 MW), and imports from the neighboring state of Victoria (613 MW).
57
58
The recent South Australian Black System is only the second time in the past 52
years that Australia has experienced a statewide loss of power. The technical
reasons for the Black System, the loss of generation and a drop in voltage levels
at the wind farm connection points, are still being fully analyzed. But as this event
follows a significant loss of power in South Australia in November 2015 (discussed
below), it does illustrate that system resilience is increasingly being tested.
Another possible new risk, emerging under conditions of high variable
generation, is the inability to maintain power quality, particularly during periods
of low demand. On 1 November 2015 (a Sunday night), South Australian
demand was being met mostly by wind generation and supply from Victorian
generators via the interconnector. A fault in the generator triggered a blackout
of around 100 000 households for more than an hour because there was
insufficient dispatchable generation available in South Australia when the state
was islanded from the rest of the NEM.
The risk of these low demand/power quality events has led the market operator
to buy 35 MW of frequency control services during periods of higher risk of
interconnector outage to ensure sufficient firm generation in South Australia
capacity to fast-start in the event of another islanding. In effect, frequency
control payments are being used as a capacity payment.
As a final curiosity, the market operator is predicting that at current growth
rates of rooftop solar PV, by 2023 South Australia may meet its minimum
demand event (which now occurs around 1:30 p.m. on 26 December each year)
entirely with the power generated by rooftop solar PV. It is unclear how the
electricity grid will operate under these conditions.
This is what we have learned so far, but many questions are still without answers
so it is hoped the experiment works out.
Financing Asia’s Electricity Sector 2035: Making It Happen
LNG-to-Power: A Clean Energy Solution
Marat Zapparov
Director, Infrastructure
Ted Low
Associate Director, Infrastructure, Clifford Capital
Liquefied natural gas (LNG) is increasingly considered an
alternative fuel source to meet growing power demand in
many countries in Asia. This paper examines the key drivers of
this trend, the typical risks involved in using LNG, the possible
contract options to address these risks, and why Singapore is best
placed as a key hub to meet growth in the LNG sector in Asia.
I
n its role as an active debt financier in Asia, Clifford Capital has observed a
trend by countries and project sponsors to develop gas-fired power projects,
with an increasing adoption of LNG as a fuel source. The trend has been
driven by five key factors:
1. Ample LNG supply. In the British Petroleum (BP) 2016 Energy Outlook,
gas is expected to be the fastest-growing fossil fuel source, with annual
demand increasing by 1.8% by 2035. BP forecasts LNG trade will grow
twice as quickly as global consumption, with LNG’s share of world fuel
demand rising from 10% in 2014 to 15% in 2035. In parallel, increased
LNG supply in the global market has been driven by US shale gas
producers and new supply from Australia. Ample supply has led to a
decline in LNG spot prices in Asia from USD 16 per million British
thermal units (/MBtu) in January 2014 to less than USD 6/MBtu currently.
2. Proven floating storage and regasification unit (FSRU) technology.
FSRUs provide gas storage and regasification facilities. The technological
and commercial viability of FSRUs is proven, and it is increasingly
accepted by governments, project sponsors, and financiers as a viable
alternative to land-based facilities. FSRUs have significant advantages
over land-based facilities, as they are less costly, more flexible, and can
be constructed more quickly.
59
60
3. Domestic gas supply constraints. LNG is a solution to declining or
unavailable domestic gas supplies in emerging markets, such as
Bangladesh, India, Indonesia, Pakistan and the Philippines. Bangladesh,
currently suffering a domestic gas shortage due to increasing demand
and a lack of new gas field discoveries, has turned to LNG to address its
gas supply issues. Petrobangla, the national oil company, has signed an
agreement with Excelerate Energy L.P. to build an FSRU, with gas to be
imported from Qatar to meet increasing demand for power projects.
4. Geographical constraints. In Southeast Asia, where numerous small
and remote islands are not connected to the main gas pipeline
network, viable small-scale LNG regasification is providing a cleaner
and less expensive alternative to diesel power generation.
5. Environmental concerns. Environmental issues are a key concern for
export credit agencies, multilaterals, and commercial banks, these being
the principal financiers of state utilities and independent power
projects. In December 2015, members of the Organisation for Economic
Co-operation and Development (OECD) reached an agreement to
reduce greenhouse gas emissions by, among other means, limiting the
availability of export credit finance to ultra-supercritical coal-fired power
plants. As LNG is a fossil fuel that produces relatively low emissions, it is
seen as a viable alternative to coal as a baseload fuel. While renewable
energy sources have minimal environmental impact, they are not a viable
option for baseload power due to the variable nature of production.
Contractual structures for LNG-to-power projects
New LNG regasification and generation capacity needs to be developed.
However, given the multitude of operators along the LNG-to-power supply chain,
a number of key risks must be addressed before financing will be made available
for these projects.
Due to the interdependence of gas and power companies, delays or interruptions
of operations in one part of the supply chain will have an impact on other parts.
Further, as long-term LNG supply is typically available on a take-or-pay basis,
unavailability of the power plant, transmission grid, regasification terminal or any
other part of the supply chain could result in a disruption in operations and
consequent payment penalties. Such project-on-project risks need to be
adequately managed to allow sensible allocation of penalties to counter-parties
best equipped to manage such risks.
Financing Asia’s Electricity Sector 2035: Making It Happen
Various contractual structures have been considered to address these issues.
There are two commonly used structures in the market today that provide
bankable frameworks for financing transactions: 1) the regasification tolling
model, in which governments essentially procure LNG regasification capacity
and power generation capacity separately; and 2) the integrated model, in which
private developers take on the full risks of LNG supply, regasification, and power
generation. Should a more comprehensive LNG spot market develop over time,
contractual structures may need to be adjusted once again to provide all parties
with sufficient revenue certainty to support upfront investments in all parts of
the LNG supply chain.
Singapore is a key link between LNG and the Asian power market
Located at the crossroads of east-west trading routes, Singapore is well
positioned to become a key LNG hub for the region, with all necessary physical
handling capabilities and financial instruments related to LNG. Significant
infrastructure is already in place, including key decision-makers, energy sector
buyers and sellers, an established regulatory and tax regime, and a highly
skilled workforce.
The LNG import terminal, operated by Singapore LNG Corporation, will have a
total throughput capacity of 11 million tons per year by 2018, when the fourth
LNG storage tank is completed. While a portion of this throughput will serve
the domestic power market in Singapore, a large part of it is destined for
break-bulking to supply LNG throughout the region.
Pavilion Energy, a home-grown Singapore firm that has secured LNG volumes
from Cameron LNG and Freeport LNG in the United States, is aiming to build its
regional LNG trading and transportation capabilities. In testament to its longerterm goals, Pavilion signed a memorandum of understanding with Indonesian
state-owned oil company Pertamina in August 2016 to collaborate on marketing,
trading, procurement, and small-scale LNG projects. With its archipelago of over
14 000 islands, Indonesia is a prime market for such developments.
Shipyards in Singapore, including Keppel Offshore & Marine and Sembcorp
Marine, are among the leading shipbuilding and ship repair yards in the
world. The shipyards are experienced in a wide range of vessels used in
offshore oil and gas production, including floating liquefied natural gas and
FSRU conversions.
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In the financial markets, the Singapore Exchange launched a variety of financial
instruments to allow greater versatility in LNG contracts. These contracts will
be based on a price index established in Singapore, and the aim is that they
will become the new benchmark for LNG pricing in Asia. As a key infrastructure
financing hub for the region with a well-established network of commercial
banks, legal firms, insurance brokers, technical/financial consultants, and
multilateral agencies (such as The World Bank, the International Finance
Corporation and the Multilateral Investment Guarantee Agency), Singapore is
also a logical location from which developers can secure financing for their
LNG-to-power projects in the region.
Conclusion
The prospects for the LNG-to-power sector are extremely bright, as it is an
environmentally friendly solution to the world’s increasing power needs. Given
its ability to leverage established transportation, storage, and regasification
technology and ample liquidity from financiers, Singapore is well placed to
support growth of the LNG sector in Asia.
Financing Asia’s Electricity Sector 2035: Making It Happen
US LNG Exports to Japan:
Addressing Supply Scarcity
in the Face of Market Reform
Robert W. Gee
President, Gee Strategies Group LLC1
A
lthough imported resources have traditionally contributed to 94% of
Japan’s primary energy needs, events in the last five years have served to
underscore the fragility of its energy security caused by such dependency.
Specifically, the crisis created by the nuclear power plant accident at Fukushima
Daiichi, following an earthquake and tsunami that hit Japan on 11 March 2011, has
sharply limited the country’s energy resource options for the future. It also
damaged its citizens’ trust in their governmental and regulatory institutions.
Still coping with the postFukushima challenge of
meeting electricity demand
with drastically reduced
domestic generation, Japan
will undoubtedly require
substantial quantities of LNG
for the foreseeable future.
Recent changes to the global
gas market coincide with
Japan’s own efforts to pursue
market reform, creating both
challenges and opportunities.
1
Prior to the accident, Japan relied
on nuclear power for 30% of its
energy needs, and had planned to
increase its share to at least 40%
by 2017 and 50% by 2030.
Liquefied natural gas (LNG) and
coal accounted for around 27%
each of its resource portfolio.
Following the accident, operations
in its 50-plus nuclear power plants
were halted, and only two plants
resumed operation in mid- to late
2015. Presently, 42 reactors are
operable and potentially able to
restart. In the meantime, the LNG
market share leaped to 46%,
proving to be the only viable
option to fill the void left by the
cessation of nuclear generation.
This article represents Mr. Gee’s opinion and is not intended to represent those of any previous or current clients. The author wishes
to thank Sheri Givens, senior vice president of Gee Strategies Group LLC, for her assistance in preparing this article.
63
64
Japan ranks as the world’s largest importer of LNG, followed by South Korea
and Taiwan, and second-largest importer of coal, behind China. It relies on
LNG imports for nearly all of its natural gas supply, and its retail gas and
electric companies are participating directly in overseas upstream LNG
projects to ensure supply reliability. Japan’s imports of LNG represent
approximately 37% of total global trade, and approximately one-third of the
country’s imports are from Southeast Asia. Well over half of those imports
are consumed for electric power generation, a fact evident even before the
nuclear crisis. Though it is a large natural gas consumer, the country has a
relatively limited domestic natural pipeline transmission system due to its
mountainous terrain and geographical constraints.
To address the calamitous shortfall in electricity supply, Japan mandated severe
energy conservation in the years following Fukushima. In addition, it accelerated
adoption of reforms restructuring its electricity and natural gas industries. In
April 2013, Japan’s cabinet, the executive government branch consisting of its
prime minister and ministers of state, moved forward with its Policy on Electricity
System Reform to restructure the country’s electricity system with a three-step
approach to meet the goals of:
1. ensuring stability of electricity supply
2. suppressing electricity rates to the maximum extent possible
3. expanding electricity customer options and business opportunities.
In April 2014, the government approved the new Strategic Energy Plan as the
basis for Japan’s new energy policy with ten key themes, and identified nuclear
power as an “important baseload power source” with continued promotion. In
June 2014, the Revised Electricity Business Act for the Reforms of the Electric
Power System was approved, providing for full retail deregulation of the electric
power system, and in June 2015, Japan’s National Diet, its bicameral legislature,
passed an amendment to the act as the final stage of electric power system
reforms, becoming effective as of 1 April 2020.
Although the country’s electricity needs had long been served by ten vertically
integrated regional electric utilities, independent power producers (IPPs) had been
permitted to participate in wholesale power markets since 1995. The markets were
then further liberalized, or restructured, to allow IPPs to sell initially to large,
high-voltage users, and then, over time, to smaller-voltage users. In April 2016,
Japanese law permitted entities other than the ten electric monopolies to supply
electricity to individual households and small commercial customers to promote
Financing Asia’s Electricity Sector 2035: Making It Happen
competition and lower electricity rates. In 2020, the government will mandate
unbundling of the electric transmission and distribution sectors. These same
unbundling requirements will also apply to the natural gas sector.
During this period of Japan’s energy crisis, the United States also had a
dramatic—but diametrically opposite—energy resource experience, transitioning
from resource scarcity to a state of surplus attributable to the shale oil and natural
gas boom enabled by advanced horizontal drilling technologies and hydraulic
fracturing. As of 2013, the US Energy Information Administration estimated the
United States possessed over 2 200 trillion cubic feet of technically recoverable
natural gas reserves, yielding in excess of 84 years of supply at current usage.
This abundance has led to calls for the United States to export greater quantities
of LNG to Japan. US-to-Japan sales are made attractive owing to differences in
the low domestic price of US gas based on Henry Hub spot prices, versus the
“Asian premium” being paid for LNG imported from other producing regions
based on prices established by reference to global petroleum prices. US-sourced
LNG offers a delivered price that is more favorable to Japanese purchasers, even
allowing for the cost of transportation.2
Under US law, license applications for LNG exports to Japan are reviewed by
the US Department of Energy (DOE), which requires a national interest
determination finding that LNG exports are within the “public interest” under
the 1938 Natural Gas Act. Following DOE approval, the law also requires an
authorization certificate from the Federal Energy Regulatory Commission
(FERC) for the siting, construction, or operation of the LNG export facilities, or
to amend an existing FERC authorization. However, for LNG export destination
countries that are signatories of free trade agreements (FTAs) with the United
States, this burden is lessened by a rebuttable presumption of public interest
that strongly favors licensing by the DOE. The United States has free trade
agreements with 20 countries. By contrast, an applicant seeking to export LNG
to Japan—a non-FTA country—is required to shoulder the burden of proving
the public interest.3
) RUFRPSDULVRQSXUSRVHVWKH+HQU\+XESULFHDVRIWKLVZULWLQJVWDQGVDW86'SHUPLOOLRQ%ULWLVKWKHUPDOXQLWV0%WXZKLOH
global LNG prices range from USD 5.75/MBtu to USD 6/MBtu.
