Sector Report | Asian Power

Sharply falling costs sweep the Asian wind power industry off its feet

Can the increasing penetration of wind power be handled without threatening the stability of the power system?

When Taiwan first tapped into its huge wind energy potential, it did not expect a growing swarm of bigtime foreign developers pitching in. Foreign energy companies are highly attracted to the country’s geographical similarities to Northern Europe, conditions which are very suitable for offshore wind farms. The unprecedented amount of interest enabled the Taiwanese government to set an ambitious 3 GW offshore wind target for 2025, a move being mimicked by countries all over the region where massive renewable energy resources have yet to be fully unlocked.

Experts stress that recent power challenges in Asia are proving that it is time to put these energy assets to good use, especially as the cost of wind power continues to plummet. From big names like China and India to more recent players like Vietnam and the Philippines, wind energy in Asia has been seeing major technological developments despite regulatory and cultural challenges.

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Asia led the globe in the number of new installations in 2016, with China maintaining its top spot for the last eight years and India following closely in the top five rankings. In fact, recent data from the Global Wind Energy Council (GWEC) show that China’s cumulative wind power installations are 3.4 GW more than all of the European Union combined.

“Wind power continues to grow in double digits, but we can’t expect the industry to set a new record every single year”, says Steve Sawyer, GWEC secretary general. “Chinese installations were an impressive 23,328 MW, although this was less than 2015’s spectacular 30 GW, which was driven by impending feedin tariff reductions. Also, Chinese electricity demand growth is slackening, and the grid is unable to handle the volume of new wind capacity additions; although we expect the market to pick up again in 2017.”

The Chinese offshore market began what many hope is the sector’s long awaited take-off in 2016, with China passing Denmark to achieve 3rd place in the global offshore rankings, after the UK and Germany. GWEC, however, forecasts that China will experience a slowdown in 2017. After taking off in 2016 and grabbing the 3rd spot in the global offshore rankings, the Chinese market will continue to face the major challenge of curtailment.

Sawyer says that China’s National Energy Administration and State Grid is heavily working out transmission bottlenecks, amongst a number of other grid issues. Experts believe that China’s situation will improve over the medium term, but in the meantime, firms should expect a loss in profitability and greater competition.

New record, new installations
“At the highest level, delayed connection and curtailment represent a loss of potential and actual power supply, since the power that is lost is renewable and with minimal emissions of carbon dioxide and other pollutants, and is largely replaced by coal-fired power. This has a significant environmental impact, compromising the likelihood of China realising its ambitions for renewable power generation, and, by extension, its ambitions for emission reductions,” says Hanjie Wang, consultant, International Institute for Sustainable Development (IISD).

Farther down south, India reached a new national record with 3,612 MW of new installations. According to the Global Wind Energy Outlook 2016, India is now the 4th largest market with a total of 28,700 MW. Sawyer says that they have great expectations for the Indian market, with certain expectations on offshore making a contribution in the country in the next few years.

India also has a reputation for being a key market for low wind speed turbines, turbines which are generally on taller towers with smaller generators and larger blades, and operate with a higher capacity factor. Sam Fankhauser, co-director at Grantham Research Institute on Climate Change and the Environment, says that India undertakes process innovation by adapting European turbines to the Indian context, where wind speeds are lower.

In January, Suzlon Group achieved the 10,000MW cumulative wind energy installations in India, a milestone capable of powering over 5 million households every year and offsets almost 21.5 million tonnes of carbon dioxide emissions annually. Suzlon Group believes that this achievement is equivalent to planting over 1500 million trees. Tulsi Tanti, chairman and managing director, Suzlon Group, says that it is heavily invested in helping the Indian government achieve its target of 40% renewable energy by 2030.

Gathering wind
The global wind sector is seeing more bright spots across Asia, with Japan, South Korea, and Taiwan set on increasing capacity in their offshore wind farms and Indonesia, the Philippines, and Vietnam working on onshore wind developments. “With the increasing penetration of wind power in a larger number of markets, differing experiences have shown that managing large penetrations of variable renewables (wind and solar) can be handled without threatening the stability of the power system, and indeed, in many cases it enhances it, as the system is less vulnerable to the failure of a single large source. Increased interconnection, improved forecasting and facilities for demand management only increase possible penetration levels,” Sawyer says.

GWEC’s breakdown of countries shows that the growth in wind energy is deviating from the usual markets, as more countries explore their renewable energy potential and the need for cleaner power consumption. What once was a global wind market dominated by names such as the US, China, Germany, and Brazil is now a market being penetrated by the likes of Chile, Ethiopia, Iran, and Vietnam.

Wind energy is a particularly attractive resource not only for its environmental-friendliness, but also for its cost. In a region where most of the countries are rich in natural resources and where most of these countries are developing, wind energy is definitely a priority consideration.

“The fact remains that wind is one of the least cost options in many markets for new power generation, and this is even before factoring in environmental and health costs. IRENA estimates that doubling the global share of renewables by 2030 would save up to $4.2 trillion dollars annually thanks to avoided expenditures on air pollution and climate change,” says Adnan Amin, director general, International Renewable Energy Agency (IRENA).

Vietnam, for instance, is located in the monsoon climate zone and has a 3,000 km long coastline. With average wind speeds of 5.5 m/s to 7.3 m/s per year, the country has very favourable conditions for the development of wind energy. Peter Cattelaens, head of project “Wind Power in Vietnam”, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, says that the technical potential for wind power development in Vietnam is estimated to be around 27 GW, however only a measly 52 MW is in operation. Cattelaens adds that the Vietnamese government has set its own ambitious targets for renewable energy development. The National Power Development Plan (PDP VII) shows that Vietnam aims to increase the total wind power capacity from the current negligible level to around 1,000 MW by 2020 and around 6,200 MW by 2030. The country’s feed-in tariff of 7.8 USc/kWh is currently under revision to become more favourable for the ector’s commercial development.

Ruth Briones, president of Greenergy Solutions, Inc., says that the Philippines has so far overtaken all other Southeast Asian nations in terms of installed wind energy capacity. The country now has an operational wind energy capacity of 400 MW, and the Philippine Department of Energy (DOE) is set to increase the installed wind energy capacity to 1,600 MW over the next two to three years. So far, DOE has identified 44 potential sites for setting up wind turbines which together can support 1,168 MW of wind energy capacity. This is part of the National Renewable Energy Program for wind power, which aims to reach a 76,000 MW renewable energy goal.

Cashing in on offshore
For Asian countries which have a huge wind power potential, but limited land area, offshore wind power development is practically the way to go. In Taiwan, not only is the limited land area the primary challenge, but also pushbacks from nearby communities. Offshore wind in Taiwan offers a substantially higher FiT of NT$5.98/kWh compared to the FiT of onshore wind, which costs around NT$2.88/kWh.

According to the Industrial Technology Research Institute (ITRI), a government-backed research agency, potential offshore wind power capacity in the Taiwan Strait is estimated at 15.2 GW. The average wind speed of 11 m/s is considered to be one of the best in the Asian region. However, Tim Ferry, associate editor, American Chamber of Commerce Taiwan, says that the country still lacks the experience and resources needed for offshore wind development.

“Taiwan has been inviting experienced offshore-wind developers, primarily from Europe, to participate in building the market. For example, the foundations for all 32 of the offshorewind turbines planned for the Formosa OWF 128 MW offshore wind farm being developed by Swancor were designed by Danish engineering consultancy group COWI. As mentioned above, Swancor is currently trying to install two monopiles in the Taiwan Strait that would eventually support two 4MW Siemens turbines on 100 meter-tall masts, which will serve as prototypes for the entire project,” says Ferry.

Ferry adds that the European firms are confident that facilities developed along the Taiwan Strait can withstand strong typhoons and earthquakes, with massive waves being the bigger challenge as they can pummel the windmills’ substructures. Waves in the Taiwan Strait can reach a maximum height of 19m during a typhoon, something that the European firms are not new to due to their experience of deploying turbines in the North Sea.

“In early September, a group of American companies that included ABSG Consulting group, a marine and offshore certifications firm, along with Keystone Engineering from Louisiana and California’s Principle Power Inc., signed an MOU with representatives from Taiwan’s China Steel Corp., Taiwan Wind Turbine Industry Association, and the CR Classification Society under the auspices of the Industrial Development Bureau. The MOU is intended to apply the offshore wind technologies developed by Keystone Engineering and Principle Power to design offshore wind foundations better able to withstand the impacts of earthquakes and typhoons in the Taiwan Strait,” Ferry says.

China’s massive role
Recent data from IRENA shows that offshore wind farms in Asia, which amount to almost 1.5 GW, have mostly been deployed by China. Today, Europe takes the lead in offshore wind power development, with most of the capacity installed located off the North Sea or the Baltic Sea. The rapid development of wind power is forcing China’s original long term objectives to be constantly revised; indeed, China has now become the largest and fastest growing wind power generation market in the world.

According to the statistics of the Global Wind Energy Council, the global cumulative installed wind power capacity has increased from 23,900MW at 31 December 2001to 486,749MW at 31 December 2016, with annual growth rate at 22.25%. During the same period, the annual growth rate of China’s cumulative installed capacity of wind power was 49.53%, ranking first in the world. In 2016, the new installed wind power capacity of China was 23,328MW, being 42.7% of global new installed capacity, making China the world leader. By the end of 2016, total installed wind power capacity was 168,690MW, being 34.7% of the world’s installed capacity and the highest for any country in the world.

“The main driver for growth in the offshore wind industry has been significant decreases in power-generation costs, driven by advances in the technology. Cost reductions have been aided by government financial support to address the security of electricity supply and decarbonisation of electricity production. Such efforts have, in turn, driven innovation in the sector, which has brought costs down as well as boosting performance,” says Maria Ayuso, junior professional associate, IRENA.

However, Bart Linssen, head of German wind-turbine maker Enercon’s subsidiary, SolVent, says offshore is not going as smoothly as planned. Linssen shares that they expect a return interest in onshore, and SolVent is proposing a 10 GW onshore wind power project that could generate employment and offer local investment, thereby overcoming community resistance for onshore projects. Linssen adds that the project would place Enercon’s 4MW turbines in areas where wind speeds average 7 meters/second, generating sufficient return on investment off of Taiwan’s onshore FiT of NT$2.88/kWh (US$0.094/kWh).

Regulatory barriers abound
Just like any other growing industry in the region, Asia’s wind markets face tough regulatory and market barriers that undermine their potential. Cattelaens says that Vietnam’s low FiT needs to be adjusted, alongside addressing other challenges such as missing finance, low data reliability, the lack of a systematic and consistent database, a deficiency in qualified human resources and technical infrastructure, as well as an inadequate supply of auxiliary equipment and services.

“Complex procedures to undertake investments make it difficult for foreign investors to tap into the market. Local institutional stakeholders are unclear about procedures, leading to subjective interpretation and application of national regulations at the province level,” adds Cattelaens.

Meanwhile in Taiwan, Ferry says that offshore wind developers are also emphasising the need for a stable regulatory environment, especially during the market-building phase. Better regulatory frameworks would enable developers to enter the market with confidence, thereby creating demand for local suppliers to meet.

“Industry players also see a strong need for redevelopment of industrial harbors in Taichung and Changhua to meet the scale of offshore wind turbines that can stand 100 meters above the sea and have rotor diameters of 120 meters. Upgrading and expanding the grid will likewise be necessary to ensure the viability of offshore wind,” adds Ferry.

Linssen says the Taiwanese government also has to create structures for easy setting up of community-invested wind farms and speeding up the permitting process. According to him, since all wind turbines are basically the same, he suggests general environmental impact assessments (EIA) and eliminating the need for a separate EIA for each project.

Briones says that the Philippines is still hounded by challenges such as capacity allocation to location, site selection including geography, topography, wind, and resource, land clearance, suitable policy framework, wind turbine generator (WTG) technology, and power evaluation up to the grid. According to her, there is a need for long-term perspectives in policies which will provide greater regulatory and policy certainty to the investors and will help in attracting more investment in the state.

Obviously, these challenges are normal for any growing market, and the general forecast for the Asian wind market remains to be a positive one. It is also pretty clear that whilst offshore is gaining all the buzz in Taiwan, most countries in Asia are focussed on maximising their potential via onshore wind power.

Flurry of offshore wind energy projects sweep Asia off its feet as costs keep falling down

Can the increasing penetration of wind power be handled without threatening the stability of the power system?

When Taiwan first tapped into its huge wind energy potential, it did not expect a growing swarm of big-time foreign developers pitching in. Foreign energy companies are highly attracted to the country’s geographical similarities to Northern Europe, conditions which are very suitable for offshore wind farms. The unprecedented amount of interest enabled the Taiwanese government to set an ambitious 3 GW offshore wind target for 2025, a move being mimicked by countries all over the region where massive renewable energy resources have yet to be fully unlocked.

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Asia led the globe in the number of new installations in 2016, with China maintaining its top spot for the last eight years and India following closely in the top five rankings. In fact, recent data from the Global Wind Energy Council (GWEC) show that China’s cumulative wind power installations are 3.4 GW more than all of the European Union combined.

“Wind power continues to grow in double digits, but we can’t expect the industry to set a new record every single year”, saysSteve Sawyer, GWEC secretary general. “Chinese installations were an impressive 23,328 MW, although this was less than 2015’s spectacular 30 GW, which was driven by impending feed-in tariff reductions. Also, Chinese electricity demand growth is slackening, and the grid is unable to handle the volume of new wind capacity additions; although we expect the market to pick up again in 2017.”

GWEC, however, forecasts that China will experience a slowdown in 2017. After taking off in 2016 and grabbing the 3rd spot in the global offshore rankings, the Chinese market will continue to face the major challenge of curtailment.

Sawyer says that China’s National Energy Administration and State Grid is heavily working out transmission bottlenecks, among a number of other grid issues. Experts believe that China’s situation will improve over the medium term, but in the meantime, firms should expect a loss in profitability and greater competition.

