Sembcorp sees growth overseas for utilities

Singapore

SEMBCORP Industries will look to overseas markets for growth in its utilities business, as conditions in the Singapore power market remain challenging.

"In particular, we focus on emerging growth markets within a 10-hour flight radius of Singapore in which we have existing beachheads. Our presence in these markets gives us a greater knowledge of the market environment, enabling us to expand our presence and offerings there," said its CEO, Tang Kin Fei, in its latest annual report.

In China, it will continue to focus on the industrial waste and wastewater treatment sector, and also expand its renewable energy presence with its partner, wind power company Guohua.

In India, where there is a growing power shortage, Sembcorp's recent acquisition of a 60 per cent stake in renewable energy firm Green Infra means it now has the capabilities to "develop, own and operate assets in thermal and renewable sectors" there, Mr Tang said.

Difficult market conditions in the Singapore power sector have reduced margins for Sembcorp's power generation business last year.

"The increase in more efficient generation capacity and over-commitment in gas supply have intensified competition and placed downward pressure on margins for all power generation companies in Singapore," said Mr Tang. This will improve as demand increases, but it will take some time.

The Energy Market Authority had said last year that oversupply in the electricity market will likely continue for a few years.

Nevertheless, Mr Tang noted that the local power business accounts for only a fifth of its net profit from the Singapore utilities unit. It is supplemented by income from the import of natural gas, industrial water and wastewater treatment, on-site logistics and solid waste management business.

Utilities - Sembcorp's largest business - contributed 49 per cent to Sembcorp's net profit last year. About half of this comes from overseas operations, said Mr Tang.

The firm has a pipeline of projects that will add over 3,400 MW and 1.6 million cubic metres a day to its power and water capacity, respectively, over this year and next. With these, total capacity will come up to almost 7,900 MW and over 9.5 million cubic metres a day.

"Our focus is to ensure the smooth execution of this pipeline of projects, while at the same time, deepen our foothold in existing geographies and prudently expand into emerging growth markets by securing new opportunities," said Mr Tang.

Renewable energy will also be a key growth area for the group, driven by the aim of having a balanced portfolio of both thermal and renewable energy assets. With Green Infra added to the fold, renewable energy capacity will account for about 14 per cent of Sembcorp's total generating capacity.

"In light of the growing environmental concerns, we believe that the exposure to potential carbon taxation will rise as we expand our energy portfolio," said Mr Tang. "Growing our renewable energy portfolio, and thereby having a balanced portfolio of energy assets, will boost our carbon readiness and better position us for further growth in the energy sector."