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FINANCING ASIA’S ELECTRICITY SECTOR 2035: Making It Happen 2

Table of Contents

4 Foreword: United States of America Thomas R. Kuhn, President, Edison Electric Institute 6 Foreword: Singapore Ng Wai Choong, Chief Executive, Energy Market Authority of Singapore 7 Introduction Lawrence E. Jones, Ph.D., Vice-President, International Programs, Edison Electric Institute

I. The Big Picture: Energy in Asia and the World 11 Asian Energy, Global Challenges Lord Browne of Madingley, Executive Chairman, E1 Energy 16 Spurring the Growth of Southeast Asia’s Power Sector Antonio Castellano, Ee Huei Koh and Michele Pani, McKinsey & Company 20 Meeting Asian Power Demand in a Low-Carbon World Dale Probasco, Managing Director, Navigant Consulting Inc. 28 Power’s Big Transition: From Thomas Edison to Elon Musk to... Richard Lancaster, Chief Executive Officer, CLP Holdings 31 Global Energy Interconnection: An Essential Way Toward a Sustainable Energy Future State Grid Corporation of China & Global Energy Interconnection Development and Cooperation Organization Team 35 Building Climate Resilience in Electricity Systems through Networks of Innovation Lawrence E. Jones, Ph.D., Vice-President, International Programs, Edison Electric Institute

II. A Clean Energy Future for Asia 41 Renewables: A Promising Future Philip Graham, Managing Director and Co-Head of Energy, Power and Utilities, Asia-Pacific, Citibank Group 50 A Decentralized Future for Asia Csilla Kohalmi-Monfils, Executive Vice President, Strategy & New Business, ENGIE Asia Pacific 54 South Australia: An Unintended Experiment in the Future of Clean Electricity Matthew Warren, Chief Executive, Australian Energy Council 59 LNG-to-Power: A Clean Energy Solution Marat Zapparov, Director, Infrastructure Ted Low, Associate Director, Infrastructure, Clifford Capital 63 US LNG Exports to Japan: Addressing Supply Scarcity in the Face of Market Reform Robert W. Gee, President, Gee Strategies Group LLC Financing Asia’s Electricity Sector 2035: Making It Happen 3

III. Power Sector Reform: Attracting and Sustaining Investment 69 Regional Co-operation for Clean, Affordable, and Secure Energy in South Asia Priyantha D.C. Wijayatunga, Ph.D., Principal Energy Specialist, Sustainable Development and Climate Change Department, Asian Development Bank 74 How Will Power Sector Liberalization Change the Face of Japan’s Fuel Mix and Corporate Landscape? Nicholas Browne, Director, Wood Mackenzie Bikal Pokharel, Ph.D., Principal Analyst, Wood Mackenzie 79 Power Sector Reforms: Lessons from South Asia Priyantha D.C. Wijayatunga, Ph.D., Principal Energy Specialist, Sustainable Development and Climate Change Department, Asian Development Bank 83 Promoting Demand-Side Management in Asia and the Pacific: Leading the LED Way Jiwan Acharya, Senior Energy Specialist, South Asia Department, Asian Development Bank 89 Wasting Less Money on Decarbonization: Some Lessons from the Philippines Sarah Fairhurst and Mike Thomas, Partners, Lantau Group

IV. Pathways to Capitalizing Asia’s Electricity Infrastructure 93 Catalyzing Low-Carbon Financing in Asia and the Pacific Aiming Zhou, Ph.D., Senior Energy Specialist, South Asia Department, Asian Development Bank 98 How OPIC’s Development Finance Model is Expanding Access to Energy in India and Beyond Elizabeth L. Littlefield, President and CEO, Overseas Private Investment Corporation (OPIC) 101 Ensuring Compatibility between Sustainable Electricity Supply and Environmental Preservation in Asia Kazunori Ogawa, Director General, New Energy and Power Finance Dept. II, Japan Bank for International Cooperation (JBIC) 105 Dire Straits? Using IFI Financing in the Post-Basel III World William A. Wilson III, Partner, Wilson Williams LLC

V. Biographies 110 Biographies 4

Foreword: United States of America

Thomas R. Kuhn President, Edison Electric Institute

n working with Asian electric companies for more than two decades, the Edison Electric Institute (EEI) has had opportunity to both learn and share knowledge. From our Asian colleagues, we have learned how they Iapproach complicated business challenges universal to the electric companies industry. In return, EEI has been able to share experience, analyses, and perspectives from utilities in the United States. Together, I believe, we have assisted one another in making great progress toward achieving our environmental, growth, and financial goals, which collectively contribute to global sustainable development.

An important vehicle for this knowledge exchange has been EEI’s well-received Asian Energy Financial and Investment Conference (AEFIC), held during Singapore International Energy Week (SIEW). The AEFIC has convened recognized thought leaders from the region and around the globe to share state-of-the-art knowledge and perspectives on the challenges and opportunities associated with financing Asian energy infrastructure. In line with the global outreach activity of EEI’s International Programs, we believe it is important that discussions of the strategic issues relevant to developing Asia’s electricity sector be shared widely. To this end, EEI decided to publish Financing Asia’s Electricity Sector 2035: Making it Happen, a collection of essays authored by thought leaders including several who have participated in the previous AEFIC.

This casebook provides a forward-thinking, focused and at times provocative review of the current Asian energy investment climate, which clearly demonstrates new challenges in building and maintaining Asia’s electricity infrastructure. This book captures the most current thinking, experience, and perspectives of the people who make investment decisions, fund projects, and advise governments and electric companies. Financing Asia’s Electricity Sector 2035: Making It Happen 5

We start with the ‘big picture’, including the global impact of Asia’s energy development and how energy system transitions in other regions will affect what happens in Asia. More specific essays explore diverse topics such as: • future demand for electricity in Asia, and the role of infrastructure for transmission and distribution

• financial lessons of decarbonization and catalyzing low-carbon financing

• the future of renewables, clean energy solutions, and the role of increased liquefied natural gas (LNG)

• the dynamics of centralized and decentralized energy

• power sector liberalization and reform

• energy for sustainable development

• innovation in the electricity sector.

Asia’s electricity investment challenges are complicated and diverse; overcoming them will require creativity, dedication, and determination. This casebook demonstrates strong momentum for individual and collective action toward shared goals of strengthening energy systems as a crucial step in boosting the economic and political stability of the region while also enhancing environmental integrity. With this in mind, we also touch on the importance of communication to raise awareness of energy challenges in Asia and around the world.

I want to thank the authors for their time and support; their knowledge and perspectives are essential to better understanding the current and emerging dynamics of financing energy in Asia. EEI acknowledges the contributions of Mat Hastings in the successful completion of this important publication. EEI is also grateful to the Singapore Energy Market Authority for the opportunity to participate in SIEW and to launch this casebook at the conference. 6

Foreword: Singapore

Ng Wai Choong Chief Executive, Energy Market Authority of Singapore

sia will continue to lead in global energy demand growth into the coming decades. According to the Institute of Energy Economics of Japan (IEEJ), Asia alone will account for about 40% of the total increase in global Aenergy demand through to 2040. The Association of Southeast Asian Nations (ASEAN) Center for Energy estimates that Southeast Asia’s energy needs will grow by about 2.7 times by 2035 compared with 2013.

The need to strengthen the power infrastructure is one major challenge facing Asia: over 450 million people in Asia-Pacific still do not have access to energy. There is also much scope to enhance power connectivity, which will improve the resilience of the region’s power system. All this will require substantial investment: according to the International Energy Agency (IEA), Southeast Asia alone will require about USD 1.3 trillion to meet power demand until 2040. Financing for energy infrastructure is a critical gap.

Given these challenges, we welcome the latest efforts of the Edison Electric Institute (EEI) to bring together energy leaders’ perspectives and case studies on pressing energy and energy financing issues in Asia. With its deep experience and strong networks in the global power sector, EEI continues to facilitate better understanding of the power sector in Asia through its Asian Energy Financial and Investment Conference at the Singapore International Energy Week. We are grateful for its support and contributions since 2014.

Singapore also stands ready to share our experience to enhance energy cooperation in the region. As a global financial center, Singapore in particular can play a key role in bridging the energy financing gap. We have a vibrant financial system with various options for project financing, as well as a strong business trust framework. We have also partnered with the Asian Development Bank in setting up the Asia Infrastructure Centre of Excellence (AICOE) to help structure projects with countries in the region.

I hope you will find the essays in this latest EEI publication useful and thought- provoking as you consider how we can move forward together toward a sustainable energy future. Financing Asia’s Electricity Sector 2035: Making It Happen 7

Introduction

Lawrence E. Jones, Ph.D. Vice-President, International Programs, Edison Electric Institute

y 2035, Asia is projected to be home to the largest population of middle- class consumers in the world. Meeting the needs of several billion people in the region will require more of everything—energy, water, food, etc. As Bpart of our shared global ecosystem, there is strong interdependence between what happens in Asia and the rest of the world. The pathways Asian decision- makers choose to achieve energy, water, and food security will ultimately determine if we can shift the world to a sustainable track for future generations.

Access to clean, reliable, and affordable electricity is key to fueling economic growth and prosperity throughout Asia, but that simple statement reflects a remarkably complex challenge. The region comprises a diverse mix of countries that share some common attributes, but each has a unique set of local conditions: e.g. population demographic, geography, natural resources, climate, and economic structure.

The same is true for energy sectors in Asia: diversity is the norm. Looking specifically at the electricity sectors in these countries, the underlying infrastructures are at different levels of maturity, and each one is undergoing sector transformation in response to different drivers, including the burgeoning middle class and the global bid to transition to a low-carbon economy.

Meeting growing energy demand while reducing energy-related environmental impacts implies a massive transformation. Achieving these development and climate goals requires significant investments—and quickly.

Since the 1990s, the Edison Electric Institute (EEI), through its International Programs department, has developed activities that create opportunity for dialogue among the electric utilities in the United States of America and Asia. The utilities exchange knowledge and share experiences to address complicated technical, business, and policy challenges that are universal to the industry.

For the past two years, for example, EEI has organized the Asian Energy Financial and Investment Conference (AEFIC) within the context of Singapore International Energy Week (SIEW). The AEFIC creates value by bringing together recognized thought leaders from the region and around the globe to share state-of-the-art knowledge and perspectives on challenges and opportunities specific to financing Asian energy infrastructure. 8

In 2016, EEI is pleased to add this casebook, Financing Asia’s Electricity Sector 2035: Making It Happen, as a direct extension of the AEFIC. The casebook is part of EEI’s thought leadership and global outreach activities, which seek to provide relevant, strategic business information about developing Asia’s electricity sector to a broader audience.

A collection of essays authored by thought leaders, including several who have participated in previous AEFIC events, the casebook establishes a forward-thinking, focused, and at times provocative review of the current Asian energy investment climate. Across four sections, the essays capture the most current informed thinking, experience, and perspectives about the challenges, intricacies, and opportunities associated with financing Asia’s electricity sector.

In Part I, The Big Picture: Energy in Asia and World, four essays probe the current state and future outlook for energy in Asia, emphasizing the reality that how Asia meets growing demand will determine whether the shared aims of the COP21 Paris Agreement can be achieved. The remaining essays explore bold visions and provide critical insights on the role of innovation in steering a clean energy transition for Asia’s electricity sector regionally, nationally, and at the utility level.

The essays in Part II, A Clean Energy Future for Asia, focus on the importance of resource diversity in Asia’s energy future. The contributions examine different future scenarios that involve both renewable and conventional generation, as well as a hybrid mix of centralized and decentralized power supply systems. The geopolitical dimensions of achieving energy security are discussed within the context of the Asia-Pacific region.

Part III, Power Sector Reform: Attracting and Sustaining Investment, drives home the point that the lack of sound, realistic energy policies and stable regulatory regimes has been a major impediment to financing electricity infrastructure, not only in Asia but around the world. In response, various governments have attempted to undertake different reforms. The five essays in the section offer perspectives, including lessons learned, on power sector reforms in India, Japan, and the Philippines as well as at the regional level.

Finally, in Part IV, Pathways to Capitalizing Asia's Electricity Infrastructure, the essays explore different mechanisms and instruments to both access and leverage capital for investment in electricity. Leading international and regional financial institutions put forth multiple options available to governments, utilities, and project developers. Financing Asia’s Electricity Sector 2035: Making It Happen 9

The success of any endeavor that attempts to gather viewpoints from diverse stakeholders can lead to cacophony or create a clear set of messages that are relevant to all. Thus, while this casebook consists of essays generously written by thought leaders with different expertise, the final product would not have been possible without a skilled editºr. In this regard, it has been a pleasure working with Marilyn Smith, Founder of The Energy Action Project (EnAct/www.en-act.org) and former chief editor at the International Energy Agency. Having recognized two social challenges associated with energy—i.e. high levels of energy poverty and low levels of energy literacy—through EnAct, Marilyn is developing new communication approaches to raise awareness of action that targets energy access and builds public understanding of energy more broadly.

I hope that this casebook will stimulate debate and inform decision-making by policymakers, utilities, developers, and investors in navigating the challenges and harnessing the opportunities in Asia’s electricity sector. 10

I. The Big Picture: Energy in Asia and the World Financing Asia’s Electricity Sector 2035: Making It Happen 11

Asian Energy, Global Challenges

Lord Browne of Madingley Executive Chairman, E1 Energy

sia is transforming the scale and pattern of global energy demand. Today, just two nations, China and AIndia, account for 37% of the world’s The scope and scale population,1 28% of the world’s primary energy consumption,2 and 18% of global of economic growth gross domestic product (GDP).3 By 2025, and rising energy almost half of the world’s economic growth demand in Asia are will come from 450 cities in emerging poised to shape the economies, mainly in China, India, and future for the entire Southeast Asia.4 globe. Four elements Rapid urbanization brings with it challenges will determine in forecasting how the pattern of whether the impacts consumption will change, but in the next decade, the growing demand of households will be positive or from Chennai to Chongqing will be one of devastating: support the most significant factors shaping global for global climate energy markets. policy, securing I first visited China in 1979, as a junior energy imports, manager in BP, when the country had just participation in opened its doors to companies beyond its global energy borders. I remember looking out of my governance, and hotel window during that first visit and feeling as far from the wealth and vibrancy strategic application of the world’s major cities as it was possible of technology. to be. No one expected to witness the dramatic transformation that has taken place since then.

1 World Bank 2015 Global Population. 2 BP Statistical Review of World Energy 2016. 3 World Bank 2015 Global GDP. 4 McKinsey Global Institute “Urban World: Cities and the rise of the consuming class”. 12

Even as China adjusts to slower rates of growth as it reorients the economy towards greater domestic consumption in the coming years, the long-term trajectory suggests a huge shift in the balance of global economic power. By 2030, China’s middle class, those earning between USD 10 and USD 100 per day, is forecast to grow to more than one billion people. By then, more than 60% of the world’s middle-class population will live in Asia.5

This shift is perhaps the world’s largest-ever economic event. Since 1979, China’s consumption of oil has grown by a factor of five, GDP has grown by a factor of six, and more than 500 million people have been lifted out of poverty.

However, the scale of this continuing transformation poses challenges for Asia and the wider world. Economic growth, and demand for energy, will have to be balanced against supply vulnerability and the global threat posed by climate change.

Asia is currently facing a future of increased dependency on energy markets beyond its borders. The International Energy Agency (IEA) predicts that by 2040, Southeast Asia’s net oil imports will more than double to 6.7 million barrels per day (mb/d).6 Already roughly 85% of the crude oil travelling through the Straits of Hormuz is destined for Asia.7 The prospect of continued reductions in America’s need for imports means more of Middle East oil exports will go to Asia in years to come.

Stability in the Middle East should therefore be of increasing concern to Asia. Today, global supply abundance means that terrorism and political tensions in the region are not forcing oil prices higher. However, in years to come, should instability remain while the gap between oil supply and demand decreases, Asia will be vulnerable to high energy prices that reduce its competitiveness and impede its development.

When it comes to the environment, India and China are responsible for over

one-third of global carbon dioxide (CO2) emissions—a figure that could grow further.8 Though China’s per-capita emissions are already greater than the European Union average,9 a Chinese household on average consumes roughly half the electricity of a household in the United Kingdom.10

5 Brookings Institute ‘The emerging middle-class in developing countries’ and EY ‘Entering the global middle class’. 6 IEA, 2015, Special Report South East Asia. 7 EIA, World Oil Transit Chokepoints.

8 World Bank CO2 Emissions. 9 www.bbc.co.uk/news/science-environment-29239194. 10 :RUOG(QHUJ\&RXQFLO$YHUDJHHOHFWULFLW\FRQVXPSWLRQSHUHOHFWULƓHGKRXVHKROG Financing Asia’s Electricity Sector 2035: Making It Happen 13

India, meanwhile, generates electricity using its large coal reserves (the fifth- largest in the world), and is seeking to supply electricity to the one in five citizens who currently do not have access.11 If India is successful and the gap in consumption between households in Asia and Europe continues to close, it will mean a significant increase in fossil fuel consumption. On this current path, it will be very difficult to keep global temperatures below the 2°C target agreed in the COP21 Paris Agreement at the end of 2015.

Both these scenarios suggest Asia’s growing demand for energy will pose problems for Asia and the wider world. However, I think four key developments could ensure that Asia has better governed and lower carbon energy markets in the decades to come.

First, public pressure is having an effect on climate policy.

As CEO of BP in 2003, I took a break from business meetings to walk along the bridge that connects the Summer Palace in Beijing with a central island on Kunming Lake. The air was filled with acrid yellow smog. From the middle of the lake, both shorelines had become invisible, and my throat was raw and inflamed. These negative health problems were not a new phenomenon. For residents of northern China during the 1990s, it was estimated that local air pollution reduced their life expectancy by 5.5 years.12

Growing dissatisfaction with pollution has been nudging governments and businesses to take greater care of the environment. The campaigning of Chinese journalist Ma Jun, who founded the Institute of Public and Environmental Affairs, for example, is having an effect. Enlisting volunteers to analyze previously indigestible government data, the Institute has exposed almost 100 000 instances of environmental non-compliance and pressured more than 500 companies to draw up road maps toward more environmentally friendly business practices.

Hazardous pollution levels in Beijing still lead to school closures, suspended factory operations, and limits on the use of cars. But concerns about pollution are now part of the political debate and change is coming. China’s decision to review and ratify the COP21 Paris Agreement is an important step.

11 IEO WEO 2015. 12 Financial Times, 8 July 2013. 14

Second, the challenge of securing energy imports to meet rising demand is forging new bonds of trust with oil-exporting nations outside the Middle East.

While at BP in 2004, I suggested to Vladimir Putin (who was then president of the Russian Federation) the possibility of constructing a gas pipeline from the east of Siberia into China. A pipeline between the world’s biggest hydrocarbon producer and the world’s largest energy consumer seemed an obvious choice, but a lack of mutual trust scuppered any possible deal.

Today, however, one-third of China’s oil imports come from Russia and a recent deal with Gazprom will see a gas pipeline built from Siberia to the Chinese border, providing China with up to 38 billion cubic metres of natural gas per year.13 This deal might not have happened 10 years ago, but the need to secure energy supply and demand from new sources has brought these nations closer together.

Third, global energy governance institutions are becoming more inclusive of Asia’s major developing economies.

Energy crises of the past demonstrate the importance of co-operation through established international institutions. Excluding nations that shape the global energy market so significantly cannot be good for energy security in Asia or the rest of the world.

In 2015, I led a Steering Committee for a research project by the Grantham Institute and the China Energy Research Institute, which looked at strengthening Asia’s role in global energy governance. Important progress has been made in this area. China was one of the first countries to activate Association status with the IEA, and further collaboration is in discussion. Economies such as India and Indonesia in particular must also be included to build stronger ties between the developed and developing world.

Fourth, technology is our greatest enabler: it offers Asia the best opportunity to overcome energy security and environmental challenges.

China already leads the way in renewable energy investment, spending 36% of the USD 286 billion invested globally in 2015, more than twice the investment made by the United States.

13 www.bbc.co.uk/news/business-27503017. Financing Asia’s Electricity Sector 2035: Making It Happen 15

The results have been positive, with the cost of solar power falling by 75% and wind power falling by almost 50% over the past five years.14 Further investment will make these technologies even more cost-competitive.

The challenge, in China at least, now lies at a policy level. The country has been building two wind turbines per day, meeting the nation’s entire annual increase in energy demand. But excess coal capacity, with preferential access to the grid, means that the wind turbines are switched off for the equivalent of one day a week.15 Strong decisions to increase grid access for wind power and a phase- out of old coal power are required.

Increasing access to renewable energy, through reduced costs, improved storage and widespread transmission, will enrich the lives of Asia’s population, ensure its energy is cleaner and more secure, and make its foreign policies less beholden to petro-politics.

As Asia’s remarkable transformation continues in the coming decade, global energy markets will have to overcome profound economic, technological and political challenges. History shows, however, that Asia has the will, ability, and dynamism to develop the solutions to overcome them.

14 www.lazard.com/media/2390/lazards-levelized-cost-of-energy-analysis-90.pdf. 15 www.bbc.co.uk/news/science-environment-37409069. 16

Spurring the Growth of Southeast Asia’s Power Sector

Antonio Castellano, Ee Huei Koh, and Michele Pani McKinsey & Company

The Southeast Asian power sector is at a crossroads. Demand is rising throughout the region, putting increasing financial pressure on governments that subsidize electricity prices. In addition, the region has been less aggressive than elsewhere in its pursuit of renewable energy. Meantime, investment is lagging, reflecting private investor concerns about risk and reward.

The power sector today

The characteristics described above add up to a big challenge for regulators of the Southeast Asian power sector. Considering the current market and the hurdles that must be overcome, it is valid to examine how regulators could work with other stakeholders to meet the energy needs of the region.

