Five big questions facing Asia Pacific's renewable market in 2021
As 2021 begins, IHS Markit looks at the renewable markets and highlights the most pertinent issues for the sector in the Asia Pacific region. These markets are estimated to add more than 120 GW of solar and wind capacity in 2021.
Below are questions that reflect the key issues/signposts that will need to be watched closely this year.
1) Will more aggressive renewable targets be set?
The three major Northeast Asian markets, mainland China, Japan, and South Korea, had over the course of the second half of 2020 announced net-zero carbon targets. Renewables will have to play a part in meeting the net-zero target set by the markets.
In Southeast Asia, several countries have power development plans that are scheduled to be released in 2021, after being delayed owing to COVID-19. Vietnam's 8th Power Development Plan is expected to pivot away from the large reliance on coal and shift toward gas-fired generation and renewables. Along the same vein, the Philippines is slated to update the country's power development plan in 2021, which will incorporate the latest draft National Renewable Energy Program (NREP) 2020-2040, targeting 30 GW of installed renewable capacity by 2040.
In South Asia, while India already has an aggressive renewable target of 450 GW to be achieved by 2030, markets including Pakistan and Sri Lanka are updating their renewable targets as part of their integrated planning. The draft targets announced include increasing renewable share to 30% and 70% in Pakistan and Sri Lanka, respectively, and are expected to get finalized in 2021.
2) What will the renewable tender landscape look like?
The tender prices for renewables have been very competitively priced, even in markets where the renewable sector is still in its infancy like Myanmar, which held its inaugural tender in 2020. In addition, countries are transitioning away from pricing support schemes to tenders or introducing new forms of renewable tenders.
India's federal renewable energy agency also began to tender for firm renewable supply, focusing on increasing the supply-side reliability of renewable power. These tenders had various hybrid arrangements of renewables with energy storage technologies including pumped hydro and batteries. The firm renewable tenders attracted many bids from renewable developers. Additionally, tenders are on offer in India for around-the-clock supply of renewable power through hybridization with coal power. Consequently, IHS Markit expects to see an increasing amount of hybrid capacity tenders in 2021, and there will be more competition between various hybrid arrangements.
Vietnam is scheduled to have its first solar tender in 2021. Specifically, 1 GW of capacity is expected to be up for award; however, this number may be increased following two successive years of strong growth in solar capacity, supported by a feed-in tariff (FIT). In 2019 and 2020, Vietnam surpassed expectations, increasing its installed capacity by about 5 GW in 2019 and more than 11 GW in 2020.
The Department of Energy in the Philippines will also be introducing its first renewable tender in 2021, targeting to award 2 GW of capacity. This tender is being introduced to aggregate the renewable energy needs of renewable portfolio-mandated companies, especially the smaller ones, to procure the required renewable energy, since not all mandated companies have the means to do procurement themselves. This aggregation may also help achieve more competitive pricing compared with small capacity tenders.
3) Where will the renewable procurement opportunities be?
Many large power consumers in the region are committing to increase the usage of renewable energy and for some to offset 100% of their power demand with renewables. This commitment is in part due to increasing pressure from their global customers who are members of RE100, and the companies own sustainability commitments. As a result, these large power consumers are increasingly lobbying governments to allow various renewable procurement options. This request comes alongside governments phasing out renewable pricing support schemes in favor of renewable obligation and letting the market run its course.
(REC) trading was launched in mainland China in early 2017. However, the trading activities and volumes traded have been quite limited owing to the lack of demand. In 2021, a renewable portfolio standard will be set on power consumers, and this measure should increase the trading volumes in the REC market and support additional renewable developments. A similar introduction
In January 2021, South Korea passed a bill allowing various renewable procurement options, including a third-party power purchase agreement (PPA), the purchase of renewable energy certificates, or self-generation.
Vietnam will be piloting its direct PPA scheme starting in 2021 for up to 1 GW, targeting consumers in the industrial manufacturing sector who have international environment, climate change, or sustainability commitments. Malaysia is also intending to pilot a similar scheme in for 100 MW under its Malaysian Electricity Supply Industry 2.0 (MESI 2.0). Thailand has a new captive independent power supply (IPS) scheme, in which a PPA can be established between a power plant and an end user even if the power plant is not located on-site, as long as the power plant is located on land owned by the end user.
4) What challenges remain for renewable development?
Renewable tenders have become increasingly competitive, driving prices to successive all-time lows. These declines have been a result of the intense competition and project developers' optimism about future equipment costs, the financing environment, and project performance. Given the optimistic assumptions, if any turn out to be false, this result first thins the margins and then puts the economic feasibility of the projects at risk. Therefore, the continued use of tenders to pull prices down regardless of their economic viability may result in challenges in project financing and ultimately hinder the proliferation of renewables.
5) Which renewable technology will grow the fastest in 2021?
Solar and onshore wind will remain the mainstay of renewable energy, contributing to more than 90% of the forecast renewable capacity additions in 2021. In terms of capacity additions, although offshore wind pales in comparison, IHS Markit is forecasting 92% year-on-year growth in 2021.
The offshore wind market is set to grow across the Asia Pacific region at an unprecedented pace. Currently, there is about 18 GW of offshore wind capacity under construction, with about 9 GW expected to come online in 2021. Mainland China will contribute nearly 7 GW of the additions, as developers will rush to meet the subsidy deadline by 2021. There will be pressure on the entire supply chain to commission the projects on schedule owing to the large volume of projects under construction. There also remains uncertainty as to whether there will be continued momentum when the subsidy is removed.
Japan, South Korea, and Taiwan are the other three markets where growth will be strong, albeit small in absolute terms. Currently, the three markets have about 300 MW of installed offshore capacity, which is expected to reach 1.6 GW by the end of 2021, translating to a more than fivefold increase. In total, they have plans to add about 28 GW (10 GW, 12 GW, and 5.7 GW, respectively).
Alongside these offshore wind markets, Vietnam is also expected to commission just over 800 MW of intertidal wind projects. Although the projects are offshore, the execution differs from the other markets because they are closer and in shallower waters and typically do not require specialized vessels for development. The developers will be in a rush to complete their projects ahead of the November 2021 deadline for the $98/MWh FIT.
Joo Yeow Lee, an associate director with the Climate and Sustainability team at IHS Markit, covers the power and renewable markets in Southeast Asia.
Posted on 3 February 2021
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