The energy and cleantech landscape is changing across Asia.
A growing number of banks are pulling financing for coal-fired power plants across Asia — Southeast Asia in particular — as traditional energy companies start to pivot away from fossil fuels and toward renewables. Meanwhile, developers of renewable energy projects and other green and cleantech infrastructure projects are finding a slowly increasing array of financing options.
The needs for cleantech and sustainability financing are clear — and so are the challenges.
Policy support for renewable energy in Southeast Asia has been relatively weak, generally speaking, and the region lags far behind others in renewable output despite its potential, Reuters says. One of the factors holding back renewables has been the region’s abundance of thermal coal. But that appears to be changing as financial institutions have started to bail out from financing coal.
Meanwhile, cleantech investor Assaad Razzouk, group CEO and cofounder of Singapore-based Sindicatum Renewable Energy, points out some contradictions and other challenges in Southeast Asia’s move toward renewables. For example, Vietnam is looking to grow its solar sector via attractive feed-in tariffs — but, Razzouk says, the country’s transmission infrastructure can’t handle the increased capacity the feed-in tariffs will attract, so the program “therefore is guaranteed to lose investors a lot of money,” he writes.
Still, there does appear to be growing support for renewables and other sustainability-focused efforts across the region — and definitely a lessening of support for coal.
Here’s a look at some of the recent developments around cleantech, renewable and coal financing across Southeast Asia.
Development Banks Put $1 Billion to Green Infrastructure
The Asian Development Bank is teaming up with other development agencies and governments from across Southeast Asia and Europe to mobilize at least $1 billion for green infrastructure investments — including clean energy, sustainable transport and resilient water systems — across Southeast Asia. The new “ASEAN Catalytic Green Finance Facility,” announced in early April, will provide loans and technical assistance to make such projects possible.
The goal is to “catalyze private capital by mitigating risks through innovative finance structures,” the ADB says in a statement. Funding will come from a range of sources: $300 million from the ADB; €300 million ($336 million) from KfW, the German state-owned development bank; €150 million from the European Investment Bank; €150 million from Agence Française de Développement; and $75 million from the ASEAN Infrastructure Fund, or AIF.
The AIF also announced it is starting a new “Inclusive Finance Facility” that will help finance “critical infrastructure” in three underdeveloped Southeast Asian countries: Cambodia, Laos and Myanmar.
Separately, and smaller, some of the world’s largest philanthropic organizations joined forces last September with the governments of France, Germany and the United Kingdom to launch the Southeast Asia Clean Energy Facility (SEACEF), a vehicle that is intended to provide $20 million to boost renewable energy investments across the region. It will focus first on providing funding to the region’s heaviest coal users — Indonesia, Vietnam and the Philippines — and could expand later to focus on Myanmar, Thailand and other countries.
Singapore Banks Halt Coal Financing
Coal and coal-burners are also facing increasing pressure from the finance sector, as a growing number of banks are dropping their support for coal-fired power plants. Two leading Singapore banks have become the latest, and the first regional banks in Asia, to do so.
In mid-April, Samuel Tsien, CEO of OCBC, said his bank will no longer fund coal plants anywhere. OCBC is currently backing two coal plants in Vietnam; that support has to continue due to contractual obligations, but they will be the bank’s last.
“We hope that by doing this, we are encouraging the governments to do facilitating, arrangements for the countries to move from coal to renewable” energy, Tsien told Bloomberg News.
Two days later, rival Singaporean bank DBS announced that it, too, will end financing for coal plants once its current projects wrap up. The bank previously had a policy that it would finance coal plans, but only those with strict emissions controls.
DBS also says it will increase its financing of renewable energy projects. As of 2018, DBS was involved in 17 such deals, with total loan packages worth about S$1.3 billion (nearly US$1 billion).
The Singapore banks’ announcements was a big deal, Bloomberg says, as it’s the first time any regional banks in Asia have banned coal financing. Many international banks — including Standard Chartered, Societe Generale and Deutsche Bank, have adopted such policies in recent years, Bloomberg notes.
In all, more than 100 financial institutions worldwide have announced restrictions on coal leading as of last year.
John Kerry Lobbies Vietnam to Quit Coal
Former secretary of state, senator and Vietnam war veteran John Kerry has been back in Vietnam recently, working to come up with ways the country can wean itself off coal. He’s been lobbying Vietnamese government officials on the topic since leaving office in 2017, and recently enlisted former Vice President Al Gore in the effort.