Southeast Asian power markets vary considerably but, on average, have progressed significantly in security of supply and affordability. Similarly, diverse challenges remain in finding the right models to promote economic attractiveness and environmental sustainability in different contexts.

The state of security of supply: Electrification rates have grown in the region, although countries such as Cambodia, Indonesia, Laos, Myanmar, and Vietnam have still a way to go. Outage rates are well below those of other developing geographies such as Africa and India, but reliability is not yet in line with Europe or the United States (with the exception of countries like Malaysia and Singapore).

Affordability: Prices around the region are competitive, with the exception of Cambodia, the Philippines, and Singapore. However, electricity subsidies have played a stronger role than cost efficiencies in controlling end-user prices. In Financing Asia’s Electricity Sector 2035: Making It Happen 17

Indonesia alone, total subsidies exceeded IDR1 101 trillion (USD 7 billion) in 2013 (or 3% of GDP), according to estimates by the Asian Development Bank. Efficiency efforts in the sector remain less aggressive than in other places such as Europe and Australia.

In general, the Southeast Asian power sector is characterized by high operating costs, limited competition, and a suboptimal fuel mix. For example, fuel oil still comprises more than 5% of the total primary energy used in industrial plants in Indonesia and the Philippines versus close to 0% in mature economies.

Economic attractiveness: While private investors (e.g. independent power producers) have achieved reasonable, albeit declining, returns in Southeast Asia power markets, many incumbent state-owned enterprises do not earn their cost of capital. Financial transparency is low because of limited account unbundling of most incumbents, few public listings, and multiple mechanisms to award new investments (e.g. competitive auctions vs. direct appointments). The result is market uncertainty about future returns, risks, and overall long-term financial sustainability. On a more positive note, most Southeast Asian offtake contracts are designed around long-term power purchase agreements that reduce commercial risk of investments and increase the ‘bankability’ of power projects.

Environmental sustainability: The percentage of renewables in the production mix in Southeast Asia remains low—about 5% of total capacity—compared with 20% in the United States and 40% in the European Union, and even with 15% in India and 10% in China. Long-term plans foresee an increase of renewable capacity, at least in principle. But the future is quite uncertain, with most additions forecast through to 2030.

The challenges ahead

In the near future, local and technological disruptions will further challenge the status quo in the Southeast Asia power sector. Three, in particular, will require increased attention from regulators.

First, growth in demand for electricity will put pressure on regulators to move toward tariffs that reflect the true cost of supplying power. Government budgets will be unable to afford the rising costs of subsidies that demand growth will force. At the same time, current price levels and the resulting low returns for state-owned enterprises will limit their ability to raise sufficient capital to fund

1 IDR = Indonesian rupiah. USD = US dollar. 18

infrastructure. One result could be increased pressure on regulators to encourage more transparency in the industry and to level the playing field to attract private players.

Capturing the full economic benefits of new technologies, a second major challenge, will require a significant shift in regulatory policies. So far, most regulators have been quite conservative in their support of renewable energy. For example, net metering schemes are not commonly adopted and neither are ‘grid-of-the-future’ technologies (such as smart meters or charging stations).

Third, regulators should focus on efficient implementation of market models and liberalization mechanisms. Various approaches have been announced, including the liberalization of the Vietnamese electricity sector and the potential introduction of competition in electricity generation in Malaysia. Still, real impact and speed of implementation remain uncertain. The effectiveness of these initiatives will depend on the ability to develop tailored and innovative solutions adapted to local needs. In reality, market models seem to be aging quickly in the rapidly evolving sector.

Five priorities for the Southeast Asian power sector

Taking account of the various forces at work, regulators must address five priorities to assure the future of the sector. Specifically, they should take the following actions.

Encourage efficiency on both supply and demand sides. On the supply side, regulators should promote the adoption of a better fuel mix and support competitive auctions for new capacity. They should also accelerate introduction of incentive-based regulation mechanisms, and facilitate the deployment of new technologies to upgrade and repower existing plants. On the demand side, they should support more energy efficiency measures.

Ensure a smooth transition between short- and long-term needs. The near-term need is for the rapid build-up of baseload power at a competitive cost—which is likely to lead to greater reliance on fossil fuels such as coal. Over the longer term, the imperative is to increase the use of sustainable energy (including clear targets for renewable energy).

Define a clear plan and relevant policies. This may include measures (such as differentiated regulated returns) to support adoption of new technologies (including the grid of the future and smart city infrastructure technologies) needed to increase the productivity and reliability of the system while enabling customer choice. Financing Asia’s Electricity Sector 2035: Making It Happen 19

Complete ongoing efforts to remove subsidies. This might involve a transition from ‘blanket’ to targeted subsidies only for specific categories (such as low-income households and selected strategic industries), and to automated fuel-cost-pass-through mechanisms. Moving now, while anticipating potential fuel-cost increases, would allow regulators to take advantage of the current environment of low commodity prices (i.e. subsidies could be removed with limited impact on consumers).

Selectively introduce market reforms, including transparent competitive bidding and ring fencing of independent operators (e.g. introduce single buyer and single operator, where not yet done).

Regulators hold the key to the ability of the Southeast Asia power sector to meet the energy needs of its people and businesses. Some progress is evident, but regulators throughout the region must move more aggressively to ensure that the energy marketplace grows in a sustainable way. 20

Meeting Asian Power Demand in a Low-Carbon World

Dale Probasco Managing Director, Navigant Consulting, Inc.

educing the carbon footprint of power generation, individually and/or collectively, has become a major focus of the electric utility industry in recent years. In many regions of the world, significant incentives and Rregulations have compelled utilities to closely evaluate their generation mix. In many cases, the evaluation has resulted in several key changes such as fuel switching to lower-emission fuels, installing environmental equipment and closing plants.

Additional regulations and programs In the context of rapidly to reduce carbon dioxide (CO2) emissions continue to impact how changing technologies utilities operate and how they serve and global efforts to curb their customers. Government energy-related emissions, mandates and incentives for renewable energy, increased Asian countries that had implementation of energy efficiency anticipated using domestic, programs, and lower natural gas low-cost coal to meet prices all influence power growing energy demand generation in significant ways. Over face a challenging future. the last ten-plus years, billions of dollars have been spent installing Opportunity exists to learn environmental equipment to meet from transitions underway new regulations around the world, in Europe and the United and to move toward meeting the States, but also to develop COP21 environmental goals. locally relevant strategies. As a company’s generation assets represent a significant portion of its overall value, changes to the generation fleet (shut down, devaluation, new additions, etc.) must be managed carefully. The energy company E.ON recently had a write-down of approximately USD 4 billion on its conventional generating assets, which have been directed to a new company, Uniper. Other companies have had, or may have in the future, significant write-downs on their generation assets. Financing Asia’s Electricity Sector 2035: Making It Happen 21

In the United States alone, more than 78 gigawatts (GW) of capacity have been shut down, with more slated for closure. Use of existing US coal plants has declined significantly: a recent analysis by Navigant Consulting shows that the net capacity factor (NCF) for overall coal plant usage has dropped from 74.7% in 2006 to 46.3% in 2015 (Figure 1). For smaller plants (200 megawatt [MW] or less), the decline was even greater: from 68.6% in 2006 to 32.3% in 2015.

Figure 1 • Reduced coal plant usage in United States, measured by net capacity factor

2004–13

Source: Navigant analysis of Navigant’s Generation Knowledge Service data. 22

Recent data from the US Energy Information Administration (EIA) confirm that this decline is continuing, with natural gas generation surpassing coal generation in the United States in 2016 (Figure 2).

Figure 2 • US electricity generation by fuel, 2006–17

projections

Source: EIA, Short-Term Energy Outlook, September 2016.

The growth of distributed energy resources (DER) is placing additional pressure on all central generation sources. As these technologies continue to expand, DER will promote further decline in the use of coal as well as in other central generation resources. Deployment of DER, supported by smart grids, forms the basis of what Navigant Consulting has coined ‘the energy cloud’. These new technologies will allow customers greater control in selecting what sources will be used to meet their energy needs, with the resulting impact affecting the central generators. Recent Navigant Consulting forecasts for growth of DER for the United States and Europe are shown in Figure 3. Financing Asia’s Electricity Sector 2035: Making It Happen 23

Figure 3 • Forecast expansion of distributed energy resources, to 2024

Source: Navigant Consulting Research, Distributed Energy Resources Global Forecast, Q4 2015. 24

With all these issues facing the power generation sector, it is clear that the future will belong to those who can best adapt. This raises the question of how these trends will impact power generation in Asia, particularly fossil fuel-based plants.

Some countries belonging to the Association of Southeast Asian Nations (ASEAN) have emerged as the fastest-growing economies in the world, with a high need for economical electricity. Economic growth projections for the ASEAN region are between 4% and 6% annually. The International Energy Agency (IEA) Southeast Asia Energy Outlook 2015 estimates that the energy infrastructure needed to support this growth will cost USD 100 billion.

The business-as-usual case in the 4th ASEAN Energy Outlook 2013–2035 forecasts that coal-fired generation capacity in the region will more than triple by 2035. An April 2016 New York Times article (“China Curbs Plans for More Coal-Fired Plants”) noted that China currently has at least 190 GW of coal plant capacity under construction.

To deal with this increase in coal generation, Asia will have to carefully consider the future. Understanding the experiences and consequences from other parts of the world, such as North America and much of Europe, can provide important insights. Three key issues Asia faces in managing this growth in coal-fired generation are:

• the impact of new coal-fired generation on CO2 emissions and COP21 goals

• the impacts of DER, energy efficiency, and renewable generation on the need for (and use of) coal and other central generation plants

• the availability of financing for coal-fired plants.

Carbon impact

Significant global commitment to meet the COP21 goals is putting the use of coal-fired generation under increased scrutiny. The need for power generation resources to meet the needs of emerging economies in Asia is a major concern, and some steps are already being taken to help minimize the carbon impact of the required generation. Financing Asia’s Electricity Sector 2035: Making It Happen 25

Some Asian countries are shifting from subcritical coal plants to the more efficient and carbon-friendly technologies of supercritical (SC) and ultra- supercritical (USC) plants to reduce CO2 emissions. These tested technologies are readily available and can be implemented effectively. In addition, Asia is home to several renewable energy projects:

• 330 MW of renewable capacity to be added through geothermal energy in Indonesia

• a 25 MW solar energy facility on Geogeum Island in South Korea

• the Welspun Energy solar farm in India, a 151 MW facility.

These projects demonstrate the region’s commitment to pursuing renewable energy as part of its energy mix.

Need for and use of coal generation

As has been seen in other parts of the world, the application of new technologies offers both opportunities and challenges. The innovations of this ‘fourth industrial revolution’ can have dramatic impacts in the energy sector.

As DER expands globally, it will have a notable impact on the use of central generation and on coal-fired generation in particular. As indicated in the Navigant Research forecast, nearly 30 GW of DER is slated for installation by 2024 in the United States. DER growth in Asia may also be significant, impacting the need for and use of central generation. This means some of the forecast growth in coal generation will likely not happen, and coal plants that are built may well be used less than originally anticipated.

With increased renewable energy comes the challenge of integrating variable resources into the overall mix. As has been demonstrated in the United States, this can create a significant shift in resource demand in a very short time. In what is commonly called the ‘duck curve’, for example, California shows that variable generation resources—primarily wind and solar—may not fill the need for more reliable sources of generation (Figure 4). In effect, the curve demonstrates a shift of about 13 000 MW of capacity from variable to fossil- based resources in a three-hour time frame. This is clearly an issue that needs to be considered. 26

Figure 4 • Power demand distribution for California

Source: California Independent System Operator, “Flexible Resources to Help Renewables”, Fast Facts, 29 April 2016.

As noted above, employing DER and improving energy efficiency will likely reduce the overall usage of operating coal plants or move them into a cycling mode. Obviously, reduced use entails lower revenue and a potential impact on the long-term financial viability of these plants. With cycling, not only is revenue reduced but, unless the plant is designed for that type of operation, the cost of plant maintenance increases. This double impact compromises the plant’s long-term financial viability.

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Obtaining financing for the construction of new coal-fired plants may also be a challenge. The World Bank and the United States government have decided to limit their involvement in the financing of coal plants, except in some of the poorest countries. This position may significantly reduce the possibility to access funding for new projects. As noted above, the anticipated consequences of reduced new plant usage will also undermine any business case to support plant funding. Financing Asia’s Electricity Sector 2035: Making It Happen 27

New business models may have to be developed to demonstrate the ability of the plant to meet financial obligations in the long term. These new business and operating models typically involve noted reductions in plant operating costs through the sharing of resources, and more effective and lower-cost outage schedules, etc. In North America and Europe, coal plants have taken these types of steps to reduce overall operating expenses while maintaining reliability to meet market needs.

Conclusion

Overall, there is great promise that Asia will effectively satisfy the energy needs of its emerging markets, even as it encounters both challenges and opportunities along the way. Long-term strategies must, however, take into account the various factors noted above. For example, a safe and secure 30-year time frame for a central generation plant to operate as a baseload facility can no longer be assumed; this standard will most likely be modified in the future.

Additionally, it may be necessary to build new plants with the capability for more variable operations rather than baseload only. Additional investments in new plants to make them operate in an effective manner may well be worthwhile. With these challenges, life-cycle costs may reveal issues that will need to be addressed up front in the future.

Project experience in the Asian market builds confidence in the prospect of meeting the multiple demands of increasing energy needs through the effective use of technology and long-term planning. Looking to countries that have already begun this journey, and learning from their mistakes and successes, will help ensure successful economic growth in Asia. 28

Power’s Big Transition: From Thomas Edison to Elon Musk to...

Richard Lancaster Chief Executive Officer, CLP Holdings

fter Thomas Edison demonstrated the electric light bulb nearly 140 years ago, he said, “We will make electricity so cheap that only the rich will burn candles.” We know he was right about this. Because electricity is so Areadily, reliably, and cheaply available today, we use it without much thinking of the consequences. Edison’s comment reflects more than a determination to make electricity a household staple. It holds a sense of excitement at launching a transformative change that would make so much difference in people’s lives.

Our industry has seen a great deal of change over the decades, but the transformation that came with the development of electric light and power stands out as exceptional—at least until today.

Today, we find ourselves in urgent need of change on a comparable scale. This need to change comes from two driving forces: the energy sector’s clear role in tackling climate change, and the opportunity to harness and put the digital revolution to work for energy.

On climate change, recognizing that current patterns of energy production and consumption are a large part of the problem, those of us in the energy business have to be leaders in finding solutions.

We have made a good start in the way our industry has embraced the targets of the COP21 Paris Agreement. However, we all know that an embrace is only the beginning of a relationship and that large-scale challenges usually need a diverse team to resolve. Industry alone cannot meet the agreed climate change mitigation targets. It will require collaborative effort by industry, government and non-government players alike.

To stabilize global warming at any temperature means achieving net-zero greenhouse gas emissions. Anything less would see those emission concentrations and, consequently, temperatures continue to rise. Financing Asia’s Electricity Sector 2035: Making It Happen 29

This is easier said than done. A huge number of complicated elements need to come together, on many levels: how we establish a sustainable mix of conventional and renewable energy sources; how we establish regulatory structures that support transition to a cleaner energy mix; and how we access the required financing, which is not unsubstantial.

While industry is ready to roll up its sleeves and do its part, we must also accept that different parts of the world will require different solutions. In developing economies, coal will inevitably remain a dominant primary energy source for some time. This is where we in the industry must share our expertise and technological know-how to hasten deployment of the best available technologies to reduce known environmental impacts.

With all these factors coming into play, it is important to realize that the transformation won’t happen overnight. A balance has to be struck that allows the energy industry to work towards carbon neutrality at a pace that does not tear away the structure of our complex business and, indeed, put at risk the provision of energy services.

The message on climate change has to be that the energy sector needs a greater sense of urgency regarding our role in an orderly transition to carbon neutrality. We are in the best position to make this transition. We know our business; we have the financial resources; we have the expertise; and we know what needs to be done. We need to be the ones taking the lead.

In parallel, we have to acknowledge that we are now living in a digital age, and we need to embrace it or be left behind. It is increasingly clear that the digital revolution is going to change the face of our industry and offers many exciting opportunities.

For example, look at how mobile phones have changed the way we live. The information available to us is truly amazing. With a few swipes of a finger, we can know exactly where we are on the planet and how to get to where we want to go by the shortest, fastest, or cheapest means. Moreover, we can access information from the internet and communicate by video, text, e-mail, or, for the old-fashioned, voice. All this is fitted into a device we can carry in our pockets.

In some ways, transitioning the energy sector into the digital revolution is simple; in other ways, it is deeply complex. The stunning capability of mobile phones is driven by sensors that are so cheap; one can put them anywhere and everywhere. The reality is that they can also be placed all over our electricity grids, on our wind farms, in our power plants, and in the homes of our customers. Collectively, they will gather a wealth of new information and place it at our fingertips. 30

It is worth noting that energy customers will not be sitting idly by, waiting for a digital revolution of energy to happen. They are already being proactive, as we can see from sensors proliferating in homes to monitor and control everything from heating and cooling to everyday electrical appliances.

Our digital-age customers are going to demand more services from us. We’re not going to be just a big company that delivers electricity and sends someone around to read the meter every so often. That Thomas Edison ‘electricity for all’ business model needs to be stretched to fit the future. Digital technologies are delivering phenomenal change that will revolutionize how we run the electricity industry.

Already, a growing number are living in an age when smart cities and smart homes are enabled by a reliable power network and a high-speed broadband network. We have plenty of smart cities in Asia. The very crowded city of Hong Kong, for example, enjoys 99% electricity supply reliability, and almost every household has access to fast broadband.

Homes are getting smarter all the time. Forget switching on the light when you open your front door. Sensors will tell the lights that you have entered the room and calculate how much light you need based on the time of day and the amount of natural light available. Similarly, your heating or air conditioner adjusts because it knows you are approaching in your car but paces itself according to where you are stuck in traffic on a given day. When you finally get home, the security system recognizes you because it senses your phone or your keys, and does a quick facial recognition check just to make sure. When you walk in, the room is exactly the right temperature.

None of this is fanciful. Within the next ten years, the industry as we know it today will not be recognizable because of digital technology.

I wonder what Thomas Edison would make of all this. Financing Asia’s Electricity Sector 2035: Making It Happen 31

Global Energy Interconnection: An Essential Way Toward a Sustainable Energy Future

State Grid Corporation of China & Global Energy Interconnection Development and Cooperation Organization

n essence, the GEI is ‘Smart Grid + UHV Grid + Clean Energy’. Smart grid is the The Global Energy Ifoundation, UHV grid is the key, Interconnection (GEI) is a and clean energy is the priority. globally interconnected Construction of the GEI will strong and smart grid, with facilitate efficient interconnection an ultra-high voltage (UHV) and utilization of various renewable energy resources grid as the backbone, which worldwide. This will lead to new will serve as a platform for energy supply and consumption extensive development, patterns based on electric power, deployment and utilization of with clean renewable energy as the major source of energy. In clean energy globally. this way, the GEI could fundamentally tackle the critical Figure 1 • Schematic of the Global challenges of resource constraint, Energy Interconnection (GEI) environmental pollution, and climate change, which are threatening the survival and development of human beings.

The GEI can deliver significant economic benefits and investment opportunities. By 2050, when the basic elements of the GEI are established, the cumulative investments will exceed USD 50 trillion. In turn, this foundation will boost investment in several sectors, including power source Source: GEI. 32

exploitation, power grid construction, and high-end equipment manufacturing, each with tens of trillions USD investments. By increasing the efficiency of power systems and profiting from regional differences in electricity prices, times and seasons, the GEI will bring remarkable economic returns to investors, along with technology progress and strategic industry incubations.

A case example of Northeast Asia provides insights into GEI’s potential. Electricity tariffs in load centers in this region range from about USD 0.12 per kilowatt-hour (/kWh) in East China to USD 0.19/kWh in Japan. By contrast, in energy-abundant areas, such as Xinjiang province in China and hydro power- rich far east Russia, the generation cost is less than USD 0.05/kWh. Hence, the price differences between supply side and demand side range from USD 0.07/kWh to USD 0.14/kWh. Considering the transmission cost of a UHV line extending 2 000 km to 3 000 km is about USD 0.016/kWh, interconnection among these regions will bring promising returns with a large profit margin.

Figure 2 • Strategic planning for the Global Energy Interconnection

Source: GEI.

The concept of the GEI has received wide recognition and attention globally. On 29 March 2016, the Global Energy Interconnection Development and Cooperation Organization (GEIDCO) was founded in Beijing. Its first 80 members are made up of leading international non-governmental organizations, research institutions, universities and enterprises from 14 countries, all of which are committed to promoting GEI planning and construction worldwide. Financing Asia’s Electricity Sector 2035: Making It Happen 33

In recent years, one priority area has achieved rapid development: the Asian electrical energy interconnection initiative. Four partners—the State Grid Corporation of China, the Korea Electric Power Corporation, the Rosseti Public Joint Stock Company of Russia, and the Softbank Group—have signed a memorandum of understanding and established a joint working group. Together, they will carry out a study of the Northeast Asia power grid interconnection and promote the China-Korea-Japan power grid interconnection as the first phase of a demonstration project. The preliminary feasibility study is to be completed by the end of 2016. With the aim of supporting sustainable development of energy in Northeast Asia, the subsequent demonstration project is expected to build a cross-border submarine electricity transmission network with the largest capacity (2 gigawatts) of its kind in the world. In parallel, GEIDCO and relevant organizations will undertake studies of interconnections of Central Asia-China-Southern Asia and Africa-Europe-West Asia to promote further intercontinental and cross-border energy interconnection development.

