Ipsos in ASEAN

Meeting the Energy Challenge in South East Asia A Paper on Renewable Energy
JULY 2012

Foreword by Peter Snell, CEO Ipsos Business Consulting

It is probably fair to say that the majority of people on the planet now have an awareness of the need for action on climate change by cutting greenhouse gas emissions. Governments around the world are actively grappling with the challenge of balancing their responsibilities on climate change with the need to ensure that there is a secure energy supply. Here in Asia, energy security is perhaps as large a challenge as climate change for both government and industry. Asia continues to experience impressive economic growth, which in turn is causing energy demands to grow hugely. This demand is likely to continue to be met by fossil fuels in the short to medium term. This means rising levels of greenhouse gases as well as intense competition for energy resources. We are already witnessing Asian economies becoming dependent upon energy imports. As the oil & gas reserves around Asia start to become outstripped by demand, the need for energy imports will likely continue to rise. The stability of the region will become increasingly important to the energy security policy of Asian economies. There can be little doubt about the need for a concerted effort from government and industry to meet the energy challenge facing the world. Energy companies are already making substantial investments in technology advancements and energy infrastructure in an effort to address these energy issues. An important part of energy security is developing the contribution that can be made from renewable energy sources. This paper looks at the issue of renewable energy within the ASEAN region. South East Asia is a significant economic bloc that continues to deliver strong growth for its communities. The issue of energy security is as great here as any other part of the globe. This paper from Ipsos seeks to make a contribution towards the debate surrounding the importance of renewable energy in ASEAN. My team around the region work with some of the worlds best known energy companies and would be happy to engage in further dialogue with any parties interested in the subject of energy demand and energy security in South East Asia.

Contents
Executive Summary.....................................................................................................4 Renewable Energy Targets in ASEAN ..........................................................................5 Renewable Energy Market ..........................................................................................6

The Philippines...........................................................................................7 Thailand......................................................................................................9 Indonesia..................................................................................................11 Malaysia...................................................................................................14 Vietnam....................................................................................................17 Singapore.................................................................................................19

Market Opportunities in the Renewable Energy Sector............................................20 Suggested Further Reading........................................................................................25 About the Authors......................................................................................................26

Executive Summary

South East Asia is widely recognised as a leading location for direct investment, with an existing strong and diverse industry base. One of the most exciting areas of opportunity in the region is Renewable Energy (RE). South East Asia is a huge potential market for RE. In addition to the 6 countries which we have examined, further huge opportunities will likely exist in other ASEAN territories, such as Myanmar, Cambodia and Laos. We can point to three key factors influencing the development of RE technologies and their market opportunities: Government policy (tax breaks, feed-in tariffs etc.) Funding (public & private) Cost of technology (economies of scale etc.)

Of the 6 markets surveyed, only the Philippines (geothermal energy) and Thailand (solar power) even approach commercial viability in terms of RE at the present time. However, this situation is changing rapidly, as all ASEAN governments are committed to developing renewable sources of energy. The current RE situation across ASEAN presents a mixed bag. Not only are the various countries at different stages of RE development, but development of individual sources of RE varies within each country. All of the 6 markets offer huge potential. From Indonesia, with its vast population, of some 240 million down to Malaysia with less than 30 million, these are sunshine countries with long coastlines and vast renewable resources. Even tiny Singapore aspires to becoming the RE research & development hub for the region and beyond. RE is a new sector and consequently government rules and regulations are in a state of flux. Individual countries are still learning from more developed markets and from each other. However, if investors were to wait for regulatory stability, they could well be too late to reap optimal rewards. At this stage, the safer opportunities are to be found in solar power in Malaysia and Thailand. However, many consider Indonesia, where rules and regulations are in their infancy and investment is more of a gamble, just too big to be ignored.

Renewable Energy Targets in ASEAN

Global renewable energy investors are increasingly looking towards South East Asia as a new destination for investment in renewable energy (RE). At the same time, the governments of the Philippines, Indonesia, Thailand, Malaysia and Vietnam are setting aggressive targets for RE to be achieved in the next 20 years. The target for renewable energy capacity amongst these ASEAN countries (plus Singapore) is set to increase rapidly from its initial 2010 base. In 2010, existing RE capacity was estimated at 9,800 MW. Contrast this with the 2030 target of 53,900 MWa more than fivefold increase. Figure 1: Target RE Capacity in Key ASEAN Countries
The Governments of six key ASEAN countries (Indonesia, Thailand, Vietnam, Philippines, Malaysia and Singapore) have set aggressive targets to increase installed RE capacity over the next 20 years at a rate equivalent to 5 6 times greater than 2010 capacity.

