Asian Power (July to September 2020)

ISSUE 97| DISPLAY TO 30 NOVEMBER 2020 | www.asian-power.com | A Charlton Media Group publication

AVAADA ENERGY’S BIG FORAY INTO INDIA CHAIRMAN VINEET MITTAL SHARES THE RISKS AND OPPORTUNITIES OF ONE OF THE WORLD’S MOST DYNAMIC ENERGY MARKETS

POLITICAL PLAYS HINDER JAPAN’S ENERGY TRANSITION OFFSHORE WIND MARKETS SURGE IN ASIA INDONESIA RAMPS UP ITS GEOTHERMAL PLAYS INDIA’S $633B BID FOR CLEAN ENERGY PLANTS

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FROM THE EDITOR The third quarter issue of Asian Power in 2020 tackles Indonesia as an incoming geothermal power giant, with its capacity projected to rise from an estimated 2.1GW in end-2019 to 3.6GW by 2029. The Indonesian government is also said to be committed in expanding the industry given its vast potential in addressing the power demand across the country. Find out more on page 20.

PUBLISHER & EDITOR-IN-CHIEF Tim Charlton MANAGING EDITOR Paul Howell PRODUCTION TEAM Janine Balleteros Clarist Zablan GRAPHIC ARTIST Tyrone De Los Santos

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The growth of India’s clean generating capacity over the years has also accelerated remarkably fast, bringing a $633b investment opportunity to build and expand infrastructures. However, this decade is also said to bring new challenges for players in India’s clean power revolution. Read more on page 26.

We also sat down with Avaada Group’s chairperson Vineet Mittal, who shared the behind-the-scenes of Avaada Energy’s rapid expansion in India. He also shared his experiences on establishing the business, how they bagged investments from multiple institutions, as well as opportunities they are looking to grab in the future. Read on what Mittal has to say on page 12.

Start flipping the pages and enjoy!

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ASIAN POWER 1

CONTENTS

20

13

10

CEO INTERVIEW BEHIND AVAADA ENERGY’S RAPID EXPANSION IN INDIA

FIRSTS

SECTOR REPORT GEOTHERMAL GROWTH DRIVEN BY OPPORTUNITIES

FIRST JAPAN’S COAL PLANTS UNDER RENEWED SCRUTINY

ANALYSIS

06 Asia lags in energy transition policy response

22 Asian offshore markets show exceptional growth in 2019

07 Annual offshore growth to be 9GW

26 Acceleration in India’s clean generating capacity

08 Fuel lock-in worsens prices

COUNTRY REPORT 14 Lobbying hampers Japan's energy transition 16 Taiwan’s offshore wind sector stays afloat 18 Bright future ahead for Malaysia’s solar sector

OPINION 30 Offshore wind developers, investors must show their capabilities as they enter Japan

31 Vietnam’s green future and COVID-19 32 Energy resilience in ASEAN: Regional actions in post-pandemic recovery plans

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

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

www.asian-power.com

YOU HAVE TO BE FLEXIBLE NOWADAYS. SO DOES YOUR ENERGY.

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Renewable energy is great. But with renewable energy comes the need for complementary power. And for that, you need INNIO. Our flexible gas engines already run on a variety of special fuels, and we’re working on more! Synthetic fuels, also called e -fuels — such as hydrogen, methanol and ammonia — also can complement renewable energy sources.

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TOMORROW BELONGS TO THE BOLD.

News from asian-power.com Daily news from Asia MOST READ

MARKETS

Asia Pacific power generation to attract $1.5t of investments Asia Pacific’s power generation sector could attract $1.5t worth of investments over the decade, according to Wood Mackenzie. Solar and wind represent 66% or $1t investment opportunities through 2030, whilst fossil fuels make up the remaining $500b.

PROJECTS

Deutsche Bank China to provide $43m trade finance facility to CNTIC Deutsche Bank (China) has provided a $43m account receivable purchase facility to China National Technical Import & Export Corporation (CNTIC) for the construction of a gas-fired power generation project in Myanmar, that will improve the quality of life within the local community.

4 ASIAN POWER

CONSUMER DEMAND

Philippines' power consumption to contract 5.9% by end of the year Power consumption in the Philippines is set to contract by 5.9% this year, with further downside risks, according to a report from Fitch Solutions. The coronavirus pandemic is expected to still weigh heavily on the power and renewables sector in the Philippines in the near-term.

REGULATION

Growth opportunities arise for green hydrogen in Asia Pacific Amidst increasing viability of the technology, government support and investor interest in several markets, substantial growth opportunities can be found in the green hydrogen sector in Asia Pacific.

This is according to a recent report by Fitch Solutions.

POWER UTILITIES

Coal and renewables to put the squeeze on gas The anticipated recovery in gas prices beyond 2022 is said to hurt the economics of gas-fired generation, according to Wood Mackenzie Asia Pacific Vice Chairman, Gavin Thompson. Gas demand in Asia is expected to be squeezed between low cost coal plants and renewables.

POWER UTILITIES

Renewable push falls short of dethroning gas in Thailand Gas is expected to remain a key power source in Thailand, with its share in the power mix tipped to decline from 65% in 2019 to only 60% by 2029. But there are still challenges impeding the speedy buildup of alternative sources, according to a recently-released report from Fitch Solutions.

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FIRST DEMAND SURGE IN APAC ASIA PACIFIC

Dr Bikal Kumar Pokharel, Wood Residential power use is rising in Mackenzie Asia

Residential demand for electricity has been on the rise in most countries in Asia Pacific due to stay-at-home working, affecting around 15-30% of overall load, according to a presentation by The Lantau Group.

In China, residential use climbed 10.2%.

However, consumption from the secondary industry plummeted 92.9%, whilst the hospitality sector’s electricity consumption also fell by a total of 23.1%.

With the rise in residential demand, residential “bill shock” is expected to be an issue, especially for countries with rising block tariffs, which are more common in Asian economies to help subsidise costs for low consumption groups.

The period from February through May also brought in highly variable weather, during what is considered to be the peak period for markets like the Philippines. The potential level of "bill shock" in that market specifically, was expected to be more significant than in previous years.

Outside residential use, there has been a reduction in demand from commercial and industrial (C&I) customers, that would translate into utilities losing more money relative to costs, when C&I sales drop, and make less money relative to costs when domestic sales increase.

This is said to roll forward potential financial losses to be recovered in the future At the same time, a reduction in fuel costs amidst lingering recession could bring potential savings for a given fixed tariff if actual fuel costs are less than embedded fuel costs in the tariffs.

This will more likely offset demand reduction effects—but will play out over time.

The report noted that whichever could win between the two factors will depend on the duration and magnitude of each. Lockdowns are expected to have the greatest depressing impact on demand with material recovery once removed, whilst a lingering global recession would likely keep fuel costs lower, longer.

“Smoothing mechanisms could spread tariff ‘pain’ over time, but some regulatory arrangements that exist currently have no formal longer-term cost-recovery mechanism for non-capex factors to cater for COVID-19 related demand reduction,” Lantau Group said.

The presentation furthered that future tariff reforms and increases may be needed the more the pandemic results in unrecovered costs or accrued losses for utilities. This could accelerate behind-the-meter developments. “[This is] especially if/where domestic customers are protected in favour of raising more revenue from C&I customers and if fuel prices recover,” Lantau Group added.

6 ASIAN POWER

also remain in an existing energy infrastructure, which was built around the fossil fuel industry and cannot cope with the high growth of renewables which is non-dispatchable. These will lead to more grid congestion issues, grid reliability issues and lower-thanexpected renewables project returns, the report noted.

Currently, governments in Asia have been mainly focussing on easing immediate economic fallout through the provision of wage subsidies, unemployment benefits and support to the financial sector.

With this, DBS called for governments to consider aligning their pandemic fiscal stimulus measures to align more closely with energy transition goals, given that non-fossil fuel jobs in the energy sector are much more labour intensive, and employment generation is a key goal in many most, if not all Asian countries.

“The inflection point is behind us, a wait and watch policy is no longer Challenges to persist despite higher renewables demand valid, and legacy players need to adjust business models to embrace the transition, or risk falling behind. In addition, policymakers globally need to take this opportunity to recalibrate their green goals as well, particularly in Asian ASIA PACIFIC countries,” the report stated. lthough the pandemic has Governments Still, with climate change risks now accelerated energy transition should consider firmly established, there has been a worldwide, Asia is still lagging aligning their growing chorus amongst common in enacting policy responses so far, pandemic people, experts, voters, investors, according to a recent report from DBS fiscal stimulus corporates and increasingly even Group Research. measures with Apart from this, general stimulus energy transition policymakers to work towards green and equitable economic growth. efforts will likely only support the goals.

As a result, green financing continues current “brown” trajectories in countries to gain momentum and corporates without sound climate policies. globally are progressively embracing This will then spill-over to the global green energy to boost ESG scores, as climate condition, as the world will be more investors are incorporating ESG unable to meet its climate change goals considerations in their investment if Asia is not on board. China (29%), framework, the report stated.

India (7%), and rest of the Asia Pacific “This will lead to a distinct uptrend in (15%) churn out 51% of global carbon companies procuring green energy for emissions, the report stated. their operations, as well as companies Other near-term challenges still producing green energy for sale or persist even as the long-term uptrend captive consumption,” DBS said. of renewable energy development will remain intact. Pandemic-related risks also continues to be present.

Green and brown stimulus as a share of GDP by region Further, the sector faces renewable supply chain concentration in China, which could lead to unwanted disruptions, as well as manpower issues. Whilst the transition will benefit employment in the longer term, there could be a temporary supply mismatch, lack of training facilities, possibility of pay cuts for workers switching careers and relocation issues.

Furthermore, DBS criticised the lack of political will to remove fossil fuel subsidies in many countries, which have Source: BloombergNEF, DBS Bank “distorted the energy sector.” Bottlenecks

Asia lags in energy transition policy response

A

FIRST As power markets slowly liberalise, there will be growing commercial demand for renewable energy.

Almost 1,500GW of technical offshore wind potential have been identified in the region

Annual offshore growth to be 9GW

A

ASIA PACIFIC

nnual offshore growth in Asia is expected to rise to 9GW a year in 2030 from 4GW, whilst around 5% of potential capacity is expected to be in place, according to Wood Mackenzie Asia Pacific vice chairman Gavin Thompson in his APAC Energy Buzz blog.

Almost 1,500GW of technical offshore wind potential, which offer enormous potential for Asia, have been identified mostly in China, Japan, Taiwan, South Korea, and Vietnam.

This acts as a ray of light in the challenging pathway of Asia to a low carbon future, with coal and gas dominating the markets and expensive technology needed for the region’s energy transition. However, only 0.4%

of the total offshore wind potential is operational in these markets.

Thompson noted that as power markets slowly liberalise across Northeast Asia, there will be growing commercial demand for renewables as costs continue to decline and governments seek to attract investment.

However, he adds that much is still needed to be done. Costs still need to come down by half if offshore wind could be competitive with fossil fuels, along with the increasing competition from other renewables such as onshore wind and solar PV. In addition, ambitious offshore wind targets will be tough to meet without sustained government support.

“Costs will continue to fall with

technology and scaling—average global offshore wind generation cost will be halved by 2028—but without a clear route-to-market that requires policy and financial support from governments, developers will be hesitant to invest in offshore wind,” said Thompson.

On the other hand, China remains as Asia’s largest offshore wind market, with the strongest pipeline of future projects.

A 38GW of new added offshore wind capacity is expected to come online in China by 2029.

However, the government plans to remove current subsidies by the end of 2021, slowing the rate of growth over the next five years whilst costs remain relatively high. Thompson notes that this will show a new record of offshore installations up to 5GW as developers race to complete projects before feed-in tariffs expire next year.

“Thereafter, the pace of growth is likely to slow as China offshore wind needs up to $32/MWh of subsidy to support new capacity additions from 2022 to 2025.

Falling costs should see wind competing without subsidy by 2028,” he adds.

Meanwhile, future growth targets for the rest of Asia are said to be ambitious with the region, excluding China, aiming to add a further 54GW of wind by 2030.

Some markets are taking the lead with Taiwan having approved 5.7GW of projects by 2025.

Original equipment manufacturers (OEMs) are also pushing the boundaries of what offshore wind can deliver, whilst turbines are getting bigger and more efficient. Mainstream offshore turbines that were 6-8MW a few years ago are now being replaced by next generation 10-12MW rated machines.

Thompson estimates the offshore turbine supply chain presents over $200b of opportunity in the next decade.

THE THECHARTIST: CHARTIST:INDIA’S JAPAN’SSOLAR SOLARINSTALLATIONS INDUSTRY IS DIMMER DOWN 81% WITHTO JUST 205MW 20GWINPROJECTED Q2 TO COME ONLINE Solar Japan’ installations s solar power insector India plunged will expand 81%at QoQ robust to 205MW rates through of capacity to 2020 in Q2, as afrom large xIndia Solar Demand Forecast (MW) 1.09GW backloginstalled of projects in Q1, supported according by to feeddata from in tariffs Mercom come India. online.

OnAfter a YoY2020, basis,BMI total installations Research said plummeted that the transition 86% from tothe a 1.51GW reverse that auctions weresystem added in will Q2, slow 2019. growth, as the The Japanese quarter government recorded thelooks lowest tofigures regulate incapacity terms ofadditions solar installations in order tosince reduce Q3subsidy 2014, costswhich and support saw only grid 197MW stability. of capacity additions.

“We expect At the Japan same totime, register investments robust solar in the capacity country’s growth solarthrough sector shrank to 202090% as aQoQ result to $100m of the implementation (IND7.5b). of a substantial pipeline Large-scale of projects installations that benefit duringfrom the quarter a were generous only 120MW, feed-in tariff compared support to 896MW scheme.in Q1.

OurHowever, forecastrecovery is that out isof nota yet 50GW off backlog the table as ofthere such projects, are currently only41.7GW 20GW will of actually large-scale projects come online, underasdevelopment, most will notand be able another to 32.4GW take advantage tendered ofand theawaiting FiT subsidies auction. amid stringent government requirements and Source: BMI Mercom India Research (Jun 2020) Source: Research delays in development,” BMI Research added.

