Charles Diestel, Vice-President, Samsung C&T, Singapore
Naturally, big markets such as China and India are very tempting and should not be forgotten even if their economies are slowing. Keep an eye on them. Also though, carefully consider the risks and difficulties of building power plants in those countries versus the rewards.
For me, I would focus my efforts on Southeast Asia countries.
Malaysia needs more and newer power plants. Vietnam is growing rapidly and needs the power, however breaking into the system there might be somewhat challenging.
Myanmar is severely in need of electrification – they know it and are opening their doors by hosting power conferences and seminars. The time is ripe for investing in Myanmar for sure.
One should always check out the Philippines as well and Thailand is always a good place to do business as well.
Overlooked somewhat is Indonesia. They need electricity for their 240 million people and many islands. Indonesia is growing up and becoming more transparent in their business dealings. I believe their government bonds are no longer considered ‘junk’ bonds, although not Triple-A quite yet.
So to summarise, I strongly believe the time is ripe to invest in various Southeast Asian countries, especially Myanmar, Indonesia, and Malaysia. Of course, the ‘flavour’ or situation in each country needs to be studied to know how to invest in a particular country. For example, it may be beneficial to have a local partner to guide you through the country’s ways of doing business.
With the economic growth of Asia’s giants – China and India – slowing, is the time now right for power industry investors and players to focus their efforts on other Asian countries with booming economies, such as the Philippines, Indonesia and Malaysia?
John Gustke, Managing Director, Energy Asia, Black & Veatch, Thailand
I think a more measured and stable view of the power needs within each country is important to keep in view, as well as long term business relationships with stakeholders in each country.
Opportunities for investment and project participation in the power industry in Southeast Asia have been, and remain, strong. It’s important that a variety of indicators are taken into consideration and the right business approach for each market is adopted.
Throughout Asia, there’s close to 700 million people without electricity. Migration to cities and industrialisation continues at pace and with that comes rising power infrastructure demands. The pace of development may slow over time but there are many real and pressing gaps throughout the region.
The two biggest effects of the China and India slowdown will be a rise in competition within the power sector throughout Asia and also knock-on effects to the economic health of China and India’s trading partners, including the Southeast Asian markets under discussion.
The need for power infrastructure, as said, will still remain. With rising competition, tightening margins and reduced access to finance, the question around how this will happen will be brought under scrutiny. This means power producers across Southeast Asia will demand improved solutions on how better to manage risk and schedule and procure equipment, delivering much-needed large scale projects on time without sacrificing quality.
Throughout the region, including China and India, all power producers will continue to ask how they can balance price without sacrificing quality. This is where the industry must continue to focus, regardless of location.
Matthias Hiddemann, Regional Product Manager,Asia, Alstom Power, Malaysia
In general, from the OEM’s perspective there are various drivers for the power markets.
Besides the economic growth and environmental regulations, the variation in the fuel supply and fuel price, as well as the variation in the electricity price, the age of the existing power generation equipment and the liberalisation of the energy market all have an impact on which kind of power generation technology investments will take place.
Within a specific power market, existing operators have to fulfil certain requirements: they have to produce electricity at the lowest possible costs for low electricity tariffs, the power generation has to be reliable to ensure each country’s energy security and the impact on the environment has to be minimised.
OEMs have to take the situation of every country’s power generation market and its power generation suppliers into consideration.
As well as offerings for new power plants, solutions for the already-installed power generation base have to be available, such as performance and emission improvements or solutions to integrate the different power generation technologies in the generation-mix.
Moreover the identification of new trends as well as the introduction of new technologies has to be monitored and adequate products meeting the requirements have to be developed.
Within this environment it is mandatory to be permanently present in each market, independent from the actual economic growth, in order to be up-to-date with the market requirements and understand the needs of power generation companies. Only this enables the possibility to offer the right solution or technology matching with the differing market environments.
Joseph Jacobelli, Senior Analyst – Pan Asia Utilities, Bloomberg LP, Hong Kong
We are indeed witnessing a slowdown in the GDP growth rate of Asia’s two power giants. China and India saw GDP growth averaging 9.2 cent and 7.4 per cent respectively over the past three years while the expectation by economists for the next three years is 7.4 per cent and 5.8 per cent respectively.
At the same time, China’s energy requirements are expected to rise threefold or more in the coming 30 years while India’s should be at an even higher rate: despite its 1.35 billion people, China’s total installed power generation capacity of 1142 GW is only slightly smaller than that of the US and India’s 225 GW is currently less than 20 per cent of China. As such, Asia’s two power giants still offer great scope in terms of opportunities.