Source: data consolidated from Government official sources by Ipsos Business Consulting

There are a variety of reasons for ASEAN governments to push for expansion of the RE sector, not least of which are the increased demand for electricity, the high price of oil, growing concerns about fossil fuel combustion, and high investment costs associated with expansion of existing electricity grids. There is also recognition that investing in RE will create jobs as well as revenue for the country. On top of all this, ASEAN is fortunate in having abundant natural resources throughout its territories, enabling it to make great strides towards efficient use of renewable and alternative energy from a range of sources.

Renewable Energy Technology

Microhydro, geothermal, biomass & biogas are the main RE technologies currently utilised in the ASEAN region. In 2010, microhydro accounted for approximately 38% of the RE installed base followed by geothermal (32%), biomass & biogas (29%), while solar, wind and waste energies shared less than 1%.

In 2030, if plans outlined for RE development in ASEAN are followed, microhydro and geothermal are expected to remain the main sources of RE, given the abundance of available resource. Solar and wind energy will significantly increase, driven preliminary by Malaysia (solar) and Vietnam (wind). Biomass & biogas energy will continue to grow, led by Thailand and Vietnam, while waste energy will remain small as there is no significant push from governments in terms of policy support or incentives.

Figure 2: Existing and Target Installed Capacity by RE Technology

Microhydro and geothermal energies are and, will remain to be, the main RE sources for ASEAN 6. In parallel, solar and wind energies will be heavily utilized while, increase capacity in waste-to-energy, biomass and biogas energies are expected to be onpar with the overall RE growth

Source: data consolidated from Government official sources by Ipsos Business Consulting

Renewable Energy Market

The Philippines is by far the most developed market with an existing capacity of 5,439 MW, or 56% of total installed RE capacity across the six key ASEAN countries. Furthermore, the government plans to double Philippine RE capacity by the year 2030. Thailand is the second largest market, with a 19% share (1,813 MW) of total installed RE capacity, and it also plans to double existing capacity by 2030. The third largest RE market is Indonesia with an 18% share, or 1,735 MW. With its huge natural resources, especially for geothermal, the Indonesian government has an ambitious plan to increase capacity tenfold by 2020.

Malaysia (currently 510 MW) and Vietnam (278 MW) are still nascent RE markets, though their respective governments have aggressive 14-fold and 50-fold growth targets for 2030. Singapore has no actual target to increase its RE, given its limited resources. Figure 3: Renewable Energy Targets by ASEAN Market

Target Capacity

Existing Capacity

The Philippines
The Philippine Department of Energy has formulated a National Renewable Energy Program (NREP), and enforced the Renewable Energy Act of 2008 to promote development, usage and commercial exploitation of RE resources. This affirms the Government's commitment to accelerate exploration and development of RE. Currently RE contributes about 40% of the country's primary energy supply of 40.73 MTOE, of which 57.5% is sourced locally. The Philippines: Renewable Energy in the Power Sector In terms of installed capacity, the power sector comprises some 16,359 MW, of which 33% involves RE (5,439 MW). Microhydro provides the majority of RE (63%), followed by geothermal (36%) .

Going forward, the NREP aims to significantly increase microhydro and wind, given its vast resources of hydro and wind power (10,500 MW and 76,600 MW, respectively). On a per technology basis, the NREP intends to: Increase geothermal capacity by 75% Increase hydropower capacity by 160% Deliver an additional 277 MW of biomass power Build a wind power grid to provide an additional 2,345 MW capacity Mainstream an additional 284 MW of solar power capacity, and work towards achieving an aspirational target of 1,528 MW Develop the countrys first ocean energy facility

Figure 4: Existing and Targeting Renewable Energy by Technology - The Philippines

Unit: MW

Source: National Renewable Energy Program (NREP)

The Philippines can be considered the most developed RE market in South East Asia, with more than 30% of its power generated from renewable resources more than any other country in the region. On top of this, there is also high potential for the Philippines to achieve its RE targets.

In a Xinhua interview with President Benigno Aquino in March 2012, he stated that approved service contracts, in line with the NREP, already amounted to some 7,067 MW. With pending applications totaling 3,771 MW and existing capacity of around 5,000 MW, the Philippines is hopeful to hit its target of 15,000 MW by 2030. However, this will depend on government implementation of previously promised supporting schemes. The push toward use of RE reflects the fact that electricity prices in the Philippines are the highest in Asia, which has driven away investment. RE is expected to bring costs down, which is essential for the Philippines to attain energy security and economic sustainability.