3
Notwithstanding Japan’s non-FTA status, the DOE and FERC thus far have approved three US LNG export projects to Japan
&DPHURQ&RYH3RLQWDQG)UHHSRUW7KH8QLWHG6WDWHVKDVFRPSOHWHGQHJRWLDWLRQVRIDUHJLRQDO$VLD3DFLILFWUDGHDJUHHPHQWWKH
7UDQV3DFLILF3DUWQHUVKLS733ZKLFKZLOOJLYH-DSDQSDULW\ZLWKH[LVWLQJ)7$FRXQWULHV+RZHYHUFXUUHQWFRQJUHVVLRQDODSSURYDO
of the TPP is questionable.
65
66
Would US exports to Japan significantly increase beyond these current projects
were the law amended to confer FTA-equivalent status on Japan? The answer
would depend on several factors, including:
• the total volume of global LNG that is expected to increase from other
countries and regions, such as Canada, Australia, and East Africa
• global demand, which has declined dramatically over the past two
years, resulting (for the time being) in an LNG surplus
• the good-faith commitments of countries to attain greenhouse gas
reduction targets under the Paris Agreement, which would favor
consumption of natural gas over coal.
Each of these factors, in conjunction with the favorable economics presented
by US Henry Hub gas, could affect price competition. In the event of sustained
price competition, Japan’s energy security, as well as its economy, would be
greatly benefited.
What impact would increased US LNG imports have on Japan’s restructuring of
its electric power and natural gas sectors? Although forecasting at this stage is
speculative, it seems fairly certain that any market forces allowing Japan to
import greater quantities of low-emitting fossil energy resources would be
favorable. To create a competitive power sector, abundant fuel resources are
essential for a liquid market. Since Japan will undoubtedly require substantial
quantities of LNG for the foreseeable future for independent and utility-owned
power generation, competitively priced LNG quantities will be critical. The
same would appear to hold true for a restructured natural gas sector, in which
gas will be consumed for purposes other than power generation.
However, the volume of Japan’s future consumption of LNG for power generation
could also be affected by Japan’s energy policy. Specifically, the government aims
to restore nuclear power's contribution of 20% to 22% to its energy portfolio by
2030, with LNG reverting to its prior share of 27%. But whether Japan is able to
realize this goal will depend greatly upon its public’s acceptance of the
resumption, or new construction, of Japan’s nuclear fleet. This is open to question.
Whatever the case, US LNG is poised to play an important role in bolstering
Japan’s energy security, and in its developing power markets. As host to over
50 000 US military personnel—the most of any country outside of the United
States—Japan is an important strategic and political ally for US interests in that
region. Providing it access to increased quantities of surplus US shale gas would
benefit both countries.
Financing Asia’s Electricity Sector 2035: Making It Happen
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68
III. Power Sector Reform:
Attracting and
Sustaining Investment
Financing Asia’s Electricity Sector 2035: Making It Happen
Regional Co-operation for Clean,
Affordable, and Secure Energy
in South Asia
Priyantha D.C. Wijayatunga, Ph.D.
Principal Energy Specialist, Sustainable Development and Climate Change
Department, Asian Development Bank
S
outh Asia is believed to have large hydropower resources and other
renewable energy sources such as biomass, wind, and solar energy. For
instance, it is estimated that South Asia has an economic potential of
294 000 megawatts (MW) of hydropower. It is also surrounded by the Central
and West Asia, and Southeast Asia regions, which account for significant
hydropower resources. To date, none of these clean energy sources have been
exploited to their true potential.
More than 350 million people in South Asia are still without access to electricity,
and this number is significantly higher if poor quality of supply is taken into
consideration. Except in a few countries, many in the region experience frequent
power shortages. Lack of adequate
power supply has been identified as
one of the most critical constraints for
An interconnected power
economic development. This means
system in South Asia could
these countries consider adding
reduce power deficits in the
generation capacity, removing the
region, by both capitalizing
transmission bottlenecks, and
expanding distribution systems as
on idling generation and
high priorities.
exploiting differences in
%HQHƓWVRIUHJLRQDOFRRSHUDWLRQ
Regional co-operation in addressing
power sector issues has various
benefits. First, it allows financiers to
direct their investments to target a
larger market segment. As a result,
costs decline thanks to economies of
scale and risk is reduced with the
consumption patterns to
benefit all consumers. Many
of the elements are in place
to achieve inclusive and
sustainable growth in the
power sector; now, it is time
to tackle remaining barriers.
69
70
greater diversity of customers. Second, close co-operation among countries allows
for the sharing of rich experience and expertise. Third, operational costs can be
minimized with lower generation reserve requirements and lower costs of
generation, likely to be dominated by low-cost renewable energy sources, led by
hydropower. This will eventually lead to lower consumer tariffs. Fourth, such a
power generation mix replaces a significant number of polluting power plants in
the region, dominated by coal. Fifth, an interconnected system is always more
capable of handling disturbances in the power system, which improves the overall
reliability of supply. The most important gain with an interconnected power
system is the ability to reduce the power deficits in the region, both by capitalizing
on idling generation in the region resulting from transmission constraints or higher
generation costs, and by exploiting the differences in consumption patterns to
benefit consumers in another part of the region. All these elements lead to
inclusive and sustainable growth in the power sector.
Regional co-operation in
South Asia
Between India and Nepal, largescale transmission interconnections
(1 000 MW) are being developed to
carry power toward Nepal in the
short to medium term to reduce
power deficits there. This is in
addition to smaller-scale power
imports of 100 MW to 150 MW from
India through small-capacity
interconnections to supply islanded
distribution areas in Nepal. In the
medium to longer term, Nepal can
develop its hydropower capacity in
large scale to supply both Nepal and
the massive Indian market. Nepal
and India need to also develop their
transmission interconnections and
in-country networks for such largescale power evacuation.
Figure 1 • Cross-border power
trading opportunities
Source: Asian Development Bank.
The Bangladesh power sector is heavily dominated by natural gas-based
power plants. Domestic gas supplies are fast depleting, while the demand for
electricity in Bangladesh is exponentially increasing. The quickest way to
Financing Asia’s Electricity Sector 2035: Making It Happen
bridge the gap is to construct transmission interconnections with India and
import power. The first Bangladesh-India interconnection of 500 MW, funded
by the Asian Development Bank (ADB), was commissioned in 2013, and its
expansion to 1 000 MW is under construction. In the long term, Bangladesh
can exchange power with India if its plans for large-scale coal and liquefied
natural gas-based power plants materialize. The other major development is
the proposed 6 000 MW power transmission lines from the hydropower- and
gas-rich northeastern region of India to northern India through Bangladesh.
Bangladesh would benefit from some power tapped off for its own use and
from power transmission wheeling charges. Bilateral discussion on this
interconnection is currently progressing.
Bhutan has been trading power with India for many years. Bhutan’s large
hydropower resources are being gradually developed, and the transmission
interconnections are being strengthened, mostly with the assistance of the
government of India. Bhutan has the third-highest per capita income in South
Asia, largely from power sales to India. Some of the largest hydropower
projects in South Asia are under construction in Bhutan, along with required
transmission strengthening across the border. These hydropower plants in
Bhutan are run-of-the-river plants with almost no storage. During the winter,
the river flows can be as low as 20% of the peak-time flows. During such
periods, power flows in reverse, from India to Bhutan.
Despite political sensitivities, an interconnection of 250 MW/500 MW capacity
between Pakistan and India has come under discussion. Because of the severe
power shortages in Pakistan, this will have to be an interconnection importing
power from India for the near future. In addition, interconnections are being
pursued between Pakistan and Afghanistan that will allow large power transfers
from hydropower-rich Central Asia to South Asia.
An interconnection between the Maldives and the rest of South Asia cannot be
economically and financially justified at this stage.
Consultation on a 500 MW/1 000 MW submarine transmission interconnection
between India and Sri Lanka has been ongoing with the support of ADB to
examine the possibility of power exchange between the two countries. Such an
interconnection would allow Sri Lanka access to the Indian power market, thereby
providing opportunities—particularly to wind energy developers—to increase
their investments in Sri Lanka. Even for conventional power plants, such an
interconnection opens opportunities to earn extra revenue when the plants are
idling or partly loaded.
71
72
A recent study, conducted with the assistance of ADB, to examine the economic
benefits of six interconnections clearly showed that their benefits far outweigh
the cost of constructing them. These economic benefits can always be turned
into a win-win situation for the countries concerned.
Barriers and overcoming them
Certain barriers must be overcome by the countries to progress with regional
co-operation more effectively. The most important of them are:
• policy and regulatory barriers
• the absence of required cross-border transmission infrastructure
• the lack of mutual understanding among the policymakers, regulators,
utilities, and even investors in the respective countries.
Regional power co-operation and trade needs to be recognized in policies,
laws and regulations, and the necessary provisions brought into the respective
measures. Also, stakeholders need to discuss and agree on a common set of
regulations, grid codes, performance standards, transmission plans, and
dispute resolution mechanisms relating to cross-border assets and trade.
To overcome the barriers, the countries in the region need opportunities to
interact, discuss, and agree on addressing these barriers. The institutional
structures needed for this purpose are already in place, including some key
institutions such as the South Asia Association for Regional Cooperation
(SAARC) Energy Working Group; the South Asia Subregional Economic
Cooperation (SASEC) Energy Working Group; the South Asian Forum for
Infrastructure Regulators (SAFIR); and the SASEC Transmission Utility Forum
(SETUF). In addition, many intergovernmental and bilateral arrangements are
in place where relevant discussions can take place. The recently endorsed
SAARC Framework Agreement for Energy (Electricity) Cooperation is one
result of these interactions.
Financing Asia’s Electricity Sector 2035: Making It Happen
Conclusion
It is important to realize that regional co-operation is a win-win for all the countries
in South Asia. It will catalyze rapid power sector development for the benefit of its
populations and allow rapid electrification of rural and underprivileged
households. Regional co-operation also will improve security and reliability of
supply, and minimize power shortages. For this to happen, it is vital to overcome
the critical barriers at the beginning; once started, regional energy system
development will automatically take its course, as in the case of Bhutan and
Bangladesh. In this regard, institutions such as ADB can play a pivotal role.
Disclaimer:7KHYLHZVH[SUHVVHGLQWKLVSDSHUDUHWKRVHRIWKHDXWKRUDQGGRQRWQHFHVVDULO\UHŴHFWWKHYLHZVDQGSROLFLHVRIWKH$VLDQ
'HYHORSPHQW%DQN$'%RULWV%RDUGRI*RYHUQRUVRUWKHJRYHUQPHQWVWKH\UHSUHVHQW$'%GRHVQRWJXDUDQWHHWKHDFFXUDF\RIWKHGDWD
included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a
particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to
the legal or other status of any territory or area.
73
74
How Will Power Sector Liberalization
Change the Face of Japan’s Fuel Mix and
Corporate Landscape?
Nicholas Browne
Director, Wood Mackenzie
Bikal Pokharel, Ph.D.
Principal Analyst, Wood Mackenzie
Japan’s power market liberalization is a critical development
in the global electricity industry. It will also have significant
implications for fuel procurement and global prices of coal and
liquefied natural gas (LNG). Wood Mackenzie has developed a
granular dispatch model that assesses the impact on Japan’s
regions and utilities.
J
apan’s power market changed radically after the Fukushima meltdown in
2011. The nuclear gap was met through demand reductions and increased
thermal power generation. While nuclear power is finally returning, it is
clear that Japan will not be going back to a pre-Fukushima world. Dozens of new
coal projects are being proposed and solar capacity is rising at a breakneck
speed. Additionally, Japan is embarking on liberalizing a segment of its power
market that is the size of the entire power market in the United Kingdom, and by
government estimates worth USD 75 billion. The drive towards greater
competition will, for the first time, force utilities to compete for market shares.
This will in turn create measurable differences among Japan’s electricity utilities
in terms of cost, efficiency, fuel mix, and fuel requirements.
This paper investigates the implications of power market reform, emission
commitments, and fuel procurement strategies for Japanese power utilities.
Financing Asia’s Electricity Sector 2035: Making It Happen
Uncertainty looms as the power market opens up; much-needed
market reform started in April 2016
Japan currently has 44 gigawatts (GW) of oil-fired power plants and 8 GW of
gas-fired steam plants. Electricity supply is dominated by ten regional vertically
integrated power companies, known collectively as the electric power companies
(EPCOs). Together, they account for around 90% of electricity generated in Japan.
Each company monopolistically operates the transmission and distribution (T&D)
system in its area.
