A Paper on Renewable Energy in South East Asia - July 2012


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South East Asia is widely recognised as a leading location for direct investment, with an existing strong and diverse industry base. One of the most exciting areas of opportunity in the region is Renewable Energy (RE). South East Asia is a huge potential market for RE. In this Paper, we examine the potential for Renewable Energy in Indonesia, Philippines, Malaysia, Singapore, Thailand and Vietnam. In addition to the 6 countries which we have examined in this Paper, further huge opportunities will likely exist in other ASEAN territories, such as Myanmar, Cambodia and Laos.

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A Paper on Renewable Energy in South East Asia - July 2012

  1. 1. Ipsos in ASEANMeeting the Energy Challenge inSouth East AsiaA Paper on Renewable EnergyJULY 2012
  2. 2. Foreword byPeter Snell, CEOIpsos Business Consulting It is probably fair to say that the majority of people on the planet now have an awareness of the need for action on climate change by cutting greenhouse gas emissions. Governments around the world are actively grappling with the challenge of balancing their responsibilities on climate change with the need to ensure that there is a secure energy supply. Here in Asia, energy security is perhaps as large a challenge as climate change for both government and industry. Asia continues to experience impressive economic growth,which in turn is causing energy demands to grow hugely. This demand is likely tocontinue to be met by fossil fuels in the short to medium term. This means risinglevels of greenhouse gases as well as intense competition for energy resources. Weare already witnessing Asian economies becoming dependent upon energy imports.As the oil & gas reserves around Asia start to become outstripped by demand, theneed for energy imports will likely continue to rise. The stability of the region willbecome increasingly important to the energy security policy of Asian economies.There can be little doubt about the need for a concerted effort from government andindustry to meet the energy challenge facing the world. Energy companies arealready making substantial investments in technology advancements and energyinfrastructure in an effort to address these energy issues. An important part ofenergy security is developing the contribution that can be made from renewableenergy sources. This paper looks at the issue of renewable energy within the ASEANregion. South East Asia is a significant economic bloc that continues to deliver stronggrowth for its communities. The issue of energy security is as great here as any otherpart of the globe. This paper from Ipsos seeks to make a contribution towards thedebate surrounding the importance of renewable energy in ASEAN. My team aroundthe region work with some of the world’s best known energy companies and wouldbe happy to engage in further dialogue with any parties interested in the subject ofenergy demand and energy security in South East Asia. 2
  3. 3. ContentsExecutive Summary.....................................................................................................4Renewable Energy Targets in ASEAN ..........................................................................5Renewable Energy Market ..........................................................................................6  The Philippines...........................................................................................7  Thailand......................................................................................................9  Indonesia..................................................................................................11  Malaysia...................................................................................................14  Vietnam....................................................................................................17  Singapore.................................................................................................19Market Opportunities in the Renewable Energy Sector............................................20Suggested Further Reading........................................................................................25About the Authors......................................................................................................26 3
  4. 4. Executive Summary South East Asia is widely recognised as a leading location for direct investment, with an existing strong and diverse industry base. One of the most exciting areas of opportunity in the region is Renewable Energy (RE). South East Asia is a huge potential market for RE. In addition to the 6 countries which we have examined, further huge opportunities will likely exist in other ASEAN territories, such as Myanmar, Cambodia and Laos. We can point to three key factors influencing the development of RE technologies and their market opportunities: Government policy (tax breaks, feed-in tariffs etc.) Funding (public & private) Cost of technology (economies of scale etc.) Of the 6 markets surveyed, only the Philippines (geothermal energy) and Thailand (solar power) even approach commercial viability in terms of RE at the present time. However, this situation is changing rapidly, as all ASEAN governments are committed to developing renewable sources of energy. The current RE situation across ASEAN presents a mixed bag. Not only are the various countries at different stages of RE development, but development of individual sources of RE varies within each country. All of the 6 markets offer huge potential. From Indonesia, with its vast population, of some 240 million down to Malaysia with less than 30 million, these are “sunshine coun- tries” with long coastlines and vast renewable resources. Even tiny Singapore aspires to becoming the RE research & development hub for the region and beyond. RE is a new sector and consequently government rules and regulations are in a state of flux. Individual countries are still learning from more developed markets and from each other. However, if investors were to wait for regulatory stability, they could well be too late to reap optimal rewards. At this stage, the safer opportunities are to be found in so- lar power in Malaysia and Thailand. However, many consider Indonesia, where rules and regulations are in their infancy and investment is more of a gamble, just too big to be ig- nored. 4