New record, new installations

“At the highest level, delayed connection and curtailment represent a loss of potential and actual power supply, since the power that is lost is renewable and with minimal emissions of carbon dioxide and other pollutants, and is largely replaced by coal-fired power. This has a significant environmental impact, compromising the likelihood of China realising its ambitions for renewable power generation, and, by extension, its ambitions for emission reductions,” says Hanjie Wang, consultant, International Institute for Sustainable Development (IISD).

India also has a reputation for being a key market for low wind speed turbines, turbines which are generally on taller towers with smaller generators and larger blades, and operate with a higher capacity factor. Sam Fankhauser, co-director at Grantham Research Institute on Climate Change and the Environment, says that India undertakes process innovation by adapting European turbines to the Indian context, where wind speeds are lower.

“India’s wind energy market is expected to attract investments totalling Rs 1,00,000 crore (US$ 14.9b) by 2020, and wind power capacity is estimated to almost double by 2020 from over 23,000 MW in June 2015, with an addition of about 4,000MW per annum in the next five years,” according to a report by the India Brand Equity Foundation.
In January, Suzlon Group achieved the 10,000MW cumulative wind energy installations in India, a milestone capable of powering over 5 million households every year and offsets almost 21.5 million tonnes of carbon dioxide emissions annually. Suzlon Group believes that this achievement is equivalent to planting over 1500 million trees.

Tulsi Tanti, chairman and managing director, Suzlon Group, says that it is heavily invested in helping the Indian government achieve its target of 40% renewable energy by 2030.

Gathering wind

The global wind sector is seeing more bright spots across Asia, with Japan, South Korea, and Taiwan set on increasing capacity in their offshore wind farms and Indonesia, the Philippines, and Vietnam working on onshore wind developments. “With the increasing penetration of wind power in a larger number of markets, differing experiences have shown that managing large penetrations of variable renewables (wind and solar) can be handled without threatening the stability of the power system, and indeed, in many cases it enhances it, as the system is less vulnerable to the failure of a single large source. Increased interconnection, improved forecasting and facilities for demand management only increase possible penetration levels,” Sawyer says.

Cattelaens adds that the Vietnamese government has set its own ambitious targets for renewable energy development. The National Power Development Plan (PDP VII) shows that Vietnam aims to increase the total wind power capacity from the current negligible level to around 1,000 MW by 2020 and around 6,200 MW by 2030. The country’s feed-in tariff of 7.8 USc/kWh is currently under revision to become more favourable for the sector’s commercial development.

Ruth Briones, president of Greenergy Solutions, Inc., says that the Philippines has so far overtaken all other Southeast Asian nations in terms of installed wind energy capacity. The country now has an operational wind energy capacity of 400 MW, and the Philippine Department of Energy (DOE) is set to increase the installed wind energy capacity to 1,600 MW over the next two to three years.

So far, DOE has identified 44 potential sites for setting up wind turbines which together can support 1,168 MW of wind energy capacity. This is part of the National Renewable Energy Program for wind power, which aims to reach a 76,000 MW renewable energy goal.

Cashing in on offshore

For Asian countries which have a huge wind power potential, but limited land area, offshore wind power development is practically the way to go. In Taiwan, not only is the limited land area the primary challenge, but also pushbacks from nearby communities. Offshore wind in Taiwan offers a substantially higher FiT of NT$5.98/kWh compared to the FiT of onshore wind, which costs around NT$2.88/kWh.

According to the Industrial Technology Research Institute (ITRI), a government-backed research agency, potential offshore wind power capacity in the Taiwan Strait is estimated at 15.2 GW. The average wind speed of 11 m/s is considered to be one of the best in the Asian region. However, Tim Ferry, associate editor, American Chamber of Commerce Taiwan, says that country still lacks the experience and resources needed for offshore wind development.

“Taiwan has been inviting experienced offshore-wind developers, primarily from Europe, to participate in building the market. For example, the foundations for all 32 of the offshore wind turbines planned for the Formosa OWF 128 MW offshore wind farm being developed by Swancor were designed by Danish engineering consultancy group COWI. As mentioned above, Swancor is currently trying to install two monopiles in the Taiwan Strait that would eventually support two 4MW Siemens turbines on 100 meter-tall masts, which will serve as prototypes for the entire project,” says Ferry.

Deals are pouring in

However, Bart Linssen, head of German wind-turbine maker Enercon’s subsidiary, SolVent, says offshore is not going as smoothly as planned. Linssen shares that they expect a return interest in onshore, and SolVent is proposing a 10 GW onshore wind power project that could generate employment and offer local investment, thereby overcoming community resistance for onshore projects. Linssen adds that the project would place Enercon’s 4MW turbines in areas where wind speeds average 7 meters/second, generating sufficient return on investment off of Taiwan’s onshore FiT of NT$2.88/kWh (US$0.094/kWh).

Just like any other growing industry in the region, Asia’s wind markets face tough regulatory and market barriers that undermine their potential. Cattelaens says that Vietnam’s low FiT needs to be adjusted, alongside addressing other challenges such as missing finance, low data reliability, the lack of a systematic and consistent database, a deficiency in qualified human resources and technical infrastructure, as well as an inadequate supply of auxiliary equipment and services.

Stable regulatory environment is still needed

Obviously, these challenges are normal for any growing market, and the general forecast for the Asian wind market remains to be a positive one. It is also pretty clear that while offshore is gaining all the buzz in Taiwan, most countries in Asia are focussed on maximising their potential via onshore wind power. “Overall, the industry is in pretty good shape”, says Sawyer, “with new markets emerging across Africa, Asia and Latin America, and the traditional markets in China, the US and Germany continuing to perform well. We look forward to a strong 2017.”

Why Asia's geothermal energy potential remains largely untapped

Resources are vast and policies have been strengthened, yet Asia is a laggard.

Despite Asian countries’ vast geothermal resources and increased regulatory support, it still seems their hands are tied in terms of developing geothermal projects.

When industry insiders write a report card for Asia’s geothermal power development in 2016, the title should read: Underperforming. Geothermal capacity growth has slowed across the region and not for a lack of demand or effort. Most Asian countries have been attempting to ramp up their geothermal capacity to sate growing energy needs as well as reduce their reliance on nuclear power and fossil fuels.

But governments and developers are encountering significant challenges, including high exploration costs and strong public opposition. Experts insist the region’s geothermal potential remains very promising as shown in landmark projects popping up in Malaysia and Taiwan, but it will take major breakthroughs to clear the path for large-scale projects in some countries like Japan.

Sparks in Southeast Asia

Capacity growth in Southeast Asia and the South Pacific regions hit a slump last year, but industry observers are excited about the rise of milestone projects and regulatory support across the region.

“Although developing capacity growth has slowed in Southeast Asia and the South Pacific regions since March, it is exciting to see Malaysia entering the market with the announcement of its pilot geothermal project,” says Anthony Rocco, author of the Geothermal Energy Association's 2016 geothermal power international market update.

Tawau Green Energy is leading the development of Malaysia’s first geothermal plant at Apas Kiri-Tawau, a 30 megawatt (MW) binary plant that will use turbines from Exergy and is expected to officially operate commercially by June 2018. The plant will also benefit from the feed-in tariff (FIT) rate of MYR 0.45/kWh announced in May 2015 for Malaysian geothermal plants up to 30 MW.

In Indonesia, Enel Green Power (EGP) announced it will be developing its first project, the Way Ratai plant in Lampung, which will have an expected generating capacity of 55 MW. US$60m was financed from PT Geo Dipa Energy’s own equity in the form of equipment and fresh funds, while the remainder of the project is being financed by a consortium led by PT Bank Negara Indonesia Tbk. A new 45 MW project, PT Jabar Rekind Geothermal, was also announced in the second half of 2016 with a target operation date in the first half of 2020.

More geothermal developers will also be encouraged to pursue projects as the Indonesian government prepares a FIT mechanism and legislation to attract larger investments in the sector.

“The new tariff will adopt a fixed-price system where energy suppliers do not need to negotiate with the state-owned electricity firm PLN as the primary power-off taker. This new mechanism is targeted at power plants that fall within the capacity range of 5 to 220 MW,” says Rocco.

The Indonesian Energy and Mineral Resources Ministry is also working on new legislation that would provide the geothermal industry with priority investment services, as well as let investors obtain necessary permits within three hours at the Investment Coordinating Board, which is already an implemented standard in other industries.

Indonesia has a poor track record in promoting geothermal, and these proposed changes should at least increase the incentives available to geothermal developers and investors, who often feel neglected.

“Clearly what’s missing is the renewable framework. We still don’t have solid regulatory framework for geothermal, for instance,” says Gilles Pascual, partner, infrastructure advisory at Ernst & Young.

“The energy roadmap initially didn’t even include geothermal. Renewable energy is low on the government agenda,” concurs Peter Wijaya, Vice President Commercial and Business Development at Star Energy.

“If I were the government, I would say the traffic is attractive. If I were a developer, I would also say so. But the problem is implementation. To qualify for the tariff, you first need to prove that you have started exploration. That’s the law. The risk is entirely on the developer,” Wijaya noted.

Indonesia has an ambitious target to produce 6,023 MW of geothermal power by 2020. It also aims to raise the share of geothermal in the entire renewable energy share to 5.8%. But as of 2016, that share stands at a measly 1.1%.

Many experts expect the country to come up short due to ongoing regulatory challenges and high exploration costs. These issues make it especially risky for investors and developers to commit to geothermal projects, and skew the market towards the development of low-risk, established fields.

A single field can cost up to US$5m, excluding other costs, says Sugeng Triyono, President Director of PT Tangkuban Parahu Geothermal Power, speaking at the Asian Power Utility Forum in Jakarta.

“Funding for exploration is tough — investors have to take on the full risk,” says Wijaya. “The exploration risk is very similar — though not as high — as oil and gas. However, the returns of geothermal is not as high as oil and gas.”

Wijaya reckons geothermal reservoirs are much more complex than oil and gas, estimating that as much as US$7m to US$10m can be spent exploring each well. To reach the 2020 target, Indonesia will need to add roughly 300 MW of geothermal energy — or drilling around 60 wells — annually. This means the sector requires a large amount of capital, but developers and investors remain concerned about risk-sharing for such capital-intensive geothermal projects.

“Cost rises steeply the moment drilling and construction begins,” says Triyono. “Someone has to catch the risk, whether it is the project owner or the government.”

The result is a dearth of interest to explore untapped “greenfield” projects despite the high potential for return. A positive aspect is that there has been moves to broaden the financing options for riskier geothermal projects.

“Indonesian geothermal assets are extremely attractive to the private sector,” says Pascual. “There are financing solutions for this on a pure non-recourse basis. For instance, the Asian Development Bank can provide funding for exploration.”

Taiwan’s first geothermal plant

Across the South China Sea, exploratory drilling has begun for Taiwan’s new geothermal plant and is expected to finish in February 2017. The country has been supporting the development of geothermal projects and renewable energy through duty exemptions and subsidies.

China National Petroleum Corporation, National Taiwan University, and the Industrial Technology Research Institute will work together to develop the binary plant in Sanxing, drilling for which began in August 2016.

Under Taiwan’s Renewable Energy Development Act, the government will exempt developers who import machinery from the customs duty as well as provide developer subsidies of up to 50% of exploration costs or not exceeding US$1.5m (TW$50m) to the developer. A FIT of US$0.156 (TW$ 4.9315) per kWh is also granted for 20 years given that the installed capacity must be over 500 kW.

Taiwan has shown increased interest in exploring geothermal as a key energy source, and the Sanxing project should serve the country’s first geothermal demonstration plant that will help draw in more investors and suppliers.

Japan’s geothermal winter

Meanwhile, in Japan, the prospect of building more geothermal projects, especially large-scale ones, remains grim. There is strong public opposition to the development of geothermal power on economic and environmental grounds. Detractors believe geothermal projects can have a detrimental impact on booming hot springs resorts and treasured national parks, although smaller-scale projects will face less resistance.

“We do not forecast an uptick in Japanese geothermal capacity growth over the next decade despite the country's substantial geothermal energy potential,” says Daniel Brendan, Renewable Energy Analyst, BMI Research. “This is due to popular opposition to large-scale developments, high upfront costs, and long development time frames.”

Brendan reckons only 0.1% of the projects supported under Japan's clean-energy program use geothermal technology, and he sees little scope for geothermal to substantially increase its share in the power mix given a contraction in subsidy support.

“As the country overstretched its support for new solar power capacity over the last three years, the renewables support mechanism has been reformed in order to reduce the government's subsidy burden and improve the cost-competitiveness of solar projects in the country,” he says.

Among renewable energy sources, solar currently has the rosiest outlook in Japan. Almost US$20 billion is invested annually in new solar developments, making the country one of the top solar installation markets in the world.

With solar power shining so bright, geothermal is taking a backseat. Combined with strong opposition from the multi-billion-dollar hot springs resort industry and the fact that roughly 80% of geothermal resources are in national parks — where development is highly restricted — Brendan believes Japan's geothermal power segment will post lacklustre growth over the coming decade. Large-scale geothermal projects, particularly, will find it difficult to overcome the stringent and long environmental assessment requirements.

“Our muted outlook for Japan's geothermal segment is largely attributed to the staunch popular opposition against geothermal developments in the country,” says Brendan. “Geothermal developments pose a pertinent risk to nearby spas by potentially depleting water volumes and lowering the water temperature in springs.”

Geothermal power plants need hot water underground to turn their turbines, the same hot water needed by more than 21,000 spas and inns that draw around 120 million customers annually for overnight visits.

“A large-scale geothermal ramp-up would likely prompt heavy opposition,” says Brendan.

Investor interest is also slowing on the back of long processes when it comes to environmental assessments and other pre-operational procedures of large-scale geothermal projects in Japan. This is on top of the fact that most of the country’s geothermal resources are within protected national parks.

“Large-scale geothermal developments in Japan can require up to nine years of environmental assessments and survey drilling before a site can be considered workable which has reduced investor appetite,” he adds.