The Philippines: Key Watch-points

Prospects for RE are promising while the Renewable Energy Act continues to be implemented. RE targets, policies, programs and road maps have already been set, incorporating fiscal and nonfiscal incentives as well as institutional support and a one-stop service for investors. However, challenges remain as to the details of policies, programs, guidelines and support currently under development. These include feed-in tariffs guaranteeing fixed payments for every kilowatt hour of renewable energy fed into the grid, renewable portfolio standards, net metering and an RE trust fund. Currently, the renewable energy sector in the Philippines is thought to be in danger of dropping behind countries such as Malaysia and Thailand because of delays in implementing the feed-in tariff scheme. This delay is likely to be the cause of delays in pipeline projects from committing the investment required. That said, the Philippines has the potential to achieve its RE targets, given rising demand for energy, pressure to increase the competiveness of the country and cut the cost of electricity, and its vast stock of RE resources.

Thailand
Thailand has recently upscaled its RE target from 20% to 25% of total energy consumption to be achieved by the year 2022. As of 2011, the figure stands at 12.2%. RE potential in Thailand centres around solar energy, which has been estimated at 50,000 MW, followed at a distance by biomass (4,400 MW) and wind (1,600 MW). Microhydro, municipal solid waste and biogas account for a further 1290 MW. Critical driving forces behind RE growth comprise energy security, government commitment to a low-carbon society, and job creation in a new sunrise industry. RE will be bolstered by government funding on Research and Development and Demonstration (R&D&D), and by encouraging policies and incentives for private-led investment. Thailand: Renewable Energy in the Power Sector In Thailand, RE generation is promoted by the Energy Policy and Planning Office under the aegis of the Ministry of Energy.

Thailand had some 1,813 MW of installed RE capacity in 2009, of which more than 80% came from biomass, with the rest made up from solar, microhydro, wind and waste energy. The Thai government has set a target of trebling RE capacity to 6,000 MW by 2030. The RE technologies that will get a significant boost over currently installed capacity are solar and wind, which are expected to increase share from their insignificant 2009 levels to 15% and 13% respectively by 2030.
Figure 5: Existing and Targeting Renewable Energy - Thailand
Unit: MW

Source: Ministry of Energy, Thailand

To achieve its RE target, the Thai Government has launched several support schemes, including adders/feed-in premiums, Board of Investment tax incentives (8-year tax holiday), direct subsidies (10% to 30% on biogas, municipal solid waste, and solar-heated water projects), soft loans, government joint investment schemes etc. With this intense level of government support and investment, Thailand is expected to reach its RE target much earlier than the year 2030. This is evident from the status of projects in the pipeline. As of October 2010, total RE installed capacity in the pipeline stood at some 10,000 MW, almost double its 2030 target, of which 15% was already sold to the grid, 48% was signed off via Power Purchase Agreement (PPA), 11% was waiting for PPA approval, and the remaining 26% was at the proposal stage .

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Table 1: Status of Renewable Energy Projects categorized by Technology - Thailand

Source: Ministry of Energy as of October 2010

Thailand: Key Watch-points A recent move to maintain the momentum of RE investment has been a policy revision to replace the adder scheme with fixed-price feed-In tariffs, which will initially apply to solar photo-voltaic (PV) roof-top installations. Other new concepts ready for launch include Distributed Green Generation (DGG) and Compressed Bio-gas (CBG) for vehicles. Also, new implementation plans awaiting final decision include renewable heat Incentives and zoning for RE. Unlike other markets where RE is being promoted on energy security grounds, Thailand growth is commercially motivated, and is driven primary by government incentives and supporting policies which have so far met with a positive response from private investors. In the future, the Thailand RE sector will continue to attract investment, not only from its current technology base, but also from new industries (e.g. DGG and CBG).

Indonesia
With the issue of a 2006 presidential decree, the Indonesian Government set a 2025 target of 15% non-fossil energy within the overall mix, up from its current level of around 5% (mainly hydro and geothermal). The 15% target comprises 5% biofuel, 5% geothermal and 5% combining wind, solar, biomass and hydro power. The drive towards development of RE reflects rising demand, together with available renewable resources. Indonesia is the largest country in South East Asia with a population approaching 240 million. With its economy continuing to grow, the requirement for energy is increasing, especially the immediate need for fossil fuel. However, the country has struggled to boost oil production, which has dwindled in recent years due to ageing wells and a lack of fresh investment. Use of non-fossil sources of energy is still relatively small, so the government aims to develop and utilise these alternative sources for dealing with the energy crisis and building resilience.

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Indonesia has a large new and renewable energy potential, which includes;

Geothermal - 27,510 MW Mini-hydropower - 500 MW Biomass - 49,810 MW Solar - 4.8 kWh/m2/day Wind - 9,109 MW Ocean - 35 MW

However, development of RE in Indonesia has been progressing more slowly than in neighboring countries. This is mainly because of inappropriate application of subsidies for certain types of energy which have cost the government 13% of its budget, thus causing delay in the development of more viable alternative and renewable energy sources.