  5. 5. Renewable Energy Targets inASEANGlobal renewable energy investors are increasingly looking towards South East Asia as a newdestination for investment in renewable energy (RE). At the same time, the governments of thePhilippines, Indonesia, Thailand, Malaysia and Vietnam are setting aggressive targets for RE to beachieved in the next 20 years.The target for renewable energy capacity amongst these ASEAN countries (plus Singapore) is setto increase rapidly from its initial 2010 base. In 2010, existing RE capacity was estimated at 9,800MW. Contrast this with the 2030 target of 53,900 MW—a more than fivefold increase.Figure 1: Target RE Capacity in Key ASEAN CountriesThe Governments of six key ASEAN countries (Indonesia, Thailand, Vietnam, Philippines, Malaysia and Singapore) have setaggressive targets to increase installed RE capacity over the next 20 years at a rate equivalent to 5 – 6 times greater than 2010capacity.Source: data consolidated from Government official sources by Ipsos Business ConsultingThere are a variety of reasons for ASEAN governments to push for expansion of the RE sector, notleast of which are the increased demand for electricity, the high price of oil, growing concernsabout fossil fuel combustion, and high investment costs associated with expansion of existingelectricity grids. There is also recognition that investing in RE will create jobs as well as revenuefor the country.On top of all this, ASEAN is fortunate in having abundant natural resources throughout itsterritories, enabling it to make great strides towards efficient use of renewable and alternativeenergy from a range of sources.Renewable Energy TechnologyMicrohydro, geothermal, biomass & biogas are the main RE technologies currently utilised in theASEAN region. In 2010, microhydro accounted for approximately 38% of the RE installed basefollowed by geothermal (32%), biomass & biogas (29%), while solar, wind and waste energiesshared less than 1%. 5
  6. 6. In 2030, if plans outlined for RE development in ASEAN are followed, microhydro andgeothermal are expected to remain the main sources of RE, given the abundance of availableresource. Solar and wind energy will significantly increase, driven preliminary by Malaysia(solar) and Vietnam (wind). Biomass & biogas energy will continue to grow, led by Thailandand Vietnam, while waste energy will remain small as there is no significant push fromgovernments in terms of policy support or incentives.Figure 2: Existing and Target Installed Capacity by RE TechnologyMicrohydro and geothermal energies are and, will remain to be, the main RE sources for ASEAN 6. In parallel, solar and windenergies will be heavily utilized while, increase capacity in waste-to-energy, biomass and biogas energies are expected to be on-par with the overall RE growthSource: data consolidated from Government official sources by Ipsos Business ConsultingRenewable Energy MarketThe Philippines is by far the most developed market with an existing capacity of 5,439 MW,or 56% of total installed RE capacity across the six key ASEAN countries. Furthermore, thegovernment plans to double Philippine RE capacity by the year 2030.Thailand is the second largest market, with a 19% share (1,813 MW) of total installed REcapacity, and it also plans to double existing capacity by 2030. The third largest RE market isIndonesia with an 18% share, or 1,735 MW. With its huge natural resources, especially forgeothermal, the Indonesian government has an ambitious plan to increase capacity tenfoldby 2020. 6
  7. 7. Malaysia (currently 510 MW) and Vietnam (278 MW) are still nascent RE markets, thoughtheir respective governments have aggressive 14-fold and 50-fold growth targets for 2030.Singapore has no actual target to increase its RE, given its limited resources.Figure 3: Renewable Energy Targets by ASEAN Market Target Capacity Existing CapacityThe PhilippinesThe Philippine Department of Energy has formulated a National Renewable Energy Program(NREP), and enforced the Renewable Energy Act of 2008 to promote development, usageand commercial exploitation of RE resources. This affirms the Governments commitment toaccelerate exploration and development of RE.Currently RE contributes about 40% of the countrys primary energy supply of 40.73 MTOE, ofwhich 57.5% is sourced locally.The Philippines: Renewable Energy in the Power SectorIn terms of installed capacity, the power sector comprises some 16,359 MW, of which 33%involves RE (5,439 MW). Microhydro provides the majority of RE (63%), followed bygeothermal (36%) . 7
  8. 8. Going forward, the NREP aims to significantly increase microhydro and wind, given its vastresources of hydro and wind power (10,500 MW and 76,600 MW, respectively). On a pertechnology basis, the NREP intends to: Increase geothermal capacity by 75% Increase hydropower capacity by 160% Deliver an additional 277 MW of biomass power Build a wind power grid to provide an additional 2,345 MW capacity Mainstream an additional 284 MW of solar power capacity, and work towards achieving an aspirational target of 1,528 MW Develop the country’s first ocean energy facilityFigure 4: Existing and Targeting Renewable Energy by Technology - The Philippines Unit: MW Source: National Renewable Energy Program (NREP)The Philippines can be considered the most developed RE market in South East Asia, with morethan 30% of its power generated from renewable resources — more than any other country inthe region. On top of this, there is also high potential for the Philippines to achieve its RE targets. 8