Additionally, high upfront costs of new installations also weigh on the rationale of developing large-scale geothermal projects. It should be noted that key prefectures that had been overly reliant on nuclear power are becoming more open to large-scale geothermal projects like the Fukushima prefecture's plan to build a 270 MW geothermal power plant. The Fukushima Daiichi nuclear disaster in 2011 led the government to ramp up its renewable energy production as an alternative to nuclear energy, prompting the Ministry of Environment to lift restrictions to drill at national parks.

The Wasabizawa geothermal power plant in Yuzawa city in Akita prefecture — Japan’s first large-scale geothermal project in about 20 years after the Takigami geothermal power plant went into operation — is also under construction and is expected to commence operations with a capacity of 42 MW in 2019.

While large-scale geothermal projects face several challenges in the business and environmental fronts, small-scale geothermal projects have been gaining government support and look to expand in the coming years.

“While our core scenario for Japan's geothermal sector is one of muted growth, we stress that our outlook for small-scale geothermal power is more buoyant,” says Brendan.

He points out that the Japanese government has relaxed regulation for the development of small-scale geothermal projects, including the expansion of allowable zones for surface surveys and small-scale developments to S2 and S3 in addition to the S1 or ordinary zones.

Smaller-scale facilities are less intrusive and undergo less regulatory scrutiny — facilities with a capacity higher than 7 MW must undertake more extensive environmental assessments — which helps speed up the overall development time. Japanese geothermal energy companies have also been working closely with the community to lessen local opposition.

Tokyo-based financial services company Orix plans to develop up to 15 2MW facilities by 2020, an initiative that has enabled Chuo Electric Power Company to develop Japan's first facility in 15 years — the 2 MW Kumamoto geothermal plant.

“The development of this plant was made possible through close cooperation with the local hot spring company Waita-kai and the Oguni resort. We believe similar developments will support some growth in Japan's geothermal segment,” says Brendan.

Rocco, meanwhile, cites Sumitomo Forestry’s recent announcement to develop a small 2 MW power plant Kurikoma National Park in Japan. The developer is planning to invest around US$181m in its renewable energy portfolio. Japan offers an enticing FIT rate for geothermal at 40 Yen/kW (~$.33/kW), which provides an advantageous policy framework for further development of similar projects.

“We believe this change in attitude towards small-scale geothermal energy was prompted by the Fukushima disaster in 2011, which has intensified efforts to boost power generation capacity that can be sourced domestically,” says Brendan. “This is particularly pertinent in light of Japanese nuclear reactors having been turned offline and fossil fuel imports spiking as the thermal sector have plugged power supply gaps stemming from nuclear closures.”

India embraces small-scale geothermal
Governments and developers are starting to focus more on smaller-scale geothermal projects, benefiting countries like India in the form of increased life expectancy and standard of living in remote, resource-poor communities.

There is no geothermal power plant yet in India, a World Energy Resources report says, but geothermal resources are present in 7 provinces. One such project is a collaboration between India and Norway in the northwest part of the Himalayas.

Two pilot demonstration projects investigating the utilisation of low and medium temperature geothermal resources for heating purposes, successfully improved the livelihood of the local population. The area has a very short supply of electricity of roughly 3 hours per day, and temperatures can drop to below 20ºC in winter. There is also a dearth of natural resources such as wood so people mainly rely on fossil fuels like coal to heat their homes.

“The researchers assessed the resource potential and heat load for heating up a hotel and restaurant, and successfully managed to install heating systems that keep the indoor temperature at about 20ºC. Due to the shortage of available electricity, solar panels have been installed to make the continuous operation of heat pumps possible,” says the World Energy Resources report.

India has unveiled plans to develop 10,000 MW of geothermal energy by 2030 with the cooperation of several countries that are among the top producers of geothermal power generation in the world, including the United States, Philippines, Mexico, and New Zealand.

The geothermal target is part of the government’s pledge to increase the share of renewable power to 175 gigawatt (GW) by 2022, and then to 350 GW by 2030. India’s share of renewable energy in the total capacity mix has improved to 14.1% in FY2016 from 12.5% in FY2013, but it should be noted that the government is looking to prioritise solar and wind. Solar power holds a key advantage over geothermal and wind because it is more distributed in nature. Still, the Indian renewable sector is gathering a lot of investment interest not only from Indian firms but foreign utilities as well, particularly European and Asian power generation companies.

Geothermal energy exploration has begun in several sites such as Cambay Graben in Gujarat, Puga and Chhumathang in Jammu and Kashmir, Tattapani in Chhattisgarh, Manikaran in Himachal Pradesh, Ratnagiri in Maharashtra, and Rajgir in Bihar.

“These kinds of projects play a key role in improving the life expectancy and overall standard of living of people living in areas characterised by fuel-poverty, relative isolation, and geothermal resource potential,” says the World Energy Resources.

Walking on sunshine: Are Asian countries being trapped by lower solar energy costs?

If Singapore’s solar power dreams don’t push through, its banks have some explaining to do.

Singapore is aggressively ramping up its solar energy capacity to 350MWp by 2020, but inadequate access to funding for solar generation companies might prove to be a significant roadblock for the city-state's renewable energy agenda. “The main challenge for solar financing in Singapore is the familiarity of some financial institutions to the solar PV renewable business model and that unfamiliarity tends to heighten the risk aversion and lessen competitive financing terms,” says Camillus Yang, vice president,corporate development and finance at Sunseap, a local clean energy provider.

Jacqueline Tao, energy analyst at the Energy Studies Institute (ESI), noted that solar PV SMEs typically face higher financing costs compared to conventional power generation players. For instance, larger energy players have a debt-to-equity ratio of50/50, much lower compared with 70/30 for solar PV SMEs. “Meanwhile, the cost of equity for traditional players is just 6%, while that for SMEs ranges from 9% to 15%. Banks also charge an interest rate of 4% for conventional players with a credit rating of Baa, but SMEs need to grapple with interest rates as high as 5.6%. Larger firms can also tap bond markets, which are offlimits to solar PV SMEs due to size restrictions,” she notes.

Matthew Peloso, CEO of solar energy generation company Sun Electric, says that they usually have to come equipped with a detailed explanation about their unique business model whenever they approach bankers for loans. “Our model requires explanation and understanding on the part of the financial institutions. In addition, there is a relatively low supply of capital toward new innovations which are riskier but offer higher returns,” he explained. Sun Electric's business model involves connecting rooftop owners with clean energy customers. Peloso added that the potentially higher cost for solar firms is partly balanced by good support from Singapore's various
public and private grants, as well as interest in supporting the development of technology, which can bridge a part of the initial funding gap. “Another point that can be made is in regard the asset size and cost to the financial institutions. Due to their fixed costs, institutions wish to fund large projects. Given that solar is new and growing, investments are in the low range of capital financings. This is a temporary situation,” he said.

Despite existing difficulties, Peloso noted that the industry is making progress when it comes to improving access to funding for solar SMEs. “A local bank has been working hard to provide us with a pretty cost effective package. However, as we are new it has taken time to analyse this. I cannot disclose full details but the facility would be pretty close to the cost of a conventional utility. We are making progress,” he said. Meanwhile, Sunseap's Yang shared that solar PV SMEs should explore new ways of clinching funding in order to lower costs. “For financing of solar in Singapore and the region, Sunseap is working towards a more sustainable financial ecosystem of asset-backed securitisation for completed projects or long term portfolio project financing coupled with the concept of a revolving credit facility for inconstruction projects. This ecosystem assists in lowering LCOE, allows capital recycling, and drives scalability for greater solar PV adoption into the region. We look forward to launching this soon in the second half of 2016,” he said.

Vietnam eyeing opportunity

Several countries across the Asia Pacific are also taking steps to improve solar energy capabilities. For instance, Vietnam is a nation with high solar power potential, especially in the central and southern parts of the country. The average solar energy intensity is 5 kWh/m2. The average sunshine at 150kcal/m2 in Vietnam is between 2,000 to 5,000 hours, leading to a theoretical potential of 43.9 billion TOE. “This is an advantage for Vietnam in its effort to develop a solar power industry, in the context of the increasing demand for electricity,” says Dr. Do Huu Hao, chairman, Vietnam Energy and Energy Efficiency Association.

Among noteworthy solar projects there include the 500kWp Rooftop Solar by ECC HCM in Ho Chi Minh City, the 2MWp Solar power plant by ECC HCM in Phu Yen Province, the 1MWp Solar Power by Thanh Thanh Cong Group also in Ho Chi Minh City, and the 300 MWp Solar Power by Thanh Thanh Cong Group in Binh Thuan Province. “The world's demand for energy is growing and set to increase by 56% between 2010 and 2040,” says Dr. Hao. “In this context, Vietnam also needs to find a new energy resource, and solar power is one of the best alternative energy that Vietnam has.”

According to the Decision NO. 2068/QD-TTg on the development strategy of Vietnam's renewable energy by 2030 and vision to 2050, Vietnam's solar power production will increase by 1.4 billion kWh in 2020; approximately 35.4 billion kWh in 2030 and 210 billion kWh in 2050. “This is a good chance for all local and international enterprises to invest in Vietnam now,” notes Dr. Hao.

Rapid development in China

China, too, is boosting its solar power capabilities. With newly installed 14 GW solar panels in the country, China easily became the largest solar panel market in 2015 as it grabbed a whopping 25% share of the world's total 55 GW additional solar panel installations. “This rapid expansion of investment into solar energy can be attributed to the generous incentive programs that the country offers, as well as the government's five-year plan to hit 100 gigawatt installations by 2020,” says Jake Liddle of Dezan Shira & Associates. Other studies, such as one conducted by Xinhua, forecast an even brighter outlook for the industry, with figures as large as 150 gigawatts by 2020 predicted. Revenue in China's solar power generation industry rose at an annual rate of 145.3% between 2010 and 2015, totaling US$2.6 billion. This amount was largely spurred by rising household demand for electricity, which has caused several cases of power supply shortages in the past and brought exceptional demand for solar power generation.

“Environmental consciousness and pollution problems have also contributed to the want to shift from a reliance on imported fossil fuels to renewable energies,” says Liddle. Under the twelfth five-year plan, the State Energy Administration made aims to increase solar power generation capacity from 860 megawatts to 21 gigawatts.

China's solar panel manufacturing industry has also been developing at a fast pace: from 2010 to 2015, the industry saw an annual growth rate of 2.4% with revenue totaling US$29.8 billion. Over the same period, Chinese solar cell output has been increasing by 21.3% per year, with an estimated output of 27.6 gigawatts in 2015. Corporate investment in solar installations is met with generous policies and incentives. In 2013, the Chinese government introduced new feed-in tariffs (FITs), deployed at both state and provincial levels to fuel the growth of distributed solar rooftop installations. The central government currently provides 20-year subsidies of US$0.06 per kilowatt-hour of output from solar rooftop projects. For surplus power, RMB 0.40 per kilowatt-hour is awarded from the state grid, for any surplus power they generate. “Two factors are combining to incentivize the Chinese government to strengthen the solar panel industry,” says Liddle. “Increasing awareness of environmental pollution, and concerns over power supply and generation.”

Realistic energy mix

Meanwhile, in the Philippines, Bienvenido S. Oplas, Jr., head of Minimal Government Thinkers and a SEANET Fellow, says solar power consumption in Asia remains very small. He says less than 0.05 TWh in 2015 for six of the 12 economies — Vietnam, Hong Kong, Malaysia, Philippines, Singapore and Thailand. “Thus, statements that many Asian economies have significantly embraced new renewables like solar, and their use of coal power is declining as they shift towards more solar and wind power – are preposterous,” says Oplas.

“The recent heightened interest in renewables is understandable. But let me say this: for now, renewables cost more than conventional power, which means higher power prices. There's a cost to protecting our environment — no such thing as free lunch.” He added that the Philippines is heading towards sufficient power capacity and majority of these power plants are coal.

In India, the country has been thinking of setting up solar parks to address blackouts. “The solar park concept is similar to an economic zone dedicated to the generation of power through solar energy and also to the manufacturing of solar energy components,” says Agostinho Miguel Garcia, chief of development and engineering at Sun Business Development Lda. A solar park will hold a number of solar power plants and manufacturing outfits, each developed by separate or the
same groups/promoters. The concept aims to accelerate the development of solar power generation projects, by providing developers an area that is well characterised, properly infrastructured, and where the risk of the projects can be minimised as well as facilitation of the permitting process.

As part of plans to end blackouts, India aims to set up solar parks with a combined capacity of 22 gigawatts. The Solar Energy Corporation of India (SECI) on behalf of Government of India and the Ministry of New and Renewable Energy handles the funds to be made available under the Scheme for development of Solar Parks and Ultra Mega Solar Power Projects. “The deployable technologies are PV with and without tracking, CPV, and CSP,” says Garcia. “The manufacturing hub can be for
any of the components of these technologies or for the whole assembly of products or systems – PV, CPV, and solar field of CSP technologies.”

Concentrated zones of development may also serve as centres for the deployment of new technologies to be scaled up by setting up appropriate research and development facilities and may also provide targeted economic and employment opportunities, and growth for specific locales or regions. Garcia notes that a solar
park will apply any of the same principles as an SEZ. He says: “Generally speaking we will have one or more blocks of land will be designated and pre-permitted as a concentrated zone for solar development; individual solar plants will be constructed on the land in a clustered fashion; common transmission and infrastructure.” It will also have economies of scale, use of less expensive, domestically-manufactured components: structures, pressure vessels, turbines; manufacturing of components locally, and large-scale demand.

Challenges ahead

ADB president Takehiko Nakao said that in the past five years, exponential growth in solar energy deployment across Asia and the Pacific has been witnessed. At the end of 2015, solar energy capacity exceeded 75 gigawatt (GW), up from 1 GW in 2010 in the Asia and Pacific region including Australia, Japan, and New Zealand. And for the PRC, it held more than half of the region's capacity at the end of last year. “The cost of solar energy globally has fallen by about 70% since 2010,” says Nakao. “This enormous achievement is due to efficiency gains in energy conversion, economies of scale driven by government policies and subsidies, and financing from commercial banks and international financial institutions including ADB.”