Japan’s electricity prices are the highest in Asia. Apart from the higher fuel cost
from imports, the power system did not incentivize utilities to make efficiency
gains as the fuel cost could be passed on to the consumers. Hence, Japan’s
gas-fired fleet is simultaneously both the most efficient (on unit level) in the
world and the least efficient (at the aggregate level). Top-performer combined
cycle gas turbine (CCGT) plants have efficiencies of above 56%, whereas the
bottom-performer gas-fired steam plants run at 37% efficiency, an incredible
30% differential.
Deregulation, if properly implemented in Japan, can change this. Competition can
bring much-needed incentives to become more efficient, thereby driving down
costs. With the opening up of the retail market on 1 April 2016, non-traditional
electricity companies have entered the market with new business models that
bundle electricity with cell phone plans and internet services. Consequently, within
two months of retail competition, more than one million customers had switched
retail power providers among 200 registered new retail power companies.
Incumbent utilities, faced with market reform along with declining demand,
increasing capacity, and a rapid change in fuel mix, are forced to revise their
business strategies.
Post-Fukushima demand decline is permanent
Immediately after the Fukushima accident in March 2011, Japan managed to
prevent rolling blackouts through (temporary) emergency measures that have
eventually resulted in a permanent impact. A national movement, ‘Setsuden’
or ‘saving electricity’ in July 2011, prompted Japanese households and
businesses to conserve electricity in response to expected power shortages.
Measures such as increasing room temperature, switching incandescent
lights to fluorescent or light-emitting diode (LED) lamps, and changing work
schedules and adopting casual dress codes have carried on to the present.
75
76
With additional energy efficiency measures from industries, and continued
awareness of energy usage in the residential and industrial sectors, power
demand never rebounded. With this structural shift in demand, Wood
Mackenzie’s demand forecast for Japan in 2030 stands at less than the
demand in the year 2000.
'HVSLWHGHFOLQLQJGHPDQGVLJQLƓFDQWFDSDFLW\DGGLWLRQVDUHLPPLQHQW
Several incumbent utilities as well as new players are keen to enter the market
with low-cost resources, particularly coal. Japan currently has 23 500 megawatts
(MW) of proposed coal projects, of which 4 000 MW are under construction and
8 000 MW are in the permitting stage. On the nuclear front, over 25 nuclear
reactors with a total capacity of above 25 000 MW have applied to the Nuclear
Regulatory Authority (NRA) for restarts. In addition, several gas-fired CCGTs
have been planned.
At the same time, solar and other renewables developments were incentivized
through attractive feed-in-tariff (FIT) schemes. This led to an exponential
growth of solar from less than 200 MW in 2010 to above 25 000 MW in 2016.
In renewables, 79 000 MW of solar PV with FITs is planned.
With the opening up of the retail market, utilities are also making aggressive
moves to retire oil plants and inefficient gas plants. Tokyo Electric is leading the
way with 2 400 MW of gas and 1 600 MW of oil plants planned for retirement.
But some of these retirements will likely be replaced by less costly coal capacity.
With declining demand, the reserve margin—already above 50%—in Japan in
2016 is high. If all the planned projects come on line, Japan will have massive
overcapacity and significant redundant resources. As more power plants are
added, competition in the market will increase.
This combination of lower demand, increased penetration of renewables, and
uncertainty of nuclear restarts has raised concerns for generation companies
in the new Japan power market. The market in transition needs to strike a
balance among competing policies—energy security, environmental policy,
and cost-competitiveness.
Financing Asia’s Electricity Sector 2035: Making It Happen
COP21 targets add uncertainty to gas and coal demand
To meet Japan’s COP21 commitments, the Ministry for Economy, Trade and
Industry (METI) assumes significant contributions by nuclear (26%) and
renewables (14%) in 2030. For this fuel mix, the emissions reduction in the
power sector is approximately 32% by 2030 from 2013 levels. This is higher
than the overall emissions reduction target from all sectors of 26%.
The proposed fuel mix, however, is highly uncertain. Court injunctions have
already delayed nuclear restarts. Without FITs for new solar capacities, the pace
of solar growth from 2017 onwards will depend on the cost of solar installations.
This uncertainty will have a direct impact on LNG and coal demand. Some
in-house scenarios that Wood Mackenzie is examining, at different combinations
of nuclear, renewables, and coal generation, show a potential range of 52 million
metric tons per annum (mmtpa) for LNG and 61 mmtpa for coal.
Such variations in gas and coal demand from Japan’s COP21 commitments will
have direct implications on fuel procurement strategies. Japanese utilities have
historically been signing long-term contracts for fuel procurements, mainly for
security of supply. In the developing market environment, procurement
strategies will require a total makeover.
Utilities may try to onsell equity and flexible volumes to Japanese buyers and
traders, or seek to increase their trading opportunities elsewhere. They could
also benefit from reducing exposure to term contracts through this period,
moving part of their coal requirements to the spot market. This would allow
them to take advantage of low-cost coal while increasing flexibility.
Conclusion
Japan is entering into a new energy era, one in which energy security is replaced
with flexibility, competition, and profit-maximization goals. The market in transition
is exposed to a tremendous amount of uncertainty with declining power demand,
a changing fuel mix, and ongoing market reforms.
Coal capacity could go a long way in increasing cost competitiveness for
generation companies and meeting their shortfall from nuclear. But this is at odds
with Japan’s COP21 Intended Nationally Determined Contribution (INDC) targets.
If Japan strictly goes ahead with COP21 INDC emissions reduction targets for the
power sector, by 2030 demand for gas could fluctuate by 52 mmtpa and coal by
61 mmtpa, depending on the contributions of nuclear and renewables to the fuel
mix. This adds uncertainties to fuel procurement strategies for power utilities.
77
78
With the increased penetration of solar, seasonality of generation by fuel will
increase as well. This will again necessitate the replacement of traditional
long-term fuel procurement strategies with increasingly flexible take-or-pay and
monthly nominations.
Appendix: Japan Monthly Power Dispatch Model
This analysis uses Wood Mackenzie’s power dispatch model, which is a linear
programming model designed to represent the dynamics of the fuel and
power networks. It optimizes the flows of fuels (e.g. gas, coal, and diesel) to
power plants and the generation of power to satisfy demand on a least-cost
basis. The model takes into account real-world constraints such as gas
contracts, gas pipeline capacities, fuel supply availability, hydro seasonality,
power transmission capacities, and generation capacity of power plants. The
monthly dispatch model is a proprietary Wood Mackenzie model, developed
in Paragon AIMMS and solved using the IBM CPLEX Optimiser. The model
produces fuel flows (along the gas infrastructure and the usage of other fuels)
and power flows (power generation and transmission). Marginal prices are
calculated by the model for both gas and power. Wood Mackenzie utilizes its
model on behalf of consulting clients to assess client-led fuel mix scenarios
and their impact on utilities.
Disclaimer:
• Wood Mackenzie does not know the purpose for which members of the public will use this article, and its contents therein, and therefore
does not warrant or represent that the article or its contents are sufficient or appropriate for such purpose or requirements. Any use or
reliance by any member the public of this article or its contents are therefore not foreseeable to Wood Mackenzie.
• The information upon which this article is based comes from our own experience, knowledge and databases. Wood Mackenzie
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Financing Asia’s Electricity Sector 2035: Making It Happen
Power Sector Reforms:
Lessons from South Asia
Priyantha D.C. Wijayatunga, Ph.D.
Principal Energy Specialist, Sustainable Development and Climate Change
Department, Asian Development Bank
F
ollowing the wave of major reforms in the power industry in developed
countries and some middle-income countries in late 1980s and early
1990s, development partners took the lead in initiating action to
replicate those reforms in the developing world. Most of the countries in
South Asia adopted reforms in one form or another and are currently at
various stages of implementing new energy laws, restructuring state-owned
utilities, establishing independent regulation, pursuing private-sector
participation, and tackling tariff reforms.
The pace of reforms was seriously affected by failures in the reformed power
supply industry in member countries of the Organisation for Economic
Co-operation and Development (OECD), such as the California power crisis
and blackouts in the United States and Europe in 2003, coupled with poor
performance in South Asia of some of the world’s largest power companies.
Sector reforms are still being pursued by development partners, though
maybe not as vigorously or in the same form as in the early years.
Power sector reform in South Asia is advancing, but not without
challenges. It is increasingly clear that the entities pursuing
structural changes in the utility sector need to consider the
prevailing operational environment, including factors such as
the cost of procuring power, consumer profiles and the capacity
of consumers to pay.
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80
Reform objectives
Power sector reforms in South Asia started in the mid-1990s in order to address
many issues in the electricity supply industry, as they did in other developing
countries. These issues included:
• poor financial performance of the utilities
• large investment requirements due to high demand growth
• high levels of non-targeted subsidies
• poor operational performance of the utilities, such as high transmission
and distribution losses, coupled with high accounts receivable
• poor management.
Governments expected that reforms in the power sector would attract more
private investment and financing from development partners. The reforms were
also intended to address other important issues such as:
• ongoing, unhealthy external interference in utility operations
• lack of competent independent regulation
• power pilferage and corruption.
Some of these reforms were partly addressed—though not enthusiastically
pursued—by the governments. As development partners’ interest in pursuing
them grew, governments gradually started to take necessary policy initiatives in
that direction.
Post-reform structure
Even though the approach to introduce reforms was uniform across South Asia,
the implementation of reforms has been staggered, which resulted in the
introduction of a diverse set of institutional, legal, and regulatory frameworks.
While some countries, such as Afghanistan and Nepal, are still at a preliminary
stage in implementing reforms, other countries have advanced considerably. For
example, most have fully functional regulatory institutions that are independent
from the government. However, they have varying degrees of power in licensing
and setting tariffs. Only some countries have unbundled utilities; still
problematic is that governments continue to own or hold majority shares of most
of these unbundled utilities. All countries have necessary policy and legal
Financing Asia’s Electricity Sector 2035: Making It Happen
Figure 1 • Level of power sector
reforms in South Asia
environments for private sector
participation in the power sector,
but the current level of
participation varies significantly.
Lessons learned
Levels of Reforms
Low
High
Source: Asian Development Bank.
When undertaking reform, the
entities pursuing structural
changes in the utility sector need
to take into account the ‘on-theground’ realities and the
operational environment
prevailing in the region where they
operate. Major factors would
include the cost of procuring
power, consumer profiles and the
capacity of consumers to pay. In
essence, the structural changes
have to be tailor-made to suit each
situation, rather than a uniform
model applied across the board.
Governmental intervention in the day-to-day operations of the emerging entities
does not enable the full benefits of reforms to be realized. Therefore, such
intervention should be avoided. A well thought-out plan to provide financial
assistance to the new entities should be implemented for a given period of time.
The entities should have to become financially viable within that period before a
further course of action is taken for their privatization or otherwise.
Since reform programs began, private investments have enabled most countries
to augment their generating capacity to avoid or reduce supply shortages.
However, government management of private investments to fulfill the goals of
overall economic efficiency of the generating system and to minimize load
shedding has been only partially successful. Most private investments in
generation were for small thermal power plants, which inevitably were less
efficient and expensive to operate and for small hydropower. The exception is
India, where the private sector is currently playing a major role.
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Reforms by way of establishing regulatory institutions, unbundling, and
corporatization have not been able to raise the operational and financial
performance of utilities to the desired levels. In some cases, there has been no
progress at all. Load shedding continues to be the norm in most countries in the
region, with no indications of possible recovery to meet any time soon the
customer demand in full. The technical and commercial quality of supply has not
seen any major improvement, partially overshadowed by rampant load shedding.
Financial recovery is unlikely as long as governments continue to own a significant
share of generation, all transmission, and a significant share of distribution.
Grid access is improving but not necessarily as a result of reforms; in fact,
specific features of distribution extensions have caused additional burdens on
distribution utilities. Effective mechanisms must be in place to absorb the
impacts of lower income from newly connected customers and the subsidies
they usually enjoy through tariffs. To accelerate grid access and reduce costs
of distribution utilities, a new approach in which franchises for distribution are
granted to local organizations and institutions should be considered as a
model for replication.
Conclusion
Poor financial and operational performance and poor management of the
utilities have been the main impetus for carrying out power sector reforms in
South Asia, as is the case in many developing countries. In addition, external
interference in utility operations, lack of independent regulation, power
pilferage, and corruption have also been major areas of concern.
Though reforms have been designed to address these shortcomings in the
power sector in South Asia, the reality of outcomes is mixed. The approach and
the model for reforms need to be adapted to suit local needs. In the reform
process, the emphasis needs be on service delivery and performance, in
parallel with cost recovery. Regulator effectiveness in the reformed sector
environment is paramount for successful achievement of reform objectives.
Furthermore, power sector reforms need to be introduced gradually,
encompassing all the aspects at various stages.
Disclaimer:7KHYLHZVH[SUHVVHGLQWKLVSDSHUDUHWKRVHRIWKHDXWKRUDQGGRQRWQHFHVVDULO\UHŴHFWWKHYLHZVDQGSROLFLHVRIWKH$VLDQ
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included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a
particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to
the legal or other status of any territory or area.
