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ISSUE 80 | DISPLAY TO 30 APRIL 2017 | www.asian-power.com | A Charlton Media Group publication

US$360P.A.

COAL-FOCUSSED

GBPC FINALLY FORAYS

INTO RENEWABLES GLOBAL BUSINESS POWER CORPORATION’S CEO ROLANDO BACANI FIGHTS TO KEEP UP WITH THE PHILIPPINES’ RENEWABLES RACE

WHY INDONESIA IS HOLDING BACK ON GEOTHERMAL VIETNAM’S RENEWABLE SECTOR CRIES FOUL ON LOW SUBSIDIES CHINA MAY BE DOING SOLAR WRONGLY THE PHILIPPINES IS IGNORING RE POLICY POTHOLES

2017 MICA(P) 248/07/2011

1 ASIAN POWER

Asian Power Utility Forum


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FROM THE EDITOR For our March to April issue, we delved into renewables headwinds Asian countries are facing. For instance, in Vietnam, the renewable energy sector is crying foul as subsidies are deemed too low and return on investments are uncertain. Indonesia is also in the renewables spotlight as it keeps on holding back its massive geothermal potential despite hefty investments.

Publisher & EDITOR-IN-CHIEF Tim Charlton production editor Karen Lou Mesina Graphic Artist Elizabeth Indoy

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In our country reports, we focussed on China and the Philippines. When China recently announced that it will spend $360b over the next four years to build up its renewable energy sector, the country was making a bold statement pinning the majority of its economic hopes on the growth of this burgeoning sector. Will this latest push for renewable energy investment give China less competition given that the U.S. is signalling a shift away from renewables? Meanwhile, in the Philippines, the country has started rallying behind renewable energy, with projects and investors lining up in response, but there are still major hurdles preventing the sector from truly taking off. Coal-fired power generation continues to be a preferred solution to the country’s energy needs, which are driven by strong economic growth, but the boons of renewable energy are becoming harder to ignore. The 2017 Asian Power Utility Forum has also kicked off its Manila leg, and we have included an event coverage to fill you in on what’s been discussed. We also interviewed the Philippines-based IPP Global Business Power Corporation’s CEO Rolando Bacani as he discusses the company’s upcoming plants and planned venture into renewables. GBPC is making a foray into new projects in the Philippines after dominating the Visayan region for a long time. Start flipping the pages and enjoy!

Tim Charlton

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ASIAN POWER 1


CONTENTs

12

CEO INterview Coal-focussed GBPC forays into renewables

FIRST 06 Why Indonesia is holding back on geothermal 07 Vietnam’s renewables sector cries foul on low subsidies 08 Will thermal fill Taiwan’s gaping hole?

14

COUNTRY REPORT: China CHINA IS DEAD SERIOUS ON GREENER ENERGY MIX

20

COUNTRY REPORT: Philippines The Philippines is ignoring RE policy potholes

ANALYSIS 22 Asia’s increased investment sentiment drives total yearly deal value to US$41b

28 Natural gas generation is displacing diesel in India

10 Indian coal-fired power utilities feel the heat as import coal loses market share

OPINION 30 China aims to increase LNG utilisation 32 Renewable energy outlook for the Year of the Fire Rooster

Published Bi-monthly on the Second week of the Month by Charlton Media Group 101 Cecil St. #17-09 Tong Eng Building Singapore 069533

ASIAN POWER UTILITY FORUM: MANILA 26 Is the Philippines going through a nightmare on its road to long-term power supply?

For the latest news on Asian power and energy, visit the website

www.asian-power.com


News from asian-power.com Daily news from Asia most read

REGULATION

Project bankability in limbo amidst Indonesia’s new PPA model The Ministry of Energy and Mineral Resources issued Regulation No. 10/2017 on Principles of Power Purchase Agreements (“MEMR Reg. 10”), which, for the first time in any material way, seeks to impose certain requirements as to what provisions must be built into PPAs in the power sector, according to Baker McKenzie.

POWER UTILITY

Desperate Jindal Steel and Power mulls over selling 2,400MW plant It was reported that Jindal Steel & Power Ltd., seeking to cut debt after eight straight quarters of losses, is in talks with companies including billionaire Gautam Adani’s Adani Power about selling a 2,400MW Indian electricity plant.

POWER UTILITY, REGULATION

Why this is the era of Chinese EPCs in the power industry When Chinese company Xidian Holdings, together with a Singaporebased consortium, signed a deal to invest $500 million to build a 232 megawatt (MW) wind and solar project in the Philippines, the next question was whether a Chinese engineering, procurement, and construction (EPC) contract will be attached to the project.

POWER UTILITY

Why the future of wind energy in Vietnam is predicted to be gloomy Vietnam’s regulatory environment for renewables remains underdeveloped and the wind subsidies that have been introduced by the government have been widely criticised for being too low and not ensuring an attractive return, according to BMI Research.

REGULATION

Indonesia is forcing renewable firms to compete with coal: analyst Regulation of Minister of Energy and Mineral Resources No. 12/2017 on the Utilisation of Renewable Energy Resources for Electricity Supply now sets out the tariff framework for the following types of renewable energy projects: solar PV, wind, hydropower, biomass, biogas, municipal waste, and geothermal.

PROJECT

Almost 5 in 10 O&G professionals in Singapore hunting for new projects New research by DNV GL has revealed that more oil and gas professionals in Singapore (46%) than globally (31%) are looking for new gas projects. 87% believe that gas will become an increasingly important component of the global energy mix.


REFRESHING LIFE WITH GREEN ENERGY

China Resources Power Holdings Co.,Ltd. (CR Power) was founded in August 2001. The Company is among the most efficient and profitable integrated energy companies in China. Its business covers thermal power, wind power, hydropower, photovoltaic power generation, distributed energy, coal mining and other areas. It also acts as a flagship company listed in Hong Kong for China Resources Holdings Co.,Ltd., which is one of the largest state-owned conglomerates in China and a Fortune 500 company. CR Power was listed on the Main Board of the Hong Kong Stock Exchange on November 12, 2003. On June 8, 2009, the Company formally became one of

the constituent stocks of the Hang Seng Index in the Hong Kong Stock Exchange. As at 30 June 2016, CR Power’s total assets amounted to HK$200.2 billion and operational installed capacity amounted to 44,379MW, covering 21 provinces, municipalities and autonomous regions in China. Since listing in 2003, CR Power has grown more than 22 times in terms of attributable operational installed capacity and its total assets, total revenue and operating profit has grown at a twelve-year CAGR of approximately 25%, 51% and 56%, respectively. Since its establishment, CR Power has been a strategy-driven enterprise and

saw a fast and solid development in the past decade due to its clear strategy and efficient execution. In the next five years, CR Power is going to focus on green energy development, greatly enhance the mix of clean energy, selectively develop highquality thermal power and actively plan to enter the power wholesale market in China. CR Power places a high degree of importance in fulfilling its CSR pursuits and committing to upholding its long-term sustainable values. CR Power will continue to work hard towards realizing its ultimate goal of positioning the Company as an excellent and sustainable, international energy company, so as to create a “Refreshing Life with Green Energy”.

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FIRST in the private sector are unwilling to invest in exploratory drilling programs without attractive feed-in tariffs to compensate for upfront risk.

COAL DEPENDENCE PHILIPPINES

Dasve Maslin, OWL Energy

The Philippines is at a cross-road: the new Duterte administration is a believer of coal-fired power generation, but the new energy agency is more inclined towards renewables. Asian Power spoke to Dave Maslin, country manager for OWL Energy, and he discussed the way to go for the Philippine power market. How do you see the local market in the next three to five years? I think it’s fantastic that the environment ministry are actually doing something about making sure that the Philippines are complying with international standards and practices. It is interesting that many agencies and multilaterals and funding bodies will not fund coal plants whereas the Philippines are quite heavily building coal plants. So anyone that says that the environment regulations here are stopping development are certainly misguided. What the environment ministry is doing is applying the controls and stringent management of what should happen in the interest of the Philippines’ people and the Philippines’ economy and that’s only going to be good for the long-term future. What is the future of coal-fired power generation? Coal-fired as a base load is essential in the Philippines. The indigenous gas is limited, but I can see large-scale regassification of LNG being part of the future. There’s also further development in hydropower but we would see very interesting shifts in pump storage in particular with two major schemes being developed in Luzon and that’s going to be feeding into the energy mix with the large base load coal plants having to rely on pump storage to take the overnight load, and the solar plants mixing in there. We’ll get some additional biomass, we’ll probably get small hydropower coming, although that seems to be tied up in a lot of legislative hurdles at the moment. But they will be slowly overcome when appropriate, where appropriate , for the national economy. 6 ASIAN POWER

Increased tariffs, heightened scare

Poor policies hamper Indonesia’s geothermal

W INDONESIA

hilst Indonesia possesses around 40% of the world’s geothermal reserves, development has not accelerated to full gear due to insufficient incentives to make the high exploration risks worth taking. The government has been offering incentives, but analysts say these are still not attractive enough for main developers. Regulatory and administrative hiccups further deter developers from undertaking projects, which could end up creating setbacks for the country’s commitment to reduce carbon emissions by 29% by 2030. “Recognising the potential, the Indonesian government has introduced various incentives to try to encourage development. If the relevant public authorities made full use of such incentives and implemented them consistently in a way that mitigated key private sector risks, they could make a real difference,” says Marius Toime, partner at Berwin Leighton Paisner. “However, political and bureaucratic tensions often get in the way of effective administration, and sponsors may be discouraged by exploration risks, complex regulations and inadequate feed-in tariffs.” Geothermal project developers must undertake significant capital outlays for exploration without a guarantee of profitable return, which is why many

Marius Toime

Permits scare investors away Kaushik Das, senior partner at McKinsey & Company, reckons geothermal energy is already competitive in several regions, but increased tariffs for geothermal and accelerating the issuance of licenses and permits will further incentivise upstream producers to invest. Sweetening the deal for renewables investors will critical for the country to tap into its large geothermal potential, reaching an estimated 27GW. Currently, installed capacity is only at approximately 1GW. Das reckons that even if Indonesia’s planned fuel mix is designed to achieve leastcost production by maximising the percentage of coal and gas in the fuel mix, there is an opportunity to increase the contribution of renewables. Despite these issues, landmark geothermal projects are popping up in Indonesia such as the Muara Laboh geothermal project, a high-temperature geothermal power generation plant. With commissioning planned in 2019, the project’s first phase will generate 80MW of emission-free electricity, roughly the same amount of energy consumed by 120,000 households. The project will also provide employment to 1,200 people and support local businesses during the 30-month construction period set to begin this year in the Solok Selatan region in West Sumatra province. Aside from geothermal, development for other renewables are bumpy. Biomass, while promising, will require more advanced technological expertise to become economically viable. Das reckons solar, along with other renewables, is not yet competitive at scale and unripe to achieve grid parity.