He also notes that ADB has contributed significantly to the region's rapid solar energy growth. ADB's Asia Solar Energy Initiative was launched in May 2010 to strengthen our support to developing member countries.

For example, ADB has supported a large-scale solar park in Gujarat and Rajasthan in India and grid-connected solar Photovoltaic (PV) in Uzbekistan, Thailand, and the Solomon Islands. ADB has helped to pilot off-grid hybrid solar-wind systems in Nepal and solar PV in small island nations such as Tonga and Maldives. In addition, ADB has supported the PRC's first major concentrated solar energy plant. “Despite these achievements, we must not become complacent,” Nakao says. “In my view, there are three key challenges to expanding solar energy further and reaping its potential in Asia and the Pacific.” First, he notes, money matters. In Asia, more than 400 million people do not have access to any form of electricity. Bringing clean energy to them, including solar energy, will require substantial investments. Second, although the cost of solar energy has fallen significantly, it is still too expensive for many developing countries in Asia. “Third, given that solar energy is intermittent, electricity grid systems will need to be upgraded with new technologies to absorb the solar energy,” he says.

“This is particularly important in small power systems.” Nakao also notes that ADB is working with its developing member countries to address these challenges. First, ADB is scaling up its financial support for clean energy, he says. “Last September, I announced a doubling of ADB's climate financing from the current $3 billion to $6 billion per year by 2020,” he says. “Out of this $6 billion total, $4 billion is for mitigation including renewable energy and energy efficiency.” Clean energy investments including solar will be increased from the current $2 billion to $3 billion a year by 2020, he notes.

Second, Nakao says ADB expects the cost of solar energy to fall further as solar energy installations are scaled up and local manufacturing capacity is increased. “It is also important to pursue innovative business solutions to bring affordable solar energy to the poor,” he says. As an example, he says that in India, ADB has supported a private sector company to install solar panels at low-income households in rural areas. Energy from the solar panels will be delivered to households initially without any payment via the system of electricity credits, Nakao shares.

Doing solar PV differently

Garcia from Sun Business Development adds that many of the PV industry players have already wished for opportunities that were faster, easier, and better defined than actually develop a PV project from zero, though some of the players have developed pretty neat skills doing exactly this. “I have already commented
on solar parks and their impact, which so far has been remarkable in PV and CSP. Another interesting way has been devised by the International Finance Corporation (IFC), part of the World Bank Group (WBG).

The programme is called Scaling Solar. IFC has developed a product that uses several separate products from the WBG as World Bank supports country governments with financing and advice, IFC leveraging the private sector and the Multilateral Investment Guarantee Agency (MIGA) providing a range of political risk insurance products to attract private capital into emerging markets,” he says.

The cost of solar photovoltaic technology has fallen more than 80% in the past six years. Still, many countries have struggled to develop utility-scale solar plants due to limited capacity to manage, structure, and negotiate private power concessions; small and distinct power markets can deter investors and small grids can only absorb small projects; power projects are not competitively tendered; individually negotiated contracts have high transaction costs and poor credit utility offtakers as well as political risks increase the cost of capital, driving up the tariff “This results in less attractive projects and in the end, and mostly shady deals are done that benefit only some while the value of PV is not obtained,” he adds.

Asia be dammed: Are Asian countries too late in scrambling to harness hydropower?

Only 41GW of hydro potential are being used.

Reliability of hydropower projects are questioned amidst threats of increasingly frequent droughts and floods and intensifying climate change.

When the average of hydropower projects dropped to 0.044 USD/kWH with the lowest value hitting 0.029 USD/kWh, Asian countries clambered to get projects funded and approved. Most ASEAN Member States (AMS) have relatively high potentials for hydro, thus, harnessing these renewable energy (RE) potentials is a viable option to be explored.

From the total of 232 GW potential, only 41 GW are being utilised throughout the ASEAN region. The share of hydropower in total ASEAN electricity generation in 2014 was 16% and 21% in total installed power capacity.

Hydro is indeed the largest source of renewable electricity generation in ASEAN, which accounted for 71-78% of all renewable electricity generation between 2006 and 2014. Some AMS like Cambodia, Myanmar and Vietnam have more than 50% of their electricity supplied by hydro. Even Lao PDR is almost 100% dependent on hydro power.

Dropping costs

According to Dr Sanjayan Velautham, executive director of the ASEAN Centre for Energy, hydro is one of the most affordable resources, which is another reason for AMS to develop hydropower for electricity generation. “The results from our levelised cost of electricity (LCOE) study showed that the average of a hydro project is 0.044 USD/kWh, with the lowest value reaching 0.029 USD/kWh. However, with the increased availability and the decreased costs of other RE technologies in ASEAN such as solar and wind, the AMS are starting to boost efforts to develop other RE technologies.”

Solar energy potential in ASEAN is in the range of 3.6 to 5.3 kWh/m2/day with sunshine throughout the year. Annual growth of solar power capacity in ASEAN had risen much higher than other RE sources, with a compound annual growth rate of 62.3%, while others are about 31.2%. Biomass-sourced generated electricity in ASEAN was up to 14,297 GWh in 2014, about 8.5% of total renewable electricity generation. These results show that ASEAN has the desire and is making efforts to integrate various RE technologies to address energy security, accessibility and affordability in the region.

Huge waves of challenges

For large-scale hydro, the main challenge is from social and environmental impacts: how to ensure that hydropower development will not bring any harm to biodiversity, natural and cultural resources. In addition to that, social acceptance due to relocation of communities which are affected by the project should also be carefully taken care of by the governments. Raising public awareness could be one way to address this issue.

Dr Velautham adds that for small scale hydro, finding the best business model to access finance is the main challenge, because small hydro can be more expensive than large hydro with a longer payback period. Huge investments needed upfront cannot be allocated only by state budget or private investors. In ASEAN, small-scale hydropower entities are usually for the purpose of rural electrification, which is not really attractive for investors. International investment should be welcomed to overcome this challenge. Governments also need to create more investment-friendly policies by providing more incentives and financial supports for project developers. Public-private partnerships should be encouraged by the governments for this purpose.

“Another important challenge we may see in the development of hydropower is connectivity among AMS. The grid integration will boost hydro source deployment in the region. With better and higher grid integration, one member state with abundant hydro potential can more easily export electricity to another member state. This is already in place on a bilateral basis among some AMSs,” he says.

Harnessing Asia's maximum potential

A common misconception is that hydropower is limited to schemes that include large-scale dam developments.

In reality, small and mid-scale run-of-river projects can be successfully developed with lower capital start-up costs. By connecting remote areas to the grid, these projects can deliver additional social-economic benefits for rural communities. Another application would be mini hydro plants installed within traditional water treatment facilities.

In the last 15 years, hydropower in Asia has remained relevant in two important ways: it has proven its ability to offset the short term variability of solar and wind power generation, and the advent of new equipment manufacturers within the industry has also afforded owners with additional choices for developing hydropower resources.

On top of that, Pumped Storage Hydro-Electric Power Plants (HEPP) are the most effective solution to support the grid and smoothen out power fluctuations caused by wind and solar peaks. They are also particularly helpful where there is heavy industry nearby, such as smelters.

Charles Feild, project director for Globay Hydro at Black & Veatch anticipates that the next phase of hydropower development in Southeast Asian countries will be technically more difficult than earlier phases, as typically the sites with relatively easy access and favorable topographic conditions have already been developed. Successful hydropower development is very much site and solution specific.

"Consequently, developers assessing investment potential in particular hydropower opportunities would need to seek quick, accurate and realistic costing and scheduling that takes into account the potential cost and schedule impacts of the actual site conditions. This includes obtaining sufficient knowledge of subsurface conditions and properties that could potentially result in down-the-line construction cost increases or schedule delays," he says.

Is it too late?

It shouldn’t be surprising that at the forefront of all scrambling efforts to maximise hydropower is China - the world’s leading builder of dams. Debra Tan, director at China Water Risk, says the nation’s own hydropower installed capacity has more than doubled from 2005 to 280 GW in 2013, comprising 258 GW of conventional hydropower and 22 GW of pump storage capacity. With around 45,800 small dams, small-scale hydropower has dominated hydropower growth in China over the last decade but large-scale dam building has stepped up.

Further expansion is expected as this relatively cheap carbon-friendly fuel source helps China meet its 2030 emissions commitments. However, seasonal variability impacts river flows, resulting in fluctuations in hydroelectricity generation that require smoothing.

Analysis shows that due to coal-fired power’s dominant role in smoothing, China’s hydroelectricity production demonstrates a strong correlation with non-nuclear thermal power generation. Achieving efficient coal-fired power is therefore key. With extreme weather brought on by climate change, reliance on fluctuating river flows means the viability of hydropower comes into question.

Expected increasing frequency of droughts and floods in the future might diminish its power generation ability as water is held back in reservoirs to provide drought or flood relief. In such cases, more coal will be required to balance hydropower’s diminished capacity.

Regardless, China will plough ahead with hydropower dam building as dams serve multiple functions beyond power generation, such as water flow management, rural electrification and provision of water for irrigation. These functions will become increasingly important to mitigate climate risk, causing concerns for China’s neighbours due to its plans to tap transboundary rivers.

Water-related issues' impact

Amanda Sauer, senior associate in the Envest project at the World Resources Institute, remarks that the potential financial impacts of water-related issues for the power generation sector include lost revenues and increased costs of goods sold (COGS).

She also says water-related disruptions such as prolonged droughts and heat waves can lead to low reservoir levels and insufficient cooling water, resulting in load losses or outages that often coincide with periods of heavy demand, thereby forfeiting revenues.

Water shortages can necessitate temporary water and power supply measures that increase production costs and therefore COGS. Water shortages are episodic in nature and can occur in any timeframe, although their frequency and severity are projected to increase over time. Impacts on shareholder value will vary by business model and power purchase contracts.

Higher capital expenditures (CAPEX)

As water availability and quality declines, companies may need to invest in water infrastructure projects, such as pipelines, dams/reservoirs and desalination facilities, to secure supplies, water treatment systems for plant influents and/or effluents, and/or more advanced cooling systems,such as air, seawater, wastewater reuse, or condensed water cooling.

The need for such investments will increase in the future, with the impact on the industry determined by regulations and financing terms, project execution delays and constraints on growth. As water shortages become more acute, policymakers are likely to respond by requiring more stringent water efficiency and usage requirements.

This could increase permitting and development periods for new plant projects. As a result, financing may become more difficult and expensive. New plants may be restricted in water-scarce regions by government decree or by lack of financing if water supply cannot be secured at an attractive rate.

These risks are currently present in some Indian states where signed MOU’s for new power capacity are believed to exceed available water resources. Over time, these risks will increase in severity and geographic scope.

India's water woes

Indeed, a case study by HSBC on India notes that water scarcity is already impacting power projects in the country, causing delays and operational losses. For example, the National Thermal Power Corporation’s (NTPC) Sipat plant was shut down in 2008 due to lack of water supplies from the state of Chattisgarh.

Thermal plants under construction in Orissa state are also reportedly witnessing delays due to water allocation problems. Utilities can take a range of measures to protect themselves from water scarcity risks. They could, for instance, incur capital costs that include building back-up supply resources such as canal network or pipelines. Another approach is to identify coastal locations for future plants to tackle the problem of increasing freshwater shortage by installation of desalination plants. However, such measures are costly and affect a company’s bottom line.

The financial impact of these additional costs may be limited if they can be passed on to end-customers through tariffs. This case study assesses the financial impact of water scarcity on the internal rate of return (IRR) of a typical coal-based plant at two stages of the project lifecycle: the project development stage, when water scarcity can delay project execution, leading to loss of revenues, profits and hence project IRR; and the operating life of the project, when water scarcity can reduce the plant load factor, thereby affecting profitability and valuation.

Power is bought and sold under long-term contracts in India. While typical buyers include unlisted state-owned distribution companies, sellers include listed players such as NTPC and private listed developers such as Reliance Infrastructure, Tata Power, and Lanco Infratech. Under current regulations, the risk of revenue loss due to water scarcity may be limited over the short-term as power is sold under long-term contracts, and virtually all costs - operating as well as capital-related - can be passed on to the buyer.

Power purchase agreements (PPAs) typically compensate the power generator if it is unable to operate a plant due to water scarcity, which is deemed to be the responsibility of the State Electricity Board (SEB). (For other inputs such as fuel, a utility will typically sign a back-to-back agreement with the fuel supplier for making up for any losses that may occur due to a disruption in fuel supply.)

Scarcity of water could result in reduced power output, or even shut-downs. If water supply is the responsibility of the operator and the state does not compensate for any loss of revenue associated with reduced water flow, and therefore profits, the drop in output will result in loss of revenues, profits and cash flows and hence lower the valuation of the project.

Hydro period past prime?

Further, civil rights organisation, South Asia Network on Dams, Rivers and People (SANDRP), recently wrote in its blog on India's hydropower sector that the country's hydropower generation dropped by close to 20%, compared to the previous year in some of the months this year, even as the installed capacity of hydropower projects keeps climbing relentlessly.

The group also mentions that, according to monthly generation figures from the Central Electricity Authority, even as the installed capacity of hydropower projects went up by 1516 MW in the last year, the power generation from hydropower projects dropped by 10.82%, 19.19%, 17.7% and 15.92% during February, March, April and May 2016 respectively at all India levels, compared to the figures in the same months in 2015.

While reduction in power generation from hydropower projects during drought years is expected, the quantum of reduction, of up to 46% regionally and 20% nationally should be raising concerns, says SANDRP. When there is such reduction year after year, the group continues, the reliability of hydropower projects comes into question since in a changing climate, both droughts and floods are going to increase in frequency and intensity. Lastly, SANDRP points out that, even as USP of hydropower projects is touted as peaking power, and when power generation from hydro projects during peaking hours is being monitored, where is the case for adding more capacity for peaking power?

