The Evolving Investment Landscape for Renewable Energy in ASEAN

The Evolving Investment Landscape for Renewable Energy in ASEAN

THIS ARTICLE WAS WRITTEN BY Ravi Krishnaswamy | 11.02.20 | 5:51 PM

According to the International Renewable Energy Agency (IRENA), the global price of solar photovoltaic (PV) systems has dropped by about 80% over the last decade. At the same time, feed-in tariffs (FiT) and state support for renewable energy technologies have been gradually reduced as wind and solar power move towards price parity in many markets. Although the big picture of renewable energy appears appealing, this evolving landscape comes with regional challenges.

Renewable Funding Around the World

In the West (namely Europe and California), green bonds, crowdsourcing, and municipal bonds are some of the newly emerging funding mechanisms for the renewables sector. Green bonds are climate-focused investment instruments supported by the government or socially conscious investors that promote environment-friendly developments. Crowdsourcing for investment is another opportunity that can be explored as an avenue to garner large numbers of investors through a direct appeal to a broad audience.

Crowdsourcing for investment can garner investors via direct appeal to a broad audience

While common in developed countries, these mechanisms are less prevalent in Southeast Asia as well as other developing nations. Renewable projects in the Association of Southeast Asian Nations (ASEAN) still look to international agencies and banking institutions for capital injection. While large developers are viewed as a safe bet – enjoying access to funding and benefits from traditional institutions as a result – smaller developers still face hurdles in raising capital. This can be particularly difficult in distributed, small-scale solar projects.

In emerging renewable markets such as ASEAN, there is a disconnect between developers with the will to deliver renewable energy and investors with the attitude to support it. To move forward and capture the full potential of the renewables sector, increased awareness in the financial community is necessary. Changing investor attitudes is a vital step in transforming access to these opportunities. Beyond the usual subsidies or large banks, new vehicles must surface to drive the growth of renewable energy.

Renewable energy technologies are competing against fossil fuels and each other

Consumers’ appetite for renewable energy is also an essential component of its adoption. Those in Western Europe, Japan, and California are calling for greater access to green electricity while more advanced Asia-Pacific countries are willing to pay a small premium for green energy. Many large multinational corporations are already purchasing renewable electricity suppliers, especially independent power producers developing renewable projects. The majority of these companies are Western companies, such as Google and Facebook, but a healthy share of local companies within ASEAN are taking part as well, fueling the expansion of renewable projects.

The comparative value of products is a crucial factor in determining investment. In terms of value, renewable energy technologies are not only competing against fossil fuels but also with each other. Although ASEAN might possess the world’s most extensive geothermal energy reserves, the high costs of exploration and technology needed to access these reserves mean that they are likely to remain untapped in the face of more price-competitive solar energy.

Like geothermal, wind is a renewable energy source that relies on certain geographical conditions, albeit ones that are far more commonly occurring and easy to access. While offshore wind is comparable to solar in value and price competitiveness in the global market, it lacks a supportive ecosystem in ASEAN. Developing local supply chains and expertise, along with a favourable investment environment is necessary to leverage the region’s wind energy potential.


Green Trends in an Evolving Ecosystem

As new technologies emerge, so too will new investment models to support them. Green investment, like the positive public perception of clean energy, is growing. Mechanisms such as green bonds are an example, but the broader ecosystem of green financing is also evolving to uplift small developers. One area that could prove compelling in the future is the development of aggregated investment instruments that combine multiple projects under a single platform, offering investors convenient and seamless access to projects.

Solar PV is likely to be the frontrunner in the race to reach true price parity

Global trends for renewable energy costs are encouraging, especially when countries are looking to redress the financial support given to fossil fuels. However it is important to understand that price parity is a complex question, and one answered differently in each unique market in ASEAN. With more established local ecosystems and a tested investment environment, solar PV is likely to be the frontrunner in the race to reach true price parity in many countries. But that goal is essentially a moving target. Competitive tariff markets such as Singapore and the Philippines are likely to achieve price parity first, with Malaysia in a favourable position to follow suit.

The realities on the ground vary from market to market, but all markets share the need for a positive investment environment. As renewable technologies evolve, so too will the investment mechanisms and attitudes that can help contribute to a greener and cleaner future for ASEAN.

 

 

Energy Watch is committed to publishing pieces that offer professional insight and represent diverse opinions to encourage debate. Views expressed in this piece belong to the author and do not necessarily reflect the official policy or position of Energy Watch.

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