Geothermal projects by tariff status

Source: Asian Development Bank


FIRST

Đang Đình Thong

Georgina Hayden

Regulatory environment is still underdeveloped with low subsidies

Vietnam’s renewables sector cries foul on low subsidies

I

VIETNAM

f Vietnam continues with its current energy policies, then non-hydro renewables capacity will likely just double over the next decade. Moreover, maintaining the low subsidies for wind power development will prevent the sector from reaching its full potential despite rich resources and keen investor interest. Georgina Hayden, head of power & renewables at BMI Research, expects non-hydro renewables capacity to increase from just under 40MW in 2016 to just over 850MW by 2026, resulting in non-hydro renewables contributing less than 1% to the total electricity generation in the country by the end of

the forecast period in 2026. By contrast, thermal fuels, particularly coal-fired power generation, should see strong growth over the same period. Coal is still priority Hayden reckons this unimpressive performance and projections for wind and other renewable energy sources can be attributed to low subsidies and higher government priority on coal. “Vietnam’s regulatory environment for renewables remains underdeveloped and the wind subsidies that have been introduced by the government have been widely criticised for being too low and not ensuring an attractive return on

investment,” says Hayden. She believes that when the tariff was first introduced in 2011, investor interest in the market picked up, with the government registering 48 wind power projects for development. However, by the end of 2014, only three projects had been commissioned. Đặng Đình Thống, deputy director of the Institute for Clean Energy, adds that the cost Vietnam offers is not attractive enough. “Our policy for solar energy development is varied from locality to locality. This has hindered potential investors. I recently conducted a survey and realised that quite a few investors who have already invested in solar energy production have faced difficulties from investment preparation to electric power EVN sales due to bureaucratic practices from different Vietnamese administrative echelons.” He admits that Vietnamese officials’ renewable energy project appraisal capacity is limited. “Their knowledge about renewable energy is very poor. This is a key problem leading to the slow project proposal approval. In some cases, it led to ‘wrong decisions’ making the projects less efficient,” he says.

Renewables to make limited contribution

Source: BMI Research

the chartist: ASIA WILL BE KING OF RENEWABLES in the next decade Asia is dominating the headlines when it comes to renewable energy, and it’s for a good reason. It will drive global renewables expansion over the coming decade, as environmental policy implementation, the increasing cost-competitiveness of renewable energy and advances in green technology encourage deployment across countries in the region, according to BMI Research. It will be the largest region for installed renewables capacity over the coming 10 years to 45% of the total, overtaking North America and Western Europe. The growing cost-competitiveness of wind and solar with conventional power sources, due to falling installation costs, is an important driving force behind this. In Asia, this dynamic is exacerbated by close proximity and access to low-cost Chinese renewable energy components.

India’s renewable expansion underway

Source: BMI Research

Asia gaining ground

Source: BMI Research

ASIAN POWER 7


FIRST

Will thermal fill Taiwan’s gaping hole?

RETAIL COMPETITION

Nuclear gradually phasing out

PHILIPPINES

W

ASIA

hen the Taiwanese government decided to yield to public protest to stop nuclear power generation, it gave itself until 2025 to find a way to boost the combined share of wind and solar power to 20% and effectively offset the loss of nuclear power. But thermal energy just might end up filling the void following Taiwan’s planned nuclear phase-out. Tim Ferry, associate editor at American Chamber of Commerce in Taiwan, reckons the loss of four out of Taiwan’s six nuclear reactors — which were stopped and not restarted due to heavy opposition — would leave a 9% hole in the country’s total power generation. Failures are on the trail Wind and solar power should gain strong momentum across the island in the wake of strong anti-nuclear power sentiment that pushed the government to halt nuclear power generation by 2025, but some analysts are less optimistic about the prospect of non-hydro renewables than they are about thermal energy. “The government has outlined ambitious expansion targets for the solar sector,” says Georgina Hayden,

Janssen Dela Cruz, GBPC

Source: BMI Research

head of research at BMI Research. “However, the country’s track record of frequent changes to renewable energy policy and previous failures to meet sector expansion targets informs our relatively conservative renewables sector forecasts at present.” Thermal sources will grow in importance over the coming decade. Led by coal and liquefied natural gas (LNG), total thermal power output is expected by Hayden to grow by over 60% between 2015 and 2026. Thermal energy’s contribution to total electricity generation should also shoot up to over 95%. “The project pipelines for both coal and gas power plants have strengthened notably and totals a combined 11GW,” says Hayden. “The gradual commissioning of these facilities will result in Taiwan’s increased reliance on thermal imports, and coal and LNG demand will grow accordingly.”

Retail competition and open access (RCOA) scheme is the newest buzzword in the Philippine energy market. RCOA, if implemented, will provide consumers the freedom to choose their power providers. Janssen dela Cruz, vice president at Global Business Power Corp, talked about the implications of the new policy. What do you think are the biggest trends in the Philippine power sector? Right now, the retail competition open access is the largest trend that we’re seeing. It’s a shift away from just getting your power from the distribution utilities. I see a lot more of the industry players embracing this because it’s lowering their electricity costs and I see a lot lower electricity rates being thrown around in the bids, which is Electric Power Industry Reform Act (EPIRA) , and in its purest form. It’s beginning to lower the price of electricity for the consumers. It’s beginning to work and more competition is adding a lot more choices to the industry players. Tim Ferry

plant WATCH

Pertamina inks $1.8b gas-fired plant deal

Aboitiz backs out of geothermal project

Mytrah Energy’s 2000MW projects

PT Jawa Satu Power, a special purpose company sponsored by Marubeni Corporation, PT Pertamina (Persero) and Sojitz Corporation, entered into a long-term PPA with the Indonesian utility, PT PLN (Persero) for the sale of electricity for 25 years in respect of a project to construct, own and operate a 1,760MW gas-fired power plant and floating storage and regasification unit (FSRU) for electricity sales to PLN. The gas-fired power project costs about US$1.8b..

Amidst a string of deals signed almost consecutively, Aboitiz Power announced that it is making an exit from a power plant deal in Indonesia so it can focus more on its other on-going and pipeline projects. Its partner, PT Medco Power Indonesia, will be proceeding with the exploration and development of a potential 2x55MW geothermal power plant in Ijen, East Java Province. The agreement was signed in September 2015. These were disclosed via the Philippine Stock Exchange

Mytrah Energy has signed pacts for 2,000MW of reneable projects worth Rs13,000 crore in Andhra Pradesh. 1,000MW will be for wind and the other 1,000MW will be for solar power projects. The projects will be across Andhra Pradesh’s eight districts. Five of these will be assessed for wind power potential for the first time. Mytrah Energy is slated to become the state’s largest renewable IPP once all projects are commissioned. Mytrah Energy has hit 1GW of wind capacity in October 2016.

8 ASIAN POWER

What are the latest projects your company is working on? Right now, we have a coal power plant. It’s a 600 MW, 2x300 supercritical. It’s being developed in La Union. Additionally, the pump storage is something we’ve been looking at for a long time. But pump storage is not for the energy market. We’re trying to look at different storage systems for ancillary because what we’re seeing in the Visayas is a lot more solar and wind which is very intermittent, variable, renewable, so there’s a lot of generation already in the Visayas but very little in terms of reactive ancillary so that’s the sector we’re trying to look at right now. As for our capacity, we’re over 800GW right now, with the 600GW of course we’ll exceed it. We’re looking at another 100GW to 150GW for the renewables. We’re partnered with Roxas Holdings although this is something that was disclosed about a year ago. And now, thankfully, we’ve been able to submit our documentation for the 36-40 MW project for biomass. But we’re more looking into the biomass sector for renewables more than anything else because it’s an underserved sector. Solar and wind are already full but biomass is very location- and fuel-specific, so we’d like to put our expertise as power generators to maximise the sector.


Mytrah Energy inks deal for 2000MW renewables projects


FIRST

Indian coal-fired power utilities feel the heat as import coal loses market share

COAL VS RENEWABLES PHILIPPINES

INDIA

due to rapid energy and grid efficiency gains,” says Buckley. “Claims that India needs this new imported coal are not supported by facts: Indian coal imports fell at a record 25% year-on-year in December.”

W

hen Adani Power reported another net loss of US$48m in the three months through December 2016, the company was well on its way to racking up a fifth year of large losses, and has become a poster boy for the troubling times that have befallen the Indian coal-fired power sector. “The latest numbers highlight the strategic weakness of new import coal-fired power generation in the Indian market, where declining real wholesale electricity tariffs are increasingly the norm and import coal is losing market share to lower-cost domestic coal and ever more cost-competitive renewable energy sources,” says Tim Buckley, director of Energy Finance Studies, Institute for Energy Economics and Financial Analysis (IEEFA). The country’s falling power demand and capacity oversupply have made it harder for import coal-fired power players to make a profit. The government’s power policy making and monitoring body Central Electricity Authority has indicated that there will be no need for additional coal-based power generation from 2017 to 2022. Demand projection for coal-based capacity addition is at 44,085MW but India currently has coal-based capacity of 50,025MW already under construction. “Growth in electricity demand is falling below expectations

Coal imports are falling down, falling down Indian coal imports have been falling since its supposed peak in the mid-2015, says IEEFA, with record falls in the last couple of months of 2015. A permanent and rapid decline has been forecasted for Indian thermal coal imports, an abrupt turnaround from earlier industry forecasts that the country will experience sustained thermal coal import growth. Imported coal-fired power generation has also withered amid rising domestic Indian coal production. Previously constrained, domestic production has accelerated faster than expected through government support and infrastructure improvements. Energy security has also become a government priority to support the country’s rapid urbanisation and expanding manufacturing economy. In the face of such adverse operating conditions, players have seen their bottom lines wither and share prices plummet. But Adani Power remains hopeful it can weather the current storm, pointing out that during the third quarter of FY 2016-2017, it maintained high levels of plant availability factor and made improvements in operational efficiency. “We are navigating a challenging environment which is marked by non-availability of domestic fuel linkages, regulatory complexity, and lower power demand,” says Vneet Jaain, CEO at Adani Power. “These challenges are temporary deterrents which shall be resolved with intervention of key stakeholders and the company is hopeful of achieving its long-

Cynthia Hernandez, KPMG

The power market has become a game of survival of the greenest. Cynthia Hernandez, principal advisor at KPMG discusses the optimal mix for the Philippines. What’s the future of renewables in the next 3 to 5 years? The emphasis on renewables is actually a good thing. But how much do we need to really invest in renewables, given our current generation mix? Compared to most countries that really need to reduce their carbon output, I think the Philippines is actually doing well. In terms of energy policy, we need to focus on universal access, power quality and power cost, to improve our economic competitiveness. This is gong to boil down to what’s really an optimal mix for the country. The good thing is prices of renewables are dropping so steeply, and we should be taking advantage of that. But we shouldn’t really be sacrificing what’s practical and what’s good for the economy for an ideal power mix, and basically that’s really the question that the market should try to address.