Figure 3 • Mapping potential interconnections

Source: GEI. 34

With the end shared goal of achieving the United Nations’ aim of ‘Sustainable Energy for All’, development and construction of the GEI requires the support and participation of energy producers, consumers, investors and operators. Ultimately, these parties will be the ‘prosumers’ and beneficiaries of sustainable global energy development. To ensure efficient development of GEI, it is vital to forge consensus and strengthen cooperation among diverse parties with vested interests in a clean energy future. Financing Asia’s Electricity Sector 2035: Making It Happen 35

Building Climate Resilience in Electricity Systems through Networks of Innovation

Lawrence E. Jones, Ph.D. Vice President, International Programs, Edison Electric Institute

n response to the increasingly urgent need to address global climate change, policymakers in Asia and around the world have set ambitious goals to transition to low-carbon energy systems. This is particularly challenging in IAsia, where energy demand is growing rapidly and fossil fuels are often the most abundant resource available domestically.

An effect of this transition is that it is more and more difficult for Asian utilities to secure the financing needed to build up clean energy electricity infrastructure. There is a high level of uncertainty about what the future system will consist of, not to mention whether it will be able to provide the level of returns needed to attract investors.

At the same time, governments, utilities, and investors are becoming more aware of the emerging need to make Asia’s electricity sector resilient to the impacts of climate change. Thus, on top of the usual risks on which they make investment decisions, those financing electricity assets need to know how the sector To develop climate- plans to manage the myriad of complex resilient electricity risks associated with integrating aging systems, the sector needs and modernized infrastructures such that the overall system can withstand to move into an ‘era of projected impacts such as extreme hybridity’, where more weather and more frequent occurrence actors play important of natural disasters. roles across networks While the challenge is daunting, I rather than along a linear would make the case that the transition value chain. This creates we see starting in the sector bodes new opportunities to well for finding ways to build both climate-resilient systems and investor quickly develop and confidence. A key aspect is the deploy innovation. growing ‘inter-connectedness’ of system elements and recognition that 36

innovations in one area deliver benefits—or indeed spur other innovations— across other areas. In effect, there is evidence that we are moving from a ‘value chain’ mindset to one that seeks to harness the power of innovation across ‘electricity value networks'. Let’s explore this fundamental shift further.

The basic architecture of the electricity sector today still resembles what existed at the dawn of the industry, dating back to Thomas Edison and Nikola Tesla. Under this paradigm, the process of creating, delivering and capturing the value of electricity is based on a linear model, i.e. the value chain. A utility company generates power at a centralized location and partners with others to transmit it to customers. In fact, industry players still assess regulatory and utility business models, as well as innovation diffusion, using this linear logic. The flow of value—e.g. electricity, information, innovation—is one-way.

All of this is starting to change. Digitalization of electricity generation, delivery and consumption, advances in technology, and other exogenous factors are transforming both the architecture and operational paradigms of electricity networks.

We have entered the ‘era of hybridity’ as power production, distribution, and consumption are becoming hybridized on different levels. Production is increasingly a mix of new decentralized, variable sources that need to be integrated with incumbent centralized generation. At the traditional delivery point, more end-use customers are capable of both consuming and producing energy. As a result, it is more accurate to consider the flow of value to be multi-directional, occurring across networks rather than in one direction along a single chain.

Thus, the emerging paradigm for value analysis in 21st century electricity systems should be based on the concept of ‘electricity value networks’, which reflect the interplay of aspects that are physical, institutional, regulatory, virtual, etc., and the values of diverse players including customers, utilities, technology companies, etc. In fact, the emerging electricity sector can be viewed as an ecosystem of interconnected value networks.

Innovation is one of the most critical factors as Asian countries seek to transition to low-carbon energy systems. However, the electricity sector is known to be slow compared with other sectors to adopt innovative solutions. A salient question, then, is how to accelerate the pace of innovation, and of the adoption or adaptation of innovative solutions, to build climate-resilient energy systems in Asia? The answer, I would argue, lies in adopting this network-centric view in which innovations are created at multiple nodes (e.g. people, institutions) and levels, and then diffused in a multi-directional manner. Financing Asia’s Electricity Sector 2035: Making It Happen 37

In the spirit of The Network Imperative by Barry Libert, Megan Beck, and Jerry Wind, embracing the network approach to innovation requires utility executives to adopt a different mindset than is associated with the linear value chain approach. For example, this approach recognizes that:

• customers and other stakeholders have value (innovation) to offer

• there is value in co-innovating among customers and partners

• complex problems can be solved faster and more cost-effectively through collaboration and open-source innovation.

Greater connectivity within and among existing innovation networks could create a new global electricity innovation ecosystem that could provide many opportunities for all kinds of inventions and facilitate their rapid diffusion.

As highlighted in the following essays, some recent examples of technology innovations include smart grids, high voltage direct current transmission, wind and solar generation, LED lighting, and distributed generation. But innovation is not limited to technology. New ideas and approaches also arise in policy and regulation, business models and processes, investment and financial instruments, analytical tools and methods for planning, etc.

As countries in Asia make existing and new electricity infrastructure climate- resilient, it is important to consider innovations that present opportunities to ‘leapfrog’ over approaches and tools that are no longer necessary.

A known hurdle to innovation in the sector is that electricity infrastructure is made up of long-life assets. At present, a major challenge is how to unlock the significant capital required for modernizing Asia’s electricity sector? Evidence shows the region can benefit from innovation across several networks, including in technology, public policy, and regulation. But innovations in these areas change the equations for risk and reward, and require innovation also in investment and finance.

Innovations around climate resilience are being studied by different networks of actors. For example, on the subject of financing, governments and businesses in countries belonging to the Organization for Economic Co-operation and Development (OECD) are working with international financial institutions to design and implement new measures and practices. These groups have developed tools to model infrastructure investment risks that include the potential impacts of extreme weather events and other climate-related phenomena. Their work confirms that the solutions must be based on the 38

assessment of future climate-related risks which, in turn, will require access to advance computational tools and other technological innovations that lay beyond the traditional scope of the electricity sector. The sector needs to expand into or partner with leaders in the areas of big data, predictive analytics, machine learning, and visualization tools.

Several governments have put forth innovative public policies and regulations to mainstream climate resilience as a requirement within public-private partnership (PPP) financing of electricity projects. This is particularly important in Asia’s emerging market countries, where private companies and investors typically manage infrastructure projects through PPPs.

Finally, as electricity is linked with several other sectors including water, transportation, gas, and information and communication technologies, financing climate-resilient infrastructure should also consider these cross-sector interdependencies. The energy-water nexus, for example, means that the impact of climate change on water flow in a river can affect the output from a power plant. Conversely, growing demand for clean water could significantly increase the amount of electricity needed for water desalination. Innovation should also seek to interconnect networks across different sectors.

Financing climate-resilient electricity systems in Asia and the world at large entails complex risks, but also offers many new opportunities. The key to unlocking these is through multi-directional creation, delivery, and capture of innovations within and among networks. Financing Asia’s Electricity Sector 2035: Making It Happen 39 40

II. A Clean Energy Future for Asia Financing Asia’s Electricity Sector 2035: Making It Happen 41

Renewables: A Promising Future

Philip Graham Managing Director and Co-Head of Energy, Power and Utilities, Asia-Pacific, Citibank Group

COP21 has delivered momentum

In recent years, the Globally, governmental policy, feasibility of renewable including most recently the Paris energy having a major role Agreement, and reductions in in the global energy system installed cost have prompted a steady shift toward renewable energy has improved dramatically. sources. Recent data demonstrate An overview of advances that the scale of the task of meeting in policy, technology, and the 2°C target will prove challenging, financing provides strong partly in that it requires 10 terawatts indications that remaining (TW) of zero-carbon capacity additions and an investment of barriers will also be USD15 trillion (Figure 1).1 In fact, overcome in the near future. some would label the target as “extremely difficult or infeasible”.2

Figure 1 • Zero-carbon capacity additions and investment required under a 2°C scenario

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Source: Bloomberg New Energy Finance.

%ORRPEHUJ1HZ(QHUJ\)LQDQFH %1() New Energy Outlook 2016: Global Overview, p. 52. &OLPDWH$FWLRQ7UDFNHU Emissions Gap: How Close are INDCs to 2 and 1.5º Pathways? available at: http://climateactiontracker.org/. 42

Nonetheless, commitment to the Agreement from key global players has delivered significant momentum to the renewables sector. China and the United States, the two largest greenhouse gas (GHG) emitters, moved to ratify the Agreement in September 2016, and other major Asia-Pacific countries have signed, including Australia, Thailand, and Indonesia. To become binding international law, the Agreement needs to be ratified by 55 countries accounting for 55% of global emissions. As of September 2016, additional support from countries accounting for about 15% of emissions is now required to succeed.

Governments have become enablers

As of 2015, 173 governments globally have set renewable energy targets supported by regulatory and fiscal deployment policies to promote investment.3 Yet private investors still require firm, long-term governmental commitment to incentivize capital deployment.

China is an example for other countries on the benefits of government policy to promote renewables growth. Over the last ten years, China has made the largest investment in renewables—including USD 103 billion in 2015 alone (more than double that of the United States) (Figure 2).4 It follows that China also has the fastest pace for increasing installations of renewables capacity; in 2015, a record 46 gigawatts (GW) of wind and solar power was installed.5

5(1 Renewables 2016: Global Status Report, p.19. )UDQNIXUW6FKRROŊ81(3&HQWUH%1() Global Trends in Renewable Energy 2016, available at: http://www.fs-unep-centre.org/. 5(1 Renewables 2016: Global Status Report, pp. 63, 77. Financing Asia’s Electricity Sector 2035: Making It Happen 43

Figure 2 • Global New Investment in Renewable Energy by Region (2004–15, USD billion)

Sources: UNEP, Bloomberg New Energy Finance.

To date, subsidizing renewable power through feed-in-tariffs (FITs) has been the main policy tool enabling clean energy growth in China and across Asia-Pacific. The Chinese government recently reduced FITs to regulate development, with a view to achieving grid parity by 2020; Japan, the Philippines and Thailand have also reduced tariffs to better align subsidies with improvements in technology and the maturation of renewable energy markets.6

Governments are now transitioning to promoting large-scale clean energy investment through other means, notably market-based mechanisms such as renewable energy auctions. In 2015, China issued a 1 GW solar photovoltaic (PV) tender; Australia has held multiple wind farm auctions to help meet its renewable energy target of 33 TWh by 2020. These competitive bidding processes allow investors to benefit from greater regulatory and price certainty from policy makers,7 and the outcomes of auctions for long-term power purchase agreements (PPAs) are increasingly cost-competitive (Figure 3).8

5(1 Renewables 2016: Global Status Report, p.109. ,5(1$DQG&(0 Renewable Energy Auctions: A Guide to Design, p. 15. 7KH(FRQRPLVW Follow the Sun, available at: www.economist.com 44

Figure 3 • Renewable energy auctions: long-term contract prices for 2016–19 project commissioning

CanadaCaCana Germany USD 66/MWh Turkey USDUS 67-100/MWh USD 73/MWh USD 87/MWh United States Morocco Jordan USD 47/MWh USD 30-35/MWh USD 61-77/MWh USD 65-70/MWh China United Arab USD 80-91/MWh Emirates USD 58/MWh Egypt India USD 41-50/MWh USD 67-94/MWh Peru USD 38/MWh Brazil USD 49/MWh USD 49/MWhW USD 81/MWh Chile South Africa USD 65-68/MWh USD 51/MWh Australia USD 65/MWh USD 69/MWh

hƟůŝƚǇͲƐĐĂůĞƐoůĂƌWs Onshore wind

Source: International Energy Agency. Cost curve reductions have delivered affordability

Reductions in equipment costs, technological improvements and economies of scale have also spurred renewables growth. This is particularly true for solar, which has seen costs decline from USD 72 per watt (/W) in 1976 to USD 0.6/W in 2015.9 Over this period, every doubling of capacity has corresponded with a 26.5% reduction in cost. Improving module efficiency is key, as more efficient cells mean manufacturers require less material to produce the same capacity. This has a trickle-down effect in reducing costs along the entire supply chain.

Recent studies estimate the electricity price required to achieve an acceptable return on a new-build solar project is becoming increasingly competitive with fossil fuels (Figure 4). In Australia, a new onshore wind project is already cheaper on a levelized cost basis than a new natural gas plant,10 and these costs are forecast to decrease by an additional 15% to 35% by 2030.11

%1() New Energy Outlook 2016: Global Overview, p. 20. 10 %1() Australia 2015 LCOE Update, p.1. 11%1() Australia 2015 LCOE Update VOLGH Financing Asia’s Electricity Sector 2035: Making It Happen 45

Figure 4 • Levelized cost of energy comparison: renewables and fossil fuels (USD/MWh)

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Source: Citi Research.

Outcomes from recent competitive auctions support these levelized cost studies. Contracts for new solar PV projects have been struck at USD 60 per megawatt hour (/MWh) to USD 80/MWh, while some onshore wind deals have contracted for as low as USD 40/MWh to USD 50/MWh.12 To realize the full growth potential of renewables, such cost reductions must be supported by improved system networks and robust policy.

What is holding back renewables growth?

Renewable energy is not without drawbacks. While reliable on sunny or windy days, on its own it is not a stable source of primary energy supply. Regions with a high penetration of renewable energy, such as in South Australia and Germany, have encountered challenges. In cloudy or calm periods, from an emissions perspective, gas-fired generation would be ideal to counter intermittent renewable supply. However, as coal is cheaper, most countries with high renewables penetration use coal to meet peak load requirements and ensure system stability.

12 ,($ Tracking Clean Energy Progress, IEA/OECD, Paris, p. 20. 46

Large-scale energy storage solutions will be required to mitigate variability of renewables. Significant progress has been made in energy storage, notably batteries; however, while the cost of lithium ion batteries is falling fast, the technology to provide cheap, grid-scale storage remains in its infancy. More effective demand-side management (such as smart meters) can also improve system reliability; by flattening the load curve, it can help renewable energy serve as a more reliable baseload generation.

In countries like Australia, renewables are also having an impact on bidding in energy markets, particularly as they approach competitiveness with fossil fuels. Once operational, the short-run marginal cost of renewable energy is zero; thus, as more renewable capacity enters a market, it can be bid at the lowest cost, driving down the market clearing price. Coal generation is generally next in line; given their relative fuel costs, coal can often be bid at lower prices than cleaner gas-fired generation. In Australia, with a priority to deliver liquefied natural gas (LNG) to higher-value export markets, domestic gas supply is tight and costs have spiked, putting gas plants out of operation and forcing dependency on coal. From a cost perspective, supercritical coal systems coming on line are often the more suitable complement to renewable energy.

Grid interconnectivity is another challenge for renewables growth in Asia. In China, most wind farms are located in remote windy areas in the west, while demand comes from densely populated areas in the east. Large-scale transmission lines now carry wind power a distance of more than 2 000 km. China is establishing a highly connected grid for clean energy. The State Grid Corporation of China (a state-owned enterprise or SOE), is rapidly developing zero line-loss transmission capability and has set a strategy to connect renewable resources with demand centers. Linking supply and demand may prove more challenging in other Asian countries. Indonesia’s archipelagic topography, for example, will likely prevent the creation of a connected grid. Solutions promoting renewables must be country-specific.

Financing a renewable future: a focus on green bonds, ESG principles, lenders, and M&A

New financial products tailored to encourage investment in clean energy are vital to deployment. Such products boost investment by delivering project proponents cheaper sources of capital, thereby improving the competitiveness of clean energy funding relative to fossil fuels. This is helping to increase the role of renewable energy in the global fuel mix. It also highlights how financial innovation can help achieve global energy targets. Financing Asia’s Electricity Sector 2035: Making It Happen 47

The green bond industry is one example of how financial innovation facilitates renewable energy investment. Green bonds differ from traditional fixed income instruments as their proceeds are directed toward ‘green’ activities with environmentally sustainable benefits. The Green Bond Principles (GBP), drafted by Citi and certain other financial institutions, help create this market which sets out voluntary guidelines on developing the green bond market while encouraging transparency, disclosure, and integrity. Since its inception in 2014, Citi and its co-founders have been joined by 118 other members.13 While the definition of what constitutes a green activity is subject to debate, this has not discouraged investors: USD 48 billion in green bonds was issued in 2015 alone.14 Bloomberg New Energy Finance forecasts the green bond market will grow to USD 76 billion in 2016. These proceeds are being used to support a broad range of activities, such as renewable energy, clean transportation, energy efficiency, and sustainable water management.

Figure 5 • Annual green bond issuance by issuer type (USD billion)

Source: Bloomberg New Energy Finance.

The rapid growth in green bond issuances has been underpinned by increased investor demand for socially responsible investment opportunities. For funds, green bonds satisfy environmental, social, and governance (ESG) requirements, which along with clean investment mandates have become increasingly commonplace as fund managers face pressure from investors to deploy capital in environmentally sustainable ventures. To help identify and track ESG-compliant investments, funds often use formal ESG research carried out by global banks.

13 www.icmagroup.org; Green Bond Principles membership as of 23 August 2016. 14 BNEF, Green Bonds Monthly, August 2016. 48

The field of ESG research began in 2006, when Citi appointed the world’s first ESG research analyst, Elaine Prior. It has since grown to become a critical research function in the investment community. For example, Citi’s annual report on the carbon footprint of Australia’s 100 largest companies helps fund managers identify their carbon exposure and identifies risks associated with investing in carbon-intensive equities. Funds are now able to track the impact of their portfolio on the environment and direct capital toward ESG-compliant investments.

Large financial institutions play a critical role in scaling up renewable energy by providing investors with access to finance. In 2015, Citi announced a USD 100 billion commitment over ten years to finance activities that reduce the impacts of climate change and create environmental solutions. Global banks such as Citi are uniquely positioned to drive momentum toward renewable energy given the breadth of funding solutions they can offer such as initial public offerings (IPOs), project finance, green bonds, corporate loans, foreign exchange (FX), and hedging instruments. Banks are also actively reducing their own environmental footprint through initiatives such as setting company-level renewable energy targets.15

Financial institutions also play a key role in advising companies on mergers and acquisitions (M&A) in the renewables sector. M&A activity is expected to be significant in the near term as utilities add operational renewable assets to reweight their generation mix and reduce fossil fuel exposure. Financial investors, such as infrastructure funds, are also targeting ESG-compliant assets. In Australia, QIC (along with AGL, an energy utility) recently established an AUD 3 billion renewable energy fund targeting wind and solar investment. China has sharpened the SOE focus to acquiring clean energy assets and targeted outbound power transactions to renewable generation, notably hydro. Chinese SOEs are often willing to pay high multiples to acquire portfolios of scale. In 2015, for example, the State Power Investment Corporation acquired the Australian and South American-based renewables company Pacific Hydro for USD 2.2 billion. With ready access to cheap sources of capital and a healthy appetite for renewables, such transactions are expected to become increasingly commonplace. Given the quantum of ‘dry powder’ that sits in the world’s infrastructure and sovereign wealth funds, transaction activity will increase dramatically, allowing developers to recycle capital via M&A.

15 Citi has established environmental footprint goals for 2020, including 35% reduction in GHG emissions, 30% reduction in energy DQGZDWHUXVHDQGUHGXFWLRQLQZDVWH DOODJDLQVWDEDVHOLQH &LWLōVLQLWLDWLYHDOVRLQFOXGHVDORQJHUWHUPUHGXFWLRQLQ GHG emissions by 2050. Financing Asia’s Electricity Sector 2035: Making It Happen 49

Conclusion

Positive change is underway. In response to the Paris Agreement, governments are increasingly active in setting policy frameworks and pushing the clean energy agenda, which has provided investors with the comfort needed to deploy more capital. In parallel, advances in technology, a strong forecast demand for electricity in Asia’s emerging markets and ready access to capital also support the cause. The finance required to support investment is flowing through new financial products, as increasingly environmentally conscious investors and strong commitment from lending institutions set the stage for dedicated, sector-focused capital and liquidity.

Renewable energy, however, is a young industry and still faces significant headwinds. Thus, if global energy targets are to be achieved, different players must fulfil specific roles: governments must provide policy certainty; developers will need to ensure continued cost efficiency; and private and public capital must be mobilized to meet the significant capital expenditure requirements. Despite these considerations, the renewable energy industry has clearly found its feet—and its future has never looked more promising. 50

A Decentralized Future for Asia

Csilla Kohalmi-Monfils Executive Vice President, Strategy & New Business, ENGIE Asia Pacific

he energy transition is in full swing around the globe. Traditional utilities are weathering the storm as their businesses, like many others, are disrupted by T new players with new technologies and new business models. So what does this mean for Asia? It is the region where the largest new capacity is expected to be built in the next two decades, and 60% of that is expected to be off-grid electrification.

What is a painful disruption for utilities in Europe, the United States and other developed markets is a game-changing opportunity for countries still lacking basic infrastructure to electrify their disparate islands and remote communities. It is now possible to electrify these regions with decentralized renewable energy systems at a fraction of the cost of conventional infrastructure.

For a region that still has more than 400 million non-electrified households, With more than 400 this is an opportunity not to be missed million households still to take a leap into the future. Not only lacking electricity in Asia, has the cost of solar panels decentralization is an plummeted, micro-grid technology evolved, and battery technology opportunity to leap into the become next in line to achieve higher future on a fundamentally efficiencies at lower cost, but different energy pathway. information and communications Micro-grids are expected to technologies are also enabling pay-as- you-go mobile payment solutions, and make up 40% of capacity energy-efficient appliances are now additions in the region; able to harness more power from less determining where they electricity. The advent of energy for all are the right solution and provides opportunities for growth and overcoming final hurdles is now a reality without the need for expensive transmission infrastructure are critical next steps. or heavy metering, invoicing, and collections operations. Financing Asia’s Electricity Sector 2035: Making It Happen 51

The United Nations declared 2014–24 the ‘Decade of Sustainable Energy for All’, underscoring the importance of energy issues for sustainable development. A number of programs and funds have been put in place to realize the goal. So far, most have been directed towards solar home systems, which are expected to provide 20% of new capacity, and business-to-consumer business models, which are less hindered by complex regulatory regimes. Although this addresses the most basic needs for the consumers at the bottom of the pyramid, it cannot increase economic development. Micro-grids can do that by providing reliable, abundant electricity for productive uses to create and boost local businesses.

