Are Asian countries being trapped by lower solar energy costs?

Are Asian countries being trapped by lower solar energy costs?

If Singapore's solar power dreams don't push through, its banks have some
explaining to do.

Singapore is aggressively ramping up its solar energy capacity to 350MWp by
2020, but inadequate access to funding for solar generation companies might
prove to be a significant roadblock for the city-state's renewable energy
agenda. "The main challenge for solar financing in Singapore is the
familiarity of some financial institutions to the solar PV renewable
business model and that unfamiliarity tends to heighten the risk aversion
and lessen competitive financing terms," says Camillus Yang, vice
president,corporate development and finance at Sunseap, a local clean energy
provider.

Jacqueline Tao, energy analyst at the Energy Studies Institute (ESI), noted
that solar PV SMEs typically face higher financing costs compared to
conventional power generation players. For instance, larger energy players
have a debt-to-equity ratio of50/50, much lower compared with 70/30 for
solar PV SMEs. "Meanwhile, the cost of equity for traditional players is
just 6%, while that for SMEs ranges from 9% to 15%. Banks also charge an
interest rate of 4% for conventional players with a credit rating of Baa,
but SMEs need to grapple with interest rates as high as 5.6%. Larger firms
can also tap bond markets, which are offlimits to solar PV SMEs due to size
restrictions," she notes.

Matthew Peloso, CEO of solar energy generation company Sun Electric, says
that they usually have to come equipped with a detailed explanation about
their unique business model whenever they approach bankers for loans. "Our
model requires explanation and understanding on the part of the financial
institutions. In addition, there is a relatively low supply of capital
toward new innovations which are riskier but offer higher returns," he
explained. Sun Electric's business model involves connecting rooftop owners
with clean energy customers. Peloso added that the potentially higher cost
for solar firms is partly balanced by good support from Singapore's various
public and private grants, as well as interest in supporting the development
of technology, which can bridge a part of the initial funding gap. "Another
point that can be made is in regard the asset size and cost to the financial
institutions. Due to their fixed costs, institutions wish to fund large
projects. Given that solar is new and growing, investments are in the low
range of capital financings. This is a temporary situation," he said.

Despite existing difficulties, Peloso noted that the industry is making
progress when it comes to improving access to funding for solar SMEs. "A
local bank has been working hard to provide us with a pretty cost effective
package. However, as we are new it has taken time to analyse this. I cannot
disclose full details but the facility would be pretty close to the cost of
a conventional utility. We are making progress," he said. Meanwhile,
Sunseap's Yang shared that solar PV SMEs should explore new ways of
clinching funding in order to lower costs. "For financing of solar in
Singapore and the region, Sunseap is working towards a more sustainable
financial ecosystem of asset-backed securitisation for completed projects or
long term portfolio project financing coupled with the concept of a
revolving credit facility for inconstruction projects. This ecosystem
assists in lowering LCOE, allows capital recycling, and drives scalability
for greater solar PV adoption into the region. We look forward to launching
this soon in the second half of 2016," he said.

Vietnam eyeing opportunity

Several countries across the Asia Pacific are also taking steps to improve
solar energy capabilities. For instance, Vietnam is a nation with high solar
power potential, especially in the central and southern parts of the
country. The average solar energy intensity is 5 kWh/m2. The average
sunshine at 150kcal/m2 in Vietnam is between 2,000 to 5,000 hours, leading
to a theoretical potential of 43.9 billion TOE. "This is an advantage for
Vietnam in its effort to develop a solar power industry, in the context of
the increasing demand for electricity," says Dr. Do Huu Hao, chairman,
Vietnam Energy and Energy Efficiency Association.

Among noteworthy solar projects there include the 500kWp Rooftop Solar by
ECC HCM in Ho Chi Minh City, the 2MWp Solar power plant by ECC HCM in Phu
Yen Province, the 1MWp Solar Power by Thanh Thanh Cong Group also in Ho Chi
Minh City, and the 300 MWp Solar Power by Thanh Thanh Cong Group in Binh
Thuan Province. "The world's demand for energy is growing and set to
increase by 56% between 2010 and 2040," says Dr. Hao. "In this context,
Vietnam also needs to find a new energy resource, and solar power is one of
the best alternative energy that Vietnam has."

According to the Decision NO. 2068/QD-TTg on the development strategy of
Vietnam's renewable energy by 2030 and vision to 2050, Vietnam's solar power
production will increase by 1.4 billion kWh in 2020; approximately 35.4
billion kWh in 2030 and 210 billion kWh in 2050. "This is a good chance for
all local and international enterprises to invest in Vietnam now," notes Dr.
Hao.