Why China may be doing solar wrong When China recently completed a 200MW solar facility on top of a fish farm, analysts knew that the country is dead serious in being a renewables leader. This project spans 299.5 hectares and is expected to provide the energy needs of 100,000 homes. China started improving its solar capacity in 1999, and no one expected that solar installation would reach 42GW in just a decade and a half. But unless they shift from large-scale power plants towards distributed solar, the massive amounts of solar energy they produce may not reach the homes of their intended consumers. Only 16.6% of their solar energy is produced at, or near, the point where it is used. The rest is produced by big solar arrays that pose problems in transmission to Eastern China — along the coast — where electricity is most needed. China knows the answer “The advantage of distributed energy — and 10 ASIAN POWER

the Chinese government knows this — to its big power plant counterpart is that it is installed on buildings and in neighbourhoods, providing greater efficiency from being close to the consumption site and not losing electricity over long transmission distances. They are also smaller scale and, in theory, easier to finance,” says Winston K.H. Chow , head of China Country Program at Global Green Growth Institute. Mun Ho, a senior economist at Dale Jorgenson Associates, agrees that green growth should be incorporated into policy. “Although efforts have been substantial, they have not matched the scale and complexity of the pollution problem generated by rapid economic growth in China. They have started down this path of reform, but the scale of the prob­lems need greater efforts.”

Mun Ho

Shfting towards distributed solar


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We are also starting to venture out into more renewable energy projects. Our first project will most probably be located in Luzon and it’s going to be a biomass energy project.

Predee Daochai President Kasikornbank Engr. Rolando T. Bacani CEO Global Business Power Corporation


CEO INTERVIEW

Coal-focussed GBPC forays into renewables In a fight to keep up with the “bigger guys” of the Philippine power market, Global Business Power Corporation’s CEO Rolando T. Bacani shares the firm’s plans to start venturing into the renewables sector.

T

he Philippines under a new energy administration is under transition as coal-fired power generators are being pummeled with environment issues. Amidst the issues thrown at the sector, Global Business Power Corporation’s CEO Rolando T. Bacani stands up for the industry as he and his team aims to educate the public on cleaner options and technology for coal-fired power. Bacani joined GBPC in September 2015 and is responsible for the overall strategic and operational leadership of the company. Asian Power sat down with Bacani as he discussed company plans and targets. How long have you been in the industry and how long have you been with GBPC? How did your previous positions help you be the leader that you are? I’ve been in the industry for 42 years, 30 years in NAPOCOR, 5 years in TRANSCO, 6 and a half years in KEPCO Philippines, and now 18 months in Global Business Power Corporation. My productive life has been in the power industry. As the former general manager of the business development group of KEPCO Philippines, my responsibilities covered project prospecting, project technical assessment, market surveillance, environmental scanning, information gathering, and political sensing among others. I played a pivotal role in dealing with issues that affected KEPCO Philippine subsidiaries and in liaising with government officials and executives of private firms. I am currently the president and CEO of GBPC. I learned that if you are in systems operations, basically you have to know power transmission, distribution, and generation. You have to be all around, like a jack of all trades and master of none. This is why when I joined GBPC, given that I have experience with power transmission in NAPOCOR, I was very thankful that this happened as I am given the chance to make my power industry experience come full-circle. I have been known to be a troubleshooter when it comes to technical problems. I was one of the pioneers of systems operations in NAPOCOR. This is what I am really passionate about. With systems operations, you have a macro view of the power system and can immediately “see” the effect of your decisions. You’ll know that sound decisions were made when stable, reliable, and reasonably priced supply of electricity were made available for the benefit of the consuming public. The power industry really excites me. In business, I think that building strong relationships is the core. You have to make sure that relationship with stakeholders are great, if you have any, and even more so for your clients, your co-workers--it’s a matter of maintaining good relationships with people on all these segments. What are your top priorities for GBPC? Aside from the power plants that we’re about to put up, GBPC’s top priorities are operational excellence and safety implementation. For operational excellence, we engage the consultants to help us out in identifying those gaps in our operations and maintenance. These gaps are those that stem from GBPC being relatively young, we have yet to make sure that procedures are strongly established and strictly followed. We have yet to streamline all processes and probe where flaws are, so that operations are smooth and well-coordinated. This is tied up to our vision that by 2020, we are the leading and most efficient energy provider in the country, we will lead in terms of policies. This is why we prioritise operational excellence at GBPC. Secondly, we are also prioritising safety. While we are always talking about safety in our policies and operations, we want

to focus on stricter implementation most particularly among GBPC’s employees. We found out during our last project in the Panay Energy Development Corporation’s (PEDC) expansion to Unit 3, some of our contractors are disregarding safety rules and procedures. We then created a committee to look deeper into how we can make people more aware of the safety procedures and how to be more safety-conscious. We are coming up with several programs to make sure this happens. Among these programs is one wherein you’ll be given a “safety operations card” and you’ll be required to jot down safety issues you see around you. Lastly, we are prioritising integrated management and business continuity systems. GBPC is already ISO certified, and we eye on streamlining these and acquiring more accreditations. What are the biggest challenges GBPC is currently facing? There are many challenges facing GBP today, and these challenges are not unique to the company alone but to the industry in general. For one, the Retail Competition and Open Access (RCOA) provision of the Electric Power Industry Reform Act (EPIRA) presents many exciting developments for the industry. Under RCOA, the customers whose electricity consumption falls within a certain contestability are mandated to choose their own power supplier. Right now it’s at 1 MW and is set to go lower as we progress along the timelines set by the Energy Regulatory Commission. Failure to find a supplier within the given deadline would entail premium rates. With RCOA, competition becomes stiffer, thereby driving innovation among industry players. To effectively manage competition, we enhance our operations and develop value-added services. We may be relatively small compared to other IPPs but we have an edge in providing power supply to Visayan islands as we have strong partnerships with those from the local distribution units. On another note, climate change continues to be a pressing concern for all of us. As we support the growth of the country by trying to bridge the increasing demand for energy, we must also try to adhere to the highest operational standards to minimize our impact to the environment. The common connotation attached to coal is that it is always dirty. What they do not yet know is that there are standards and limits which are required of coal-plant operators. In our case, we use technology such as the circulating fluidized bed (CFB) to curb emissions and we are proud to note that our operations have emissions way below the set limits of the government. We aim to make the public aware of this. What is GBP’s biggest plan to date? What should the industry be excited about? As one of Visayas’ leading independent power producers, we are very much excited to expand into Luzon. We are planning to put up a 2x335 MW coal-fired power facility, which will be our biggest upon completion. Based from our experience in our Panay operations, we have witnessed how critical energy can be in spurring growth in the regions, and we remain steadfast in supporting the government’s quest for inclusive growth. We are also starting to venture out into more renewable energy projects. Our first project will most probably be located in Luzon and it’s a biomass energy project. It’s already running, actually, we just need to secure more permits from the Department of Energy and the Energy Regulatory Commission to get FiT. We are also working on our other project in Negros. Other RE projects that were looking into are hydro and solar plants. ASIAN POWER 13


Country report: China

Could China trump the U.S. in the renewables race?

China is dead serious on greener energy mix China is taking a leap towards becoming the undisputed renewable powerhouse of a low carbon-consuming world.

W

hen China recently announced that it will spend $360b over the next four years to build up its renewable energy sector, the country was making a bold statement pinning the majority of its economic hopes on the growth of this burgeoning sector. Analysts reckon this latest push for renewable energy investment comes at a critical time when the U.S. is signalling a shift in policy direction away from renewables, possibly giving China less competition in the space. The Chinese economy is also yearning for lower carbon emissions, greater energy security, and more jobs — all of which may be generated by a wellsupported renewable energy sector. Leading the global expansion

Source: BMI Research 14 ASIAN POWER

The Chinese government’s plans lie in a rebasing of the economy in favour of electricity, with power supplied by local coal, shale gas, locally built nuclear power stations, and renewables.