Indonesia: Renewable Energy in the Power Sector

RE policies and their development and promotion are implemented by the National Energy Council and the Department of Energy and Mineral Resources. Government agencies have been working to ease foreign investment barriers in order to attract more investment to the RE sector. However, solid incentive and promotion policies have not been evident. Currently, Indonesia has about 1,735 MW of RE capacity installed, of which almost 70% comes from geothermal sources, and the rest from biomass technology and other renewable resources. Indonesias vast geothermal resources could eventually supply 40% of its energy demand. The Indonesia government has a target of 9,500 MW of electricity to be generated by geothermal technology for the year 2025, which will account for about of 80% of its total RE energy mix by that date.

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Figure 6: Existing and Targeting Renewable Energy - Indonesia

Unit = MW

Source: National Energy Council (Dewan Energi Nasional, DEM)

To achieve its target, the government has passed a law allowing foreign investor to invest in geothermal energy without partnering with state-owned companies such as Pertamina. However, foreign investors are still required to have a local partner with at least a 5% stake. Efforts are also being made to increase incentives for RE, especially for geothermal energy. The state-owned electricity company, PLN, recently established a feed-in tariff of USD 0.097 per kilowatt-hour for geothermal plants, and is willing to increase the rate where plants are remote from the power grid. However, the tariff is not seen as sufficient to promote investment effectively. Recently, the Government of Indonesia issued a Renewable Energy Feed-in Tariff for biomass, biogas and municipal solid waste to purchase up to 10 MW of renewable energy.

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ABB in Indonesia:
Spotlight on the Indonesian RE sector
With its continuing momentum to develop the renewable sector, ABB in Indonesia has secured its position as a key player within the renewable energy market. ABB is unique in that it delivers integrated solutions to clients, which aim to reduce both the interface risk and cost for customer. This has enabled ABB to become one of the worlds leading suppliers of products and solutions for wind, solar and hydro power. ABBs winning strategy is to offer the customer a complete product range alongside a system integration service. It may enable ABB to offer guarantees on the power output thereby offering assurances to the customer on the value to be delivered, as opposed to the more traditional model of competing mainly on price. In an interview with Ipsos Business Consulting, ABB in Indonesias executive for Business Development Renewable Energy & Energy Efficiency, Mr. Iga Rinadi, spoke about the significant potential for the development of renewable energy in Indonesia, in particular the solar energy sector. Mr. Rinadis analysis was that the market will dramatically change with future Government support The Indonesian market will develop quickly once there are clear policies relating to Feed-in-Tariff and tax incentives. We saw that this was the case of Thailand, where the renewable energy sector not only continues to grow but there are also benefits to the clean development mechanism market, which is booming said Mr. Rinadi. There are still some significant challenges for the Indonesian renewable energy sector to overcome. Mainly, there are three issues that still need to be addressed. Mr. Rinadi noted that First, it is very difficult to get sufficient funding especially from local financial institution, due to high interest rates. A second issue to be tackled is the development of clear and stable regulation on incentives and supporting scheme, with the third challenge being the need to develop appropriate awareness of the potential for renewable energy among the local community. The importance of getting the local communities involved in renewable energy projects should not be under-estimated. In the long-run, we need a commitment and understanding from the community in order to maintain an efficient operation of a renewable energy plant Notwithstanding these challenges, Indonesia still offers huge opportunities for a path to growth within renewable energy. Indonesias debt-to-GDP ratio is still very low, which indicates that Indonesia will continue to attract foreign private investors. It is worth noting that whilst many regulations and incentives for renewable energy are still work in progress, a notable number of private investors do not wait for Government actions. That is why we see many instances of investors conducting studies at the moment. This is particularly true for wind and solar projects. Once the regulations are in-place, we can expect to see rapid development for the renewable sector in Indonesia. The Indonesian Government is committed to build solar power plants starting with The tourist islands project and is now expanding into Remote islands as well as The 100 island projects. The market is starting to heat up even though the Feed-in Tariffs for solar has not yet been announced. We see many private investors already conducting investment feasibility studies said Iga Rinadi, ABB in Indonesia.

ABB in Indonesia
ABB in Indonesia is an integral part of the ABB Group, one of the worlds leading engineering companies. Core business is to help customers use electrical power effectively and to increase industrial productivity in a sustainable way. Today, ABB in Indonesia is a fast growing company with several offices, factories, workshops, and branch offices. From Sabang to Merauke, ABB is continuously expanding its local activities.