Financing Asia’s Electricity Sector 2035: Making It Happen
Promoting Demand-Side Management in
Asia and the Pacific: Leading the LED Way
Jiwan Acharya
Senior Energy Specialist, South Asia Department, Asian Development Bank
In India, a state-owned energy services company has
successfully demonstrated a new business model to address the
up-front cost barriers and pushed to promote energy-efficient
lighting through deployment of light-emitting diodes (LEDs).
The key features include demand creation and aggregation,
bulk procurement, strong repair and maintenance, as well as
monitoring and verification schemes. Local production and bulk
procurement have helped to drive down prices; the cost for a 9W
LED bulb (typically used for residential lighting) has fallen to less
than USD 1 (INR 65) from USD 5 (INR 330) just two years ago.
A
mong the range of technology options that exist to provide improved
quality of energy service, energy efficiency is considered most costcompetitive and effective. With projections for global economic growth
and the emerging role of developing countries as home for industrial growth,
energy demand will increase rapidly. The need for greater efficiency in energy
use is gaining awareness worldwide and more so in developing countries.
According to the International Energy Agency (IEA), developing Asia’s share of
worldwide energy-related carbon dioxide (CO2) emissions has more than doubled,
from 17% in 1990 to 39% in 2013. Without additional efforts to decarbonize,
developing Asia is expected to account for 46% of CO2 emissions by 2030.1 This
trend clearly reflects Asia’s increasing role as a center of manufacturing and its
status as host to over half of all global megacities. These factors further
,($World Energy Outlook 2015, www.iea.org.
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84
exacerbate energy security and environmental constraints, prompting stronger
emphasis on energy efficiency in both demand and supply sides of markets.
Efficiency will need to be coupled with accelerated investments in renewable
energy and in the deployment of advanced low-carbon technologies to reduce
local air pollution that causes damage to health and the environment.
Key changes in policy priorities and investment strategies will be necessary,
particularly where rapid economic growth is coinciding with urbanization
impacts. Yet, several barriers undermine realizing the full energy efficiency
potential, namely:
• regulatory challenges, as electricity is subsidized to some extent and
energy efficiency programs are voluntary
• institutional challenges, as capacity to support the scaling up of energy
efficiency is limited
• financing the up-front costs which are high for some energy efficient
technologies, while project sizes are small from a lender’s perspective
and returns may be difficult to quantify
• limited understanding of energy efficient technologies and associated
benefits, which constrains their uptake.
The concept of delivering energy efficiency through third-party financing,
following an energy service company (ESCO) delivery mechanism, is an
effective way of scaling up implementation of energy efficiency projects.
However, ESCOs require support in accessing commercial finance, and in
managing technical performance and payment security risks. Long project
development lead times and high transaction costs also affect their viability.
There is a need to support demonstration of a viable company that can follow
the ESCO model to contribute to market transformation through various
energy efficient technologies, which can then be scaled up and replicated.
To counteract regional trends for growth, and in recognition of energy efficiency
benefits, large emerging economies have launched initiatives resulting in
significant energy efficiency improvements. Investments in energy efficiency are
increasingly being recognized as the most cost-effective option (in the short to
medium term) to reduce energy costs, deliver increased economic productivity
and competitiveness, increase energy security, and combat climate change.
Financing Asia’s Electricity Sector 2035: Making It Happen
In India, for example, the government has determined that increased end-use
energy efficiency is critical in meeting rapid energy demand growth. In 2015, as
part of its Intended Nationally Determined Contributions to the United Nations
Framework Convention on Climate Change,2 the government pledged to
reduce the emissions intensity of its gross domestic product (GDP) by 33% to
35% below 2005 levels by 2030. A recent Asian Development Bank (ADB)
report suggested that achieving an intermediate target of at least 20%
emissions intensity reduction by 2020 will require investing approximately
USD 68 billion in energy efficiency measures in India.3
Given that India is already one of the world’s largest economies and growing
rapidly, a transition to low-carbon growth will have a great impact on the overall
global situation. Since 2000, India’s economy has shown an average annual
GDP growth rate of 7.2%, compared with a global average of just 2.6%. This
high economic growth is both fueled by and driving increased demand for
energy. In parallel, the government is ramping up efforts to provide reliable
electricity to the 300 million people who remain in extreme energy poverty. As
a result, the total primary energy supply has almost doubled, from 441.3 million
tons of oil equivalent (Mtoe) in 2000 to 775.5 Mtoe in 2013. As the fuel mix in
India is largely based on fossil fuels,4 annual CO2 emissions from fuel
combustion have grown even faster, rising from 892 million tons (Mt) in 2000 to
1 868.2 Mt in 2013. The potential for further economic growth and rapid
increase in energy demand in India is enormous.
Recognizing the need to achieve more sustainable low-carbon economic
growth, in 2008, the Government of India began taking bold steps, including
the establishment of the National Mission for Enhanced Energy Efficiency
(NMEEE) as one of the eight missions under the National Action Plan on
Climate Change. The Bureau of Energy Efficiency (BEE), under the Ministry of
Power, acts as the secretariat and nodal agency for the NMEEE, with Energy
Efficiency Services Limited (EESL) set up as an ESCO to support BEE in the
implementation activities.
0LQLVWU\RI(QYLURQPHQWDQG)RUHVWV*RYHUQPHQWRI,QGLDIndia Intended Nationally Determined Contribution to the United Nations
Framework Convention on Climate Change, available at http://www4.unfccc.int/submissions/INDC/Published%20Documents/India/1/
INDIA%20INDC%20TO%20UNFCCC.pdf.
$'%6DPH(QHUJ\0RUH3RZHU$FFHOHUDWLQJHQHUJ\HIŵFLHQF\LQ$VLD, Asian Development Bank, Manila.
,QWHUQDWLRQDO(QHUJ\$JHQF\,($ZZZLHDRUJVWDWLVWLFV
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86
The NMEEE aims to strengthen the market for energy efficiency by creating
conducive regulatory and policy regimes, and has envisaged fostering
innovative and sustainable business models for the energy efficiency sector.
To this end, the NMEEE launched four initiatives to enhance energy efficiency
in energy-intensive industries:
• Perform, Achieve and Trade Scheme
• Market Transformation for Energy Efficiency
• Energy Efficiency Financing Platform
• Framework for Energy Efficient Economic Development.
Through these initiatives, the NMEEE seeks to scale up efforts to unlock the
market for energy efficiency, which is estimated to be around INR 740 billion
(about USD 12 billion), and help achieve total avoided capacity addition of
19 598 megawatts (MW). At its full implementation stage, the initiative aims to
reduce greenhouse gas emissions by 98.55 Mt annually. To date, only about 5%
of this potential has been tapped through the ESCO model.5
Leading with LEDs
With the obvious benefits of consuming a fraction of the energy used by
incandescent bulbs to provide better light output, LEDs are revolutionizing the
energy efficiency of lighting, consuming one-tenth of the energy to produce the
same or better light output as an incandescent bulb. Additionally, LEDs do not
use mercury and are therefore environmentally a better source of lighting. In
spite of the known advantages, many challenges inhibit adoption of LEDs on a
large scale. High up-front cost as compared with available options acts as a
major barrier.
With the introduction and rapid development and deployment of LED
technologies, India has been able to lead the way in transforming the lighting
sector. About 12% of total LED systems sold worldwide are installed in India, up
dramatically from just 1% in 2013. Among many factors, EESL has successfully
demonstrated a new business model to address the up-front cost barriers and
pushed to promote LEDs. The key features include demand creation and
% XUHDXRI(QHUJ\(IƓFLHQF\*RYHUQPHQWRI,QGLDKWWSVEHHLQGLDJRYLQFRQWHQWQPHHHDQG(QHUJ\(IƓFLHQF\6HUYLFHV/LPLWHG
http://www.eeslindia.org/.
Financing Asia’s Electricity Sector 2035: Making It Happen
aggregation, bulk procurement, strong repair and maintenance, as well as
monitoring and verification schemes. Local production and bulk procurement
have helped to drive down prices: the cost for a 9W LED bulb (typically used for
residential lighting) has fallen to less than USD 1 (INR 65) from USD 5 (INR 330)
just two years ago.
DELP-EESL’s solution to overcome existing market barriers
In order to overcome barriers and stimulate investment in energy efficient
lighting projects, EESL has launched the Domestic Efficient Lighting Program
(DELP) based on demand-side management (DSM). EESL has distributed more
than 150 million LED bulbs throughout India as of end of August 2016, and the
number is growing.
Lighting accounts for almost 28% of the total electricity consumption in the
residential sector in India, and is a major contributor to peak load. India faces
peak power shortages of over 12% as a result of the gap between demand and
supply, leading to supply disruptions and power failures. The Electric Lamp and
Component Manufactures Association of India estimates that more than
758 million incandescent bulbs were sold in 2012 in India. Incandescent bulbs
are an extremely energy inefficient form of lighting, with just 5% of the electricity
input converted to light. LED bulbs use 85% less electricity to deliver the same
light output. Additionally, the very long life of LEDs makes them extremely
cost-effective compared with incandescents and even compact fluorescent
lamps, on a life-cycle cost-effectiveness basis.
A national intervention to enhance the efficiency of the lighting sector has
the potential to reduce the demand for electricity by over 50 billion kilowatt
hours (kWh) annually, and would lead to an avoided capacity addition of
about 19 000 MW.
National street light program
Public lighting in India consumed about 8 500 million kWh of electricity over a
one year period covering 2012/13. Deployment of energy efficient street
lighting is poised to deliver substantial energy savings to urban local bodies.
Retrofitting all conventional street lights with LEDs is estimated to lead to
potential annual savings of 4 300 million kWh or about 50% of total energy
consumed for public lighting. The inherent operational optimization could lead
to an additional 15% to 20% energy savings.
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In addition to optimizing light sources at minimum energy intensity, LED
technology enables integrated centralized monitoring and control that turns
lights off using a timer or sensor. This has been shown to save an additional two
hours of power consumption per day that may otherwise be required for
manual switching. Being directional light sources, LEDs also enable design that
enhances the quality of light output. As of 29 August 2016, EESL has supported
installation of close to 1.15 million street lights, avoiding about 38 MW. As with
the residential program, the number is growing day after day.
In parallel, EESL has initiated extensive outreach and communications based on
growing recognition that awareness campaigns and concerted marketing
efforts are vital to large-scale diffusion of any innovative and new technologies.
At present, however, well-conceived mass media messages in different major
Indian languages are insufficient. Details of these programs and the results are
available at http://www.eeslindia.org/.
Role of the ADB and future prospects
The ADB, together with other development partners, such as the KfW
development bank, the Agence Française de Développement (AfD) and the
World Bank, is now supporting EESL to scale up energy efficiency and DSM
initiatives, such as the promotion of LEDs. On 30 Sep 2016, the ADB board
approved a USD 200 million investment to EESL to promote energy efficient
lighting and agriculture pumps. The successful demonstration phase can be
further scaled up within India and replicated in other countries in the Asia-Pacific
region. Guided by its Energy Policy 2009, supporting developing member
countries to pursue DSM is a priority of ADB’s energy sector lending.
Disclaimer:7KHYLHZVH[SUHVVHGLQWKLVSDSHUDUHWKRVHRIWKHDXWKRUDQGGRQRWQHFHVVDULO\UHŴHFWWKHYLHZVDQGSROLFLHVRIWKH$VLDQ
'HYHORSPHQW%DQN$'%RULWV%RDUGRI*RYHUQRUVRUWKHJRYHUQPHQWVWKH\UHSUHVHQW$'%GRHVQRWJXDUDQWHHWKHDFFXUDF\RIWKHGDWD
included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a
particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to
the legal or other status of any territory or area.
Financing Asia’s Electricity Sector 2035: Making It Happen
Wasting Less Money on Decarbonization:
Some Lessons from the Philippines
Sarah Fairhurst and Mike Thomas
Partners, Lantau Group
M
any countries with emerging economies are now embarking upon a
path of power sector decarbonization, following models ‘pioneered’ by
the United States, Germany and Australia over the past 10 to 15 years.
Yet many of these early adopters, and inherently their electricity consumers, are
only now beginning to bear unintended costs as a result of pioneering clean
technology, be it the infamous ‘duck curve’ from excessive solar in California or
unexpected stress on the transmission grid and price volatility in Germany. In
many cases, the associated policy signals that stimulated renewable energy
penetration, often in the
form of feed-in-tariffs (FITs)
and other non-market-based
As part of the ‘second wave’ of
incentives, have failed on
economies pursuing low-carbon
two levels. Typically, they
electricity, the Philippines has been
have been unable to adjust
innovative while also seeking to
to—and ultimately
undermined—changes in
avoid pitfalls experienced by early
underlying market
movers—particularly in terms of
fundamentals that
using strategic policy to manage
traditionally served to
the costs of transition.
regulate investment in
conventional generation
assets over time. Moreover,
this 'natural braking' has largely been absent for renewables; policy decisions
have almost entirely been premised on the green agenda, with growth in
renewables continuing unchecked. Multiple examples now exist of renewables
breaching a threshold after which the ill effects of their high penetration
become increasingly compounded.
Recent experience in the Philippines may turn out to offer lessons to the rest of
the world in how to manage some of these challenges. It is too early to be
certain as yet, but there is reason to hope.