Nick Butler, visiting professor at King’s College London, suggests there are two closely related policy objectives that are driving the energy strategy for a renewable investment of this scale: reducing dependence on imported supplies and creating a modernised economy that boosts employment. Butler reckons that even if China can pay for imported energy, there is a question on whether the leadership under President Xi Jinping wants the country to become more dependent on foreign suppliers, given the central importance of energy within the economy. China must employ a population with 7.5 million graduates a year and compete not just with advanced industrial nations such as the U.S. and Germany, but also with low-cost emerging economies such as India. By increasing renewable energy investments, the country is seen to be creating a strong pillar to reconstruct its employment base. “Having managed the transition from a predominantly agricultural economy to one based on heavy industry, basic manufacturing, and construction, China must develop a more complex economy with a rise in services, consumption, and higher value added,” says Butler. “China wishes to be one of the world’s great industrial powers and has realised that low wages alone cannot achieve that,”

he adds. “The Chinese government’s plans lie in a rebasing of the economy in favour of electricity, with power supplied by local coal, shale gas, locally built nuclear power stations, and renewables such as wind and solar power.” Lower-carbon energy mix As China adjusts to a more sustainable energy demand growth and slowing economic expansion, the country has begun shifting towards a lower-carbon energy mix, with coal being displaced by lower carbon alternatives. “China’s energy mix is likely to change significantly over the next 20 years, driven by its changing economic structure and a policy commitment to move to cleaner, lower-carbon fuels,” says BP in its Energy Outlook 2017 report. BP forecasts the share of coal in China’s energy demand will fall from around twothirds in 2015 to less than 45% by 2035, and that much of this reduced share will be replaced by renewable energy sources, nuclear, and hydroelectric power. The combined share of these fuel sources in China’s energy mix is expected to rise to over 25% in 2035 from 12% in 2015. As the future of U.S. energy under the Trump administration becomes uncertain, China is moving forward with its renewable energy plans and the country could be well on its way to


Country report: China JinkoSolar manufacturing capacity (MW)

Ian McClenny

Nick Butler

Source: IEEFA, JinkoSolar Q3 2016 Earnings Presentation

become the global leader in this frontier, says Paige Leuschner, research analyst at Navigant Research. “President Trump’s past claims that climate change is a Chinese hoax and suggestions of the U.S.’ withdrawal from the Paris Agreement could create a space for China to take on a leadership role in clean power,” she says. “While the country still has a long way to go to prove its commitments to the environment, in the past few years, it has made significant progress in terms of reducing its emissions, curbing coal generation, and ramping up investments in renewable energy resources. China has shown potential in its ability to lead the world toward a low-carbon future.” 103 coal-fired plants were cancelled Leuschner further notes that China is not only intending to spend more than $360b on renewable energy resources through 2020 — which will create more than 13 million jobs in the renewable energy sector — but it is also moving forward on its commitments to cut back on coal generation by recently cancelling 103 coal-fired power plants in development. These actions should help curb the growth of greenhouse gas emissions and reduce the air pollution that hangs over cities like Beijing. With China’s global renewable energy expansion, the world’s second-biggest economy is positioned to lead the world in clean power investment, says Tim Buckley, director of energy finance studies, Australasia at Institute for Energy Economics and Financial Analysis. “The extent of China’s domestic investment in renewables has surpassed all expectations, with the resulting technology development and economies of scale driving down costs to the point where renewables are exceeding grid parity in an increasing number of market segments,” says Buckley. Electric vehicles and energy storage are also playing a larger role in shaping

the energy future of China that is less dependent on oil imports and creating more jobs, according to analysts. Buckley notes that the number of electric vehicle sales are growing, with China pushing ahead of both the U.S. and Europe in 2016, and the government has set a target to have 40% of the local car market electrified by 2030. Ian McClenny, research associate at Navigant Research, says China has policies in place that promote the development of alternative fuel vehicles, which is driving up electric vehicle sales. The central government started granting subsidies for electric vehicles in 2013, and the value of subsidies has decreased annually since then. In addition to the subsidy, the central government has also waived the vehicle sales tax. Additional subsidies in China can be found predominantly at city governments such as Beijing and Shenzhen, allowing a oneto-one matching subsidy for consumers and effectively doubling the national electric vehicle purchase subsidy. “The battery energy storage industry in China goes where the government steers it. Though the effect of policy and demand-side incentives varies by territory, the country seems to have a clear plan on what role storage will play in its clean energy future,” says McClenny. Nuclear expansion Along with renewables, China’s nuclear expansion is expected to pick up pace over the coming decade as coal continues to lose share in the country’s power mix despite provincial resistance, says Georgina Hayden, head of power & renewables at BMI Research. In 2016, China’s nuclear power expansion gathered pace, with government data suggesting that nuclear capacity totalled nearly 34GW by end-2016, up from around 26GW in 2015 — the most nuclear capacity brought online by any country last year. She reckons China’s nuclear sector will

Paige Leuschner

continue to expand rapidly, with nuclear capacity surging to almost 100 GW by 2026, increasing by an annual average of 10.8% between 2017 and 2026. This will eventually make China the largest nuclear market globally by capacity, marginally larger than the U.S. “We have long-held a bullish outlook on China’s nuclear sector and the country’s huge pipeline of reactors that are planned, proposed, or under construction supports our growth forecasts,” says Hayden, pointing out that the government aims to have 58 GW of nuclear capacity online by 2020-21, and 150 GW by 2030. “Although coal will remain the dominant fuel source in China’s power mix, we expect alternative fuels such as nuclear, renewable energy, and gas to gain prominence over the coming decade,” she adds. Hayden expects coal’s share in the power mix to gradually fall to just under 54% by 2026, from roughly 70% currently. A more exciting prospect is that after expanding its own domestic nuclear sector, China may be able to develop the expertise to export nuclear capabilities and nuclear technology abroad. Hayden reckons the country is already largely self-sufficient in terms of reactor design and construction, and Chinese nuclear companies are already securing international contracts to develop new nuclear capacity, for example, in Pakistan, Argentina, and the United Kingdom. Chinese nuclear companies also have sufficient financial firepower to take on the significant capital costs involved in developing new nuclear reactors. Recent developments have financially bolstered domestic nuclear companies such as the merger between China Power Investment Corp. and State Nuclear Power Technology Corp., as well as the tie-up between China National Nuclear Corporation and China General Nuclear Corporation to develop the Hualong reactor, which has helped them expand domestically and export Chinese nuclear technology abroad.

China’s share of global renewable capacity growth, 2015-2021

Source: IEEFA, IEA World Energy Outlook 2016 ASIAN POWER 15


sector report: Wind

Investments keep pouring despite regulatory and cultural challenges

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?

W

hen 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. Mother markets 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.” The Chinese offshore market began what many hope is 16 ASIAN POWER

Wind power continues to grow in double digits; but we can’t expect the industry to set a new record every single year.

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, 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). 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


sector report: Wind Average WF related to electricity and heat production

Global cumulative wind power capacity

Source: Global Wind Energy Outlook 2016

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. 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

Source: Global Wind Energy Outlook 2016

Adnan Amin

Bart Linssen

Hanjie Wang

Peter Cattalaens

Steve Sawyer

Tim Ferry

(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 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 ASIAN POWER 17


sector report: WIND 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 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. 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 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). Regional breakdown new policies scenario

Source: Global Wind Energy Outlook 2016 18 ASIAN POWER

Planned installed capacity

X

Source: Global Wind Energy Outlook 2016

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.

The main driver for growth in the offshore wind industry has been significant decreases in powergeneration costs, driven by advances in the technology.

Stable regulatory environment is still needed 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 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.”


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war

ON CRUSHING PROJECT DELAYS ESSAR POWER CEO KVB REDDY IS DEAD SET

AND SOLAR O&M? TAKING OVER WIND ARE DRONES

JOIN THE LARGEST POWER INDUSTRY PLAYERS - PLAN YOUR PARTICIPATION TODAY

SECTOR SCARES INVESTORS AWAY MYANMAR’S HYDROPOWER

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SUBCRITICAL PLANTS ASIA IS GETTING SICK OF USING

WWW.ASIAPOWERWEEK.COM

CAPACITY BY 2022? CAN INDIA REALLY HIT 100GW SOLAR

vows to keep pulling losses down Tata Power-DDl’s Ceo Praveer sinha

NIGHTMARES HYBRID POWER SYSTEM

Supported ®

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Country report: Philippines

Is coal still the preferred solution?

The Philippines is ignoring RE policy potholes

It has begun supporting renewable energy on a policy level, but much of the groundwork remains undone.

W

hen the former director for the Philippine renewables development stepped up to a recent regional conference, it was a bittersweet moment: The country has started rallying behind renewable energy, with projects and investors lining up in response, but there are still major hurdles preventing the sector from truly taking off. Coal-fired power generation continues to be a preferred solution to the country’s energy needs, which are driven by strong economic growth, but the boons of renewable energy are becoming harder to ignore. The abolition of pass-through costs for fossil fuels, the scrapping of the Current installed capacities in Luzon

Source: Cynthia Hernandez, KPMG R.G. Manabat & Co. 20 ASIAN POWER

Right now, admittedly coal prices, fuel prices are lower, [but] we don’t know how long that will last.

“first to operate, first to bid” policy for energy developers and moving towards competitive selection are the key policy changes that the Philippines must undertake to help improve the renewables sector and Philippine energy situation, says Pete Maniego, former National Renewables Energy Board (NERB) director. Junk “first to operate, first to bid”? Maniego proposed the removal of the pass-through provision for fossil fuels, which he argues will help level the playing field and improve the current rate-setting mechanisms in the country. Under the Electric Power Industry Reform Act, power generators that use fossil fuels can pass on fuel costs to consumers, while renewable energy developers cannot, so the latter group are forced to absorb all the risks inherent to using renewable energy sources. He also suggested scrapping the “first to operate, first to bid” policy for energy developers, which he says only favours the big players and prevents smaller players from participating in project biddings due to an inability to secure bank loans. This policy grants an advantage to big conglomerates that can easily access capital and credit, and undermines the open energy market. “I think it’s about time developers

also take the risk as far as fuel costs are concerned,” says Maniego. “Right now, admittedly coal prices, fuel prices are lower, [but] we don’t know how long that will last,” he added, noting that operating costs for solar and wind power facilities have been declining in recent years. To ensure more players for both renewable and non-renewable energy projects could be accommodated, the Philippines could also adopt a policy oriented towards competitive selection, similar to those already put in place in other countries. Maniego argues that removing these policy roadblocks will be critical to bolstering the Philippine energy sector as it tries to keep up with the country’s robust economic expansion. It will also clear the path for rapid solar energy development, which is particularly promising since it can be installed in offgrid areas scattered across the archipelagic country. Revisit current rules Anabele Natividad, vice president for project development at Bronzeoak Philippines says that while there has been a policy shift towards renewable energy in the last few years, there is a need to revisit existing rules. Doing so will enable the country to tap into the investor interest, which has been growing


Country report: Philippines Philippine power capacity 2015-2029

Anabele Natividad

Source: Cynthia Hernandez, KPMG R.G. Manabat & Co.

