The founding partner talks about the opportunities in the Asian market.
The Lantau Group’s founding partner Mike Thomas has over 30 years of consulting experience, focussing mainly on the energy sector. He advises a wide range of energy stakeholders on strategies and regulatory matters, market design and development, commercial transactions, as well as disputes. Originally from the US, he has lived and worked in the US, New Zealand, and Hong Kong, where he has called home since 2007.
Mike combines regulatory economics with a lot of experience in privatisations and market transactions and modelling. As one of the esteemed judges in the Asian Power Awards 2020, Asian Power chatted with Mike as he spoke about the growth in Asia’s renewables, as well as the challenges for industry players.
Which particular markets or sectors are your main focus? Can you share with us your work experience or any backstory that has contributed to your professional career?
I’ve worked throughout the Asia Pacific region for the past 23 years. I transferred to New Zealand from a consulting firm in the USA in the late 1990s right in the middle of a period of electricity market formation and development. I worked in Singapore, Malaysia, Hong Kong, as well as New Zealand and Australia incredibly intensively during these early years, making friends throughout the region and I’ve just kept on going.
Currently I work particularly extensively in Malaysia, Singapore, Philippines, Australia, and New Zealand. As Managing Director of The Lantau Group, I’m also involved in our work in Korea, Japan, China, Taiwan, and Vietnam as well. I am lucky in that the mix of opportunities over the years has made me unusually well-rounded with a great deal of experience in commercial transactions, economic regulation/policy, business strategy, and disputes/arbitrations.
Tell us about the biggest trends you've observed from Asia Pacific's energy sector for the past six or 12 months.
Most of the transactions work we are supporting involves renewables or natural gas or LNG at the moment. I don’t see this changing anytime soon. However, if you look a bit further ahead, long-duration storage becomes more interesting, with several technologies to choose from.
Based on a recent report, Asia Pacific is said to tip to become a powerhouse of renewable energy. What do you think are the factors boosting the region as a global powerhouse of renewables?
If you think about it, Asia is such a large part of the global economy and yet has been so far behind North America and Europe in renewables and natural gas that these two areas almost mathematically have to expand dramatically just to rebalance. The economics of renewables may even be more favourable in Asia where growth is faster and LNG is relatively more expensive. COVID-19 has disrupted just about everything, but it has also delayed some coal capacity that may now never get built. The question remains whether renewables growth in Asia can continue without resulting in the higher delivered costs of electricity seen in many other higher penetration renewable energy markets.
What are the challenges in investing in the region’s power sector?
The challenges are much the same as always—how to build or maintain momentum while developing a sensible position or footprint without making any big mistakes. Asia’s growth means opportunity exists in almost every country. But commercial contracts are getting shorter and often the processes to get them are more competitive. Regulatory and market risks are still pretty significant. Most contracts are much shorter than the investment life of the underlying assets. Valuing merchant exposure is just part of the game now almost everywhere in Asia. Even when there is no “market” there is some uncontracted back-end or portion that needs to be considered or valued. Also, we think that demand growth is likely to become a lot less accurately predicted, with more errors to the downside, as behind-the-meter developments accelerate.
Crisis presents opportunities, they say. Where are the opportunities for industry players in the region in the middle and post-pandemic era?
Smart money looks at the extent to which things (anything really) are (or can become) out of balance. That’s how we look at each Asian market—through lenses that focus on different aspects—such as fundamentals, policy/regulation, industry structure, and fuel supply arrangements—that can get out of balance and then must eventually revert towards normal (or vice versa). In the past, each time the lights went out due to a blackout somewhere in Asia there would be a new IPP program with nice long-term PPAs available for those who were ready. A good time to look at almost any market is when something is going wrong—as long as you are the one looking and not the one being wronged. Fortune favours the prepared mind.
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