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Southeast Asia is a very attractive market for renewable energy,
owing to its rich renewable resources and surging energy
consumption. Growing at an average pace of more than 5% per annum,
power demand in Southeast Asia is projected to keep rising over the
next decade. By 2040, IHS Markit forecasts that renewable energy[1] will
make up more than 18% of total power generation in the region. The
region has an aspirational target to increase renewable energy's
share of the primary energy mix to 23%, and this is coupled with
the individual country's renewable targets. With a focus on
increasing renewable energy's share in the generation mix,
Southeast Asian governments have provided various support to
investors and developers; apart from the tax incentives that are
already in place, the countries have also embarked on renewable
tender schemes to grow renewables capacity while keeping generation
costs low.
Since 2016, over 4.6 GW of renewable tenders have been called
across Southeast Asia, mainly for solar PV capacity. Currently
leading with 2.73 GW of renewable tenders, Malaysia has
demonstrated the effective use of tenders to both lower the cost of
solar generation and grow renewables capacity. Malaysia introduced
large-scale solar PV tenders in 2016 and has already issued four
tenders to date. The country also introduced tenders for biogas
(2018) and small hydropower (2019) while utilizing the current
feed-in tariff (FIT) as a reference price for bidders to compete
against. Myanmar and Singapore have also shown their commitment to
increasing installed solar capacity by launching a 1 GW tender and
multiple tenders focusing on the rooftop and floating solar
projects, respectively.
In 2019, Philippines announced its plan to launch a 2 GW
renewable tender through a new Green Energy Auction Program to
facilitate the procurement of renewables by distribution companies
to meet the renewable portfolio standard. If earlier tenders called
by Meralco serve as an indication of prices, this tender will lower
the country's electricity cost, which is known to be among of the
highest across Southeast Asia. Vietnam will be switching from FIT
to reverse auction bidding for solar, its first-ever renewable
tender. The nation is expected to launch several pilot tenders in
2020, consisting of ground-mounted and floating solar photovoltaic
(PV).
There are diverse challenges across renewable tenders in
Southeast Asia. Developers and investors looking to develop of
finance projects via renewable tenders must be cognizant of the
varying requirements such as foreign ownership restrictions, land
acquisition/ownership restrictions and terms of payment in the
power purchase agreement, all of which may affect the project's
viability. There may even be differences from tender to tender
within the same country. Therefore, developers and investors must
factor these into their bids while concurrently putting in place
the appropriate risk mitigation measures.
Partnership with local companies brings about benefits beyond
just circumventing foreign ownership restrictions. Local partners
help to overcome foreign ownership restrictions, while still
allowing control and profits to go to the foreign company.
Additionally, local partners can help the company to navigate
through complex land acquisition processes and provide access to
local financing. These can improve the prospects of the bid and
also the project when it comes to fruition.
Joo Yeow Lee is an associate director with the Gas,
Power, and Energy Futures team at IHS Markit, covering the power
and renewable markets in Southeast Asia.
Ying Ting Lew is a research analyst with the Gas, Power,
and Energy Futures team at IHS Markit, focusing on research and
data analytics on renewable energy within the Asia-Pacific
region.