over the years, and create a bigger market for renewable energy.While advocates for renewable energy wait for stronger policy backing that will bring down costs, the reality on the ground is that regions like Visayas and Mindanao cannot rely solely on renewable energy. Reliability is paramount for these fast-growing regions and has made coal-fired power plants a necessity to avoid costly power disruptions. Reliability is paramount “Although there has been progress in renewable energy projects, the region needs to supplement these developments with base load capacity; otherwise, if the wind or solar power supply is down, reliability will be compromised,” says Francisco C. Sebastian, chairman at Global Business Power Corporation, in an interview with The Oxford Business Group “For a developing country like the Philippines, the cost of renewable energy and indigenous power sources is high, and additional base load is required to ensure power security and to deliver a stable supply.” With its expanding economy and climbing energy demand, the Visayas region has been attracting more energy developers and many projects are currently under construction or expansion. In the past, the main challenge for power generators, especially those that want to put up coal-fired power plants, was changing the mindset of local communities and governments that oppose such plants. But a more open dialogue and a larger allocation for environmental protection seems to have softened their adversarial stance. “There have been significant efforts put into information campaigns where the public has been educated about coal and global warming,” says Sebastian, adding that for coal-fired plants, an estimated 30% of the project cost is spent on clearing up carbon emissions and raising environmental standards ahead of

existing regulations, particularly in terms of soil and water testing. In Visayas, government officials have been providing support to facilitate private-public collaboration in power generation to increase reliability, while also tapping into technology to minimise pollution. “Reliability is crucial in power generation, especially in the islands throughout the Visayas region. Although transmission lines exist, one would need power plants on the islands themselves in order to ensure technical reliability and energy security. Cities deprived of power cannot be reliable places of business,” says Sebastian. Power shortages Meanwhile, in the Mindanao region which sits south of Visayas, power outages are nothing new. But a slew of independent power producers (IPP) are attempting to address the power supply gap with a slew of coal-fired power plants. Renewable energy, such as solar power and biomass, could still play a key role in this region, but these may be confined in smaller areas. “Mindanao has historically undergone shortages of power. Only recently has there been a significant drive for independent power producers (IPPs) to build their own power plants – mostly coal-fired or bunker diesel facilities – which are already in the process of being built or about to be commissioned,” says Tirso G. Santillan Jr, CEO at Alsons Consolidated Resources, in an interview with The Oxford Business Group. “Should all this capacity be finalised, the region would appear to face an impending oversupply. However, given that it has experienced looming power interruptions and brownouts from 2010 to 2014, demand has been widely suppressed,” he adds. Santillan reckons that once an increased supply of stable power becomes available, the demand suppressed in recent years will surge. He recalls that the Visayas region also had

Francisco Sebastian

Pete Maniego

a similar experience, with power plants built to offset shortages, which then led to a sudden surge of demand of up to 12%. Residential users, for instance, would start to purchase air conditioners while factory owners would be more willing to expand their operations. Transmission troubles Renewable energy, while promising, may end up playing a more supportive role in the Mindanao power grid. Santillan says Mindanao is not well suited for wind power due to the low wind speeds in the region. As for solar power generation, the Sarangani province offers the best site as it has the longest sunshine in the archipelago, although financial viability is still a major concern. “After the awarding of the feed-intariff (FIT), there have been significant developments in solar power generation across the country,” says Santillan. “Although there are a number of prospective solar projects in Mindanao, they still need a FIT rate to make them viable. This is because the technology has not yet fully matured.”Biomass is also viable but only in areas like Bukidnon where sources of feedstock are concentrated due to the presence of sugar mills. Supporting a biomass project in Mindanao will require an ample supply of feedstock, but currently sugarcane tops in the region is largely used for livestock, which can prove to be a challenge to potential project developers. Santillan believes there is a significant potential source of power generation from run-of-river hydroelectric power plants, and players with expertise in hydrology and water flow volumes should be able to push out projects of sizeable generating capacity.Whilst there is contention on the importance of renewable energy in the Philippines as the country tries to balance economy growth, energy security, and environmental sustainability, industry executives appear to agree on one thing: A need to address ongoing transmission and distribution troubles.

Historical power generation mix

Source: Cynthia Hernandez, KPMG R.G. Manabat & Co. ASIAN POWER 21


Analysis: M&A IN THE POWER SECTOR

Regional deal activity was slow in 2016 but picked up by the last quarter

Asia’s increased investment sentiment drives total yearly deal value to US$41b

2016 saw Chinese utilities acquire assets worth US$12b in cross-border transactions, including US$4.3b in Q4, with notable deals including Shanghai Electric’s US$2.3b stake acquisition.

T

he region’s sector offers diverse investment opportunities, including the development of conventional generation assets in countries with a supply and demand imbalance, including India, China and Indonesia; energy reforms in Japan, South Korea, the Philippines and Malaysia; a number of large T&D opportunities; and an increasing number of opportunities in renewable generation. Given that Asia-Pacific is one of the only regions that offer a range of diverse investment opportunities with a stable political environment for investment, we expect capital to flow into this region in 2017. As traditional, low complexity, large-scale deals become scarce, investors will need to tackle more complex deals. Our interview with Tom Butcher from BofAML highlights these points. Integrated utilities and traditional generation assets attract multibillion-dollar investments: in Q4, utilities from China and the Philippines acquired US$8.4b of generation and integrated utility assets. In China alone, utilities bought US$3.4b of generation assets, taking advantage of low valuations as the shift toward renewables continues. In December, India’s National Thermal Power Corporation announced it would replace 11 GW of old coal power generation capacity with new, more efficient coal generation capacity by 2020 at an estimated investment of US$500b. Inbound renewable energy opportunities attract diverse investors: in Q4, brownfield deals totalled just US$603m compared with US$1.2b in Q3. In comparison, greenfield renewable energy projects increased in value from US$3.5b in Q3 to US$4b in Q4. In November, Ireland’s Mainstream Renewable Power agreed to build and operate wind projects in Vietnam worth more than US$2.2b. In December, Shell announced plans to form a new company to invest in renewable energy in the Philippines, while Apple signed PPAs to acquire 285 MW of wind energy from China’s 22 ASIAN POWER

Regional deal activity began slowly in 2016 but picked up by Q4, which saw most of the year’s P&U investment.

Goldwind. 2016 saw Chinese utilities acquire assets worth US$12b in cross-border transactions, including US$4.3b in Q4. Notable deals included Shanghai Electric’s US$2.3b acquisition of a 66.4% stake in Pakistan’s K-Electric and China General Nuclear Power Group’s purchase of 14 wind energy plants from Ireland-based Gaelectric. M&A in Australia Regional deal activity began slowly in 2016 but picked up by Q4, which saw most of the year’s P&U investment. The revival was due largely to the acquisition of a 50.4% stake in Ausgrid by Industry Funds Management and AustralianSuper for US$12.6b — a deal that contributed more than half (about 55%) of the quarter’s activity. Inbound investment was dominated by domestic investors, who contributed 88% of total deal volume. Corporate investors conducted 31 of the region’s 33 deals, with utilities in China, India and the Philippines accounting for $7.2b of M&A. However, most deal value was driven by financial investors, who acquired assets worth US$12.6b, with the focus on large investments in regulated segments with long-term stable cash flows. In contrast to other regions, Asia-Pacific’s generation segment was attractive to investors and contributed US$5.1b of deal value in Q4. Most interest was in China, where the National Energy Administration expects coal power generation capacity to grow by 19% by 2020. Across the region, deals in renewable energy were high in number (10) but low in average value (US$52.1m). T&D utilities are still seen as safe investment havens, trading at a premium of 16% to long-term price to earnings (P/E) two-year forward estimates. In the quarter’s biggest deal, a consortium of financial investors acquired a 50.4% stake in Australian state-owned distributed company Ausgrid for US$12.6b — an enterprise value representing 1.4 times Ausgrid’s regulated


Analysis: M&A IN THE POWER SECTOR Power transactions and trends

Power transactions and trends

Source: EY

asset base and 15.2 times its FY 2016 EBITDA. Renewable energy assets are also continuing to attract investor attention. In November, the Australian CleanTech Index gained 2.6% and outperformed the wider market, rising from 55.55 to 56.99 points over the month. Throughout the region, clear government support for renewable energy is boosting investment. China aims to double its solar capacity by 2020 from 2015 levels and increase wind capacity by 50% during the same period. We expect the valuations of renewable assets to remain high and investment to increase in this segment in 2017. As seen globally, valuations of Asia-Pacific generation assets are declining. During Q4, generation deals traded at a discount of 17% to long-term average EV/EBITDA compared with two-year forward-estimate values. The recent 60% increase in coal prices has put increased pressure on IPPs in China. Industry estimates have cut the 2016–18 earnings forecast for the segment by 7%. Analysts estimate that 20% of the equity value of coal IPPs could be at risk of impairment in 2018; stranded asset risk could emerge if power demand growth remains below 2.5%. Integrated utilities are trading at a discount of 0.3% to long-term average EV/EBITDA compared with two-year forward estimates. These utilities faced increased competition and regulatory scrutiny in liberalised markets. In South Korea, analysts estimate that the Government’s decision to reduce power tariffs could weaken KEPCO’s consolidated annual funds from operations/debt to 26% to 28% in 2017–18 from earlier estimates of 30% to 32% in 2016. Renewables and disruptive technologies to attract M&A activity We forecast four key investment trends for 2017. Energy reforms present new opportunities: Japan will follow up its successful electricity market reforms with the liberalization of the country’s retail gas sector in April 2017. Utilities are positioning themselves to compete, with TEPCO announcing plans to partner with gas operator Nippon Gas to enter Tokyo’s gas retail market in 2017. Japan will also create a wholesale power market by 2020 to provide transparent, competitive pricing for new retail entrants. This will present greenfield investment opportunities in generation in the medium term. South Korea also plans to open its generation segment partially to private players to increase competition and cut costs. Malaysia has completed the first phase of electricity reforms, which present investment opportunities. Greenfield and brownfield investments in renewable energy: governments across the region are supporting investment in renewables assets, with India, Sri Lanka and China setting ambitious clean energy targets. Favorable policies should encourage continued interest in these assets, which accounted for US$7.8b of deal value in 2016. Growth in distributed energy with a new focus on storage: in

Source: EY

Utilities are positioning themselves to compete, with TEPCO announcing plans to partner with gas operator Nippon Gas to enter Tokyo’s gas retail market in 2017.

