Renewable energy projects can cost more than fossil fuels: DBS’ Piyush

THE energy-transition journey in South-east Asia is hampered by the high costs involved in developing renewable-energy power plants, which can be “substantially higher” than fossil fuel-based ones, said DBS chief executive officer Piyush Gupta on Monday (April 15).

The high costs of production come partly from the lower levels of solar efficiency in the equatorial region, which is where most of South-east Asia lies.

This comes on top of costs associated with upgrading the grid infrastructure, integrating battery storage with the grid to get around the intermittency issues typical of renewable energy sources, and the cost of large swathes of land needed to build these power plants.

Gupta, who was speaking at a panel session at Ecosperity, a sustainability conference organised by Temasek, said: “Several projects, therefore, are not that easy to bank on a pure commercial viability basis.”

Renewable-energy projects also typically require high levels of infrastructure-related spending, such as that incurred for the upgrading of the grid. And if the investment needed for the infrastructure is not in place, financial institutions would not be able to justify the viability of such projects.

In South-east Asia, there are other risk premiums associated with investing in emerging markets, such as currency volatility and uncertainty over the price off-takers would pay as political regimes change.

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Speaking in a separate panel, Tim Gould, chief energy economist at the International Energy Agency, said that the pace of deployment of renewables in South-east Asia is lagging behind.

Another challenge is the young age of coal plants in South-east Asia, meaning there is a large amount of unrecovered capital.

However, Ngiam Shih Chun, chief executive of the Energy Market Authority, said that some renewable-energy projects have proven to be “very investable and very bankable”.

These projects involve power trading between countries with renewable-energy resources at relatively low prices, and countries which lack those resources.

These alternative-energy disadvantaged countries are willing buyers, keen on long-term off-take agreements, which make these projects commercially viable, said Ngiam, who was on the same panel as Gupta.

Countries in South-east Asia have been trying to establish cross-border power trading, with Singapore inking deals with Vietnam, Cambodia and Indonesia to import low-carbon electricity from these countries.

Blended finance has been touted as being key to improving the bankability of energy-transition projects. It basically involves corralling catalytic capital to lower the costs of financing, so that private sources of capital would come in.

But Gupta pointed out that blended finance is just “old wine in a new bottle”: “It’s a new and elegant way of saying somebody else has to pay for it.

“We say (climate change) is a global problem. And yet when it comes to solutioning, we leave it to the countries at the bottom of the pyramid to pay for the solution.”

Several blended-finance initiatives have emerged over the last few years, though, such as the Just Energy Transition Partnerships, through which several developed countries work with the Asian Development Bank and private-sector financial institutions to mobilise capital for energy transition in Indonesia, Vietnam and South Africa.

Gupta pointed out carbon markets are another financing mechanism to get more private capital to move to emerging markets.