Solar Installation by Quarter (MW)

Source: India Research (Jun 2020) Source: Mercom BMI Research

ASIAN POWER 7

FIRST

Fuel lock-in worsens prices

CHINA'S POWER DEMAND TO INCREASE IN 2021 CHINA

A

SOUTHEAST ASIA

mistaken “lock-in” of fossil fuels, mainly coal, as the source of power generation in Southeast Asia has led to energy instability, high prices, and high levels of subsidy, according to a presentation by the Institute of Energy Economics and Financial Analysis (IEEFA).

The culprit for the high prices is the capacity fee, a minimum payment to ensure that the investor of the coal plant recovers their investment, which is typically a 14-15% internal rate of return (IRR), explained IEEFA’s energy finance analyst Sara Jane Ahmed in the presentation.

Because of this, even if demand drops, consumers or governments still need to pay a minimum payment, leading to a higher per unit price of electricity. This either burdens the end user in the case for the Philippines, or the taxpayer through more government subsidies, which is the case for Indonesia and Vietnam.

In response to this, the force majeure clause in these agreements has triggered negotiations with coal power providers in order to protect government and consumers from inflexible standard clauses of the power purchase agreements.

“However, even with force majeure clauses, when competition from cheaper alternatives enter the market, PLANT WATCH

Locked in coal contracts have led to price instability in Asia

the question is whether end users or taxpayers will be okay to pay for fossil fuel lock in... and will they be willing to pay this high cost for fossil fuels amidst cheaper domestically resource options such as renewable energy,” Ahmed added.

The lack of flexibility is blamed on old regulatory incentives. “Power sector planners assumed that a large system lock-in such as coal would lead to a least-cost system.

But unfortunately, this lock-in for countries has led to inflexibility, price instability and high prices or high subsidies,” Ahmed said.

To reach last-mile electrification and fulfill growth needs in Southeast Asia, IEEFA recommended domestic modular renewable energy systems with storage, which can be more cost effective, whilst being able to supply power at the point of demand.

The region is also urged to lessen its reliance on imported fuel sources, so that it can avoid the ups and downs of volatile commodity markets.

Sara Jane Ahmed

EPA endorses 15GW renewables project

JERA to co-develop offshore wind farms

Laos to consult 684 MW hydro project

AUSTRALIA

JAPAN

LAOS

Western Australia’s Environmental Protection Authority (EPA) has recommended the environmental approval of a 15GW wind and solar energy project in the Pilbara, according to a press release.

The authority recommended that the proposal for the Asian Renewable Energy Hub be implemented. This involves the construction of up to 1,743 wind turbines, solar panels, above and below ground transmission cables and four subsea power cables, covering an onshore and offshore development envelope of more than 662,000 hectares.

Japan’s JERA and French stateowned investment firm ADEME Investissement are establishing an investment vehicle dedicated to financing the development of at least 2GW of floating offshore wind projects across the globe over five years, according to a press release.

This is to ride on the global acceleration of floating wind amidst upcoming tenders for commercial-scale floating offshore wind farms in Scotland and France, as well as an increasing number of initiatives in promising markets such as Japan and the US.

Laos will undertake the Mekong River Commission’s (MRC) prior consultation process for its 684MW Sanakham hydropower project, according to a press release. This is the sixth proposed project on the Mekong mainstream.

In its submitted notification, the Lao government provided a set of engineering documents and a technical feasibility study, including the project’s social and environmental impact assessments and sediment and fisheries study.

The total cost of the project is estimated at $2.073b.

8 ASIAN POWER

China’s power demand growth is expected to remain flat in 2020 and improve to mid-single digit percentage in 2021, as the weaker GDP and exports resulting from a global recession weigh heavily on power consumption for the year, according to a recent report from Moody’s Investors Service.

However, power demand could possibly contract if the global economic recovery is delayed or far weaker than expected because the spread of coronavirus is not effectively contained globally and restrictions on business activity are not able to be relaxed.

Power consumption in China fell 6.5% YoY in Q1, but the growth pace has recovered recently as economic activity gradually resumed following the lifting of nationwide lockdowns. National power consumption volume grew 4.6% in May, compared with the 10.1% drop in February.

China’s installed capacity has quadrupled in the past 15 years to 2,011GW at the end of 2019, supporting the ongoing power demand growth.

Industrial activity accounted for more than 65% of the national power demand, but the contribution from service sectors and residential users is rising. Moody’s attributed this to the ongoing transition of China’s economy to a consumption-led growth model, together with urbanisation progress.

Meanwhile, eastern China, which has a more established economy, represented about half of the national power consumption. Contribution from the western regions of China has been gradually picking up from a historical low base, supported by relatively higher GDP growth in the past few years.

Coal is traditionally the dominant source of power supply in China because of ample coal resources, fairly low generation costs and stable electricity supply, but its pace of expansion has slowed in the past few years, thanks to the country’s decarbonisation objectives.

Further, increasing renewable energy installed capacity, in particular wind and solar power, is consistent with China’s plan to reduce its reliance on fossil fuels and addresses its commitments under the Paris Agreement, the report noted.

Utilisation hours for renewable energy have improved broadly since 2016, driven by favourable power dispatch policies and an expanded transmission network. These utilisation hours are expected to remain stable in the next two years under the power dispatch policies.

Meanwhile, thermal utilisation hours declined from around 5,000 hours in 2013 to 4,300 hours in 2019 because of large-scale expansion in renewable energy and a moderation in national power consumption growth.

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In Print, Online, Mobile, Events, Awards, and Research ASIAN POWER 9

FIRST

Japan’s coal plants under renewed scrutiny

TRANSITION X URGED IN PH

JAPAN

PHILIPPINES XXX

Japan remains the third largest importer of coal.

J

apanese policy remains keen on ensuring long-term energy security and competitively priced hydrocarbons imports with coal fitting the bill for decades, according to APAC Energy Buzz by Wood Mackenzie Asia Pacific Vice Chair, Gavin Thompson.

This follows on from a report that the Japanese government is planning to suspend many of its least efficient coal plants by 2030.

Japan today remains the world’s third largest importer of coal. Wood Mackenzie’s Dr. Frank Yu noted that there has been no formal change to the existing policy announced, and its achievability and whether it would really represent a U-turn on coal should be considered.

The speculation around what plants may be closed has been focused on Japan’s pre-1995 coal-fired fleet but it is more likely that all lower efficiency plants could be targeted, the report said. This shows a significant proportion of the current mix, with around 24GW of currently operating coal plants being considered as "low efficiency" plants.

Should these plants close by 2030, then Japan’s power mix has little option but to become more reliant on nuclear and imported liquefied natural gas (LNG). ‘Lost’ coal generation could reach around 160 TWh by 2030 whilst nuclear would have to be increased and gas would fill most of the resultant gap.

By 2030, up to an additional 13 Mt of LNG could be required to help fill the gap. Any issue with nuclear restarts and LNG demand could be higher still and will inevitably push generation costs up significantly.

Japan is also expected to build over 50GW of renewables capacity out to 2030, including a major increase in offshore wind. However, high costs in Japan could make an accelerated rampup challenging.

Despite this, Thompson noted that Japan is one of the few countries in the G20 that continues to develop new coal-fired power plants. Around 6.1GW of ultra-supercritical and integrated gasification combined cycle coal plants are currently under construction.

Higher operational efficiencies, paired with a significant volume of newer units, would clearly support a continued role for coal in Japan’s power mix. This would also allow the government to continue to push towards its existing 2030 targets to reduce the share of coal in the energy mix to around 25%.

With a mature economy and falling population, Japan’s carbon emissions in the longterm are slated to decline, but are still not falling quickly enough to meet the country’s Nationally Determined Contributions (NDCs) under the Paris Agreement. Japan’s NDC goal is to reduce emissions by 26% below 2013 level by 2030. This target is unlikely to be met without a significant and sustained shift in the energy mix towards zero-carbon energy.

Thompson adds that a more aggressive push to close ageing and less efficient plants would mean Japan will have to ramp up gas, nuclear and renewables, but at what pace and what magnitude of switching remains unclear and would be determined by the timing of plant closures. This would come at huge cost and is likely to also face acute opposition from Japanese industries.

xxx Reliance on coal has led to price surges

The Philippines couldtosee electricity prices Asian Power talked YTLcheaper Power International and a more competitive and Yeoh reliable power Berhad’s CEO Tan Sri Francis about thesector in a post-pandemic era, if it switched its reliance company’s largest projects. on coal power for renewables and if the country could a transition plan through auctions, Tell uscreate about the company’s most stellar according to an Institute Energy Economics power projects to datefor and where they are and Financial Analysis (IEEFA) report. located. report found that the focus baseload AtThe present, we are constructing theon first oil shale coal and reliance on imported fuel have mine mouth power plant with a capacityled of to 2x price surges forutilising consumers that can only be 235 MW (net) the circulating fluidised tempered force technology majeure is invoked.

Without bed boilersif(CFB) in the Hashemite force majeure, per kilowatt-hour would Kingdom of Jordan.

The project isrates located at rise 15% in Luzon and 5% in the Visayas.

Attarat um Guhdran which is 110 km southeast energy finance analyst Sara Jane it is of IEEFA’s Amman.

At a total investment of US$2.1b, Ahmed explained that, although Meralco the largest private sector project in Jordan to date attributed the recent electricity instability a and is expected to meet 15% of Jordan’sto annual spike in residential power consumption due electricity demand. Attarat Power Company to risingwhich temperatures, it may have instead (APCO) is the project company has entered been due to an over-reliance on intractable(PPA) into a 30-year Power Purchase Agreement fossil fuelJordanian plants that are notutility flexible enough with the national and single to meet consumer needs.

Ahmed suggested that buyer, NEPCO for the sale of the entire electric the Department Financeoutput. and theThe National capacity and net of electrical other Economic Authority could push project weDevelopment are currently developing is in Cirebon for an economic recovery by strengthening Regency, West Java, Indonesia.

The 2 x 660the MW country’s electricity market efficient new (net) coal-fired power plantwith will utilise state-ofrenewable energy technologies, whilstThe reducing the-art ultra-supercritical technology. project the cost of electricity. company, PT Tanjung Jati Power Company has IEEFA recommended reforms, such as(PPA) modular executed a Power Purchase Agreement systems/grid upgrades, implementing the Green with PT PLN (Persero) in December 2015. We Energy Tariff, moratorium onnew newopportunities inflexible are always onathe lookout for power, expediting the launch of Energy Virtual in generation whether it is bidding for existing One-Stop Shops, and introducing assets or investing in new projects.competition.

AUSTRALIA

Green hydrogen to support Australian renewables’ growth The increasing viability of the technology as a complement to renewable energy has seen substantial growth opportunities for the green hydrogen sector in Australia over the coming years, according to a report from Fitch Solutions. The rapidly-falling costs of renewables is said to push production costs of hydrogen down and drive adoption of the technology.

As a result, Australia has a high potential to scale up the development of green hydrogen and reach cost parity given the growth in its renewables capacity, which has already depressed electricity prices in recent years. Green hydrogen will also support Australia’s ongoing renewables growth momentum, particularly as the sector has become increasingly saturated.

Regulators have warned of grid stability problems if renewables capacity continues to increase substantially over the coming years. They have mooted several different solutions but they all remain contentious.

The Australian Energy Market Operator is now

10 ASIAN POWER

looking to batteries and large-scale storage facilities as a long-term solution. Green hydrogen would be a viable alternative as it can act as a form of energy storage for excess renewables generation.

Furthermore, this could also be exported to other markets, which would create additional demand for renewables, unlocking more capacity growth previously bound by domestic market constraints.

The development of clean hydrogen production, an export hub and investments into R&D and demonstration projects is also backed by funding and support from the government on both the federal and state levels.

At present, Australia has one of the world’s largest electrolyser pipelines, at over 11GW, which continues to expand.

Whilst most of these projects remain in the pre-construction/planning stages, Fitch’s outlook remains bullish given ongoing progress and continued support from the government, particularly as many states remain keen to support renewables growth.

Australia leads global project pipeline

Source: Various sources, Fitch Solutions

Kim Ang

­ ­

We have always strived to do something innovative, and that could be a pathbreaking thing for my country and for the clean energy industry

Vineet Mittal Chairperson, Avaada Group 12 ASIAN POWER

CEO INTERVIEW

Behind Avaada Energy’s rapid expansion in India The company clinched repeat investments from institutions such as ADB, DEG, FMO and Proparco.

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stablished just in 2017, Avaada Energy has grown to be amongst the fastest growing renewable energy companies in India, with 1GW of capacity under operation and another 3GW under implementation. They are also implementing 1GW capacity solar plants under open access across the country.

Asian Power spoke with Avaada Group’s chairperson Vineet Mittal about his experiences on establishing the business, the strategies that drove its rapid growth, and opportunities they are looking to grab in the future.

“An inherent risk-taker, I started out with a dot com company then ventured into the BPO sector. It was during my time at the IT sector that I started exploring avenues which were aligned to my core value system. In my opinion, we have an inherent responsibility towards nature and the communities that have given us the environment to grow,” Mittal said.

What strategies have you employed to drive Avaada Energy to become amongst the biggest suppliers of solar energy in India?

We are one of the fastest-growing renewable energy companies in India. At Avaada, we believe in working in tandem with nature whether it is our renewable energy projects or our community development initiatives. Our philosophy is inspired by the 3 Ps— Promise, Progress and Partnership. The projects we commission, the initiatives we undertake and the results we produce are all aligned to this philosophy, something that defines who we are.

Our unique strategy interweaves business goals with environmental sustainability and social responsibility, producing mutually beneficial results. By contributing to community’s socioeconomic development in the short-term, we foresee delivery of continual value to our shareholders. Through our community engagement initiatives, we are contributing to uplift the lifestyle of communities we work with.

At Avaada, we know that a company is only as strong as the people who make it. We believe in nurturing a family culture in the organisation—thus every member of the organisation believes in a shared ethos and value system which is being practiced earnestly. This has been one of the basic reasons that a highly competent and experienced team has been working together for the last 10 years. There has been negligible attrition over so many years. We strongly believe in 3 principles: what gets measured, gets managed, gets delivered, inspect what you expect and what gets rewarded gets repeated.