September, Australia’s rooftop solar installed capacity surpassed 5 GW, making it the world’s largest rooftop solar market. The Australian Energy Market Operator estimates that 25% of households with rooftop solar are adding energy storage. In February, Australia’s AGL Energy invested US$20m in US-based Sunverge Energy to enhance its energy storage management capabilities. Elsewhere, the Indian Government announced in December that it would launch a tender for 1 GW of rooftop solar, while in South Korea, KEPCO and Kokam plan to build a 36 MW energy storage system. Chinese utilities pursuing foreign investment: a slowing domestic economy has Chinese capital in need of a home. Utilities are investing in foreign assets to gain synergies with business operations, technical capability and stable returns. After the failed Chinese bid to acquire Ausgrid, Cheung Kong Infrastructure, a Hong Kong-based infrastructure company, has bid US$5.1b for Australia’s Duet Group, a bid worth 1.5 times the regulated asset base. Duet’s board has recommended the offer, which is now subject to Foreign Investment Review Board approval. In 2016, outbound M&A by Chinese utilities topped US$12b globally. We expect this trend to remain strong in 2017. Three-pronged investment strategy for China Three Gorges Utility giant China Three Gorges Corporation (CTG) is one of the global energy sector’s biggest players right now. EY’s Alex Zhu spoke to Wu Shengliang, Executive VicePresident of CTG International and CEO of CTG Europe, to find out what’s next on the company’s investment agenda. CTG’s mission dedicates the company to clean energy, and it primarily develops and operates hydropower generation projects, most notably China’s Three Gorges Dam. CTG Europe, as the company’s international markets investment platform, is mainly focused on developing CTG’s investment opportunities in Europe and North America. Like many other Chinese power players, CTG is increasing its focus on outbound investment, which Wu says is driven by more than just a scarcity of domestic opportunities. “Chinese companies are taking a more international approach, not just because we need overseas investment opportunities, but because we need to learn how to compete at a global level,” says Wu. “CTG’s overarching mission is to be one of the world’s leading clean energy companies and this means we must look overseas.” With this in mind, Wu says CTG’s future investment priorities fall into three main categories. Mature markets with strong technology in clean energy, particularly offshore wind power, are in CTG’s sights. “We want to be a leader in offshore wind, at least in China. China’s energy strategy aims to achieve 5 GW of offshore wind capacity by 2020. CTG is developing 4 GW of this capacity. As Europe is a leader in offshore wind, participating in this market will help us better understand the segment. We are keen to transfer the relevant knowledge back to China.” This ASIAN POWER 23


ANALYSIS: M&A IN THE POWER SECTOR rationale was a big driver of CTG’s acquisition of an 80% stake in Germany’s WindMW GmbH in June 2016, Europe’s biggest utilities deal of Q2 2016. CTG specializes in hydroelectricity. However, most of China’s major hydro projects are set for completion by 2022, says Wu. This has prompted a shift in focus to overseas markets, with Brazil as the company’s key target. “Brazil is the world’s second-biggest hydro market after China. We hope to do business there over the long term,” says Wu. “Africa is also an area of focus. We have a longterm strategy for investment in the continent.” China’s growing demand for energy is stifled by its limited natural resources. CTG plans to meet the country’s need for power by developing hydropower generation in neighboring countries and transporting the power generated to China via grid interconnections. Wu says this initiative is a good fit with China’s One Belt One Road economic strategy. Projects are already underway in Laos and Pakistan Wu notes that CTG has evolved its approach to managing investment risk over the past five years. “We’ve always been very good at managing project risk but, when coming to countries with political volatility, there is still a need to gather experiences in terms of managing country risk and also industrial cycle risk,” he explains. Co-investing with local utilities has helped to understand some specific markets better, as highlighted by CTG’s partnership with EDP Portugal to develop projects in Europe and South America. “We invested in Brazil in 2015 at an economic low point of the country. We considered that it was worth entering this resourcerich country when investments were cheap, knowing that the market would pick up soon. We believe our investment in Brazil is a win-win situation. This project not only benefits CTG but the local community, which is an important component of our company’s mission.” 2016 is now over — a year where, more than ever before, the market was split between those who have electricity and those who do not. In developed markets, continued overcapacity remains a blockage to new greenfield deals, whereas in developing markets, the scale of the opportunities is becoming more and more obvious over time, with around 100 GW of new capacity scheduled to be required in Africa and the Asia-Pacific region alone. The year saw strong P&U deal activity across regions, with investment in regulated networks and renewables leading the way. The appeal of both asset classes, mainly in developed markets, is demonstrative of the current imbalance between the limited supply of projects in developed countries with excess capacity and low wholesale prices, and the amount of capital available and ready to be deployed in these regions. Sellers in developed markets are benefiting from unprecedented competition for good assets, and emerging markets are beginning to take Asia-Pacific deal value by segment

Source: EY

24 ASIAN POWER

Asia-Pacific deal value and volume

X

Source: EY

advantage of the capital available. 2016 also heralded the entry of material new energy deals in the market, with renewable energy technologies once considered risky or experimental beginning to emerge. These technologies have now earned a firm place in the investment landscape as a main strategy for many investors looking to diversify early and become part of the future value chain. As the sector’s most sought-after assets, networks continue to command high premiums in all regions. Some of the year’s most noteworthy M&A examples include the US$18.4b acquisition of Energy Future Holdings Corporation, an energy services provider in Texas, by Next Era Energy US$89.3b value in regulated networks — 46% of total deal value US$28.4b value in renewable energy assets — 15% of total deal value US$14.4b acquisition of a 61% stake in National Grid Gas Distribution by a consortium led by Macquarie Infrastructure and Real Assets. US$12.6b acquisition of a 50.4% stake in Ausgrid, an Australian transmission and distribution (T&D) company, by Industry Funds Management Pty Ltd and AustralianSuper.

Deals across all segments of renewable energy remained high in 2016.

Renewable energy M&A rose to a new high Deals across all segments of renewable energy remained high in 2016. In the Americas alone, 46 transactions totaled US$8.3b. While Latin America is sparking interest — as discussed by China Three Gorges’ Wu Shengliang in our interview on page 19 — it was the US that saw most deals. The country is attracting significant investment by foreign players, including those from Canada, Europe, Australia and New Zealand, who are targeting higher returns than possible at home. Most in demand are assets backed by quality counterparty power purchase agreements (PPAs) that offer stable returns and allow the widest possible range of capital to participate. The market remains tough for independent power producers (IPPs) due to continued market oversupply, trading at discounts in all regions: Americas: discount of 2% to long-term historic average: Asia-Pacific: discount of 17% to long-term historic averages; Europe: discount of 13% to long-term historic averages IPPs are expected to remain flat in 2017. As we predicted some 18 months ago, we saw a shift in investors’ appetite toward new energy businesses in 2016 and a subsequent increase in deal activity in this space. 2016 saw some of the world’s biggest utilities make moves into new energy technologies: Enel announced it would acquire a 100% stake in USbased Demand Energy, a developer and operator of energy storage systems and software; E.ON invested in Kite Power Solutions, a UK-based start-up working in high-altitude wind power generation technology; Innogy expanded its energy storage focus by acquiring photovoltaic, and storage company BELECTRIC Solar & Battery; National Grid procured 201 MW of energy storage capacity for US$86.4m. From EY’s “Power transactions and trends: 2016 review and 2017 outlook”


ASIAN POWER UTILITY FORUM: MANILA

Publisher Tim Charlton with Dave Maslin, Cynthia Hernandez, and Janssen dela Cruz in a panel discussion

Is the Philippines going through a nightmare on its road to long-term power supply?

The 2017 Asian Power Utility Forum was held in Makati Shangri-la on February 14, with over 50 key representatives from the Philippines’ power sector attending the event and networking with industry colleagues.

W

hen EPIRA was passed in 2001, the Philippines had a different market. Does the current market environment provide enough incentive to ensure long-term supply? This is among the sectoral topics discussed in the Manila leg of the 2017 Asian Power Utility Forum held in Makati on February 14, which was attended by over 50 key representatives from the Philippines’ power market. According to Cynthia Hernandez, principal advisor at KPMG, the Philippines has three challenges to overcome in making sure that there is long-term power supply. Firstly, new generation capacity is installed only when there is a looming shortage in the power sector. It becomes a “just-intime” solution, and this is not healthy for generators as they do not want to be just dispatched 40% of the time. Secondly, the pattern of capacity additions to the grids show that investments are responsive to incentives, yet aside from FIT, there are currently no incentives to invest in long-term power supply. “Prior to 1990, there were 19 power plants commissioned with a total capacity of 2,826MW. Within 1990 to 2003, there were 22 additional 26 ASIAN POWER

The major power plants’ plans and the policies that have to be in place before these projects get implemented show that a long-term supply cannot be realised yet.

power plants commissioned with a total capacity of 7,681MW. Within 2004 to 2016, there were 45 additional power plants commissioned but only with a total capacity of 2,602MW,” Hernandez said. What does this pattern show us? A lot of the plants commissioned after 2003 were in renewables because it was in response to incentives given by the government under the renewable energy act. “Some of them were not in Luzon, so we see a build up of capacity in Visayas where the smaller islands are. This is the basis for having smaller average capacities per plant after 2003,” she added. Thirdly, the question is who has the capacity to put up the 700MW per year that the country needs? This leads us to the last big hurdle: current major generation companies are now nearing their 30.0% generation market share limitation limit for the Luzon grid. The largest investors who have the financial capacity and the experience to put additional supply in the grid are actually pushing their generation limit. For instance, even if SMC Global Power Corporation wants to push their capacity past 1000MW, they can’t do it. Basically, the major players in the Philippine power sector cannot invest as

much because they’re nearing their power generation limit. Given this situation, it is then an opportunity for the smaller players to step up and provide more capacity to the grid. The demand for energy in the Philippines is expected to surpass the country’s dependable and committed capacity in 2022. The total demand and required reserve for power is expected to amount to a total of 25.6 GW by 2030. “By 2030, we expect that the national grid will need an additional capacity of 4 GW to meet the country’s demand and required power reserve,” Hernandez said. If we look at the committed capacities, the Philippines has a weak chance of having long-term power supply. The major power plants’ plans and the policies that have to be in place before these projects get implemented show that a long-term supply cannot be realised yet. And this is a cause for concern, Hernandez said, because 2021-22 is not that far off. Is renewable energy the answer? While there’s a lot of talk about renewables in the sector, in terms of actual number of kilowatt hours added to the grid, the share of renewable energy