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90
First, some background: The Philippines is a fast-growing, developing economy
in Asia that has a largely private-sector, unsubsidized market for power. The
gross domestic product (GDP) per capita is far lower than in other places (such
as Europe, the United States, and Australia) that have embraced renewables.
Thus, decisions in the Philippines have always been made with one eye on cost
implications and the other on climate change—as recent severe weather events
have caused many to believe that climate change will have real and negative
impacts on the country.
Although the Philippines’ electricity market is far from perfect, five renewables
initiatives in particular have proven to be effective.
• While the Philippines did establish an FIT regime, they limited it to
utility-scale solar and capped the FIT volume to ensure that the
capacity built was capable of being paid for by consumers.
• The subsidy for the FIT is passed through to all consumers and itemized
on the electricty bill; this allows everyone to see exactly how much it is
costing them.
• Solar was limited to a maximum of 100 kilowatts (kW) per roof and any
power sold to the grid was paid for at the average generation cost.
Avoiding use of the ‘average retail tariff’ or an even higher FIT (as seen
in Australia, for example) has limited the impact of grid subsidies to
‘just’ the avoided network costs. The main utility in Manila (Meralco)
also insists on dual metering so that it can continue to measure actual
demand of the household.
• A distinction was made between small and larger consumers. At
present, small residential consumers can avoid network charges for
solar generation. For larger consumers, transmission charges are largely
fixed, which means these customers accrue little benefit from the
avoided cost of transmission, a challenge now evident in many other
renewable markets. However, because of a lack of subsidies in the
electricity sector overall, commercial rooftop solar has become very
attractive: payback periods are now less than five years, even without
the ability to benefit from avoiding network costs.
• Incumbent utilities are now investigating changes in tariff design to
bring fixed network costs to residential consumers as well. Again, the
aim is to limit the potential for (richer) solar installers to avoid paying for
the grid while still benefitting from the security of supply it brings.
Financing Asia’s Electricity Sector 2035: Making It Happen
Although the solar FIT quota was only 500 megawatts (MW), this proved large
enough to spur a domestic solar industry: to date, more than 500 MW of
utility-scale solar has been built. Yet the quota was small enough to be (mainly)
absorbed into the electricity market without a need for additional ancillary
services and without creating a duck curve. As one might expect, there is a
clamor for more FITs to appease those keen to avail of subsidies. However,
more interestingly, recent trends show many clients taking a different
approach. They are building solar farms to trade merchant in the spot market,
selling this to utilities in a competitive process in which they compete directly
with other fuels, or to industrial consumers through retailers that are blending
solar with other purchases in the market and contracts. These new projects
highlight that the solar industry in the Philippines is now cost-competitive with
other forms of generation—even without explicit or implicit subsidies. This is
possibly a global first.
The Philippines does have some natural advantages. Industrial electricity usage
is low compared with some other countries and much demand is driven by air
conditioning, meaning it correlates well with when the sun is out. This enables
solar to compete against peaking units, which are still oil-based in many places.
The Philippines also has a private-sector power industry with a strong local
equity and debt component that is more comfortable taking risks than some
other markets. This willingness to take risks may allow solar proponents to find
niches that have not been explored in other countries without subsidies. Finally,
the Philippines has also come to the party late—meaning that costs had fallen
substantially before the market started to build solar farms.
The industry in the Philippines is at a crossroads. Without new subsidies, only
those solar projects that are capable of competing will move forward. The
growth may fall, but we would expect to see more focus on the quality and
location of installations.
There remain many vested interests clamouring for populist but less economic
solutions; so this potential may yet stall. However, we hope it will stay on track
and showcase the first truly commercial solar competing head-to-head in a
private sector electricity market.
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IV. Pathways to Capitalizing
Asia’s Electricity
Infrastructure
Financing Asia’s Electricity Sector 2035: Making It Happen
Catalyzing Low-Carbon Financing in Asia
and the Pacific
Aiming Zhou, Ph.D.
Senior Energy Specialist, South Asia Department, Asian Development Bank
R
apid growth of economies in the Asia and Pacific region (Asia-Pacific) in
the first decade of the 21st century was accompanied by a corresponding
increase in the region’s energy requirements. In 2010, primary energy
demand in Asia-Pacific stood at 4 985 million tons of oil equivalent (Mtoe), an
increase of 60.8% from 3 101 Mtoe in 2000. Consequently, the region’s share of
world energy demand rose from 30.7% in 2000 to 39.2% in 2010. The AsiaPacific actually accounted for as much as 71.9% of the incremental growth in
world primary energy demand from 2000 to 2010.1 It is worth noting that more
than 600 million people in this region still have no access to modern energy;
thus, achieving universal access will be an element in growing demand.1
By 2035, energy demand in
Asia and the Pacific region is
projected to increase by as much
as 60%. If this demand growth is
met through fossil fuel sources,
energy-related emissions will
skyrocket. The need to refine
and improve access to lowcarbon financing in the region is
increasingly urgent.
An increase of similar
proportions in Asia-Pacific’s
primary energy demand is
expected to occur between
2010 and 2035 (unless
otherwise indicated, this paper
refers to this time period). If left
unabated, demand for fossil
fuels would grow more than
threefold, consequently
pushing the region’s energyrelated carbon dioxide (CO2)
emissions up by more than 60%
and increasing its share of
global energy-related CO2
emissions to more than 50%.
93
94
(QHUJ\RXWORRNIRU$VLD3DFLƓF1
Primary energy demand in Asia-Pacific is projected to increase by 67.7% in the
medium term. At an average annual growth rate (AAGR) of 2.1%, it will rise from
4 985 Mtoe in 2010 to 8 358 Mtoe in 2035. This is faster than the growth in
world energy demand, which is projected to have an AAGR of 1.5%.
Growth in primary energy demand will vary across Asia-Pacific, reflecting
diversity in economic development and population growth. Energy demand of
developing member countries (DMCs) of the Asian Development Bank (ADB) is
projected to increase quickly at an AAGR of 2.3% through 2035, increasing from
4 345 Mtoe in 2010 to 7 720 Mtoe in 2035. By contrast, energy demand of the
developed countries will decline by –0.01% per year.
More specifically, electricity generation in Asia-Pacific is projected to more than
double, from 8 408 terawatt hours (TWh) in 2010 to 18 532 TWh in 2035.
Electricity generation from DMCs of the ADB will account for 91% of the total
Asia-Pacific electricity generation. The People’s Republic of China is projected
to register the largest amount of electricity generation in 2035 (9 542 TWh),
followed by India (3 437 TWh). Collectively, these two countries will account for
70% of electricity generation in Asia-Pacific.
Fossil fuels will still dominate energy demand in Asia-Pacific through 2035. The
combined share of coal, oil and natural gas is projected to increase slightly,
from 82.4% of total primary energy demand in 20102 to 83.2% by 2035.3
Demand for fossil fuels will amount to 6 953 Mtoe in 2035, a 228.7%
incremental increase from 2 115 Mtoe in 2010. By 2035, their individual shares
will be as follows: coal = 42.1% (3 516 Mtoe); oil = 23.6% (1 973 Mtoe); and
natural gas = 17.5% (1 463 Mtoe).
Demand for fossil fuels will increasingly need to be met by imports, making
ADB members in Asia-Pacific vulnerable to price fluctuations in the international
energy markets, thus affecting their energy security.
Because of its price competitiveness and abundance, coal will continue to be
the dominant fuel input for power generation. By 2035, coal is projected to
account for 55.2% of total electricity generation in Asia- Pacific. Natural gas is
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Financing Asia’s Electricity Sector 2035: Making It Happen
projected to have the second-largest share in electricity generation as its use
expands. The exception is Southeast Asia, where coal will replace natural gas as
the major fuel input for power generation.
This level of fossil fuel use is expected to stimulate an increase in energyrelated CO2 emissions, from 13 404 million tons of CO2 (MtCO2) in 2010 to
22 113 MtCO2 in 2035. In 2010, energy-related CO2 emissions from Asia-Pacific
accounted for 42.8% of the world total. By 2035, this share will increase to
51.2%. In parallel, the share of new and renewable energy in electricity
generation in the region will increase from 1.9% in 2010 to 7.1% in 2035.
To meet the energy needs of Asia-Pacific, cumulative investments of about
USD 11.7 trillion would be required from 2010 to 2035. This investment includes
upstream energy extraction/production, mid-stream energy transformation, and
transportation and downstream energy distribution.
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Developing Asia urgently needs country-specific technologies to help it reduce
CO2 emissions and adapt to climate change impacts, such as rising sea levels,
increased water salinity and uncertain climate conditions. Many technologies—
nascent and mature—are available in developed economies. Access to
financing plays a vital role in deploying and scaling up low-carbon technology
application. Financing through the capital market has been increasing
significantly in recent years, as has venture capital and private equity fund
financing. Two broad categories of financing instruments are applicable to
low-carbon development.
1. Traditional financing instruments. Traditional financing is conducted
via issuing of bonds, private lending, credit guarantee, financial leasing,
equity transfer, venture capital, etc. In recent years, novel financing
schemes have been emerging, such as equity and debt markets, and
mergers and acquisitions. It is also possible to secure financing through
fixed assets (factories and equipment) mortgage loans or inventory
financing, or by applying for national innovation fund and project
development loans. All these financing approaches could serve as
references to the application of low-carbon energy financing.
Traditional financing is mainly offered by commercial banks, but they
have been slow to enter the area of energy due to lack of expertise
and/or lack of technical capacity. Access to financing through traditional
instruments has improved over the years thanks to the maturation and
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growth of renewable technologies. At the moment, however, these
instruments remain concentrated in the solar and wind industries.
2. Innovative financing instruments. New instruments, such as asset
securitization and project financial leasing, have proven to be effective
financing approaches for low-carbon solutions. Project finance leasing
has been widely adopted by the photovoltaic (PV) industry, although
its direct and indirect financing channels (such as preferential tariff
structure and regulatory requirement of power purchase agreement
preparation) are not yet sound enough. With continued practice,
financial leasing for PV power stations has gradually matured to
become a vital way to ease the financing pressures of the whole
industry. The majority of innovative financing instruments, however,
are only being applied in the industrialized world. More effort is
needed to transfer these instruments to developing countries.
In attracting low-carbon financing, China leads the way. According to the
International New Energy Development Report 2015, issued by the New Energy
Chamber of Commerce in the second quarter of 2016, China ranked number
one in financing with USD 89 billion, up by 31.7% compared with 2013. Total
aggregated financing in the new energy industry was at USD 310 billion in 2015,
and will keep growing due to the country’s green economy and low-carbon
development strategy.
In general, there is a large gap in the availability of commercial financing for
new and renewable power generation, such as solar and wind, and there is still
a perception of high risk in financial flows from these sources to support lowcarbon generation projects.
Some financiers have spoken of a ‘virtuous cycle’ in low-carbon financing, in
which the demonstrable success of projects encourages greater levels of
investment, leading to more deployment and more success, and so on.
Attaining this virtuous cycle requires transparent, supportive public policy and
regulatory frameworks.
Policy incentives such as feed-in-tariffs and renewable energy certificates create
guaranteed markets for low-carbon energy. An alternative option is tax incentives
that offer direct or indirect support. More recently, auctions and/or tendering
have been used to incentivize renewable energy development. This has led to
record bids in terms of both low price and high volume, such as a recent case in
Chile in which a tender for electricity offered solar power at half the price of coal.
Financing Asia’s Electricity Sector 2035: Making It Happen
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To catalyze public and private funds in Asia-Pacific, the international financing
institutes (IFIs) in the region (such as the ADB, etc.) can work to attract and
deploy climate financing to support low-carbon, resilient growth in developing
countries and emerging economies.
The ADB has a mission to help developing Asian countries meet their energy
security needs, achieve a low-carbon economy, and provide reliable and
affordable energy access to all populations. To support the wide-scale
deployment of clean energy projects and technologies, the ADB uses a number
of financing instruments, such as direct lending, lines of credit and partial credit
guarantees. This combined approach to clean energy development places the
ADB at the forefront of the sector, as its DMCs continue the transition to
low-carbon development. By issuing ‘green bonds’ to finance projects
designed to cut emissions, adapt to climate change, or expand renewable
energy or efficiency schemes, the ADB has raised USD 1.3 billion to date.
As a multilateral financing institution, the ADB is also focusing on the next stage
of low-carbon financing, related to the Paris Agreement and the Intended
Nationally Determined Contributions (INDCs) for greenhouse gas (GHG)
reductions submitted by signatory countries. Of the 189 countries that
submitted INDCs to the United Nations, 43 are from the Asia-Pacific region.
Countries across the region have indicated both conditional and unconditional
GHG reductions, with the latter largely dependent on financial aid from the
industrialized world. The Paris Agreement intends to source USD 100 billion
from developed countries as a basis for a global climate financing fund. The
ADB and its partners are expected to be part of the process, which will channel
that money towards low-carbon activities in the developing world.
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included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a
particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to
the legal or other status of any territory or area.