We are adept at leveraging people, process, and technology framework for ensuring continuous improvement. With a strong foundation of family culture, strict adherence to governance principles, and dynamic framework for evaluation for performance improvement we have managed to build a strong organisation which has exceptional expertise in engineering, procurement, construction and O&M. After winning the 320MW solar project in the state-owned NHPC’s auction last April, what are you working on for the rest of 2020 and 2021?

At Avaada we believe that if you think big, bigger things will happen to you and your organization. Avaada Energy has scaled up rapidly and within two years of establishment, it has 1000MW of capacity under operation.

The firm created a solid pipeline of another 3,000+MW which shall be implemented over next few years. We plan to have installed base of 5GW by 2022 and 11GW by 2025.

"We endeavour to optimise costs and increase efficiency with the help of our inherent ability to innovate"

Since 2017, Avaada has crossed quite a few milestones. Please tell us more about the key developments in your company.

Which achievements are you particularly proud of?

We have always strived to do something innovative, and could be a path-breaking thing for my country and for the clean energy industry. We have been one of the largest suppliers of green energy to several government agencies like NTPC, SECI and DISCOMS, which constitute 60-70% of the total business.

At Avaada Energy, we endeavour to optimise costs and increase efficiency with the help of our inherent ability to innovate. Aided by technology upgrading and decline in prices of components, we have managed to reduce capital costs from Rs. 15 crores/MW to Rs. 4 crores / MW in the last seven to eight years.

Furthermore, because of our strong project execution capabilities, impeccable debt servicing record, and professional leadership team, Avaada has managed to bag repeat investments from reputed institutional investors like ADB, DEG, FMO and Proparco. The company has marquee clientele which includes office complexes, global IT companies, hotels etc.

What are the biggest challenges and risks regarding supplying power to India?

As a relatively new industry, the renewable energy sector in India has already emerged as the fastest growing sector. However, there are some issues that have to be addressed to further cement Avaada’s position as an important player of clean energy on the global front.

There is an urgent need for a stable policy regime wherein once a policy has been framed, it remains in place for at least five years without any change. Any modification / amendment must be brought in under extreme circumstances and it should be ensured that its implementation is prospective. Retrospective implementation must be done away with completely. Another issue is dispute resolution between contracting parties. Risk associated with land acquisition, financing, transmission evacuation infrastructure etc. end up hurting us as developers.

This can be eased through an appropriate redressal mechanism within the contract itself.

What valuable lessons have you learned whilst operating in a market as huge and diverse as India? What opportunities do you see for the renewable energy sector?

From the beginning of time, Indian culture has respected and worshipped wind, water, earth, fire and sky. One of the most important lessons I have learned is to always look at the renewable energy business as an opportunity to live this great Indian legacy.

With clean energy in constant state of innovation and with our nation’s green energy revolution led by Hon’ble PM Shri Narendra Modi, India will continue its exponential growth in the renewable energy sector.

With the government committed to its environment sustainability and clean energy targets, these are exciting times for adoption and implementation of clean energy innovations.

Additionally, India is continuously exploring power projects coupled with storage capabilities. There is also a rising demand from large industrial and manufacturing facilities for sourcing solar energy to meet their energy needs.

Further, industrial heating solutions powered by solar energy have made a small advent in the Indian market but over time that should grow as well.

ASIAN POWER 13

COUNTRY REPORT: JAPAN

Lobbying hampers Japan's energy transition Many utilities providers have been turning away from coal generation in favor of renewables.

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mongst G7 nations, Japan seems to be distinctive in a way that it is adding to its domestic coal power generation capacity counter to the global coal phase out trend, according to a report from London-based InfluenceMap. The country is said to have roughly 45 new coal plants in the pipeline. In parallel with this, its public finance assistance of power projects overseas is primarily directed at coal-power with a pipeline of 30GWs of coal projects, mostly in Southeast Asia.

Even as Japan’s power sector is striving to move away from coal, a business lobby group has hampered the country’s efforts to align its clean energy transition consistent with the Paris Agreement targets. In spite of this issue, new renewable sources are gradually emerging, with large-scale offshore wind projects in particular gaining ground.

The research also finds that the Japanese government's pursuit of coal power generation over more accelerated renewable power is misaligned with the business interests of the majority of large Japanese companies. More than half of the Nikkei top 100 companies (53%), representing almost JP¥140t of market value and employing over 3.5 million, have business models that would prefer proliferation of renewable electricity generation, both in Japan and globally, compared to coal.

InfluenceMap’s report says that “very few” have any preference for the coal value chain with a range of Japanese companies having interests in renewable electricity related markets.

Construction and real estate firms have interests in construction and operation of wind, biomass and solar facilities as well as 'zero carbon' buildings that integrate renewable generation.

Japanese materials and technology firms such as Asahi Kasei, Toray, Panasonic, have global strengths in lithium-ion batteries, materials for solar cells, and carbon fiber products for use in wind turbines. Japanese automotive makers are global leaders

JP Fukushima offshore wind farm 14 ASIAN POWER

Large-scale offshore wind projects have been gaining ground within Japan’s energy mix.

in EV technologies that may benefit in many markets where convergence with renewable electricity becomes apparent.

Conversely there are very few leading Japanese companies with the coal value chain key to their business models.

METI-Keidanren-Cabinet’s policy In March, Japan announced its updated Nationally Determined Contribution (NDC), which laid out its commitment to the Paris Agreement, as part of the United Nations Framework Convention on Climate Change (UNFCCC) process. Its submission targeted 22-24% renewables, with less than 2% of this being wind power, and 26% coal in the electric power generation mix by 2030.

This drew sharp criticism from the Japan Climate Initiative (JCI)—a coalition which includes many blue-chip corporations from retail, finance, construction and homebuilding and technology—commenting that the government "did not listen to these voices at all," added InfluenceMap. Another crosssector group, the Japan Climate Leaders' Partnership (JCLP) representing corporations including AEON, Fujitsu, Ricoh and Mitsubishi Real Estate, has called to aim for a 50% renewables target by 2030.

InfluenceMap’s research found that the energy and climate policy in Japan is formulated mainly by the Japan Business Federation (Keidanren), the Ministry of Economics, Trade and Industry (METI) and the Cabinet Office of the ruling LDP party. Keidanren is a federation with over 200 staff and over 100 key industry associations across the economy as members.

All three of them are said to be in support for the development of large-coal power generation by the existing regional power companies over rapid scaling up of solar and wind power in a more liberalized electricity generation market place.

COUNTRY REPORT: JAPAN In this backdrop, the pandemic has compelled the nation to focus on renewables. Das noted that the total solar and wind capacity in the country is expected to grow by over 8%. “The country is eagerly looking into developing utility-scale Solar PV, Floating renewable projects, and energy storage to further develop the renewable landscape,” he said.

Country policies weakened by lobbying

Source: InfluenceMap

On climate change, Keidanren argued for a voluntary, sectorspecific approach. However, InfluenceMap found that only seven sectors showed intensive policy engagement on climate and energy issues through their respective industry association, namely: iron/steel, electric power, automotive production, cement, electrical machinery, oil/petrochemicals and the coal value chain. These only represent 10% of the nation’s GDP. Thus, the report recommended that reforms in transparency and governance will likely be needed in how industry associations interact with the government on policy issues, along with greater engagement in climate-motivated policy by non-fossil fuel sectors.

“Importantly, industry associations representing key economic sectors like healthcare, retail, financial services, logistics, construction, and real estate should be more actively engaged on a range of climate-related policy streams to express their positions and climate goals more clearly,” the report stated.

Utilities ditch coal However, with the potential of greener energy in Japan, as well as the pandemic, utilities have turned their attention from coalbased generation to renewables. According to a statement from GlobalData, Japan has been using this opportunity through decade-long plans to terminate about 90% of the nation’s 114 coalfired power generation units noted to show poor performance and low efficiency. This is said to assist the nation to reduce its carbon emissions and shift towards renewable energy, says data and analytics company GlobalData.

Japan is considered to be a resource-scarce country that relies on coal for about a third of its energy needs, with almost 30-33% of its electricity generation coming from the fuel in the past two years, according to GlobalData’s senior power analyst Somik Das. As the country plans to continue using its high-efficiency coal plants, 100 low-efficiency plants are being planned to be phased out. Furthermore, Japan’s latest Strategic Energy Plan aimed to ramp up the share of renewables and nuclear in electricity generation to 22-24% and 20-22%, respectively, over the decade.

The country also aims to support other developing nations with its coal power technologies. With the country’s inability to build up clean nuclear-based generation, Japan has maintained a target to scale down emission by 26% over the decade, compared to 2013, which might be seen by global environmental authorities as less ambitious.

Meanwhile, nuclear-based generation has been struggling following the 2011 Fukushima crisis, and in 2019 it formed just 2.1% of the total generation. It is expected to only take up 2.5% of the total generation by 2020. “The inability to fully generate from its nuclear sources and the renewables forming an expected 15-20% of the generation for the following few years, the nation is likely to have gone more conservative on its emission reduction target,” Das said.

Somik Das

Offshore wind boost The offshore wind sector is also kicking off in Japan. According to data from the Mizuho Bank revealed in a conference during the World Smart Energy Week, the installed offshore wind capacity is around 65MW as of 2017, and no large-scale projects have yet to be installed. However, there has been a dramatic rise in offshore wind projects undergoing environmental impact assessment (EIA), which is at 15.41GW as of 24 January.

Government support has contributed to this growth. In April 2019, a bidding system was introduced for offshore wind power provision in designated areas, which offers support for offshore wind projects outside port areas. The government has set the key performance indicator (KPI) of having these projects start operation in five areas by 2030.

Mizuho Bank’s senior manager Tae Tamura noted that the potential of offshore wind generation in Japan is much bigger than that of onshore wind, which is estimated at around 613GW vs. 169GW, given its geography as a small island country. Of these, the potential for floating offshore wind, which is better suited for deep sea areas, is about 519GW. However, Japanese companies struggle to enter the original equipment manufacturer (OEM) market on their own, which are primarily engaged in designing the turbine, component procurement, turbine assembly, testing and shipping. Just in Japan, over 70% of wind turbines installed are made by overseas players, and there are local firms who have either withdrawn from manufacturing or stopped receiving orders.

With this, Tamura found it necessary for global wind turbine OEMs to promote local production from the viewpoint of cost reduction. But with the large number of procured parts, a supply chain will have to be constructed that includes assembly, manufacture, test, transport and installation.

“In order to expand the use of floating offshore wind power generation in Japan, it is important for foreign companies and Japanese companies to establish a win-win cooperative structure at an early stage to enjoy the advantages of being the first mover in Japan,” Tamura said.

Furthermore, Japanese companies would also be required to respond to the needs for cost reduction and performance improvement for wind turbine OEMs in order for them to enter the supply chain. Tamura is counting for a possibility that global OEMs and Japanese firms will be able to jointly develop wind turbine components.

Heavy industry sectors dominate policy engagement

Source: InfluenceMap

ASIAN POWER 15

COUNTRY REPORT: TAIWAN

TW JERA turbine

Taiwan’s offshore wind sector stays afloat Investors with neither experience nor capacity in the sector seek new opportunities to buy into existing projects.

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espite the reduction of feed-intariff (FiT) rates and the supply chain disruptions caused by the pandemic, Taiwan’s offshore wind sector continues to remain attractive to investors as it witnessed more local and international investors competing for a share in the market through acquiring a stake in one or more of the projects under construction or development.

The Ministry of Economic Affairs’ (MOEA) announced FiT rates for offshore wind in 2020 fell by an average of 7.64% to $0.17 (NT$5.0946) per kWh. According to Pinsent Masons consultant John Yeap, this has received some opposition from developers—wpd Taiwan Energy chair Yuni Wang was reported to have criticised the FiT rate to

The offshore wind sector has witnessed an increase of investors competing for a share in the market

Top markets with offshore wind project pipeline

Source: Fitch Solutions Key Projects Database 16 ASIAN POWER

be “unreasonable” and failing to “reflect the true costs of building offshore wind farms in Taiwan.” “[The FiT cuts] received some opposition from developers, although globally FiT does decline given increasing economies of scale and localisation in the sector,” Yeap said.

Yuni was also said to have commented that wpd might have to renegotiate contracts with their local and foreign suppliers due to the new rate, adding that this might lead to a delay in the development of the wpd’s projects.

On the other hand, the ministry has said in an interview that wind energy developers have yet to provide convincing evidence to support their claims of high costs, and claims that the new tariff is the result of consulting experts on the matter and that last year’s rates cannot be maintained.

A note from Fitch Solutions explained this decline jeopardised the economic feasibility of some existing projects in the pipeline and worsened the risk of delays.

“Whilst we acknowledge that the new FiT rates might pose some downside risks to our wind forecasts for the market, we maintain our bullish outlook and will continue to monitor the market closely,” Fitch added.

In response to such criticisms, the

Ministry said that developers have yet to provide “convincing” evidence to support their claims of high costs, Yeap added, saying that the new tariff is the result of consulting experts on the matter and that last year’s rates cannot be maintained.

Backing this, Fitch noted that the final decision came after three rounds of public hearings in Taipei, Taichung and Kaohsiung respectively, which may suggest an adequate consultation and decision-making process. In contrast in 2019, the unexpectedly steep cuts caused major developers and investors, including Ørsted, to suspend their projects. The government later compromised on the 2019 rates following the backlash.

Furthermore, Fitch believes that the new prices remain relatively attractive to investors, noting that Taiwan’s first offshore wind capacity auction registered winning bids of $0.076 (NT$2.2245) to $0.087 (NT$2.548) per kWh, far lower than the FiTs offered. The fall in tariffs will be countered by rapidly falling technology and development costs for offshore wind.

In particular, the development of its first batch of offshore wind projects—such as Ørsted's Formosa 1, or Changua 1 and 2a—is expected to help put in place an equipment supply chain, enabling greater cost reduction on future projects.

“Whilst higher FiT rates are needed to

COUNTRY REPORT: TAIWAN Feed-in-Tariff rates in Taiwan

John Yeap

Source: Ministry of Economic Affairs

support the substantial upfront supply chain investment required, future projects will become much more cost-competitive, as project developers can tap into a then established domestic supply chain, and also from synergies from existing projects,” the report stated.