ASIAN POWER UTILITY FORUM: MANILA has actually declined from 28.7% in 2011 to 25.4% in 2015. On the other hand, coal has jumped from 36.6% in 2011 to 44.5% in 2015. Oil is no exception too, as it increased from 4.9% to 7.1% in the 4-year period. “As long as the gap between supply and demand narrows, there will be a higher dispatch for oil-based plants for peaking power,” Hernandez explained. Additionally, renewables contribute to grid instability due to its intermittent nature, causing outages eventually, and it has low utilisation rates. If you add a 100MW plant to the grid but over one year, you’re actually generating just 30MW. Solar’s spot in the country The Philippines is a “wonderful place for solar” as the country boasts of 5kWh per square meter per space, according to Dave Maslin, country manager, Owl Energy. In May 2013, the country released guidelines for feed-in tariff selection and eligibility. “Rules were in place and for solar, 50MW were allocated,” he said. However, the FIT process had its flaws and foibles. The process entailed that the first step must be to secure a service contract, then have DOE approve the project for confirmation of its commerciality. At this stage there is no obligation for the project to proceed, but it has been allowed to start building. By the time that projects get to the third step which is construction, Maslin said they have got themselves into a “big black hole.” “No one knows what’s going in this stage, because during this period you don’t have to tell anyone what is happening,” he said. If you are listed, you have to tell your shareholders. But if you’re private, you can start building very quietly, and it’s not until you get to 80% complete that you invite DOE over for inspection. “And you have to consult the official rulebook what 80% actually means,” Maslin said. After this, projects then get instructed by the Energy Regulatory Commission to pay FIT. Seven projects got the certificate of eligibility under FIT-1, Maslin said, and the total capacity was 108.9MW. Seeing the positive turnout, the government then increased the target to 500MW, giving birth to FIT-2 and by the time this was announced, there was already 108.9MW on the table. “Investors got really excited, but there are a few sticky points in this. There was no clarification on what happens in excess of this new target,” Maslin said. “Additionally, there was no clarity on AC or DC.” AC is what the grid buys, and DC is what you construct in term of panels. When you build 60MW of DC power, you generate 50MW of AC. In this case, no one knew if it’s AC or DC. “As it

was, it was interpreted by the government as DC, and that really made this target actually a lot lower,” he said. What happened along the way was projects kept coming in, and DOE’s issuance of service contracts went unabated. Projects just kept flooding in In March 2015, there were 1630MW of service contracts issued to developers. By July 2015, there were 2206MW of contracts. By December 2015, three months before projects had to be operational, was 4016MW of service contracts. “There was no way that these are going to be even remotely built under the FIT-2,” Maslin explained. “What this tells us is that people didn’t believe that FIT-2 was going to be the end of the story.” By June 2016, the awarded contracts in total has hit 525.98MW. “The Philippines went from having no solar industry to speak of, but with a little bit of hobbyists and enthusiasts and developers coming along, it has resulted to this,” he said. It was an undeniably successful story when you look at the numbers, but the haste to ramp up solar has given birth to a few issues. Solar suffered from stability issues and the transmission system that was developed were never really designed to take on all these solar plants. “Additionally, the DOE adopted a renewed focus on electricity prices not going up consequently affecting solar players’ security,” Maslin said. Another issue in focus is the interesting and complex situation that has transpired in the Visayas area. In the Visayan grid, there is 581MW of renewable energy, but the peak load is nothing close to that, according to Maslin. This is a case of dispatch curtailment, he added. On top of that, of the 525MW the DOE got for FIT, 390MW or $700m worth of investment

What this tells us is that people didn’t believe that FIT-2 was going to be the end of the story.

did not get the FIT. Janssen dela Cruz, AVP for business development at Global Business Power Corp, said that there’s about over 3,000MW online, specifically in Luzon. Should there be new power plants? There’s much more power coming online in Mindanao and Visayas. “There will be an overlap between the new plants and the plants that we have which are 20-25 years old. But the problem is, a lot of our very reliable 20-year old plants will eventually go offline. If we are not prepared for that, there are more plants that will be offline because they were built within that 5-year period,” he said in a panel discussion with KPMG’s Hernandez and Owl Energy’s Maslin. Right now, the Philippines will not be expecting an excessive ratio of demand versus supply in the short to medium term, thanks to the new plants that are being built and those that have just come online. But if the country doesn’t start building more now, considering that it takes about 3 years of plans, 3-5 years to build, and a total of 5-8 years’ cycle, then the long-term view will not be rosy. Security for developers in building plants will also have to be in place as dela Cruz said that plants that are being planned right now will be completed by the next administration. On fuel mix, he added that given the regulatory environment right now that is rooted on the competitive selection process (CSP), Philippines will be predominantly coal. “For lack of better term, that means the cheapest guy in the room wins. Everybody else has the same technology, but coal is always the cheaper choice. Now, for as long as competitive selection process is there, coal will always have the technological and pricing advantage,” he added. With reports from Karen Lou Mesina

ASIAN POWER 27


Analysis: INDIA’S GAS POWER GENERATION

Diesel remains the de facto choice as a reliable and established solution

Natural gas generation is displacing diesel in India

Recent developments indicate that natural gas power generation is set to displace the rapidly growing amounts of diesel in India.

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hough natural gas represents just 8% of installed capacity, demand is set to more than triple in the 2012-2030 timeframe according to Indian government forecasts. While some of the extra supply will come from increased domestic production, much will come from the doubling of liquefied natural gas (LNG) import capacity through 2025. At the same time, local distribution piping is expanding its reach—one customer at a time. A Solar Energy Corporation of India (SNatural gas is becoming more attractive for a number of reasons. One is cost; although diesel and coal are both relatively inexpensive and heavily relied on for power, the increased natural gas supplies are expected to bring prices down. The globalisation of Asian LNG markets should also bring more stability to gas prices as the fuel moves away from oil indexation to more marketbased pricing in Asia. Perhaps more importantly, natural gas has significantly lower emissions than diesel and coal when used for power generation— measured via particulate emissions and greenhouse gases. Alongside renewables, natural gas is seen as a key tool in fighting air pollution in India, which has half of the world’s 20 worst polluted cities. Diesel generators are one key cause for pollution. Diesel is chosen because it is cheap, fuel is readily available, and it can be relied on to operate when India’s relatively poor grid goes down. Diesel 28 ASIAN POWER

Where natural gas becomes available, it may often be the preferred choice, especially where reliable power is needed after the sun stops shining

gensets are ubiquitous in India, with an estimated 90GW of diesel generators as of 2014 and about 4% of all consumed diesel going to gensets. There is a drive for renewables to displace much of this diesel use, and they are well-positioned to do so due to falling prices of technologies like PV. But where natural gas becomes available, it may often be the preferred choice, especially where reliable power is needed after the sun stops shining. Still the de facto choice Diesel remains the de facto choice as a reliable and established solution for residential, commercial, and industrial customers alike. Thus, for distributed natural gas to thrive in India, proactive outreach is required. These companies have recently made headlines with moves in distributed natural gas: Indraprastha Gas Ltd., a gas supplier in Delhi, recently pitched gas gensets to housing complexes

and factories as a cost-saving measure. The company says natural gas generation can offer power at 12 Rs/kWh ($0.18) compared to diesel 18 Rs/kWh ($0.27). The company is also in talks to provide electricity as a service. Last year, fuel cell maker Bloom Energy announced a partnership with state-owned GAIL, India’s leading natural gas company. An initial project was announced in Bangalore, presumably with many more to come. Dual-fuel gensets or conversions may also be an attractive option. Genset manufacturers like Caterpillar and Cummins offer gensets or retrofit kits that allow compression-ignited diesel generators to displace half or more of their fuel with natural gas. As natural gas distribution expands, this trend is expected to spread. As these and other value chain players find new opportunities to supply power or generation equipment, more natural gas infrastructure may follow in India. In this under-electrified growing economy that represents 17% of the world’s population, massive opportunity beckons to the prepared. Beyond non-wires alternatives More utilities are employing non-wires alternatives to avoid the construction of traditional transmission and distribution (T&D) infrastructure. These novel solutions incorporate demand response (DR), advanced controls, or various distributed energy resources (DER) to save infrastructure costs. Such alternatives utilise natural gas much closer to its point of origin, often by generating electricity that can then be used onsite or nearby. Pressure to avoid large infrastructure projects is one driver of this trend, but technological improvements and regulatory developments are also expected to contribute momentum in the coming years. From “Natural Gas Generation Displacing Diesel in India” and “Beyond Non-Wires Alternatives: Growing Opportunities in Natural Gas for Non-Pipes Alternatives” by Adam Forni on Navigant Research Blog

Projected share of natural gas in the energy mix in 2040

SOURCE - EAI India


2017

Asian Power Utility Forum MNL | JKT | SG Asian Power Magazine is proud event to welcome you to the for the power and utility industry. The Asian Power Utility Forum is happening from February to April 2017. The trailblazing event will gather over 200 power and utility leaders across Southeast Asia to discuss pertinent issues and what’s hot in the industry. The event will take place in Manila on February 14, Jakarta on April 6, Singapore on April 25.