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The new FiT incentive varies between USD 6.7 cents/kWh to USD 1/kWh with an additional incentive for some islands in remote areas, where a lack access to electricity ranges from factor of 1 to 1.5. Additional incentives are also available for biomass & biogas technology (USD 10cents to 14cents/kWh), as well as for municipal solid waste (USD 1 to 1.4/kWh). However, the duration of the new tariff is not clearly specified in the Power Purchase Agreement. Currently, almost all power purchase timeframes are based on business-tobusiness negotiation with state utility companies. This uncertainty over contract timeframes deters some potential investors. Other incentives provided by the government to promote the RE sector include exemption from value-added tax and import duty for equipment and machinery used in RE projects.

Indonesia: Key Watch-points

Given the huge investment required to establish geothermal plants, the critical factor for Indonesia to achieve its RE target is its ability to attract foreign investment. The solution lies in establishing a stable, reliable and attractive government support package, as well as removing the fuel and electricity subsidies for consumers. The recent announcement on the new FiT incentives is a positive sign that the Government is likely to continue the momentum for the solar and wind energy.

Malaysia
In 2005, the Malaysian government set an RE target for 2010 of 350 MW of RE connected to the grid or 1.8% of the total power generation mix. To date, it has achieved only one-sixth of that target. With effect from June 2010, the government set a new RE target with its National Renewable Energy Policy and Action Plan, which aims to increase the RE contribution to the nation's electricity supply to 11% by 2030. The push towards RE in Malaysia is designed to meet the countrys fuel diversification policy in which the government specifies RE as the fifth fuel, relieving its dependence on oil, natural gas, hydropower and coal. A recent study conducted by the Government specified the potential of RE options:

Biomass - 1,340 MW Biogas - 410 MW Microhydro - 500 MW (total hydro potential of 22,000 MW) Solar PV - 6,500 MW Municipal waste - 400 MW

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Although renewable energy is undeniably starting to emerge as the fifth fuel, it is not a significant power source yet and RE is still a niche industry. The main obstacle is the high cost involved and inferior tariff offers which make RE projects less viable. Hence the need for a significant boost to the RE sector from the government to make it financially viable.

Malaysia: Renewable Energy in the Power Sector

Currently, the Sustainable Energy Development Authority is responsible for development of the RE sector. Recent activities to unlock RE potential are implementation of feed-in tariffs and funding to support project development. Initially the government has set aside USD 62.3 million to support first-year targets, and over the longer term the fund will be fed by a 1% electricity tariff increase. Currently Malaysia has about 510 MW of installed RE capacity, of which more than 90% comes from biomass. This implies that other RE technologies will be developed from a nearzero base. By 2030, the Malaysian government aims to develop some 7,000 MW of RE installed capacity. The technology that will get the most significant push is solar energy, which is expected to contribute some 60% of the total RE mix, followed by biomass at about 20%, with biogas, microhydro and waste energies making up the rest.
Figure 7: Existing and Targeting Renewable Energy - Malaysia
Unit = MW

Source: Ministry of Energy, Green Technology and Water, Malaysia

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The Malaysian government has assigned a quota system for feed-in tariffs. The RE quota for 2012 is 190 MW, and it will be similar the following year. In 2014, it will increase to 250 MW. By the end of 2011, applications for feed-in tariffs in the biomass and solar PV categories for renewable energy projects were fully taken up. The rationale behind setting quotas for feed-in tariffs is to enable the Sustainable Energy Development Authority to manage the funds required for all the different RE projects, and to avoid over-subscription. Feed-in tariffs are not financed from tax revenues, but from a RE fund contributed to by electricity consumers. Tariff systems are also run on a discretionary basis whereby they may be lowered for new power plants, taking into account market conditions, and maturity and cost of technology. This system creates a mechanism for financially viable private investment in the RE sector, as well as encouraging all parties to use energy efficiently and reduce consumption. Heavy electricity consumers have to contribute more to the RE fund.

Malaysia: Key Watch-points

The Malaysian government has admitted that development of RE has been slow in the past because it has lacked a legal framework to govern the industry and provide security for businesses generating RE. However, with the RE Act of 2011 and the feed-in tariff system, the RE sector is expected to grow significantly. The feed-in tariff system, together with discretionary adjustments to annual quotas, leads to expectations that RE technology costs will go down over time, especially in the case of solar PV. However, the quota system could limit the investment and defer the sector attractiveness when compared to Thailand, where there is no quota system.

