Recent developments in Southeast Asia’s energy sector: From renewable to nuclear

Anthony Jude, Chair of Asian Development Bank’s (ADB) Energy Committee, and senior advisor (Energy) in the Regional and Sustainable Development Department, spoke to Hill Choi Lee about recent energy developments in the Asia Pacific region

How did you start getting involved with the energy sector and how have things changed in the industry since?

It was during my undergraduate and postgraduate days in the early 1980s that I got involved with both power systems and renewable energy (solar, wind and biomass). It was an era when oil was cheap and you could not get anyone to invest in utility-based demand side management, energy efficiency, and renewable energy even though they were cleaner and economical to implement and not to mention that it also improved the country’s energy security. It was also when I got exposed to acid rain and climate change issues as parts of People’s Republic of China, Western Europe and the United States were affected by acid rain due to high sulphur content in the coal that was being used for power generation. There were less stringent rules then on having environment mitigation measures and air pollution controls in power plants but these have now all changed.

Today, the regulations for environmental controls in power plants have become more stringent in most countries. The issue is how these regulations are enforced in some of the developing countries in the Asia and Pacific region. Their practices in how resettlement and compensation associated with large power projects have also improved, which is good for many of the affected communities. Now livelihood programs are attached and people are trained in new skills. There is now greater consultation with the public but also the public is more aware of their rights and question decisions of government surrounding large power projects. There have been cases where large projects have been delayed or cancelled due to lack of transparency in the manner in which consultants were handled or how compensation for resettlement, land and loss of revenue have been computed. Overall, I see that governments are now paying greater attention to these issues than they did in the past but more can be done.

The costs of renewable energy has come down to grid parity and in some countries like the Philippines, it is even lower than the grid price. However, the challenge with renewable energy is that it is an intermittent energy resource and storage systems will be required. As research and development continues on battery storage, it is expected that storage costs will come down over the next 5-6 years. We are already seeing this in the context of Lithium Ion batteries where two years ago prices were at $2000 for a 3KWh battery now it is around $800 to $1000 depending on the manufacturer and the prices are expected to come down to $500 in 2014 as more of these batteries are used in electric vehicles.

The power sector has also changed quite dramatically within the Asia and Pacific Region. There is now greater private sector participation in power generation now than 25-30 years ago when all power was generated by government owned utilities. In some countries the power sector has been partly or complexly unbundled with government regulating the sector, while generation, transmission and distribution are by the private sector. In some countries, the power sector is still under government monopoly but the private sector has been allowed to participate in competitive bidding of generation plants with government owned utilities being the off-takers of the electricity.

What are your main responsibilities at ADB, and how important is its role when it comes to energy and/or infrastructure projects? What is ADB’s main source of funding?

As chair of ADB’s energy committee, and senior advisor (energy) in the regional and sustainable development department, one of my responsibilities is to ensure that all energy projects being considered conform to ADB’s energy policy. We promote use of cleaner energy technologies such as renewable energy, i.e. solar, wind, geothermal, and biomass. In the context of power generation, we ensure cleaner technologies such as supercritical and ultra-supercritical boilers are adopted for coal power projects and high efficiency gas turbine technology is adopted in the context of gas power project proposals.

Current key tasks aside from the above include sharing knowledge on clean energy namely energy efficiency, renewable energy, including biomass-based projects, solar, wind and geothermal; leading work on the Asia Solar Energy Fund; working with International Energy Agency (IEA) on regional energy training programs and policy formulation; World Bank, World Energy Congress, International Hydropower Association and UN organisations on sustainable energy use for all; low carbon technology transfer market projects; and supporting energy policy and institutional strengthening including power sector reforms as well as supporting regional power cooperation.

ADB’s lending in 2013 was $11.848 billion and leverage co-financing in the amount of $3.5 billion; infrastructure financing accounts for more than 50% of this amount. ADB financing is raised from the capital markets through bond issuance.  ADB has both market based financing through our Ordinary Capital Resources (OCR) and concessional financing through our Asia Development Fund (ADF). Funds for ADF are contributed by developed and some developing countries.

