SOLAR INFRASTRUCTURE INVESTMENT IN SOUTH EAST ASIA

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1 SOLAR INFRASTRUCTURE INVESTMENT IN SOUTH EAST ASIA cleanenergypipeline.com

2 This Solar Infrastructure Investment in South East Asia Report, by Conergy Asia & ME and Clean Energy Pipeline, reviews solar power project financing in South East Asia during Given the abundance of sunshine and the high levels of solar irradiation levels and lucrative feed in tariffs (FIT) in South East Asia, it should come as no surprise that solar power project financing has far outshone any other clean technology in the region. South East Asia s solar project finance market remained robust in 2017 with $859 million of commitments made between Q1 and Q3. Over the course of 2016, South East Asian solar project investment totalled $892 million, attracting 1.5 times more than the $588 million invested in wind power projects. A substantial $8.3 billion of solar project financing deals have been made over the past seven years. Between 2010 and 2016, project investment in South East Asia increased at a compound annual growth rate of 13.5%. Solar project financing in 2015 signalled a high water mark for the technology with investment reaching a record high of $2.6 billion, Total financing last year for solar power remained significantly higher than that for projects using other clean energy technologies. SOLAR PROJECT FINANCE IN SOUTH EAST ASIA YTD THAILAND 43% VIETNAM 2% PHILIPPINES 39% MALAYSIA 12% SINGAPORE 1% 2 Conergy INDONESIA 3%

3 CLEAN ENERGY PROJECT FINANCE IN SOUTH EAST ASIA YTD BREAKDOWN BY SECTOR SOLAR WIND BIOMASS GEOTHERMAL OTHER NUMBER OF DEALS TOTAL SOLAR PROJECT FINANCE IN SOUTH EAST ASIA YTD BREAKDOWN BY COUNTRY INDONESIA MALAYSIA PHILIPPINES THAILAND VIETNAM SINGAPORE NUMBER OF DEALS Solar Infrastructure Investment in South East Asia 3

4 INDONESIA As the world s fourth most populous country, Indonesia faces major challenges meeting its ever growing demand for energy. Indonesia s drive to build up new alternative energy sources is underpinned by its National Energy Policy [Government Regulation No. 79/2014], which calls for renewable energy to make up 23% of its power mix by 2025, and 31% by However, complex government regulations has slowed Indonesia from reaching its full renewables potential, especially after changes to its FiT scheme were enacted earlier this year [MEMR Decree 12/2017]. Previously, all renewable energy technologies benefited from a single feed-in tariff rate for the clean electricity purchased by state-owned utility. The new decree from the Ministry of Energy and Mineral Resources has now capped clean energy tariffs at 85% of the local generation cost. Despite the regulatory complexities, the Indonesian government has recognised the need to move away from conventional power generation and developers have answered the call to boost its domestic generation capabilities. Since the National Energy Policy was brought into play in 2014, Indonesia has attracted $6.2 billion of clean energy project investment to date. Much of Indonesia s large-scale renewables financing has gone towards its geothermal sector, though solar power financing has increased incrementally over the years. So far in 2017, Indonesia has already attracted $2.1 billion of renewables commitments, already double the total amount invested last year and putting it on path to becoming the most successful year for clean energy project financing in the country s history. This is even more impressive given the fact that Indonesia was also the second largest renewable energy market in South East Asia in With a very negligible amount of solar investments made in Indonesia over the past two years (only $6.8 million in total), financing for the technology has spiked in 2017 to $81.1 million. THE PHILIPPINES The Philippines renewable energy project finance reached its peak sector in 2015, attracting over $2.4 billion of commitments. The substantial amount of funding brought in for clean energy projects was almost wholly spurred on by the Philippines second round feed-in tariff scheme. for new clean energy projects so far this year. Of the amount, $119 million has been spent on Filipino solar projects in Prior to this, the Philippines solar sector stood head and shoulders above its South East Asian counterparts. However, with President Rodrigo Duterte s administration declining to replace the remuneration initiative by way of a third round, project financing in the country has now fallen off. The Philippines has only secured just over $161 million In 2016, solar power project investment in the Philippines came to $ 505 million, while the year before financing came to a considerable $1.8 billion. 4 Conergy