  9. 9. In a Xinhua interview with President Benigno Aquino in March 2012, he stated that approvedservice contracts, in line with the NREP, already amounted to some 7,067 MW. With pendingapplications totaling 3,771 MW and existing capacity of around 5,000 MW, the Philippines ishopeful to hit its target of 15,000 MW by 2030. However, this will depend on governmentimplementation of previously promised supporting schemes.The push toward use of RE reflects the fact that electricity prices in the Philippines are the highestin Asia, which has driven away investment. RE is expected to bring costs down, which is essentialfor the Philippines to attain energy security and economic sustainability.The Philippines: Key Watch-pointsProspects for RE are promising while the Renewable Energy Act continues to be implemented. REtargets, policies, programs and road maps have already been set, incorporating fiscal and non-fiscal incentives as well as institutional support and a one-stop service for investors. However,challenges remain as to the details of policies, programs, guidelines and support currently underdevelopment. These include feed-in tariffs guaranteeing fixed payments for every kilowatt hourof renewable energy fed into the grid, renewable portfolio standards, net metering and an REtrust fund.Currently, the renewable energy sector in the Philippines is thought to be in danger of droppingbehind countries such as Malaysia and Thailand because of delays in implementing the feed-intariff scheme. This delay is likely to be the cause of delays in pipeline projects from committingthe investment required.That said, the Philippines has the potential to achieve its RE targets, given rising demand forenergy, pressure to increase the competiveness of the country and cut the cost of electricity, andits vast stock of RE resources.ThailandThailand has recently upscaled its RE target from 20% to 25% of total energy consumption to beachieved by the year 2022. As of 2011, the figure stands at 12.2%.RE potential in Thailand centres around solar energy, which has been estimated at 50,000 MW,followed at a distance by biomass (4,400 MW) and wind (1,600 MW). Microhydro, municipal solidwaste and biogas account for a further 1290 MW.Critical driving forces behind RE growth comprise energy security, government commitment to alow-carbon society, and job creation in a new sunrise industry. RE will be bolstered bygovernment funding on Research and Development and Demonstration (R&D&D), and byencouraging policies and incentives for private-led investment.Thailand: Renewable Energy in the Power SectorIn Thailand, RE generation is promoted by the Energy Policy and Planning Office under the aegisof the Ministry of Energy. 9
  10. 10. Thailand had some 1,813 MW of installed RE capacity in 2009, of which more than 80% camefrom biomass, with the rest made up from solar, microhydro, wind and waste energy. TheThai government has set a target of trebling RE capacity to 6,000 MW by 2030.The RE technologies that will get a significant boost over currently installed capacity are solarand wind, which are expected to increase share from their insignificant 2009 levels to 15%and 13% respectively by 2030.Figure 5: Existing and Targeting Renewable Energy - Thailand Unit: MW Source: Ministry of Energy, ThailandTo achieve its RE target, the Thai Government has launched several support schemes,including adders/feed-in premiums, Board of Investment tax incentives (8-year tax holiday),direct subsidies (10% to 30% on biogas, municipal solid waste, and solar-heated waterprojects), soft loans, government joint investment schemes etc.With this intense level of government support and investment, Thailand is expected to reachits RE target much earlier than the year 2030. This is evident from the status of projects inthe pipeline. As of October 2010, total RE installed capacity in the pipeline stood at some10,000 MW, almost double its 2030 target, of which 15% was already sold to the grid, 48%was signed off via Power Purchase Agreement (PPA), 11% was waiting for PPA approval, andthe remaining 26% was at the proposal stage . 10
  11. 11. Table 1: Status of Renewable Energy Projects categorized by Technology - ThailandSource: Ministry of Energy as of October 2010Thailand: Key Watch-pointsA recent move to maintain the momentum of RE investment has been a policy revision toreplace the “adder” scheme with fixed-price feed-In tariffs, which will initially apply to solarphoto-voltaic (PV) roof-top installations. Other new concepts ready for launch includeDistributed Green Generation (DGG) and Compressed Bio-gas (CBG) for vehicles. Also, newimplementation plans awaiting final decision include renewable heat Incentives and zoningfor RE.Unlike other markets where RE is being promoted on energy security grounds, Thailandgrowth is commercially motivated, and is driven primary by government incentives andsupporting policies which have so far met with a positive response from private investors. Inthe future, the Thailand RE sector will continue to attract investment, not only from itscurrent technology base, but also from new industries (e.g. DGG and CBG).IndonesiaWith the issue of a 2006 presidential decree, the Indonesian Government set a 2025 target of15% non-fossil energy within the overall mix, up from its current level of around 5% (mainlyhydro and geothermal). The 15% target comprises 5% biofuel, 5% geothermal and 5%combining wind, solar, biomass and hydro power.The drive towards development of RE reflects rising demand, together with availablerenewable resources. Indonesia is the largest country in South East Asia with a populationapproaching 240 million. With its economy continuing to grow, the requirement for energy isincreasing, especially the immediate need for fossil fuel. However, the country has struggledto boost oil production, which has dwindled in recent years due to ageing wells and a lack offresh investment. Use of non-fossil sources of energy is still relatively small, so thegovernment aims to develop and utilise these alternative sources for dealing with the energycrisis and building resilience. 11