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How OPIC’s Development Finance Model
is Expanding Access to Energy in India
and Beyond
Elizabeth L. Littlefield
President and CEO, Overseas Private Investment Corporation (OPIC)
From solar applications
to innovative ways
to produce biofuel,
OPIC recognizes that
entrepreneurs are ready
to deploy energy access
solutions but often
struggle to access the
financing needed to
scale up. We believe the
private sector plays a
critical role in achieving
universal energy access
and invest accordingly.
N
o different from many developing
economies around the world,
emerging markets in Asia face
multiple challenges to growth, from
limited education and health care to
limited access to the financial services
that can support small businesses and
jump-start economic growth.
Access to energy is at the root of many
of these challenges.
Those of us who take energy for
granted often think of it in terms of
turning on a light switch or charging a
cell phone. While such uses are central
to the way we all live and work, energy
is also the foundation for our farms and
our businesses, our schools and our
health clinics.
OPIC works to mobilize private-sector investment to address global
development challenges, including a long history of supporting projects that
expand access to energy. As the development finance institution of the United
States government, OPIC supports projects in more than 100 developing
countries and is authorized to do business in more than 160 countries,
including 28 in Asia.
OPIC’s model for advancing development is based on the understanding that
the world’s challenges are too great for governments or non-profits to address
on their own and that private investment is essential. We understand that
Financing Asia’s Electricity Sector 2035: Making It Happen
business can serve as a force for good in the world. OPIC provides financing and
political risk insurance to support businesses in challenging developing markets
where sufficient private financing may not be available. Energy projects, which
require particularly large up-front investments as well as a deep understanding
of local business conditions, have consistently been an area of focus.
While OPIC’s commitment to critical energy projects is long-standing, in recent
years, we have increased our focus on supporting projects that generate energy
from renewable sources. The following examples from India, where we have a
particularly robust portfolio of energy projects, provides a good illustration of
some of the different ways we are helping businesses expand access to energy
off the grid in the developing world.
Find and develop new sources of energy
In India, an estimated 400 million people live in rural areas that lack grid access.
Rice is a dietary staple in India, but rice husks, the hard protective coatings that
surround the edible portion, are typically discarded in the milling process. Back
in 2002, two entrepreneurs looking for ways to expand access to energy and
promote development in rural India discovered that some rice millers were
mixing these discarded husks with the diesel they burned for energy as a way to
reduce their diesel consumption and save money. When they started studying
the biomass properties of the rice husks, they realized that the technology
needed to convert rice husks to energy was pretty simple and well suited to
small rural villages with limited technical capabilities.
When OPIC learned about Husk Power, the start-up developing this technology,
it committed a small loan to the company to help it develop a series of mini
power plants that would generate energy from the biomass. The financing
proved critical to Husk Power, which had been unable to obtain sufficient
funding from the Indian government or private investors to cover its expansion.
The mini power plants are simple enough to operate that they can be
maintained by locals with limited advanced skills. In addition to using innovative
processes and materials to develop energy, Husk Power also advanced access
to energy in India by reaching remote populations that are not connected to
the energy grid.
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Reach unreachable populations
Simpa Energy India Ltd., also an OPIC partner, is helping some of these same
communities access energy with its off-grid solar energy technology. Simpa
developed home solar systems that are easy to use and sells solar as a service
under a model that is affordable even to poor households and some very small
businesses. Demand for its systems has been strong in rural villages, where
energy has brought a host of benefits, from enabling businesses to stay open to
allowing children to do their homework after dark.
Seek new ways to power old industries
Applied Solar Technologies is a solar energy service provider in India that helps
businesses reduce their dependence on diesel through solar energy. The
company is using OPIC financing to expand the use of solar energy to power
telecommunications towers in India. In addition to helping lower carbon
emissions, the project is specifically benefiting poor rural areas where some of
these telecom towers are based.
Today, OPIC is working to support more projects of this sort throughout Asia.
Among some of the more recent projects is financing for a 75-megawatt wind
energy facility in Indonesia. This will be the first private wind energy project in
the country and will support the government of Indonesia, which has
committed to diversifying its energy generation mix and generating more of its
energy from renewable sources.
OPIC will continue to utilize all of its financial tools to catalyze new energy
access across Asia. While the vast majority of OPIC’s staff is based in
Washington, D.C., in recent years the agency has established a handful of small
local offices, including one in Bangkok, to support regional outreach and
business development.
Financing Asia’s Electricity Sector 2035: Making It Happen
Ensuring Compatibility between
Sustainable Electricity Supply and
Environmental Preservation in Asia
Kazunori Ogawa
Director General, New Energy and Power Finance Dept. II,
Japan Bank for International Cooperation (JBIC)
Increasing electricity demand
Many countries in the world
foresee increasing demand for
electricity in the future, based on
economic development, rapid
urbanization and increasing
population. We know that reducing
greenhouse gas (GHG) emissions
and developing renewable energy
are critical for global environmental
preservation, but also understand
that the world will have to depend
on fossil fuel thermal power
generation as a future baseload
power source. According to the
International Energy Agency (IEA),
fossil fuel generation will steadily
increase in Southeast Asia, from
649 terawatt hours (TWh) in 2013
to 1 699 TWh in 2025.
Asia faces a particular
challenge in meeting
projected electricity demand
growth. Countries in the
region are committed to
contributing to global climate
change mitigation efforts,
yet they have an abundance
of coal resources and
limited renewable capacity
at present. Setting energy
pathways for the future will
require balancing local and
global objectives.
In Asia, fossil fuel generation accounts for a large percentage of the power
sector. Because of the large fossil fuel reserves in the region, the cost of power
generation has been relatively low. Many countries have made the new
development of large-scale baseload electricity generation a policy priority,
which has the effect of limiting growth in the use of renewable energy. As a
result, renewable energy currently remains low in Asia.
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Given that the strong population and economic growth are likely to continue in
Asia, the trend for electricity demand to increase will also continue. Fossil fuel
power generation continues to play an important role in the future electricity
supply; however, GHG emissions from fossil fuels are higher than from
renewable energy. In order to meet increasing electricity demand while also
contributing to global warming mitigation efforts, implementing both
renewable energy and highly efficient thermal power that uses low-carbon
technology must be actively promoted.
Promotion of renewable energy
The framework of the global climate change countermeasures was confirmed in
COP21 in 2015, increasing the international momentum toward the shift to a
low-carbon society. The circumstances in Asia surrounding clean energy are
changing due to the decrease in renewable energy costs and the progress in
international climate change negotiations. As major Asian countries are
expected to shift to become net importers of fossil fuels, there is higher
awareness of the importance of renewable energy and energy conservation in
terms of energy security considerations. Under their long-term national power
development plans, many of these countries have announced their strategies to
promote more renewable energy.
In promoting renewable energy, in order to achieve cost-effectiveness and
feasibility, the choice of project location and the environmental and social
considerations of the project should comply with the climate, topographical
features, and society of the region. Strong fiscal and structural incentives by the
government, such as tax breaks or appropriate feed-in tariff structures, are also
essential in introducing renewable energy.
,QWURGXFWLRQRIKLJKO\HIƓFLHQWWHFKQRORJLHV
Coal is a globally traded commodity and stably procured at relatively low cost.
In terms of their energy portfolios, many countries see it as a future baseload
electricity source. Coal-fired plants produce more carbon dioxide (CO2)
emissions, but it is not realistic to suspend all the coal-fired power generation in
developing countries right away.
From the perspective of preventing global warming, the introduction of highly
efficient technology (such as ultra-supercritical [USC] technology with higher
pressure and higher temperature, or integrated coal gasification combined
cycle [IGCC]) is a realistic solution. The installment of USC plants is expected to
increase in Asia, according to an IEA survey.
Financing Asia’s Electricity Sector 2035: Making It Happen
Japanese equipment suppliers are pursuing more efficient technology. The
efficiency level of USC coal plants by Japanese suppliers is over 40%, among
the highest in the world, and this level has been rising due to technological
progress. Recently, Japanese suppliers have signed engineering, procurement
and construction contracts for USC plants throughout Asia.
More than 20 large-scale USC coal power plants are operating in Japan, with
the first plant beginning operation in the early 1990s. Japanese utility
companies have a long-standing safe and stable operation record with USC
plants. Two pilot projects, the Osaki CoolGen IGCC/IGFC (integrated coal
gasification fuel cell) project and the Nakoso IGCC project, are in progress.
In 2015, member countries of the Organisation for Economic Co-operation and
Development (OECD) agreed on continuous support by export credit agencies
for USC coal power plants, recognizing the importance of higher-efficiency coal
technology. Now, USC coal power generation has become a main focus of
baseload electricity development in Asia. Safe and stable operational
experience and highly efficient technology will assist Asian countries’
deployment of highly efficient power generation.
Toward environment-friendly infrastructure development in Asia:
challenges by the Government of Japan and JBIC
Ensuring compatibility between environmental preservation and economic
growth is acknowledged as a global challenge. At the occasion of COP21, the
Government of Japan announced the Actions for Cool Earth 2.0 initiative as its
new contribution toward preventing global warming. Under this initiative, Japan
committed its support to developing countries. In 2020, Japan will provide
approximately JPY 1.3 trillion of public and private climate finance.
The Government of Japan also announced a policy to invest USD 200 billion in
high-quality infrastructure globally in 2016. Under this initiative, the Expanded
Partnership for Quality Infrastructure, highly efficient and lower-emissions
technology in electricity generation will be promoted globally.
In accordance with those policies, Japan Bank for International Cooperation
(JBIC), as Japan’s governmental financial institution, is expected to provide
financial support to projects and to highly efficient thermal power generation to
reduce GHG emissions. JBIC always considers a well-balanced development of
the global power supply, including renewable energy, and clean and efficient
thermal power.
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104
A key JBIC mechanism is to extend buyer’s credits to governments or electricity
companies for their purchase of renewable energy equipment from Japan. JBIC
also provides project financing to independent power producers (IPPs) for
renewable energy projects with Japanese sponsors. A geothermal power
project in Indonesia and a hydropower project in Laos are among recent IPP
transactions.
Under its GREEN (Global action for Reconciling Economic growth and
ENvironmental preservation) operation, JBIC also supports renewable energy
and energy-saving projects globally. The total commitment amount of the
GREEN operation is USD 45 billion, with 29 transactions.
Recently, JBIC committed funds for highly efficient thermal power projects,
such as gas combined-cycle plants in Thailand and USC plants in Indonesia. It
also invested in and financed an enhanced oil recovery project in the United
States in 2014, which contributes to GHG reductions.
Looking ahead, JBIC will continue to work on climate change countermeasures
in Asia by supporting high-quality electricity infrastructure developments that
are environment-friendly and contribute to reconciling global environmental
preservation and economic growth.
Financing Asia’s Electricity Sector 2035: Making It Happen
Dire Straits? Using IFI Financing in the
Post-Basel III World
William A. Wilson III
Partner, Wilson Williams LLC
P
rivate sponsors cannot get money for nothing; they must provide an equity
return to investors or pay interest to a lender. If the cost of debt is lower
than the expected equity return, it is in the sponsor’s economic interest to
borrow as much as possible. Traditionally, commercial banks have been a major
source of debt financing. The banks view project finance as an asset class
yielding above-average returns but with above-average headaches. Over the
past few decades, there have been waves of interest and periods of
disengagement from the market.
We anticipate that there will be diminished interest in project financing by
commercial banks in the next few years. This is due in part to political risk and
market risk being greater than modeled by the lending teams. It is also a result
of the Basel III regulations.
The Basel III bank regulatory scheme
is an international voluntary set of
All project sponsors face at
standards for capital adequacy of
least three hurdles: finding
financial institutions. Basel III was in
a good project to develop,
large part a reaction to the recession
of 2008, and policymakers’ belief
developing it successfully
that excess leverage led to the
and financing that
meltdown. Although Basel III is
development. This article
voluntary, most of its principles have
discusses the third hurdle.
been adopted (and made
mandatory) by the world’s major
economies. For example, in the
United States, the Federal Reserve imposed, based on Basel III, new capital
reserve requirements on both banks and other large financial institutions.
The new rules make lending to projects more expensive by imposing higher
capital reserve requirements on less liquid assets (such as project loans
compared to government-issued securities). Increasing a bank’s cost of funding
reduces its profit—and therefore reduces its internal allocation of resources.
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106
If banks lend less, sponsors will have to put in more equity or find alternative
debt. International financial institutions (IFIs) are one of those alternatives. Dozens
of IFIs exist; this article will briefly describe a few major ones.
In surveying the world of IFIs, it helps to consider three axes:
• multilaterals vs. bilaterals
• concessionary lenders vs. market-rate lenders
• development-oriented lenders vs. content-promotion lenders.
Additionally, the project sponsor must be sure a given IFI is ‘open for business’
in the country where the project will be located.
For the purposes of the average project sponsor, the difference between a
multilateral and a bilateral is less important than the character and
preferences of the specific lender. A multilateral bank has (as its name
suggests) multiple shareholders, whereas a bilateral bank is owned by one
sovereign. The International Finance Corporation (IFC) is a multilateral, as is
the Asian Development Bank. Bilaterals include the Deutsche Investitionsund Entwicklungsgesellschaft (usually abbreviated as DEG for obvious
reasons) and the Export-Import Bank of Korea.
