A patchwork of opportunity

With a number of archipelago nations, plentiful sunlight, and growing economies, the markets of Southeast Asia appear a good fit for solar. Established in 1967 by Indonesia, Malaysia, Philippines, Singapore and Thailand, the Association of Southeast Asian Nations (ASEAN) shares the common target of its member states to achieve 30% of installed renewable energy capacity by 2020. However, solar development in the region has been patchy at best, with markets such as Thailand and the Philippines emphatically leading the way with relatively robust policy mechanisms.
Utpal Guha, the former Head of Structured Finance at SunEdison, told pv magazine that compared to Asian rivals Japan and India, solar policy in Southeast Asia has been found wanting. “One factor that has shaped the outcome of PV programs in these countries is a long term vision that resulted in well-articulated programs, clear and systematic allocations, long visibility of solar targets and a robust PPA structure that is bankable and thus safe for equity investors,” said Guha.

Thailand snapshot

The PV leader in the region is Thailand, which has been recognized by many as ASEAN’s standout market for clean energy adoption in general. Thailand has implemented generous policy measures such as investment grants and tax exemptions to support renewable deployment, and in solar boasts the best-managed and longest-running program, with the first policy measures taken in 2007. Having limited fossil fuel resources, pursuing alternative energy sources was the only viable option for a government keen to secure its own energy security and diversify away from coal.
Thailand’s cumulative PV capacity has now reached 2 GW, primarily in the large-scale sector, which accounts for some 99% capacity. The government has, however, recently announced a plan to support 200 MW of rooftop solar power through a feed-in tariff (FIT), which has been the key mechanism driving the growth of solar in Thailand thus far. Since 2007, two FIT schemes have been put in place under the so-called ‘Adder’ program.
The program, Sopitsuda Tongsopit, a researcher at the Energy Research Institute of Chulalongkorn University explained in a paper, is a premium-price FIT consisting of a regular tariff that is usually the utility’s avoided cost of purchasing power plus a premium that is paid on top of the normal tariff. Rates are paid for 10 years and distinguished by technology type, installed capacity, and location.
“For solar power, the Adder rate of THB 8/kWh is paid on top of the avoided wholesale electricity cost, which varies from month to month and ranged from THB 3.06 to 3.17/kWh ($0.094–0.098/kWh) in 2014. The total tariff paid was between $0.3405 and $0.3438/kWh for solar power projects that received the Adder in 2014.” The solar ‘Adder’ proved to be highly successful and attracted many investors and PV project developers to the market. This initial scheme comprised an incentive package including tax and import duty exemptions. But the program encountered some problems in 2010 when it had to be suspended due to oversubscription. Applications were closed, but projects in progress could be installed through 2013 – 2014. July 2013 represented a turning point for Thailand’s solar PV policy and its low-carbon future. After the pause between 2010 and 2013, the government launched a FIT program to stimulate the rooftop solar market, with a fixed-price structure to be paid out over 25 years.
For this fixed-price solar FIT, the government allocated a quota of 200 MW, divided into 100 MW for commercial-and industrial-scale (C&I) installations, and 100 MW for residential-scale installations. The payment of tariffs is based on the amount of energy generated from the PV systems, and the tariff rates differ for three scales of installations: THB 6.96/kWh for small projects, THB 6.55/kWh for medium size projects and THB 6.16/kWh for large-scale installations.
In a second paper Sopitsuda Tongsopit wrote for the Southeast Asia Prosperity Fund, the researcher noted that the C&I market segment proved more attractive for investors than residential projects. “While the C&I quota was quickly reached only minutes after the application process was open, the residential quota remained 30% filled and the government had to reopen the application

xAdvertisementprocess again to complete its 100 MW target,” wrote Tongsopit.
“When considering households, though it can be argued that more consumers now are aware of solar power, numerous obstacles stand in the way of buying a solar system, including consumer confidence about the system performance, limited access to financing, complicated permitting processes, and safety concerns.”

