Asia embraces renewables

Growing opposition to nuclear power and increasing concern about climate change is bringing renewable energy into the mainstream in Asia.

Renewable power is rapidly gaining ground across Asia as governments across the region recognise the potential of alternative energy sources as a way to stimulate economic growth, drive technological innovation and cut pollution, which in some countries has become a major health and social problem.

“Energy sustainability is now heading closer to being mainstream for some countries in Asia,” explains Erwin Maspolim, head of Utilities, Power and Renewables, Asia Pacific at ING. “When you hear about developers working on coal power projects, these are usually protracted projects which are taking time to close for various reasons.”

The renewables charge is being led by China, which invested more than $44 billion in clean energy projects in 2017, up from $32 billion in 2016. That put the country ahead of the US and Germany in Ernst & Young’s global index for Renewable Energy Attractiveness (RECAI). India, ranked fourth in the survey, added more energy capacity from renewables than coal for the first time last year.

According to Maspolim, there has been a significant shift in opinion – primarily on environmental, health and safety, and technological grounds – in favour of renewables. “Governments, companies and the public now generally accept that carbon emissions need to be reduced,” he says. “And post-Fukushima, there is a new acceptance of nuclear power’s potential risks. Meanwhile, renewables have become more efficient, which has lowered investment costs and accelerated uptake.”

Many countries in Asia have enjoyed sustained economic growth in recent decades, prompted by socio-economic development and urbanisation. This has dramatically increased energy consumption. For example, in Southeast Asia, it nearly doubled between 1995 and 2015, growing at an average pace of 3.4%, according to a report by the International Renewable Energy Agency (IRENA). The agency estimates that demand will grow by an average of 4.7% a year to 2035.

For much of the past two decades, growing demand has been met by fossil fuels, with the commissioning of numerous coal-fired power plants since 2000 (although more lately natural gas has contributed the largest share of power generation in many markets). However, renewables have begun to gain ground and ambitious targets have been set: southeast Asia is aiming for 23% by 2025, according to IRENA. In addition to the environmental benefits of renewables, energy security concerns are also increasingly motivating countries to adopt renewables.

The renewables mix varies in each country across the region, with many making use of location-specific advantages. For example, Indonesia is pushing forward with geothermal power development while Vietnam’s provinces with high solar energy yield such as Binh Thuan and Ninh Thuan are attracting developers keen to explore the opportunities for solar farming. Solar PV remains the most frequently installed technology, followed by wind.

New technologies are also making an impact. “Offshore wind has recently become a hot topic in Taiwan, awarding grid allocation to wind farm sites with a potential generating capacity of over 3GW to international and local power developers,” says Maspolim. ING acted as a mandated lead arranger and financial modeling bank to Formosa 1, an offshore wind project in Taiwan, the first in Asia Pacific. ING is well positioned to support projects given its experience in the European offshore wind sector and its relationship with international developers.

As the example of offshore wind demonstrates, some aspects of the renewables market in Asia are currently less mature than in Europe. Nevertheless, Maspolim says that in some markets emerging technologies and concepts such as floating solar PV, floating offshore wind farm and distributed energy are being implemented or considered. Elsewhere, there is also a growing end-user preference for renewable energy: “Corporate electricity buyers are increasingly requesting green energy,” he says. “In addition, electricity retailers are also teaming up with mobile service providers and telecom operators to market green energy.”


Blazing a trail for renewables financing in Asia

The rapid development of the renewable energy sector in Asia is increasing demand for finance, both for projects and for acquisitions – to soar. In January, ING demonstrated its global strength and expertise in the sector and region when it acted as mandated lead arranger for two important deals at opposite ends of the spectrum in terms of size.

ING was an underwriter and bookrunning mandated lead arranger for a $620 million equivalent dual-currency acquisition finance facility to Global Infrastructure Partners (GIP) for its $5 billion acquisition of Equis Energy, now known as Vena Energy.

The acquisition is the world's largest renewable energy generation acquisition to date and positioned GIP as a dominant renewable energy developer in Japan, Taiwan and Australia as well as across Southeast Asia

"This deal is a showcase for everything that we are trying to do: leveraging our sector expertise and our network, while ticking the boxes of lead lending, distribution, collaboration and sustainability," says Gerrit Stoelinga, CEO, Wholesale Banking Asia Pacific

Also, in January, Singapore-based clean energy developer Sindicatum Renewable Energy completed a green bond to fund projects in India. While the issue for the company, which was denominated in Indian rupees and had five and seven-year tranches, was significantly smaller than the Equis Energy acquisition finance facility at just $40 million, it was equally groundbreaking.

“Historically, smaller unrated renewable firms in the region have borrowed from local banks because it was simply not possible to raise sums below $200 million in the international bond market,” explains Herry Cho, head of sustainable finance, Asia Pacific at ING, which was sole mandated lead arranger for the deal.

By structuring the issue with a guarantee from GuarantCo, part of the multilateral Private Infrastructure Development Group, ING overcame these challenges; the sale was twice oversubscribed and generated an impressive book, including sovereign wealth funds. Sindicatum’s bond was the first international green bond guaranteed by GuarantCo.

The bonds, rated A1 by Moody’s and AA- by Fitch, were settled in US dollars and denominated in Indian rupees to eliminate FX risk for the borrower.

Cho expects the deal to pave the way for further green bond issuance from renewables companies and other sustainable businesses from Asia, either guaranteed by GuarantCo or another third party guarantor. “Renewables are a fast-growing sector in Asia and thus there’s a great opportunity.”

According to Assaad Razzouk, CEO of Sindicatum Renewables, the transaction opens up the market for renewable companies to tap into investors’ demand for sustainable energy assets and will therefore accelerate the pace of investment in South and Southeast Asia, a region at the front line of climate change challenges.

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