  12. 12. Indonesia has a large new and renewable energy potential, which includes; Geothermal - 27,510 MW Mini-hydropower - 500 MW Biomass - 49,810 MW Solar - 4.8 kWh/m2/day Wind - 9,109 MW Ocean - 35 MWHowever, development of RE in Indonesia has been progressing more slowly than inneighboring countries. This is mainly because of inappropriate application of subsidies forcertain types of energy which have cost the government 13% of its budget, thus causing delayin the development of more viable alternative and renewable energy sources.Indonesia: Renewable Energy in the Power SectorRE policies and their development and promotion are implemented by the National EnergyCouncil and the Department of Energy and Mineral Resources. Government agencies havebeen working to ease foreign investment barriers in order to attract more investment to theRE sector. However, solid incentive and promotion policies have not been evident.Currently, Indonesia has about 1,735 MW of RE capacity installed, of which almost 70%comes from geothermal sources, and the rest from biomass technology and other renewableresources.Indonesia’s vast geothermal resources could eventually supply 40% of its energy demand.The Indonesia government has a target of 9,500 MW of electricity to be generated bygeothermal technology for the year 2025, which will account for about of 80% of its total REenergy mix by that date. 12
  13. 13. Figure 6: Existing and Targeting Renewable Energy - Indonesia Unit = MWSource: National Energy Council (Dewan Energi Nasional, DEM)To achieve its target, the government has passed a law allowing foreign investor to invest ingeothermal energy without partnering with state-owned companies such as Pertamina.However, foreign investors are still required to have a local partner with at least a 5% stake.Efforts are also being made to increase incentives for RE, especially for geothermal energy.The state-owned electricity company, PLN, recently established a feed-in tariff of USD 0.097per kilowatt-hour for geothermal plants, and is willing to increase the rate where plants areremote from the power grid. However, the tariff is not seen as sufficient to promoteinvestment effectively.Recently, the Government of Indonesia issued a Renewable Energy Feed-in Tariff forbiomass, biogas and municipal solid waste to purchase up to 10 MW of renewable energy. 13
  14. 14. ABB in Indonesia:Spotlight on the Indonesian RE sectorWith its continuing momentum to develop the renewable sector, ABB in Indonesia hassecured its position as a key player within the renewable energy market. ABB is unique in thatit delivers integrated solutions to clients, which aim to reduce both the interface risk and costfor customer. This has enabled ABB to become one of the world’s leading suppliers ofproducts and solutions for wind, solar and hydro power. ABB’s winning strategy is to offer thecustomer a complete product range alongside a system integration service. It may enableABB to offer guarantees on the power output thereby offering assurances to the customer onthe value to be delivered, as opposed to the more traditional model of competing mainly onprice.In an interview with Ipsos Business Consulting, ABB in Indonesia’s executive for BusinessDevelopment Renewable Energy & Energy Efficiency, Mr. Iga Rinadi, spoke about thesignificant potential for the development of renewable energy in Indonesia, in particular thesolar energy sector. Mr. Rinadi’s analysis was that the market will dramatically change withfuture Government support “The Indonesian market will develop quickly once there are clearpolicies relating to Feed-in-Tariff and tax incentives. We saw that this was the case ofThailand, where the renewable energy sector not only continues to grow but there are alsobenefits to the clean development mechanism market, which is booming“ said Mr. Rinadi.There are still some significant challenges for the Indonesian renewable energy sector toovercome. Mainly, there are three issues that still need to be addressed. Mr. Rinadi notedthat “First, it is very difficult to get sufficient funding especially from local financial institution,due to high interest rates. A second issue to be tackled is the development of clear and stableregulation on incentives and supporting scheme, with the third challenge being the need todevelop appropriate awareness of the potential for renewable energy among the localcommunity.” The importance of getting the local communities involved in renewable energyprojects should not be under-estimated. “In the long-run, we need a commitment andunderstanding from the community in order to maintain an efficient operation of a renewableenergy plant”Notwithstanding these challenges, Indonesia still offers huge opportunities for a path togrowth within renewable energy. “Indonesia’s debt-to-GDP ratio is still very low, whichindicates that Indonesia will continue to attract foreign private investors. It is worth notingthat whilst many regulations and incentives for renewable energy are still work in progress, anotable number of private investors do not wait for Government actions. That is why we seemany instances of investors conducting studies at the moment. This is particularly true forwind and solar projects. Once the regulations are in-place, we can expect to see rapiddevelopment for the renewable sector in Indonesia.”“The Indonesian Government is committed to build solar power plants starting with “Thetourist islands project” and is now expanding into “Remote islands” as well as “The 100 islandprojects”. The market is starting to heat up even though the Feed-in Tariffs for solar has notyet been announced. We see many private investors already conducting investment feasibilitystudies” said Iga Rinadi, ABB in Indonesia.ABB in IndonesiaABB in Indonesia is an integral part of the ABB Group, one of the world’s leading engineering companies.Core business is to help customers use electrical power effectively and to increase industrial productivity ina sustainable way.Today, ABB in Indonesia is a fast growing company with several offices, factories, workshops, and branchoffices. From Sabang to Merauke, ABB is continuously expanding its local activities. 14