Most of the IFIs are, at least in theory, concessionary lenders. Because they are
lending for a purpose (or more than one purpose), they will lend at below-market
rates or will lend to projects with risks that would torpedo a commercial bank
loan. However, concessionary does not mean ‘cheap’, it simply means less costly.
For example, the IFC often seeks warrants or other equity upsides as part of its
financing package, which can make the total blended cost quite expensive. That
said, the IFC will look at proposed projects in places no commercial lender will
consider lending due to political risk.
Another way to divide the IFI world is by those lenders who seek to promote
development in the project’s host country as opposed to those who seek to
promote the interests of the sponsor’s home country (or the source of the
equipment used in the project). The latter group includes the export credit
agencies (ECAs) such as the Export-Import Bank of the United States. ECAs will
have minimum content requirements and may be able to finance only portions
of the project that can be tied to their home countries. Since equipment supply
becomes part of the financing analysis, using an ECA adds complexity to a
project. Yet, a development-oriented IFI presents its own challenges; it will
Financing Asia’s Electricity Sector 2035: Making It Happen
likely have strong policy goals that trump economic outcomes if there is a
conflict. Moreover, those policies may shift in response to changes in domestic
politics in the IFI’s home country.
Finally, each IFI has its list of countries where it is willing to finance projects.
That list may be based on perceived need, international politics, domestic
politics and other factors. In our experience, the official list is but a starting
point. A wise sponsor will save time by determining early in the process
whether the host country for the project is acceptable to the IFI from which the
sponsor is seeking funding.
As a corollary, a sponsor should also identify any other deal-killers, such as an
unwanted fuel source, a less-than reputable local partner or a political sacred
cow. IFIs have policies posted on their websites (see, for example,
https://www.opic.gov/who-we-are/our-investment-policies for the policies of the
Overseas Private Investment Corporation) but talking with an investment officer
or business development officer at the IFI will yield valuable information about
unwritten priorities and prohibitions.
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108
0DMRULQWHUQDWLRQDOƓQDQFHLQVWLWXWLRQV
The Overseas Private
Investment Corporation (OPIC)
www.opic.gov
The Export-Import Bank of the
United States (EXIM)
www.exim.gov
European Bank for
Reconstruction and
Development (EBRD)
www.ebrd.com
International Finance
Corporation (IFC)
www.ifc.org
Asian Development Bank (ADB)
www.adb.org
OPIC is a US government-owned bank that
promotes investment. While OPIC is not an
ECA (and has no content requirements), it
does require minimum ownership by
persons who are US citizens. OPIC has strict
rules on the environmental and social impact
of projects. OPIC provides project loans and
political risk insurance. OPIC does not
finance projects located in the People’s
Republic of China.
EXIM is an ECA, and finances goods and
services from the United States. Content
requirements are specific and mandatory.
EXIM has worked closely with large
exporters for years.
EBRD offers loans, equity and guarantees to
projects in developing economies. It is
active in some countries far from traditional
Europe, such as Mongolia and Uzbekistan.
Policy constraints are key. The website
states: “EBRD has a political mandate in that
it assists only those countries ‘committed to
and applying the principles of multi-party
democracy [and] pluralism’. Safeguarding
the environment and a commitment to
sustainable energy are also central to the
EBRD’s activity.”
The IFC is the ‘hard money’ arm of the World
Bank Group. It is open in most countries and
has a greater appetite for political risk than
many other lenders. The IFC has a
development mandate and will use its
financing as a way to promote environmental
and social standards in the host country.
Open in most Asian countries, including
China, the ADB has a strong development
orientation. Despite a private sector arm
that has existed for many years and can
provide project loans, ADB is better known
for loans to governments.
Financing Asia’s Electricity Sector 2035: Making It Happen
International Investment Bank
(IIB)
www.iib.int/en
Asian Infrastructure and
Investment Bank (AIIB)
www.aiib.org
Japan Bank for International
Cooperation (JBIC)
www.jbic.go.jp/en
Export-Import Bank of Korea
(KEXIM)
www.koreaexim.go.kr/site/main/
index002
Deutsche Investitions- und
Entwicklungsgesellschaft (DEG)
www.deginvest.de/Internationalfinancing/DEG/
Netherlands Development
Finance Company (FMO)
www.fmo.nl/
Export-Import Bank of China
(China EXIM)
http://english.eximbank.gov.cn/en/
Recently rejuvenated, the IIB is owned by
former COMECON states, with Russia
holding the biggest stake. The only Asian
country where IIB is open is Vietnam.
This new bank is seen as a competitor to the
World Bank Group, largely because its
major shareholder is the People’s Republic
of China. The bank is a developmentoriented bank and is open in Asia, Latin
America and Africa.
JBIC is the result of a merger between the
Japanese ECA and a development-oriented
bank. It can therefore provide both exportcredit financing for Japanese goods and
concessional loans for projects with
development impact.
KEXIM is an ECA promoting Korean
companies. KEXIM offers loans and
guarantees and can also take a direct equity
stake in a project in which Korean companies
are involved.
DEG is part of the KfW group (the German
ECA and development finance bank). DEG
handles development finance and is active
around the world. DEG has a strong
development/policy orientation.
The FMO is one of the larger bilateral
development banks and is active around
the world. It offers a wide variety of
financing options, including equity,
mezzanine and debt. The FMO often
co-lends with the IFC and DEG.
China EXIM is an ECA for China. It is
known for its large and generous support
of Chinese contractors engaged in
projects overseas.
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110
V. Biographies
Financing Asia’s Electricity Sector 2035: Making It Happen
Jiwan Acharya
Mr. Jiwan Acharya has worked in the Energy Division of the
South Asia Department of the Asian Development Bank
(ADB) since January 2016 as Senior Energy Specialist. Prior to
that, he was with Sector Advisory Support in the Regional
and Sustainable Development and Climate Change
Department of ADB since 1 October 2006 as Senior Climate
Change Specialist (Clean Energy). He is a key member of
ADB’s Climate Change and Clean Energy Team and was
responsible for overseeing several of ADB’s key initiatives, including Energy for
All and Low Carbon Technology Transfer, among others. The Energy for All
program aims to increase ADB’s own investment in access to energy and assist
the partners in promoting energy access projects in the region. Mr. Acharya
also spearheaded the Energy for All Partnership, which successfully met the
ambitious target of providing energy access to 100 million people by 2015, and
he served as ADB’s focal point for the Clean Technical Fund (CTF) and Scaling
Up Renewable Energy for Low Income Countries (SREP) under the Climate
Investment Funds (CIF), as well as for the Sustainable Energy for All Initiative
(SE4All). Prior to joining the ADB, Mr. Acharya was Senior Research Officer for
Winrock International in Kathmandu, Nepal, covering climate change, CDM,
energy access and broader clean energy areas.
Lord Browne of Madingley
John Browne (Lord Browne of Madingley) is currently the
Executive Chairman of L1 Energy, an oil and gas investment
company which is developing a portfolio of several regionally
focused platforms and entering the rapidly evolving markets
for alternative energy and energy infrastructure. Lord Browne
was CEO of BP from 1995 to 2007, described as the
company’s “golden period of expansion and diversification.”
John Browne is Chairman of Huawei UK, the Tate Galleries
and Donmar Warehouse, and has authored the memoir Beyond Business;
popular science book Seven Elements that Have Changed the World; The Glass
Closet, a commentary on the acceptance and inclusion of LGBT people in
business; and most recently, Connect, about how companies succeed by
engaging radically with society.
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Nicholas Browne
Nicholas is a Director at Wood Mackenzie, where he leads the
Singapore Primary Fuels Research team. The team provides
commercial analysis on LNG, gas, coal and electricity markets
and trends across Asia. Nicholas joined Wood Mackenzie in
2007 as a Gas & Power consultant in London. An energy
markets and LNG expert, he has developed several Wood
Mackenzie research products. He has also advised on
multiple major international infrastructure transactions,
project financing engagements and other projects across the energy value
chain. Nicholas joined Wood Mackenzie from Total, where he worked in a
variety of gas & power roles, such as trading and marketing.
Antonio Castellano
Antonio Castellano is an Expert Associate Partner at
McKinsey & Company and is co-leader of McKinsey’s
electricity and natural gas practice in Southeast Asia. He has
served global utilities, regulators and governments in Europe,
the Middle East, sub-Saharan Africa and Australasia. He has
deep expertise in power sector strategy and regulation,
operations, and capability building. Some of his recent work
includes defining the long-term energy strategy for an Asian
country, developing a ten-year strategy for a Southeast Asian utility, designing
a national strategy for the deployment of renewables and nuclear energy in
Asia, and supporting a national regulator in increasing competitiveness and
attractiveness of a local electricity sector.
Financing Asia’s Electricity Sector 2035: Making It Happen
Sarah Fairhurst
Ms. Fairhurst, one of the Founding Partners of The Lantau
Group (TLG), has a wide range of international experience in
the electricity and gas sectors. Prior to co-forming TLG, Ms.
Fairhurst was a principal with Charles River Associates (CRA)
first in Australia, then in New Zealand and later in Hong Kong.
TLG was formed in 2010 as a management buyout of CRA’s
Hong Kong subsidiary. Ms. Fairhurst combines strong policy
advisory and analytical qualifications with pragmatism and
commercial experience across many countries in order to advise clients more
effectively on power and gas markets; commercial opportunities; market entry
strategies; market transition arrangements to mitigate market power or
transition to retail competition or facilitate market maturation; power
procurement tender design; and related regulatory matters. Her power
expertise covers traditional thermal as well as renewables, geothermal and
hydro power stations.
Robert W. Gee
Mr. Gee is President of Gee Strategies Group LLC, a
Washington, DC-based consulting firm excelling in policy
analysis, advocacy and litigation support for a variety of
domestic and foreign clients in the energy and utility sectors. A
36-year veteran of the energy industry, his thought leadership
is exemplified by his diverse experiences as an attorney, senior
state and federal public official, and technology executive. A
recipient of various honors and awards, his commentary on
energy and public policy matters has appeared in major print and broadcast
news media. Mr. Gee served as Commissioner and Chairman of the Public Utility
Commission of Texas, and later as Assistant Secretary for Policy and International
Affairs and Assistant Secretary for Fossil Energy at the US Department of Energy.
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Philip Graham
Mr. Graham is a Managing Director and Co-Head of Energy,
Power and Utilities for Asia Pacific, based in Sydney. Mr.
Graham has more than 20 years of investment banking
experience and joined Citi in 2006 after working at ABN and
Merrill Lynch in New York and Australia. Mr. Graham has been
involved with more than USD 30 billion of mergers and
acquisitions (M&A) and financing transactions in the energy,
power and infrastructure sectors. Mr. Graham works with
energy and utility clients throughout Asia and Australia and recently advised
CKI on its USD 4.5 billion acquisition of Envestra Gas Networks, Woodside
Energy on its USD 3.7 billion acquisition of Apache’s liquefied natural gas (LNG)
assets, and AGL Energy on its acquisition of more than 3 gigawatts (GW) of
power stations including Macquarie Generation and Loy Yang B.
Ee Huei Koh
Ee Huei Koh is an Associate Partner at McKinsey & Company.
Since joining McKinsey in 2008, she has focused on advising
government agencies and private sector operators in the areas
of transportation infrastructure and power generation. She
employs her engineering and policy expertise to help leaders
and executives negotiate complex political, economic, social
and environmental issues in the planning and delivery of
efficient, cost-effective transport infrastructure. In her work in
the power sector, Ms. Koh guides utility clients through the regulatory process,
aligning with environmental goals while improving performance across the value
chain and promoting sustainable competitive advantage.
Financing Asia’s Electricity Sector 2035: Making It Happen
&VLOOD.RKDOPL0RQƓOOV
Ms. Kohalmi-Monfills is the Executive Vice President, Strategy
and New Business, with ENGIE Asia-Pacific, based in Bangkok.
ENGIE’s operations in the region include electricity generation
and retail, gas distribution, district cooling, commodity trading,
liquefied natural gas (LNG) trading, shipping and sales, as well
as design and engineering, facility management and energy
efficiency services through its subsidiaries in Thailand,
Indonesia, Singapore, the Philippines, Australia, New Zealand,
Myanmar and Mongolia. Before joining ENGIE in 2011 as Strategic Projects
Director, Ms. Kohalmi-Monfills held senior functions at various energy companies
in Hungary, including the MOL Group. She started her career with Unilever, where
she headed up business development projects in Europe and Latin America. Later,
at the Boston Consulting Group, she developed new business opportunities and
managed change projects for corporate clients across the world.
Lawrence E. Jones, Ph.D.
Dr. Lawrence E. Jones is a thought leader and practitioner with
over 25 years of experience in the energy industry. He joined
Edison Electric Institute (EEI) in September 2015 as Vice
President, International Programs. Prior to joining EEI, Dr. Jones
was North America Vice President for Utility Innovation &
Infrastructure Resilience at Alstom Grid Inc., where he assisted
utilities worldwide with formulating strategies for deploying
new technology solutions. He is editor of the book Renewable
Energy Integration: Practical Management of Variability, Uncertainty and Flexibility
in Power Grids. He received the Renewable Energy World Network 2012 Excellence
in Renewable Energy Award for Leadership in Technology, and the Utility Variable
Generation Integration Group 2012 Achievement Award. In 2000, while at the
Royal Institute of Technology, he co-founded the International Workshop on
Large-Scale Integration of Wind Power and Transmission Networks for Off Shore
Wind Farms. He is frequently an invited speaker at industry conferences and
academic symposia for diverse audiences across the globe and has published and
been cited in scholarly journals, trade magazines and newspapers; he has also
appeared on television and radio in Australia, Europe, New Zealand, South Africa
and the United States. Born in Liberia, Dr. Jones received his MSc, Licentiate and
Ph.D. degrees in Electrical Engineering from the Royal Institute of Technology in
Stockholm, Sweden. He is a Senior Member of the IEEE.
