With rising energy demand and an increasing focus on renewable energy to achieve net-zero targets, South-east Asia – blessed with abundant sunshine and advancements in solar technology – offers significant opportunities for renewable energy financing.
Despite the promising potential of the region’s renewable energy sector, international financiers and investors eager to tap into the region’s opportunities often find themselves navigating a maze of challenges, according to a banking executive.
From regulatory uncertainties and infrastructure bottlenecks, to the credit risks common in emerging markets, the road to renewable investment is anything but smooth, observed Rino Donosepoetro, Standard Chartered’s cluster chief executive for Indonesia and the Asean Markets (Australia, Brunei and the Philippines).
Adding to the complexity, Donosepoetro noted, are issues like non-bankable power purchase agreements, high leverage ratios, extended financing tenors and intricate security packages – factors that further complicate efforts to unlock the region’s green energy promise.
“But risks can be mitigated through public-private collaboration that ultimately aims to align policy and financial frameworks at a systems scale,” he said in an e-mail interview with The Business Times.
He pointed out that while many South-east Asian nations have set bold, long-term clean energy targets, the investments flowing in are still far from what is needed to turn these aspirations into reality.
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Over the past three years, South-east Asia’s annual energy investments averaged US$72 billion. However, to meet the pledges for the decade ahead, this figure would need to more than double, rising to over US$130 billion, according to the International Energy Agency (IEA).
Despite the challenges, Donosepoetro said, the increasing momentum behind innovative financing solutions, such as blended financing, green bonds and the expanding carbon credit market, highlights South-east Asia’s commitment to achieving its clean energy goals while addressing the region’s growing energy demand.
StanChart has pledged to channel US$300 billion into sustainable finance by 2030. By September 2023, the bank had already mobilised an impressive US$87.2 billion, demonstrating strong momentum towards its ambitious goal.
Among the key initiatives are the Just Energy Transition Partnerships in Vietnam and Indonesia, where the bank is actively fostering a responsible shift from coal dependency to cleaner, more sustainable energy sources in these markets.
A radiant opportunity
Nestled in the equatorial belt and bathed in abundant sunshine, South-east Asian countries are primed to tap into the vast potential of solar power, propelled by cutting-edge advancements in solar technology.
The region ranks as the world’s fourth-largest energy consumer, with demand growing at an annual rate of 3 per cent over the past two decades. This upward trend is set to continue through 2030, according to the IEA.
Investments in solar photovoltaic (PV) technology is projected to continue to lead the charge in transforming the power sector, with solar and wind costs set to stay competitive – or even fall below those of traditional energy sources.
StanChart has identified solar PV financing as a standout investment opportunity, recognising its vast potential to drive sustainable growth and transformation in the energy sector.
In 2021, the bank took part in co-financing the Cirata solar power plant, South-east Asia’s largest solar project, situated in West Java, Indonesia. With a total value of US$112 million, the project was backed by a 16-year financing facility, in partnership with two other lenders.
Donosepoetro sees technological breakthroughs as a game changer in the renewable energy investment space, with the rapid reduction in storage battery costs opening the door to new possibilities.
He pointed out that South-east Asia is evolving, with more sophisticated regulatory frameworks designed to fuel the green energy revolution.
For example, key initiatives such as the Asean Taxonomy for Sustainable Finance, the Monetary Authority of Singapore’s Singapore-Asia Taxonomy and various country-specific taxonomies are paving the way for clearer investment pathways, enhancing transparency and directing capital towards sustainable projects.
He highlighted that the investment time horizon is key in renewable energy, given the sector’s capital-intensive nature, and the extended period required for projects to reach operational stability and profitability.
“In the short term, renewable energy projects can be affected by volatility in commodity prices, regulatory changes and initial high capital expenditures.”
However, over the long term, said Donosepoetro, the declining cost of technologies, especially for solar PV and wind, improves the return profile of these investments, he added.
“As storage costs continue to fall, the transition to renewables becomes even more viable, enabling better storage and use of solar and wind energy, while balancing supply with demand fluctuations.”