Also driving down costs throughout the wind power supply chain and making wind projects more cost-competitive is the development of more powerful offshore wind turbines will reduce the required number of turbines required on new projects. “Wind turbine manufacturers continue to make advancements towards the commercial deployment of larger, more powerful offshore wind turbines that are equal to or exceed 10MW in size,” the report stated.

Pandemic headwinds Amongst the markets that showed to be most effective in fending off the COVID-19 pandemic, Taiwan’s economy never needed to shut down like many other countries across the globe, and everything is still operating as usual.

However, there was no way to avoid interruptions off its offshore wind supply chain, as a large part of it is still based in badly-hit Europe.

“Given that a large part of the offshore wind supply chain is still based in Europe, which is badly affected by the pandemic, the production of various components and the assembling of the wind turbines have been affected. Also, Taiwan's border was shut to foreigners until recently, so some technical experts were unable to travel to Taiwan to carry out their work,” Yeap said.

Although the supply chain slowed, the determination and enthusiasm of the sector did not. Yeap noted a Reuters report of Ørsted Asia-Pacific president Matthias Bausenwein saying that their investment decisions and general confidence in the offshore wind sector will not be influenced by the pandemic, even though it could delay the timeline of their projects.

However, aside from the pandemic, challenges for Taiwan's growing offshore wind energy market such as unique geographical features, local content requirements, insurance market capacity and gaps in local infrastructure and skilled labour still remain. Yeap notes that whether these challenges can be overcome in time to comply with the schedule is yet to be seen.

Appeal to investors remains strong The outlook for the sector remains bright for the next six or twelve months, as offshore wind is still in its nascent stage in Taiwan and wider Asia, it remains a sector with huge potential. The market is still expected to attract more local and international investors, as more projects approach completion and investors without experience and financial investors without capacity in the sector look for opportunities to buy into an existing project, Yeap said.

It is already seeing more players enter the market, as evidenced by acquisitions of a majority stake in Yushan Energy by Stonepeak Oceanview, and a stake in Zhangfang and Xidao Wind Farms by Taiwan Life Insurance and Transglobe Life Insurance. Also, the Yunlin Off shore Wind Farm by EGCO Group was acquired by a consortium comprising Sojitz, JXTG Nippon Oil & Energy, Chugoku Electric Power, Chudenko, and Shikoku Electric Power.

German investors have also been gravitating towards Taiwan’s offshore wind market, seeing it as a nascent market with abundant opportunities and an important gateway into Asia. Yeap expects to see growing interest from European investors in the future.

WPD was amongst the first international investors to be allocated with capacity in Taiwan, and now has one project under construction—Yunlin Offshore Wind Farm with a capacity of 640MW. Another project will commence construction in 2021, namely the Liwei Offshore Wind Farm with a capacity

of 350MW, whilst two others are under development. Furthermore, it has been reported recently that wpd will work with a local Taiwanese developer the Lealea Group to develop an offshore wind farm in Changhua that has passed the EIA but yet to be allocated with capacity.

Energie Baden-Württemberg AG (EnBW) also picked Taiwan as its first offshore wind markets outside of Europe, pushing with the development of the 2GW Formosa III in Taiwan along with Macquarie and JERA. Furthermore, RWE Renewables has also established a presence in the market, joining with Asia Cement Corporation in Taiwan to further develop the up-to-448MW Chu Feng offshore wind project.

“With the exception of Mainland China, Taiwan is leading the region in terms of government policy, legal framework, projects under construction, projects in development, and future plans.

It already has 5.5GW in the pipeline from 2020 to 2025, and has plans for more generation capacity coming online from 2026 to 2035,” Yeap added. Furthermore, the demand for green energy in Taiwan is growing rapidly, which offers an alternative to selling electricity to Taipower and could, in fact, potentially be more lucrative.

Whilst investors will always want to have higher tariffs and greater flexibility around procurement requirements such as the extent of local content requirement, such concessions are unlikely to happen as the Taiwanese government is under pressure from the public to keep the cost of establishing a supply chain in Taiwan and the cost of electricity for consumers as low as possible. Instead, the government can enhance investor interest through ensuring regulatory certainty so as to reduce risks for investors, as well as providing a steady pipeline for growth.

Fitch Solutions projected Taiwan to add a net wind capacity of approximately 5.8 gigawatts (GW) over the coming decade, and account for 7.9% of total electricity generation by 2029. In the long term, capacity for both onshore and offshore is projected to grow by an annual average of 23% between end-2019 and 2029 to reach under 6.7GW by the end of the decade.

Taiwan is set to attract more investors as projects approach completion ASIAN POWER 17

COUNTRY REPORT: MALAYSIA

Bright future ahead for Malaysia’s solar sector Unhindered by current economic uncertainties, total solar capacity could more than double by 2029.

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ith Malaysia’s solar tenders being successful and with floating solar technology gaining ground across Southeast Asia, analysts are bullish that the country’s solar sector is in for a robust growth spurt, even amidst pandemic headwinds.

To kickstart the economic recovery, the Ministry of Energy and Natural Resources (KeTSA) launched a 1GW tender in 2016 under the Large Scale Solar (LSS) programme. On 31 May, it launched a new round of solar auctions with a targeted capacity of 1GW, its solar auction to date. The maximum bidding capacity has however been lowered to only 50MW, with a maximum of three bids per developer, to attract more investors. The submission deadline is within three months, and the projects are expected to begin implementation before 2020, with COD latest by 31 December 2023.

With both auctions, the government hoped to revitalise the economy with the auction amidst the COVID-19 outbreak. They have expressed high hopes from the fourth round, especially considering the current scenario and its impacts on the economy, a GlobalData report noted.

Analysts are also optimistic about the tenders—despite the uncertain economic and financing environment. Fitch Solutions noted the country's significant oversubscription in previous solar auctions, citing the previous round in September 2019, which had a target of 500MW but attracted more than 112 bids for a total of more than 6.7GW of generation capacity.

Bid prices went to a record low of $0.0416 (RM0.1777) per kWh, falling lower than the price for gas-fired power.

Local bidders are also likely to greatly benefit from a drop in the levelised cost of electricity (LCOE) from $88/MWh, GlobalData’s senior power analyst Somik Das said. He noted that

Malaysia's solar capacity surged 64% in 2019 18 ASIAN POWER

Malaysia’s cumulative solar PV capacity is expected grow 8% to about 1.1GW in 2020.

the LCOE for renewables remains significantly higher compared to coal power plants, but this is expected to decrease if not vanish in the next eight to nine years.

“Besides, the LSS 4 provides the opportunity of creating almost 12,000 employment opportunities. This is expected to stimulate the economy and help the nation propel through the existent stagnancy,” he added.

Malaysia's solar capacity surged 64% to an estimated 882MW in 2019. Fitch projects for the country to add a net capacity of around 800MW from end-2019 to 2029. Considering the effects of the pandemic, Das expects Malaysia’s cumulative solar PV capacity to grow 8% to about 1.1GW in 2020, which would serve as a growth shot to an ailing economy to fight the crisis.

“Whilst we expect some near-term project delays to weigh on growth in 2020 due to the Covid-19 outbreak and ongoing political uncertainties, we have revised our longer term growth forecasts up slightly given the rising traction and investor interests in the sector,” Fitch Solutions said in its report.

In the first round of the LSS in 2016, the government allocated 250MW in the country. In the second tender in 2017, 360MW was allocated in the peninsula and 100MW across Sabah and the islands of Labuan.The third tender went undersubscribed by 10MW, where bids for 490MW were lodged.

Floating solar emerges The development of floating solar technology has also been taking off across Southeast Asia, according to a report from the Institute for Energy Economics and Financial Analysis (IEEFA).

Up to 2019, total installed capacity of FPVs amongst ASEAN countries was mostly below 1MW. This has changed drastically with at least five countries, including Malaysia, recently

COUNTRY REPORT: MALAYSIA countries from the risk of volatile fuel prices and the expensive supply logistics of the global fossil fuels market.

“The geography and demographics of ASEAN present a distinctive opportunity for floating solar,” added Hamdi.

Large-scale floating solar plans of ASEAN countries

Source: IEEFA database

announcing large-scale floating solar plans.

In August 2019, a local engineering firm entered a partnership with a Chinese inverter maker to jointly develop such solutions, whilst in October 2019 a Chinese solar manufacturer secured a contract to supply 150MW of PV modules to fully power a floating PV park.

Energy finance analysts Sara Jane Ahmed and Elrika Hamdi noted that power demand in the Philippines and Malaysia has dropped by as much as 16% during the lockdown, causing extreme stress to electricity grids due to excess power.

“If the COVID-19 outbreak is to teach one lesson, it would be that utility companies need agile operations, not outdated power stations that burn coal 24/7 and cannot respond quickly to sudden changes or outages,” Ahmed said.

IEEFA’s research revealed that more ASEAN countries are building solar farms that float on rivers, dams, lakes and reservoirs, and even on sea, to produce clean electricity at prices that could compete with power from polluting coal-fired plants.

Further, the report found that solar farms are best installed near hydropower facilities and piggyback existing connections to electricity grids.

Floating solar power could also balance out the peaks and troughs of consumer demand in complex electricity systems. “The combination of floating solar and hydro on existing dams and reservoirs trumps the economics of adding new baseload coalfired power plants on grid systems such as the Java-Bali network that already have generation overcapacity,” Hamdi said.

Floating solar installations have also proved that they can withstand typhoons, powerful waves, and winds gusting up to 170 kilometres an hour, with offshore FPV now being tested by manufacturers. For Southeast Asian countries, the decision to install FPVs is based primarily on the economics of existing grid infrastructure and the issue of land scarcity.

“Focusing on the economics of generation assets in isolation does not make sense because of the need to invest in transmission lines. A grid-level solution, considering the cost of generation plus transmission requirements, is key,” says Ahmed. It also helps with energy security, avoiding the cost of coal imports, which is often still preferred in the far east where new plants continue to be planned and built.

It is also possible to get competitively priced generation through technology-specific auctions of power, and Southeast Asian countries stand to benefit.

“Further, water-borne solar installations are much quicker to build than fossil-fuelled power stations and can be ready in a matter of months, while coal, gas, hydro generators take up to three years to build, and nuclear plants take much longer (still),” says Hamdi.

The report also adds that clean energy sources, such as floating solar power, can also help insulate coal-importing ASEAN

Sara Jane Ahmed

Elrika Hamdi

Somik Das

Local manufacturing sector boost On top of these, Malaysia's solar sector is also particularly well poised for more growth, according to Fitch Solutions. Besides having relatively high irradiation levels in the country, Malaysia already has an established solar manufacturing sector, although most of the solar equipment is exported at present. Fitch notes that the continuation and success of solar tenders present a sizeable upside risk in the market Although most of the solar equipment is currently being exported, the expanding domestic manufacturing base for renewables components will be able to ensure that there is a reliable and low-cost supply chain for project developers, enabling them to capitalise on falling technology costs.

“We believe that this will be a key supportive factor to the Malaysian solar industry over the coming years, as greater numbers of manufacturers set up in the country,” the Fitch Solutions report stated.

One of these for example is PV firm LONGi Green Energy Technology announced in 2019 that it plans to build a new 1GW monocrystalline solar cell manufacturing facility in Malaysia, in the Shama Jaya Free Industrial Park, Kuching City. It later announced that it will invest an additional $117m (RM500m) into the plant in late 2019.

Fitch also noted that the Malaysian government's commitment to the domestic renewables sector has strengthened of late, and a number of regulations have been put in place to entice investments into the sector.

In particular, the government is looking to introduce more financing incentives into the sector, such as those similar to the Green Investment Tax Allowance and Green Technology Financing Scheme 2.0, which has already attracted many private investors. It also plans to launch a Renewable Energy Transition Roadmap 2035, which aims to boost the country’s share of renewables in the power mix to 20% by 2025.

Fitch believes that the roadmap will have provisions and more specific actions to accelerate renewables growth, and may include strategies such as peer-to-peer electricity trading or transitioning towards a mandatory renewable energy certificate market system.

“Whilst we now expect some delays and uncertainties to policy making given the domestic political crisis in the country, alongside headwinds from the COVID-19 outbreak, we believe that this is largely in the near term and the government is likely to retain an ongoing commitment to boosting the sector, particularly as it has highlighted 'Green Growth and Energy' as one of their economic diversification efforts over the longer term,” the report added.

Total installed solar capacity in Malaysia

Source: EIA, IRENA, National Sources, Fitch Solutions ASIAN POWER 19

SECTOR REPORT: GEOTHERMAL

Geothermal growth driven by opportunities Indonesia is expected to overtake the US in leading the global geothermal power sector.

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espite milder growth in the global geothermal sector, Asia is slated to be one of the regions with the largest amounts of geothermal capacity installed over the coming decade alongside Central and Eastern Europe.

Together, Fitch expects these regions combined to account for approximately 74% of the global total geothermal capacity additions between 2020 and 2029.

However, geothermal growth will be driven by only a few key markets— particularly in Indonesia—as these resources are restricted to tectonically active areas, and remain fairly dispersed across regions.

Incoming geothermal giant Indonesia is expected to overtake the US to become the largest geothermal market globally by 2022, with its geothermal capacity projected to rise from an estimated 2.1GW in end-2019 to 3.6GW by 2029.

The country is situated in Southeast Asia at the intersection of many tectonic plates, giving it considerable geothermal potential, but most of its potential reserves remain unexplored.

The main geothermal plants are spread

Many government policies are helping investors explore reserves of geothermal energy in Indonesia.

across Java, North Sumatra, and North Sulawesi, constituting less than 3% of the total installed generation capacity.

Expanding the geothermal industry is said to be a key priority for the Indonesian government given the vast potential for geothermal power generation in the country, estimated at about 28GW, the baseload nature of the resource and continued elevated power demand across the country.

Just in 2019, Indonesia added about 185MW, following the 135 MW installation in 2018. The Indonesian government has set a target of 23% renewable energy in the energy mix by 2025, meaning that its geothermal power capacity is expected to reach 7GW by 2030.

“Many government policies and resolutions are helping to explore reserves of geothermal energy.

Approximately 80% of the country’s geothermal reserves are in conserved forests, and the development of projects in these areas requires a presidential decree,” said Ankit Mathur, GlobalData's Practice Head of Power.

