By: Fernando Vidaurri
Last month ASEAN member states met in Kuala Lumpur for the 33rd ASEAN Ministers on Energy Meeting and agreed to look to renewable energies as a way to solve lack of electricity in some of their communities. During the meeting the ministers also endorsed the 2016 ASEAN Plan of Action for Energy Cooperation 2015-2016 and agreed to reach a target of 23 percent renewable energy by 2025.
This announcement is very significant given that according to a report from the International Energy Agency (IEA) the region has seen a 50 percent increase in energy demand between 2000 and 2013. In fact according to an Asia Development Bank (ADB) report Asia is expected to become the largest energy consuming region in the world well before 2050.
Countries across the region have taken different approaches to solve these issues, with some ASEAN members encouraging investment in renewable energies as a way to reduce fuel imports, and others seen it as way to bring electricity to millions of people in the region who still lack it. This article will take a closer look at solar technology and see how it has been embraced by different countries around the region.
Thailand has become the undisputed solar energy leader in the region, which has been achieved thanks to lower costs in solar-components and subsidized energy tariffs. Thailand’s gamble on solar energy is the result of dwindling natural-gas reserves that could run out within a decade. This has forced the country to rely on imported fuel and look for alternative sources of energy.
By the end of the year, Thailand is expected to have more solar power capacity than the rest of Southeast Asia combined. In less than ten years solar energy has gone from accounting for less than 2MW to about 1300MW in 2014. This year, capacity is projected to increase to between 2500 and 2800MW, which would mean an increase six times higher than the year before.
Looking into the future Thailand expects to increase its solar capacity to 6,000 MW by 2036, which would account for 9 percent of total electricity generation and help provide electricity for 3 million households. The continuous interest of the Thai government to develop this industry and to provide subsidies presents investments opportunities in a sector that has barely been developed by its neighbors.
The Philippines just like some of its neighbors is also dependent on imports of coal, oil and gas for most of its energy needs. This dependence and the growing energy needs have incentivised the government to started looking at renewable energies, such as solar power as possible alternatives. However, despite government willingness progress has been slow. For example, despite passing a law in 2008 to encourage higher use of renewable energy by 2011 renewable capacity had only increased by 118MW.
One of the reasons renewable energies have been seen slow growth is that investment on this industry is not seen as offering the same investment returns as fossil fuels. In addition to costs, investment has been affected by the slow approval process. For this reason, solar industry officials have started putting more pressure on the government to increase investment incentives and process project permits faster.
The Philippine Solar Power Alliance wants the government to quadruple the size of its tariff from 500MW to 2GW. It believes that increase the solar capacity limit and smoothing the approval process will pave the way for an estimated US$4 billion in solar projects currently under consideration, as well as having the potential to tackle the growing demand in power supply.
The rapid industrialization of Vietnam has led to a growing demand for electricity that has grown by 10 percent in the past decade. Given that demand is expected to increase at even faster rate over the next 20 years, Vietnam has started looking at renewables, including hydropower and solar energy, as a possible solution.
Solar energy shows great potential as an area of investment given that the country records 2,000-2,500 hours of sunlight annually. Harnessing all of this solar energy presents the equivalent of 43.9 million tons of oil a year. Recognizing the potential, Vietnam has begun energy reforms and opened the sector to private investment.
Both local and foreign companies have started taking advantage of this untapped market. Construction on the first solar power plant began in August at a cost of US$36.12 million and with the potential to produce 28 million kWh a year. Another project recently announced involves a US$650 million investment by a South Korean firm on a plant that would generate 300MW.
Given that the solar energy market is barely taking off, it presents big opportunities given the rising energy demands. The country is on course to have an installed power capacity installed of 75,000MW by 2020 with renewables making a mere 4.5 percent. Thus, there is room for growth, as the sector opens up with the new energy reforms.
Malaysia has seen increasing growth in the solar market, with solar photovoltaic panels generating 67 percent of the renewable energy production. This growth has been encouraged at both the national and local levels. One example of this is Malacca, which has set itself the target of becoming a Green Technology City State by 2020. Its most recently opened solar farm has the capacity to produce 10,120MWh and generate RM 8 million a year.
Solar farms projects have been developed in other areas of the country, but some of them have run into funding issues due to the large loans needed. Yet despite the high costs, companies have seen returns on their investment by taking advantage of government tariffs that allows them to sell the energy they produce into the national grid by signing purchasing agreements.
Malaysia is also uniquely positioned to rip the benefits of this new market by becoming an important producer of solar panels. The country has attracted many multinational companies that have taken advantage of the relatively low cost labor, generous tax breaks, and qualified English-speaking force. This has allowed Malaysia to become the third-largest producer of solar equipment. In this way, it has an edge over its neighbors both by attracting solar panel manufacturers and by investing in solar farms.
Looking into the Future
As one of the fastest growing areas in the world, ASEAN will continue to see increasing energy demands. Given that a lot these economies rely on fuel imports, countries are increasingly starting to look at renewable energies as a way to meet this demand. Solar energy will continue increase in importance as Southeast Asian nations given the abundance of the resource and the new government incentives.
At the moment Thailand seems to be the country that has benefitted the most from harnessing solar power. However, its neighbors have started taking notice and are now investing in solar farms, creating incentives, as well as attracting solar panel manufacturers. Additionally, many ASEAN member states now host annual events aimed at attracting local and foreign investors in both solar energy, as well as other renewable energies.
Further Support from Dezan Shira & Associates
To learn more about investment opportunities in ASEAN’s renewables industry, or country specific comparisons on incentives for green power generation, please get in touch with the specialists at Dezan Shira & Associates for further consultation.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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