Market hurdles

Many barriers to rooftop PV in Thailand remain, the most prominent of which is the lack of policy certainty that results from the absence of a strong vision from policymakers. According to Guha, the basis of many PPA awards was not clearly and transparently disclosed; this is a concern for developers, especially international players who invest significant funds and resources in the hope of being awarded PPAs based on transparent criteria. Additionally, fundamental issues around the issuance of construction permits affected PV as well.
“Under the 2015 FIT program, the projects suffered from huge bankability issues, the key one being the “cliff date” in the PPA, without the off-taker/regulator taking responsibility for delays on their side in PPA award and issuing key permits and licences,” says Guha. “Moreover, the role of the Board of Investment of Thailand seems to have got diluted compared to the first round of incentives, where it did act as a very credible and effective single window facilitator of PV investments.” Thai policymakers are currently discussing the option of PV reverse auctions, a direction that the Philippines could also take. It is an attractive scheme from a price point of view, which can combat political arguments that solar is being delivered at uncompetitive prices, thereby driving up the electricity prices for consumers.
“The question remains if these auctions would set off too much aggressive behavior in investors, who in order to win projects would bid tariffs that are too low,” says Guha. “The risk is that this would then translate into cutting off corners and poor quality assets.” However, there is no rush for the introduction of the auction scheme, as for the time being the government has modest solar goals. Thailand targets 6 GW of PV by 2036, and appears happy to move leisurely towards that goal.

Philippines in focus

One of the fastest-growing economies in the region, the Philippines is a land of opportunity as far as energy is concerned. In recent years, a growing economy and urbanization of the population has led to acute power shortages. In particular, shortages are most pronounced across the more remote islands at the extremities of the electric grid systems.
Regarding electricity provision, the Philippines is among the most developed Advertisementxmarket in the region. However, while new capacity is continually being built, significant shortfalls persist. Electricity is comparatively expensive in the country, an effective rate per residential customer of PHP 7.4176/kWh ($0.16) was registered in January 2016 by Meralco, the largest electricity distributor in the country, which leads to a greater need for solar and other forms of energy. With a sound policy framework and the right market forces in play, it’s arguably the most interesting in the region for investors and developers.
A policy brief developed by the German Society for International Cooperation (GIZ), prepared in cooperation with Renewable Energy Developers Center (REDC) and WWF Philippines, stresses the importance of solar playing a larger part in the Philippines’ energy mix for economic and environmental reasons. Solar could provide an immediate solution to the country’s energy needs, being the only cost-effective technology that can be installed and commissioned in a relatively short time frame.
Figures from GIZ show the Philippines’ cumulative PV capacity standing at 422 MW at the end of 2015. However, the U.S. National Renewable Energy Laboratory (NREL) data reveal that the Philippines’ solar potential is far greater. The country provides an ideal location for installing solar power facilities: The north has enough sunlight to generate an average of 4.5 – 5 kWh/m² per day, while areas in the south can reach an average of 5 – 5.5 kWh/m² of solar power per day.
According to GIZ, the Philippines has failed to take advantage of its vast potential because of a fundamental lack of financing and the presence of policy constraints, particularly in delays in the approval and implementation of its FIT scheme.
The inclusion of the private sector by the government is a necessary step to be taken, and foreign investor capital must be attracted to carry out solar projects. Also, an easing of restrictions on foreign ownership would help spur the development of the sector. The 60-40 rule, a law that prevents foreign firms from owning more than 40% of a firm in the country as written in the Constitution, is a good example of this.
“So far, the 60-40 rule hasn’t been a huge problem,” comments Geoffrey Tan, Managing Director at the Overseas Private Investment Corporation. “In fact, the national policies for the assignment of incentives already discouraged big conglomerates from investing in the market. However, if conditions improve, foreign participation will have to find a way to get around this obstacle.” Prospects look encouraging. As of last November, the Philippine DOE had approved 2.5 GW of solar projects. Most investors today are waiting for the government to announce a new FIT program, with a reduced rate, to be launched after the recent deadline on March 15.
Before that deadline, a rush of projects was completed, including the Cadiz Solar Power Project, a 132.5 MW PV plant. Syntegra Solar also commissioned four new PV power plants with 98 MW combined capacity that were successfully energized in Negros. Additionally, the Swiss-based PV firm announced a further 43 MW of PV plants commissioned before the March 15 deadline.

