Here Comes the Sun: Investors Increasingly Hot on Solar Projects in S.E. Asia

Here Comes the Sun: Investors Increasingly Hot on Solar Projects in S.E.
Asia

Investors are increasingly excited about the prospects for much faster
growth in the solar power industry in Southeast Asia, which has until now
been a backwater for renewable energy.

They say that the region is in a perfect position to benefit from rapidly
declining prices in solar panels. It has strong economic growth, relatively
high costs of electricity and a shortage from traditional sources,
undeveloped infrastructure in more remote areas, plenty of sunshine, and
backing for more renewable energy from many of Southeast Asia's governments.

"Dramatically falling costs for solar energy technologies means businesses
and governments are choosing renewable energy not for environmental reasons
but for economic ones," said Roberto De Vido, spokesman for Singapore-based
Equis, one of Asia's biggest green energy-focused investment firms with $2.7
billion (2.1 billion pounds) in committed capital. "It simply makes good
business sense. And that's a trend that's not going to change,"

By the end of last year, Southeast Asia had installed solar capacity of only
just over 3 gigawatts (GW), a mere 1 percent of global capacity, according
to data from the International Renewable Energy Agency (Irena).

Steve O'Neil, the chief executive of Singapore-based solar panel maker REC,
said he expects that to grow by 5 GW of new installations every year between
2017-2020. That's the equivalent of building five standard fossil-fuel power
stations annually.

"People don't realise what is about to happen, when you're in the middle of
exponential growth," said REC's O'Neil. "It's transformational.

Some European funds are among those looking at the region.

"The projects on offer in Europe are stagnating, so European investors are
looking in that direction with great interest," said Armin Sandhoevel, chief
investment officer for Infrastructure Equity at Allianz Global Investors,
whose team manages 1.6 billion euros worth of renewable investments.

"In Asia, you'd expect double-digit returns. That's hard to achieve in
Europe," he said.

Southeast Asia has a population of more than 600 million and annual power
demand growth of 6 percent, which most countries struggle to meet.

Solar power potential is measured by Global Horizontal Irradiation (GHI), a
measurement of the intensity of the sun. Thailand has a GHI that can produce
1,600 to 2,000 kilowatt-hours of solar power per square metre (kWh/m2), well
above the 1,000 to 1,200 kWh/m2 in Europe's solar leader Germany, according
to solar weather and data provider Solargis.

The region is ripe for a boom because solar panel prices have crashed to
under 50 cents per watt of electricity today from $70 per watt in 1980 as
technology and manufacturing efficiency have improved consistently.

At the same time, Southeast Asian countries have all set ambitious renewable
energy targets, ranging from 18 percent of overall energy generation mix in
Thailand and Malaysia to 35 percent in the Philippines, up from negligible
levels today.

There are, of course, still risks for investors - including currency
volatility, the difficulties of making land acquisitions, and usually the
lack of any government guarantees, said Sharad Somani, head of Asia/Pacific
Power & Utilities at KPMG.

Storing solar power through the night remains a hurdle too, though battery
technology is improving rapidly.

VENTURE CAPITAL

Bringing together international investors, panel makers, and potential users
is a small but growing group of venture capital firms, mostly based in
Singapore.

GA Power is one such firm. Led by German solar business veterans, it focuses
entirely on financing and developing solar projects across Southeast Asia.

"There is more money than there are projects. If you can offer professional
developed projects, you'll have no issue organising funding," said Roland
Quast, GA Power's managing director, adding that "a solar boom in Southeast
Asia is unavoidable" given it is now a competitive power source.

He said an investor can expect around a 12 percent economic internal rate of
return on average in the region. The measurement reflects returns after
costs for the construction, installation, and operation of a project.

Mid-sized solar projects that can be turned on without having to tap into a
larger grid are in favour in the region as governments seek to bring power
to an area without having to add expensive infrastructure, Quast said.

KPMG's Somani, who is an adviser in the renewables sector, said that Equis
and other funds are raising capital with U.S. and European institutional
investors, including pension funds. Equis declined to provide detail on the
sources of its money.

"Today we have unique confluence of all three factors necessary for success
of such projects - demand for projects from government/utility side
supported by conducive regulatory framework, strong developer and supplier
interest and abundance of domestic and international financing
availability," Somani said.

KILLER ARGUMENT

At the REC solar panel factory in Singapore, one of Singapore's biggest
manufacturing sites, a thousand workers and more than a hundred robots work
around the clock, churning out 20 containers full of panels every day, which
are immediately sent to overseas customers, increasingly to Southeast Asia.

"We produce 14,000 panels per day, which go into 20 containers, 24/7. We
never stop," REC's O'Neil told Reuters during a recent visit to the factory.

Founded in Norway, headquartered in Singapore, and owned by Chinese
industrial giant ChemChina, O'Neil says that REC sells globally, but that he
expects "Southeast Asia to become a game-changer."

In 2016, REC grew by just 3 percent in Southeast Asia - excluding the huge
solar markets of India, China and Australia. This year, it expects 5 percent
growth in the region, and then 9 to 10 percent growth annually between 2018
and 2020.

The business is cut-throat. Cheap Chinese production of solar panels has
left a trail of collapsed companies in its wake - the bankruptcies of
Germany's SolarWorld, once Europe's biggest panel maker, and major U.S.
panel maker Suniva are among them.

To survive, REC says it needs to be in a relentless drive to improve
productivity, including employing low-wage Malaysian workers and automating
as much as possible.

"Our panels are now cheaper than a same-sized window," said O'Neil.

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Link to Original Article:
https://www.nytimes.com/reuters/2017/06/07/business/07reuters-asia-renewable
s.html?_r=0

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com