India's Union Power Minister recently declared that for the first time in history, India will have a power surplus in 2016-17 and will not need any additional power capacity for next three years, states SANDRP. India’s renewable power (solar and wind totaling 42850 MW) installed capacity has already gone past the hydro installed capacity (42783 MW) on April 30 of this year. Since the renewable installed capacity is increasing at a much faster rate, SANDRP says, hydro installed capacity is bound to remain at much lower levels than renewable installed capacity, for years to come.

The group also argues that we have gone past the peak hydro period globally. It cited Peter Bosshard of International Rivers, who wrote: “According to the 2016 Renewable Capacity Statistics of the International Renewable Energy Agency (IRENA), the world added 63 GW of wind and 47 GW of solar power in 2015. In comparison, only 22 GW of large hydropower capacity was added during the same year – down from 38 GW in 2013 and 32 GW in 2014... In 2015, a full $271 billion were invested in new wind and solar facilities, compared to $130 billion in fossil fuels and $23 billion in large hydropower.”

What this means for the world, SANDRP claims, is that in 2015, hydropower added only a fifth of the installed capacity added through solar and wind, but as investments in solar and wind are rising much faster, they are eating into the available investments for hydro among others, so this trend of diminishing hydro capacity addition is only going to accentuate.

Tapping the Mekong

However, given that, hydropower in Asia is still seen as an option. According to Fred Mayes of the US Energy Information Agency, many countries in southeast Asia are planning to access the immense hydroelectric potential of the lower Mekong River, which flows through or borders China, Myanmar, Laos, Thailand, Cambodia, and Vietnam.

He says China has constructed six major dams along the upper portion of the Mekong River. Hydroelectric power potential in the Greater Mekong Region (which includes Mekong tributaries) is estimated between 175 GW and 250 GW. As of 2010, Mayes says, 71 Mekong hydroelectric dams were proposed for completion by 2030. Vietnam, Indonesia, Bhutan, and Laos are four of the many southeast Asian countries with significant planned hydroelectric additions, from projects in the Mekong region as well as projects centred on other hydroelectric resources, he notes.

China's substantial development of hydroelectric power, including the largest power plant in the world at Three Gorges Dam, has overshadowed the relatively large hydroelectric expansion plans of other southeast Asian countries, claims Mayes. Combined, the smaller countries of southeast Asia plan to construct 61 GW of new hydroelectric generating capacity through 2020. If all planned projects are completed, he says, these countries will more than double their 2012 hydroelectric capacity of 39 GW.

Environmental concerns

According to Mayes, Vietnam has the most ambitious hydroelectric development plan in southeast Asia, with plans to develop 205 hydroelectric projects (6.2 GW) by 2017, and nearly 4 GW of additional capacity between 2017 and 2030. One of the largest projects, Trung Son, a 360 MW project, is located on the Ma River in northern Vietnam, which is not a Mekong tributary.

Meanwhile, he says that Indonesia's goal is to develop 5.7 GW of new hydroelectric generating capacity by 2021. Included is one of the larger hydroelectric projects outside of China, the 1,040 MW Upper Cisokan pumped storage power facility projected to be in service by the end of 2018.

Bhutan, a relatively small, mountainous country surrounded by India and China, plans to build 10 GW of hydroelectric generating capacity, adds Mayes. Because much of this electricity will be exported to India, India is funding these projects. Many of Bhutan's rivers feature high vertical drops over a short distance, ideal for hydroelectric generation. Three of these facilities with a combined 2,940 MW capacity are currently under construction.

Laos, which currently has hydroelectric generating capacity of about 2.5 GW, plans to increase that capacity to more than 9 GW by 2020, remarks Mayes. This increase includes 17 projects currently in the planning stage with a combined capacity of more than 4.5 GW. One-fourth of this capacity is attributed to the 1,285 MW Xayaburi hydroelectric power plant, the first of 11 planned hydroelectric generating plants along the lower Mekong River. Laos, like Bhutan, expects to be a major electricity exporter.

However, Mayes notes that despite the strong electrification potential of these projects, there are major concerns about the environmental impacts of damming the Mekong River system and other rivers in southeast Asia. An independent assessment prepared for the Mekong River Commission recommended a 10-year delay in the current hydroelectric project schedule to evaluate environmental concerns, he explains.

China's water security role

China is clearly on track to meet its 2015 target of 260 GW conventional hydropower installed capacity. Hydropower expansion during the 12FYP has been mainly in water-rich provinces, with 80% of expansion in Yunnan and Sichuan. However, these provinces are exposed to seismic risk, which raises concerns regarding further expansion. Moreover, although there are no concrete links between dam building and earthquakes, concerns exist.

Aside from environmental and social risks, there are also geopolitical concerns as more than 20 riparian countries share China’s international freshwaters. China has identified ten large rivers for hydropower expansion; three of the ten are transboundary, thus raising geopolitical risks. Although China’s 2015 transboundary hydropower capacity is only 6.5% of the nation’s conventional hydropower installed capacity, this could grow to 28% by 2050.

With >124 GW on the Lancang (upper Mekong), Nu (upper Salween) and Yarlung Zangbu (upper Brahmaputra) rivers, China’s neighbours are worried. China did not ratify the UN Water Convention (UNWC) but then neither did the US nor Canada. However, experts say that China has been unfairly criticised for intensifying drought conditions downstream on the Mekong and that China’s transboundary water strategy does include many of the elements of the UNWC.

State Council has a 2020 target for total hydropower at 420 GW and the NEA a hydropower cap at 500GW. However, it is not clear whether this is a total or conventional hydropower cap. There are mixed views on how much hydropower China should add. Chinese government affiliated research bodies forecast China’s 2050 hydro capacity to be 500-630 GW; some NGOs are forecasting 510 GW but others believe this is too high.

To reach 500 GW of conventional power, China will have to tap the three transboundary rivers. Given the seismic risk exposure in the Qinghai-Tibetan Plateau, we are of the view that the 500 GW cap should be a total hydropower cap. This can be achieved with >60 GW of small-scale hydropower, >100 GW of pump storage and >50 GW large-scale dams. Given that >116 GW can be tapped on non-transboundary rivers, the Nu and Yarlung Zangbu rivers can both be free of large-scale hydropower dams.

With glaciers in the Qinghai-Tibetan Plateau shrinking by 15% over the last three decades, the stakes are high. The future of China’s hydropower doesn’t just impact China; it has regional watershed implications and global climate ramifications. It is time to start productive conversations to find solutions for Asia’s water-energy-climate nexus. As the upstream riparian landowner, China will no doubt play a central role in regional water security.

How is Asia's nuke industry five years post-Fukushima disaster?

Much has been learnt, but will nuke generation be revived in Japan?

Saturday, March 12, 2016 marks the five-year anniversary of the Fukushima Daichii Nuclear Accident. Fukushima was one of only two Level 7 disasters (the other being Chernobyl, and by comparison, Three Mile Island was rated at Level 5) on the INEs in history.

Both the immediate and medium-term fallout from the accident was significant. Mass media coverage, some of which accurate and some of which hyperbolic, was at saturation levels, and as such the negative impact regarding the safety of nuclear power generation on public opinion was considerable. This altered the political sphere. Not only did Japan cease its nuclear power operations but a number of other nations, including Germany, Italy and Switzerland, either scaled-back or abandoned their own national nuclear platforms.

However, as is the case after most major natural or manmade disasters, much has been learnt and Japan is investigating the resumption of nuclear power generation. Due to the many positive aspects and with the passage of time, nuclear is back. Experts are asked if Japan is ready and what are the implications of Japan’s resumption on Asian newcomer nuclear nations.

Lessons learnt

Experts suggest that three key lessons were learnt from the Fukushima experience:

1) The importance of preparedness.
In the case of Fukushima, the combination of insufficiently high protective breakwaters and the fact the emergency diesel generators were below sea-level created a perfect storm waiting to happen. Yes, the tsunami was a one in a 100-year incident, but the low sea wall and the position of the back-up generators nevertheless represented poor planning and poor preparedness – it was only a matter of time.

2) A continuous assessment and revision of safety culture.
Multiple stakeholders must be invested in keep nuclear energy use and facilities safe and secure. The industry must uphold the highest standard and must not view security merely as the responsibility of governments. All stakeholders must be reflective, self-challenging and watchful of other stakeholders for the good of the industry. Emergency procedures must be well-practised and cutting edge.

2) The importance of crisis and risk communication.
Not only must stakeholders communicate for the betterment of the industry in general, but so must all the elements of a particular installation, with updated and well-drilled crisis response procedures. This leads to a point regarding the broader issue of human capital development, well made by Collin Koh Swee Lean, Associate Research Fellow at Singapore’s S. Rajaratnam School of International Studies, “The nuclear energy industry needs to pay greater attention to the supportive aspects such as infrastructure development and human capital investments. Providing nuclear energy to countries that can well afford it financially is one thing, but it’s quite another if the country concerned does not possess the requisite infrastructure and human capital pool to support this energy use.”

World Nuclear Association’s Senior Advisor for India, Middle East and South East Asia, Shah Nawaz Ahmad, says that these lessons must be used to “re-furbish the image of nuclear power in the public mind. The Fukushima incident,” he says, “Would not have got the press mileage; if the event could have been contained within the station premises and salvage work had gone apace.” A more proactive international regime for risk-assessment and disaster prevention, mitigation and management needs to be put in place, and this is required not only for nuclear, but other sectors too.

View the full exclusive on Nuclear Forum.Asia in this link.

SECTOR REPORT: Asian countries are scrambling to tame the wind to add to their fuel mix

Governments are pressured to keep up with the clean trend.

During the international climate summit in December 2015, governments agreed to a long-term goal of limiting the increase in global average temperatures to well below 2°C of pre-industrial levels by undertaking rapid reductions in the global emission of greenhouse gases, brought about by voracious consumption and dependence on fossil fuels.

In Asia, countries like Taiwan, China, India, Vietnam and the Philippines have taken up the job of increasing the share of renewable energy, including wind power, to their respective countries’ fuel mix.

Taiwan bats for increased capacity

For an island country like Taiwan, harnessing the power of the wind is an option of high priority. Taiwan is highly dependent on imported energy (97-99%) to sustain the power supply of the country. Nuclear power was one of the solutions to be pursued to resolve the high dependency of the country to fossil-fuelled power, but the government has been under public pressure to adjust the energy policy after the Fukushima incident, Flanders Investment and Trade says.

On the other hand, the attractive potential of offshore wind has given Taiwan a good opportunity to increase the portion of renewable energy in power supply and also to develop the local supply chain by growing it along with ongoing offshore wind farm developments.

"With over six months of northeastern winds every year, that sweep across the central and western coasts, averaging four metres per second, or a force 3 wind on the Beaufort Scale that is strong enough to extend flags, Taiwan has inherent advantages for wind power development," Flanders says.

Research by the Industrial Technology Research Institute in Taiwan demonstrates how such gentle breezes, which sweep around 2,000 square kilometres of the island, most of which occur across the northern alpine region, western coast and archipelagos off the western coast, are able to generate power.

Taipower and InfraVest GmbH are the major developers, both of which use imported wind turbines, Flanders says. Taiwan built the first onshore wind farm in the offshore Penghu island early in 2001. According to the Taiwanese Bureau of Energy, by the end of 2012, Taiwan has 314 onshore wind turbines situated mainly along the western coastline and in outlying Penghu County. The total installed capacity of these land-based turbines is 621 MW, which accounts for 16.6% of all renewable energy. The Bureau plans to build a total of 450 units onshore to reach a total capacity of 1,200 MW by 2020.

While wind energy shows a lot of promise in Taiwan, the government still has to conduct the necessary due diligence before ramping up its investment in wind farms.

"Details of environmental impact assessments are yet to be completed. The impacts on migrating birds and ocean mammals, impacts on local fisheries, navigation and harbour development need to be researched beforehand. Otherwise the environmental issues will hinder progress, especially when environmental groups are leery of offshore wind turbine construction that impacts marine environments," Flanders says.

Taiwan also lacks suitable subsea construction capability. Local builders do not have large pile driving vessels, 500-ton-plus crane vessels and offshore platforms, making work at 12-metre and deeper depths underwater impossible without foreign support. "The government is urged to provide financial incentives for Taiwanese companies to strengthen offshore construction capabilities and to purchase needed equipment," Flanders says. Large corporations such as China Steel Corp., Taiwan Shipbuilding Corp., China Steel and Machinery Corp. are actively working with foreign firms to develop such capability. Bank financing and financial backing from large enterprises are vital to Taiwanese wind turbine builders, especially off shore projects, which are short of precise pre-construction risk assessment and hence are exposed to potentially huge losses during construction. "Without such financing and investment, potential operators will be discouraged to support progress," Flanders says.

China doubles down on clean energy

As China makes the bold move of turning away from conventional sources of energy, wind power is leading the charge in the transition away from fossil fuels. "Wind is blowing away the competition on price, performance and reliability, and we're seeing new markets open up across Africa, Asia and Latin America which will become the market leaders of the next decade," says Steve Sawyer, secretary general of the Global Wind Energy Council.

Sawyer says 2015 was a big year for the big markets - China, the US, Germany and Brazil, all of which set new records. “But there is a lot of activity in new markets around the world and I think in 2016 we'll see a broader distribution,” he says.

Wind power led new capacity additions in both Europe and the United States, and new turbine configurations have dramatically increased the areas where wind power is the competitive option, he adds. The global wind power industry installed 63,013 MW in 2015, representing annual market growth of 22%. Of these installations, 30,500 MW are new to China.

As a result of its extraordinary annual market, China has edged past the European Union in terms of total installed capacity, with 145.1 GW compared with the EU's 141.6 GW, Sawyer says. "The Chinese Government's drive for clean energy, supported by continuous policy improvement, is motivated by the need to reduce dependence on coal which is the main source of the choking smog strangling China's major cities, as well as growing concern over climate change," he says.