Vietnam
Despite vast natural resources distributed throughout Vietnam, the country has only exploited 2% of its renewable energy potential. The government has now recognised the importance of RE in supplying sustainable energy, and more recently in tackling climate change, and has set a target for the proportion of electricity generated from RE to increase from its present 3.5% of total to 4.5% in 2020, and 6% in 2030. This drive towards RE reflects its perception as a new source of power to meet rising energy demands, which are expected to increase fourfold by 2030. With its limited fossil fuel, resources, Vietnam has to turn to alternative sources of energy to retain an independent power supply. RE will also be used to increase electrification in rural areas, where solar and biogas plants will be sited. It all adds up to a new industry sector, with concomitant job creation and economic development. A recent study conducted by the government sees potential for RE options to generate:

Microhydro power - >4,000 MW

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Wind energy - 1,800 MW (8% of required area has been identified) Solar energy - 4-5 kWh/m2/day Biomass energy - >800 MW Waste to energy - 350 MW Biogas energy - >150 MW Geothermal energy - 340 MW

Vietnam: Renewable Energy in the Power Sector

There are several government agencies involved with RE projects. The main agency controlling legal regulations and approval of projects is the Prime Minsters office. Currently, Vietnam has about 278 MW of RE installed capacity, with the main technologies being biomass and microhydro (2008 installed capacity was 150 MW and 121 MW respectively). By 2030, Vietnam aims to increase its total RE capacity to 13,900 MW. Wind power will be the main source, and is expected to increase from a near-zero base to about 6,000 MW. Microhydro is set to increase to 5,700 MW and biomass to 2,000 MW.
Figure 8: Existing and Targeting Renewable Energy - Vietnam

Unit = MW

Source: The Power Master Plan VII

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The target set by the Prime Ministers office is seen as very challenging for Vietnam. Development of the RE sector has been progressing very slowly, especially when it comes to promoting incentives and drafting relevant regulations. On top of that, the lack of financial stability of the Vietnamese government is a primary concern, and foreign exchange reserves are too low (USD 16.5 billion in July 2011). As a result, any government guarantee on foreign currency availability and transfer for power projects is of little value. Recently, the Vietnamese government issued incentives to promote wind energy. One of the main factors in the incentive package to encourage wind power is the feed-in tariff. This is equal to 7.8 US cents/kWh. The EVN (Electricity of Vietnam) is obliged to purchase electricity from wind power projects at a cost of USD 6.8 cents/kWh. The electricity support price from the state budget for investors to build wind power projects is 1.0 US cents/kWh (from the Vietnam Environment Protection Fund). In addition, the incentive mechanism includes reductions and exemptions from income tax, import tax, VAT, land use and environment fees.

Vietnam: Key Watch-points

Feed-in tariffs for wind power in Vietnam are seen as low in comparison with those offered by the Thai governments (USD 22 - 36 cents/kWh). The Vietnamese government needs to restructure incentives and supporting programs if it is to achieve its targets.

Singapore
As a result of its small size, Singapore has limited resources available for alternative energy. In spite of this, the Singapore government aims to develop solar energy to address the challenges of climate change and energy security. Solar energy in Singapore has a potential average solar yield/unit of installed capacity of 1,150 kWh/kWp/year. To date, R&D in solar energy has been focused on pilot projects funded by government grants. There are 4 Independent Power Plants with a total capacity of 251 MW, generating 2% of total power demand. As of Dec 09, total grid-connected solar capacity was approximately 1.8 MWp. There are plans to increase this to 4 MWp under the Government Scheme Singapore aims to establish itself as the R&D centre for RE. The government has developed its solar capacity scheme to encourage RE design, integration and adoption.

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Market Opportunities in the Renewable Energy Sector

There are various factors influencing market development of RE technologies. The three most important factors are:

Policy intervention by governments to provide clear rules and regulations, as well as sufficient incentives and support schemes to attract investment. Government plays an intensive role when markets have to be kick-started, but less effort is required once things have progressed to the commercial stage. Availability of funding, which ranges from grants, government investment, venture capital, private equity to public offering and private financing. Cost of technology, which is expected to decrease over time with economies of scale, as well as transfer of technology, knowledge and skills into low-cost manufacturing countries. A striking example is solar PV technology, where the cost per unit has dropped significantly, resulting in lower investment being needed for solar energy. This has caused a rapid expansion in solar energy plant, especially in Thailand.

Figure 9: Factors influencing market development stage of RE technologies

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In ASEAN markets, most RE technologies are still at the nascent stage. Only the Philippines and Thailand come close to commercial viability for geothermal and solar energy. Each country in ASEAN prioritises different RE technologies according to its natural resources, which results in different stage of market development. For example, although the geothermal energy market in the Philippines has been developed, other technologies such as wind, solar and ocean energy are still at a very early stage. On the other hand, it is clear that RE markets in ASEAN will change over the next 10-20 years as governments are committed to develop alternative sources of power.
Figure 9: Share of RE by Technology Long term projection

Source: Data consolidated from the Government official sources by Ipsos Business Consulting