  15. 15. The new FiT incentive varies between USD 6.7 cents/kWh to USD 1/kWh with an additionalincentive for some islands in remote areas, where a lack access to electricity ranges fromfactor of 1 to 1.5. Additional incentives are also available for biomass & biogas technology(USD 10cents to 14cents/kWh), as well as for municipal solid waste (USD 1 to 1.4/kWh).However, the duration of the new tariff is not clearly specified in the Power PurchaseAgreement. Currently, almost all power purchase timeframes are based on business-to-business negotiation with state utility companies. This uncertainty over contract timeframesdeters some potential investors.Other incentives provided by the government to promote the RE sector include exemptionfrom value-added tax and import duty for equipment and machinery used in RE projects.Indonesia: Key Watch-pointsGiven the huge investment required to establish geothermal plants, the critical factor forIndonesia to achieve its RE target is its ability to attract foreign investment. The solution liesin establishing a stable, reliable and attractive government support package, as well asremoving the fuel and electricity subsidies for consumers.The recent announcement on the new FiT incentives is a positive sign that the Government islikely to continue the momentum for the solar and wind energy.MalaysiaIn 2005, the Malaysian government set an RE target for 2010 of 350 MW of RE connected tothe grid or 1.8% of the total power generation mix. To date, it has achieved only one-sixth ofthat target. With effect from June 2010, the government set a new RE target with itsNational Renewable Energy Policy and Action Plan, which aims to increase the REcontribution to the nations electricity supply to 11% by 2030.The push towards RE in Malaysia is designed to meet the country’s fuel diversification policyin which the government specifies RE as the “fifth fuel”, relieving its dependence on oil,natural gas, hydropower and coal.A recent study conducted by the Government specified the potential of RE options: Biomass - 1,340 MW Biogas - 410 MW Microhydro - 500 MW (total hydro potential of 22,000 MW) Solar PV - 6,500 MW Municipal waste - 400 MW 15
  16. 16. Although renewable energy is undeniably starting to emerge as the fifth fuel, it is not asignificant power source yet and RE is still a niche industry. The main obstacle is the high costinvolved and inferior tariff offers which make RE projects less viable. Hence the need for asignificant boost to the RE sector from the government to make it financially viable.Malaysia: Renewable Energy in the Power SectorCurrently, the Sustainable Energy Development Authority is responsible for development ofthe RE sector. Recent activities to unlock RE potential are implementation of feed-in tariffsand funding to support project development. Initially the government has set aside USD 62.3million to support first-year targets, and over the longer term the fund will be fed by a 1%electricity tariff increase.Currently Malaysia has about 510 MW of installed RE capacity, of which more than 90%comes from biomass. This implies that other RE technologies will be developed from a near-zero base.By 2030, the Malaysian government aims to develop some 7,000 MW of RE installed capacity.The technology that will get the most significant push is solar energy, which is expected tocontribute some 60% of the total RE mix, followed by biomass at about 20%, with biogas,microhydro and waste energies making up the rest.Figure 7: Existing and Targeting Renewable Energy - Malaysia Unit = MW Source: Ministry of Energy, Green Technology and Water, Malaysia 16
  17. 17. The Malaysian government has assigned a quota system for feed-in tariffs. The RE quota for2012 is 190 MW, and it will be similar the following year. In 2014, it will increase to 250 MW.By the end of 2011, applications for feed-in tariffs in the biomass and solar PV categories forrenewable energy projects were fully taken up.The rationale behind setting quotas for feed-in tariffs is to enable the Sustainable EnergyDevelopment Authority to manage the funds required for all the different RE projects, and toavoid over-subscription. Feed-in tariffs are not financed from tax revenues, but from a REfund contributed to by electricity consumers. Tariff systems are also run on a discretionarybasis whereby they may be lowered for new power plants, taking into account marketconditions, and maturity and cost of technology.This system creates a mechanism for financially viable private investment in the RE sector, aswell as encouraging all parties to use energy efficiently and reduce consumption. Heavyelectricity consumers have to contribute more to the RE fund.Malaysia: Key Watch-pointsThe Malaysian government has admitted that development of RE has been slow in the pastbecause it has lacked a legal framework to govern the industry and provide security forbusinesses generating RE. However, with the RE Act of 2011 and the feed-in tariff system,the RE sector is expected to grow significantly.The feed-in tariff system, together with discretionary adjustments to annual quotas, leads toexpectations that RE technology costs will go down over time, especially in the case of solarPV. However, the quota system could limit the investment and defer the sectorattractiveness when compared to Thailand, where there is no quota system.VietnamDespite vast natural resources distributed throughout Vietnam, the country has onlyexploited 2% of its renewable energy potential. The government has now recognised theimportance of RE in supplying sustainable energy, and more recently in tackling climatechange, and has set a target for the proportion of electricity generated from RE to increasefrom its present 3.5% of total to 4.5% in 2020, and 6% in 2030.This drive towards RE reflects its perception as a new source of power to meet rising energydemands, which are expected to increase fourfold by 2030. With its limited fossil fuel,resources, Vietnam has to turn to alternative sources of energy to retain an independentpower supply. RE will also be used to increase electrification in rural areas, where solar andbiogas plants will be sited. It all adds up to a new industry sector, with concomitant jobcreation and economic development.A recent study conducted by the government sees potential for RE options to generate: Microhydro power - >4,000 MW 17