Rapid development in China

China, too, is boosting its solar power capabilities. With newly installed
14 GW solar panels in the country, China easily became the largest solar
panel market in 2015 as it grabbed a whopping 25% share of the world's total
55 GW additional solar panel installations. "This rapid expansion of
investment into solar energy can be attributed to the generous incentive
programs that the country offers, as well as the government's five-year plan
to hit 100 gigawatt installations by 2020," says Jake Liddle of Dezan Shira
& Associates. Other studies, such as one conducted by Xinhua, forecast an
even brighter outlook for the industry, with figures as large as 150
gigawatts by 2020 predicted. Revenue in China's solar power generation
industry rose at an annual rate of 145.3% between 2010 and 2015, totaling
US$2.6 billion. This amount was largely spurred by rising household demand
for electricity, which has caused several cases of power supply shortages in
the past and brought exceptional demand for solar power generation.

"Environmental consciousness and pollution problems have also contributed to
the want to shift from a reliance on imported fossil fuels to renewable
energies," says Liddle. Under the twelfth five-year plan, the State Energy
Administration made aims to increase solar power generation capacity from
860 megawatts to 21 gigawatts.

China's solar panel manufacturing industry has also been developing at a
fast pace: from 2010 to 2015, the industry saw an annual growth rate of 2.4%
with revenue totaling US$29.8 billion. Over the same period, Chinese solar
cell output has been increasing by 21.3% per year, with an estimated output
of 27.6 gigawatts in 2015. Corporate investment in solar installations is
met with generous policies and incentives. In 2013, the Chinese government
introduced new feed-in tariffs (FITs), deployed at both state and provincial
levels to fuel the growth of distributed solar rooftop installations. The
central government currently provides 20-year subsidies of US$0.06 per
kilowatt-hour of output from solar rooftop projects. For surplus power, RMB
0.40 per kilowatt-hour is awarded from the state grid, for any surplus power
they generate. "Two factors are combining to incentivize the Chinese
government to strengthen the solar panel industry," says Liddle. "Increasing
awareness of environmental pollution, and concerns over power supply and
generation."

Realistic energy mix

Meanwhile, in the Philippines, Bienvenido S. Oplas, Jr., head of Minimal
Government Thinkers and a SEANET Fellow, says solar power consumption in
Asia remains very small. He says less than 0.05 TWh in 2015 for six of the
12 economies - Vietnam, Hong Kong, Malaysia, Philippines, Singapore and
Thailand. "Thus, statements that many Asian economies have significantly
embraced new renewables like solar, and their use of coal power is declining
as they shift towards more solar and wind power - are preposterous," says
Oplas.

"The recent heightened interest in renewables is understandable. But let me
say this: for now, renewables cost more than conventional power, which means
higher power prices. There's a cost to protecting our environment - no such
thing as free lunch." He added that the Philippines is heading towards
sufficient power capacity and majority of these power plants are coal.

In India, the country has been thinking of setting up solar parks to address
blackouts. "The solar park concept is similar to an economic zone dedicated
to the generation of power through solar energy and also to the
manufacturing of solar energy components," says Agostinho Miguel Garcia,
chief of development and engineering at Sun Business Development Lda. A
solar park will hold a number of solar power plants and manufacturing
outfits, each developed by separate or the same groups/promoters. The
concept aims to accelerate the development of solar power generation
projects, by providing developers an area that is well characterised,
properly infrastructured, and where the risk of the projects can be
minimised as well as facilitation of the permitting process.

As part of plans to end blackouts, India aims to set up solar parks with a
combined capacity of 22 gigawatts. The Solar Energy Corporation of India
(SECI) on behalf of Government of India and the Ministry of New and
Renewable Energy handles the funds to be made available under the Scheme for
development of Solar Parks and Ultra Mega Solar Power Projects. "The
deployable technologies are PV with and without tracking, CPV, and CSP,"
says Garcia. "The manufacturing hub can be for
any of the components of these technologies or for the whole assembly of
products or systems - PV, CPV, and solar field of CSP technologies."