Like many developing economies, Vietnam relies heavily on coal. Last year, in fact, coal became the country’s top electricity source in 2018, beating out hydropower for the first time.
“I’m trying to put together a model project of how Vietnam can get off coal now,” Kerry tells Axios. “We are working very hard to help them see that coal is in fact more expensive and has many, many more downsides.”
Kerry is pushing for private-sector financing of wind and solar as well as new transmission lines. He also wants to see a more efficient use of the country’s hydropower resources; his plan also calls for “tapping into a domestic natural gas field,” Axios reports.
Kerry says his efforts are crucial to counter what he says is Chinese banks’ financing of coal plants that are then built by Chinese companies.
Vietnam and coal are both a special case for Kerry: he worked to normalize relations between the US and Vietnam in the postwar period, and was one of the architects of the 2015 Paris climate accords.
ING to Fund Rooftop Solar in Singapore
Dutch lender ING is expanding in Southeast Asia, having recently brokered a S$50 million (US$37 million) loan deal for Singapore-based Sunseap Group. The loan will back a 50MW portfolio of rooftop solar projects across Singapore.
It’s the first rooftop solar-related green loan issued in Southeast Asia that is compliant with the Loan Market Association’s Green Loan Principles, ING says. It also marks the bank’s first solar rooftop financing transaction in the entire Asia-Pacific region.
The projects that the loan will finance will be between 100kw and 5MW each, and will be tied to long-term power purchase agreements that Sunseap has struck with nearly two dozen commercial and industrial companies. (Among its clients is Microsoft; the company announced early last year that it will buy a 60 MW-peak (MWP) solar portfolio from Sunseap to power its Singapore data center, thereby creating the single-largest solar energy portfolio in the city-state.)
More such project finance could be coming as well: ING advised Sunseap on the creation of a “green finance framework” that will make it easier for Sunseap to raise green loans, green bonds and other green debt instruments to finance or refinance projects related to renewable energy, energy efficiency and green roof systems.
Southeast Asian Energy Majors Pivot to Renewables
Many energy companies across Southeast Asia are moving away from fossil fuels and embracing renewable energy as growing populations and expanding economies cause increasing demand for electricity, Nikkei Asia Review reports.
Geothermal, solar and wind projects are all seeing increased interest from these traditionally coal- and oil-focused companies.
Indonesia’s StarEnergy, a subsidiary of petrochemical conglomerate Barito Pacific, is running an increasing number of geothermal-powered electric generating stations. A year ago, the company issued $580 million worth of green bonds to fund its acquisition of two geothermal plants in Indonesia from Chevron.
Also in Indonesia, state-owned utility PLN is buying green power generated by independent players including geothermal power plants.
Thailand’s Banpu is looking to diversify away from coal, which until now has provided about 90% of the energy company’s revenue. “We will integrate coal with renewable energy with the aim of maximizing profit and meeting social needs,” CEO Somruedee Chaimongkol tells Nikkei Asia Review. The company installed solar generators capable of producing 150,000 kW last year, and later this year will start operating a “megasolar project” in Japan’s Fukushima Prefecture. It will also build a $400 million, 80,000 kW wind farm in southern Vietnam.
Tenaga Nasional, a state-backed utility in Malaysia, started commercial operations late last year at a 50,000 kW plant near Kuala Lumpur. The government expects the country to get at least 20% of its electricity from renewables by 2025.
Five major Southeast Asian countries — Indonesia, Thailand, Vietnam, Malaysia and the Philippines — produced a combined 51.1 million kW of electricity from renewables in 2017, the International Renewable Energy Agency estimates. That was up 130% over the past decade.
The ongoing shift to renewables in Asia is coming at a good time: according to a joint report from the Asean Centre for Energy and the International Renewable Energy Association (IRENA), Southeast Asia will be home to more than 715 million people by 2025. Many of these people lack access to modern electricity systems, and renewables will be needed to ensure that all these people have access to affordable — and clean — energy.
Indeed, IRENA forecasts that energy consumption across Southeast Asia wil more than double by 2040.
The 10 member states of the Association of Southeast Asian Nations (ASEAN) have set a target of 23% renewable power for their energy supply by 2025, up from just 10% now. Reaching that goal will require $290 billion in spending, IRENA says, equivalent to a 10-fold increase over the current annual spending on such projects in the region. Much of the new spending will go toward solar projects, which should cause prices to decrease even further, making solar even more attractive.