5 VIETNAM Placing second in Clean Energy Pipeline s SE Asia 2016 project finance rankings, Vietnam s renewable energy sector offers perhaps the most promise for new project developments in the region. After several years of delay surrounding Vietnam s support scheme for renewable energy, the Ministry of Industry and Trade implemented a strong FiT for solar power earlier this year. It has also submitted a proposal to increase the FiT for wind power to re-ignite the technology s roll-out. As a result, Vietnam has been host to over $700 million of project finance deals so far this year, which marks a turnaround from the $136 million of project investments made in With Vietnam s solar FiT proving far more lucrative than the wind FiT, developers have committed to $149 million of solar project financing in 2017, compared with only a few wind deals being made last year and zero solar developments. Though a few issues still remain over the bankability of Vietnam s solar PPA, Vietnam s solar ambitions is only set to go from strength to strength. THAILAND Thailand s renewable energy market has remained fairly stable over the years in a country where solar power investment has reigned supreme. Solar project investment has averaged about $500 million per annum over the past 7 years. Notable years for solar financing came in 2013 and 2015 where commitments totalled $1 billion and $686 million, respectively. Since the most recent PDP publication, Thailand s clean energy project finance market totalled about $1.37 billion in 2015 and $289 million in Project financing in the first time months of this year dramatically fell to $91 million. Clean Energy Pipeline s figures show that market activity tends to spike after the publication of a PDP. The forward momentum of Thailand s renewable energy sector has been largely predicated on the government s Power Development Plan (PDP), a national energy directive published every few years. On the solar side, project financing slowed to $179 million in 2014 but then shot up to $686 million in 2015 after the PDP issue and $300 million in Solar financing has since contracted to $91 million in As such, project investments have largely stalled ahead of the government s upcoming publication of PDP later this year. Reports have suggested that the next PDP could be published as early as this year. Solar Infrastructure Investment in South East Asia 5

6 MALAYSIA Thanks to Malaysia s overarching Renewable Energy Act 2011, the country has remained an attractive proposition for solar developers and investors. The early adoption of a FiT mechanism under the renewables law resulted in solar project financing going from just $25 million in 2011 to an average spend of $253 million per year since The falling global cost of solar power has meant Malaysia has had to adapt its level of support, with lower FiT rates first announced in 2014 and most recently coming into effect for solar PV in However, Malaysia s opening of competitive auctions in 2016 for large-scale solar plants has proved a successful venture and has significantly boosted solar financing commitments in the country. As such, Malaysia secured what was then a record $386 million of solar project investment in 2016, only to be usurped by the $418 million of solar commitments made to date in CLEAN ENERGY PROJECT FINANCE IN SOUTH EAST ASIA BY SECTOR 4% 13% 32% 32% 36% 2016 TOTAL INVESTMENT ($2,763M) 32% 2017YTD TOTAL INVESTMENT ($3,484M) 7% 21% 29% 1% SOLAR WIND BIOMASS GEOTHERMAL OTHER SOLAR WIND BIOMASS GEOTHERMAL OTHER 6 Conergy

7 TOP TEN SOLAR PROJECT FINANCE (2015-YTD) Project Country Deal value ($ million) Sponsors Debt providers Merchang, Jasin and Gurun solar PV portfolio (200MW) Malaysia Scatec Solar N/A Subic Bay Freeport solar PV plant (100MW) Philippines Emerging Power N/A Barangay Tinampaan, Cadiz City solar PV portfolio (132.5MW) Philippines Equis Funds Group / Soleq Solar / Gregorio Araneta La Carlota II and Manapla (IslaSol I&II) solar PV plant (80MW) Philippines Bronzeoak Philippines / The Philippine Investment Alliance for Infrastructure (PINAI) Solar PV plant in Thailand by LDK Solar (67MW) Thailand Energy Absolute Public Company Ltd. N/A N/A N/A B.Grimm Yanhee solar PV plant (59.7MW) Thailand B.Grimm Group Bangkok Bank PCL Solar PV plant located in San Carlos City by Aboitiz Power Corp and SunEdison (59MW) Philippines SunEdison Inc. / Aboitiz Power Corp. Banco de Oro Unibank Inc. Toledo City, Cebu province Solar PV plant (60MW) Philippines SunAsia Energy Inc. N/A Solar PV portfolio in Thailand by Superblock (55.5MW) Thailand Superblock N/A Sepalco Solar PV plant (50MW) Philippines MRC Allied Inc. N/A Solar Infrastructure Investment in South East Asia 7