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OPINION

JOHN GOSS

China aims to increase LNG utilisation

john.goss@aod.com.hk

F

ollowing on from a recent call by China’s Premier Li Keqiang for the utilization of technologies and products to ensure cleaner energy usage in China; two of the nation’s leading energy supply companies have recently reported that they are now investing heavily into the Liquefied Natural Gas (LNG) sector. The general manager of strategy and planning at the State Owned China Offshore Oil Corp (CNOOC), Jin Xiaojian, told the media that LNG will become another important pillar industry for CNOOC as new energy is playing an increasingly significant part of both the national and the global energy industry. Gas production currently accounts for 18% of CNOOC’s with oil production as the remaining 82%. Looking ahead, the energy company’s proportion of gas production will experience a gradual rise up to something like 20 percentinthenearfuture.Thisgrowthdevelopment is being driven by large producers worldwide who are increasing their production levels. It is reported

M

onkey proved to be a subdued year for the Southeast Asia energy sector – so will the Rooster wake up the region from its slumber? The global economy struggled in the wake of the commodity markets collapse of 2014/5 and uncertainty on international trade with the US Presidential election and Brexit. This uncertainty has led to many commentators to predict that 2017 will be another tough year. History tells us that the turnaround in economic activity can be quick, and that it can be hard to spot when it is happening. Therefore, here are three reasons why we may have some optimism for 2017: 1. More certainty. 2. Capital availability. 3. Long-term fundamentals. More certainty, or at least less uncertainty Many of the uncertainties that characterised 2016 have now become clearer. The UK is heading for a “hard Brexit”, meaning that it is opting out of the Single Market. The US elected Donald Trump and he has, as promised, pulled out of the Trans Pacific Partnership; whilst hinting at implementing other protectionist policies. OPEC may not be fully tested on oil supply discipline, but most players in the market now have a clearer sight on oil pricing. This should allow for better investment decision making and asset valuation, and therefore deal flow. This time last year there was a large variation in oil price forecasts, leading to a large gap between seller and buyer’s views of asset value. In these respects, 2017 provides less uncertainty. 30 ASIAN POWER

that the energy company is now China’s largest trader of gas products. Looking further afield, CNOOC is now the world’s third largest trader as it imports LNG from something like 20 countries world-wide which include LNG imports from Australia, Indonesia and Qatar. CNOOC says that its natural gas business currently covers 78 cities across China, with its sales of LNG reaching 12.66 billion cubic meters in the first half of 2016. Increasing demands for the cleaner LNG This impressive sales figure of LNG represents an increase of 24.4% year-on- year. The LNG being imported by CNOOC accounts for approximately 69 percent of the nation’s total usage of the cleaner fuel. A recent report from Ernst & Young estimates that the global demand for LNG is predicted to nearly double between 2012 and 2030. The current demands for the cleaner fuel are coming from the industrialized countries across

Asia, with South Korea and Japan currently accounting for more than half of the global demand for LNG. The ever increasing interest of China is being driven by the nation’s authorities wishing to move the nation’s energy supply away from an overwhelming reliance upon coal. New developments in China’s emergent LNG markets are being announced on a regular basis. A recent energy article in China Daily reported that China National Petroleum Corp (CNPC) will be splitting up the energy company’s natural gas sales and its pipeline units. This development will serve to speed-up the reform process within nation’s natural gas industry; which will include a market based pricing system. The new LNG pipeline company will be responsible for all pipeline-related operations. CNPC will create five individual natural gas sales companies. In the past, the pipeline unit was responsible for both the the natural gas pipeline operations and the sales operations. Analysts are saying that these developments will move the company into a more sub-divided natural gas sales organisation. It is generally being felt by analysts that these moves will help to speed-up the necessary market reforms that are needed in the nation’s natural gas sector. Plus, they will help to formulate a much more market-oriented pricing system for the clean energy industry in China as a whole. The State-owned energy company has reported that it would be increasing its investments into natural gas pipeline construction.

GRAHAM TYLER Will the Rooster wake up ASEAN’s energy markets?

We are aware of investors and funds interested in Southeast Asia’s energy sector. But there is a shortage of credible, bankable projects. To overcome this mismatch, investors need three factors to make projects bankable. • Credible off-takers and fuel supply. • Predictable long-term returns. • Coherent energy policy and stable regulatory environments. Capital availability The long-term fundamentals remain strong, even if the brakes are being applied to global free-trade. Southeast Asia on aggregate remains a region with low energy intensity levels, and a strong burgeoning youth and young-adult workforce. This combination of demographics and increasing energy usage will continue to drive demand over the next decade. Indeed, the current underinvestment in energy infrastructure will mean that energy shortages are likely to threaten countries like

Myanmar, Indonesia, and Vietnam going forward. We may see an uptick in deal flow, especially in the oil sector as the spread between oil price expectations has narrowed compared to a year ago. As Southeast Asia’s upstream sector matures, we are likely to see more of the large and mid-cap companies make way for smaller niche players. Rooster’s prospects An increase in successful project implementation across the region’s energy sector would suggest that manyofthedelayeddecisionsfromlastyearhavenot been shelved. Suggesting a slow return to business as usual. Southeast Asia’s governments can assist investor confidence by setting out coherent longterm energy policies, aligned to carbon abatement and clean air initiatives. For Southeast Asia, one of the biggest risks in 2017 is the strengthening of the dollar; if as expected the US ends quantitative easing. This would increase project costs and asset valuation in local currency terms.


OPINION

ERIC HO

Renewable energy outlook for 2017

W

elcome to the year of the fire rooster, a year unlike the previous year of the monkey which followed the path of curiosity, the rooster is disciplined and takes charge. The dominating fire element in this year of the rooster expects to bring natural prosperity to fire industries and water industries, as water subdues fire. The energy sector including renewable energy, stock market, and finance are fire elements whilst water element industries are logistics, communication, and shipping. In 2016, renewable energy continued its growth momentum. Fierce competition resulted in the lowest level bids for renewable energy generation worldwide. Costa Rica headlined 250 days running entirely on renewableenergy.Clearly,renewableenergyisnolonger an alternative energy, and how will the momentum in renewable energy be in the year of the rooster? Solar panel prices are dropping rapidly resulting in aggressive costs for solar projects in India, Dubai, and Chile last year. Solar prices have fallen to a point that it is now competitive with traditional power sources. India saw

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et metering started by being a very sexy idea in regards to the development of rooftops. Maybe very similar to the infamous feedin tariffs (Fit)! And as with Fit, it ignored one of the most important ingredient in any business: scale and competition. While Fit failed almost everywhere to be updated and rationalised even leading to procurement processes designed to discover the FiT, it also provided the benefit that almost anywhere in a country with a Fit, all places were viable for the production of RE. Rooftops suffered part of the same drama. They had to be viable to encourage and entice the owners and also for companies to lease their roofs and make money out of it. The idea was to open up the market and let rooftops grow. Then the raise in rooftops lead to problems in the grid and saturation of generation without demand as the rooftop owners were not consuming the power that they generated. The situation eventually became so bad that only generation for self consumption was allowed. Thus can be summarised as: installed PV capacity limited by the contracted capacity, installed PV capacity limited by the real consumption, installed PV capacity restricted to auto-consumption. The last option has somehow killed the market and the reasons are interesting to be enumerated: sun shines weekdays and weekends, sun shines on working days and on holidays, sun shines on lunch breaks, sun shines on good and bad economic times The size of a rooftop for self or auto consumption becomes much smaller and actually much more difficult to determinr than if the grid was the sink 32 ASIAN POWER

installed solar capacity almost doubled that of a year ago to breach 10GW mark as it unveiled the world’s largest solar farm with a capacity of 648MW in the latter part of 2016. Growth in India is expected to continue in 2017 with a strong government mandate, as in Africa with the World Bank’s Scaling Solar program which aims to bring privately funded grid-connected solar projects. Wind power curtailment 63GW of wind capacity was installed worldwide in 2015 and the same number is expected in 2016. By mid-2016, global wind capacity reached 456GW, adding 21GW in the first six months. Already the world leader in installed wind capacity, China is expected to add some 19GW in 2016 to its 2015 lead of 129GW. Nevertheless, wind power curtailment across China also grew as a result of available coal capacity and declining electricity load. Wind power capacity in 2017 is expected to remain about the same as the last two years, with Mexico, Turkey, Canada, andLatinAmerica as the higher growth markets as uncertainties plague China. Hydropower, with its longer gestation periods

and greater development risks, has not seen as much publicity as its renewable counterparts of wind and solar. A technologically mature industry, hydropower has well-established markets in Europe and North America. In 2015, hydropower increased by 33GW bringing its worldwide installed capacity to 1,211GW, with over a quarter in China. Large-scale hydropower continues to be an attractive option for developing countries as many use excess energy as an exportable commodity, as seen in Laos, Bhutan, and Nepal and several sub-Saharan African countries. The global installed small hydropower (SHP, <10 MW) capacity is estimated at 78GW in 2016, representing approximately 6.5% of the total hydropower capacity. Whilst China dominates the SHP landscape, owning 51% of the worldâ&#x20AC;&#x2122;s SHP installed capacity, Asia still remains the region with the highest undeveloped SHP potential, especially China, Japan, and Southeast Asia. Thailand leads the region in solar power capacity with 2.2GW installed in November 2016. Thailand targets 25% renewable energy generation by 2021 through Feed-in-Tariff (FiT) and competitive tender incentives as well as tax incentives. Similar to Thailand, the Philippines has a tradition of having a good regulatory backbone in the power sector, approved 526MW of installed solar power capacity in a tightly contested FiT incentives. Whilst interest in solar power remains high among private developers, the subsequent wave of subsidies which has been recommended to the government has not been rolled out amidst concerns over higher pass-through costs to end consumers.

Agostinho Miguel Garcia

Is net metering the right way for PV rooftops in Asia?

and the meter the money making machine. A PPA under the former circumstances is much more tricky and banks, which are risk averse, will not lend to those projects. What is left then? Clearly: supermarkets, shopping centers, massive manufacturing facilities, any place than runs the whole day for every day of the year. And the rest? Just some PV fans that make take the extra mile and change their patterns to fit into the PV generation and yes, you are right, those that have batteries in their systems as well. So, Asia is betting on net metering to enable PV rooftops to grow and we are around phase a) now. A good example is India. To avoid the same story, which will lead to c) and to the selection of few consumers reducing the market, Asia must see the broader picture. I will pause here to let the readers know that I am not criticizing situation c), I am just saying that it is a much smaller market than the initially envisaged and actually expected.

The way forward is a net metering, but with time of use tariffs (TOU). This is a fundamental shift in the generation costs and also on the demand side, the consumer. We cannot have completely different generation costs being paid by the consumer at the same price, making storage and more flexible power as hydro, biomass, gas, geothermal being compared to either fixed (so called base load) or intermittent (solar and wind) power. That is impossible to result in a fair deal for any of the parties. The idea that fixed costs were meant to pay for infrastructure and variable costs for fuel and energy generated is long gone, as you know well if you live in countries that have huge deficits in electricity sales by utilities, late decision by regulators that must cater to political and social issues. These countries are not only developing countries, but many of the so called developed countries. To actually solve this issue, TOU must be introduced and yes we must stop doing everything in the evening from watching TV to wash the dishes, wash our clothes, play games, etc.


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