  18. 18.  Wind energy - 1,800 MW (8% of required area has been identified) Solar energy - 4-5 kWh/m2/day Biomass energy - >800 MW Waste to energy - 350 MW Biogas energy - >150 MW Geothermal energy - 340 MWVietnam: Renewable Energy in the Power SectorThere are several government agencies involved with RE projects. The main agencycontrolling legal regulations and approval of projects is the Prime Minster’s office.Currently, Vietnam has about 278 MW of RE installed capacity, with the main technologiesbeing biomass and microhydro (2008 installed capacity was 150 MW and 121 MWrespectively).By 2030, Vietnam aims to increase its total RE capacity to 13,900 MW. Wind power will bethe main source, and is expected to increase from a near-zero base to about 6,000 MW.Microhydro is set to increase to 5,700 MW and biomass to 2,000 MW.Figure 8: Existing and Targeting Renewable Energy - Vietnam Unit = MW Source: The Power Master Plan VII 18
  19. 19. The target set by the Prime Minister’s office is seen as very challenging for Vietnam.Development of the RE sector has been progressing very slowly, especially when it comes topromoting incentives and drafting relevant regulations. On top of that, the lack of financialstability of the Vietnamese government is a primary concern, and foreign exchange reservesare too low (USD 16.5 billion in July 2011). As a result, any government guarantee on foreigncurrency availability and transfer for power projects is of little value.Recently, the Vietnamese government issued incentives to promote wind energy. One of themain factors in the incentive package to encourage wind power is the feed-in tariff. This isequal to 7.8 US cents/kWh. The EVN (Electricity of Vietnam) is obliged to purchase electricityfrom wind power projects at a cost of USD 6.8 cents/kWh. The electricity support price fromthe state budget for investors to build wind power projects is 1.0 US cents/kWh (from theVietnam Environment Protection Fund). In addition, the incentive mechanism includesreductions and exemptions from income tax, import tax, VAT, land use and environment fees.Vietnam: Key Watch-pointsFeed-in tariffs for wind power in Vietnam are seen as low in comparison with those offeredby the Thai governments (USD 22 - 36 cents/kWh). The Vietnamese government needs torestructure incentives and supporting programs if it is to achieve its targets.SingaporeAs a result of its small size, Singapore has limited resources available for alternative energy.In spite of this, the Singapore government aims to develop solar energy to address thechallenges of climate change and energy security.Solar energy in Singapore has a potential average solar yield/unit of installed capacity of1,150 kWh/kWp/year. To date, R&D in solar energy has been focused on pilot projectsfunded by government grants. There are 4 Independent Power Plants with a total capacityof 251 MW, generating 2% of total power demand.As of Dec 09, total grid-connected solar capacity was approximately 1.8 MWp. There areplans to increase this to 4 MWp under the Government SchemeSingapore aims to establish itself as the R&D centre for RE. The government has developedits solar capacity scheme to encourage RE design, integration and adoption. 19
  20. 20. Market Opportunities in the Renewable Energy SectorThere are various factors influencing market development of RE technologies. The threemost important factors are: Policy intervention by governments to provide clear rules and regulations, as well as sufficient incentives and support schemes to attract investment. Government plays an intensive role when markets have to be kick-started, but less effort is required once things have progressed to the commercial stage. Availability of funding, which ranges from grants, government investment, venture capital, private equity to public offering and private financing. Cost of technology, which is expected to decrease over time with economies of scale, as well as transfer of technology, knowledge and skills into low-cost manufacturing countries. A striking example is solar PV technology, where the cost per unit has dropped significantly, resulting in lower investment being needed for solar energy. This has caused a rapid expansion in solar energy plant, especially in Thailand.Figure 9: Factors influencing market development stage of RE technologies 20
  21. 21. In ASEAN markets, most RE technologies are still at the nascent stage. Only the Philippinesand Thailand come close to commercial viability for geothermal and solar energy. Eachcountry in ASEAN prioritises different RE technologies according to its natural resources,which results in different stage of market development. For example, although thegeothermal energy market in the Philippines has been developed, other technologies such aswind, solar and ocean energy are still at a very early stage.On the other hand, it is clear that RE markets in ASEAN will change over the next 10-20 yearsas governments are committed to develop alternative sources of power.Figure 9: Share of RE by Technology Long term projection Source: Data consolidated from the Government official sources by Ipsos Business ConsultingThe above figure identifies key markets for different technologies by indicating current REshares for each country against projected shares in approximately 20 years time.For geothermal, it is clear that Indonesia and Philippines will be the key markets as a result oftheir vast resources. The microhydro market will develop significantly in Vietnam, and thePhilippines will also continue to grow its microhydro and wind contribution from their currentbases. Solar energy is expected to grow significantly in the Malaysian market, whilstcontinuing to expand in Thailand along with biomass & biogas technologies.Another important factor to consider when prioritising investment in RE in ASEAN is thedegree of government support schemes and incentives. Sectors which are heavily supportedby the government will attract private investment and develop at a faster rate. The mostcommon incentive adopted is the feed-in-tariff, which guarantees the price of electricity tobe purchased by the state electricity utility.Feed-in tariffs vary across technologies and markets. The higher the tariff, the moreattractive the sector is for private investment. Other initiatives attracting private investmentare tax incentives, net metering, public investment loans & grants, etc. 21