Off-grid opportunities

Solar energy development in the Philippines is also vital for the Barangays, the small villages in rural parts of the country. The provision of electricity in these communities will havexAdvertisementa significant impact on quality of life for inhabitants in a range of ways: from the functionality of health structures to safety and increased productive hours in the fields, making work possible during the night. Today, off-grid areas in the Philippines have an estimated 350 MW of installed diesel power capacity. But while there is a high potential for PV systems and hybrid power systems, the policy and financial framework needs to be improved for off-grid applications to take off on a larger scale.
The same applies to Indonesia, where off-grid applications also represent a tremendous opportunity, as hundreds of remote islands in the country still rely on diesel, where supply is often unreliable because it is transported to communities by boat. Adverse weather conditions can cause sporadic but not uncommon diesel supply delays and powers outages. Hence, the demand for PV and potentially battery storage is growing.
Furthermore, favorable market conditions for off-grid PV in Indonesia are abundant. However, no central government body is present to coordinate and facilitate these projects. Should investors have an interest, they would need to speak directly to the local administrative bodies of the islands, preventing economies of scale from being developed. In general, there is a lot of potential in Indonesia. Solar irradiation in the country is good, at 4.8 kWh/m² per day, according to the IEA. However, the national power development plan is mainly focused on coal and geothermal generation. At the end of last year, Indonesia had installed a meager 43 MW of PV capacity, but the hope for an increasing role for solar has been growing since the election of President Joko Widodo in 2014. The President has been pushing for a turn towards renewables and important cuts to fossil fuel subsidies, which recently reached some $20 billion each year according to OECD.
The Indonesian government announced last year a new national target for Indonesia’s energy mix that envisages 23% of power coming from clean sources by 2025. It has been reported that this target will include 5 GW of PV. To date, this measure exists in theory only and, considering the protectionist nature of some key Indonesian policymakers, what remains to be seen now is how quickly Indonesia’s solar ambition can translate into projects on the ground.

Malaysian market

According to the IEA, Malaysia’s energy demand will almost double by 2040, with fossil fuels continuing to meet over 90% of that need. Coal is overtaking oil and gas to become the primary fuel in the energy mix. While the power sector is undergoing several significant reforms, the progress made for renewables has been complicated by a governance structure that, as in the Philippines, places responsibility for energy across a number of jurisdictions.
Various financial incentives, including FITs and tax exemptions, have been put in place to attract investment in solar. Implemented by the Sustainable Energy Development Agency (SEDA) in December 2011, a FIT program was launched with terms favorable for solar, and subsequent applications under the program consistently exceeded quotas. This policy signal is a strong incentive, and given these successful results, in terms of applications under the program, the Malaysian government is now considering abolishing the FIT for PV in 2017 and plans to introduce net metering over the period of the 11^th Malaysia Plan 2016 – 2020. However, the exact path towards it is still not clear regarding annual programs and the tariff structure. According to SEDA, about 250 MW of PV is grid-connected in the country today.

Vietnamese PV

Vietnam boasts abundant solar resources, with average irradiation standing at 5 kWh/m² per day throughout the country, and available all year round. The Government of Vietnam is currently working on a number of policies to encourage the uptake of renewable energy, to establish targets for renewable energy production, and move towards a competitive energy market with diverse investment and business models.
However, as reported in the H2 2015 SE Asia Renewable Energy Market Outlook by Bloomberg New Energy Finance (BNEF) “the Ministry of Industry and Trade (MOIT) proposed the first Draft Decision of the Prime Ministers for solar investment incentives in H2 2015. A wide range of solar feed-in-tariffs of VND 1,800-3,500/kWh ($0.08-0.16/kWh) was suggested. Also a net metering scheme was suggested for rooftop solar with the selling-back price of VND 3,150/kWh (0.15/kWh). Based on past experience with the Vietnamese government, it will take a while to approve the proposal. Even if the tariff policy is officially introduced, the procedures for project permits and PPA signing could be kept opaque at the time of the policy announcement. This is very common in Vietnam and will pester project developers for some time”.
BNEF’s Maggie Kuang notes that Vietnam is still heavily reliant on coal. “If there have been encouraging plans announced by the government, it is still all on paper and there is no institutional framework to enable large-scale equal opportunities in the sector for everyone,” says Kuang. Vietnam, as well as Cambodia, has less experience than other countries in the region in attracting private capital to the power sector and no incentives scheme is in place yet. “Some companies are now working in Vietnam on individual projects with out any incentives. Investors are proposing to build up to 600 MW of capacity, but we’re talking about early phases, and everyone is mostly waiting for further developments.”

