Renewable Energy investors eyeing Asia beyond China, India

HONG KONG/MANILA: Global renewable energy investors are increasingly looking to Southeast and South Asia, lured by investment incentives rolled out by governments in the region amid a bleak outlook for clean energy investment in Europe and the United States.

China and India remain the major destinations in Asia for renewable energy investors, but there are signs of emerging investment interest in smaller Asian countries, from Thailand to Pakistan and Malaysia to Vietnam.

Governments in Southeast and South Asia are refining targets for renewable energy expansion, extending subsidies and dangling tax breaks at a time when developed markets, particularly Europe and the United States, are rolling back subsidies.

We see an unprecedented number of companies, even those that previously weren't interested in the region, entering Thailand and Malaysia, seeking investment opportunities in clean energy, said Edgare Kerkwijk, managing director at Singapore-based investment firm Asia Green Capital.

We should see quite a bit of activity in the region this year - better projects, better profitability and better project developers than in the past.

In spite of challenges long associated with investment in Southeast and South Asia, including regulatory uncertainties and underdeveloped infrastructure, renewable projects in some countries have attracted substantial investment from US and European companies and even international funds.

Beyond perks, the region's growing attractiveness can be explained in part by the fact that the outlook for many markets elsewhere appears dismal, industry experts say.

When you look at the economic environment globally and you see the difficulties being faced right now in Europe, investors will turn to Asia because you have strong and steady growth in Asia, said Ali Khan, managing director at private equity firm Maybank MEACP.

MEACP, a joint venture between Malayan Banking Bhd and private equity firm Middle East & Asia Capital Partners, is raising $500 million for clean energy ventures with a focus on Asia.

RENEWABLE AMBITION

Regulatory support in South and Southeast Asia mirrors some of the policies that helped drive a boom in China and India's green sectors in the past several years.

China attracted the most renewable energy investment in 2010, securing nearly $50 billion, or about a third of the global total, a report by the United Nations Environmental Programme said. Free land, tax breaks, generous loans and a favourable tariff regime are all boosting the country's renewable industry.

India increased renewable energy investment by a quarter in 2010 to $3.8 billion with tax perks for wind power projects and funding support for solar power.

Regional countries are turning to green energy as their economies continue to grow amid the global turmoil.

The International Monetary Fund forecast Southeast Asia's five biggest economies to grow a combined 5.2 percent in 2012, compared with 1.8 percent in the United States and a contraction of 0.5 percent in Europe.

Malaysia is targeting more than 3,140 megawatts of new renewable energy capacity by 2020, with the help of a feed-in tariff structure that pays energy producers a premium rate for using solar, wind or hydropower sources. The country expects solar to account for more than a third of the new capacity.

When Malaysia launched a clean energy subsidy in December, demand was such that applicants snapped up three years' worth of quotas for 112 megawatts of commercial solar energy capacity.

Malaysia is being proactive in the development of the solar market, so I think you'll see continued activity there, said Robert Todd, director for renewable energy at HSBC.

Although there are few projects of scale, companies that are familiar with investments across Southeast Asia will be open-minded to look at renewables as well.

INVESTMENT INFLUX

Companies are already inking deals.

Japan's Panasonic Corp has agreed to build a new solar manufacturing base in Malaysia, joining German solar companies Conergy AG and Q-Cells SE in running manufacturing facilities in the country.

US solar wafer and polysilicon company MEMC Electronic Materials Inc is building 51 solar power projects in Thailand, with the US government agency Overseas Private Investment Corp (OPIC) agreeing to lend $250 million for the project.

Japan steel trader Sumikin Bussan Corp has said it will invest nearly $100 million for a solar plant in Thailand, while the US Export-Import Bank has agreed to lend $1 billion to fund wind power projects in Vietnam.

On top of tax perks and tariff premiums, Thailand pays 6.5 baht per kilowatt-hour for solar energy, while Vietnam has announced special rates and tax perks for wind power.