  22. 22. To prioritise the most attractive RE sectors in ASEAN, we consider two main factors. The firstis the gap between existing capacity and government RE targets, which implies the degree towhich policy intervention is needed, as well as growth opportunity for incrementalinvestment. The second is the availability of incentives and support schemes.Based on these two axes, we can segment market opportunity into four groups:Figure 11: Market Opportunity PrioritizationRemarks: The Thailand FiT incentives are calculated based on the adder plus based electricity rate of USD 11 cents/kWh. ThePhilippines FiT incentives are still at the proposal stage and pending government approval. Should the FiT incentives beapproved, most of RE sectors in the Philippines would likely fall into the “A Private Affair” box.Good to GrowGood to grow comprises a group of RE sectors with high potential to attract investment anddevelopment at a fast pace. This group not only offers high incentives and governmentalsupport schemes, but also has to move quickly to meet RE targets in the near future. Solarenergy in Malaysia is the only sector in this group.Tapping into this segment requires speed to market. The solar energy market in Malaysiaexemplifies this, as can be seen from the number of global PV equipment players who haverecently entered the market. For example, Bosch has established a new solar energymanufacturing site, and Panasonic has announced plans to construct a new site to producesolar power products. 22
  23. 23. However, the downside of the Malaysian market is the quota system, which is expected tolimit the growth in the first 5 years, as the permits restrict power generation within the rangeof 35— 100 MW per year. This makes the market too small to attract investors in short term.A Private AffairSolar and waste energy in Thailand and the biomass sector in Indonesia are the core areas forA Private Affair or sectors that are on the verge of becoming commercially viable. The mainfactor putting this group on many investors’ radar is intensive support from the domesticgovernment, especially with feed-in tariffs (or “adders” on top of electricity tariffs inThailand). These are the best-supported RE technologies in terms of feed-in tariffs. Theseschemes are likely to attract private investors, and increase economic activity in relevantequipment trades and services.Thailand and the Indonesia mainly source RE equipment for solar, waste and biomass energythrough imported technologies from Europe and the U.S. Example of current market playersinclude GE Energy, which plans to introduce its cadmium telluride (CdTe) thin-filmphotovoltaic technology to the Thai solar energy market within the next two years, Kyocera –Kyocera is Japan’s second largest solar panel producing company. The company recently wona major contract to build a solar farm in Thailand, Greenearth Biomass Energy will assess aunique biomass waste-to-energy gasification technology and market opportunity inIndonesia.Support NeededDespite vast availability of resources, the geothermal sector in Indonesia still requires strongsupport from the Government to enable the sector to be commercially viable. Currently,geothermal resources are identified and developed as “side benefit” from the work of oil andgas exploration. There is very little support from the government to reduce risk for theexploration of geothermal resources. However, it must be pointed out that the situationappears to be moving in a positive direction. Recently the Indonesia’s Ministry for Energyand Mineral Resources sets aside USD39 million to mitigate geothermal exploration risk,thereby helping to boost investment in the geothermal projects.Similar to wind and microhydro sectors in Vietnam are also struggling to grow, due to similarreason. They are considered uncompetitive compared with neighboring countries. Forexample, Indonesia and Vietnam provide feed-in tariffs for wind energy in the range of USD 7to 10 cents/kWh, while Thailand has double-incentive feed-in tariffs ranging from USD 22 to36 cents/kWh. 23
  24. 24. General Electric (GE) is one of the active players in the geothermal sector in Indonesia and inwind energy in Vietnam. It has recently signed a major memorandum of understanding withthe Indonesian government for joint development of local geothermal plant projects. It alsohas a contract with local developer Cong Ly Company Ltd. to provide wind turbines, plusoperations and maintenance services, for Phase One of the Bac Lieu Wind Farm, totaling 16MW of power generation capacity.Niche MarketIt could be argued that most of the RE sectors in ASEAN could still be classed as “niche”markets. Sectors within the “Niche Market” grouping typically have relatively low targets toachieve, and receive limited support from government. They are viewed as relatively slow todevelop (with the exception of the geothermal sector in the Philippines. This remains classedas “niche” due to its development being exclusively undertaken by the PNOC-EDC - whichoperates the majority of existing geothermal contract areas - and Philippine GeothermalIncorporated (PGI), a subsidiary of the Union Oil of California (UNOCAL). The overall marketwill remain robust as most will be growing from a zero base.However, most of the regulation regarding the supports and incentives remain a “work inprogress”. Many sectors have high potential to become a commercially viable sector (whichwould put them in “A Private Affair” quadrant) or the most attractive sector to grow (the“Good to Grow” quadrant). The sectors with the best potential to move into thecommercialization stage include solar and wind energy in Indonesia, subject to an additionalFiT to be offered on top of existing FiT incentives.Those in this group display similar characteristic across the region. Many local firms canmanufacture products such as basic turbines, traditional boilers and electrical devices, whilemore sophisticated equipment such as generators, high-pressure modern boilers, hi-techturbines, automatic controls and other high-end technological equipment will continue to beimported from developed countries such as Japan, Germany and the U.S.The Way ForwardThe ASEAN RE market will continue to attract investment and remain robust over the next 3to 5 years. RE is perceived as a new opportunity area for job creation and increasedeconomic activity, both in terms of foreign direct investment and positive domestic economicimpact, as most on-site installations are in rural areas where there is limited access toelectricity.Early market entrants are likely to gain an initial advantage, though risks and instability mayattend government policies and regulations. However, with growing demand for electricity inmany countries, coupled with various government commitments on low-carbon economy,growth in RE is a certainty for the region. 24