India’s huge untapped potential

The renewable energy sector in India has made remarkable progress, growing from 3.3% (2002) of the total generation capacity to 13.4% (2015). Production rose from 0.4% to 5.6% in this period, with wind providing the biggest share along with small hydro, solar, biomass and waste to energy, and other sources.

The wind power sector has undergone a major shift in India, from tax-credit driven investment to mainstream independent power producers, says Kameswara Rao, partner and leader in Energy, Utilities and Mining at PwC India. "This has led to the setting up of large wind farms that deploy the latest technology and practices—larger MW class wind turbines, inclusive operations and maintenance practices for plant life, use of logistics tools for construction and maintenance, and seamless grid integration," Rao says.

Moreover, he says the industry has gained from improvements in drivetrain technology, tower structure and use of advanced power electronics, which add to overall cost effectiveness. "Turbine costs declined in late 1990s, but have since risen. This is due to a variety of factors such as greater turbine dimensions and higher material costs. However, with design technology maturing and production stabilising, costs have started to decline from 2010," he says. Rao says further gains are expected from the use of lightweight materials such as carbon-fibre reinforced plastic, better aerodynamic profiles, on-site manufacturing, segmented blades, and variable diameter rotors can reduce costs and increase the capacity factor.

In India, in the last two decades, the hub height and rotor diameter of wind projects have increased fourfold, and the average wind turbine generator (WTG) rating has increased almost tenfold. "This enhances the energy generated per turbine, thus reducing the overall levelised cost of electricity. Still, the top-end rotor and hub heights installed for WTGs in India are 20-30% lower than the global standards, and have scope for improvement," Rao says.

He adds that the cost of installing new wind farms and utility-scale solar projects has declined in recent years, and is significantly lower in some regions of the world. "The costs of new wind projects in India and China are materially lower than, say, in Europe. This reflects lower production and labour costs, as well as competition between a large number of locally focused manufacturing and construction companies," Rao says.

India has about 80 GW of untapped wind power as of March 31, 2015, says Anila Gode, analyst at Analysis & Research Limited. "The factors favourable for development of wind power plants in India include incentives from government in the form of generation-based incentives and accelerated depreciation, relatively cost competitive modes of power generation, low gestation periods for setting up of the projects and introduction of floor/cap pricing mechanisms for trading of Renewable Energy Certificates," she says. Furthermore, Gode says that an expected increase in the cost of conventional energy, sources such as thermal, due to their limited use of fossil fuels, would provide stimulus to the cost competitive renewable energy sources.

"Considering the factors favouring the independent power producers in this segment, coupled with the projects in pipeline, the wind-based capacity additions going forward, are expected to grow between 2000 MW to 2500 MW during FY16 - FY17 as against 2312 MW of capacity addition during FY15," she says.
Gode adds that it is expected that the wind-based IPPs would continue to prefer to sell their power to state distribution companies by entering into purchase power agreements, for this assures stable cash flows to the projects and provides opportunities to avail themselves of the benefits of open access and banking facilities.

India has a coastline of 7517 km, offering a huge potential for offshore wind energy as well. India has wind potential of around 102.77 GW out of which the total installed capacity as on March 31, 2015 was 23.44 GW, she says. India’s wind energy installed capacity was majorly spread across eight states; Rajasthan, Gujarat , Madhya Pradesh, Maharashtra, Andhra Pradesh, Karnataka, Tamil Nadu and Kerala. The total installed capacity of renewable power projects as on March 31, 2015 aggregates to 35.77 GW (excluding 41.27 GW of large hydro projects) against the total potential capacity of 249.19 GW. India has wind potential of around 102.77 GW out of which the total installed capacity as on March 31, 2015 was 23.44 GW with an untapped potential of about 77%.

"A major part of capacity addition and exploitation of wind potential in the future is expected from private sector projects. Huge untapped potential in wind power is attributed to lower plant load factor in comparison to fossil fuel, nuclear and hydropower plants," she says. In addition, due to the limitation of grid infrastructure, it has been found that the amount of energy produced from wind farms could not be effectively transmitted to consumers, causing wastage of energy. "And also, the financing structure of wind power projects in India is still bound in uncertainty. Due to aforementioned issues,although the untapped potential is huge, the extent to which the same can fructify still remains uncertain," Gode says.

Vietnam takes steps to attract more investments

Located in the monsoon climate zone, and shaped by its over 3,000-km long coastline, Vietnam is bestowed with large wind energy potential. Meteorological as well as measurement data shows that the average wind speed per year ranges from 5.5 m/s to 7.3 m/s: favourable conditions for wind energy development. The technical potential for wind power development in Vietnam is estimated to be around 27 GW, covering a land area of 2,681 square kms (AWS Truepower - 2011). However, only 52 MW of wind power has been put into operation up until now.

It is expected that by 2030, renewable energy will account for 6% of the national electricity output. Currently, the country’s electricity supply is largely based on thermal power (34%) and hydropower (43%). Hence, the Vietnamese government wants to strengthen the development of renewable energy to offset the use of fossil fuels, the German Wind Energy Association (GWEA) said.

"In order to secure energy supply and, at the same time, reduce energy related greenhouse gas emissions, the Vietnamese government has set itself ambitious targets for renewable energy development," says Peter Cattelaens, wind energy technical adviser at the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).

According to the National Power Development Plan, Vietnam aims to increase its renewable energy share in power production from 3.5% in 2010 to 4.5% in 2020 and 6% in 2030. This will bring the total wind power capacity from the current negligible level to around 1,000 MW by 2020 and around 6,200 MW by 2030. However, regulatory and market barriers limit the industry to scale up to its full potential.

"Besides the low feed-in tariff that needs to be adjusted, some other challenges are missing finance, low data reliability, the lack of a systematic and consistent database, a deficiency in qualified human resources and technical infrastructure, as well as an inadequate supply of auxiliary equipment and services," he says.

In addition, complex procedures to undertake investments make it difficult for foreign investors to tap into the market. Local institutional stakeholders are unclear about procedures, leading to subjective interpretation and application of national regulations at the province level, he says.

At present, investments in wind energy projects are slowed down by insufficient finance to cover the comparatively high costs, of which 15-17% arises from transport expenses. Local banks still lack necessary knowledge; foreign banks often refrain from financing due to prevailing investment uncertainty regarding particularly the purchase price. The Vietnamese government has recognised that the tariff paid for electricity generated by onshore is not sufficient to cover for the costs and has announced a change to the tariff, WEA adds.

Cattelaens says that the current remuneration scheme of wind energy in Vietnam includes a feed-in tariff of 7.8 USc/kWh, with the power purchase agreement duration of 20 years.

"The feed-in tariff is currently under revision to become more favourable for the commercial development of the sector. In addition, there are other supplementary instruments, such as an import tax exemption, land incentives, a corporate income tax reduction, incentivising the development of the sector," he says.

Philippines moves toward a more diverse energy mix

The Philippines is making a concerted push to build up its renewable energy sector with the goal of cutting its heavy dependence on fossil fuels for electricity generation, says Christopher Thieme, director of the private sector operations department at the Asian Development Bank (ADB).

The country’s untapped renewable energy resources are estimated at about 250,000 megawatts (MW) and the Department of Energy is targeting about 2,870 MW of additional installed capacity from these sources by 2030.

"The wind farm will provide a shot in the arm to the government’s push to diversify its energy sources and reduce harmful greenhouse gas emissions," Thieme says.
ADB has signed a financing assignment agreement of up to $20 million with EDC Burgos Wind Power Corporation (EBWPC), Eksport Kredit Fonden, and a syndicate of international commercial banks to support development of the largest wind farm in the Philippines. Other lenders include a syndicate of local commercial banks who have provided local currency debt.

"This Burgos wind farm is a major contributor to the government’s drive to scale up renewable energy use and to reduce its reliance on coal and petroleum for power generation. The operation of this farm will avoid the production of over 200,000 tons of carbon dioxide equivalent emissions a year, making it a sustainable energy source for the country," he says.

The 150 MW Burgos wind farm, which is situated in the northern province of Ilocos Norte on the main island of Luzon, was completed in November 2014 and is owned and operated by the EBWPC. The special purpose company is controlled by Energy Development Corporation, a publicly listed firm which is the largest geothermal energy producer in the Philippines and the largest integrated steam and geothermal energy producer in the world today.

"ADB decided to invest in the project because of EDC’s successful track record in financing, constructing, owning and operating renewable energy projects in the Philippines, as well as the high potential for energy generation at the target site in Ilocos Norte, and the contribution the farm will make to the government’s drive to diversify its fuel mix and to meet rising power demand without the use of fossil fuel generation plants," Thieme says.

Indonesia is all set to dominate Asia's geothermal power sector by 2024

It's working hard to be in the sector's "hot spot".

Indonesia, is more ways than one, may just find itself in a “hot spot” at present, with much potential simmering just under the cover, waiting to peak in the next few years. Aside from the title of the world’s third-largest geothermal market (second only to the United States and the Philippines), the country’s robust geothermal sector is poised to grow by leaps and bounds in the short-term, thanks to a mix of local and international efforts to boost this sector.

The Government of Indonesia plans to achieve around 6,000 MW of installed geothermal power capacity by 2020, a more than a fourfold increase of the end-2012 capacity of 1,335 MW. This ambitious plan will require strong government support to materialise. Any shortfall in the expansion of geothermal power generation capacity willmost likely be met by additional coal-fired power plants,” says a 2015 joint Asian Development Bank-World Bank (ADB-WB) report entitled “Unlocking Indonesia’s Geothermal Potential.”

For one, industry sources expect Indonesia to take the lead in global geothermal production by the next decade, with capacity seen to account for nearly 90% of Indonesia’s total renewable installed capacity by 2024, says BMI Research in an Industry Trend Analysis report.

“Indonesia's renewables industry expansion will be driven by growth in the geothermal segment, resulting in Indonesia emerging as Asia's largest geothermal market by the end of our forecast period in 2024,” says BMI Research. A burgeoning demand for electricity, coupled with a strong government drive to diversify energy resources, is buoying the country’s geothermal sector, the report noted.

BMI Research expects annual average growth rates in non-hydro renewables generation of 12.1% between 2015 and 2024, resulting in a doubling of non-hydro renewables generation in the country by the end of the forecast period. Similarly, it expects non-hydro renewables capacity to surge from a current level of just under 2GW to 4.4GW by 2024. BMI notes that this growth will be primarily driven by the expansion of Indonesia's already well-developed geothermal industry and it expects geothermal capacity to account for nearly 88% of the total renewables capacity installed in the country by 2024. Much smaller contributions will come from the solar (5%), wind (6%) and biomass (1%) sectors, it says.

A ‘stalled’ sector

Indonesia is located at the convergence of several tectonic plates in Southeast Asia, giving it significant geothermal potential, although most of its potential reserves remain unexplored. According to US Energy Information Administration, Indonesia added about 540 megawatts (MW) of geothermal capacity in the decade leading up to 2013, bringing its installed electric capacity to more than 1.3 GW. Indonesia's current geothermal plants are scattered around Java, North Sumatra, and North Sulawesi and make up less than 3% of total installed generation capacity.

To promote geothermal development, the country's fast-track electrification plan calls for an additional 5 GW of geothermal capacity by 2022, to be operated primarily by IPPs and private companies. The new government's 35 GW Electricity Program, launched in mid-2015, includes 1.2 GW of additional geothermal capacity by 2019. The government signed a cooperation agreement with New Zealand in 2012 for joint development of geothermal energy projects. PT Medco Power Indonesia plans to commission the 330-MW Sarulla power plant, which will be the world's largest geothermal plant by 2018.

Indonesia’s geothermal sector is promising but progress in exploring its huge potential is a mixed bag. While already considered to be a geothermal powerhouse, with geothermal potential estimated at around 28 GW, or 40% of the world’s geothermal potential, utilisation, however, is only at around 1.5 GW. EIA in a report, says that “Indonesia's energy industry has faced challenges in recent years from regulatory uncertainty and inadequate investment.”

“Although Indonesia's electricity generating capacity doubled in the past decade, the country has a low electrification ratio compared to countries with similar income levels. In 2014, about 84% of Indonesia's population had access to electricity compared to less than 68% in 2010,” US EIA analyst Candace Dunn says, citing state-owned electric utility, Perusahaan Listrik Negara.

Indonesia's latest energy policy aims to achieve nearly complete electrification of the country by 2020. In recent years, electricity capacity additions have not kept pace with electricity demand growth, leading to power shortages in grid-connected areas. Dunna adds that inadequate infrastructure as a result of insufficient investment and regulatory hurdles contributes to lower electrification rates, primarily in eastern Indonesia.

Fossil fuels power most of the electricity generation in Indonesia (88%), while renewables, primarily in the form of hydropower and geothermal resources, account for the remainder. Indonesia intends to use domestic fuel sources and diversify its fuel portfolio to include more renewable power. Plans to increase renewable energy use to at least 23% of the energy portfolio by 2025 depend heavily on further developing the country's geothermal and hydropower resources.

According to Dunn, Indonesia has included several geothermal power plants in its fast-track program, which is meant to accelerate the development of more than 27 GW of total power capacity in the next several years. Indonesia has focused on geothermal in particular, signing an agreement with New Zealand in 2012 for joint development of geothermal energy projects.

The ADB-WB joint report is more blunt in its assessment of Indonesia’s geothermal sector, noting widespread perceptions that Indonesia’s geothermal program has essentially “stalled”: “From 2010–2013, just 135 MW was added, and best estimates suggest that by the end of 2016, no more than an additional 190 MW is likely. No power purchase agreements (PPAs) were signed under the 2012 FIT (Feed-In Tariff).

Nevertheless, even with these hurdles, the country’s non-hydro sector—which includes geothermal—is expected to grow by double digits in terms of generation and capacity by the next decade.

