Asia Pacific is the biggest market for renewable investment, but in some cases, politics is getting in the way. Finbarr Bermingham looks at the solar prospects throughout the region.
July 2015 marked the climax of former Australian prime minister Tony Abbott’s war on renewable energy. The climate lobby looked on aghast as the then-Liberal leader banned the government’s Clean Energy Finance Corporation (CEFC) from financing wind power and household solar, within days of each other. The move, his cabinet explained, was designed to stimulate growth in less established technologies. But critics warned it would stifle investment in Australian renewable energy.
Two months later, Abbott was gone: ousted as prime minister by Malcolm Turnbull, who has a “more progressive” stance towards climate change, but the damage done was clear to those in the sector.
“It’s created so much uncertainty for the industry here,” Glen Warwick, an energy and infrastructure partner at law firm Clyde & Co, tells GTR. “The implications went well beyond the direct impact of investment dollars being pulled out of the market, it was the general uncertainty that had a massive impact. Our clients were saying there was too much political risk associated with investing in renewables in Australia. It really killed off the industry here.”
From afar, the decision still seems baffling. Of the world’s top 20 carbon emitters, Australia is the worst culprit per capita. In the likes of the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Australian Renewable Energy Agency (Arena) it has organisations whose work is admired throughout the Asia Pacific region, yet in a series of funding culls, its government seemed determined to halt efforts aimed at rectifying its abject emissions figures.
The effective hamstringing of the A$10bn CEFC led to a host of international companies packing up their Australian operations to move to countries with more favourable approaches to the sector. And while the Turnbull administration’s rhetoric has been more positive, it will take some work to persuade companies, banks and investors that Australia’s renewable energy sector
is a good place to put their money.
“The last two years have been very hard. We’ve lost a lot of good companies to the likes of South Africa and Brazil, but that’s the politics: it’s ridiculous. We got rid of Tony Abbott, which everyone was very happy with. We haven’t changed government yet but it’s slowly coming back to a more sensible place,” says John O’Brien, the managing director of Australian CleanTech, a company that supports Australian cleantech companies at home and abroad, and which attempts to bring international investment into
The scrapping of the CEFC is still official, but the Turnbull government’s wait-and-see policy has demonstrated the potential it has to attract investment, despite the continued uncertainty. In December, it led the lenders on an A$267mn debt deal for the Ararat Wind Farm in Victoria. The consortium also included Sumitomo Mitsui Banking Corporation (SMBC) and Canada’s export credit agency, Export Development Canada (EDC).
Away from straight renewable energy projects, a CEFC spokesperson tells GTR that it has programmes with the National Australia Bank and Commonwealth Bank of Australia to support energy-efficient lending and that it has worked with banks to set up a climate bond and to establish a clean energy infrastructure fund. The investment will be needed if Australia is to hit its target of producing 20% of its energy from renewable sources by 2020.
According to research from Ernst & Young, meeting the target will cost upwards of A$10bn, much of which is expected to come from private project finance and pension fund investment. “We’re into 2016, so it’s going to have to happen pretty quickly,” O’Brien says.
The clock is ticking Down Under, and across the rest of Asia Pacific. Given the relatively developed nature of the Australian economy, it should arguably be leading the field in regional renewable investment, but this is far from the case. As we’ll see, far more ambitious plans are afoot across the eastern hemisphere.
Rising in the east
Asia is the largest market in the world for solar investment. 78% of this comes from China and Japan. In the case of the latter, the huge investment in renewable energy kicked off after the Fukushima nuclear disaster in March 2011, which saw Japan pledge to close down all of its nuclear reactors. In the case of China, the government’s commitment to solar is large and is very real, but is partly rooted in another externality: a trade dispute with the European Union that dates back to the last decade, when China became a powerhouse of solar technology manufacturing.
By 2011, it was exporting €21bn-worth of panels to the EU, which imposed anti-dumping levies on China two years later, alleging that they were unfairly undercutting their European rivals. This led to a trade stand-off in which the Chinese government slapped huge levies on the import of European wines, but also meant that China needed to do something with the glut of solar panels it was left with. This matter was only compounded by the eurozone crisis, which hit demand for solar technology on one of the largest consumer markets.
“A few years ago the European market collapsed and the government created its own subsidy for domestic installation, mainly to support its manufacturing base. All these producers were churning out panels but had nowhere to sell them: they were in danger of going bankrupt because the EU market had stalled. So the Chinese government introduced a feed-in tariff to allow them to sell to the domestic market,” Ash Sharma, senior research director in IHS’ technology department, tells GTR.
The country’s renewable energy drive stepped up last year when it announced the creation of a carbon trading market in September, which will see a price set on greenhouse gas emissions by 2017. Chinese officials have targeted 2030 as the year it reaches its emissions peak, and its move away from coal has hit commodity markets across Southeast Asia, but primarily Indonesia, which produces a cheap form of coal that China is attempting to phase out in its industries.
For banks and cleantech companies, opportunities in China are plentiful. Like their European peers, Australian companies will never be able to compete with Chinese manufacturers on scale, but can offer more on the innovation front.
Last year, RayGen – a Melbourne-based solar start-up – signed a deal with China Three Gorges, a state-owned renewables giant, to provide concentrating solar PV technology for large-scale solar projects. The deal is predicted to deliver around A$1bn in sales for the company.
“It’s smart technology: they make 3% of the stuff, but provide 33% of the value,” O’Brien tells GTR. “That’s advanced manufacturing and it’s where expensive countries like Australia can find our niche. It’s 30 people, exporting a very small component, but it’s a very expensive component.”
The story is the same across Asia, where Chinese technology will provide the backbone of projects for the foreseeable future. Last year, Tebian Electric of China turned swathes of desert wasteland into the 300MW Quaid-eAzam solar power park in Pakistan, at a cost of US$131mn. Chinese manufacturers are expected to be heavily involved in plans in Thailand, which is aiming to provide 25% of its energy needs from renewable resources by 2021; Malaysia, which targets 11% by 2020; and the Philippines, where the government wants to triple renewable energy usage to 15GW by 2030. In India, the government plans to add up to 100GW to the grid by 2030, with one-quarter of this to come from renewable energy.
And while once more it will be tough for western companies to compete on the nuts and bolts, they are already sounding out opportunities for project development, finance and technology. In Mumbai in February, US Exim chairman Fred Hochberg was on a mission to secure US involvement in the country’s ambitious projects, telling GTR that “there are a number of conversations going on in the solar, renewable and nuclear space”.
While there is always the fear that unbinding targets can be easily cast aside, that renewable energy will continue to be at the whim of politics and that it will be always heavily subsidised, optimism springs eternal. Since 2011, the cost of capex in the solar sector has halved, while panel efficiencies go up a few percentage points every year. Meanwhile, with millions of Asians living off the grid, the quest for connectivity continues apace. In many cases, small-scale solar projects are more productive than large traditional projects.
China’s huge expenditure plans for Asia will include plenty of renewables projects, as demonstrated by the Pakistani deal last year. But there will be ample opportunities for the international market. Perhaps the pursuit for light in Asia can help counter the dark days in markets such as Australia.