According to IEEFA analysts, theseis includes changing regulations i.e. geothermal energy is not categoriszed

Asia is expected to have a significant amount of geothermal capacity installed over the coming years 20 ASIAN POWER

as part of the mining sector, hence giving it a better playing field when applying for forestry use permits.

Aside from these, the Ministry of Energy and Mineral Resources is also looking to complete a regulation on electricity tariffs and geothermal drilling and exploration by the end of this year to mitigate some of the risks and encourage more investments into the sector.

“The implementation of the country’s feed-in tariffs (FiT) for geothermal is expected to offset the high capital costs associated with geothermal production and promote more investment in the region and is considered a successful initial move for the geothermal sector,” said Mathur.

Under its “Roadmap for Geothermal Resources,” Indonesia pursues a strategy of managing geothermal work areas (GWAs) selected by private companies and offers unique tax incentives for the geothermal industry.

The programme provides incentives for the private sector to use certified emission reductions (CER) to raise carbon revenue.

GlobalData estimates that the country will represent around 60% of the new installations in the APAC

SECTOR REPORT: GEOTHERMAL Indonesia to be largest global geothermal market by 2029

Ankit Mathur

Sources: EIA, IRENA, National Sources, Fitch Solutions

region by 2025. In a highly optimistic scenario, this could even represent a 75% share in the new installed capacity within the APAC region.

However, IEEFA analysts noted that the problem with geothermal projects in Indonesia for the past three years has been around the economics of the project, that cannot compete with the current Building Performance Prediction (BPP) regulation. Also, 80% of geothermal potential lies in conservation forest, making forestry permits a real headache for developers.

Geothermal is not expected to hasten unless the new tariff regulation is set in the upcoming Presidential Regulation for Renewable Energy. It is said that the geothermal players are lobbying to get fixed feed-in tariff instead of maximum price limit, to avoid having prolonged negotiations with PLN. Other obstacles in developing geothermal energy in Indonesia include policy inconsistencies, bureaucracy, lack of decent infrastructure, high investment costs such as high exploration, engineering and procurement costs, as well as higher than average risks.

Other key markets By 2025, the majority of the growth amongst the APAC geothermal markets is likely to come from Indonesia, Philippines, and Japan. In the longer term, China is also likely to join the group as it improves its technology and formulates the policy landscape during the learning curve, according to Mathur.

The pre-development risks associated with geothermal technology are high, which is a key reason for the slow development of this technology.

Policy measures, which are mostly targeted at solar and wind sectors, need to be geared towards tackling the challenges in the way of geothermal

energy development.

Japan can look to continue favourable FiT as fundamental policy, a better energy mix policy, as well as reduced time taken for environmental assessment in developing renewable energy sites to extract more renewable energy from geothermal.

On the other hand, China is still at an early stage in developing of geothermal power generation.

However, the country has took the lead in developing geothermal resources for heating purposes. This has resulted in enabling the government to put forth concrete steps towards carbon mitigation and decarbonisation across the power sector.

Many integrated energy companies have also laid down expansion plans for geothermal heating development plans. Reduction in the subsidy and preference to wind and solar projects than other renewables, huge upfront capital requirement for geothermal as compared to wind and solar are just some of the factors that holds wide spread of geothermal development for power generation.

IEEFA analysts noted that China may formulate support for geothermal power generation and on-grid tariff policies to address these issues, as well as strengthen the geothermal energy production and generation management systems and technical standards and enhance geothermal energy creation and usage planning and project management.

Meanwhile, the Philippines is highlighted as one of the global geothermal outperformers, with the country having some of the highest installed geothermal capacity levels across the globe. In fact, by 2029, the country is expected to have the fourth largest installed geothermal capacity in the world.

On an annual average basis, the Philippines will have the second

largest geothermal capacity in the Asia region and fourth largest globally over the next decade, according to Fitch Solutions. The country showed a strong existing capacity despite the limited growth forecast for the country posing a downside risk with growth coming mostly from the country’s strong existing geothermal capacity and forecast limited growth in the renewables sector.

Mathur believes that implementing guaranteed power purchase price under FiT for geothermal can help the Philippines to boost its efforts in unearthing currently unexplored geothermal potential.

Gathering more steam Amidst the pandemic, the outlook for the geothermal sector has barely derailed. On the contrary, GlobalData firmly believes that the pandemic has increased the intent of the governments to diversify away from fossil fuel generation to planning increased participation from renewable energy sources.

The APAC geothermal market seems to be hitting the right notes with the pandemic providing the ample push for the APAC nations rich with geothermal resources to develop the resources for both power and heating purposes, said Mathur.

The market, which has been stagnant due to lack of policy measures and development intent from the governments, is likely to gather steam as renewables gather higher importance amidst the COVID-19.

Energy security and dependence along with de-carboniszation of the generation mix will help expand the geothermal resources at a faster pace.

IEEFA analysts further noted that the private sector will play a larger role in delivering large investments and expertise required for the development and maintenance of geothermal projects amongst others, particularly in Asia if it is willing to take on the somewhat higher risks.

Globally, geothermal power capacity is expected to grow by an annual average rate of 2.5% between 2020 and 2029, to reach slightly over 18GW by 2029, Fitch Solutions said. This total installed capacity is notably lower compared with other renewable energy technologies, particularly in wind and solar power.

By the end of the 10-year forecast period, the geothermal segment will comprise just 0.7% of global installed non-hydroelectric renewables capacity and around 2.0% of total non-hydro renewables generation.

ASIAN POWER 21

ANALYSIS: OFFSHORE WIND

Offshore activity levels in Asia keep increasing, with China now taking the lead

Asian offshore markets show exceptional growth in 2019

Activity and development of the industry continues to grow within the region.

W

ith 6.1 GW new capacity added, 2019 was the best year in history for the global offshore wind industry, according to Global Wind Energy Council’s (GWEC) Global Offshore Wind Report.

The global offshore market grew on average by 24% each year since 2013, bringing the total installations to 29.1 GW, which accounted for 5% of total global wind capacity at the end of 2019. The UK, Germany, China, Denmark, and Belgium were noted as the top five offshore wind markets in total installations.

Meanwhile, Europe remains the largest offshore market as of the end of 2019, making up 75% of total global offshore wind installation. However, the activity level in Asia keeps increasing with China taking the lead followed by Taiwan, Vietnam, Japan, and South Korea.

Development in the Asian offshore markets was remarkable with China achieving a new record in 2019, installing 2.4 GW offshore wind in a single year and Japan accelerating offshore wind development with its first offshore wind auction launched in summer 2020.

Positive steps were also made in Taiwan as it connected its first utility-scale offshore project to the grid. A further 10 GW is also planned to be built offshore from the island between 2026 and 2035, on top of the 5.6 GW offshore wind to be installed by 2025.

Changes in the Asian offshore markets Japan built Asia’s first offshore wind 22 ASIAN POWER

China will continue to dominate the Asian offshore wind market in the first half of this decade.

project with two units of V47-660kW turbines in 2003. However, GWEC notes that the Asian offshore market was not ready to take off in earnest until 2014, when the Chinese central government released the National Offshore Wind Development Plan (2014-2016).

In 2017, China passed the 1GW annual installation milestone; one year later, it surpassed the UK as the world’s top market in new installations.

At present, project developers and investors are rushing to commission their projects before the end of the 2021 deadline in order to capitalise on the 0.85RMB/kWh FiT for offshore wind.

Considering the extraordinary volume of new capacity (4-5 GW/year) will be built in 2020 and 2021, GWEC Market Intelligence expects China will surpass Cumulative installations

Source: GWEC Market Intelligence

the UK as the world’s largest offshore market in total installations by 2021, if not 2020. However, new installations will decline dramatically from 2022, when the central government will terminate the subsidy for offshore wind. Annual offshore wind growth in China in the future will depend on whether subsidies provided by provincial governments will be available and whether offshore wind industry can reach grid parity before 2025.

GWEC Market Intelligence’s market outlook predicts that China will continue to dominate the Asian offshore wind market in the first half of this decade, with more than 70% market share, whilst Taiwan is expected to be the largest offshore market in Asia after China.

However, the report notes that the scales will tip from 2025, when more utility-scale offshore wind projects get connected in Japan, South Korea, and Vietnam. China’s market share in this region is likely to drop to 58% in 2025 and will continue to decline when offshore projects expand to new markets with high resource potential, like India and the Philippines, towards the end of the decade.

Moreover, the average annual growth rate in Asia will stay at the level of 1.7% in the first half of this decade, but is likely to increase to 8.4% in the second half. China (52 GW), Taiwan (10.5 GW), South Korea (7.9 GW), Japan (7.4 GW), and Vietnam (5.2 GW) are expected to be the top five markets in this region for new installations in the decade.

However, the report notes that excluding China, the Asian offshore wind market is still at the early stage of development.

Each market is facing the challenge of developing a local supply chain and the necessary competencies and capabilities to build an offshore wind industry.

The early experience from Taiwan has proven that collaboration with European partners across markets in this region is essential for success. .

GWEC Market Intelligence predicts that Europe will still remain as the largest

ANALYSIS: OFFSHORE WIND The new Offshore Wind Taskforce will play a key role in developing a sustainable wind industry in Japan.

Global offshore wind growth to 2030

Source: GWEC Market Intelligence

regional offshore wind market in terms of total installations by 2025 and 2030.

Nevertheless, Asia’s share of the global market is expected to grow from 24% in 2019 to 42% in 2025, where it is likely to remain until the end of the decade.

Emerging markets Taiwan Taiwan is heating up as the secondlargest offshore wind market in the Asia-Pacific region, after Mainland China. Ambitious capacity targets set by the DPP government have attracted eager interest from leading offshore wind developers and technology providers.

Already, 128 MW of offshore capacity has been installed at Formosa 1, Taiwan’s first commercial-scale offshore wind farm in Miaoli County, and a further 109 MW is due to come online from the Changhua County project by the end of 2020.

Offshore wind is a key component of Taiwan’s green economy vision, which charts a nuclear-free pathway to generate 20% of electricity through renewable energy by 2025. The government is aiming to install 5.7GW of offshore wind by 2025, and in late 2019 announced that it would double its ambitions to 10 GW over the 2026-2035 period. While the 5.7GW tranche was procured across a selection round and auction, the next 10 GW (termed Round 3) will likely be conducted across two phases.

Following government delays due to COVID-19, a draft version of the Round 3 framework, including how much volume will be allocated and when, is due to be published by end of this year, with the first phase of allocation conducted from Q2 2021 to Q2 2023.

Critical to the steady progression of the market will be the government’s localisation strategy, which aims to consolidate the entire supply chain in Taiwan, from turbine components to submarine cables to shipbuilding. The industry must balance growth with local content requirements that are expected to

be higher in Round 3.

Within the year, positive signs have already been marked by announcements for an MHI Vestas-Tien Li blade manufacturing facility in Taichung, an SGRE nacelle production facility in Taichung and CDWE’s work on the first Taiwan-built offshore wind installation vessel. But how flexible the localisation requirements are in the forthcoming Round 3 framework will be key to determining whether the nascent offshore wind industry can develop into a sustainable and competitive market.

Over the next decade, Taiwan will achieve more than 10 GW of installed offshore wind capacity, becoming an experienced market with an established domestic supply chain.

Japan Japan’s offshore wind market has taken time to develop, with the first pilot projects going into the water back in 2003.

In the years following the Fukushima nuclear accident in 2011, there was renewed commitment and activity, with both fixed and floating foundations being deployed at faster rates.

To date, no commercial-scale offshore projects greater than 20 MW have been installed and the development of a viable market structure is emerging at a slow pace. But 2020 marks an inflection point for Japan’s offshore wind sector.

The government launched the first offshore wind auction in the general common sea in June 2020 and the other four promising sea areas nominated in July 2019 are ready for auction after the approval on 21 July 2020, four more sea areas were nominated as promising area in the same month.

In March, GWEC and the Japan Wind Power Association (JWPA) set up a new Japan Offshore Wind Taskforce (JOWTF), which will play a key role in working with the government to develop a sustainable wind industry, as well as produce a detailed Cost Reduction

Study to identify different price/ volume scenarios and investment and industrialisation opportunities.

The feed-in tariff (FiT) for wind power was approved in Japan in 2012, but the tailor-made offshore FiT was not available until March 2014, when the Ministry of Economy, Trade and Industry (METI) approved the ¥36/kWh (€0.28/kWh) FiT for offshore wind. Despite the rate being the highest available anywhere in the world for offshore wind, Japan only had 66 MW of offshore wind installed by the end of 2019, including five floating turbines (totaling 19MW) and 23 nearshore wind turbines.

The slow uptake is attributed to Japan’s overly complex Environment Impact Assessment (EIA) system and market uncertainty. It can take four to five years to pass through Japan’s strict environmental assessment process, and the lack of clarity and coordination between different government bodies has prompted industry to call for a “one-stop shop” approach. As of January, 14.8 GW of offshore wind projects were recorded in the EIA pipeline.

To address these challenges, the government has been streamlining regulation since 2017. Further progress was made in 2019 with METI and MLIT announcing the first nomination of 11 offshore wind promotion zones in July for fiscal year (FY) 2019. Four of these zones (Goto in Nagasaki, Choshi in Chiba, Yurihonjo in Akita, Noshiro in Akita) have been nominated as promising areas where local authorities and residents have agreed to cooperate to develop offshore wind projects.

Although COVID-19 prolonged public consultations, METI and MLIT launched Japan’s first auction in July for a floating offshore wind farm (8 turbines, not less than 16.8 MW) off Goto City in Nagasaki Prefecture, to run until December 2020.

According to METI, the operator will be selected in June 2021. The other three promising areas nominated for FY2019, were nominated as the zones for promotion of offshore wind on 21 July 2020. Of these areas, the Yurihonjo area in Akita has been divided into two areas, Yurihonjo North and Yurihonjo South, to promote competition.

Furthermore, METI & MLIT announced the second nomination of 10 offshore wind promotion zones in July 2020 for FY2020. Four of these zones (Aomori Japan Seaside North, Aomori Japan Seaside North South, Happou and Noshiro in Akita, Saikai in Nagasaki) have been newly nominated as particularly promising areas.