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Thomas R. Kuhn
Mr. Kuhn is president of the Edison Electric Institute, the
association of investor-owned electric companies whose
members generate and distribute approximately threequarters of the nation’s electricity. Prior to joining the Institute,
Mr. Kuhn was president of the American Nuclear Energy
Council. The Council represented virtually all of the companies
in the commercial nuclear power industry. From 1972 to 1975,
he headed the energy section of the investment banking firm
Alex Brown and Sons. From 1970 to 1972, Mr. Kuhn was White House Liaison
Officer to the Secretary of the Navy. Mr. Kuhn received a BA in Economics in
1968 from Yale University, served as a Naval Officer following his graduation,
and completed a Master’s in Business Administration in 1972 from George
Washington University. He currently serves on the boards of the US Energy
Association, Alliance to Save Energy, Electric Drive Transportation Association
and the American Council for Capital Formation. He is Chairman-Emeritus of the
US Chamber’s Committee of 100 and the American Society of Association
Executives. He is a past Chairman of ASAE’s Key Industry Association
Committee and of the Trade Association Liaison Council.
Richard Lancaster
Richard Lancaster is CEO of CLP Holdings, one of Asia
Pacific’s leading investor-owned energy businesses. An
engineer by training, his career in the power industry spans
more than 30 years. Mr. Lancaster is a strong advocate for
clean energy and chairs both the Business Environment
Council in Hong Kong and the Hong Kong Membership
Committee of the World Energy Council. He is also a council
member of the World Business Council for Sustainable
Development and a member of its Climate and Energy Cluster Board.
Financing Asia’s Electricity Sector 2035: Making It Happen
(OL]DEHWK//LWWOHƓHOG
Ms. Littlefield is the President and CEO of the Overseas
Private Investment Corporation (OPIC), the US Government’s
development finance institution. OPIC provides financing and
political risk insurance to support development in more than
100 countries and manages a global portfolio of almost USD
20 billion. With a strong background in both development
and finance, Ms. Littlefield has previously served as Chief
Executive Officer of CGAP (Consultative Group to Assist the
Poor), a policy and research center dedicated to advancing poor people’s
access to financial services that is housed at World Bank; and as JP Morgan’s
Managing Director in charge of capital markets and financing in emerging
Europe, the Middle East and Africa.
Ted Low
Mr. Low is an Associate Director within Clifford Capital’s
infrastructure business. He joined Clifford Capital from the
Challenger-Mitsui Infrastructure Fund, where he was
responsible for investment and portfolio management of
infrastructure assets across Asia, with over seven years of
experience across the power, water and renewables sectors.
Previously Mr. Low was based in London, where he worked in
the Investment Banking Funds division of Macquarie Group
and was responsible for the management of telecom assets acquired by
Macquarie in Europe.
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Ng Wai Choong
Mr. Ng Wai Choong has been the Chief Executive of Energy
Market Authority since April 2015. He joined the Singapore
Administrative Service in 1991 after graduating from the
University of Tokyo in 1990. He also attended the Harvard
Business School’s Program for Management Development in
2001, and the INSEAD Advanced Management Program in
2012. He was the Deputy Secretary (Policy) in the Ministry of
Finance from 2007 to March 2015, overseeing government
revenue, expenditure and investment policies. Before that, he was the Deputy
Secretary (Industry) in the Ministry of Trade and Industry (MTI) from 2003 to
2007, and was concurrently the first Chief Executive of the Competition
Commission of Singapore (CCS) from 2005 to 2006. He was conferred the Public
Administration Medal (Silver) in 2006 and the Long Service Medal in 2014.
Kazunori Ogawa
Mr. Ogawa joined Japan Bank for International Cooperation
(formerly known as the Export-Import Bank of Japan) in 1990.
Since 2015, he has been Director General for New Energy and
Power Finance Department II of Infrastructure and
Environmental Finance Group and has worked on many
power and environmental projects.
Financing Asia’s Electricity Sector 2035: Making It Happen
Michele Pani
Mr. Pani is a Partner at McKinsey & Company and co-leads
McKinsey’s Electric Power and Natural Gas Practice in
Southeast Asia. Mr. Pani has worked extensively with
government bodies and regulators on energy policies,
regulatory frameworks and energy efficiency roadmaps, and
with private energy companies and state-owned enterprises
on strategy, business development and operational efficiency.
Some of his recent work includes leading power sector
restructuring for an electricity regulator in Southeast Asia, defining the
international growth strategy for a major listed power company, designing and
executing a generation operational excellence program for a state-owned
power company in Indonesia and developing a carbon abatement and energy
efficiency roadmap for a national agency.
Bikal Pokharel, Ph.D.
Dr. Pokharel leads Wood Mackenzie’s research, analysis and
modelling of Asian power markets. Prior to joining Wood
Mackenzie, Dr. Pokharel was a power specialist at Power
Seraya in Singapore, where he was responsible for analyzing
the Singapore electricity market and developing market
models to forecast market conditions. The developed models
were used for making bidding strategies in the half-hourly
electricity market in Singapore. Dr. Pokhrael holds a B.Sc. Eng
(Electrical Engineering) from the Regional Institute of Technology, India, and a
Ph.D. in Power Engineering (Electricity Markets) from Nanyang Technological
University, Singapore.
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Dale Probasco
Mr. Probasco is a Managing Director in the Energy practice
and leads the Global Generation Services practice at
Navigant. With more than 35 years of experience in
managerial and consulting positions in the electric utility and
construction industries, he provides a broad range of
generation-related services, including fleet management,
performance improvement, benchmarking and fleet
transformation.
Marilyn Smith
Marilyn Smith is a science communications specialist with 15+
years’ experience presenting news and information to nonscientific audiences (e.g. policy makers, the general public) via
various media. Having served for three years (2009-12) as
Chief Editor of the International Energy Agency (IEA), she has
a broad understanding of the energy sector and related
issues. Ms. Smith continues to edit reports and papers for the
IEA, as well as other energy organizations including the
Asia-Pacific Energy Research Centre (Japan), the King Abdullah Petroleum
Studies and Research Centre (Saudi Arabia) and the Swedish Environmental
Research Institute (Sweden). Ms. Smith is also founder and Executive Director of
The Energy Action Project (EnAct/www.en-act.org), a start-up multi-media
project exploring energy poverty in diverse contexts globally. EnAct’s tagline
“Reporting that seeks to empower” reflects its mission to investigate the
causes and impacts of energy poverty, as well as solutions (technology, policy,
financing and social) to address it. EnAct wants everyone to ‘get’ energy.
Through a storytelling approach, in which journalists and experts collaborate, it
raises awareness of who is doing what to end energy poverty while also
building energy literacy.
Financing Asia’s Electricity Sector 2035: Making It Happen
The State Grid Corporation of China & Global Energy Interconnection
Development and Cooperation Organization
The Global Energy Interconnection
Development and Cooperation
Organization (GEIDCO), headquartered in
Beijing, is a non-governmental, non-profit
international organization of companies,
associations, institutions and individuals
dedicated to promoting world-wide
sustainable energy development. GEIDCO supports the establishment of a
Global Energy Interconnection (GEI) based on Ultra-High Voltage AC/DC and
smart grid technology, which provide a secure means to promote clean, costeffective and sustainable energy. GEIDCO leads GEI development by promoting
international understanding of GEI, formulating and implementing development
plans, coordinating the creation of a GEI technical standards framework,
organizing concerted and collaborative research and innovation initiatives, key
studies, international communication and consulting and cooperation, and
engineering project implementation as well as delivery of consulting services.
State Grid Corporation of China (SGCC) is a
state-owned corporation that constructs and
operates power grids. SGCC provides power
to over 1.1 billion people, covering 88% of
the nation’s territory. As the largest power company in the world, with assets of
USD 480 billion and revenue of USD 320 billion in 2015, the company also owns
and operates overseas assets in the Philippines, Brazil, Portugal, Australia and Italy.
Mike Thomas
Mike Thomas, a Partner in the Lantau Group, has advised
energy sector stakeholders on sensitive regulatory,
commercial and strategic matters for over 25 years. He is an
expert in the rigorous analysis of energy sector decisions,
including how or whether to regulate; how and when to rely
on market forces; and what value to place on opportunities
and risks. Prior to co-founding the Lantau Group in 2010, he
headed the Asia Pacific Energy & Environment practice of a
global consulting firm. Mr. Thomas has an MPP from Harvard Kennedy School
and a BA in economics from Carleton College.
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Matthew Warren
Mr. Warren was appointed inaugural Chief Executive of the
Australian Energy Council in December 2015. From 2012 he
led its predecessor, the Electricity Supply Association of
Australia, to pursue the deregulation of energy markets and
the development of comprehensive, efficient and durable
national climate and energy policy, and to manage the
aggressive transformation facing the sector. Mr. Warren was
previously Chief Executive of the Clean Energy Council,
where he made a significant contribution to Australian policy debate on the role
of renewable energy in meeting the challenges of reducing emissions, as well as
being an environmental writer for The Australian newspaper.
Priyantha D.C. Wijayatunga, Ph.D.
Dr. Wijayatunga is a Principal Energy Specialist at the Asian
Development Bank and has been the focal point for South
Asia Regional Energy Cooperation. He has contributed
extensively in energy sector policy and regulatory activities
for over 25 years and has co-authored over 75 publications. In
2003 he became the founder Director General of the Public
Utilities Commission of Sri Lanka. He was a lead author of Sri
Lanka’s National Energy Policies and Strategies as well as Sri
Lanka’s Initial National Communication on Climate Change.
William A. Wilson III
Mr. Wilson is the founding partner of Wilson Williams LLC, a
boutique law firm with offices in New York, Washington, DC,
and Los Angeles, and affiliates in Hong Kong and Taipei. He
was previously partner at two major law firms, and was based
in Hong Kong for 11 years. Mr. Wilson’s practice is in finance
and corporate law. His Asian power and infrastructure
experience began in 1986, when he worked on the financing
of the Daya Bay nuclear power plant.
Financing Asia’s Electricity Sector 2035: Making It Happen
Marat Zapparov
Mr. Zapparov leads the Infrastructure team at Clifford Capital,
a non-bank financial institution set up by Temasek, DBS Bank,
Sumitomo Mitsui Banking Corporation, Standard Chartered
Bank, John Hancock Life and Prudential, with support from
the Government of Singapore. Clifford Capital is a specialist
provider of project and asset-backed finance established to
act as a catalyst for companies with a meaningful presence in
Singapore, in support of their investments or exports
overseas. Mr. Zapparov is responsible for origination, structuring and execution
of infrastructure debt investments for the company. The Infrastructure team is
engaged in a number of first-of-a-kind financings across power, water,
transportation, liquefied natural gas (LNG) and other sectors in Asia, the Middle
East and Latin America. Mr. Zapparov has over 12 years of experience, including
six in Asia Pacific, and has closed a number of high-profile, award-winning
financings in the region, across the energy, infrastructure and resources sectors
in Vietnam, Malaysia, the Philippines, India and the broader Asia region. Mr.
Zapparov started his career in London, where he advised on energy and
infrastructure financing and mergers and acquisitions (M&A) in Europe, Russia/
CIS and the Middle East.
Aiming Zhou, Ph.D.
Dr. Zhou is a Senior Energy Specialist in the Energy Division of
the South Asia Regional Department at the Asian Development
Bank (ADB). Previously he was Secretary of ADB’s Energy
Community of Practice and the focal point of ADB’s Clean
Energy Program. He oversaw ADB’s clean energy activities,
coordinated ADB’s efforts in clean energy development and
climate change mitigation, and provided technical support to
ADB’s energy-related operations in low carbon development.
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Financing Asia’s Electricity Sector 2035: Making It Happen
About EEI
The Edison Electric Institute (EEI) is the association that represents all U.S.
investor-owned electric companies. Our members provide electricity for 220
million Americans, operate in all 50 states and the District of Columbia, and
directly and indirectly employ more than one million workers. Safe, reliable,
affordable, and clean energy powers the economy and enhances the lives of all
Americans. EEI has more than 60 international electric companies as
International Members with operations in more than 60 countries worldwide,
and hundreds of industry suppliers and related organizations as Associate
Members. Organized in 1933, EEI provides public policy leadership, strategic
business intelligence, and essential conferences and forums.
About EEI’s International Programs
EEI’s International Programs currently serves more than 60 international
electric power companies with operations in over 60 countries. The
International Programs’ platform provides a critical knowledge-sharing link
between U.S. and international electric power companies and industry
stakeholders through three core activities.
To order a copy of this book contact [email protected] at
+1-202-508-5000. For more information about EEI’s International Program
visit www.eei.org/international.