Last month Bangkok played host to the 17th annual POWER-GEN Asia conference and exhibition. Perhaps inevitably, much of the discussion among the record-breaking attendance centred on the financial tsunami.
The economic downturn may have stunted demand growth in Asia, but let there be no doubt that virtually every country on the continent of Asia has a desperate shortage of power generation capacity, particularly in the ASEAN region.
At last month’s POWER-GEN Asia conference in Bangkok, Thailand, there was a feeling among many conference delegates that, particularly if one is buying power plant equipment, the crash of 2007/2008 has offered some relief, bringing as it has shorter lead times and lower prices.
Furthermore, government economic stimulus packages have sharpened the industry’s focus on energy efficiency and environmental responsibility.
Admittedly, some nations are more concerned with keeping the lights on than lowering their carbon footprints, and coal will continue to play a dominant role in the Asian power generation mix. But incentives like preferential tariffs and corporation tax relief for renewable projects have instigated a significant shift towards cleaner, greener power.
Here are some key ‘takeaways’ from Bangkok:
1. The global downturn has had a major impact on Asian power demand, but blackouts still need to be addressed throughout the continent. It is more difficult to get debt financing for power projects, and interest rates have risen, but there is a relatively buoyant equity market. There have been far fewer bankrupt banks, utilities and indeed governments than in the crash of the late 1990s. However, some very prominent financiers in the region have called it a W-shaped recession and a challenging three to four years. Many independent power projects have been renegotiated.
2. The willingness of international banks to lend to cleaner energy projects over fossil fuel projects that do not meet environmental standards is causing a surge in investment. Wind power has huge potential. That said, coal plants are still cheap and will remain relatively cheaper over the next five to ten years.
3. Power equipment prices for Asian power projects have substantially declined in response to a drop-off in demand, in particular solar cells and wind turbines. But with these falling prices, not to mention lower gas prices and increasing availability of liquefied natural gas, there are signs of a pick-up for 2010.
4. Chinese EPCs continue to price out Western and other firms, particularly for coal plants, in Asian power projects outside China. If the EPC price tendered is more than $1000/kW, they can pretty much forget it when the Chinese can do it for $200-300 less. However, there are doubts over Chinese EPCs’ execution of foreign power projects. It is unclear whether Chinese EPCs stick to their promise to adopt international standards and if they can adequately manage risk to hit schedules. Furthermore, Chinese coal units (300 MW) have been found to be on average three per cent per cent less efficient and use 40 per cent more auxiliary power. That said, reliability is improving.
5. In order to reduce its gas fired capacity from 70 per cent to 60 per cent by 2021, Thailand has plans to increase its renewable energy capacity from 1750 MW to 5500 MW by 2020 by offering a generous 400 per cent of its regulated ‘normal tariff’ for solar power and 200 per cent for wind. State utility Electricity Generating Authority of Thailand (EGAT) also wants to build more coal plants despite the strong environmental resistance to these plants in Thailand.
6. EGAT is conducting site preparation for two 1000 MW nuclear power stations by 2021, but without an independent regulatory framework and public support in place this appears somewhat optimistic. The same can be said for Vietnam.
7. Vietnamese power demand will rise 16 per cent in 2010, and then 11 per cent a year until 2015. EVN wants the country’s coal capacity to rise tenfold to 20 GW by 2025 and 4 GW of nukes, on top of the 10 GW of hydro under construction. To encourage renewable projects, EVN will offer 20-year power purchase agreements.
8. Indonesia’s power market is a mess. It has annulled a law that allowed the market to set power prices, but the upshot is that this gives more stability to independent power producers. To encourage power investment across the archipelago, state utility PLN will now offer differential tariffs for various regions. It wants 5 GW of expansion for geothermal energy and it was rumoured that a bill setting out a geothermal tariff of $0.097/kWh (including a 25 per cent escalator) is sitting on the Indonesian President’s desk.
9. Chinese power consumption fell 20 per cent from peak and there is a slowdown in power project approvals, but consumption growth resumed in August. With Beijing seeking to reduce coal imports, there are unprecedented opportunities to develop renewable energy projects. Reduced corporation tax rates, equipment tax rebates, subsidies, preferential tariffs and a mandatory 100 per cent offtake imposed on the grid companies are doing the trick.
10. India is struggling to cope with its massive demand. A lack of cash and a shortage of labour is handicapping development. The Central Electricity Authority believes there is a 40 per cent financing gap between what is available and what is needed. Transmission losses of 28 per cent further disrupt India’s ambitious plans. Chinese EPCs and OEMs are increasingly filling the gap.