In the future, these types of systems will make up over 40% of new capacity additions, based on four main criteria:

Distance from the grid: If getting grid connection in the near future is likely, this is still the best solution today, as it is more cost-effective than off-grid set-ups.

Density of the population/households: Micro-grids best serve close-knit communities, while solar home systems will be the right solution for dispersed, stand-alone houses.

Productive use of energy: For small businesses to thrive and grow, development of decentralized sources is important for lower cost and more reliable electricity provision.

Mobile network: The existence of a mobile network is key to enable mobile payments and the remote monitoring and operation of systems. Telecommunication towers can also be great anchor customers for micro-grids.

Given the size of this opportunity, a few questions arise. Why is this space currently predominantly occupied by social entrepreneurs and a few charity organizations? Are the utilities—which are losing ground in their traditional marketplaces—not interested in this market?

Developing these projects on a large scale would be beneficial to everyone, but there are some challenges to overcome:

Financing: Project financing, which is a good solution to finance large infrastructure projects, is too expensive for micro-grid developments. New models based on impact investments, micro-financing, and crowdfunding have to be developed, along with financial products to match unevenly distributed collections from the bottom-of-the-pyramid population. 52

Market design: State monopolies in single-buyer markets, prevalent in the region, typically have neither the financial means nor the skills and expertise needed to achieve wide-scale micro-grid deployment in a reasonable time frame. However, some countries are experimenting with these targeted programs and are addressing this gap.

Subsidies: Currently, most countries in the region still have some sort of fossil fuel subsidies in place. This puts a heavy burden on government budgets and makes the deployment of renewable technologies less competitive. At a local scale, the operating expenses spent on diesel fuel inhibit up-front capital expenditure in renewable and micro-grid technologies. Separating these welfare policies from energy policy could free up a large portion of national budgets, which could be used to seed-fund energy access developments.

Regulatory framework: In order to achieve large-scale micro-grid deployment at a fast pace, regulators must create a new micro-utility framework in which participation is free for all, permitting is a one-stop-shop, tariffs are cost-reflective, and the aggregation of projects is supported to achieve scale efficiencies in operations. Such a framework would effectively invite private investments with smart, efficient, and green technologies and consumer-oriented services to boost economic development.

In developed markets, a complex economic puzzle of stranded or under-utilized assets and abuse of market power by early entrants are key concerns for today’s regulators of energy grid edge technologies. This is not an issue in developing markets. There are no legacy assets displaced by new technologies (save for a few old diesel generation sets) and little to no competition to electrify thousands of off-grid remote villages. Therefore, the role of the regulator is that of an enabler or promoter, rather than a referee looking for foul play.

As enablers, regulators could simplify existing procedures and provide necessary data and insight to interested market participants. As such, they essentially allow for transparent market forces to shape development, and costly incentive schemes are not necessary. The regulator can also set minimum performance standards, but these should be based on true consumer expectations in the given context rather than complex requirements imported from existing regulations originally drawn up for much larger systems. These should be regularly reviewed in line with the emergence of new technologies, trends, and expectations. Financing Asia’s Electricity Sector 2035: Making It Happen 53

There is an army of technology solutions and solution providers ready to provide energy services to this market. Behind them is the strong, united will of public and private sectors and civil society with sufficient funds available for running this last mile toward full electrification.

Those governments that manage to remove regulatory and bureaucratic hurdles, and support this joint effort, will benefit by being first to achieve their electrification targets, thereby enabling economic and social development across all levels of society. 54

South Australia: An Unintended Experiment in the Future of Clean Electricity

Matthew Warren Chief Executive, Australian Energy Council

ustralia has found itself an unlikely and somewhat unexpected pioneer of integrating high variable generation into a modern electricity grid. The experience is revealing new technical challenges that need to be Aconsidered and resolved to reduce the carbon footprint of electricity systems.

The unlikely test case is the state of South Australia, home to around 1.5 million people and the capital city of Adelaide. South Australia sits at the edge of the National Electricity Market (NEM), created at the end of the 20th century by connecting five state energy grids across Australia’s eastern seaboard. The NEM comprises a balancing spot market, which is settled every 30 minutes and run by an independent market operator. Prices are set by fluctuations in demand and supply in any trading interval. Electricity is dispatched based on a least-cost method—competition between generators ensures the prices bid into the market are at least cost.

As a result of abundant, high-quality wind and sunshine and a combination of national and state-based climate, energy, and planning policies over the past decade, South Australia now has 41% of its generation coming from variable wind (38%) and solar (3%) energy. These policy measures include a national renewable energy target of 20% by 2020, solar feed-in tariffs and other subsidies, and streamlining of planning approvals for wind farms. South Australia now has higher wind generation per capita than Denmark and the highest level of private solar photovoltaic (PV) in the world.

This is all in an electricity grid that is only partially connected to the rest of the market: the maximum output from two interconnectors can supply around 25% of South Australia’s peak demand (Figure 1). Financing Asia’s Electricity Sector 2035: Making It Happen 55

Figure 1 • South Australian generation mix*

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The state’s remaining firm generators are now mostly gas-fueled, anchored by two baseload gas-steam and combined-cycle generators and a number of intermediate and peaking generators. South Australia has no hydro, and no other firm zero-emissions generation. It also has very little fast-responding synchronous generation or storage capacity. All of these factors have combined to place pressure on the regional wholesale market and prices.

It is not the renewable nature of these new generators that is the issue, but their variability. At low levels of penetration, their effects were marginal—effectively displacing thermal generators during periods of wind and clear sunshine. But as the share of variable generation has increased, it has had real and emerging impacts on the South Australian electricity grid and market.

First, spot prices have become progressively more volatile, particularly influenced by wind speeds across the state. Strong prevailing winds from the Southern Ocean have increased wind generation (which runs regardless of price), creating oversupply, which in turn weakens spot prices; increased deployment of new wind farms has amplified this supply volatility. Firm generators have continued to reduce output and revenue during these wind events, and then sought to recover costs during periods of still weather. 56

These increasingly variable conditions are less than ideal for baseload generators. The state’s last two brown coal generators were progressively mothballed and closed over the past five years, with final operation of the coal-fired Northern Power Station occurring in May 2016. This was influenced partly by their age, but also by the challenges of operating this type of generation commercially in an increasingly variable generation market. Half of the remaining gas generators were also either mothballed or scheduled to be mothballed, but are now being brought back on line, although conditions remain marginal.

The effect of these brown-coal closures was to reduce emissions, but also increase both volatility and the forward contract price for baseload generation required by industrial customers and retailers. So while the spot price was trending downward with regular wind events, the contract price increased with the scarcity of available firm generators.

Figure 2 • Future baseload wholesale prices, 2017

6RXUFH*OREDO5RDP 1(0)XWXUHV6HSWHPEHUKWWSKRPHJOREDOURDPFRP Financing Asia’s Electricity Sector 2035: Making It Happen 57

A tight domestic gas market in Australia has exacerbated these conditions. This is somewhat ironic given Australia’s emergence as a world-leading exporter of liquefied natural gas (LNG). Slower-than-anticipated flow rates on a number of tight gas fields has meant most spare gas in eastern Australia has been diverted to Gladstone in Queensland to help fill the three LNG trains operating there. This has resulted in tight conditions for domestic gas buyers, including generators, who are typically required to sign take-or-pay contracts to access gas. These contracting conditions can impose additional costs on baseload gas generators in an increasingly variable generation market. Recent decisions by state governments to ban extraction of tight onshore gas will only further exacerbate gas market conditions and increase the marginal nature of remaining gas generators.

The closure of firm generation in South Australia increases the risk of capacity shortages during periods of peak demand. These are typically experienced during summer heat waves in January and February, although there are also periods of high demand during winter (July–August). A cold snap coinciding with near-zero wind generation in July drove dramatic increases in wholesale spot prices, leaving many industrial customers exposed (unhedged), triggering an energy crisis in South Australia.

The next summer (January–February 2017) will be the first following a significant reduction in firm generation and only modest upgrades to the main interconnector linking South Australia to neighboring Victoria. Peak demand capacity may be tested.

Prior to this peak demand period, South Australia experienced a ‘Black System’— i.e. the loss of all power across the state—following a severe weather event on 28 September 2016.

Damaging winds resulted in the loss of key transmission infrastructure in the north of the state, which led to six wind farms becoming disconnected from the grid. The sudden, uncontrolled loss of generation led to an overloading of the interconnector with Victoria and the consequent loss of all power across the state. Just before the loss of the transmission infrastructure, the state was being supplied by a combination of local thermal generation (330 MW), local wind farms (883 MW), and imports from the neighboring state of Victoria (613 MW). 58

The recent South Australian Black System is only the second time in the past 52 years that Australia has experienced a statewide loss of power. The technical reasons for the Black System, the loss of generation and a drop in voltage levels at the wind farm connection points, are still being fully analyzed. But as this event follows a significant loss of power in South Australia in November 2015 (discussed below), it does illustrate that system resilience is increasingly being tested.

Another possible new risk, emerging under conditions of high variable generation, is the inability to maintain power quality, particularly during periods of low demand. On 1 November 2015 (a Sunday night), South Australian demand was being met mostly by wind generation and supply from Victorian generators via the interconnector. A fault in the generator triggered a blackout of around 100 000 households for more than an hour because there was insufficient dispatchable generation available in South Australia when the state was islanded from the rest of the NEM.

The risk of these low demand/power quality events has led the market operator to buy 35 MW of frequency control services during periods of higher risk of interconnector outage to ensure sufficient firm generation in South Australia capacity to fast-start in the event of another islanding. In effect, frequency control payments are being used as a capacity payment.

As a final curiosity, the market operator is predicting that at current growth rates of rooftop solar PV, by 2023 South Australia may meet its minimum demand event (which now occurs around 1:30 p.m. on 26 December each year) entirely with the power generated by rooftop solar PV. It is unclear how the electricity grid will operate under these conditions.

This is what we have learned so far, but many questions are still without answers so it is hoped the experiment works out. Financing Asia’s Electricity Sector 2035: Making It Happen 59

LNG-to-Power: A Clean Energy Solution

Marat Zapparov Director, Infrastructure

Ted Low Associate Director, Infrastructure, Clifford Capital

Liquefied natural gas (LNG) is increasingly considered an alternative fuel source to meet growing power demand in many countries in Asia. This paper examines the key drivers of this trend, the typical risks involved in using LNG, the possible contract options to address these risks, and why Singapore is best placed as a key hub to meet growth in the LNG sector in Asia.

n its role as an active debt financier in Asia, Clifford Capital has observed a trend by countries and project sponsors to develop gas-fired power projects, with an increasing adoption of LNG as a fuel source. The trend has been Idriven by five key factors:

1. Ample LNG supply. In the British Petroleum (BP) 2016 Energy Outlook, gas is expected to be the fastest-growing fossil fuel source, with annual demand increasing by 1.8% by 2035. BP forecasts LNG trade will grow twice as quickly as global consumption, with LNG’s share of world fuel demand rising from 10% in 2014 to 15% in 2035. In parallel, increased LNG supply in the global market has been driven by US shale gas producers and new supply from Australia. Ample supply has led to a decline in LNG spot prices in Asia from USD 16 per million British thermal units (/MBtu) in January 2014 to less than USD 6/MBtu currently.

2. Proven floating storage and regasification unit (FSRU) technology. FSRUs provide gas storage and regasification facilities. The technological and commercial viability of FSRUs is proven, and it is increasingly accepted by governments, project sponsors, and financiers as a viable alternative to land-based facilities. FSRUs have significant advantages over land-based facilities, as they are less costly, more flexible, and can be constructed more quickly. 60

3. Domestic gas supply constraints. LNG is a solution to declining or unavailable domestic gas supplies in emerging markets, such as Bangladesh, India, Indonesia, Pakistan and the Philippines. Bangladesh, currently suffering a domestic gas shortage due to increasing demand and a lack of new gas field discoveries, has turned to LNG to address its gas supply issues. Petrobangla, the national oil company, has signed an agreement with Excelerate Energy L.P. to build an FSRU, with gas to be imported from Qatar to meet increasing demand for power projects.

4. Geographical constraints. In Southeast Asia, where numerous small and remote islands are not connected to the main gas pipeline network, viable small-scale LNG regasification is providing a cleaner and less expensive alternative to diesel power generation.

5. Environmental concerns. Environmental issues are a key concern for export credit agencies, multilaterals, and commercial banks, these being the principal financiers of state utilities and independent power projects. In December 2015, members of the Organisation for Economic Co-operation and Development (OECD) reached an agreement to reduce greenhouse gas emissions by, among other means, limiting the availability of export credit finance to ultra-supercritical coal-fired power plants. As LNG is a fossil fuel that produces relatively low emissions, it is seen as a viable alternative to coal as a baseload fuel. While renewable energy sources have minimal environmental impact, they are not a viable option for baseload power due to the variable nature of production.

Contractual structures for LNG-to-power projects

New LNG regasification and generation capacity needs to be developed. However, given the multitude of operators along the LNG-to-power supply chain, a number of key risks must be addressed before financing will be made available for these projects.

Due to the interdependence of gas and power companies, delays or interruptions of operations in one part of the supply chain will have an impact on other parts. Further, as long-term LNG supply is typically available on a take-or-pay basis, unavailability of the power plant, transmission grid, regasification terminal or any other part of the supply chain could result in a disruption in operations and consequent payment penalties. Such project-on-project risks need to be adequately managed to allow sensible allocation of penalties to counter-parties best equipped to manage such risks. Financing Asia’s Electricity Sector 2035: Making It Happen 61

Various contractual structures have been considered to address these issues. There are two commonly used structures in the market today that provide bankable frameworks for financing transactions: 1) the regasification tolling model, in which governments essentially procure LNG regasification capacity and power generation capacity separately; and 2) the integrated model, in which private developers take on the full risks of LNG supply, regasification, and power generation. Should a more comprehensive LNG spot market develop over time, contractual structures may need to be adjusted once again to provide all parties with sufficient revenue certainty to support upfront investments in all parts of the LNG supply chain.

Singapore is a key link between LNG and the Asian power market

Located at the crossroads of east-west trading routes, Singapore is well positioned to become a key LNG hub for the region, with all necessary physical handling capabilities and financial instruments related to LNG. Significant infrastructure is already in place, including key decision-makers, energy sector buyers and sellers, an established regulatory and tax regime, and a highly skilled workforce.

The LNG import terminal, operated by Singapore LNG Corporation, will have a total throughput capacity of 11 million tons per year by 2018, when the fourth LNG storage tank is completed. While a portion of this throughput will serve the domestic power market in Singapore, a large part of it is destined for break-bulking to supply LNG throughout the region.

Pavilion Energy, a home-grown Singapore firm that has secured LNG volumes from Cameron LNG and Freeport LNG in the United States, is aiming to build its regional LNG trading and transportation capabilities. In testament to its longer- term goals, Pavilion signed a memorandum of understanding with Indonesian state-owned oil company Pertamina in August 2016 to collaborate on marketing, trading, procurement, and small-scale LNG projects. With its archipelago of over 14 000 islands, Indonesia is a prime market for such developments.

Shipyards in Singapore, including Keppel Offshore & Marine and Sembcorp Marine, are among the leading shipbuilding and ship repair yards in the world. The shipyards are experienced in a wide range of vessels used in offshore oil and gas production, including floating liquefied natural gas and FSRU conversions. 62

In the financial markets, the Singapore Exchange launched a variety of financial instruments to allow greater versatility in LNG contracts. These contracts will be based on a price index established in Singapore, and the aim is that they will become the new benchmark for LNG pricing in Asia. As a key infrastructure financing hub for the region with a well-established network of commercial banks, legal firms, insurance brokers, technical/financial consultants, and multilateral agencies (such as The World Bank, the International Finance Corporation and the Multilateral Investment Guarantee Agency), Singapore is also a logical location from which developers can secure financing for their LNG-to-power projects in the region.

Conclusion

The prospects for the LNG-to-power sector are extremely bright, as it is an environmentally friendly solution to the world’s increasing power needs. Given its ability to leverage established transportation, storage, and regasification technology and ample liquidity from financiers, Singapore is well placed to support growth of the LNG sector in Asia. Financing Asia’s Electricity Sector 2035: Making It Happen 63

US LNG Exports to Japan: Addressing Supply Scarcity in the Face of Market Reform

Robert W. Gee President, Gee Strategies Group LLC1

lthough imported resources have traditionally contributed to 94% of Japan’s primary energy needs, events in the last five years have served to underscore the fragility of its energy security caused by such dependency. ASpecifically, the crisis created by the nuclear power plant accident at Fukushima Daiichi, following an earthquake and tsunami that hit Japan on 11 March 2011, has sharply limited the country’s energy resource options for the future. It also damaged its citizens’ trust in their governmental and regulatory institutions.

Prior to the accident, Japan relied on nuclear power for 30% of its Still coping with the post- energy needs, and had planned to Fukushima challenge of increase its share to at least 40% meeting electricity demand by 2017 and 50% by 2030. Liquefied natural gas (LNG) and with drastically reduced coal accounted for around 27% domestic generation, Japan each of its resource portfolio. will undoubtedly require Following the accident, operations substantial quantities of LNG in its 50-plus nuclear power plants for the foreseeable future. were halted, and only two plants resumed operation in mid- to late Recent changes to the global 2015. Presently, 42 reactors are gas market coincide with operable and potentially able to Japan’s own efforts to pursue restart. In the meantime, the LNG market reform, creating both market share leaped to 46%, proving to be the only viable challenges and opportunities. option to fill the void left by the cessation of nuclear generation.

1 This article represents Mr. Gee’s opinion and is not intended to represent those of any previous or current clients. The author wishes to thank Sheri Givens, senior vice president of Gee Strategies Group LLC, for her assistance in preparing this article. 64

Japan ranks as the world’s largest importer of LNG, followed by South Korea and Taiwan, and second-largest importer of coal, behind China. It relies on LNG imports for nearly all of its natural gas supply, and its retail gas and electric companies are participating directly in overseas upstream LNG projects to ensure supply reliability. Japan’s imports of LNG represent approximately 37% of total global trade, and approximately one-third of the country’s imports are from Southeast Asia. Well over half of those imports are consumed for electric power generation, a fact evident even before the nuclear crisis. Though it is a large natural gas consumer, the country has a relatively limited domestic natural pipeline transmission system due to its mountainous terrain and geographical constraints.

To address the calamitous shortfall in electricity supply, Japan mandated severe energy conservation in the years following Fukushima. In addition, it accelerated adoption of reforms restructuring its electricity and natural gas industries. In April 2013, Japan’s cabinet, the executive government branch consisting of its prime minister and ministers of state, moved forward with its Policy on Electricity System Reform to restructure the country’s electricity system with a three-step approach to meet the goals of:

1. ensuring stability of electricity supply

2. suppressing electricity rates to the maximum extent possible

3. expanding electricity customer options and business opportunities.

In April 2014, the government approved the new Strategic Energy Plan as the basis for Japan’s new energy policy with ten key themes, and identified nuclear power as an “important baseload power source” with continued promotion. In June 2014, the Revised Electricity Business Act for the Reforms of the Electric Power System was approved, providing for full retail deregulation of the electric power system, and in June 2015, Japan’s National Diet, its bicameral legislature, passed an amendment to the act as the final stage of electric power system reforms, becoming effective as of 1 April 2020.

Although the country’s electricity needs had long been served by ten vertically integrated regional electric utilities, independent power producers (IPPs) had been permitted to participate in wholesale power markets since 1995. The markets were then further liberalized, or restructured, to allow IPPs to sell initially to large, high-voltage users, and then, over time, to smaller-voltage users. In April 2016, Japanese law permitted entities other than the ten electric monopolies to supply electricity to individual households and small commercial customers to promote Financing Asia’s Electricity Sector 2035: Making It Happen 65

competition and lower electricity rates. In 2020, the government will mandate unbundling of the electric transmission and distribution sectors. These same unbundling requirements will also apply to the natural gas sector.

During this period of Japan’s energy crisis, the United States also had a dramatic —but diametrically opposite—energy resource experience, transitioning from resource scarcity to a state of surplus attributable to the shale oil and natural gas boom enabled by advanced horizontal drilling technologies and hydraulic fracturing. As of 2013, the US Energy Information Administration estimated the United States possessed over 2 200 trillion cubic feet of technically recoverable natural gas reserves, yielding in excess of 84 years of supply at current usage.

This abundance has led to calls for the United States to export greater quantities of LNG to Japan. US-to-Japan sales are made attractive owing to differences in the low domestic price of US gas based on Henry Hub spot prices, versus the “Asian premium” being paid for LNG imported from other producing regions based on prices established by reference to global petroleum prices. US-sourced LNG offers a delivered price that is more favorable to Japanese purchasers, even allowing for the cost of transportation.2

Under US law, license applications for LNG exports to Japan are reviewed by the US Department of Energy (DOE), which requires a national interest determination finding that LNG exports are within the “public interest” under the 1938 Natural Gas Act. Following DOE approval, the law also requires an authorization certificate from the Federal Energy Regulatory Commission (FERC) for the siting, construction, or operation of the LNG export facilities, or to amend an existing FERC authorization. However, for LNG export destination countries that are signatories of free trade agreements (FTAs) with the United States, this burden is lessened by a rebuttable presumption of public interest that strongly favors licensing by the DOE. The United States has free trade agreements with 20 countries. By contrast, an applicant seeking to export LNG to Japan—a non-FTA country—is required to shoulder the burden of proving the public interest.3

)RUFRPSDULVRQSXUSRVHVWKH+HQU\+XESULFHDVRIWKLVZULWLQJVWDQGVDW86'SHUPLOOLRQ%ULWLVKWKHUPDOXQLWV 0%WX ZKLOH global LNG prices range from USD 5.75/MBtu to USD 6/MBtu. 3 Notwithstanding Japan’s non-FTA status, the DOE and FERC thus far have approved three US LNG export projects to Japan &DPHURQ&RYH3RLQWDQG)UHHSRUW 7KH8QLWHG6WDWHVKDVFRPSOHWHGQHJRWLDWLRQVRIDUHJLRQDO$VLD3DFLILFWUDGHDJUHHPHQWWKH 7UDQV3DFLILF3DUWQHUVKLS 733 ZKLFKZLOOJLYH-DSDQSDULW\ZLWKH[LVWLQJ)7$FRXQWULHV+RZHYHUFXUUHQWFRQJUHVVLRQDODSSURYDO of the TPP is questionable. 66

Would US exports to Japan significantly increase beyond these current projects were the law amended to confer FTA-equivalent status on Japan? The answer would depend on several factors, including:

• the total volume of global LNG that is expected to increase from other countries and regions, such as Canada, Australia, and East Africa

• global demand, which has declined dramatically over the past two years, resulting (for the time being) in an LNG surplus

• the good-faith commitments of countries to attain greenhouse gas reduction targets under the Paris Agreement, which would favor consumption of natural gas over coal.

Each of these factors, in conjunction with the favorable economics presented by US Henry Hub gas, could affect price competition. In the event of sustained price competition, Japan’s energy security, as well as its economy, would be greatly benefited.

What impact would increased US LNG imports have on Japan’s restructuring of its electric power and natural gas sectors? Although forecasting at this stage is speculative, it seems fairly certain that any market forces allowing Japan to import greater quantities of low-emitting fossil energy resources would be favorable. To create a competitive power sector, abundant fuel resources are essential for a liquid market. Since Japan will undoubtedly require substantial quantities of LNG for the foreseeable future for independent and utility-owned power generation, competitively priced LNG quantities will be critical. The same would appear to hold true for a restructured natural gas sector, in which gas will be consumed for purposes other than power generation.

However, the volume of Japan’s future consumption of LNG for power generation could also be affected by Japan’s energy policy. Specifically, the government aims to restore nuclear power's contribution of 20% to 22% to its energy portfolio by 2030, with LNG reverting to its prior share of 27%. But whether Japan is able to realize this goal will depend greatly upon its public’s acceptance of the resumption, or new construction, of Japan’s nuclear fleet. This is open to question.

Whatever the case, US LNG is poised to play an important role in bolstering Japan’s energy security, and in its developing power markets. As host to over 50 000 US military personnel—the most of any country outside of the United States—Japan is an important strategic and political ally for US interests in that region. Providing it access to increased quantities of surplus US shale gas would benefit both countries. Financing Asia’s Electricity Sector 2035: Making It Happen 67 68

III. Power Sector Reform: Attracting and Sustaining Investment Financing Asia’s Electricity Sector 2035: Making It Happen 69

Regional Co-operation for Clean, Affordable, and Secure Energy in South Asia

Priyantha D.C. Wijayatunga, Ph.D. Principal Energy Specialist, Sustainable Development and Climate Change Department, Asian Development Bank

outh Asia is believed to have large hydropower resources and other renewable energy sources such as biomass, wind, and solar energy. For instance, it is estimated that South Asia has an economic potential of S294 000 megawatts (MW) of hydropower. It is also surrounded by the Central and West Asia, and Southeast Asia regions, which account for significant hydropower resources. To date, none of these clean energy sources have been exploited to their true potential.

More than 350 million people in South Asia are still without access to electricity, and this number is significantly higher if poor quality of supply is taken into consideration. Except in a few countries, many in the region experience frequent power shortages. Lack of adequate power supply has been identified as one of the most critical constraints for An interconnected power economic development. This means system in South Asia could these countries consider adding generation capacity, removing the reduce power deficits in the transmission bottlenecks, and region, by both capitalizing expanding distribution systems as on idling generation and high priorities. exploiting differences in consumption patterns to %HQHƓWVRIUHJLRQDOFRRSHUDWLRQ benefit all consumers. Many Regional co-operation in addressing of the elements are in place power sector issues has various to achieve inclusive and benefits. First, it allows financiers to sustainable growth in the direct their investments to target a larger market segment. As a result, power sector; now, it is time costs decline thanks to economies of to tackle remaining barriers. scale and risk is reduced with the 70

greater diversity of customers. Second, close co-operation among countries allows for the sharing of rich experience and expertise. Third, operational costs can be minimized with lower generation reserve requirements and lower costs of generation, likely to be dominated by low-cost renewable energy sources, led by hydropower. This will eventually lead to lower consumer tariffs. Fourth, such a power generation mix replaces a significant number of polluting power plants in the region, dominated by coal. Fifth, an interconnected system is always more capable of handling disturbances in the power system, which improves the overall reliability of supply. The most important gain with an interconnected power system is the ability to reduce the power deficits in the region, both by capitalizing on idling generation in the region resulting from transmission constraints or higher generation costs, and by exploiting the differences in consumption patterns to benefit consumers in another part of the region. All these elements lead to inclusive and sustainable growth in the power sector.

Regional co-operation in South Asia Figure 1 • Cross-border power trading opportunities Between India and Nepal, large- scale transmission interconnections (1 000 MW) are being developed to carry power toward Nepal in the short to medium term to reduce power deficits there. This is in addition to smaller-scale power imports of 100 MW to 150 MW from India through small-capacity interconnections to supply islanded distribution areas in Nepal. In the medium to longer term, Nepal can develop its hydropower capacity in large scale to supply both Nepal and the massive Indian market. Nepal and India need to also develop their transmission interconnections and Source: Asian Development Bank. in-country networks for such large- scale power evacuation.

The Bangladesh power sector is heavily dominated by natural gas-based power plants. Domestic gas supplies are fast depleting, while the demand for electricity in Bangladesh is exponentially increasing. The quickest way to Financing Asia’s Electricity Sector 2035: Making It Happen 71

bridge the gap is to construct transmission interconnections with India and import power. The first Bangladesh-India interconnection of 500 MW, funded by the Asian Development Bank (ADB), was commissioned in 2013, and its expansion to 1 000 MW is under construction. In the long term, Bangladesh can exchange power with India if its plans for large-scale coal and liquefied natural gas-based power plants materialize. The other major development is the proposed 6 000 MW power transmission lines from the hydropower- and gas-rich northeastern region of India to northern India through Bangladesh. Bangladesh would benefit from some power tapped off for its own use and from power transmission wheeling charges. Bilateral discussion on this interconnection is currently progressing.

Bhutan has been trading power with India for many years. Bhutan’s large hydropower resources are being gradually developed, and the transmission interconnections are being strengthened, mostly with the assistance of the government of India. Bhutan has the third-highest per capita income in South Asia, largely from power sales to India. Some of the largest hydropower projects in South Asia are under construction in Bhutan, along with required transmission strengthening across the border. These hydropower plants in Bhutan are run-of-the-river plants with almost no storage. During the winter, the river flows can be as low as 20% of the peak-time flows. During such periods, power flows in reverse, from India to Bhutan.

Despite political sensitivities, an interconnection of 250 MW/500 MW capacity between Pakistan and India has come under discussion. Because of the severe power shortages in Pakistan, this will have to be an interconnection importing power from India for the near future. In addition, interconnections are being pursued between Pakistan and Afghanistan that will allow large power transfers from hydropower-rich Central Asia to South Asia.

An interconnection between the Maldives and the rest of South Asia cannot be economically and financially justified at this stage.

Consultation on a 500 MW/1 000 MW submarine transmission interconnection between India and Sri Lanka has been ongoing with the support of ADB to examine the possibility of power exchange between the two countries. Such an interconnection would allow Sri Lanka access to the Indian power market, thereby providing opportunities—particularly to wind energy developers—to increase their investments in Sri Lanka. Even for conventional power plants, such an interconnection opens opportunities to earn extra revenue when the plants are idling or partly loaded. 72

A recent study, conducted with the assistance of ADB, to examine the economic benefits of six interconnections clearly showed that their benefits far outweigh the cost of constructing them. These economic benefits can always be turned into a win-win situation for the countries concerned.

Barriers and overcoming them

Certain barriers must be overcome by the countries to progress with regional co-operation more effectively. The most important of them are:

• policy and regulatory barriers

• the absence of required cross-border transmission infrastructure

• the lack of mutual understanding among the policymakers, regulators, utilities, and even investors in the respective countries.

Regional power co-operation and trade needs to be recognized in policies, laws and regulations, and the necessary provisions brought into the respective measures. Also, stakeholders need to discuss and agree on a common set of regulations, grid codes, performance standards, transmission plans, and dispute resolution mechanisms relating to cross-border assets and trade.

To overcome the barriers, the countries in the region need opportunities to interact, discuss, and agree on addressing these barriers. The institutional structures needed for this purpose are already in place, including some key institutions such as the South Asia Association for Regional Cooperation (SAARC) Energy Working Group; the South Asia Subregional Economic Cooperation (SASEC) Energy Working Group; the South Asian Forum for Infrastructure Regulators (SAFIR); and the SASEC Transmission Utility Forum (SETUF). In addition, many intergovernmental and bilateral arrangements are in place where relevant discussions can take place. The recently endorsed SAARC Framework Agreement for Energy (Electricity) Cooperation is one result of these interactions. Financing Asia’s Electricity Sector 2035: Making It Happen 73

Conclusion

It is important to realize that regional co-operation is a win-win for all the countries in South Asia. It will catalyze rapid power sector development for the benefit of its populations and allow rapid electrification of rural and underprivileged households. Regional co-operation also will improve security and reliability of supply, and minimize power shortages. For this to happen, it is vital to overcome the critical barriers at the beginning; once started, regional energy system development will automatically take its course, as in the case of Bhutan and Bangladesh. In this regard, institutions such as ADB can play a pivotal role.

Disclaimer:7KHYLHZVH[SUHVVHGLQWKLVSDSHUDUHWKRVHRIWKHDXWKRUDQGGRQRWQHFHVVDULO\UHŴHFWWKHYLHZVDQGSROLFLHVRIWKH$VLDQ 'HYHORSPHQW%DQN $'% RULWV%RDUGRI*RYHUQRUVRUWKHJRYHUQPHQWVWKH\UHSUHVHQW$'%GRHVQRWJXDUDQWHHWKHDFFXUDF\RIWKHGDWD included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. 74

How Will Power Sector Liberalization Change the Face of Japan’s Fuel Mix and Corporate Landscape?

Nicholas Browne Director, Wood Mackenzie

Bikal Pokharel, Ph.D. Principal Analyst, Wood Mackenzie

Japan’s power market liberalization is a critical development in the global electricity industry. It will also have significant implications for fuel procurement and global prices of coal and liquefied natural gas (LNG). Wood Mackenzie has developed a granular dispatch model that assesses the impact on Japan’s regions and utilities.

apan’s power market changed radically after the Fukushima meltdown in 2011. The nuclear gap was met through demand reductions and increased thermal power generation. While nuclear power is finally returning, it is clearJ that Japan will not be going back to a pre-Fukushima world. Dozens of new coal projects are being proposed and solar capacity is rising at a breakneck speed. Additionally, Japan is embarking on liberalizing a segment of its power market that is the size of the entire power market in the United Kingdom, and by government estimates worth USD 75 billion. The drive towards greater competition will, for the first time, force utilities to compete for market shares. This will in turn create measurable differences among Japan’s electricity utilities in terms of cost, efficiency, fuel mix, and fuel requirements.

This paper investigates the implications of power market reform, emission commitments, and fuel procurement strategies for Japanese power utilities. Financing Asia’s Electricity Sector 2035: Making It Happen 75

Uncertainty looms as the power market opens up; much-needed market reform started in April 2016

Japan currently has 44 gigawatts (GW) of oil-fired power plants and 8 GW of gas-fired steam plants. Electricity supply is dominated by ten regional vertically integrated power companies, known collectively as the electric power companies (EPCOs). Together, they account for around 90% of electricity generated in Japan. Each company monopolistically operates the transmission and distribution (T&D) system in its area.

Japan’s electricity prices are the highest in Asia. Apart from the higher fuel cost from imports, the power system did not incentivize utilities to make efficiency gains as the fuel cost could be passed on to the consumers. Hence, Japan’s gas-fired fleet is simultaneously both the most efficient (on unit level) in the world and the least efficient (at the aggregate level). Top-performer combined cycle gas turbine (CCGT) plants have efficiencies of above 56%, whereas the bottom-performer gas-fired steam plants run at 37% efficiency, an incredible 30% differential.

Deregulation, if properly implemented in Japan, can change this. Competition can bring much-needed incentives to become more efficient, thereby driving down costs. With the opening up of the retail market on 1 April 2016, non-traditional electricity companies have entered the market with new business models that bundle electricity with cell phone plans and internet services. Consequently, within two months of retail competition, more than one million customers had switched retail power providers among 200 registered new retail power companies.

Incumbent utilities, faced with market reform along with declining demand, increasing capacity, and a rapid change in fuel mix, are forced to revise their business strategies.

Post-Fukushima demand decline is permanent

Immediately after the Fukushima accident in March 2011, Japan managed to prevent rolling blackouts through (temporary) emergency measures that have eventually resulted in a permanent impact. A national movement, ‘Setsuden’ or ‘saving electricity’ in July 2011, prompted Japanese households and businesses to conserve electricity in response to expected power shortages. Measures such as increasing room temperature, switching incandescent lights to fluorescent or light-emitting diode (LED) lamps, and changing work schedules and adopting casual dress codes have carried on to the present. 76

With additional energy efficiency measures from industries, and continued awareness of energy usage in the residential and industrial sectors, power demand never rebounded. With this structural shift in demand, Wood Mackenzie’s demand forecast for Japan in 2030 stands at less than the demand in the year 2000.

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Several incumbent utilities as well as new players are keen to enter the market with low-cost resources, particularly coal. Japan currently has 23 500 megawatts (MW) of proposed coal projects, of which 4 000 MW are under construction and 8 000 MW are in the permitting stage. On the nuclear front, over 25 nuclear reactors with a total capacity of above 25 000 MW have applied to the Nuclear Regulatory Authority (NRA) for restarts. In addition, several gas-fired CCGTs have been planned.

At the same time, solar and other renewables developments were incentivized through attractive feed-in-tariff (FIT) schemes. This led to an exponential growth of solar from less than 200 MW in 2010 to above 25 000 MW in 2016. In renewables, 79 000 MW of solar PV with FITs is planned.

With the opening up of the retail market, utilities are also making aggressive moves to retire oil plants and inefficient gas plants. Tokyo Electric is leading the way with 2 400 MW of gas and 1 600 MW of oil plants planned for retirement. But some of these retirements will likely be replaced by less costly coal capacity.

With declining demand, the reserve margin—already above 50%—in Japan in 2016 is high. If all the planned projects come on line, Japan will have massive overcapacity and significant redundant resources. As more power plants are added, competition in the market will increase.

This combination of lower demand, increased penetration of renewables, and uncertainty of nuclear restarts has raised concerns for generation companies in the new Japan power market. The market in transition needs to strike a balance among competing policies—energy security, environmental policy, and cost-competitiveness. Financing Asia’s Electricity Sector 2035: Making It Happen 77

COP21 targets add uncertainty to gas and coal demand

To meet Japan’s COP21 commitments, the Ministry for Economy, Trade and Industry (METI) assumes significant contributions by nuclear (26%) and renewables (14%) in 2030. For this fuel mix, the emissions reduction in the power sector is approximately 32% by 2030 from 2013 levels. This is higher than the overall emissions reduction target from all sectors of 26%.

The proposed fuel mix, however, is highly uncertain. Court injunctions have already delayed nuclear restarts. Without FITs for new solar capacities, the pace of solar growth from 2017 onwards will depend on the cost of solar installations. This uncertainty will have a direct impact on LNG and coal demand. Some in-house scenarios that Wood Mackenzie is examining, at different combinations of nuclear, renewables, and coal generation, show a potential range of 52 million metric tons per annum (mmtpa) for LNG and 61 mmtpa for coal.

Such variations in gas and coal demand from Japan’s COP21 commitments will have direct implications on fuel procurement strategies. Japanese utilities have historically been signing long-term contracts for fuel procurements, mainly for security of supply. In the developing market environment, procurement strategies will require a total makeover.

Utilities may try to onsell equity and flexible volumes to Japanese buyers and traders, or seek to increase their trading opportunities elsewhere. They could also benefit from reducing exposure to term contracts through this period, moving part of their coal requirements to the spot market. This would allow them to take advantage of low-cost coal while increasing flexibility.

Conclusion

Japan is entering into a new energy era, one in which energy security is replaced with flexibility, competition, and profit-maximization goals. The market in transition is exposed to a tremendous amount of uncertainty with declining power demand, a changing fuel mix, and ongoing market reforms.

Coal capacity could go a long way in increasing cost competitiveness for generation companies and meeting their shortfall from nuclear. But this is at odds with Japan’s COP21 Intended Nationally Determined Contribution (INDC) targets. If Japan strictly goes ahead with COP21 INDC emissions reduction targets for the power sector, by 2030 demand for gas could fluctuate by 52 mmtpa and coal by 61 mmtpa, depending on the contributions of nuclear and renewables to the fuel mix. This adds uncertainties to fuel procurement strategies for power utilities. 78

With the increased penetration of solar, seasonality of generation by fuel will increase as well. This will again necessitate the replacement of traditional long-term fuel procurement strategies with increasingly flexible take-or-pay and monthly nominations.

Appendix: Japan Monthly Power Dispatch Model

This analysis uses Wood Mackenzie’s power dispatch model, which is a linear programming model designed to represent the dynamics of the fuel and power networks. It optimizes the flows of fuels (e.g. gas, coal, and diesel) to power plants and the generation of power to satisfy demand on a least-cost basis. The model takes into account real-world constraints such as gas contracts, gas pipeline capacities, fuel supply availability, hydro seasonality, power transmission capacities, and generation capacity of power plants. The monthly dispatch model is a proprietary Wood Mackenzie model, developed in Paragon AIMMS and solved using the IBM CPLEX Optimiser. The model produces fuel flows (along the gas infrastructure and the usage of other fuels) and power flows (power generation and transmission). Marginal prices are calculated by the model for both gas and power. Wood Mackenzie utilizes its model on behalf of consulting clients to assess client-led fuel mix scenarios and their impact on utilities.

Disclaimer:

• Wood Mackenzie does not know the purpose for which members of the public will use this article, and its contents therein, and therefore does not warrant or represent that the article or its contents are sufficient or appropriate for such purpose or requirements. Any use or reliance by any member the public of this article or its contents are therefore not foreseeable to Wood Mackenzie.

• The information upon which this article is based comes from our own experience, knowledge and databases. Wood Mackenzie represents that it has used reasonable endeavours to obtain the factual information contained in the article from sources deemed by it, in its discretion, to be reliable at the time such information was obtained. The opinions expressed in this article are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for any reliance upon them.

• Due to the possibility of human or technological error By Wood Mackenzie’s sources, Wood Mackenzie or sub-contractors, Wood Mackenzie does not guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.

• This article contains forward-looking statements including statements regarding Wood Mackenzie’s intent, belief or current expectations. Members of the public are cautioned not to place undue reliance on these forward-looking statements. Wood Mackenzie does not undertake any obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Wood Mackenzie’s control. Past performance is not a reliable indication of future performance. Financing Asia’s Electricity Sector 2035: Making It Happen 79

Power Sector Reforms: Lessons from South Asia

Priyantha D.C. Wijayatunga, Ph.D. Principal Energy Specialist, Sustainable Development and Climate Change Department, Asian Development Bank

ollowing the wave of major reforms in the power industry in developed countries and some middle-income countries in late 1980s and early 1990s, development partners took the lead in initiating action to Freplicate those reforms in the developing world. Most of the countries in South Asia adopted reforms in one form or another and are currently at various stages of implementing new energy laws, restructuring state-owned utilities, establishing independent regulation, pursuing private-sector participation, and tackling tariff reforms.

The pace of reforms was seriously affected by failures in the reformed power supply industry in member countries of the Organisation for Economic Co-operation and Development (OECD), such as the California power crisis and blackouts in the United States and Europe in 2003, coupled with poor performance in South Asia of some of the world’s largest power companies. Sector reforms are still being pursued by development partners, though maybe not as vigorously or in the same form as in the early years.

Power sector reform in South Asia is advancing, but not without challenges. It is increasingly clear that the entities pursuing structural changes in the utility sector need to consider the prevailing operational environment, including factors such as the cost of procuring power, consumer profiles and the capacity of consumers to pay. 80

Reform objectives

Power sector reforms in South Asia started in the mid-1990s in order to address many issues in the electricity supply industry, as they did in other developing countries. These issues included:

• poor financial performance of the utilities

• large investment requirements due to high demand growth

• high levels of non-targeted subsidies

• poor operational performance of the utilities, such as high transmission and distribution losses, coupled with high accounts receivable

• poor management.

Governments expected that reforms in the power sector would attract more private investment and financing from development partners. The reforms were also intended to address other important issues such as:

• ongoing, unhealthy external interference in utility operations

• lack of competent independent regulation

• power pilferage and corruption.

Some of these reforms were partly addressed—though not enthusiastically pursued—by the governments. As development partners’ interest in pursuing them grew, governments gradually started to take necessary policy initiatives in that direction.

Post-reform structure

Even though the approach to introduce reforms was uniform across South Asia, the implementation of reforms has been staggered, which resulted in the introduction of a diverse set of institutional, legal, and regulatory frameworks. While some countries, such as Afghanistan and Nepal, are still at a preliminary stage in implementing reforms, other countries have advanced considerably. For example, most have fully functional regulatory institutions that are independent from the government. However, they have varying degrees of power in licensing and setting tariffs. Only some countries have unbundled utilities; still problematic is that governments continue to own or hold majority shares of most of these unbundled utilities. All countries have necessary policy and legal Financing Asia’s Electricity Sector 2035: Making It Happen 81

environments for private sector Figure 1 • Level of power sector participation in the power sector, reforms in South Asia but the current level of participation varies significantly.

Lessons learned

When undertaking reform, the entities pursuing structural changes in the utility sector need to take into account the ‘on-the- ground’ realities and the operational environment prevailing in the region where they operate. Major factors would include the cost of procuring power, consumer profiles and the Levels of Reforms capacity of consumers to pay. In

Low High essence, the structural changes have to be tailor-made to suit each Source: Asian Development Bank. situation, rather than a uniform model applied across the board.

Governmental intervention in the day-to-day operations of the emerging entities does not enable the full benefits of reforms to be realized. Therefore, such intervention should be avoided. A well thought-out plan to provide financial assistance to the new entities should be implemented for a given period of time. The entities should have to become financially viable within that period before a further course of action is taken for their privatization or otherwise.

Since reform programs began, private investments have enabled most countries to augment their generating capacity to avoid or reduce supply shortages. However, government management of private investments to fulfill the goals of overall economic efficiency of the generating system and to minimize load shedding has been only partially successful. Most private investments in generation were for small thermal power plants, which inevitably were less efficient and expensive to operate and for small hydropower. The exception is India, where the private sector is currently playing a major role. 82

Reforms by way of establishing regulatory institutions, unbundling, and corporatization have not been able to raise the operational and financial performance of utilities to the desired levels. In some cases, there has been no progress at all. Load shedding continues to be the norm in most countries in the region, with no indications of possible recovery to meet any time soon the customer demand in full. The technical and commercial quality of supply has not seen any major improvement, partially overshadowed by rampant load shedding. Financial recovery is unlikely as long as governments continue to own a significant share of generation, all transmission, and a significant share of distribution.

Grid access is improving but not necessarily as a result of reforms; in fact, specific features of distribution extensions have caused additional burdens on distribution utilities. Effective mechanisms must be in place to absorb the impacts of lower income from newly connected customers and the subsidies they usually enjoy through tariffs. To accelerate grid access and reduce costs of distribution utilities, a new approach in which franchises for distribution are granted to local organizations and institutions should be considered as a model for replication.

Conclusion

Poor financial and operational performance and poor management of the utilities have been the main impetus for carrying out power sector reforms in South Asia, as is the case in many developing countries. In addition, external interference in utility operations, lack of independent regulation, power pilferage, and corruption have also been major areas of concern.

Though reforms have been designed to address these shortcomings in the power sector in South Asia, the reality of outcomes is mixed. The approach and the model for reforms need to be adapted to suit local needs. In the reform process, the emphasis needs be on service delivery and performance, in parallel with cost recovery. Regulator effectiveness in the reformed sector environment is paramount for successful achievement of reform objectives. Furthermore, power sector reforms need to be introduced gradually, encompassing all the aspects at various stages.

Promoting Demand-Side Management in Asia and the Pacific: Leading the LED Way

Jiwan Acharya Senior Energy Specialist, South Asia Department, Asian Development Bank

In India, a state-owned energy services company has successfully demonstrated a new business model to address the up-front cost barriers and pushed to promote energy-efficient lighting through deployment of light-emitting diodes (LEDs). The key features include demand creation and aggregation, bulk procurement, strong repair and maintenance, as well as monitoring and verification schemes. Local production and bulk procurement have helped to drive down prices; the cost for a 9W LED bulb (typically used for residential lighting) has fallen to less than USD 1 (INR 65) from USD 5 (INR 330) just two years ago.

mong the range of technology options that exist to provide improved quality of energy service, energy efficiency is considered most cost- competitive and effective. With projections for global economic growth Aand the emerging role of developing countries as home for industrial growth, energy demand will increase rapidly. The need for greater efficiency in energy use is gaining awareness worldwide and more so in developing countries.

According to the International Energy Agency (IEA), developing Asia’s share of worldwide energy-related carbon dioxide (CO2) emissions has more than doubled, from 17% in 1990 to 39% in 2013. Without additional efforts to decarbonize, 1 developing Asia is expected to account for 46% of CO2 emissions by 2030. This trend clearly reflects Asia’s increasing role as a center of manufacturing and its status as host to over half of all global megacities. These factors further

,($ World Energy Outlook 2015, www.iea.org. 84

exacerbate energy security and environmental constraints, prompting stronger emphasis on energy efficiency in both demand and supply sides of markets. Efficiency will need to be coupled with accelerated investments in renewable energy and in the deployment of advanced low-carbon technologies to reduce local air pollution that causes damage to health and the environment.

Key changes in policy priorities and investment strategies will be necessary, particularly where rapid economic growth is coinciding with urbanization impacts. Yet, several barriers undermine realizing the full energy efficiency potential, namely:

• regulatory challenges, as electricity is subsidized to some extent and energy efficiency programs are voluntary

• institutional challenges, as capacity to support the scaling up of energy efficiency is limited

• financing the up-front costs which are high for some energy efficient technologies, while project sizes are small from a lender’s perspective and returns may be difficult to quantify

• limited understanding of energy efficient technologies and associated benefits, which constrains their uptake.

The concept of delivering energy efficiency through third-party financing, following an energy service company (ESCO) delivery mechanism, is an effective way of scaling up implementation of energy efficiency projects. However, ESCOs require support in accessing commercial finance, and in managing technical performance and payment security risks. Long project development lead times and high transaction costs also affect their viability. There is a need to support demonstration of a viable company that can follow the ESCO model to contribute to market transformation through various energy efficient technologies, which can then be scaled up and replicated.

To counteract regional trends for growth, and in recognition of energy efficiency benefits, large emerging economies have launched initiatives resulting in significant energy efficiency improvements. Investments in energy efficiency are increasingly being recognized as the most cost-effective option (in the short to medium term) to reduce energy costs, deliver increased economic productivity and competitiveness, increase energy security, and combat climate change. Financing Asia’s Electricity Sector 2035: Making It Happen 85

In India, for example, the government has determined that increased end-use energy efficiency is critical in meeting rapid energy demand growth. In 2015, as part of its Intended Nationally Determined Contributions to the United Nations Framework Convention on Climate Change,2 the government pledged to reduce the emissions intensity of its gross domestic product (GDP) by 33% to 35% below 2005 levels by 2030. A recent Asian Development Bank (ADB) report suggested that achieving an intermediate target of at least 20% emissions intensity reduction by 2020 will require investing approximately USD 68 billion in energy efficiency measures in India.3

Given that India is already one of the world’s largest economies and growing rapidly, a transition to low-carbon growth will have a great impact on the overall global situation. Since 2000, India’s economy has shown an average annual GDP growth rate of 7.2%, compared with a global average of just 2.6%. This high economic growth is both fueled by and driving increased demand for energy. In parallel, the government is ramping up efforts to provide reliable electricity to the 300 million people who remain in extreme energy poverty. As a result, the total primary energy supply has almost doubled, from 441.3 million tons of oil equivalent (Mtoe) in 2000 to 775.5 Mtoe in 2013. As the fuel mix in 4 India is largely based on fossil fuels, annual CO2 emissions from fuel combustion have grown even faster, rising from 892 million tons (Mt) in 2000 to 1 868.2 Mt in 2013. The potential for further economic growth and rapid increase in energy demand in India is enormous.

Recognizing the need to achieve more sustainable low-carbon economic growth, in 2008, the Government of India began taking bold steps, including the establishment of the National Mission for Enhanced Energy Efficiency (NMEEE) as one of the eight missions under the National Action Plan on Climate Change. The Bureau of Energy Efficiency (BEE), under the Ministry of Power, acts as the secretariat and nodal agency for the NMEEE, with Energy Efficiency Services Limited (EESL) set up as an ESCO to support BEE in the implementation activities.

0LQLVWU\RI(QYLURQPHQWDQG)RUHVWV*RYHUQPHQWRI,QGLD India Intended Nationally Determined Contribution to the United Nations Framework Convention on Climate Change, available at http://www4.unfccc.int/submissions/INDC/Published%20Documents/India/1/ INDIA%20INDC%20TO%20UNFCCC.pdf. $'% 6DPH(QHUJ\0RUH3RZHU$FFHOHUDWLQJHQHUJ\HIŵFLHQF\LQ$VLD, Asian Development Bank, Manila. ,QWHUQDWLRQDO(QHUJ\$JHQF\ ,($ ZZZLHDRUJVWDWLVWLFV 86

The NMEEE aims to strengthen the market for energy efficiency by creating conducive regulatory and policy regimes, and has envisaged fostering innovative and sustainable business models for the energy efficiency sector. To this end, the NMEEE launched four initiatives to enhance energy efficiency in energy-intensive industries:

• Perform, Achieve and Trade Scheme

• Market Transformation for Energy Efficiency

• Energy Efficiency Financing Platform

• Framework for Energy Efficient Economic Development.

Through these initiatives, the NMEEE seeks to scale up efforts to unlock the market for energy efficiency, which is estimated to be around INR 740 billion (about USD 12 billion), and help achieve total avoided capacity addition of 19 598 megawatts (MW). At its full implementation stage, the initiative aims to reduce greenhouse gas emissions by 98.55 Mt annually. To date, only about 5% of this potential has been tapped through the ESCO model.5

Leading with LEDs

With the obvious benefits of consuming a fraction of the energy used by incandescent bulbs to provide better light output, LEDs are revolutionizing the energy efficiency of lighting, consuming one-tenth of the energy to produce the same or better light output as an incandescent bulb. Additionally, LEDs do not use mercury and are therefore environmentally a better source of lighting. In spite of the known advantages, many challenges inhibit adoption of LEDs on a large scale. High up-front cost as compared with available options acts as a major barrier.

With the introduction and rapid development and deployment of LED technologies, India has been able to lead the way in transforming the lighting sector. About 12% of total LED systems sold worldwide are installed in India, up dramatically from just 1% in 2013. Among many factors, EESL has successfully demonstrated a new business model to address the up-front cost barriers and pushed to promote LEDs. The key features include demand creation and

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aggregation, bulk procurement, strong repair and maintenance, as well as monitoring and verification schemes. Local production and bulk procurement have helped to drive down prices: the cost for a 9W LED bulb (typically used for residential lighting) has fallen to less than USD 1 (INR 65) from USD 5 (INR 330) just two years ago.

DELP-EESL’s solution to overcome existing market barriers

In order to overcome barriers and stimulate investment in energy efficient lighting projects, EESL has launched the Domestic Efficient Lighting Program (DELP) based on demand-side management (DSM). EESL has distributed more than 150 million LED bulbs throughout India as of end of August 2016, and the number is growing.

Lighting accounts for almost 28% of the total electricity consumption in the residential sector in India, and is a major contributor to peak load. India faces peak power shortages of over 12% as a result of the gap between demand and supply, leading to supply disruptions and power failures. The Electric Lamp and Component Manufactures Association of India estimates that more than 758 million incandescent bulbs were sold in 2012 in India. Incandescent bulbs are an extremely energy inefficient form of lighting, with just 5% of the electricity input converted to light. LED bulbs use 85% less electricity to deliver the same light output. Additionally, the very long life of LEDs makes them extremely cost-effective compared with incandescents and even compact fluorescent lamps, on a life-cycle cost-effectiveness basis.

A national intervention to enhance the efficiency of the lighting sector has the potential to reduce the demand for electricity by over 50 billion kilowatt hours (kWh) annually, and would lead to an avoided capacity addition of about 19 000 MW.

National street light program

Public lighting in India consumed about 8 500 million kWh of electricity over a one year period covering 2012/13. Deployment of energy efficient street lighting is poised to deliver substantial energy savings to urban local bodies. Retrofitting all conventional street lights with LEDs is estimated to lead to potential annual savings of 4 300 million kWh or about 50% of total energy consumed for public lighting. The inherent operational optimization could lead to an additional 15% to 20% energy savings. 88

In addition to optimizing light sources at minimum energy intensity, LED technology enables integrated centralized monitoring and control that turns lights off using a timer or sensor. This has been shown to save an additional two hours of power consumption per day that may otherwise be required for manual switching. Being directional light sources, LEDs also enable design that enhances the quality of light output. As of 29 August 2016, EESL has supported installation of close to 1.15 million street lights, avoiding about 38 MW. As with the residential program, the number is growing day after day.

In parallel, EESL has initiated extensive outreach and communications based on growing recognition that awareness campaigns and concerted marketing efforts are vital to large-scale diffusion of any innovative and new technologies. At present, however, well-conceived mass media messages in different major Indian languages are insufficient. Details of these programs and the results are available at http://www.eeslindia.org/.

Role of the ADB and future prospects

The ADB, together with other development partners, such as the KfW development bank, the Agence Française de Développement (AfD) and the World Bank, is now supporting EESL to scale up energy efficiency and DSM initiatives, such as the promotion of LEDs. On 30 Sep 2016, the ADB board approved a USD 200 million investment to EESL to promote energy efficient lighting and agriculture pumps. The successful demonstration phase can be further scaled up within India and replicated in other countries in the Asia-Pacific region. Guided by its Energy Policy 2009, supporting developing member countries to pursue DSM is a priority of ADB’s energy sector lending.

Wasting Less Money on Decarbonization: Some Lessons from the Philippines

Sarah Fairhurst and Mike Thomas Partners, Lantau Group

any countries with emerging economies are now embarking upon a path of power sector decarbonization, following models ‘pioneered’ by M the United States, Germany and Australia over the past 10 to 15 years. Yet many of these early adopters, and inherently their electricity consumers, are only now beginning to bear unintended costs as a result of pioneering clean technology, be it the infamous ‘duck curve’ from excessive solar in California or unexpected stress on the transmission grid and price volatility in Germany. In many cases, the associated policy signals that stimulated renewable energy penetration, often in the form of feed-in-tariffs (FITs) As part of the ‘second wave’ of and other non-market-based incentives, have failed on economies pursuing low-carbon two levels. Typically, they electricity, the Philippines has been have been unable to adjust innovative while also seeking to to—and ultimately avoid pitfalls experienced by early undermined—changes in movers—particularly in terms of underlying market fundamentals that using strategic policy to manage traditionally served to the costs of transition. regulate investment in conventional generation assets over time. Moreover, this 'natural braking' has largely been absent for renewables; policy decisions have almost entirely been premised on the green agenda, with growth in renewables continuing unchecked. Multiple examples now exist of renewables breaching a threshold after which the ill effects of their high penetration become increasingly compounded.

Recent experience in the Philippines may turn out to offer lessons to the rest of the world in how to manage some of these challenges. It is too early to be certain as yet, but there is reason to hope. 90

First, some background: The Philippines is a fast-growing, developing economy in Asia that has a largely private-sector, unsubsidized market for power. The gross domestic product (GDP) per capita is far lower than in other places (such as Europe, the United States, and Australia) that have embraced renewables. Thus, decisions in the Philippines have always been made with one eye on cost implications and the other on climate change—as recent severe weather events have caused many to believe that climate change will have real and negative impacts on the country.

Although the Philippines’ electricity market is far from perfect, five renewables initiatives in particular have proven to be effective.

• While the Philippines did establish an FIT regime, they limited it to utility-scale solar and capped the FIT volume to ensure that the capacity built was capable of being paid for by consumers.

• The subsidy for the FIT is passed through to all consumers and itemized on the electricty bill; this allows everyone to see exactly how much it is costing them.

• Solar was limited to a maximum of 100 kilowatts (kW) per roof and any power sold to the grid was paid for at the average generation cost. Avoiding use of the ‘average retail tariff’ or an even higher FIT (as seen in Australia, for example) has limited the impact of grid subsidies to ‘just’ the avoided network costs. The main utility in Manila (Meralco) also insists on dual metering so that it can continue to measure actual demand of the household.

• A distinction was made between small and larger consumers. At present, small residential consumers can avoid network charges for solar generation. For larger consumers, transmission charges are largely fixed, which means these customers accrue little benefit from the avoided cost of transmission, a challenge now evident in many other renewable markets. However, because of a lack of subsidies in the electricity sector overall, commercial rooftop solar has become very attractive: payback periods are now less than five years, even without the ability to benefit from avoiding network costs.

• Incumbent utilities are now investigating changes in tariff design to bring fixed network costs to residential consumers as well. Again, the aim is to limit the potential for (richer) solar installers to avoid paying for the grid while still benefitting from the security of supply it brings. Financing Asia’s Electricity Sector 2035: Making It Happen 91

Although the solar FIT quota was only 500 megawatts (MW), this proved large enough to spur a domestic solar industry: to date, more than 500 MW of utility-scale solar has been built. Yet the quota was small enough to be (mainly) absorbed into the electricity market without a need for additional ancillary services and without creating a duck curve. As one might expect, there is a clamor for more FITs to appease those keen to avail of subsidies. However, more interestingly, recent trends show many clients taking a different approach. They are building solar farms to trade merchant in the spot market, selling this to utilities in a competitive process in which they compete directly with other fuels, or to industrial consumers through retailers that are blending solar with other purchases in the market and contracts. These new projects highlight that the solar industry in the Philippines is now cost-competitive with other forms of generation—even without explicit or implicit subsidies. This is possibly a global first.

The Philippines does have some natural advantages. Industrial electricity usage is low compared with some other countries and much demand is driven by air conditioning, meaning it correlates well with when the sun is out. This enables solar to compete against peaking units, which are still oil-based in many places. The Philippines also has a private-sector power industry with a strong local equity and debt component that is more comfortable taking risks than some other markets. This willingness to take risks may allow solar proponents to find niches that have not been explored in other countries without subsidies. Finally, the Philippines has also come to the party late—meaning that costs had fallen substantially before the market started to build solar farms.

The industry in the Philippines is at a crossroads. Without new subsidies, only those solar projects that are capable of competing will move forward. The growth may fall, but we would expect to see more focus on the quality and location of installations.

There remain many vested interests clamouring for populist but less economic solutions; so this potential may yet stall. However, we hope it will stay on track and showcase the first truly commercial solar competing head-to-head in a private sector electricity market. 92

IV. Pathways to Capitalizing Asia’s Electricity Infrastructure Financing Asia’s Electricity Sector 2035: Making It Happen 93

Catalyzing Low-Carbon Financing in Asia and the Pacific

Aiming Zhou, Ph.D. Senior Energy Specialist, South Asia Department, Asian Development Bank

apid growth of economies in the Asia and Pacific region (Asia-Pacific) in the first decade of the 21st century was accompanied by a corresponding increase in the region’s energy requirements. In 2010, primary energy Rdemand in Asia-Pacific stood at 4 985 million tons of oil equivalent (Mtoe), an increase of 60.8% from 3 101 Mtoe in 2000. Consequently, the region’s share of world energy demand rose from 30.7% in 2000 to 39.2% in 2010. The Asia- Pacific actually accounted for as much as 71.9% of the incremental growth in world primary energy demand from 2000 to 2010.1 It is worth noting that more than 600 million people in this region still have no access to modern energy; thus, achieving universal access will be an element in growing demand.1

An increase of similar proportions in Asia-Pacific’s By 2035, energy demand in primary energy demand is Asia and the Pacific region is expected to occur between 2010 and 2035 (unless projected to increase by as much otherwise indicated, this paper as 60%. If this demand growth is refers to this time period). If left met through fossil fuel sources, unabated, demand for fossil energy-related emissions will fuels would grow more than skyrocket. The need to refine threefold, consequently pushing the region’s energy- and improve access to low- related carbon dioxide (CO2) carbon financing in the region is emissions up by more than 60% increasingly urgent. and increasing its share of

global energy-related CO2 emissions to more than 50%. 94

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Primary energy demand in Asia-Pacific is projected to increase by 67.7% in the medium term. At an average annual growth rate (AAGR) of 2.1%, it will rise from 4 985 Mtoe in 2010 to 8 358 Mtoe in 2035. This is faster than the growth in world energy demand, which is projected to have an AAGR of 1.5%.

Growth in primary energy demand will vary across Asia-Pacific, reflecting diversity in economic development and population growth. Energy demand of developing member countries (DMCs) of the Asian Development Bank (ADB) is projected to increase quickly at an AAGR of 2.3% through 2035, increasing from 4 345 Mtoe in 2010 to 7 720 Mtoe in 2035. By contrast, energy demand of the developed countries will decline by –0.01% per year.

More specifically, electricity generation in Asia-Pacific is projected to more than double, from 8 408 terawatt hours (TWh) in 2010 to 18 532 TWh in 2035. Electricity generation from DMCs of the ADB will account for 91% of the total Asia-Pacific electricity generation. The People’s Republic of China is projected to register the largest amount of electricity generation in 2035 (9 542 TWh), followed by India (3 437 TWh). Collectively, these two countries will account for 70% of electricity generation in Asia-Pacific.

Fossil fuels will still dominate energy demand in Asia-Pacific through 2035. The combined share of coal, oil and natural gas is projected to increase slightly, from 82.4% of total primary energy demand in 20102 to 83.2% by 2035.3 Demand for fossil fuels will amount to 6 953 Mtoe in 2035, a 228.7% incremental increase from 2 115 Mtoe in 2010. By 2035, their individual shares will be as follows: coal = 42.1% (3 516 Mtoe); oil = 23.6% (1 973 Mtoe); and natural gas = 17.5% (1 463 Mtoe).

Demand for fossil fuels will increasingly need to be met by imports, making ADB members in Asia-Pacific vulnerable to price fluctuations in the international energy markets, thus affecting their energy security.