When it comes to the Asia-Pacific, what are the main regional developments in recent times?

The overarching energy trend in our region is the growth in primary energy demand. The energy demand in Asia and the Pacific specifically is growing faster than the rest of the world – at an annual rate of 2.4% until at least 2030. This is higher than the average growth in primary energy demand of the rest of the world, which is 1.5%, and driven by Asia’s developing economies.

To sum up the direction of Asia’s energy sector – it has grown remarkably over a very short period of time. ADB’s tracking of energy statistics show that over a relatively brief span of 16 years – from 1994 to 2009 – the region’s energy consumption almost doubled from 2.3 million ktoe (equivalent to thousand tons of oil) to 4.5 million ktoe.

This rising energy consumption, driven by enormous demand from growing Asian economies, will lead to two major effects. First, the growth in energy consumption implies an increasingly larger claim on global energy resources and increases the region’s dependency on imported energy – especially oil. ADB is particularly concerned by this trend, as if it continues; Asia could be 90% dependent on imported oil by 2050. Hence, the region will need to diversify its energy current mix to utilisation of more renewable energy (solar, biomass, wind and geothermal), hydropower and increasing use of natural gas, where feasible. We are also encouraging countries to cooperate in electricity trading, taking advantage of the difference in time when peak load occurs in some countries or where a country has surplus energy like Lao PDR and Sarawak Malaysia (from their hydropower resources) to export electricity to neighbouring countries. This will help to reduce GHG emissions. 

Looking forward – the region’s primary energy demand is expected to increase faster than anywhere else in the world from the present up to 2035. ADB’s outlook on the region’s energy sector predicts fossil fuels will continue to dominate the energy mix. Coal does seem to be the primary source of energy, given its abundance in the region and it is cheap. However, countries will need to switch to using even cleaner coal technologies like super-critical and ultra-supercritical boilers in their new coal power plant. In addition, these plants should adopt use of flue gas desulphurisation and DeNOx equipment to reduce SOx and NOx emissions. Alongside energy use, the region’s greenhouse gas (GHG) emissions will grow – by the 2030s Asia will be responsible for almost half the world’s emissions if there is no change within Asia’s energy mix.

However, these predictions discount much of the potential of sustainable, low-carbon approaches to energy, energy savings that can be had through greater efficiency and the deployment of renewable power systems. Asia and the Pacific is rapidly becoming the global hub for clean energy, having recorded nine straight years of growth in clean energy investments (2003-2012). In 2012, Asia attracted record investment of $101 billion, or 42% of total global clean energy investment.

ADB is a big promoter of sustainable energy and the next 20 years will see significant changes to its position in Asia Pacific. Where will nuclear energy fit into the picture?

It is worth noting that one of the most pressing problems facing Asia in terms of energy is energy access, or widespread energy poverty. More than 600 million Asians have no access to electricity, and around 1.8 billion have no access to modern fuels. These numbers are still high despite widespread economic success in Asia, suggesting that they remain un-served by national electric grids. Major investments in national grid level energy infrastructure will likely not reach these millions, simply due to the fact that many of them are in those areas cannot be reached due to geographic constraints such as mountainous terrain, or being inhabitants of islands, or in areas where extension of the grid is financially unfeasible. For these off-grid communities, off-grid and mini-grid solutions that use small and household-scale renewable energy systems are a workable solution. ADB has already supported a number of projects, such as a variety of home solar power system models in India and Bhutan, household biogas systems in Vietnam and prospective mini-grid systems that combine solar, wind and micro hydro in various countries. ADB is also working on similar off-grid solutions in Cambodia and Myanmar as well.

Prior to Fukushima incident, many ASEAN countries were seriously looking at nuclear energy as an option to meet their growing electricity needs. However, after the incident most of them have shelved their programs with the exception of Vietnam. PRC, India, Korea and Vietnam will continue with their nuclear power programs for electricity generation but it is not clear if Japan will resume operation of its nuclear plants after the safety checks have been completed. There is also strong opposition to nuclear in Taiwan and China. ADB is not in a position to finance any nuclear power projects due to limitation on procurement and non-proliferation of nuclear technology.    