“Despite these efforts, progress in the last few years has been slow. The perception that the Indonesian geothermal program has stalled is widespread, and exists among all stakeholders. A step change in the pace of development for even 4,000 MW to be reached by 2020 is therefore required, achievable only by a focused action program by government to resolve institutional, regulatory, and tariff constraints,” says ADB-WB report.

Local policies fueling geothermal growth

What seems to be driving this growth? On the home front, a number of government policies implemented under the administration of President Joko Widodo, elected last year, already seem to be boding well for Indonesia’s geothermal industry, BMI Research notes.

Firstly, a fast-track electrification plan currently calls for an additional 5 GW of geothermal capacity by 2022, to be operated primarily by IPPs (independent power producers) and private companies, in addition to the Widodo administration’s 35 GW electricity program that is expected to add 1.2 GW of additional geothermal capacity by 2019.

On the regulatory side, the adoption of the country’s FiT for geothermal, is expected to offset the high capital costs associated with geothermal development and encourage further investment in the field, and is deemed a good initial step for the geothermal sector.

“The problem of mobilising equity is primarily one of the adequacy of tariffs to enable the upfront equity needed for exploration—much more costly than in other countries where much of the upfront exploration effort was funded as a pure public good,” ADB-WB noted.

General reform on the tariff policy is still needed, however, with ADB-WB recommending tariff-setting to continue by tender, but with improvements to the tendering process and power purchase agreements, and the non-adoption of fixed FITS based on production costs due to their lack of economic efficiency.

BMI Research also agrees that the adoption of a FiT for geothermal is essential given the high capital costs of developing geothermal energy and the government- regulated electricity tariffs which are set artiﬁcially low, thus restricting returns on offer and discouraging investment.

Restrictions lifted

In addition, the passage of Indonesia’s geothermal bill last year that reclassifies mining activities, is seen as a step forward as it will ease restrictions on developments in protected forest and conservation areas, where about 60% of Indonesia’s geothermal resources are located, according to BMI Research. Previously, the definition of geothermal development as a mining activity “restricted new projects in conservation areas,” according to US EIA analyst Candace Dunn.

“Indonesia passed a new Geothermal Law in 2014 that eliminated this regulation for geothermal development. The law also attempts to raise investment in geothermal projects by making the price more closely match developments costs. Also, the law limits the permitting process to review only by the central government and alleviates land acquisition issues by providing benefits for the local populations,” Dunn explains.

As a result of these sector-friendly initiatives, Indonesia’s power plant pipeline appears to be full in the near term, another industry group noted.

“More than 60 projects are underway in Indonesia, including 13 geothermal projects in the construction phase on the islands of Java, Sumatra, Sulawesi and Maluku-Ambon, as well as close to 50 projects in early or prospective phases,” according to Yasmin Romitti of the US-based Geothermal Energy Association in a May 2015 report, noting that Indonesia, together with the Philippines and New Zealand, “the South Pacific region has the second-most MW of installed geothermal power capacity behind North America, at 4,318 MW, in addition to the 5,503 MW of developing capacity additions and 9,575 MW of developing resource.”

According to BMI Research, geothermal activities have been lawfully deﬁned as 'mining activities' since 2003 under Law No. 27 2003, preventing development in protected forest and conservation areas which are estimated to contain 60% of the country's geothermal potential.

BMI Research notes that the improving regulatory environment for the Indonesian geothermal sector is evidenced by the growing private sector interest in the market. The country have seen investment announcements by French ﬁrm Alstom in February 2015 and Japan-based Inpex Corporation in June 2015. “Overall, we expect geothermal capacity to total 3.8GW by 2024, resulting in Indonesia emerging as Asia's largest geothermal market by installed capacity by the end of our forecast period in 2024,” says BMI Research.

The haze crisis: catalyst for geothermal development

Aside from active state involvement in the geothermal sector, the international community is also being drawn to invest and contribute their share to Indonesia’s geothermal future—driven, in part, by the country’s air pollution woes.

“The southeast Asian haze crisis, driven by slash-and-burn clearing in Indonesia - which has caused severe air pollution in neighboring countries - has turned the spotlight on Indonesia's environmental sustainability practices,” BMI Research said in a separate report. The report went on further to note that, citing the World Resources Institute, Indonesia’s fires have already released more greenhouse gases (GHG) every day compared to the United States.

The Indonesian government is beginning to realise this threat and has identified geothermal energy as a clear alternative to non-renewable resources at present.

“Geothermal energy represents one of the key options for Indonesia to achieve a comprehensive approach to national energy development. The rapid increase in fossil-fuel based energy consumption, which is subject to volatility in the world oil market, is the main challenge facing the country’s energy supply. At the same time, growing GHG emissions from the use of fossil fuels imposes costs on the economy and society,” says Rida Mulyana, directorate general of New, Renewable Energy, and Energy Conservation of Indonesia’s Ministry of Energy and Mineral Resources.

The growing recognition of the emissions problem in Indonesia, catalyzed by the haze crisis and the country's thermal-heavy energy proﬁle, is putting greater international pressure on Indonesia to adopt more stringent environmental policy. According to BMI Research, the Indonesian government already has targets in place to reduce emissions and increase the share of renewable sources in the energy mix. However, it believe this mounting environmental pressure will boost the country's renewable energy industry and facilitate greater inﬂows of investment from international ﬁnancial institutions (IFIs) and governments - increasing the chances of these climate change targets to be realised.

“We have already seen this view play out, as the US government announced on 26 October that there would be greater cooperation between both countries in the energy sector, following President Joko 'Jokowi' Widodo's visit to the White House, which he had to cut short due to the haze crisis,” says BMI Research.

The agreement primarily focuses on promoting investment into clean energy technologies, developing policies that reduce GHG and creating risk reduction programmes. BMI Research believes the Indonesia geothermal sector will be a key beneﬁciary of this partnership, and can capitalise on US companies' wealth of experience in developing geothermal projects. The US is the largest geothermal market in the world by capacity.

Reducing fossil fuel dependence, jumpstarting investments

BMI Research, for its part, has welcomed the Indonesian government’s recent moves to implement emission reduction targets and boost renewable sources in the country’s energy portfolio.

“We believe this mounting environmental pressure will boost the country's renewable energy industry and facilitate greater inflows of investment from international financial institutions (IFIs) and governments - increasing the chances of these climate change targets to be realised,” BMI Research said.

Last October, following President Widodo’s White House visit (cut short due to the haze crisis), the US government pledged cooperation in developing Indonesia’s geothermal industry through major investments in clean energy technologies and the development of policies that aim to reduce GHG, as well as various risk reduction programs.

“We believe the Indonesian geothermal sector will be a key beneficiary of this partnership, and can capitalise on US companies ' wealth of experience in developing geothermal projects. The US is the largest geothermal market in the world by capacity,” BMI Research said.

In the region, the Asian Development Bank has also lent financial muscle to Indonesia’s geothermal development, committing a $350 million financial package for the construction of the 320-MW Sarulla Geothermal Power Development in north Sumatra, expected to be the world’s largest geothermal plant upon its completion in 2018, according to Dunn.

“We expect the Indonesian geothermal industry to be a key recipient of ADB funding over the coming decade, as the development bank targets annual climate financing of $6 billion by 2020,” BMI Research noted.

What else needs to be done?

According to ADB-WB joint report, only concerted and coordinated action in all areas simultaneously will unlock Indonesia’s geothermal sector. The report highlights that the underlying problem is really one of capital mobilization for a generating option that is unusually capital intensive: just to achieve an additional 3,000 MW geothermal capacity in the foreseeable future will require $4 billion in equity and $9.5 billion in debt finance (assuming $4,500/kW total cost, and 30% equity).

“The problem of mobilizing equity is primarily one of the adequacy of tariffs to enable the upfront equity needed for exploration—much more costly than in other countries where much of the up-front exploration effort was funded as a pure public good,” says the report.

The report adds that a key problem for raising debt finance is that even the international financial institutions (IFIs) (ADB,International Finance Corporation, World Bank/International Bank for Reconstruction and Development [IBRD]) are reluctant to fund up-front exploration and typically will provide financing only once 50% or more of the steam resource is proven. “To date, targets for geothermal achievement have not been set with full knowledge of the incremental costs of achieving them,” says ADB-WB report.

Thailand's battle vs gas reliance heats up in its push for solar power

Dependence must be reduced to 40% by 2036.

In its Southeast Asia Energy Outlook 2015 report, the International Energy Agency says Thailand, along with Cambodia, Indonesia, Malaysia and Vietnam are often referenced as having strong potential for solar development.

However, Dr. Ulrich Eder, managing director of Bangkok-based law firm, Pugnatorius, says even under the ASEAN Economic Community 2015, the solar markets remain heterogeneous and fragmented.

In Thailand, developers and banks are more and more aware that the military junta may use its unlimited empowerment in the interim Constitution to change the legal framework retroactively, which exposes the whole solar project to high political risks, Eder says.

"The solar industry gains in competitiveness and prepares to avoid legal and business restrictions which come with premium feed-in tariffs. This will, in some regions, be a disruptive element and puts increasing pressure on governments and remodels existing energy markets. We will see winners and losers," he says.

Eder adds that he does not expect to see a substantial shifting and dislocation within the next two years.

"The existing markets will flourish and prosper and the risk-averse and cost-conscious solar industry is not keen to develop new markets before the known territories are harvested and saturated," he says.

Georgina Hayden, senior energy and infrastructure analyst at BMI Research says the outlook is optimistic in the southeast Asian renewable energy sector.

"In light of the improving investment environment and the growing project pipeline, our renewables capacity forecasts for the southeast Asia region are constructive. We expect the region's largest markets, in terms of capacity - Thailand, Philippines and Indonesia - to expand 160%, 82% and 132% respectively over our forecast period between 2015 and 2024," she says.

Data from BMI Research show that the most notable difference between Thailand's current power mix and the one envisaged for 2026/2036 is the reduction of the contribution of gas-fired electricity. Reducing Thailand's reliance on gas is a government priority, given the downward trajectory of domestic gas production and the country's heavy dependence on Myanmar for gas. Myanmar currently contributes approximately 25% of Thailand's total gas consumption, but the Burmese government is looking to cut down on export volumes as it retains more of its gas for domestic consumption to support its growing economy.

"Overall, we expect non-hydro renewables capacity to increase from an installed capacity base of around 3 GW (2014 BMI estimate) to over 9.5 GW by the end of our forecast period in 2024. Solar power will dominate the renewables capacity mix, contributing over 56% to the total in 2024, and posting annual average growth rates in capacity in excess of 15% between 2015 and 2024," Hayden says.

Thailand is emerging as an attractive destination for renewable energy investment, highlighted by growing investor interest in the market. The government has introduced a number of policies to support growth in the industry and encourage investment, including feed-in tariffs, tax incentives and energy production payments, BMI Research notes.

Growing investor interest in the market - particularly from Chinese solar energy developers and manufacturers, makes Thailand a promising country for solar energy. Thailand's ambitious renewable targets, the supportive policy environment and Chinese solar companies' aims to capitalise on emerging renewables markets in the wider Asian region support this view, Hayden says.

"We have previously stated in our analysis that Thailand is emerging as an attractive destination for renewable energy investment, as the government looks to reduce the country's reliance on gas-fired power generation and incorporate other sources into the power mix, including renewable energy. According to the new power development plan (PDP) 2015-36, the country will look to reduce its dependence on gas-power generation from the current level of 70% to 40% by 2036, with an estimated 20% coming from renewable sources," she says.

Hayden says the increasing attractiveness of the Thai renewables market is reflected in the growing investor interest in the market - particularly from Chinese solar energy developers and manufacturers. Project announcements over the last three months attest to this view, with Hong Kong-based Symbior Solar announcing in August 2015 that it will develop three new solar projects in Thailand (in conjunction with German company,Conergy), adding to SymbiorSolar's capacity portfolio of six solar facilities with a combined capacity of 30MW across Thailand. Furthermore, in June 2015, Chinese panel manufacturer,Suntech Power, signed a deal with Thai company,Gunkul Engineering, to supply components for 63MW of solar capacity in the country. According to the company, Suntech has already supplied about 260MW of panel capacity to Thai solar projects.

"Our renewables projects database also highlights China's growing presence in the Thai renewables industry. Out of the total number of projects in the pipeline (in various stages of development), 14% involve Chinese manufacturers or developers, the second highest percentage after domestic Thai companies," she says.

Besides the supportive policy and regulatory environment and the government's strong commitment to power-mix diversification, Hayden says Chinesecompanies are targeting the Thai solar sector in order to offset the restrictions that have resulted from the ongoing trade disputes between China and the United States and the European Union.

Both the European Commission and US International Trade Commission have implemented anti-dumping duties and tariffs on Chinese solar products to help support their domestic solar manufacturing industries, limiting the demand for Chinese panels in these markets.

Therefore, Chinese solar companies are increasingly focussed on capitalising on emerging renewables markets in the wider Asian region, of which Thailand is an attractive choice, she says.

Solar energy's shining times in India dimmed by power reliability woes (2/3)

Even commercial feasibility is still haunting the country.

In Asian Power's special report on the region's solar power capacities and challenge, it was revealed that China, India and Thailand move to increase the role of solar power into their countries’ energy mix.

As the slow shift to renewable energy gains traction worldwide, Asian countries have taken the opportunity to invest in solar energy with a view to including it in their long-term energy mix. China’s operators are in a hurry to create new solar power plants, but the government is lagging in delivering the incentives it promised.

We now shift the focus to India. With a dedicated agency, India is poised to become a global force in the solar power industry. But what most deem as a solar power paradise could also be every investor's nightmare.

McKinsey and Company says with one of the world's highest solar intensities and low cost manufacturing, India has the potential to become a global force in solar energy.

"An emerging regulatory regime and high peak prices make this opportunity real and attractive," McKinsey says.

Since 2010, with the establishment of the Jawaharlal Nehru National Solar Mission (JNNSM), the solar power sector in India has been making significant strides in recent years.