Because of its price competitiveness and abundance, coal will continue to be the dominant fuel input for power generation. By 2035, coal is projected to account for 55.2% of total electricity generation in Asia- Pacific. Natural gas is

$VLDQ'HYHORSPHQW%DQN $'% (QHUJ\2XWORRNIRU$VLDDQGWKH3DFLŵF. ADB, Manila. ,QFRDODFFRXQWHGIRU b0WRH RISULPDU\HQHUJ\GHPDQGRLO b0WRH DQGQDWXUDOJDV 0WRH ,QSURMHFWHGVKDUHVRIWRWDOGHPDQGDUHIRUQXFOHDUHQHUJ\IRUK\GURDQGIRURWKHUHQHUJ\ JHRWKHUPDOVRODU ZLQGDQGRWKHUUHQHZDEOHHQHUJ\DQGHOHFWULFLW\LPSRUWV Financing Asia’s Electricity Sector 2035: Making It Happen 95

projected to have the second-largest share in electricity generation as its use expands. The exception is Southeast Asia, where coal will replace natural gas as the major fuel input for power generation.

This level of fossil fuel use is expected to stimulate an increase in energy-

related CO2 emissions, from 13 404 million tons of CO2 (MtCO2) in 2010 to

22 113 MtCO2 in 2035. In 2010, energy-related CO2 emissions from Asia-Pacific accounted for 42.8% of the world total. By 2035, this share will increase to 51.2%. In parallel, the share of new and renewable energy in electricity generation in the region will increase from 1.9% in 2010 to 7.1% in 2035.

To meet the energy needs of Asia-Pacific, cumulative investments of about USD 11.7 trillion would be required from 2010 to 2035. This investment includes upstream energy extraction/production, mid-stream energy transformation, and transportation and downstream energy distribution.

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Developing Asia urgently needs country-specific technologies to help it reduce

CO2 emissions and adapt to climate change impacts, such as rising sea levels, increased water salinity and uncertain climate conditions. Many technologies— nascent and mature—are available in developed economies. Access to financing plays a vital role in deploying and scaling up low-carbon technology application. Financing through the capital market has been increasing significantly in recent years, as has venture capital and private equity fund financing. Two broad categories of financing instruments are applicable to low-carbon development.

1. Traditional financing instruments. Traditional financing is conducted via issuing of bonds, private lending, credit guarantee, financial leasing, equity transfer, venture capital, etc. In recent years, novel financing schemes have been emerging, such as equity and debt markets, and mergers and acquisitions. It is also possible to secure financing through fixed assets (factories and equipment) mortgage loans or inventory financing, or by applying for national innovation fund and project development loans. All these financing approaches could serve as references to the application of low-carbon energy financing. Traditional financing is mainly offered by commercial banks, but they have been slow to enter the area of energy due to lack of expertise and/or lack of technical capacity. Access to financing through traditional instruments has improved over the years thanks to the maturation and 96

growth of renewable technologies. At the moment, however, these instruments remain concentrated in the solar and wind industries.

2. Innovative financing instruments. New instruments, such as asset securitization and project financial leasing, have proven to be effective financing approaches for low-carbon solutions. Project finance leasing has been widely adopted by the photovoltaic (PV) industry, although its direct and indirect financing channels (such as preferential tariff structure and regulatory requirement of power purchase agreement preparation) are not yet sound enough. With continued practice, financial leasing for PV power stations has gradually matured to become a vital way to ease the financing pressures of the whole industry. The majority of innovative financing instruments, however, are only being applied in the industrialized world. More effort is needed to transfer these instruments to developing countries.

In attracting low-carbon financing, China leads the way. According to the International New Energy Development Report 2015, issued by the New Energy Chamber of Commerce in the second quarter of 2016, China ranked number one in financing with USD 89 billion, up by 31.7% compared with 2013. Total aggregated financing in the new energy industry was at USD 310 billion in 2015, and will keep growing due to the country’s green economy and low-carbon development strategy.

In general, there is a large gap in the availability of commercial financing for new and renewable power generation, such as solar and wind, and there is still a perception of high risk in financial flows from these sources to support low- carbon generation projects.

Some financiers have spoken of a ‘virtuous cycle’ in low-carbon financing, in which the demonstrable success of projects encourages greater levels of investment, leading to more deployment and more success, and so on. Attaining this virtuous cycle requires transparent, supportive public policy and regulatory frameworks.

Policy incentives such as feed-in-tariffs and renewable energy certificates create guaranteed markets for low-carbon energy. An alternative option is tax incentives that offer direct or indirect support. More recently, auctions and/or tendering have been used to incentivize renewable energy development. This has led to record bids in terms of both low price and high volume, such as a recent case in Chile in which a tender for electricity offered solar power at half the price of coal. Financing Asia’s Electricity Sector 2035: Making It Happen 97

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To catalyze public and private funds in Asia-Pacific, the international financing institutes (IFIs) in the region (such as the ADB, etc.) can work to attract and deploy climate financing to support low-carbon, resilient growth in developing countries and emerging economies.

The ADB has a mission to help developing Asian countries meet their energy security needs, achieve a low-carbon economy, and provide reliable and affordable energy access to all populations. To support the wide-scale deployment of clean energy projects and technologies, the ADB uses a number of financing instruments, such as direct lending, lines of credit and partial credit guarantees. This combined approach to clean energy development places the ADB at the forefront of the sector, as its DMCs continue the transition to low-carbon development. By issuing ‘green bonds’ to finance projects designed to cut emissions, adapt to climate change, or expand renewable energy or efficiency schemes, the ADB has raised USD 1.3 billion to date.

As a multilateral financing institution, the ADB is also focusing on the next stage of low-carbon financing, related to the Paris Agreement and the Intended Nationally Determined Contributions (INDCs) for greenhouse gas (GHG) reductions submitted by signatory countries. Of the 189 countries that submitted INDCs to the United Nations, 43 are from the Asia-Pacific region. Countries across the region have indicated both conditional and unconditional GHG reductions, with the latter largely dependent on financial aid from the industrialized world. The Paris Agreement intends to source USD 100 billion from developed countries as a basis for a global climate financing fund. The ADB and its partners are expected to be part of the process, which will channel that money towards low-carbon activities in the developing world.

How OPIC’s Development Finance Model is Expanding Access to Energy in India and Beyond

Elizabeth L. Littlefield President and CEO, Overseas Private Investment Corporation (OPIC)

o different from many developing From solar applications economies around the world, emerging markets in Asia face to innovative ways Nmultiple challenges to growth, from to produce biofuel, limited education and health care to OPIC recognizes that limited access to the financial services entrepreneurs are ready that can support small businesses and jump-start economic growth. to deploy energy access solutions but often Access to energy is at the root of many struggle to access the of these challenges. financing needed to Those of us who take energy for scale up. We believe the granted often think of it in terms of private sector plays a turning on a light switch or charging a cell phone. While such uses are central critical role in achieving to the way we all live and work, energy universal energy access is also the foundation for our farms and and invest accordingly. our businesses, our schools and our health clinics.

OPIC works to mobilize private-sector investment to address global development challenges, including a long history of supporting projects that expand access to energy. As the development finance institution of the United States government, OPIC supports projects in more than 100 developing countries and is authorized to do business in more than 160 countries, including 28 in Asia.

OPIC’s model for advancing development is based on the understanding that the world’s challenges are too great for governments or non-profits to address on their own and that private investment is essential. We understand that Financing Asia’s Electricity Sector 2035: Making It Happen 99

business can serve as a force for good in the world. OPIC provides financing and political risk insurance to support businesses in challenging developing markets where sufficient private financing may not be available. Energy projects, which require particularly large up-front investments as well as a deep understanding of local business conditions, have consistently been an area of focus.

While OPIC’s commitment to critical energy projects is long-standing, in recent years, we have increased our focus on supporting projects that generate energy from renewable sources. The following examples from India, where we have a particularly robust portfolio of energy projects, provides a good illustration of some of the different ways we are helping businesses expand access to energy off the grid in the developing world.

Find and develop new sources of energy

In India, an estimated 400 million people live in rural areas that lack grid access. Rice is a dietary staple in India, but rice husks, the hard protective coatings that surround the edible portion, are typically discarded in the milling process. Back in 2002, two entrepreneurs looking for ways to expand access to energy and promote development in rural India discovered that some rice millers were mixing these discarded husks with the diesel they burned for energy as a way to reduce their diesel consumption and save money. When they started studying the biomass properties of the rice husks, they realized that the technology needed to convert rice husks to energy was pretty simple and well suited to small rural villages with limited technical capabilities.

When OPIC learned about Husk Power, the start-up developing this technology, it committed a small loan to the company to help it develop a series of mini power plants that would generate energy from the biomass. The financing proved critical to Husk Power, which had been unable to obtain sufficient funding from the Indian government or private investors to cover its expansion. The mini power plants are simple enough to operate that they can be maintained by locals with limited advanced skills. In addition to using innovative processes and materials to develop energy, Husk Power also advanced access to energy in India by reaching remote populations that are not connected to the energy grid. 100

Reach unreachable populations

Simpa Energy India Ltd., also an OPIC partner, is helping some of these same communities access energy with its off-grid solar energy technology. Simpa developed home solar systems that are easy to use and sells solar as a service under a model that is affordable even to poor households and some very small businesses. Demand for its systems has been strong in rural villages, where energy has brought a host of benefits, from enabling businesses to stay open to allowing children to do their homework after dark.

Seek new ways to power old industries

Applied Solar Technologies is a solar energy service provider in India that helps businesses reduce their dependence on diesel through solar energy. The company is using OPIC financing to expand the use of solar energy to power telecommunications towers in India. In addition to helping lower carbon emissions, the project is specifically benefiting poor rural areas where some of these telecom towers are based.

Today, OPIC is working to support more projects of this sort throughout Asia. Among some of the more recent projects is financing for a 75-megawatt wind energy facility in Indonesia. This will be the first private wind energy project in the country and will support the government of Indonesia, which has committed to diversifying its energy generation mix and generating more of its energy from renewable sources.

OPIC will continue to utilize all of its financial tools to catalyze new energy access across Asia. While the vast majority of OPIC’s staff is based in Washington, D.C., in recent years the agency has established a handful of small local offices, including one in Bangkok, to support regional outreach and business development. Financing Asia’s Electricity Sector 2035: Making It Happen 101

Ensuring Compatibility between Sustainable Electricity Supply and Environmental Preservation in Asia

Kazunori Ogawa Director General, New Energy and Power Finance Dept. II, Japan Bank for International Cooperation (JBIC)

Increasing electricity demand Many countries in the world Asia faces a particular foresee increasing demand for electricity in the future, based on challenge in meeting economic development, rapid projected electricity demand urbanization and increasing growth. Countries in the population. We know that reducing region are committed to greenhouse gas (GHG) emissions contributing to global climate and developing renewable energy are critical for global environmental change mitigation efforts, preservation, but also understand yet they have an abundance that the world will have to depend of coal resources and on fossil fuel thermal power limited renewable capacity generation as a future baseload power source. According to the at present. Setting energy International Energy Agency (IEA), pathways for the future will fossil fuel generation will steadily require balancing local and increase in Southeast Asia, from global objectives. 649 terawatt hours (TWh) in 2013 to 1 699 TWh in 2025.

In Asia, fossil fuel generation accounts for a large percentage of the power sector. Because of the large fossil fuel reserves in the region, the cost of power generation has been relatively low. Many countries have made the new development of large-scale baseload electricity generation a policy priority, which has the effect of limiting growth in the use of renewable energy. As a result, renewable energy currently remains low in Asia. 102

Given that the strong population and economic growth are likely to continue in Asia, the trend for electricity demand to increase will also continue. Fossil fuel power generation continues to play an important role in the future electricity supply; however, GHG emissions from fossil fuels are higher than from renewable energy. In order to meet increasing electricity demand while also contributing to global warming mitigation efforts, implementing both renewable energy and highly efficient thermal power that uses low-carbon technology must be actively promoted.

Promotion of renewable energy

The framework of the global climate change countermeasures was confirmed in COP21 in 2015, increasing the international momentum toward the shift to a low-carbon society. The circumstances in Asia surrounding clean energy are changing due to the decrease in renewable energy costs and the progress in international climate change negotiations. As major Asian countries are expected to shift to become net importers of fossil fuels, there is higher awareness of the importance of renewable energy and energy conservation in terms of energy security considerations. Under their long-term national power development plans, many of these countries have announced their strategies to promote more renewable energy.

In promoting renewable energy, in order to achieve cost-effectiveness and feasibility, the choice of project location and the environmental and social considerations of the project should comply with the climate, topographical features, and society of the region. Strong fiscal and structural incentives by the government, such as tax breaks or appropriate feed-in tariff structures, are also essential in introducing renewable energy.

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Coal is a globally traded commodity and stably procured at relatively low cost. In terms of their energy portfolios, many countries see it as a future baseload

electricity source. Coal-fired plants produce more carbon dioxide (CO2) emissions, but it is not realistic to suspend all the coal-fired power generation in developing countries right away.

From the perspective of preventing global warming, the introduction of highly efficient technology (such as ultra-supercritical [USC] technology with higher pressure and higher temperature, or integrated coal gasification combined cycle [IGCC]) is a realistic solution. The installment of USC plants is expected to increase in Asia, according to an IEA survey. Financing Asia’s Electricity Sector 2035: Making It Happen 103

Japanese equipment suppliers are pursuing more efficient technology. The efficiency level of USC coal plants by Japanese suppliers is over 40%, among the highest in the world, and this level has been rising due to technological progress. Recently, Japanese suppliers have signed engineering, procurement and construction contracts for USC plants throughout Asia.

More than 20 large-scale USC coal power plants are operating in Japan, with the first plant beginning operation in the early 1990s. Japanese utility companies have a long-standing safe and stable operation record with USC plants. Two pilot projects, the Osaki CoolGen IGCC/IGFC (integrated coal gasification fuel cell) project and the Nakoso IGCC project, are in progress.

In 2015, member countries of the Organisation for Economic Co-operation and Development (OECD) agreed on continuous support by export credit agencies for USC coal power plants, recognizing the importance of higher-efficiency coal technology. Now, USC coal power generation has become a main focus of baseload electricity development in Asia. Safe and stable operational experience and highly efficient technology will assist Asian countries’ deployment of highly efficient power generation.

Toward environment-friendly infrastructure development in Asia: challenges by the Government of Japan and JBIC

Ensuring compatibility between environmental preservation and economic growth is acknowledged as a global challenge. At the occasion of COP21, the Government of Japan announced the Actions for Cool Earth 2.0 initiative as its new contribution toward preventing global warming. Under this initiative, Japan committed its support to developing countries. In 2020, Japan will provide approximately JPY 1.3 trillion of public and private climate finance.

The Government of Japan also announced a policy to invest USD 200 billion in high-quality infrastructure globally in 2016. Under this initiative, the Expanded Partnership for Quality Infrastructure, highly efficient and lower-emissions technology in electricity generation will be promoted globally.

In accordance with those policies, Japan Bank for International Cooperation (JBIC), as Japan’s governmental financial institution, is expected to provide financial support to projects and to highly efficient thermal power generation to reduce GHG emissions. JBIC always considers a well-balanced development of the global power supply, including renewable energy, and clean and efficient thermal power. 104

A key JBIC mechanism is to extend buyer’s credits to governments or electricity companies for their purchase of renewable energy equipment from Japan. JBIC also provides project financing to independent power producers (IPPs) for renewable energy projects with Japanese sponsors. A geothermal power project in Indonesia and a hydropower project in Laos are among recent IPP transactions.

Under its GREEN (Global action for Reconciling Economic growth and ENvironmental preservation) operation, JBIC also supports renewable energy and energy-saving projects globally. The total commitment amount of the GREEN operation is USD 45 billion, with 29 transactions.

Recently, JBIC committed funds for highly efficient thermal power projects, such as gas combined-cycle plants in Thailand and USC plants in Indonesia. It also invested in and financed an enhanced oil recovery project in the United States in 2014, which contributes to GHG reductions.

Looking ahead, JBIC will continue to work on climate change countermeasures in Asia by supporting high-quality electricity infrastructure developments that are environment-friendly and contribute to reconciling global environmental preservation and economic growth. Financing Asia’s Electricity Sector 2035: Making It Happen 105

Dire Straits? Using IFI Financing in the Post-Basel III World

William A. Wilson III Partner, Wilson Williams LLC

rivate sponsors cannot get money for nothing; they must provide an equity return to investors or pay interest to a lender. If the cost of debt is lower than the expected equity return, it is in the sponsor’s economic interest to Pborrow as much as possible. Traditionally, commercial banks have been a major source of debt financing. The banks view project finance as an asset class yielding above-average returns but with above-average headaches. Over the past few decades, there have been waves of interest and periods of disengagement from the market.

We anticipate that there will be diminished interest in project financing by commercial banks in the next few years. This is due in part to political risk and market risk being greater than modeled by the lending teams. It is also a result of the Basel III regulations.

The Basel III bank regulatory scheme is an international voluntary set of standards for capital adequacy of All project sponsors face at financial institutions. Basel III was in least three hurdles: finding large part a reaction to the recession a good project to develop, of 2008, and policymakers’ belief developing it successfully that excess leverage led to the and financing that meltdown. Although Basel III is voluntary, most of its principles have development. This article been adopted (and made discusses the third hurdle. mandatory) by the world’s major economies. For example, in the United States, the Federal Reserve imposed, based on Basel III, new capital reserve requirements on both banks and other large financial institutions.

The new rules make lending to projects more expensive by imposing higher capital reserve requirements on less liquid assets (such as project loans compared to government-issued securities). Increasing a bank’s cost of funding reduces its profit—and therefore reduces its internal allocation of resources. 106

If banks lend less, sponsors will have to put in more equity or find alternative debt. International financial institutions (IFIs) are one of those alternatives. Dozens of IFIs exist; this article will briefly describe a few major ones.

In surveying the world of IFIs, it helps to consider three axes:

• multilaterals vs. bilaterals

• concessionary lenders vs. market-rate lenders

• development-oriented lenders vs. content-promotion lenders.

Additionally, the project sponsor must be sure a given IFI is ‘open for business’ in the country where the project will be located.

For the purposes of the average project sponsor, the difference between a multilateral and a bilateral is less important than the character and preferences of the specific lender. A multilateral bank has (as its name suggests) multiple shareholders, whereas a bilateral bank is owned by one sovereign. The International Finance Corporation (IFC) is a multilateral, as is the Asian Development Bank. Bilaterals include the Deutsche Investitions- und Entwicklungsgesellschaft (usually abbreviated as DEG for obvious reasons) and the Export-Import Bank of Korea.

Most of the IFIs are, at least in theory, concessionary lenders. Because they are lending for a purpose (or more than one purpose), they will lend at below-market rates or will lend to projects with risks that would torpedo a commercial bank loan. However, concessionary does not mean ‘cheap’, it simply means less costly. For example, the IFC often seeks warrants or other equity upsides as part of its financing package, which can make the total blended cost quite expensive. That said, the IFC will look at proposed projects in places no commercial lender will consider lending due to political risk.

Another way to divide the IFI world is by those lenders who seek to promote development in the project’s host country as opposed to those who seek to promote the interests of the sponsor’s home country (or the source of the equipment used in the project). The latter group includes the export credit agencies (ECAs) such as the Export-Import Bank of the United States. ECAs will have minimum content requirements and may be able to finance only portions of the project that can be tied to their home countries. Since equipment supply becomes part of the financing analysis, using an ECA adds complexity to a project. Yet, a development-oriented IFI presents its own challenges; it will Financing Asia’s Electricity Sector 2035: Making It Happen 107

likely have strong policy goals that trump economic outcomes if there is a conflict. Moreover, those policies may shift in response to changes in domestic politics in the IFI’s home country.

Finally, each IFI has its list of countries where it is willing to finance projects. That list may be based on perceived need, international politics, domestic politics and other factors. In our experience, the official list is but a starting point. A wise sponsor will save time by determining early in the process whether the host country for the project is acceptable to the IFI from which the sponsor is seeking funding.

As a corollary, a sponsor should also identify any other deal-killers, such as an unwanted fuel source, a less-than reputable local partner or a political sacred cow. IFIs have policies posted on their websites (see, for example, https://www.opic.gov/who-we-are/our-investment-policies for the policies of the Overseas Private Investment Corporation) but talking with an investment officer or business development officer at the IFI will yield valuable information about unwritten priorities and prohibitions. 108

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The Overseas Private OPIC is a US government-owned bank that Investment Corporation (OPIC) promotes investment. While OPIC is not an ECA (and has no content requirements), it www.opic.gov does require minimum ownership by persons who are US citizens. OPIC has strict rules on the environmental and social impact of projects. OPIC provides project loans and political risk insurance. OPIC does not finance projects located in the People’s Republic of China.

The Export-Import Bank of the EXIM is an ECA, and finances goods and United States (EXIM) services from the United States. Content requirements are specific and mandatory. www.exim.gov EXIM has worked closely with large exporters for years.

European Bank for EBRD offers loans, equity and guarantees to Reconstruction and projects in developing economies. It is Development (EBRD) active in some countries far from traditional Europe, such as Mongolia and Uzbekistan. www.ebrd.com Policy constraints are key. The website states: “EBRD has a political mandate in that it assists only those countries ‘committed to and applying the principles of multi-party democracy [and] pluralism’. Safeguarding the environment and a commitment to sustainable energy are also central to the EBRD’s activity.”

International Finance The IFC is the ‘hard money’ arm of the World Corporation (IFC) Bank Group. It is open in most countries and has a greater appetite for political risk than www.ifc.org many other lenders. The IFC has a development mandate and will use its financing as a way to promote environmental and social standards in the host country.

