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FINANCING ASIA’S ELECTRICITY SECTOR 2035: Making It Happen © 2016 by the Edison Electric Institute All rights reserved. Published 2016. Printed in the United States of America. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system or method, now known or hereinafter invented or adopted, without the express prior written permission of the Edison Electric Institute. ATTRIBUTED NOTICE AND DISCLAIMER This work was prepared by the Edison Electric Institute (EEI). When used as a reference, attribution to EEI is requested. EEI, any member of EEI, and any person acting on EEI’s behalf (a) does not make any warranty, express or implied, with respect to the accuracy, completeness, or usefulness of the information, advice, or recommendations contained in this work, and (b) does not assume and expressly disclaims any liability with respect to the use of, or for damages resulting from the use of any information, advice, or recommendations contained in this work. The views and opinions expressed in this work do not necessarily reflect those of EEI or any member of EEI. This material and its production, reproduction, and distribution by EEI does not imply endorsement of the material. Published by: Edison Electric Institute 701 Pennsylvania Ave., N.W. Washington, DC 20004-2696 USA Phone: 202.508.5000 Website: www.eei.org Financing Asia’s Electricity Sector 2035: Making It Happen 1 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: