Business World Online
Posted on February 08, 2012 10:52:57 PM
HONG KONG/MANILA -- Global renewable energy investors are increasingly looking to Southeast and South Asia, lured by investment incentives rolled out by governments in the region amid a bleak outlook for clean energy investment in Europe and the United States.
China and India remain the major destinations in Asia for renewable energy investors, but there are signs of emerging investment interest in smaller Asian countries.
Governments in Southeast and South Asia are refining targets for renewable energy expansion, extending subsidies and dangling tax breaks at a time when developed markets, particularly Europe and the United States, are rolling back subsidies.
"We see an unprecedented number of companies, even those that previously weren’t interested in the region, entering Thailand and Malaysia, seeking investment opportunities in clean energy," said Edgare Kerkwijk, managing director at Singapore-based investment firm Asia Green Capital.
In spite of challenges long associated with investment in Southeast and South Asia, including regulatory uncertainties and underdeveloped infrastructure, renewable projects in some countries have attracted substantial investment from US and European companies and even international funds.
Beyond perks, the region’s growing attractiveness can be explained in part by the fact that the outlook for many markets elsewhere appears dismal, industry experts say.
"When you look at the economic environment globally and you see the difficulties being faced right now in Europe, investors will turn to Asia because you have strong and steady growth in Asia," said Ali Khan, managing director at private equity firm Maybank MEACP.
MEACP, a joint venture between Malayan Banking Bhd and private equity firm Middle East & Asia Capital Partners, is raising $500 million for clean energy ventures with a focus on Asia.
Regulatory support in South and Southeast Asia mirrors some of the policies that helped drive a boom in China and India’s green sectors in the past several years.
China attracted the most renewable energy investment in 2010, securing nearly $50 billion, or about a third of the global total, a report by the United Nations Environmental Program said. Free land, tax breaks, generous loans and a favorable tariff regime are all boosting the country’s renewable industry. India increased renewable energy investment by a quarter in 2010 to $3.8 billion with tax perks for wind power projects and funding support for solar power.
Regional countries are turning to green energy as their economies continue to grow amid the global turmoil. The International Monetary Fund forecast Southeast Asia’s five biggest economies to grow a combined 5.2% in 2012, compared with 1.8% in the United States and a contraction of 0.5% in Europe.
Malaysia is targeting more than 3,140 megawatts of new renewable energy capacity by 2020, with the help of a feed-in tariff structure that pays energy producers premium rates.
Companies are already inking deals.
Japan’s Panasonic Corp. has agreed to build a new solar manufacturing base in Malaysia, joining German solar companies Conergy AG and Q-Cells SE in running manufacturing facilities in the country.
US solar wafer and polysilicon company MEMC Electronic Materials Inc. is building 51 solar power projects in Thailand, with the US government agency Overseas Private Investment Corp. (OPIC) agreeing to lend $250 million for the project.
Japan steel trader Sumikin Bussan Corp. has said it will invest nearly $100 million for a solar plant in Thailand, while the US Export-Import Bank has agreed to lend $1 billion to fund wind power projects in Vietnam.
On top of tax perks and tariff premiums, Thailand pays 6.5 baht per kilowatt-hour for solar energy, while Vietnam has announced special rates and tax perks for wind power.
Indonesia, which holds 40% of the world’s geothermal resources, gives a special rate for geothermal energy, while the Philippines plans the implementation of its own feed-in tariff.
But while investment opportunities in South and Southeast Asia may be new, the accompanying problems are not unfamiliar.
Investors complain of confusing regulatory frameworks and complicated tax and labour laws. Weak infrastructure drives up costs for project developers, and inefficient power grids discourage deployment of renewable energy.
Competition is also toughening up, with local companies willing to slug it out with international players. In the Philippines, smaller private firms and family-run companies like Aboitiz Power Corp. and Energy Development Corp. of the Lopez group are acquiring power assets and aggressively bidding for contracts. -- Reuters
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