The above figure identifies key markets for different technologies by indicating current RE shares for each country against projected shares in approximately 20 years time. For geothermal, it is clear that Indonesia and Philippines will be the key markets as a result of their vast resources. The microhydro market will develop significantly in Vietnam, and the Philippines will also continue to grow its microhydro and wind contribution from their current bases. Solar energy is expected to grow significantly in the Malaysian market, whilst continuing to expand in Thailand along with biomass & biogas technologies. Another important factor to consider when prioritising investment in RE in ASEAN is the degree of government support schemes and incentives. Sectors which are heavily supported by the government will attract private investment and develop at a faster rate. The most common incentive adopted is the feed-in-tariff, which guarantees the price of electricity to be purchased by the state electricity utility. Feed-in tariffs vary across technologies and markets. The higher the tariff, the more attractive the sector is for private investment. Other initiatives attracting private investment are tax incentives, net metering, public investment loans & grants, etc.

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To prioritise the most attractive RE sectors in ASEAN, we consider two main factors. The first is the gap between existing capacity and government RE targets, which implies the degree to which policy intervention is needed, as well as growth opportunity for incremental investment. The second is the availability of incentives and support schemes. Based on these two axes, we can segment market opportunity into four groups:
Figure 11: Market Opportunity Prioritization

Remarks: The Thailand FiT incentives are calculated based on the adder plus based electricity rate of USD 11 cents/kWh. The Philippines FiT incentives are still at the proposal stage and pending government approval. Should the FiT incentives be approved, most of RE sectors in the Philippines would likely fall into the A Private Affair box.

Good to Grow
Good to grow comprises a group of RE sectors with high potential to attract investment and development at a fast pace. This group not only offers high incentives and governmental support schemes, but also has to move quickly to meet RE targets in the near future. Solar energy in Malaysia is the only sector in this group. Tapping into this segment requires speed to market. The solar energy market in Malaysia exemplifies this, as can be seen from the number of global PV equipment players who have recently entered the market. For example, Bosch has established a new solar energy manufacturing site, and Panasonic has announced plans to construct a new site to produce solar power products.

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However, the downside of the Malaysian market is the quota system, which is expected to limit the growth in the first 5 years, as the permits restrict power generation within the range of 35 100 MW per year. This makes the market too small to attract investors in short term.

A Private Affair
Solar and waste energy in Thailand and the biomass sector in Indonesia are the core areas for A Private Affair or sectors that are on the verge of becoming commercially viable. The main factor putting this group on many investors radar is intensive support from the domestic government, especially with feed-in tariffs (or adders on top of electricity tariffs in Thailand). These are the best-supported RE technologies in terms of feed-in tariffs. These schemes are likely to attract private investors, and increase economic activity in relevant equipment trades and services. Thailand and the Indonesia mainly source RE equipment for solar, waste and biomass energy through imported technologies from Europe and the U.S. Example of current market players include GE Energy, which plans to introduce its cadmium telluride (CdTe) thin-film photovoltaic technology to the Thai solar energy market within the next two years, Kyocera Kyocera is Japans second largest solar panel producing company. The company recently won a major contract to build a solar farm in Thailand, Greenearth Biomass Energy will assess a unique biomass waste-to-energy gasification technology and market opportunity in Indonesia.

Support Needed
Despite vast availability of resources, the geothermal sector in Indonesia still requires strong support from the Government to enable the sector to be commercially viable. Currently, geothermal resources are identified and developed as side benefit from the work of oil and gas exploration. There is very little support from the government to reduce risk for the exploration of geothermal resources. However, it must be pointed out that the situation appears to be moving in a positive direction. Recently the Indonesias Ministry for Energy and Mineral Resources sets aside USD39 million to mitigate geothermal exploration risk, thereby helping to boost investment in the geothermal projects. Similar to wind and microhydro sectors in Vietnam are also struggling to grow, due to similar reason. They are considered uncompetitive compared with neighboring countries. For example, Indonesia and Vietnam provide feed-in tariffs for wind energy in the range of USD 7 to 10 cents/kWh, while Thailand has double-incentive feed-in tariffs ranging from USD 22 to 36 cents/kWh.

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General Electric (GE) is one of the active players in the geothermal sector in Indonesia and in wind energy in Vietnam. It has recently signed a major memorandum of understanding with the Indonesian government for joint development of local geothermal plant projects. It also has a contract with local developer Cong Ly Company Ltd. to provide wind turbines, plus operations and maintenance services, for Phase One of the Bac Lieu Wind Farm, totaling 16 MW of power generation capacity.