Myanmar emerges

Emerging from decades of darkness, Myanmar is way behind other countries in the region in terms of solar. The country suffers from huge electricity crises, with more than 70% of the population lacking access to electricity. In rural areas, where the majority of the poor live, a staggeringly low 16% of households have access to grid-based electricity.
The government’s goal is to increase electricity production from the present 2.5 GW to 3 GW by 2030, and to achieve a 15% to 18% share of renewables in total generation capacity by 2020 – according to OECD/IEA figures. Some developers have been working on ambitious projects in the country. The engineering and construction firm Black & Veatch has announced that it has been appointed by Thailand’s Green Earth Power (GEP) to provide design and consultancy services for a 220 MW PV power plant to be built in Minbu, Magway region of Myanmar. The construction was expected to begin in the first quarter of 2016. Another large project is from ACO Investment Group, a U.S.-based private equity firm, which has announced the construction of two 150 MW plants. According to a release from the Office of the U.S. Trade Representative, these plants are expected to account for 10 – 12% of Myanmar’s power generation, and should be completed in 2016.
In January, the Ministry of Livestock, Fisheries and Rural Development announced a tender for the Myanmar National Electrification Project (NEP) Off-Grid Program co-financed by the World Bank. According to the original procurement notice, the program should electrify in over five years close to one million households and several thousand facilities and buildings using PV off-grid technologies, targeting the rural and remote regions of the country. “The initial procurement in 2016 shall be one of the first large-scale international procurements in Myanmar, and is intended to establish modalities for future NEP roll out”, according to the notice.

Singapore’s rooftops

In Singapore, less than 1% of electricity consumed is powered by solar energy, but last November the Solar Energy Research Institute of Singapore (SERIS) announced that the aim is to raise that to 20% by 2050.
The government is pushing for solar, but because the primary constraint is land scarcity, it will be difficult to launch multiple large-scale projects. The government has recently announced the Solar Nova program inspired by two successful rounds of bidding in 2014 and 2015, respectively of 20 MW and 40 MW. The program, directed towards rooftop projects on Housing Development Board (HDB) buildings as well as other government-owned buildings, is expected to bring to the market bidding opportunities on at least 50 – 60 MW annually. According to the program, solar should total 350 MW by 2020.
What remains to be seen is how the tariff structure will play out, as it requires developers to bid a discount to the wholesale grid tariff, which is linked to commodity prices. One business model in Singapore is leasing, and U.S. tech giant Apple last November announced that it will use this lease system to become the first in the country to be 100% renewably powered. According to the company, local solar power firm Sunseap will supply all of the firm’s electricity needs from next year via a 1.1 MW array installed on an Apple building, and an additional 40 GWh of solar energy harvested from 800 solar rooftop systems. Under the first SolarNova tender, Sunseap was also awarded the full 76 MW available. Sunseap is expected to complete the installation of all of its systems by the end of 2017.
Last June 40 MW of solar was tendered and, overall, nine companies submitted 14 bids. In total, SolarNova awarded 124 MW of solar projects in 2015. A second auction will be held in the first half of this year. The program, spearheaded by the Singapore Economic Development Board (EDB), aims to deploy 220 MW of PV.
Other countries in the region have still been largely unable to tap into their solar resource. Laos has been mostly reliant on off-grid PV installations of just a few kilowatts. But in 2014, Laos introduced its first ever Renewable Energy Development Strategy, which has carried out inaugural rounds of testing. The strategy has reported that 2,000 hours of sunshine blankets Laos each year, which could generate 1,460 kWh/m² per year. The Lao Ministry of Science and Technology also conducted a feasibility study investigating the potential benefits of developing a 50 MW solar PV plant. Recently, Sunlabob Renewable Energy finalized a contract to implement a 90 kW rooftop PV system at the ANZ bank’s main office in Laos’ capital, Vientiane. The project will be the first commercial grid-connected solar system in Laos, and it is due to be commissioned this spring.

Common challenges

“In considering how to increase renewable energy in the region, it is clear that resource availability is not the limiting factor,” concludes BNEF’s Kuang. With most areas of the region being highly vulnerable to climate change, Southeast Asia’s governments are aware of the challenge they are facing today: a need to drive down emissions and increase energy production. According to the IEA, regional integration measures such as cross-border infrastructure development, the liberalization of trade in renewable technologies, and cooperation on innovation and technology transfers could accelerate PV deployment. Crucially, regional renewable policy agendas across the region must become a priority.