8 8 Conergy

9 Q&A with Alexander Lenz CEO Conergy Asia & ME most attractive support schemes for utilityscale solar projects? With utility-scale solar, a number of incentive systems are in place for utility-scale solar systems. While the incentives are not as attractive as in the years past (lower FIT rates, capacity caps, project restrictions), they continue to attract interest from a number of developers. These incentives include: Thailand: Agro-solar Phase 2 - the winners were announced in June a FIT of $0.12/kwh for 25 years. In addition, 300 MWp of solar hybrid PPAs were also announced by the Thai Energy Policy and Malaysia: Phase 2 of the utility-scale solar auctions with a capacity of 460 MWp were announced in Vietnam: Although the solar PPAs in Vietnam (at approximately US$0.0935/kwh) have been deemed not bankable by a number of business groups (due to and dispute resolution risks), a number of developers still remain keen to pursue this market. Indonesia: Although a solar FIT is in place in Indonesia, these rates are not the most attractive when compared to other SEA markets which makes the Indonesian solar market slightly less interesting for developers. Are there any markets in South East Asia that support rooftop solar power? In the rooftop solar sector, the Philippines has some of the highest electricity rates in the region.. residential and commercial consumers can pay as much as US$0.18/kwh and US$0.16/kwh respectively. With these rates, rooftop solar energy is already Grid parity in the Philippines for rooftop solar has been achieved even as far back as a few years ago. In Thailand, while there has been a limited uptake of solar rooftops in Thailand, rooftop installations have advanced to a certain extent with consumer owned rooftop systems and some leasing model projects, due to the decline in solar module costs. How does the future look for solar power in markets such as S.E. Asia? (in light of the falling cost of the technology). Will it ever be cost competitive with conventional power? in energy demand in these markets as a result of their growing economies and populations. In addition, the conditions in South East Asia are ideal for solar: from good irradiation levels, reasonable availability of land, low cost of labour and to a certain extent attractive immediate potential. They not only have a solar FIT system in place but their reliance on importing coal to cover 50% of their electricity needs has also brought about a high interest for alternative energy sources. Although Thailand could be considered slightly rooftop PV and utility PV with the government s (albeit Solar Infrastructure Investment in South East Asia 9

10 Indonesia that rely heavily on diesel for primary power potential for solar hybrid projects. Myanmar will certainly come into the focus in the long-term as well - due to the size of their population Myanmar has amazing potential. In addition, the Philippines would in theory be best positioned for the highest short term potential given its solar track record and the response the industry has shown during the 2 FIT rounds. With the huge volumes of solar deployed in the country, the country can take advantage of economies of scale which makes solar even more competitive. But discontinuing the FIT programme without a transparent and working bilateral PPA market has left the solar progress hanging for most parts. The Philippines has the highest end-user electricity price in all of SEA (as much as US$.18/kwh), which implies that solar PV is already at socket parity/grid parity in the Philippines and is competitive with a number of traditional power generation technologies. Meanwhile, a number of the newly emerging SEA countries have very limited power infrastructure in place. But they are determined to build capacities in the short to medium term and they are seriously considering using RE technologies. compare with that in Europe? (I.e. the type of banks used, cost of funding, risks). (government, policy/regulations, counterparties So the cost of debt is higher in SEA than in Europe. In some markets there are strong local banks so Philippines). Some markets are also currently considered unbankable by foreign commercial banks (i.e. Vietnam ) What are some of the regulatory hurdles that Asian markets to boost solar/renewables deployment? The project approvals/permitting process needs to be streamlined and made transparent. The permitting process is currently unclear and is generally cumbersome/time consuming in SE Asia. Too many government bodies are involved (on both the national/ local levels) in approvals. This wastes a lot of time. There needs to be a more stable regulatory environment in SEA (not changing every 6 months like in the case of Indonesia s FIT for example). The FIT policy should be more consistent, so that developers can predict revenue streams for their projects and spend time managing all the other risks involved with development in SE Asia. Obtaining adequate guarantees where necessary can power is a government owned entity with a very poor government to give comfort to the banks lending to the project. would like to hit in the market over the next 12/18 months? project in Vietnam. although those markets are moving very slowly. But we expect to secure further contracts for utility scale solar in Thailand from Phase 2 of the Agro-solar program and in the Philippines for projects being built on a bi-lateral PPA basis and in the near future through implementation of the RPS. In parallel a number of our existing clients are looking into commercial & industrial rooftop projects for which we are with all our experience in this segment from the past decade perfectly placed. In addition to building new solar power plants, 10 Conergy

11 are currently providing operations and maintenance services for most of the plants we ve built and recently set up our regional remote operations centre in Manila, where we monitor the progress and performance of all solar plants under our we expect to have closed more O & M contracts even Alexander Lenz is responsible for Conergy s business Conergy Asia & ME is one of the region s largest downstream solar companies specializing in the Solar Infrastructure Investment in South East Asia 11

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