Asian Development Bank (ADB) Open in most Asian countries, including China, the ADB has a strong development www.adb.org orientation. Despite a private sector arm that has existed for many years and can provide project loans, ADB is better known for loans to governments. Financing Asia’s Electricity Sector 2035: Making It Happen 109

International Investment Bank Recently rejuvenated, the IIB is owned by (IIB) former COMECON states, with Russia holding the biggest stake. The only Asian www.iib.int/en country where IIB is open is Vietnam.

Asian Infrastructure and This new bank is seen as a competitor to the Investment Bank (AIIB) World Bank Group, largely because its major shareholder is the People’s Republic www.aiib.org of China. The bank is a development- oriented bank and is open in Asia, Latin America and Africa.

Japan Bank for International JBIC is the result of a merger between the Cooperation (JBIC) Japanese ECA and a development-oriented bank. It can therefore provide both export- www.jbic.go.jp/en credit financing for Japanese goods and concessional loans for projects with development impact.

Export-Import Bank of Korea KEXIM is an ECA promoting Korean (KEXIM) companies. KEXIM offers loans and guarantees and can also take a direct equity www.koreaexim.go.kr/site/main/ stake in a project in which Korean companies index002 are involved.

Deutsche Investitions- und DEG is part of the KfW group (the German Entwicklungsgesellschaft (DEG) ECA and development finance bank). DEG handles development finance and is active www.deginvest.de/International- around the world. DEG has a strong financing/DEG/ development/policy orientation.

Netherlands Development The FMO is one of the larger bilateral Finance Company (FMO) development banks and is active around the world. It offers a wide variety of www.fmo.nl/ financing options, including equity, mezzanine and debt. The FMO often co-lends with the IFC and DEG.

Export-Import Bank of China China EXIM is an ECA for China. It is (China EXIM) known for its large and generous support of Chinese contractors engaged in http://english.eximbank.gov.cn/en/ projects overseas.

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V. Biographies Financing Asia’s Electricity Sector 2035: Making It Happen 111

Jiwan Acharya

Mr. Jiwan Acharya has worked in the Energy Division of the South Asia Department of the Asian Development Bank (ADB) since January 2016 as Senior Energy Specialist. Prior to that, he was with Sector Advisory Support in the Regional and Sustainable Development and Climate Change Department of ADB since 1 October 2006 as Senior Climate Change Specialist (Clean Energy). He is a key member of ADB’s Climate Change and Clean Energy Team and was responsible for overseeing several of ADB’s key initiatives, including Energy for All and Low Carbon Technology Transfer, among others. The Energy for All program aims to increase ADB’s own investment in access to energy and assist the partners in promoting energy access projects in the region. Mr. Acharya also spearheaded the Energy for All Partnership, which successfully met the ambitious target of providing energy access to 100 million people by 2015, and he served as ADB’s focal point for the Clean Technical Fund (CTF) and Scaling Up Renewable Energy for Low Income Countries (SREP) under the Climate Investment Funds (CIF), as well as for the Sustainable Energy for All Initiative (SE4All). Prior to joining the ADB, Mr. Acharya was Senior Research Officer for Winrock International in Kathmandu, Nepal, covering climate change, CDM, energy access and broader clean energy areas.

Lord Browne of Madingley

John Browne (Lord Browne of Madingley) is currently the Executive Chairman of L1 Energy, an oil and gas investment company which is developing a portfolio of several regionally focused platforms and entering the rapidly evolving markets for alternative energy and energy infrastructure. Lord Browne was CEO of BP from 1995 to 2007, described as the company’s “golden period of expansion and diversification.” John Browne is Chairman of Huawei UK, the Tate Galleries and Donmar Warehouse, and has authored the memoir Beyond Business; popular science book Seven Elements that Have Changed the World; The Glass Closet, a commentary on the acceptance and inclusion of LGBT people in business; and most recently, Connect, about how companies succeed by engaging radically with society. 112

Nicholas Browne

Nicholas is a Director at Wood Mackenzie, where he leads the Singapore Primary Fuels Research team. The team provides commercial analysis on LNG, gas, coal and electricity markets and trends across Asia. Nicholas joined Wood Mackenzie in 2007 as a Gas & Power consultant in London. An energy markets and LNG expert, he has developed several Wood Mackenzie research products. He has also advised on multiple major international infrastructure transactions, project financing engagements and other projects across the energy value chain. Nicholas joined Wood Mackenzie from Total, where he worked in a variety of gas & power roles, such as trading and marketing.

Antonio Castellano

Antonio Castellano is an Expert Associate Partner at McKinsey & Company and is co-leader of McKinsey’s electricity and natural gas practice in Southeast Asia. He has served global utilities, regulators and governments in Europe, the Middle East, sub-Saharan Africa and Australasia. He has deep expertise in power sector strategy and regulation, operations, and capability building. Some of his recent work includes defining the long-term energy strategy for an Asian country, developing a ten-year strategy for a Southeast Asian utility, designing a national strategy for the deployment of renewables and nuclear energy in Asia, and supporting a national regulator in increasing competitiveness and attractiveness of a local electricity sector. Financing Asia’s Electricity Sector 2035: Making It Happen 113

Sarah Fairhurst

Ms. Fairhurst, one of the Founding Partners of The Lantau Group (TLG), has a wide range of international experience in the electricity and gas sectors. Prior to co-forming TLG, Ms. Fairhurst was a principal with Charles River Associates (CRA) first in Australia, then in New Zealand and later in Hong Kong. TLG was formed in 2010 as a management buyout of CRA’s Hong Kong subsidiary. Ms. Fairhurst combines strong policy advisory and analytical qualifications with pragmatism and commercial experience across many countries in order to advise clients more effectively on power and gas markets; commercial opportunities; market entry strategies; market transition arrangements to mitigate market power or transition to retail competition or facilitate market maturation; power procurement tender design; and related regulatory matters. Her power expertise covers traditional thermal as well as renewables, geothermal and hydro power stations.

Robert W. Gee

Mr. Gee is President of Gee Strategies Group LLC, a Washington, DC-based consulting firm excelling in policy analysis, advocacy and litigation support for a variety of domestic and foreign clients in the energy and utility sectors. A 36-year veteran of the energy industry, his thought leadership is exemplified by his diverse experiences as an attorney, senior state and federal public official, and technology executive. A recipient of various honors and awards, his commentary on energy and public policy matters has appeared in major print and broadcast news media. Mr. Gee served as Commissioner and Chairman of the Public Utility Commission of Texas, and later as Assistant Secretary for Policy and International Affairs and Assistant Secretary for Fossil Energy at the US Department of Energy. 114

Philip Graham

Mr. Graham is a Managing Director and Co-Head of Energy, Power and Utilities for Asia Pacific, based in Sydney. Mr. Graham has more than 20 years of investment banking experience and joined Citi in 2006 after working at ABN and Merrill Lynch in New York and Australia. Mr. Graham has been involved with more than USD 30 billion of mergers and acquisitions (M&A) and financing transactions in the energy, power and infrastructure sectors. Mr. Graham works with energy and utility clients throughout Asia and Australia and recently advised CKI on its USD 4.5 billion acquisition of Envestra Gas Networks, Woodside Energy on its USD 3.7 billion acquisition of Apache’s liquefied natural gas (LNG) assets, and AGL Energy on its acquisition of more than 3 gigawatts (GW) of power stations including Macquarie Generation and Loy Yang B.

Ee Huei Koh

Ee Huei Koh is an Associate Partner at McKinsey & Company. Since joining McKinsey in 2008, she has focused on advising government agencies and private sector operators in the areas of transportation infrastructure and power generation. She employs her engineering and policy expertise to help leaders and executives negotiate complex political, economic, social and environmental issues in the planning and delivery of efficient, cost-effective transport infrastructure. In her work in the power sector, Ms. Koh guides utility clients through the regulatory process, aligning with environmental goals while improving performance across the value chain and promoting sustainable competitive advantage. Financing Asia’s Electricity Sector 2035: Making It Happen 115

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Ms. Kohalmi-Monfills is the Executive Vice President, Strategy and New Business, with ENGIE Asia-Pacific, based in Bangkok. ENGIE’s operations in the region include electricity generation and retail, gas distribution, district cooling, commodity trading, liquefied natural gas (LNG) trading, shipping and sales, as well as design and engineering, facility management and energy efficiency services through its subsidiaries in Thailand, Indonesia, Singapore, the Philippines, Australia, New Zealand, Myanmar and Mongolia. Before joining ENGIE in 2011 as Strategic Projects Director, Ms. Kohalmi-Monfills held senior functions at various energy companies in Hungary, including the MOL Group. She started her career with Unilever, where she headed up business development projects in Europe and Latin America. Later, at the Boston Consulting Group, she developed new business opportunities and managed change projects for corporate clients across the world.

Lawrence E. Jones, Ph.D.

Dr. Lawrence E. Jones is a thought leader and practitioner with over 25 years of experience in the energy industry. He joined Edison Electric Institute (EEI) in September 2015 as Vice President, International Programs. Prior to joining EEI, Dr. Jones was North America Vice President for Utility Innovation & Infrastructure Resilience at Alstom Grid Inc., where he assisted utilities worldwide with formulating strategies for deploying new technology solutions. He is editor of the book Renewable Energy Integration: Practical Management of Variability, Uncertainty and Flexibility in Power Grids. He received the Renewable Energy World Network 2012 Excellence in Renewable Energy Award for Leadership in Technology, and the Utility Variable Generation Integration Group 2012 Achievement Award. In 2000, while at the Royal Institute of Technology, he co-founded the International Workshop on Large-Scale Integration of Wind Power and Transmission Networks for Off Shore Wind Farms. He is frequently an invited speaker at industry conferences and academic symposia for diverse audiences across the globe and has published and been cited in scholarly journals, trade magazines and newspapers; he has also appeared on television and radio in Australia, Europe, New Zealand, South Africa and the United States. Born in Liberia, Dr. Jones received his MSc, Licentiate and Ph.D. degrees in Electrical Engineering from the Royal Institute of Technology in Stockholm, Sweden. He is a Senior Member of the IEEE. 116

Thomas R. Kuhn

Mr. Kuhn is president of the Edison Electric Institute, the association of investor-owned electric companies whose members generate and distribute approximately three- quarters of the nation’s electricity. Prior to joining the Institute, Mr. Kuhn was president of the American Nuclear Energy Council. The Council represented virtually all of the companies in the commercial nuclear power industry. From 1972 to 1975, he headed the energy section of the investment banking firm Alex Brown and Sons. From 1970 to 1972, Mr. Kuhn was White House Liaison Officer to the Secretary of the Navy. Mr. Kuhn received a BA in Economics in 1968 from Yale University, served as a Naval Officer following his graduation, and completed a Master’s in Business Administration in 1972 from George Washington University. He currently serves on the boards of the US Energy Association, Alliance to Save Energy, Electric Drive Transportation Association and the American Council for Capital Formation. He is Chairman-Emeritus of the US Chamber’s Committee of 100 and the American Society of Association Executives. He is a past Chairman of ASAE’s Key Industry Association Committee and of the Trade Association Liaison Council.

Richard Lancaster

Richard Lancaster is CEO of CLP Holdings, one of Asia Pacific’s leading investor-owned energy businesses. An engineer by training, his career in the power industry spans more than 30 years. Mr. Lancaster is a strong advocate for clean energy and chairs both the Business Environment Council in Hong Kong and the Hong Kong Membership Committee of the World Energy Council. He is also a council member of the World Business Council for Sustainable Development and a member of its Climate and Energy Cluster Board. Financing Asia’s Electricity Sector 2035: Making It Happen 117

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Ms. Littlefield is the President and CEO of the Overseas Private Investment Corporation (OPIC), the US Government’s development finance institution. OPIC provides financing and political risk insurance to support development in more than 100 countries and manages a global portfolio of almost USD 20 billion. With a strong background in both development and finance, Ms. Littlefield has previously served as Chief Executive Officer of CGAP (Consultative Group to Assist the Poor), a policy and research center dedicated to advancing poor people’s access to financial services that is housed at World Bank; and as JP Morgan’s Managing Director in charge of capital markets and financing in emerging Europe, the Middle East and Africa.

Ted Low

Mr. Low is an Associate Director within Clifford Capital’s infrastructure business. He joined Clifford Capital from the Challenger-Mitsui Infrastructure Fund, where he was responsible for investment and portfolio management of infrastructure assets across Asia, with over seven years of experience across the power, water and renewables sectors. Previously Mr. Low was based in London, where he worked in the Investment Banking Funds division of Macquarie Group and was responsible for the management of telecom assets acquired by Macquarie in Europe. 118

Ng Wai Choong

Mr. Ng Wai Choong has been the Chief Executive of Energy Market Authority since April 2015. He joined the Singapore Administrative Service in 1991 after graduating from the University of Tokyo in 1990. He also attended the Harvard Business School’s Program for Management Development in 2001, and the INSEAD Advanced Management Program in 2012. He was the Deputy Secretary (Policy) in the Ministry of Finance from 2007 to March 2015, overseeing government revenue, expenditure and investment policies. Before that, he was the Deputy Secretary (Industry) in the Ministry of Trade and Industry (MTI) from 2003 to 2007, and was concurrently the first Chief Executive of the Competition Commission of Singapore (CCS) from 2005 to 2006. He was conferred the Public Administration Medal (Silver) in 2006 and the Long Service Medal in 2014.

Kazunori Ogawa

Mr. Ogawa joined Japan Bank for International Cooperation (formerly known as the Export-Import Bank of Japan) in 1990. Since 2015, he has been Director General for New Energy and Power Finance Department II of Infrastructure and Environmental Finance Group and has worked on many power and environmental projects. Financing Asia’s Electricity Sector 2035: Making It Happen 119

Michele Pani

Mr. Pani is a Partner at McKinsey & Company and co-leads McKinsey’s Electric Power and Natural Gas Practice in Southeast Asia. Mr. Pani has worked extensively with government bodies and regulators on energy policies, regulatory frameworks and energy efficiency roadmaps, and with private energy companies and state-owned enterprises on strategy, business development and operational efficiency. Some of his recent work includes leading power sector restructuring for an electricity regulator in Southeast Asia, defining the international growth strategy for a major listed power company, designing and executing a generation operational excellence program for a state-owned power company in Indonesia and developing a carbon abatement and energy efficiency roadmap for a national agency.

Bikal Pokharel, Ph.D.

Dr. Pokharel leads Wood Mackenzie’s research, analysis and modelling of Asian power markets. Prior to joining Wood Mackenzie, Dr. Pokharel was a power specialist at Power Seraya in Singapore, where he was responsible for analyzing the Singapore electricity market and developing market models to forecast market conditions. The developed models were used for making bidding strategies in the half-hourly electricity market in Singapore. Dr. Pokhrael holds a B.Sc. Eng (Electrical Engineering) from the Regional Institute of Technology, India, and a Ph.D. in Power Engineering (Electricity Markets) from Nanyang Technological University, Singapore. 120

Dale Probasco

Mr. Probasco is a Managing Director in the Energy practice and leads the Global Generation Services practice at Navigant. With more than 35 years of experience in managerial and consulting positions in the electric utility and construction industries, he provides a broad range of generation-related services, including fleet management, performance improvement, benchmarking and fleet transformation.

Marilyn Smith

Marilyn Smith is a science communications specialist with 15+ years’ experience presenting news and information to non- scientific audiences (e.g. policy makers, the general public) via various media. Having served for three years (2009-12) as Chief Editor of the International Energy Agency (IEA), she has a broad understanding of the energy sector and related issues. Ms. Smith continues to edit reports and papers for the IEA, as well as other energy organizations including the Asia-Pacific Energy Research Centre (Japan), the King Abdullah Petroleum Studies and Research Centre (Saudi Arabia) and the Swedish Environmental Research Institute (Sweden). Ms. Smith is also founder and Executive Director of The Energy Action Project (EnAct/www.en-act.org), a start-up multi-media project exploring energy poverty in diverse contexts globally. EnAct’s tagline “Reporting that seeks to empower” reflects its mission to investigate the causes and impacts of energy poverty, as well as solutions (technology, policy, financing and social) to address it. EnAct wants everyone to ‘get’ energy. Through a storytelling approach, in which journalists and experts collaborate, it raises awareness of who is doing what to end energy poverty while also building energy literacy. Financing Asia’s Electricity Sector 2035: Making It Happen 121

The State Grid Corporation of China & Global Energy Interconnection Development and Cooperation Organization

The Global Energy Interconnection Development and Cooperation Organization (GEIDCO), headquartered in Beijing, is a non-governmental, non-profit international organization of companies, associations, institutions and individuals dedicated to promoting world-wide sustainable energy development. GEIDCO supports the establishment of a Global Energy Interconnection (GEI) based on Ultra-High Voltage AC/DC and smart grid technology, which provide a secure means to promote clean, cost- effective and sustainable energy. GEIDCO leads GEI development by promoting international understanding of GEI, formulating and implementing development plans, coordinating the creation of a GEI technical standards framework, organizing concerted and collaborative research and innovation initiatives, key studies, international communication and consulting and cooperation, and engineering project implementation as well as delivery of consulting services.

State Grid Corporation of China (SGCC) is a state-owned corporation that constructs and operates power grids. SGCC provides power to over 1.1 billion people, covering 88% of the nation’s territory. As the largest power company in the world, with assets of USD 480 billion and revenue of USD 320 billion in 2015, the company also owns and operates overseas assets in the Philippines, Brazil, Portugal, Australia and Italy.

Mike Thomas

Mike Thomas, a Partner in the Lantau Group, has advised energy sector stakeholders on sensitive regulatory, commercial and strategic matters for over 25 years. He is an expert in the rigorous analysis of energy sector decisions, including how or whether to regulate; how and when to rely on market forces; and what value to place on opportunities and risks. Prior to co-founding the Lantau Group in 2010, he headed the Asia Pacific Energy & Environment practice of a global consulting firm. Mr. Thomas has an MPP from Harvard Kennedy School and a BA in economics from Carleton College. 122

Matthew Warren

Mr. Warren was appointed inaugural Chief Executive of the Australian Energy Council in December 2015. From 2012 he led its predecessor, the Electricity Supply Association of Australia, to pursue the deregulation of energy markets and the development of comprehensive, efficient and durable national climate and energy policy, and to manage the aggressive transformation facing the sector. Mr. Warren was previously Chief Executive of the Clean Energy Council, where he made a significant contribution to Australian policy debate on the role of renewable energy in meeting the challenges of reducing emissions, as well as being an environmental writer for The Australian newspaper.

Priyantha D.C. Wijayatunga, Ph.D.

Dr. Wijayatunga is a Principal Energy Specialist at the Asian Development Bank and has been the focal point for South Asia Regional Energy Cooperation. He has contributed extensively in energy sector policy and regulatory activities for over 25 years and has co-authored over 75 publications. In 2003 he became the founder Director General of the Public Utilities Commission of Sri Lanka. He was a lead author of Sri Lanka’s National Energy Policies and Strategies as well as Sri Lanka’s Initial National Communication on Climate Change.

William A. Wilson III

Mr. Wilson is the founding partner of Wilson Williams LLC, a boutique law firm with offices in New York, Washington, DC, and Los Angeles, and affiliates in Hong Kong and Taipei. He was previously partner at two major law firms, and was based in Hong Kong for 11 years. Mr. Wilson’s practice is in finance and corporate law. His Asian power and infrastructure experience began in 1986, when he worked on the financing of the Daya Bay nuclear power plant. Financing Asia’s Electricity Sector 2035: Making It Happen 123

Marat Zapparov

Mr. Zapparov leads the Infrastructure team at Clifford Capital, a non-bank financial institution set up by Temasek, DBS Bank, Sumitomo Mitsui Banking Corporation, Standard Chartered Bank, John Hancock Life and Prudential, with support from the Government of Singapore. Clifford Capital is a specialist provider of project and asset-backed finance established to act as a catalyst for companies with a meaningful presence in Singapore, in support of their investments or exports overseas. Mr. Zapparov is responsible for origination, structuring and execution of infrastructure debt investments for the company. The Infrastructure team is engaged in a number of first-of-a-kind financings across power, water, transportation, liquefied natural gas (LNG) and other sectors in Asia, the Middle East and Latin America. Mr. Zapparov has over 12 years of experience, including six in Asia Pacific, and has closed a number of high-profile, award-winning financings in the region, across the energy, infrastructure and resources sectors in Vietnam, Malaysia, the Philippines, India and the broader Asia region. Mr. Zapparov started his career in London, where he advised on energy and infrastructure financing and mergers and acquisitions (M&A) in Europe, Russia/ CIS and the Middle East.

Aiming Zhou, Ph.D.

Dr. Zhou is a Senior Energy Specialist in the Energy Division of the South Asia Regional Department at the Asian Development Bank (ADB). Previously he was Secretary of ADB’s Energy Community of Practice and the focal point of ADB’s Clean Energy Program. He oversaw ADB’s clean energy activities, coordinated ADB’s efforts in clean energy development and climate change mitigation, and provided technical support to ADB’s energy-related operations in low carbon development. 124 Financing Asia’s Electricity Sector 2035: Making It Happen

About EEI

The Edison Electric Institute (EEI) is the association that represents all U.S. investor-owned electric companies. Our members provide electricity for 220 million Americans, operate in all 50 states and the District of Columbia, and directly and indirectly employ more than one million workers. Safe, reliable, affordable, and clean energy powers the economy and enhances the lives of all Americans. EEI has more than 60 international electric companies as International Members with operations in more than 60 countries worldwide, and hundreds of industry suppliers and related organizations as Associate Members. Organized in 1933, EEI provides public policy leadership, strategic business intelligence, and essential conferences and forums.

About EEI’s International Programs

EEI’s International Programs currently serves more than 60 international electric power companies with operations in over 60 countries. The International Programs’ platform provides a critical knowledge-sharing link between U.S. and international electric power companies and industry stakeholders through three core activities.

To order a copy of this book contact [email protected] at +1-202-508-5000. For more information about EEI’s International Program visit www.eei.org/international.