Participants at Macquarie's annual Asia-Pacific Infrastructure and Transportation conference in Hong Kong on Monday discussed various challenges and opportunities in the Asian renewable energy sector, coincidentally on the same day as the worldwide climate conference in Copenhagen began.
"The [renewables] sector is now facing huge challenges globally because policies and administration are failing to keep pace with the growth. And the development of infrastructure is obviously not fast enough to meet the transmission demand," said Bruce Yung, managing director of Hong Kong Energy and one of the panellists at the conference.
"For example, the regulatory regime in China is complex and issues like tax, subsidies and tariffs often complicate the administration," added Brian Caffyn, principal of energy company UPC International.
In order to enter the Chinese renewables market panellists therefore suggested partnering with Chinese firms to take advantage of their familiarity with the local regulations and administrations. For example, Hong Kong Energy is partnering with Chinese companies for three of the projects it is currently working on. "They can help to speed up the projects efficiently," said Yung.
But this advice was immediately followed by panellists saying that companies that want to enjoy the benefits of the huge China pie should be prepared to make some sacrifices in the first couple of years. New entrants will also have to be satisfied with a small market share, especially initially, as it is hard to catch up with the gigantic local players.
"There will be lots of sweat and blood before foreign investments can enjoy the fruits of success. You shouldn't aim to become the leader in the market. Aiming to become the top five in the league table is already a very ambitious target," said Stefan Robertsson, group director of Hong Kong power company CLP Holdings. "But as this pie is so huge, you can be a small player and still do well."
With respect to the other Asian tiger, India, Robertsson is satisfied with the political leadership, which has designed a straightforward and transparent regulatory system, including standard power purchase agreements (PPA) and tariffs, making it easy for investors. However, India still has its challenges such as complex land ownership structures and the difficulty in raising capital in its market.
Between 2004 and 2008, global investment in the renewables sector has increased four-fold to $120 billion. Wind power capacity soared 250% in this period to 221 gigawatts, taking the total global capacity for renewable energy to 280GW last year. In China, wind capacity doubled to 12GW in 2008, which is already in excess of the 2010 target. The photovoltaic (PV) solar power market has increased 6.5% to 16GW worldwide with India being the current market leader in the sale of PV cells.
According to Thomas Donnelly from Macquarie Capital, the encouraging growth in the renewables sector has been stimulated mainly by the aggressive policies and targets set by 74 countries globally, especially the Asian market. And this trend is expected to continue, he added.