"What excites and sometimes overwhelms the industry is the ambitious revision of solar targets by the new government," says MadhavanNampoothiri, of RESolve Energy Consultants.

The government is proposing a five-fold increase in the JNNSM targets and is planning to revise it from 20 GW of grid-connected solar to 100 GW by 2022 or even earlier.

"Considering the fact that it took India about five years to add 3 GW, adding another 97 GW in eight years looks extremely challenging," Nampoothiri says.

In a report for the Confederation of Indian Industry, Deloitte notes that installed capacity of solar power in the country has grown from a meagre 14 MW in 2010 to 3,744 MW by March 2015, increasing more than 265 times in a span of five years.

In its Global Trends in Renewable Energy Investment 2015 report, the Frankfurt School-United Nations Environment Programme Collaborating Centre for Climate and Sustainable Energy Finance says solar was the only sector to see investment grow in India in 2014, with financing doubling to $3 billion. Unlike those in 2013, the capacity auctions last year were fully subscribed, suggesting investor confidence has risen. India now has over 3 GW of solar capacity installed, including 204 MW of solar thermal. The government also announced ambitious targets last year: for 100 GW of solar capacity by 2022 and 40GW of new wind installations by 2019.

"Since its launch, the programmehas received encouraging market response. Solar power is one of the fastest growing renewable energy technologies and within a relatively short period of five years there has been steep fall (more than 60 percent) in solar PV capital cost and tariff," Deloitte says.

One of the objectives of JNNSM was to attain global leadership in solar manufacturing across the value chain by developing leading edge solar technologies. To this effect, the Ministry of New and Renewable Energy has raised budgetary support for research and development in the government's five-year plan. The country’s manufacturing capacity for solar goods and equipment has grown over the years, with a base of 52 PV module manufacturers as of June 2014.

The solar engineering procurement and construction segment too has grown in the country with most of the module manufacturers expanding their role across the value. Solar manufacturing is also poised for opportunities with the launch of “Make in India Program” which aims to facilitate investment and build best in manufacturing capabilities in the country, Deloitte notes. The mission, apart from promoting utility scale projects has also provided the impetus for the proliferation of solar power through rooftop solar projects.

"Apart from several state governments initiating separate programmes for rooftop solar development, the segment is also receiving the interest of commercial and industrial players," Deloitte says.

Against the background of increasing costs of conventional power, concerns regarding availability and reliability of power from grid and long term commercial feasibility of solar power, commercial and industrial consumers are installing rooftop solar technology to meet their captive needs. Investing in solar power is also helping companies meet their corporate social responsibility initiative along with long term commercial gains, Deloitte says.

Considering the cost and environmental advantages of large scale solar parks, MNRE has proposed a scheme for development of Solar Parks and Ultra Mega Solar power projects in the country. Inspired by the success of Charanka Solar Park in Gujarat, other states have also initiated development of large scale solar parks in the country.

"Favourable state level policies, feed-in-tariff regimes, viability gap funding mechanisms, capital subsidies, progressive net-metering arrangements and solar specific renewable obligations have created a supportive environment for development of solar power in the country," Deloitte says.

Here comes the sun: Asian countries turn to solar for long-term energy mix (1/3)

Why are Chinese firms rushing to go solar asap?

As the slow shift to renewable energy gains traction worldwide, Asian countries have taken the opportunity to invest in solar energy with a view to including it in their long-term energy mix. This sector report examines three Asian countries' ventures in going solar-- China, India and Thailand move to increase the role of solar power into their countries’ energy mix. China’s operators are in a hurry to create new solar power plants, but the government is lagging in delivering the incentives it promised.

China: A fragmented gold rush

In what appears to be a continued momentum in the installation of solar energy projects in the country, China's energy companies are in a rush to maximise benefits provided under the current system.

In May 2015, China’s State Council outlined in an official notification how its domestic manufacturing industry will pursue opportunities abroad through international cooperation. Frank Haugwitz of the Asia Europe Clean Energy (Solar) Advisory Co. Ltd. says drivers are an increasing assertiveness being able to compete outside of China and the demand for infrastructure projects, sustained industrialisation and urbanisation in both developing and emerging economies. Identified key industries consist of, among others, steel, railway, chemicals, automobile, aerospace, communication, shipping and electric power. The latter explicitly covers thermal, hydro, wind and solar photovoltaic (PV) system.

"The State Council’s notification stipulates further to actively participate in the investment, construction and operation of PV projects, as well to strive for establishing manufacturing capacities in relevant countries. In this context, national companies considered internationally competitive will take the lead first, in order to encourage small and medium size companies to follow at a later stage, with the aim to cover the entire industrial value chain. By 2020, a batch of global manufacturing bases in various countries will be established," Haugwitz says.

Potential entry points for setting up such “bases” are designated special economic trade and industrial zones in relevant host countries, offering favourable investment environments and strong local demand. To facilitate such global ambitions, China’s policy banks such as the China Development Bank, Import‐Export Bank, China’s Sovereign Fund, the China Investment Corporation, among others, are encouraged to offer active support. During the visit of the Indian Prime Minister,Nahrenda Modi to China in mid-May, multiple memoranda of agreement between Chinese and Indian solar companies were signed.

Haugwitz adds that China’s target of installing 17.8 gigawatts makes 2015 a truly ambitious year. If successful, by the end of 2015, China could be home to approximately 45 GW of total installed solar PV, which would represent roughly 3 percent of the total existing power generation capacities.

Sky is the limit for installations

Data from the National Energy Administration (NEA) show that the first quarter of 2015 has already witnessed impressive high level installations amounting to 5.04 GW of what seems to be roll-over projects from the last quarter of 2014.

Analyst Charles Yont of CLSA says, as of now, there is a gold rush as operators race to lock in high tariffs that are not likely to be around forever. Haugwitz says overall, NEA’s exceedingly ambitious target of 17.8 GW has so far been met with an equally bullish demand for projects. Solar development in China appears to be gaining momentum, thanks to the greater flexibility afforded to developers, access to finance and permits, says Joseph Fong of Jefferies.

"Distributed generation does not appear to be ready to drive solar growth but developers can more aggressively build utility projects as the government has not set a hard target for distribution generation this year," Fong says.

Yont says China's solar energy sector is a very fragmented space with no clear leaders, especially in distributed generation, which is at the centre of long-term disruption. He adds that aside from the ability to procure projects and capital, there are not many clear differentiating factors for Chinese solar operators.

"At the same time, the gold rush atmosphere has naturally led to a plethora of bad projects that are difficult to identify without going all the way down to theproject level for due diligence. Over the coming years, management teams that prove they are able to differentiate the good from the bad will earn a premium from the market," Yont says.

Challenges stil lurk

The biggest current challenge facing every solar operator in China is that subsidies are not being paid on time, or at all. Yont says that projects connected to the grid with full approval since the start of 2014 have not yet managed to get on the registry to receive subsidy payments.

"This means that solar operators are currently only receiving the equivalent of the coal-fired tariff from the grid company on a monthly basis, with just 30-40% of total revenue booked," Yont says.

Although there is little doubt as to whether these accounts receivable will eventually be paid, there is equally little certainty about when they will be paid.

The renewable energy fund which disperses these payments appears to be running low. If a previous delay in wind subsidy is anything to go by, the solar registry should start clearing up as the renewable energy fund is topped up. Until then, cash flow for operators will be a significant concern, Yont says.

"Like most markets, China’s solar demand is dependent upon subsidies today and will remain so for the next couple years. Ultimately, if the economics do work, then policy changes will only be road bumps (albeit potentially very big ones) rather than catastrophic. The economics work," he says.

Will nuke remain an option for many Asian countries despite safety concerns?

Japan's nuke dependence will definitely shrink.

In the first installment of the four-part sector report, analysts discussed he status of the Asian appetite for nuke years after the Fukushima tragedy. Many countries are discouraging coal generation through increasingly stringent regulations due to environmental concerns about CO2 and other emissions. Natural gas is a limited resource that is expensive to transport in many regions. It also has alternative uses such as chemicals production.

"This means nuclear has to be in the mix for the future of Asia and the appetite for Asian countries for nuclear will be high. In fact, Asia is and will continue to be the fastest growing nuclear market globally. This trend will likely accelerate. Asia, itself will become the hub of the nuclear supply chain and state-of-the-art technology," William S. Linton, Principal & CEO Linton Consulting said. Now analysts speak about nuclear power sticking around as an option for countries in the region despite very obvious and looming safety threats.

William S. Linton, Principal & CEO Linton Consulting: As noted above, I believe that many countries in the region will continue to keep nuclear power as a serious option for the long term. China will remain the leading growth country with more than 50% of all new nuclear construction in Asia in the coming 15 years.

Japan’s reliance on nuclear power will diminish, but it will not completely turn its back on nuclear either. Taiwan remains an open question, but it will be very difficult for an island with few resources to replace the steady, low cost energy supply that its six operating reactors provide. Other countries, like South Korea, India, and Pakistan will continue to expand their use of nuclear power as well, and new countries like Vietnam, Indonesia, and Malaysia are also quite likely by 2030.

Dr Jonathan Cobb, Senior Communication Manager, World Nuclear Association: New nuclear build in the region will utilise modern reactor designs that have been developed with robust safety systems. Nevertheless, it is understandable that people still do have concerns about nuclear power. Better communication is needed with the public, particularly local communities. There needs to be a better dialogue and more information provided to allow people to reach more informed judgements on the use of nuclear energy.

How is Asian appetite for nuclear power four years after the Fukushima tragedy?

Growth has remarkably slowed down.

When a powerful earthquake shook Japan in 2011 and heavily damaged the nuclear reactors at Fukushima—resulting in a nuclear meltdown that cost billions of dollars, both in human life and in property—the aftermath for the nuclear industry was bleak.

The Fukushima Daiichi nuclear accident cast a troubling shadow over many nuclear programmes in the region, in one way or another. Growth, while still consistent, has now slackened.

Asian Power asked analysts their thoughts on this pressing issue, and in the first installment of this four-part article series, they share the status of the Asian appetite for nuke years after the Fukushima tragedy.

William S. Linton, Principal & CEO Linton Consulting: Asian populations and economies are the fastest growing globally. This growth has required and will continue to require more electricity generation. Of course, there are only so many ways to generate significant amounts of electric power.

The big 3 are coal, natural gas, and nuclear. Some countries with favorable climate and typography circumstances generate significant amounts of electricity through hydropower. The growing popularity of wind and solar is being driven mostly by the desire to minimize environmental impacts.

These sources will not by themselves produce sufficient and stable amounts of power to meet the needs of dynamically growing economies.

Diversification of generation and fuels is vitally important to assure a stable long term supply. This means balancing the generation mix between the major sources of coal, natural gas and nuclear.

Many countries are discouraging coal generation through increasingly stringent regulations due to environmental concerns about CO2 and other emissions. Natural gas is a limited resource that is expensive to transport in many regions. It also has alternative uses such as chemicals production.

This means nuclear has to be in the mix for the future of Asia and the appetite for Asian countries for nuclear will be high. In fact, Asia is and will continue to be the fastest growing nuclear market globally. This trend will likely accelerate. Asia, itself will become the hub of the nuclear supply chain and state-of-the-art technology.

Jonathan Hinze, Senior Vice President, International, The Ux Consulting Company, LLC: In general, there is still a lot of interest in nuclear power in Asia despite the negative impacts from Fukushima. However, we have seen a marked reduction in the pace of growth after Fukushima.

For example, China was building 8-10 new reactors each year until Fukushima happened, and we have only seen 9 total construction starts since then (4 in 2012, 2 in 2013, and 2 so far in 2015). As the fastest growing nuclear power nation in Asia, China’s slowdown after Fukushima is a very big factor.

It could be argued that the “time-out” in China to re-evaluate and improve its nuclear safety regulations was a very positive outcome from the Fukushima accident, but it also definitely has reduced the outlook for near term growth. For example, people were thinking that China could reach close to 80 GWe in nuclear capacity by 2020 before Fukushima happened, but we now expect only about 50 GWe to be online by the end of 2020.

Other countries have obviously also been affected. As the most advanced nation in Asia, Japan’s shift in energy policy and expected reduction in reliance on nuclear power over the long term is clearly something that many others are watching closely.

While Japan was unlikely to expand nuclear power all that much before Fukushima happened, it is now likely to only have around 25 GWe in capacity through 2030 compared with nearly 50 GWe before the accident.

Some others have also turned their back on nuclear. Taiwan is going through a major political debate on the issue, but it appears quite possible that a new law will be passed that will phase out all nuclear plants by 2025. Both the Philippines and Singapore had serious plans prior to Fukushima to start nuclear power programs, but these have been indefinitely postponed now.

At the same time, a number of countries are still pursuing expansions or new programs. South Korea has reduced its plans slightly, but it is still looking to add another 10 units over the coming 15 years to the 24 that are already operating. India is also expanding quickly, and it could see a fourfold increase of nuclear capacity by 2030.

Pakistan is also building more reactors with the help of China. Vietnam remains committed to a new nuclear program, although it has delayed these by at least 5 years.

Indonesia, Malaysia, Thailand, and Kazakhstan are also continuing to seriously evaluate the nuclear power option, although concrete plans for commercial reactors are yet to be announced.

Dr Jonathan Cobb, Senior Communication Manager, World Nuclear Association: There is strong support for the use of nuclear energy in Asia. Across the world only a handful of countries changed their energy policy negatively on nuclear energy after the Fukushima accident.

Governments, regulators and the nuclear industry have examined what caused the accident at Fukushima and are implementing changes in response to what has been learnt.

China is leading the deployment of nuclear energy generation, with India and South Korea also making major strides. These countries want nuclear energy to play a major part in their generation mixes because it helps reduce air pollution today, avoids greenhouse gas emissions and provides a reliable and secure electricity supply.

And other countries in the region such as Indonesia, Philippines, Vietnam, Singapore, Thailand, Bangladesh and Malaysia are looking at the possibility of introducing nuclear energy into their electricity supply mixes.