What’s holding Asia’s energy transition back?

Investors are keen to invest in Asia’s growing renewable energy sector but development continues to be hampered by a lack of bankable projects, according to panellists at the ANZ Finance & Treasury Forum 2020.

The perennial challenge in Asia has been the lack of bankable projects for the private sector, according to Richard Lancaster, Chief Executive Officer of Hong Kong-listed energy company CLP Holdings.

“Often if you have a good project, the finance will be there,” he said. “It's finding that good project that is the challenge.”

“We're more short of an ability to work at the pace we need to, [in order] to develop enough of the good-quality projects we need to see the energy transition take place.”

Another issue facing developers in the region is land acquisition. “Acquisition of land in Asia is always a challenge,” Lancaster said. “That's where regulatory support is often needed.”

Growth

Real growth in the market is coming from investors incorporating meaningful and ambitious targets in their portfolios, Olivia Albrecht, Executive Director, Head of ESG Strategy at US asset manager PIMCO said.

“This is where I think the real growth is - a focus [by investors] on building sustainability objectives into their portfolios,” she said.

This “active” management strategy include incorporating carbon metrics to reduce emissions in their portfolio compared to benchmarking, active engagement with management of portfolio companies, having defined and meaningful allocations to green, social and sustainability linked bonds.

“Yes, [these investors are] still looking for the same risk adjusted returns in their portfolios, but they also want to see commitments and objectives that are focussed on sustainability factors,” Albrecht said.

There is another camp of investors who are focused on due diligence and working with their asset managers to devise clear processes to evaluate the environmental, social and governance (ESG) – essentially non-financial factors - impact of their investments.

“How ESG factors influenced the valuations that we use on business models of the investment decisions and recommendations that are being made from a bottom up perspective,” Albrecht said.

“These asset owners globally are also looking for the incorporation of these factors in the top down macro processes.”

Stella Saris Chow, Head of Sustainable Finance International at ANZ, said the market continued to maintain its momentum despite concerns early in the pandemic would impact interest.

“Really, we've been surprised in a very positive way that momentum has continued and it will only grow from here,” she said.

In transition

Asia - a complex and diverse continent - has further to go in its development to a net-zero carbon economy by 2050 compared to some of parts of the world. But the momentum is unmistakable, helped along by international frameworks such as the Paris Agreement and the United Nation’s Sustainable Development Goals.

But decarbonisation continues divide Australia, the region’s major coal exporter, with both main political parties seeking an elusive middle ground.

“Australia requires a political consensus to reach a view on climate,” Lancaster said. “There needs to be a sense of crisis to get political consensus together.”

Despite these challenges, Australia recently announced it would fast track one of the world’s biggest wind and solar projects in Western Australia to generate up to 100 terawatt hours a year at full capacity.

The $US36 billion Asian Renewable Energy Hub is sponsored by privately-owned InterContinental Energy, renewables development CWP Energy Asia, wind turbine manufacturer Vestas and a Macquarie Group fund.

Fuel mix

The move in Asia away from coal-fired baseload energy generation to renewable sources will understandably take time and significant investment dollars, given the wide economic gap between the developing and developed nations in the region. The task ahead cannot be underestimated, Lancaster said.

“The transition isn’t just building a bunch of windfarms, it’s rebuilding the entire electricity infrastructure,” he said. “But the transition is happening a lot quicker than people think.”

The use of gas and liquefied natural gas and even nuclear as a transition fuel is all part of the “toolbox” for governments to consider as part of the mix in the shift to clean energy. While emerging technologies such as green hydrogen may be scaled up for commercial use as soon as the next decade.

“The role of nuclear power in the energy transition should not be excluded. But nuclear energy needs scale to make it cost effective and there needs to be regulatory governance in place to manage the technology properly,” Lancaster said.

Sharon Klyne is an Associate Director, Communication, ANZ Institutional