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ACES DAY 2 KEY MESSAGES – 25 OCTOBER 2017

Day 2 of the Asia Clean Energy Summit started with the Financial Summit and was kicked off by Justin Wu of Bloomberg New Energy Finance, who gave a very insightful presentation on the Energy market. Key points were:

• Solar PV costs have decreased exponentially from US$94/Wt in 1975 to US$1.8/Wt in 2010 and US$0.30/Wt in 2017 and declining further. Overall system costs have also been dropping from US$3.24/W in 2010 to US$1.14/W in 2016 and forecasted to reach US $0.70/W in 2025.

• In 2017, new Solar projects (US$55/MW) and onshore wind projects (US$60/W) have reached the tipping point that these are now cheaper than new large hydro projects (US$75/MW).
• Justin presented two energy pricing tipping points. These tipping points vary per country as incumbent energy costs differ due to local circumstances. The first tipping point is when new renewable projects outcompete new conventional projects. New renewable projects are outcompeting new coal projects in China in 2017-2024 depending on the renewable source. In the US, where cheap shale gas is the competing fuel to beat, this range is 2017-2034.
• The second energy pricing tipping point is when new renewable projects outcompete existing conventional assets. In Germany, this tipping point is reached 2019 – 2034 depending on energy type. In India, due to cheap coal, this tipping point is reached only in 2038.

• This pricing outlook is a key driver for investments in new renewable energy capacity (US$200 billion in 2016), that are outpacing fossil fuels (US$100 billion in 2016) by a factor 2, even when hydro investments are excluded. Solar and wind are forecast to attract 73% of new investment in power generating capacity (2017-2040). 50% of that global investment is in Asia.
• The data Bloomberg’s analysis used in evaluating South East Asia (SEA) New Energy market, is based on four countries: Thailand, Indonesia, Malaysia and Philippines. Despite the growing pace of PV Solar in particular, SEA region will also see a continued increase in installed capacity for coal. SEA gas growth will be lagging as it gets squeezed between coal and renewables. Hence, the share of coal will in the region will exceed gas and will continue to rise as the largest source of power generation until 2035. Existing gas fired capacity is sufficient to help balance grids because of intermittency of renewables. Small scale PV reaches 20% and total PV 38% of total installed capacity by 2040.

• From a power generation point of view, coal will continue to be the largest source of generation while utility solar will overtake gas generation towards the end of the period up to 2040.
• Decoupling of GDP growth and energy demand seen is most SEA countries, but not so in Indonesia where energy intensity is expected to rise marginally due to relatively large demand from heavy industry and the oil & gas industry.
• Government expectations on the role of new energies as a percentage in generation are behind actuals to date, the key reason is that costs have come down much more quickly than forecast and perhaps also targets had been set too modest.

• The largest companies that purchase renewable energies grow with double digit demand growths – the renewable focus should therefore not only be on countries but also on industry and large consumers.

• A number of very large customers have pledged to become 100% renewable in their energy needs. DBS bank is the first company in Singapore to pledge to become a RE100 company by having 100% use of renewable energy in its Singapore operations by 2030.

During the introduction of the session on the Energy Roadmap in Asia, Allard Nooy of Infraco Asia made the following key points:

• There is a lack of bankable renewable projects across the region, with high quality bankable projects comprising only 5-10% of total renewable projects. More effort is needed in the early stage of project development to create more quality bankable projects.
• Regulatory frameworks lagging, only few countries have one-door-stop policy for renewable energies.

The subsequent panel session addressed developments in financing of solar energy projects in Asia and raised a number of very practical points:

• The bankability of renewable energy projects in the region has increased because of recent decline in feed-in tariff regimes. However, the lack of good policy is still a factor, particularly in certain countries.
• Sunil Gupta of Sembcorp elaborated on the renewable market in India. The challenges have decreased and moving away from feed-in tariff regimes to transparent auction processes is a key factor. Consequently, under competition, electricity tariffs have declined by 20%. Nevertheless, banks are very keen to finance, a single lender even financing 100% for $250 million project. Long term financing is now also becoming much more accepted from 8-12 years to 20 years. This shows that financiers have become more positive on their view of risks. Distributed and off-grid solutions continue to be difficult to attract finance, but in time is expected to improve. Offsetting the compression of margins, developments have increased efficiencies through technology innovation and streamlined business processes. Project auctions are also very transparent and result in a competitive process. 
• Renewable projects attract finance costs that are 400 to 500 basis points higher than conventional energy projects, but the rationale for this is not clear. What is the incremental risk that pushes up the finance costs? 
• A subtle comment was made on the impact of technical innovations on risk. The renewables sector has a clear track record of innovations improving performance and lowering costs. However, whenever new technologies are introduced there is initially increased uncertainty (and therefore risk) until these technologies have truly been proven long term in applications.
• This was further elaborated on by the view that in general there is more risk in financing a coal project than there is for a renewable project. However, this is not being perceived as such by most commercial banks in their project financing.
• Other financiers such as bond market and pension funds see things differently and are starting to take volume in this market, bypassing the banks. This creates a squeeze on the commercial banks to re-evaluate their views on risk.
• Crowd funding markets are available but these are focused on short lending periods and therefore very specific; more long-term crowd funding money is needed.
• Bond markets have become much more active and are more confident with the risk of renewable projects than banks. This expresses itself also in more flexible terms that are being offered, such as no amortization for the first 5 years, which is unheard of in project financing. Bond financing proves that refinancing risk perceptions by the market are lower than seen by banks. These developments force banks to become more competitive in their financing offerings. As a consequence, positive financing market changes are happening although they have proven to take time, 5 years or longer, and we still have a bit to go.
• Some markets are more advanced, in particular Australia, but also Singapore. Other markets are expected to see more profound changes. In some markets, regulators have been caught off guard by the impact renewables have on the grid. Regulators sometimes react in the market, despite the fact that regulations themselves are lagging. China and India (and Australia) are perceived to be leading in Asia and auctions have had a positive impact. In other countries, there are other compounding issues such as land ownership and lack of regulations.

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ACES DAY 1 KEY MESSAGES – 24 OCTOBER 2017

•  Under the leadership of SEAS and NTU a large number of agreements were signed, with the remarkable similarity that these were all focused on practical collaboration across companies, synthesizing individual energy solutions into joint and integrated platform.
• Floating solar test application in Singapore’s Tengeh water reservoir has been a conclusive success, with comparable solar efficiency and no negative impact on wildlife or water quality. This technology application will now be expanded to other reservoirs. This will make a large contribution in increasing Singapore’s solar power capacity from 140 MW in 2014 to 1 GW peak after 2020.
• Ditlev Engel quoted that DNV GL’s 2017 Energy Transition Outlook forecasts that global energy consumption will peak in 2030 as a consequence of energy efficiency measures offsetting growth in population and GDP.
• Didier Holleaux of Engie made the observation that energy efficiency is of utmost importance and that the cleanest energy is the one that is not consumed. There is much room for improvement in South East Asia, including Singapore that has many opportunities for district cooling with a potential efficiency gain between 40 and 50%.
• There were mixed views expressed of the role of gas in the energy mix. Some saw gas as a vital element in the energy mix with conventional energy also playing its part in the decarbonisation efforts with the move from coal-to-gas for power. If all global coal plants were converted into gas fired CCGT, it would cut 20% of global emissions. This would however require a strong regulatory effort to achieve. Others yet again believed that 100% decarbonisation would take time but be possible. In this transition, the role of gas would progress from natural gas to biogas to hydrogen.
• The scale and speed of implementation of solar and wind in China are staggering and spreading globally. Lu Yonghua of Jiangsu Linyang mentioned 62 GW of installed capacity of solar in China, while Lei Zhang of Envision mentioned that a key factor of success is the overcoming of the fragmentation on supply and demand side through the digital energy revolution, such at the Enos platform that already connects 100 GW of energy.

• In view of all of these very fast developments, it was concluded that our analog brains need to adapt to the digital world and that sharing of knowledge, skills and experience across communities will be imperative. Although the technology developments are complex, these are still easier to understand than the impact from the development of inevitable new business models on consumers and companies alike. 
• A key aspect of the energy transition is how humans keep up with the changes including regulation and industry standards. Bernard Salha of EDF mentioned that regulation should focus on what is acceptable or not acceptable to the final customer. How this transition will pan out is to a large part driven by how customers behave. This includes data protection and cybersecurity concerns.
• We are living towards a world of 50 billion intelligent devices and 120 trillion sensors. Lei Zhang explained that social networking of machines is a new normal concept and a big opportunity. Ditlev Engel responded that the digital revolution has to go wild but not out of control.
• On the topic of regulations and standards, Ansgar Hinz of VDE Association made a point that still today, standards are made on paper and need to evolve to a modularized process to create more flexibility and speedily updates as technologies evolve fast. Also, the focus should not only be at the component level, but move towards a system approach.

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