Offshore wind in Japan’s long-term energy strategy Japan has hesitated to announce a long-term offshore wind ASIAN POWER 23

ANALYSIS: OFFSHORE WIND Candidate offshore wind promotion areas in Japan

Source: METI, MLIT, JWPA

target because the METI still maintains its commitments with the nuclear and coal industries. The official wind power target in Japan is only 10 GW by 2030, including both onshore and offshore, representing 1.7% of the country’s annual electricity production. This situation, however, is expected to change gradually.

The trends of global energy transition and decarbonisation have made the Japanese government change their future energy plan. METI’s minister Hiroshi Kajiyama recently declared the closure of 100 old & low performance coal-fired power plants by 2030 (out of 140 existing coal-fired power plants) and announced that the country’s energy strategy would prioritise decarbonisation over the current “energy mix” plan (fossil, nuclear and renewables).

This change will be reflected at the next “Japanese long-term energy vision,” which is due to be revised in 2021 (it is revised every three years).

As coal-fired generation supplies about one-third of Japan’s electricity,renewable energy and particularly offshore wind is expected to play a big role to fill the gap.

A more streamlined regulatory environment has drawn the attention of large local utilities including TEPCO, which signed an MOU with leading offshore wind developer Ørsted to work jointly on offshore wind projects in Japan and abroad. In addition, Kyuden Mirai, a subsidiary of Kyushu Electric Power Co, J Power and Tokyo Gas Co. also signed the partnership with RWE, Engie and Principle Power respectively with the focus on offshore development.

Local and international suppliers are also entering the offshore wind value chain. However, the government may need to find a new strategy to revive its local offshore turbine manufacturing industry as two local turbine OEMs, Japan Steel Works (JSW) and Hitachi, have discontinued turbine production in recent years; this could leave room for MHI Vestas (a joint venture between 24 ASIAN POWER

Mitsubishi Heavy Industries and Vestas), SGRE, GE Renewable Energy, and others to move in.

This year is expected to be an important year for Japan’s offshore wind sector, with the launch of the first wave of commercial projects and the announcement of the framework for further tenders.

South Korea Nearly a decade ago, South Korea adopted an ambitious Green Growth Strategy that aimed to reduce greenhouse gas emissions by 30% by 2020. This strategy marked the beginning of “green growth” as the direction of travel for South Korea’s economic growth, sparking the interest of domestic industrial conglomerates (such as Samsung, Hyundai, Doosan and STX) in renewable energy project development and equipment supply.

Following a 2.0 MW STX direct drive offshore turbine and a 3.0 MW Doosan geared drive turbine installed in early 2010s for testing purposes, the 30 MW Tamra offshore wind farm came online off Geumdeung-ri in Jeju Island in 2016.

However, the sector has been generally slow to take off, due to public opposition on environmental and livelihood (fishing) issues. Long permitting periods and a low initial feed-in tariff, prior to the introduction of the Renewable Portfolio Standard scheme, also dampened growth.

As a result, South Korea’s initial foray into “green growth” and a clean energy transition saw little translation into action for the better part of the last decade. South Korea prepares to push the reset button on offshore wind.

Nonetheless, at the start of a new decade, the momentum for offshore wind in South Korea is picking up with the passage of President Moon Jae-in’s Green New Deal and a groundswell of interest from ambitious consortia of local and international wind energy developers.

As of June, there are currently five operational offshore wind projects

Momentum for offshore wind in South Korea is picking up at the start of a new decade.

totalling 132.5 MW, including the latest and largest 60MW demonstration Southwest Offshore Wind Project completed in January – the first phase of a massive 2.5 GW project. Over 23 offshore wind projects are in preliminary development, totalling 7.3 GW. Despite its slow start, South Korea’s offshore wind sector is now benefiting from the financial clout coming from both state-owned and foreign investors, and even further buoyed by its existing industrial infrastructure.

GWEC Market Intelligence forecasts that a total of 7.8 GW of offshore wind is likely to be built in South Korea by 2030, of which 1.2 GW is expected to be floating wind. However, South Korea remains a challenging market with respect to terrain complexity, turbulent wind conditions and strong incumbent energy and marine industry actors.

Coupled with criticism that government rhetoric does not always match action, the market will need steadfast public steering and ambitious long-term targets to drive decarbonisation and diversify the power mix. Still, with sufficient government commitment and industry experience from neighbouring countries to smooth the learning curve, the future of South Korea’s offshore wind sector looks bright.

Vietnam Since commissioning its first 16MW intertidal wind farm in Bac Lieu in 2013, Vietnam has emerged as the offshore wind market to watch in South East Asia. Now with 99MW of offshore wind installed capacity, and 200MW due to come online in 2020, Vietnam has drawn significant interest amongst international developers, investors, and financiers as a rapidly growing market for wind.

Vietnam’s market growth is supported by strong fundamentals including a steep rise in energy demand, rapid industrialisation and a growing population. While currently dependent on fossil fuel generation, the Vietnamese government has sought to accelerate the production of electricity from renewable sources, targeting 10% renewables in its 2030 power mix in PDP 7, the country’s master energy plan.

Steady strengthening of Vietnam’s wind project pipeline PDP 7 aims for 800MW of onshore and offshore wind energy by 2020 and 6GW by 2030 – which pales in comparison with the country’s technical potential. With a coastline of more than 3,300 kilometres and average wind speeds of 8-9m/s in the south, up to 475 GW of fixed and floating offshore wind resource potential has been identified by the World Bank Group.

Due to growing industry appetite to develop offshore wind power in Vietnam, the market is expected to reach around 2.0

ANALYSIS: OFFSHORE WIND GW of offshore wind capacity by 2025 and 5.2 GW by 2030. Offshore wind is prioritised in the government’s plan to build a “blue economy” – developing marine-based renewables to meet energy needs – and achieve energy security.

Since revising PDP 7 in 2016, the Vietnam government has been reorienting its reliance on coal to prioritise clean energy sources.

Whilst Vietnam remains a net coal importer for now, the declining economics of new coal generation vis-àvis wind and solar power are driving the shift to utility-scale renewable generation.

Despite the ambition for decarbonisation and attractive resource potential, pursuing a least- cost transformation of the energy system will require transparent policy, streamlined administration and a flexible grid. The lack of policy differentiation between onshore, nearshore and large-scale offshore wind projects of Vietnam is holding the sector back.

PDP 8 is expected to deliver more concrete policy frameworks for large-scale offshore wind developments, including zoning, marine spatial planning, and ports infrastructures plans and permitting processes. A key issue will be the design challenges for grid upgrades, and whether public or private bodies will be responsible for making investments in grid connections and broader transmission infrastructure.

Promising developments for PDP 8, expected by the end of 2020, will outline a two-year extension to the current FiT framework for offshore wind, as well as higher capacity targets out to 2030. In April, the Ministry of Industry and Trade of Vietnam (MOIT) officially proposed an extension of the FiT mechanism for wind projects from 1 November 2021 to 31 December 2023. By 2024, the government is planning to transition wind procurement to an auction system.

This development followed policy engagement with GWEC Asia, which highlighted the supply chain disruptions, labour shortages and construction delays brought by the Covid-19 outbreak, as well as the permitting delays to several wind projects which made it infeasible to meet the 2021 commissioning deadline under the original FiT framework.

A direct power purchase agreement (DPPA) pilot programme could also generate new revenue opportunities and demand for renewable energy from industrial consumers. Currently, national utility Vietnam Electricity (EVN) and its subsidiaries act as the sole offtaker of electricity from generators. However, the government has announced its vision for a competitive power market, with this DPPA pilot scheme operating from

2021 to 2023, paving the way for a retail electricity market.

Offshore wind is set to play a critical role in Vietnam’s clean energy transformation, bringing in local and foreign investment, creating local and sustainable jobs, delivering carbon reduction and positioning the country as an energy leader in South East Asia.

Renewable energy will see an increase in its share of global power generation this year.

Offshore wind: A decade of steep growth ahead The COVID-19 pandemic has shocked the global energy sector, forcing projects to suspend work to comply with social distancing regulations, challenging the investment conditions of markets bracing for economic recession, and slashing power demand by up to 10% in some regions in 2020. The size of that decline is around seven times greater than during the 2008- 2009 global financial crisis, according to the IEA, and has hit demand for oil, natural gas and coal the hardest.

But renewable energy will see an overall increase in its share of global power generation this year, due to its costcompetitiveness and priority dispatch in many markets. And the offshore wind sector, with longer project development timelines, will largely be shielded from the short-term supply chain disruptions which impacted project execution in onshore markets across the world.

In 2020, the wind capacity lost to the pandemic is estimated by GWEC Market Intelligence at around 15 GW, with volume shifting to come online by 2021 instead.

Over the next five years, the leader for offshore wind installations by far will be Mainland China. Driven by an offshore wind FiT for projects which will be grid-connected by 2021, the market has sufficient runway and production capacity to rebound from the slowdown in activity during H1. The delay for offshore wind project construction in China is estimated at six months, due in part to restrictions on imported bearing materials from Europe

and imported blade materials.

Since the grid-connection deadline extension proposal sent by the local wind industry to the National Energy Administration (NEA) seems unlikely to be approved at the time of writing, the Chinese offshore industry is currently running in full steam in project construction. Based on the latest offshore wind market dynamics and feedback from suppliers and developers in China, GWEC has kept its 19 GW pre-COVID forecast unchanged for China for at least the next five years.

GWEC Market Intelligence forecasts more than 6 GW installed in markets like South Korea, Japan, France, Norway and the UK. Turbine technology is another area to watch, with European and Chinese OEMs improving capacity and resilience to achieve LCOE reductions and application in a wider range of marine environments. The average size of installed turbines is on track to be 10-12MW by 2025. As hydrogen costs fall and crossindustry collaboration takes place, Powerto-X offers a potential solution to allow offshore wind to scale exponentially and support the decarbonisation of fossil fueldependent sectors.

However, these require adequate policy coordination and supportive frameworks, a formula which allowed renewables to take off over the last decade. As summarised in this report, there are already plenty of lessons to be gleaned from early offshore wind markets regarding support schemes, grid integration, cost reduction and industrial development. There are still areas for R&D and investment, with GWEC and industry players continuing to scan the horizon for opportunities to innovate, learn and improve offshore wind in order to accelerate its deployment. Combined with collaboration with the government, the industry can build on these to deliver offshore wind’s potential as a core pillar of the global energy transition.

Global offshore wind growth to 2030 in Asia

Source: GWEC Market Intelligence ASIAN POWER 25

ANALYSIS: CLEAN ENERGY IN INDIA public sector enterprise like SECI, many positive actions have been taken. The most recent being the removal of tariff caps on bids, reflecting the government’s faith in the sector’s maturity,” he added.

India’s net power generation capacity rose 212GW over the last decade

Acceleration in India’s clean generating capacity The transformation of its power sector brings a $633b investment opportunity to build more power plants and expand grid infrastructure

I

ndia is now hailed as one of the most vibrant clean energy markets in the world with its ambitious targets, comprehensive government policies and economics, according to a report from BloombergNEF. As the energy transition accelerates, this decade is said to bring new challenges and opportunities for all players in India’s clean power revolution.

The country is currently the world’s largest and most competitive clean energy auction market, which allows it to procure some of the cheapest renewable power. India’s new auction designs also allow the replacement of fossil fuels through better integration.

The transformation of India’s power sector in this decade brings a $633b investment opportunity, which will be used to build more power plants, as well as to replace and expand grid infrastructure. Public and private finance will also be mobilized to deliver these investments.

However, the report notes that accelerating deployment also calls for better coordination on land issues to ensure that grid availability matches the commissioning of new power projects.

Simplifying land acquisition procedures and digitizing land records would remove a bottleneck affecting the sector today.

Furthermore, the financial health and resiliency of power distribution companies will also need to be improved to give investors confidence 26 ASIAN POWER

The government is banking on India’s renewable sector to transform the country’s energy landscape

that they will not face payment delays and retroactive contract negotiation.

Procurement of clean energy by corporates looking to reduce their costs also provides an opportunity to offer alternative bankable offtakers for clean energy project developers.

“The renewable energy sector in India has tremendous potential, and the government recognizes its ability to transform India’s energy landscape.

Hence it has tried to create an enabling policy framework to achieve the aggressive targets it has set for the sector,” said Sumant Sinha, chairman and managing director, ReNew Power.

“From trying to ensure easier availability of land through solar and wind parks, to setting up a dedicated

Growth of India’s power demand and capacity in the last decade With an expanding economy and growing population, India’s power demand continues to rise and become the world’s third-largest power consumer, behind China and the United States. The country has consumed 1,285TWh in 2019, up from 851TWh per year at the beginning of the decade.

Domestic and industrial consumers together constitute 56% of power demand, followed closely by agriculture.

In March 2019, the government achieved 100% household electrification and aims to deliver uninterrupted, 24x7 power for all consumers.

BloombergNEF notes that even as power demand was expanding, the supply deficit narrowed from 79TWh in 2010 to 6TWh in 2019.

This was a result of rapid expansion of generation capacity, fast rollout of transmission and distribution infrastructure, and the connection of millions of people to the grid.

In the last decade, India’s net power generation capacity increased by 212GW, with roughly 42% coming from renewable energy sources including large hydro. India’s wind and solar installed capacity also quadrupled in a decade, to reach 82GW by 2019.

The two main reasons for the sharp jump in capacity have been falling technology costs and proactive government policies to achieve the target of 175GW renewables by 2022.

Furthermore, renewables deployment doubled over five years, with solar at the heart of this boom. From 2017, 15GW of renewables have been added each year. More than two-thirds of this came from PV, followed by wind. However,

Electricity consumption has risen every year

Source: Bloomberg Finance (2020)

ANALYSIS: CLEAN ENERGY IN INDIA Coal additions dropped while renewables grew

Source: Bloomberg Finance (2020)

installations of hydropower remained low due to long construction timelines, environmental concerns, and social pushback from local communities.

At the end of 2019, the country had 143GW of clean generating capacity, including large hydro—representing about 38% of all the power installed in the country.

The continuation of India’s clean power revolution is critical to global climate efforts. Coal’s role in the mix will continue to drop despite rising power demand. Retiring older coal plants will improve utilization rates for the coal fleet and significantly reduce CO2 emissions. New clean power generation will help India avoid more than 499 million tons of CO2 emissions a year by 2030, and bring peak emissions within reach in the next decade.