Which jurisdictions in the APAC region are drawing attention from investors at the moment?

Currently, China is the dominant clean energy “power” in the region and even in the world. Other Asian countries that have attracted solid levels of clean energy investment include Japan, India, South Korea and Indonesia. However the PRC surpasses them all – in 2012, it attracted $65.1 billion in clean energy investment, 20% more than in 2011, higher than any other country including the United States. Solar investment in PRC in 2012 was $31.2 billion and wind investment was $27.2 billion. The remainder was invested in technologies such as small hydro and biomass.

In terms of developing Asian countries, which is the focus of ADB, India and Indonesia have drawn large amounts of clean investment as well. India attracted almost $7 billion in clean energy investment in 2012, while Indonesia continues to attract significant investment in its geothermal resources. Uzbekistan recently launched its 4000MW solar energy roadmap and ADB approved a $110 million loan to support a 100MW solar photovoltaic project in Samarkand in November 2013.

Are there any changes in legislation or policies you would like to see taking place? What are the real issues?

It is not so much to do with changes in legislation or policies; it is how these policies are actually implemented and whether it happens in a transparent manner.

The steam resources sector for example – under the old rule in Indonesia – belonged to the government. If private sector investors invest in the steam resources business, they would want to be the sole owner for the next 25 years in a power purchases agreement (PPA), since they bring in the funds. This rule prevents them from investing. This is one of the issues.

The government has to be responsible and take serious issues with the social responsible agenda. Just as it has happened in Myanmar before the liberalisation, most of the hydro projects are done by Chinese contractors and corners were being cut. When the new government came into power there was strong opposition from the local people on hydro projects that brought environmental and social issues. Thus all the contracts and licenses that were given to the Chinese were eventually cancelled, except for two projects that have already been commissioned. This is a setback for Myanmar and a setback for this particular sector, because hydropower is a clean energy source and when done properly will benefit the country.

What is ADB doing to help Myanmar in this case?

ADB is helping Myanmar build capacity, to help them build the electricity law. We’re helping them in putting up a legal regulatory framework for the power sector. We are also assisting them in building a safeguard for environmental and resettlement plans for Myanmar. ADB has worked with Japan to draft a master plan for transmission lines and distribution. We just approved a $60 million loan for distribution last year in Yangon and three other cities. Electricity is scarcely accessible to people in the rural and remote areas but diesel is heavily used. In those cases we look at other alternative resources such as a micro-hydropower project or even solar projects like rooftop programs. We are looking at some of those off-grid solutions at the moment.

A recently liberalised market without a proper legal framework for the energy sector is a challenging environment for investors. What do you think the Government should prioritise to create a sustainable legal platform?

The government didn’t only come to us for assistance with the electricity law, but also to improve the institutional capacity within the Ministry of Energy. We provided an institutional strengthening program where we funded $1 million technical assistance to help. We’re also helping them with the utility billing accounting system, which is currently a system that dates back to 1947 during British colonial times. The government also asked for help with the oil and gas sector regulations. We have several partners helping them in different areas. We also put in power sector advisors to sit in with the Ministry in assisting the Minister.

The electricity law has been approved and should be in place this year. We are waiting for the implementing guidelines to be up and running. The environmental laws have been approved last year. We are also helping the government with their implementation guidelines, rules and regulations. The environmental laws aren’t great but I believe some of the deficits in the law can be addressed in the implementation rules and regulations. In most areas, it will take another year or two before a decent framework is in place. 

Anthony Jude

Chair of the energy committee and senior advisor (Energy) in the regional and sustainable development department

Asian Development Bank

Manila

Biography

Anthony Jude is chair of the Asian Development Bank’s Energy Committee, and is also senior advisor as well as practice leader for energy in the regional and sustainable development department. Jude has over 30 years of experience of which 23 years are with ADB in the capacity of director of various units pertaining to energy, transport and water. He is also involved with ADB’s Asia Solar Energy Fund. Jude works with the United Nations and the World Bank on sustainable energy and regional power cooperation. Together with the International Energy Agency (IEA), Jude has worked on energy training programs and policy formulation in the region.