Indonesia, which holds 40 percent of the world's geothermal resources, gives a special rate for geothermal energy, while the Philippines plans the implementation of its own feed-in tariff.

It's very exciting, because when you look at these countries, and the regulatory support ... investment makes perfect sense, said Maybank MEACP's Khan.

In Pakistan, Turkish power utility Zorlu Energy Group is building a $144 million, 56.4 megawatt wind power project, with Asian Development Bank, World Bank and Pakistan's Habib Bank Ltd helping to fund the venture.

Nordex SE and China Three Gorges Corp signed separate wind power deals with Pakistan last year, while Spain's Gamesa Corp signed a supply order for a 10 megawatt wind power project in Sri Lanka.

A range of funds, including pension funds, foundations, and endowments, are also investing in the region.

We see renewable energy funds out of Europe and the US looking at opportunities in (Southeast Asia), said Asia Green's Kerkwijk.

US private equity firm Global Environment Fund, which manages $1 billion in capital, last year tapped Japan Bank for International Cooperation to commit to its $300 million fund for clean energy projects in South Asia.

Investment firm Low Carbon Accelerator Ltd is raising a $150 million fund to invest in wind and waste-to-energy projects in Southeast Asia.

LOCAL COMPETITION

While investment opportunities in South and Southeast Asia may be new, the accompanying problems are not unfamiliar.

Investors complain of confusing regulatory frameworks and complicated tax and labour laws. Weak infrastructure drives up costs for project developers, and inefficient power grids discourage deployment of renewable energy in areas requiring power supply.

Competition is also toughening up, with local companies willing to slug it out with international players.

In the Philippines, smaller private firms and family-run companies like Aboitiz Power Corp and Energy Development Corp of the Lopez group are acquiring power assets and aggressively bidding for contracts.

Despite the challenges, many of them are focusing on the opportunities.

We are seeing a lot of (investor) interest shifting to the southeast Asian countries as investors are beginning to realize the attractive returns and strength of these nations, said Maybank MEACP's Khan.

FACTBOX

A combination of investment incentives and a dire outlook for clean energy in Europe is moving investors to increasingly look at South and Southeast Asia.

Below are some of the deals and loan commitments in the region's clean energy sector over the last year.

Southeast Asia

- US solar wafer and polysilicon company MEMC Electronic Materials Inc through its solar project development arm, SunEdison, is building 51 solar power projects in Thailand, with US government agency Overseas Private Investment Corp (OPIC) lending $250 million for the project.

- OPIC tripled its funding commitment to $1.1 billion for renewable energy ventures, backing deals in emerging markets including South and Southeast Asia.

- Japan steel trader Sumikin Bussan Corp said its Rojana Power Co joint venture plans to build a 24 megawatt solar power plant in Thailand for about 7 billion yen ($92 million).

- The US Export-Import Bank entered into an agreement with Vietnam Development Bank to lend the nation $1 billion to fund wind power projects.

- Panasonic Corp announced that it will invest $580 million to build a solar cell plant in Malaysia.

- Low Carbon Accelerator Ltd is raising $150 million fund to invest in wind and waste-to-energy projects in Southeast Asia.

South Asia

- In Pakistan, Turkish power utility Zorlu Energy is building a $144 million, 56.4 megawatt wind power project, with Asian Development Bank, World Bank and Pakistan's Habib Bank Ltd helping fund the venture.

- Nordex SE announced that it has signed supply and service contracts for wind farms in Pakistan with a combined capacity of 250 megawatts.

- China Three Gorges Corp signed a wind farm deal with Pakistan. China Xinjiang Goldwind Science and Technology Co Ltd is supplying the turbines.

- Spain's Gamesa Corp signed an order for a 10 megawatt wind power project in Sri Lanka.

- Global Environment Fund, which manages $1 billion in capital, tapped Japan Bank for International Cooperation to commit to its $300 million fund which will invest in clean energy projects in South Asia.

Source: FE 08 Feb 12