Decline in coal generations and the rapid growth of renewables India has been one of the world’s largest coal markets with at least 15GW coal generation capacity added every year until 2016, driven by plentiful domestic coal supply and a large power deficit.

However, capacity additions have tipped decisively toward clean power generation since at least 2016.

India’s coal power fleet delivered just over half its maximum generation output in the fiscal year ending March 2020. This is a historical low, marking a 21ppt decline over the course of a decade, from 78% in 2010.

Projects owned by the federal government were used far more than those owned by private IPPs or state governments. This is because federal plants typically have lower fuel costs as they are located closer to the coal mines.

A key factor behind this overcapacity is the government’s overestimation of the growth in national power demand.

This led to over-investment in new coal capacity, with 96GW of coal plants added to the grid over 2011-2016 alone.

At the same time, renewables capacity grew, with the introduction of the 2022 targets and its falling costs. Renewables have priority dispatch and the newer installations have lower levelized costs of energy, helping them secure a larger share of growth than coal.

India’s emission norms for new coal and gas power projects are among the strictest in the world, but enforcement is weak. The initial deadline to meet these was December 2017. It has now been extended to December 2022 due to widespread non-compliance.

The International Institute for Sustainable Development estimated that India’s coal plants need $12b to install SO2, NOx and particulate matter control equipment. This may increase tariffs by 0.32-0.72 rupees/kWh, adding to coal’s competitiveness challenge.

The clear shift to renewables capacity is a lasting one as it is primarily driven by economics. The gap between the cost of new coal versus clean power generation continues to widen in favor of the latter.

Solar and wind have been the cheapest sources of bulk power generation in India for the past three years. Since 2014, the mid-case levelized cost of energy (LCOE) has dropped by 80% and 66% for solar and wind generation respectively.

In theory, the best-in-class wind farms and solar plants can generate power at $27-29/MWh, a third cheaper than our LCOE estimate for best-in-class new coal-fired power stations, at $41/MWh at the current time.

Moreover, renewable energy sources, including large hydro, supplied 21% of India’s grid electricity needs in 2019.

This share has increased by 5 ppt within five years, driven by combined additions in solar and wind of between 5GW and 13GW annually.

The share of gas power generation remains below 5% as high prices for imported natural gas, and a lack of

The renewable industry has progressed tremendously in the last decade and is continuously evolving.

adequate gas distribution infrastructure make it more expensive to generate and distribute than coal power plants.

Private companies are the main investors in India’s clean power projects The majority of coal power plants in India are owned by central government companies, such as National Thermal Power Corp (NTPC) Ltd. and a variety of state government entities active in the power sector.

In contrast, private independent power producers (IPPs) have built 90% of the wind and solar power projects in the past five years. Government companies are now increasingly participating in clean energy auctions too. Because of this, the growth of renewables has started eating into coal’s share of generation, which was the dominant fuel for power generation throughout 2019 and earlier.

Coal remains the workhorse of India’s electricity supply system, providing close to three-quarters of the country’s power needs in 2019. However, it was also the first year in which the absolute energy generated by coal saw a YoY decline due to a slower growth in power demand, and record growth in clean power generation.

Furthermore, efficiency gains and technology are reducing employment in the coal sector worldwide. The Council for Energy, Environment and Water, together with the Skill Council for Green Jobs, estimated that more than 105,000 jobs were lost in India’s coal sector between the years 2000 and 2015, due to increasing mechanization.

Meanwhile, a report by the International Climate Initiative expects that India’s renewable energy sector could employ five times more people in 2050 than the entire Indian thermal generation sector, comprising coal, gas, nuclear, employed in 2020. The study expects coal sector employment to decline by 52% in the next 30 years.

Renewables growth is adding jobs at the fastest pace in the power sector.

According to a report on growth in green energy, around 100,000 employees worked in India’s wind and solar sector, at the end of March 2019.

“The renewable industry, especially solar, has progressed tremendously in the last decade and is continuously evolving. With the increase in the renewable energy share in the energy mix and the drop in storage prices, the sector is moving rapidly towards 24/7 supply from renewables power sources,” said Ranjit Gupta, CEO, Azure Power.

“With the recent integrated bids, like RE hybrids, round-the-clock supply and peaking power supply, designed to serve the needs of the grid, the sector is ASIAN POWER 27

ANALYSIS: CLEAN ENERGY IN INDIA Renewables energy employment in India

Source: Bloomberg Finance (2020)

set for a massive leap forward. Providing dispatchable power to the grid is the only way the renewables sector will sustain its growth in years to come,” he added.

Renewables also need to be associated with storage to displace coal more widely in the future. We expect that midcase new onshore wind and new solar combined with battery storage will outcompete new coal plants on a levelized basis by 2023 and 2029 respectively. The coal LCOE includes the costs of meeting emission norms.

Li-ion battery prices have fallen by 87% over the past decade. By 2024, BloombergNEF expects prices to be below $100/kWh on a volume-weighted average basis.

The report further notes that increasing the emphasis on decentralized small renewables and boosting domestic manufacturing have the potential to create more employment opportunities.

Tax introduction and low-tariff renewables project The levelized tariffs at India’s auctions are among the lowest in the world. The levelized tariff calculation converts a local currency structured tariff to a common 2019 $/MWh base after accounting for inflation, currency of payment, project life and expected date of commercial operation. This enables like-for-like comparison between auctions over time and different geographical locations.

India’s levelized auction tariffs for both wind and solar are among the lowest in the world, despite relatively higher borrowing costs and the absence of hidden subsidies.

These prices are a reflection of India’s hyper-competitive auctions and extreme project optimization by its IPPs. It is not uncommon for auctions in India to attract several times more bids than the capacity on offer.

Accelerated depreciation attracted 28 ASIAN POWER

companies with taxable profits from other industries to invest in clean energy projects. As the sector matured, pure-play IPPs have taken the lead in building new capacity. The announcement of a further decrease in the tax rate will boost investor appetite anew.

Capital subsidies are still needed for segments that are relatively less developed, for example residential roof top solar and small scale solar within the agriculture industry.

The federal government’s RPO trajectory has not been implemented by all states, but it remains a key driver of distribution companies signing longterm PPAs for renewables.

The government is also considering a separate Hydropower Purchase Obligation to increase the utilization of existing large hydro plants and provide investment signals for new capacity.

Record volumes of auctions and competition have driven down tariffs India is the world’s largest renewables auctions market (cumulatively till 2019).

In India, utility-scale wind and solar projects are primarily contracted through competitive auctions. A national target of having 175GW renewables installed by 2022 has ensured that the volume of auctions remains high.

India’s renewables auctions are conducted in a transparent process that follows standardized guidelines issued by the federal government. Tenders can go through multiple rounds of stakeholder consultations and amendments to encourage participation and help IPPs make informed bidding decisions.

The 2019 average auction tariffs for solar are less than half of their 2015 levels.

The decline has been less steep for wind, but for both technologies, the average tariff in 2019 was below 3 rupees/kWh ($0.04 in June 2020).

Extreme competition has led to IPPs optimizing each stage of project design, construction, maintenance and

Onshore wind and solar are expected to outcompete coal plants by 2023 and 2029, respectively.

operation. They have devised complex financial strategies to lower their cost of capital, and India’s large pipeline of tenders gives developers strong bargaining power when negotiating prices with equipment suppliers.

Federal auctions are providing some of the best investment signals for energy project investors Federal auctions have overtaken statelevel auctions since 2018. The poor financial health of state-governmentowned electricity distribution companies makes IPPs reluctant to sign contracts directly with them. This led to state auctions being undersubscribed and delivering higher tariffs as IPPs factored in the bigger offtaker risks.

At federal auctions, a federal agency such as Solar Energy Corp of India (SECI) acts as an intermediate procurer, and thus protects the IPPs from payment delays, giving them a quasi-sovereign guarantee on timing.

Contracting structure for federal auctions SECI maintains a payment security fund that can absorb the delay between the moment IPPs need to be paid, and that where power distribution companies can pay.

As a last resort, federal agencies can also invoke the tripartite agreement between itself, India’s central bank and the state governments. This arrangement allows the federal government to withhold financial assistance payments to state governments if distribution companies repeatedly fail to pay their dues to SECI for delivered power.

The introduction of a new goods and service tax (GST) in July 2017 caused temporary confusion for the solar industry with regards to the applicable tax rate. Similarly, the safeguard duty (SGD) for cells and modules imported from China, Malaysia, and developed countries introduced in July 2018 caused a spike in capex costs.

IPPs whose projects were under construction complained that they were unfairly penalized by the GST and SGD after their tariff had been fixed.

These developers are currently being compensated by the offtakers for the additional costs arising from these taxes.

Furthermore, the insistence of electricity offtakers on low tariffs has led to five solar auctions, totaling 4.7GW, being partly or fully canceled in 2018, after bidding had been completed.

This created a degree of uncertainty for participating developers.

In 2019, the southern state of Andhra Pradesh sought to renegotiate renewable power purchase agreements to reduce the cost of power for its loss-making discoms. However, the federal Ministry

ANALYSIS: CLEAN ENERGY IN INDIA of New and Renewable Energy strongly opposed the move, warning that future investment will dry up if contracts are not honored.

Despite this, the Andhra Pradesh High Court granted temporary relief to IPPs and the matter is still sub judice.

The rapidly falling tariffs at renewable auctions have raised concerns that IPPs will be forced to build low- quality projects. The continual stream of mergers and acquisitions in India, typically involving international investors, suggests that underperformance of projects is not common.

As most projects have been added only in the past decade, it is still too early to make large-scale assessments of their long-term financial and operational performances.

However, the market has continued to grow and successfully completed auctions eased the concerns resulting from these cancellations. Newer auction designs to make power output closely match demand should reassure discoms.

The road to reaching 450GW by 2030 In 2015, India announced a target of building 175GW of clean energy by 2022, a more-than-fourfold increase in installed capacity in just seven years.

By 2030, Prime Minister Narendra Modi wants India to reach a new goal of 450GW of renewables.

“We have already crossed 37%, and are expecting to get to 55-60% by 2030. The question before us as a country, and as the world, is whether the environment is important or not, and whether we want to leave behind a livable world for our great grandchildren,” said Shri Raj Kumar Singh, Union Minister of State (Independent Charge), Ministry of Power and Ministry of New and Renewable Energy, and Minister of State, Ministry of Skill Development and Entrepreneurship.

Integrating such volumes of variable generation needs a flexible power system, apart from battery storage and peaker gas plants, lessons from around the world highlight the importance of demand-side measures, grid investments, as well as significant market reforms for India.

BloomberNEF notes that India’s clean power revolution has made a good start toward 450GW with the power demand growing by 50% and installed capacity more than doubled in the last decade.

Furthermore, New Energy Outlook (NEO) 2019 projects investment requirements of $410b to 2030, of which $281b is in renewables. India attracts 9% of the world’s total investment in generation and energy storage. This

makes it the second-biggest investment destination after China.

Wind and solar put together need $188b of capital. To put this in context, new-build asset finance for the two technologies totaled $77b from 2010 to 2019. So, India will need to mobilize different sources of capital to finance the power sector’s expansion until 2030.

BloombergNEF estimates that India would need $335b of investment in the grid by 2034 to cater for 450GW of renewables. Almost 60% of this money would be needed in the transmission grid, with the remainder required for distribution networks.

Grid expansion and building of interconnectors for new generation units will require about $231b by 2034.

Meanwhile, replacement of ageing existing transformers, substations and cables will require another $104b, whilst lot of additional investment would be required to digitize future grids Meanwhile, the Central Electricity Authority (CEA) projects 2,518TWh of gross electricity generation by FY202930, compared to a 9% higher figure of 2,747TWh for 2030 in NEO 2019. The plant capacity factors are higher in NEO 2019, leading to more generation from lower capacity compared to the CEA's current projections.

CEA expects India to source 54% of electricity from coal, 19% from solar and 12% from wind by 2029-2030. NEO 2019 projects that coal would supply 55%, and solar and wind with just 15% and 11% respectively by 2030.

India’s power demand in 2030 is also expected to be around 2,700TWh, up from 1,500TWh in 2020. Increasing population and GDP per capita will continue to drive power demand growth in the next decade. Newly connected rural consumers will also expand their use of electrical appliances. Rising demand for air conditioning will push up its power usage by 25% by 2030.

India’s clean power revolution has made a good start to 450GW with its power demand growing 50%.

The share of demand from electric vehicles is also expected to be less than 0.5% by 2030, despite early signs of growth by 2030.

Despite the rise in power demand, per-capita electricity consumption in India will continue to remain below that of many developed and developing economies. Even by 2030, India’s percapita demand is still expected to be lower than Brazil’s today.

This suggests that there is room for power demand to grow well beyond 2030, as India catches up with global trends in per-capita electricity best practices and requirements.

Although coal plants remain the top supplier of electricity, their utilization and share in the generation mix is declining with annual additions of renewables outstripping coal since 2017.

The report notes that one of the factors is India’s focus on cost, which made it the world’s largest renewables auction market at the end of 2019.

The massive auction programs have allowed Indian developers to optimize their projects, and have attracted private sector investment. The country’s levelized auction tariffs are also amongst the lowest in the world.

Furthermore, solar and wind have been the cheapest sources of bulk power generation in India since 2018.

The success of auctions and falling equipment prices globally, have made wind and solar cheaper than new coal plants on a levelized cost of energy basis.

In addition, the government complemented its goal for 175GW of renewables by 2022 and its auction programs with policies that have given a wide group of investors, national and international, private and public, the confidence to commit for the long term.

India’s auctions are also taking renewables closer to 24x7 power. The newer types of auctions force renewables to match coal plants on dispatchability.

Demand projections in NEO and CEO follow similar trajectory

Source: Bloomberg Finance (2020) ASIAN POWER 29

OPINION

ELISE DO

Offshore wind developers, investors must show their capabilities as they enter Japan

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ffshore wind has truly spread in recent years, with Asian markets such as Japan rapidly developing their offshore capabilities. International investors and developers are starting to get involved in Japanese offshore wind, but to capitalize on opportunities in this growing market, they must show that they can work with domestic partners, leverage current Japanese partnerships from shared projects in other regions.