Niche Market
It could be argued that most of the RE sectors in ASEAN could still be classed as niche markets. Sectors within the Niche Market grouping typically have relatively low targets to achieve, and receive limited support from government. They are viewed as relatively slow to develop (with the exception of the geothermal sector in the Philippines. This remains classed as niche due to its development being exclusively undertaken by the PNOC-EDC - which operates the majority of existing geothermal contract areas - and Philippine Geothermal Incorporated (PGI), a subsidiary of the Union Oil of California (UNOCAL). The overall market will remain robust as most will be growing from a zero base. However, most of the regulation regarding the supports and incentives remain a work in progress. Many sectors have high potential to become a commercially viable sector (which would put them in A Private Affair quadrant) or the most attractive sector to grow (the Good to Grow quadrant). The sectors with the best potential to move into the commercialization stage include solar and wind energy in Indonesia, subject to an additional FiT to be offered on top of existing FiT incentives. Those in this group display similar characteristic across the region. Many local firms can manufacture products such as basic turbines, traditional boilers and electrical devices, while more sophisticated equipment such as generators, high-pressure modern boilers, hi-tech turbines, automatic controls and other high-end technological equipment will continue to be imported from developed countries such as Japan, Germany and the U.S.

The Way Forward

The ASEAN RE market will continue to attract investment and remain robust over the next 3 to 5 years. RE is perceived as a new opportunity area for job creation and increased economic activity, both in terms of foreign direct investment and positive domestic economic impact, as most on-site installations are in rural areas where there is limited access to electricity. Early market entrants are likely to gain an initial advantage, though risks and instability may attend government policies and regulations. However, with growing demand for electricity in many countries, coupled with various government commitments on low-carbon economy, growth in RE is a certainty for the region.

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Suggested Further Reading

Deploying Renewables in Southeast Asia Trends and potentials (2010) http://www.iea.org/papers/2010/Renew_SEAsia.pdf

Grounding Green Power: Bottom-up perspectives on smart renewable energy policy in developing countries http://pdf.wri.org/working_papers/grounding_green_power.pdf

Thailands Renewable Energy and its Energy Future: Opportunities & Challenges http://www.nstda.or.th/attachments/7918_CASAVA-2.pdf

Alternative Energy Industry in Singapore http://www.edb.gov.sg/edb/sg/en_uk/index/industry_sectors/ alternative_energy.html

Renewable Energy Market Assessment Report: Indonesia http://ita.doc.gov/td/energy/Indonesia%20Renewable%20Energy%20Assessment% 20(FINAL).pdf

Investing in the Philippines Renewable Energy Sector http://www.dti.gov.ph/uploads/DownloadableForms/renewable_energy.pdf

Renewable Energy in Vietnam: Promising sector report http://www.cleantechholland.nl/dsresource?objectid=18857

IMPORTANT NOTE: All content within this Ipsos paper is provided for general information only, and should not be treated as a substitute for undertaking your own detailed market intelligence study for renewable energy in South East Asia. Ipsos is not responsible or liable for any actions taken by a reader based on the content of this Paper. You are recommended to seek professional advice about renewable energy opportunities within South East Asia before taking any action. Ipsos is not liable for the contents of any external internet sites listed, nor does it endorse any commercial product or service mentioned or advised on any of the sites.

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About the Authors

Ipsos Business Consulting Ipsos Business Consulting (IBC) is the market intelligence and strategy consulting division of Ipsos. IBC assists clients globally to enter, evolve and expand in emerging and developed markets through fact based market analysis. IBC has been assisting clients with their growth strategies since 1994 and has a strong track record with more than 3,000 consulting engagements covering markets globally. Colin Kinghorn Head of Consulting for Thailand, Indonesia and Vietnam Email: colin.kinghorn@ipsos.com Tel: +662 237 9262 | Fax: +662 237 9267 Colin leads a strong team of market intelligence professionals based in Bangkok, Ho Chi Minh City and Jakarta that provide a wide range of services to clients operating within the energy arena. Prior to joining Ipsos Business Consulting, Colin has worked in Ireland, Spain, Australia, Laos and Thailand. He is also a former member of the Board of Directors of a UK Housing Company as well as a past Chairman of the Institute of Internal Auditors. Colins experience includes advising manufacturing and engineering clients around the world, with strong focus on South East Asia. He has also provided consulting services to Ofgem the United Kingdoms Gas & Electricity Industry regulator. Pornprapun Sriyotha Business Development Manager Email: pornprapun.sriyotha@ipsos.com Tel: +662 237 9262 ext 312 | Fax: +662 237 9267 Pornprapun is a Business Development Manager in South East Asia. She has an extensive background in consulting engagements within the B2B markets, specifically in relation to manufacturing, energy and the building materials segment. A key part of Pornprapuns role at Ipsos is to work closely with our clients and determine ways in which Ipsos can assist them to identify the optimum strategy to exploit viable opportunities within those markets that they operate.

Contact your local Ipsos Business Consulting office to request a quote. www.ipsos.com/businessconsulting 26

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