Renewables Are Primed for Growth in Asia
Date: Monday, August 31, 2020
Source: The Wall Street Journal
Investment in wind and solar power is expected to surpass fossil-fuel power in coming years, despite dropoff in subsidies
Renewable-energy operators are planning for further growth in Asia despite a falloff in subsidies, betting energy demand will keep rising.
In China, government support has driven a rapid buildup and turned the country into the world’s largest producer of renewable energy. That stimulus is drying up, putting the industry at risk. Solar-energy subsidies were halved this year, while offshore wind subsidies will end in 2020, to be followed by onshore next year.
Nonetheless, French utility Electricité de France SA EDF +0.71% said it expected growth in the post-subsidy era, predicting that offshore wind capacity in China would rise to more than 50 gigawatts by 2030 from 6.8 gigawatts today.
EDF in June closed a more than $1 billion deal with state-controlled China Energy Investment Corp. to add capacity to a wind farm off the coast of Jiangsu province. The two companies will jointly operate that portion of the wind farm, as well as an existing portion of it, making EDF the first foreign entity to take a stake in China’s offshore wind market.
Renewable energy made up roughly 11% of EDF’s electricity-generation mix in 2019, with projects largely concentrated in Europe and North America, but it is now looking to grow in emerging regions such as China and India. “The Asia region, as a whole, offers significant opportunities for EDF to invest in sustainable growth,” an EDF spokeswoman said.
Around 400 gigawatts of wind and solar capacity are likely to be added in Asia over the next five years, according to an estimate by Wood Mackenzie, an energy-research consulting firm, up slightly from the 380 gigawatts added over the past five years.
Wood Mackenzie expects investment in renewable electric power in the Asia-Pacific region to outpace investment in fossil-fuel power such as coal and natural gas every year for the next five years. With much of the fossil-fuel investment going toward replacing old facilities, that means the lion’s share of added capacity is likely to come from renewables.
Australian bank Macquarie Group Ltd. ’s renewable-energy investment unit said it was evaluating five gigawatts of new solar assets in Asia, the equivalent of roughly 15 million solar panels.
The bank is also backing a group that plans to cover about 2,500 square miles in Western Australia—an area roughly half the size of Connecticut—with solar panels and wind turbines. Most of the power will be used to generate hydrogen and hydrogen derivatives that can be exported to Asian nations such as Japan to generate electricity or to fuel vehicles.
“Amid the pandemic, there’s been no slowdown in activity,” said Ivan Varughese, who leads Macquarie’s renewables-investment unit in the Asia-Pacific region.
Today, Asia accounts for nearly half of global renewable-energy capacity, according to the International Renewable Energy Agency. That is up from less than one-third a decade ago.
Relative to its size, Asia still lags behind the West with renewables accounting for less than 5% of energy consumption last year. That compares with 10% in Europe, where hundreds of billions of dollars of the European Union’s economic-rescue package are being earmarked for funding projects related to climate change, and 6% in the U.S., according to the BP Statistical Review of World Energy.
Investors’ bullish outlook might be challenged if the coronavirus pandemic sparks a prolonged global recession. This would lead to stunted power demand and might impel governments to cancel or reduce subsidies more quickly, regional analysts say.
“In this scenario, we could see 150 gigawatts of project cancellations or delays across Asia Pacific in the next five years,” said Alex Whitworth, head of Asia-Pacific power and renewables research at Wood Mackenzie. That would amount to pushing back the renewables construction pipeline in the region by nearly two years, he said.
Over the past decade, the price of solar panels and wind turbines has plummeted as cheap Chinese products flood the market. The cost of solar modules has fallen 90% since 2010, according to the Institute for Energy Economics and Financial Analysis.
As a result, more countries are calling on renewable-energy projects in the 2020s to stand on their own. Vietnam is allowing high-efficiency solar projects that reach commercial operation by the end of 2020 to receive a guaranteed price for their output, but the subsidies are set to expire after that.
Lionel Steinitz, chief executive of Singapore-based solar-power company Lys Energy Group, said business has been strong in recent months. His company installs and operates solar-power systems for industrial and commercial sites. New projects have moved ahead in Malaysia, Vietnam and Indonesia, he said, even though lockdowns delayed construction at some Singapore projects.
Even if the end of subsidies in countries like Vietnam leads to a lull in new project orders, “this gives us breathing room to finance a growing number of other projects in Southeast Asia,” said Mr. Steinitz.
In July, Japan’s Ministry of Economy, Trade and Industry said it would phase out most of the nation’s low-efficiency coal-fired plants by 2030, and it nominated 10 sites as offshore wind promotion zones.
The country’s largest power-generation company, Jera Co., said last week it was beginning an environmental assessment for a wind farm of up to 65 turbines off the coast of Japan’s northernmost island of Hokkaido. Jera also said in June it would work with French investment company Ademe Investissement SAS in developing two gigawatts or more of offshore floating wind projects over the next five years.
“Our vision is to become a global leader in liquefied natural gas and renewable energy. The turbulent energy market this year is not changing that,” said Jera President Satoshi Onoda. “Right now, our portfolio has little renewable capacity, but we’re at a turning point.”