Growth of renewables Japan’s energy policy has undergone a number of changes in the past 10 years.

Following the nuclear accident at Fukushima in 2011, a review of regulatory standards resulted in the decommission of multiple nuclear reactors and a power generation shortfall.

To compensate for this, the Japanese government undertook measures to increase the role of renewables in the country’s energy mix.

In 2015, Japan’s Ministry of Economy, Trade and Industry (METI) indicated in their energy plan that renewables would make up 24% of Japan’s energy mix, representing 10GW of offshore wind capacity, by 2030. As the transition to clean energy continues to gain momentum in Japan—particularly in offshore wind—the market is quickly getting on the radars of both domestic and international developers such as Marubeni and RWE Renewables. To support the 2030 target, the Japanese government has implemented a number of further initiatives to accelerate the growth of offshore wind—a new legal framework for the use of Japan’s general territorial waters, identification of 11 potential areas for offshore wind development, as well as competitive auctions granting 30-year leases for offshore renewables installations.

Operating and development landscape Unlike European markets with established offshore wind sectors, Japan still faces multiple barriers which could limit the growth of offshore wind. These must be overcome to spread risk and avoid bottlenecks which could constrain project construction.

In particular, developing both specialist vessels and port infrastructure capable of turbine pre-assembly, construction, and maintenance is key.

International developers who can add value in these areas through financial investment and leverage Japanese industrial capability by adapting production facilities for offshore wind will be ahead in Japan’s offshore industry.

With multiple domestic industries competing for Japanese marine space, the government is keen to support both the local economy and the growth of offshore wind. International developers looking to enter the space should take government objectives into consideration and look to deliver a net positive

Japan's growing offshore wind market provides opportunities for investors

30 ASIAN POWER

ELISE DO Associate Director at Augusta & Co.

impact on the local economy.

The scope of Japan’s offshore wind sector, along with a generous FiT scheme has attracted a network of banks and developers, now willing to finance large amounts of capital.

To unlock this capital and encourage domestic players to invest in projects, international developers need to reduce uncertainty stemming from their lack of experience operating in Japan by forming partnerships with their domestic counterparts, leveraging their current Japanese relationships from shared projects in other regions and demonstrating their experience in offshore project development.

Form partnerships With the Japanese market still in the early stages of development, the lack of opportunities to merge with or acquire local businesses will require foreign offshore wind developers to be more flexible in their approach. To mitigate their inexperience, international players would benefit from working with local businesses with high levels of expertise in these areas to conform to Japanese design standards and obtain ClassNK certification.

By combining expertise in large-scale offshore project development and local market conditions, partnerships give international players a strong position to compete in auctions tenders.

Forming those partnerships should be a key goal of early relationship building for aspiring foreign market entrants.

Leverage relationships Many Japanese players have gained offshore wind experience by acquiring stakes in projects in Taiwan and Europe. Offering participation in an offshore wind project abroad to a Japanese partner can be a pathway to development collaboration and access to opportunities in Japan.

This is a significant opportunity for established international offshore wind developers looking to enter Japan’s offshore wind space. Even in early stages of development, organisations would benefit from developing strong ties to leverage the relationship when their counterparts secure any of the increasing opportunities in Japan.

Demonstrate your experience Utility-scale offshore wind farms have only begun to emerge in Japan within the last few years, and the domestic market has relatively little experience compared to Europe. This has left an experience gap which international developers can fill. To take advantage of this, international developers and investors need to identify where they can be of most benefit to Japanese offshore wind developers and then demonstrate how they can help develop the industry in these areas.

For example, due to Japan’s challenging bathymetry, international developers can demonstrate their floating offshore wind capabilities and introduce domestic developers to international investors and manufacturers who are keen to invest in this technology.

Conclusion International developers looking to get involved in Japan’s offshore wind market must take into account the operating and development landscape of the sector and seek to benefit the local economy as well as the offshore wind industry. By sharing lessons learned and providing clear direction to the market’s domestic developers and investors, international players can help establish best practices—paving the way for future offshore project development in Japan.

OPINION

BREE MIECHEL

Vietnam’s green future and COVID-19 BREE MIECHEL, Partner at Reed Smith LLP

A

gainst the backdrop of the COVID-19 pandemic, Vietnam appears to be forging ahead with its commitment to renewable energy development across the country.

Vietnam is set for another year of positive economic growth, which may temper the demand projections for new electricity with the baseline scenario being an increase from 42,080 MW in 2020 to 90,651 MW in 2030.

However delivery delays impacting thermal power projects in the country and suspension of investment in the Ninh Thuan nuclear power plant augur well for a continued role for its renewable energy sector to meet demand.

Four key proclamations this year—Resolution No.55, MOIT Report No.1931, MOIT Report No.2491, and Decision No.13—provide guidance on the role renewable energy could play in meeting demand growth.

Why are the proclamations required?

The 9.35 US cents / kWh feed-in-tariff (FIT) for ground mounted solar energy issued in 2017 triggered an unprecedented rush of solar energy investment in Vietnam. Prior to the COVID-19 pandemic total installed solar capacity was expected to reach 5,500MW by the end of 2020. Unfortunately, most of the solar power development has been in the southern provinces of Binh Thuan and Ninh Thuan that have the highest irradiation rates in the country, leading to grid overload and a mandatory reduction of power output of between 38-65% of installations’ design capacity. With solar tariff qualification having expired or near expiry, investment has stalled due to uncertainty surrounding returns on investment due to the tariff uncertainty.

Meanwhile, the development of wind power has lagged behind solar PV despite Vietnam having one of the longest coastlines and strongest average wind speeds in the region. Asides from approvals delays, many have pointed to less unattractive FITs and lack of visibility on the FIT several years ahead.

The current FITs only apply to projects completed prior to 1 November 2021 and prior to the MOIT Report No.2491 there had been no indication what FIT will apply to projects completed after that date, which is needed given the higher investment costs and longer construction time required for wind power projects.

What do the proclamations mean?

Resolution No.55 focuses on the orientation of Vietnam’s National Energy Development Strategy to 2030 with a vision to 2045 is only a guideline for the coordination and implementation of tasks and solutions within the energy sector. It proposes prioritising renewable energy sources to “replace

Vietnam commits to development of renewables

fossil energy sources to the largest possible extent” as a solution.

The MOIT Report No.1931 has no mandatory effect, although it does make a number of recommendations to the Prime Minister for his consideration and decision in relation to addition of further wind power projects into the power master plan, including: (i) approving an adjustment to the wind power development target for 2025, from 4,800MW under the Power Development Plan VII (PDP VII), to 11,630MW, (ii) supplementing the proposed wind power projects in the PDP VII with specific connection plans and capacity release conditions, (iii) supplementing and accelerating existing power grid projects to develop an adequate grid infrastructure fully coordinated with power projects, and (iv) having People’s Committees of provinces with wind power projects urgently review land use plans/master plans and other master plans under their mandate The MOIT Report No.2491 also has no mandatory effect although it does make a number of recommendations to the Prime Minister for his consideration and decision in relation to extension of the application period of FITs for wind power projects, including: (i) extending the timing for application of FITs for wind power projects until the end of 31 December 2023, (ii) delegating to the MOIT to calculate and propose the new FITs for wind power projects having COD in the period from 1 November 2021 to the end of 31 December 2023, and (iii) after 2023, wind power projects to be subject to competitive tendering and an auction mechanism.

In contrast to Resolution No. 55 and the MOIT Reports Nos.1931 and 2491, Decision No.13 has legal effect from 22 May. It brings into force the MOIT’s recommendations in its report of 6 February, including the draft mechanism for encouraging the development of solar power in Vietnam.

Decision No. 13 confirms: (i) FITs of 7.69 US cents / kWh and 7.09 US cents / kWh will apply to grid connected floating solar and ground mounted solar power projects respectively that were approved for investment policy by the relevant authorities prior to 23 November 2019 and that achieve a COD in whole or part between 1 July 2019 and 31 December 2020, (ii) a FIT of 9.35 US cents / kWh will apply to grid-connected solar power projects in Ninh Thuan province up to a total accumulated capacity not exceeding 2,000MW, (iii) the power purchase price for grid-connected solar power projects not meeting conditions set out in and above will be determined through a competitive process, and (iv) a FIT of 8.38 US cents / kWh will apply to roof top solar power projects where EVN is the offtaker and the time for operation and generation of power, and electricity meter is confirmed between 1 July 2019 and 31 December.

Together, the proclamations paint a picture of a government working towards a cohesive renewable energy strategy and an identification of the need for synchronous development of grid infrastructure. However, the time frames for award of the FITs under Decision No. 13 do not seem to take account of supply chain and labour disruptions as a result of lockdowns and border closures.

Further, successful future wind and solar PV capacity deployment will be contingent on approval of appropriate MOIT recommendations and, for solar PV, the terms of the auction processes adopted.

ASIAN POWER 31

OPINION

RIZKY ADITYA PUTRA DYNTA TRISHANA ALFRED GURNING

Energy resilience in ASEAN: Regional actions in post-pandemic recovery plans

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he level of uncertainty resulting from the pandemic in the economic context is still considerably high. Most countries in the region have already enacted containment measures in order to control and mitigate the spread of the virus.

The GDP growth of ASEAN+3 could be reduced from 4.8% in 2019 to zero growth in 2020, estimated by the ASEAN+3 Macroeconomic Research Office (AMRO) in August.

Covid-19 impacts in the energy sector The impact of the pandemic is also heavily felt in the energy sector. The global energy demand has plummeted by 3.8% in Q1 and is predicted to decline up to 6%, according to the Global Energy Review 2020 by IEA. As highlighted by the ASEAN Centre for Energy, the most dominant consequence of this pandemic is the sharp declines in oil demand from travel and commerce restrictions and reduced operations in many industries.

Similar to the oil sector, the decline of coal demand is unavoidable, associated with lower demand in the electricity sector. Although the electricity demand has shifted from the industrial sector to the residential sector, increase in demand was outweighed by the massive reductions in commercial and industrial sectors. However, this does not mean that the effect from the increase in the residential sector was insignificant. In some ASEAN countries, the governments provided incentives to ease the electricity bills of vulnerable people and communities.

In the renewable energy (RE) sector, Global Energy Review 2020 of IEA reported that renewables became the only energy source experiencing a demand growth during this pandemic. However, in the ASEAN region, the economic disruption in China may create supply chain bottlenecks for clean energy technologies. Several RE projects in the region are at risk of major delays due to changes in energy markets and safety of the workers.

The urgency of low carbon energy in the pandemic Economic recovery would be the main priority and focus of governments once the pandemic is under control. Moreover, with the growing issues on climate change, the impact of the economic recovery and stimulus plans to energy transition should be considered as well.

The chance of fossil fuels to strike back is still most likely to happen if the government allows massive fossil fuel usage in the industries for their business recovery. Moreover, placing the investment of a carbon-intensive energy system into the economic stimulus packages might be considered as imprudent action which would only lead to the same mistake.

The most frequently asked question is on how the pandemic is affecting climate change. The short-term emissions reductions resulting from containment measures have lulled people into a false sense of understanding.

Therefore, governments should think rigorously on which strategy to take and what type of policies and structural measures to be included in the economic stimulus packages to ensure a long-term, secure and diversified energy system for each of their populations.

Regional actions for the post-pandemic recovery plans Observing the broad global range of infections in many sectors caused by this pandemic, the long-term strategic measures in the economic stimulus 32 ASIAN POWER

RIZKY ADITYA PUTRA, Senior Officer, APAEC, ASEAN Centre for Energy DYNTA TRISHANA MUNARDY, Technical Officer, APAEC at the ASEAN Centre for Energy ALFRED GURNING, Technical Officer, APAEC at the ASEAN Centre for Energy

packages should not only be intended for the good of national restoration, but also need to consider the future challenges.

On 14 April, ASEAN Leaders held the Special ASEAN Summit on COVID-19 to encourage the development of a post-pandemic recovery plan by exploring the arrangements to preserve supply chain connectivity amongst the ASEAN Member States. Recovering from this current hard time can be a pivotal moment for ASEAN to redirect the priority of the regional energy cooperation and to start moving forward through decarbonisation whilst ensuring energy security and resilience.

Cleaner energy and energy efficiency pathway Directing the energy development into a cleaner energy pathway will ensure a long-term secure, sustainable, and diversified energy system, as well as provide affordable solutions that align with climate targets. By accelerating clean energy deployment, ASEAN can achieve multiple economic and social objectives in the pursuit of a resilient future.

In the regional level, the creation of a regional clean energy supply chain should be accelerated to accommodate a higher penetration of renewable energy into the ASEAN Power Grid and ease the regulation of intra-biofuel trade. ASEAN can also strengthen its cooperation by enhancing the regional market of energy-efficient products. Investments in RE and EE&C will stimulate job creation in trades and manufacturing which can lead to a more resilient region.

Decarbonisation of conventional energy system Amidst pressure to reduce greenhouse gas emissions, the pandemic allowed us to reflect on how vulnerable the current conventional energy system is.

Based on the 5th ASEAN Energy Outlook of ASEAN Centre for Energy, the region is projected to still have a high dependency on fossil fuels. Import dependency for oil and natural gas is also estimated to increase. Thus, ASEAN needs to consider strategic measures in transforming the current conventional energy systems to be more environmentally conscious.

Digital adoption and technology transformation This pandemic taught us how digital and emerging technologies can minimise the impacts of the pandemic. During the 37th ASEAN Ministers on Energy Meeting (AMEM) last year, ASEAN has recognised the importance of digital and emerging technology in energy development. Opening the collaboration with broad partners to respond to the risks and opportunities of digitalisation in the energy sector can benefit ASEAN in the long-term future.

Therefore, economic recovery strategies should also include investment in technology transformation.

Leveraging regional cooperation Currently, ASEAN is preparing the new phase of ASEAN Plan of Action for Energy Cooperation (APAEC) which is the APAEC Phase II: 2021-2025. In preparing the strategies to recover from this pandemic, ASEAN can leverage the role of APAEC to accelerate the energy transition and increase the energy resiliency. The long-term measures to mitigate such unexpected events like this pandemic can be included in the strategies of APAEC Phase II that can be eventually translated into more tangible action plans.

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