Concentrated zones of development may also serve as centres for the
deployment of new technologies to be scaled up by setting up appropriate
research and development facilities and may also provide targeted economic
and employment opportunities, and growth for specific locales or regions.
Garcia notes that a solar park will apply any of the same principles as an
SEZ. He says: "Generally speaking we will have one or more blocks of land
will be designated and pre-permitted as a concentrated zone for solar
development; individual solar plants will be constructed on the land in a
clustered fashion; common transmission and infrastructure." It will also
have economies of scale, use of less expensive, domestically-manufactured
components: structures, pressure vessels, turbines; manufacturing of
components locally, and large-scale demand.

Challenges ahead

ADB president Takehiko Nakao said that in the past five years, exponential
growth in solar energy deployment across Asia and the Pacific has been
witnessed. At the end of 2015, solar energy capacity exceeded 75 gigawatt
(GW), up from 1 GW in 2010 in the Asia and Pacific region including
Australia, Japan, and New Zealand. And for the PRC, it held more than half
of the region's capacity at the end of last year. "The cost of solar energy
globally has fallen by about 70% since 2010," says Nakao. "This enormous
achievement is due to efficiency gains in energy conversion, economies of
scale driven by government policies and subsidies, and financing from
commercial banks and international financial institutions including ADB."

He also notes that ADB has contributed significantly to the region's rapid
solar energy growth. ADB's Asia Solar Energy Initiative was launched in May
2010 to strengthen our support to developing member countries.

For example, ADB has supported a large-scale solar park in Gujarat and
Rajasthan in India and grid-connected solar Photovoltaic (PV) in Uzbekistan,
Thailand, and the Solomon Islands. ADB has helped to pilot off-grid hybrid
solar-wind systems in Nepal and solar PV in small island nations such as
Tonga and Maldives. In addition, ADB has supported the PRC's first major
concentrated solar energy plant. "Despite these achievements, we must not
become complacent," Nakao says. "In my view, there are three key challenges
to expanding solar energy further and reaping its potential in Asia and the
Pacific." First, he notes, money matters. In Asia, more than 400 million
people do not have access to any form of electricity. Bringing clean energy
to them, including solar energy, will require substantial investments.
Second, although the cost of solar energy has fallen significantly, it is
still too expensive for many developing countries in Asia. "Third, given
that solar energy is intermittent, electricity grid systems will need to be
upgraded with new technologies to absorb the solar energy," he says.

"This is particularly important in small power systems." Nakao also notes
that ADB is working with its developing member countries to address these
challenges. First, ADB is scaling up its financial support for clean energy,
he says. "Last September, I announced a doubling of ADB's climate financing
from the current $3 billion to $6 billion per year by 2020," he says. "Out
of this $6 billion total, $4 billion is for mitigation including renewable
energy and energy efficiency." Clean energy investments including solar will
be increased from the current $2 billion to $3 billion a year by 2020, he
notes.

Second, Nakao says ADB expects the cost of solar energy to fall further as
solar energy installations are scaled up and local manufacturing capacity is
increased. "It is also important to pursue innovative business solutions to
bring affordable solar energy to the poor," he says. As an example, he says
that in India, ADB has supported a private sector company to install solar
panels at low-income households in rural areas. Energy from the solar panels
will be delivered to households initially without any payment via the system
of electricity credits, Nakao shares.

Doing solar PV differently

Garcia from Sun Business Development adds that many of the PV industry
players have already wished for opportunities that were faster, easier, and
better defined than actually develop a PV project from zero, though some of
the players have developed pretty neat skills doing exactly this. "I have
already commented on solar parks and their impact, which so far has been
remarkable in PV and CSP. Another interesting way has been devised by the
International Finance Corporation (IFC), part of the World Bank Group (WBG).

The programme is called Scaling Solar. IFC has developed a product that uses
several separate products from the WBG as World Bank supports country
governments with financing and advice, IFC leveraging the private sector and
the Multilateral Investment Guarantee Agency (MIGA) providing a range of
political risk insurance products to attract private capital into emerging
markets," he says.

The cost of solar photovoltaic technology has fallen more than 80% in the
past six years. Still, many countries have struggled to develop
utility-scale solar plants due to limited capacity to manage, structure, and
negotiate private power concessions; small and distinct power markets can
deter investors and small grids can only absorb small projects; power
projects are not competitively tendered; individually negotiated contracts
have high transaction costs and poor credit utility offtakers as well as
political risks increase the cost of capital, driving up the tariff "This
results in less attractive projects and in the end, and mostly shady deals
are done that benefit only some while the value of PV is not obtained," he
adds.

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Ref:
http://asian-power.com/ipp/exclusive/walking-sunshine-are-asian-countries-be
ing-trapped-lower-solar-energy-costs

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com