  25. 25. Suggested Further ReadingDeploying Renewables in Southeast Asia Trends and potentials (2010)http://www.iea.org/papers/2010/Renew_SEAsia.pdfGrounding Green Power: Bottom-up perspectives on smart renewable energy policyin developing countrieshttp://pdf.wri.org/working_papers/grounding_green_power.pdfThailand’s Renewable Energy and its Energy Future: Opportunities & Challengeshttp://www.nstda.or.th/attachments/7918_CASAVA-2.pdfAlternative Energy Industry in Singaporehttp://www.edb.gov.sg/edb/sg/en_uk/index/industry_sectors/alternative_energy.htmlRenewable Energy Market Assessment Report: Indonesiahttp://ita.doc.gov/td/energy/Indonesia%20Renewable%20Energy%20Assessment%20(FINAL).pdfInvesting in the Philippines Renewable Energy Sectorhttp://www.dti.gov.ph/uploads/DownloadableForms/renewable_energy.pdfRenewable Energy in Vietnam: Promising sector reporthttp://www.cleantechholland.nl/dsresource?objectid=18857IMPORTANT NOTE: All content within this Ipsos paper is provided for general information only, and should not betreated as a substitute for undertaking your own detailed market intelligence study for renewable energy in SouthEast Asia. Ipsos is not responsible or liable for any actions taken by a reader based on the content of this Paper.You are recommended to seek professional advice about renewable energy opportunities within South East Asiabefore taking any action. Ipsos is not liable for the contents of any external internet sites listed, nor does itendorse any commercial product or service mentioned or advised on any of the sites. 25
  26. 26. About the AuthorsIpsos Business ConsultingIpsos Business Consulting (IBC) is the market intelligence and strategy consultingdivision of Ipsos. IBC assists clients globally to enter, evolve and expand in emergingand developed markets through fact based market analysis. IBC has been assistingclients with their growth strategies since 1994 and has a strong track record withmore than 3,000 consulting engagements covering markets globally.Colin KinghornHead of Consulting for Thailand, Indonesia and VietnamEmail: colin.kinghorn@ipsos.comTel: +662 237 9262 | Fax: +662 237 9267Colin leads a strong team of market intelligence professionals based in Bangkok, HoChi Minh City and Jakarta that provide a wide range of services to clients operatingwithin the energy arena. Prior to joining Ipsos Business Consulting, Colin has workedin Ireland, Spain, Australia, Laos and Thailand. He is also a former member of theBoard of Directors of a UK Housing Company as well as a past Chairman of theInstitute of Internal Auditors. Colin’s experience includes advising manufacturingand engineering clients around the world, with strong focus on South East Asia. Hehas also provided consulting services to Ofgem the United Kingdom’s Gas & ElectricityIndustry regulator.Pornprapun SriyothaBusiness Development ManagerEmail: pornprapun.sriyotha@ipsos.comTel: +662 237 9262 ext 312 | Fax: +662 237 9267Pornprapun is a Business Development Manager in South East Asia. She has anextensive background in consulting engagements within the B2B markets, specificallyin relation to manufacturing, energy and the building materials segment. A key partof Pornprapun’s role at Ipsos is to work closely with our clients and determine ways inwhich Ipsos can assist them to identify the optimum strategy to exploit viableopportunities within those markets that they operate. Contact your local Ipsos Business Consulting office to request a quote. www.ipsos.com/businessconsulting 26
  27. 27. Market Intelligence for theEnergy SectorThe demand for energy in the Asia Pacific is being driven by huge population growth and astrong emerging middle class in most Asian economies. The challenge of meeting thisgrowing energy demand, alongside the pressure to respond to issues such as climate change,create unique challenges in responding to the issue of Energy Security. Asian countries areincreasingly looking to widen the Energy sectors that supply their country. With most of theinternational players having a presence in Asia, we find a highly competitive market place thatrequires a business model with growth strategies built upon market facts relating to bothemerging and developed markets.Ipsos Business Consulting experience of Asia spans 3 decades. We have a strong trackrecord in providing our clients with market intelligence and growth strategy consulting coveringkey markets.How Ipsos Can Assist Energy Clients Ipsos assists clients with:Ipsos Business Consulting is able to assist Market Analysisclients looking to enter, expand and evolve in  Market sizing and growth forecasts forenergy markets around the globe with specific emerging marketsexperience of studies in the following sectors:  Market intelligence for natural gas Power Generation supply  Market assessment for brown field Wind Farms energy solutions Solar Energy Customer Intelligence Gas Turbines  Customer intelligence for gas turbines LPG / CNG industry Diesel Power Generation  Competitive analysis of AQCS market Petrochemicals Competitive Environment Analysis Chemicals  Competitor profiling of Power Power Distribution Equipment suppliers Power Solutions  Competitive analysis of geothermalWe offer a range of market intelligence and energy sectorgrowth consulting services to international and Value Chain And Opportunity Analysislocal clients in developed and emerging  Market opportunity assessment for solarmarkets. Our team of market intelligence energyprofessionals are located in key strategic  Market entry studies for wind turbineslocations including Jakarta, Kuala Lumpur,  Value chain analysis within powerBangkok, Ho Chi Minh City, Beijing, Shanghai, distribution sector industrySeoul, Hong Kong, Tokyo, Mumbai, Delhi andDubai. 27
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