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Asia Power Week 19-21 September 2017

Short summary of insights gained from Asia Power Week in Bangkok last month

Indonesia’s energy plan aims to add an extra 35 GW to their energy capacity by 2019, 56% coal fired, 36% natural gas and 8% renewables (including hydro and geothermal). From the government’s perspective, coal is considered the quickest, easiest and cheapest way to provide millions of people with affordable electricity. The wealth of coal resources in the country further encourages this emphasis. There are also plans for large-scale hydro-powered energy projects, however one comment during a panel discussion made the claim (after visiting sites) that hydro projects which were scheduled to have begun construction months ago are still very much in greenfield state, flooding issues may be a factor in the delay (suggesting lack of due diligence prior to project greenlighting). In the past Indonesia has attempted to implement similar rapid-capacity plans (delays have resulted in many projects still in development to meet those old targets), the current requirement for state-owned PLN subsidiaries to own a minimum of 30% of all new IPP projects further increases likelihood of delay in the 35GW target as this may discourage foreign investment. Nevertheless, there are undoubtedly opportunities in the country for power projects in Indonesia for those able and willing to navigate the local political landscape.

The Belt & Road Initiative or yi dai yi lu (one belt, one road), China’s $150Bn/year infrastructure investment fund, is now 4 years down the line with a reported $900Bn of projects planned or underway, most projects remain on the drawing board and it is still too early to judge whether BRI will be successful. Among these projects are; the $62Bn China-Pakistan economic corridor (CPEC - a web of motorways, power plants, wind farms, factories and railways), the $1.1Bn port project in Sri Lanka, a high-speed rail link in Indonesia and an industrial park in Cambodia. Dr. Qiang Liu, the Director of Energy Division at the Chinese Academy of Social Sciences and consulting expert for the UN, was part of the panel discussion on BRI and it was his view that all delays and issues with BRI projects are caused by the decision making and policy changes of recipient governments. Other members of the panel suggested China needed to invest in providing support with the planning and management side of these substantial projects to safeguard successful implementation of BRI. This support would strengthen the concept of Chinese EPCF turnkey contractors (Engineering, Procurement, Construction and Finance).

The consensus on digitizing the energy market seems to be that large utilities are simply not ready to implement developments such as smart grid technology on a large-scale. Smart grid technology has the potential to provide vast improvements in reliability and efficiency of energy supply not just in Asia but around the world, however the level of research, development and investment required to implement the technology currently hasn’t been met. When implementation does happen, the level and method will vary by location; Singapore and Hong Kong build infrastructure upwards, whereas countries such as India and Indonesia build outwards.

In Thailand, the rising gas price due to decreasing local gas production is causing a policy shift on gas-fired power plants. The Electricity Generating Authority of Thailand (EGAT) is keen to transition towards an energy mix with increased renewable energy sources, particularly solar and wind (due to falling capex) including a percentage of imported hydro. EGAT envisions the use of currently available efficient conventional sources such as CCGTs and ultra-supercritical ‘clean coal’ to provide support in developing a secure energy mix that allows inclusion of more renewables.

In South Korea the new president, Moon Jae-in, was elected in May on a platform that promised to shut down nuclear and coal-fired plants, therefore all plans for new nuclear power projects have been cancelled. South Korea is the world’s fifth-largest nuclear power producer, with 25 operational reactors supplying around one-third of its energy mix. Therefore to replace nuclear, the government plans to boost renewable output to 20% of the energy mix by 2030 as well as supporting increased use of liquefied natural gas.

Overall it seems that Asia’s energy growth will predictably come from mostly coal-fired power plants, countries such as Vietnam, Indonesia and The Philippines who are forecasted rapid growth will rely on the affordable energy that coal can provide, even a more developed country such as Japan has greenlit 17GW of ultra-supercritical clean coal projects while hoping to re-commission their 43 nuclear reactors closed for review post-Fukushima. A positive outlook in terms of The Paris Agreement comes from countries such as Thailand and South Korea who are placing more focus on a sustainable future, even China, who are currently the largest importer and exporter of coal, are halting all new coal projects, having only 2 out of 31 mainland provinces greenlit for new projects.

CESS continually monitors worldwide energy market trends and political energy policies to ensure we have the relevant intelligence to provide support in power plant valuation, sale and sourcing for our clients.

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