Investors Look to Asia for Returns on Solar, Smart Grid Projects

Much of Asia has a strong need for additional electricity generation. With many Asian governments looking to expand their renewable energy capacity, particularly solar, asset managers and other investors are seeing large opportunities to make money while helping Asia meet those energy needs.

“There are still huge unmet demands for electric power here in Asia,” Mark Moseley, lead lawyer for public-private partnerships at the World Bank, said at the Power & Electricity World Asia conference in Singapore last week. “In terms of raw numbers, the unmet demand in Asia is greater than anywhere else.”

Managers like Armstrong Asset Management are working to help meet that demand.

“In southeast Asia, as with everywhere else, private sector participation in the energy sector is coming from the desire for more renewable energy, and for a more distributed approach to energy solutions generally,” Edward Douglas, partner at Singapore-based Armstrong, said at the conference. Armstrong manages a private equity fund with a focus on renewable energy across southeast Asia; its primary markets are Thailand, Indonesia and the Philippines, according to Douglas. The firm is also looking at investments in Vietnam, Laos, Cambodia and Myanmar, he added.

For Anand Prakash, partner at Hong Kong-based Asia Climate Partners and a clean energy investor across Asia since 2004, “The scale of the opportunity has completely changed,” he said. “That’s where I see the opportunity for the private sector, for the private investor, to make money: to capture the significant economies of scale.”

Asia Climate Partners is a joint venture of the Asian Development Bank, Japanese financial services company Orix, and Robeco Institutional Asset Management. The firm raised $400 million last year from its founding partners and other investors including the U.K. government, and will look to raise the fund’s assets to about $750 million, with a hard-cap of $1 billion, Prakash said.

“Our mandate is to invest in climate opportunities fairly broadly,” he said. “Clearly, renewable energy will be an important part of that.” Besides solar, the fund is likely to invest in smart grids, water and waste projects, and possibly agriculture-related projects, he said.

There will be plenty of opportunity for investments, particularly in solar. Southeast Asia has seen about 1.5 gigawatts of solar capacity built in the last three or four years, Douglas estimated. “We’ll probably see that double in the next two years.”

Driving the growth are technological advancements, including a “90% drop in solar panel costs and a 30% drop in wind costs,” Prakash said. “In several markets, such as India, solar and wind have essentially achieved grid parity.”

Also behind the growth is the fact that “governments have fully embraced this transformation.” He pointed again to India, which has announced a goal of adding 100 gigawatts of solar capacity, and 60 gigawatts of wind, by 2020. “Nobody believes all that capacity can be created, but it indicates a change in the policy environment,” Prakash said.

Another big investor in Asian renewable energy is the Netherlands Development Finance Co. or FMO, the bilateral private sector development bank. “Energy and power is one of our key strategic areas,” said senior investment officer Janos Bonta. “Our annual investment in power is around $400 million, and it’s one of the strongest growing areas,” with roughly 15 to 20% annual growth, he said.

The fund’s investments tend to be between $10 million and $25 million. It always invests alongside other investors, and FMO’s stake can’t be more than 35% of the total project.

Bonta said FMO expects to continue to look for solar and other renewable energy projects across the region. “In Asia, renewable energy is our priority,” he said.

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