That said, overseas investors have not been investing in power generation in both countries. China has not been an attractive market partly due to a lack of long-term power purchasing agreements (PPAs). Power output is typically agreed one year forward and the tariff paid by the grid to the generators is set by central authorities – all without a clear mechanism to protect the generators from fuel costs volatility. Moreover, overseas investors have found it tough to be price competitive versus the long established domestic giant power generation groups. As such, today there are barely any foreign developers in China.
India, unlike China, has offered long-term PPAs. However, the financial strength, in terms of the payment capability of the state electricity boards, has been a challenge, as has fuel availability. As such, just like China, few foreign developers can be found.
A few Southeast Asia power industries have attracted high overseas capital. The clear winner, by the presence of foreign investors, has been Thailand and more recently the Philippines and Indonesia have seen good levels of interest. Thailand has offered an open and liberal approach to foreign investors in the sector coupled with relatively consistent and transparent rules and regulations. In the near future most industry participants expect this to continue if not even to accelerate.
Normen Kegler, Advisory Council Chairman, Independent Power Producers’ Forum (IPPF), Hong Kong
For quite some time the power generation sectors of China and India have shifted away from foreign direct investment as their respective market practice, regulatory framework and tariff policies hardly encourage traditional foreign independent power producer investment.
The question is rather ‘how’ than ‘if’ foreign direct investment will explore opportunities in other markets in the region.
The days of the ‘classic’ IPP model appear to be numbered as most countries in the region have matured and gained direct access to the capital, technologies and expertise required to develop their power generation sectors.
Foreign IPPs that are still successful and proactive in the Chinese and Indian power generation market currently demonstrate business development models that indicate the future role and shape of IPPs in the region.
They keep strong and multiple affiliations with domestic stakeholders and have refined their capability to cater for advanced technical and managerial demands in niche segments to maintain their success. They pay close attention to the advanced technologies favoured by governments in their energy policy development, as those determine the market niches that an IPP can successfully occupy without facing too much domestic competition.
Some IPPs have engaged in local supporting industries such as coal processing and coal blending, thus deepening their market integration.
Public private partnerships may allow for a more efficient project risk management on both sides. However, since the partners differ a lot in their basic purposes and management styles, such partnerships can be troublesome.
Generally, IPPs have learned to move along with the host country rather than offering prefabricated standard solutions that were incorporated in their business models and applied all around the world.
Therefore IPPs have become more sustainable partners for addressing specific sets of requirements and therefore will continue to play an important role in developing the power generation markets in Asia.
Markus Lorenzini, Head, Siemens Energy Sector, ASEAN-Pacific Cluster, Indonesia
The ASEAN countries, together with China and India, have been shifting the centre of gravity of the global energy system toward Asia. Ongoing urbanisation and industrialisation in these countries have driven growth in energy usage. This growth continued even through the recent global economic crisis, which prompted a fall in energy use at the global level.
In recent years, ASEAN countries have been placing increasing emphasis on improving the efficiency of energy use, in recognition of the need to curb demand growth, reduce energy imports and mitigate pollution.
Thailand, the Philippines and Malaysia, especially, have shown a very positive trend of new power generation, especially towards innovative and highly-efficient technologies. In addition, Thailand and the Philippines are also investing in wind power and have established tariff regimes that support investments in renewable energy production.
ASEAN, particularly Indonesia, Thailand, Malaysia and the Philippines, will have continued growth and energy demand in the next coming decades, where investors have an attractive environment.
Robert McGregor, Head of Power & Utilities, Asia, HSBC, Hong Kong
I don’t expect to see a meaningful change in investment interest towards Southeast Asia – it has always been there.
The advantages of the larger markets in China and India were that they provided economies of scale and room for multiple participants – developers could see a pipeline of opportunities extending into the foreseeable future – a chance to build a meaningful regional business. But, for various reasons, the growth opportunities have rarely translated into deliverable shareholder value for the international players.
Even so, this will not result in a switch to Southeast Asia. The scale opportunity has never existed there – the smaller market sizes, with different regulatory regimes, different fuel mixes and different levels of IPP ownership have always made it difficult for international developers to build a regional platform of any size. So, Southeast Asia has always been an asset-by-asset play on a country-by-country basis and international developers have always pursued different strategies in the region versus in China and India.
But, as these international players look at Southeast Asia today, they see the indigenous power developers have become financially stronger, technically more capable and commercially much stronger than was the case 15 years ago. An international developer considering a Southeast Asian investment strategy must take account of the enhanced competition from EGCO, Ratchaburi and PTT in Thailand; from 1MDB, Malakoff, Tenaga in Malaysia; or from Aboitiz Power, First Gen and Meralco Powergen in the Philippines.
So, even on an asset-by-asset basis, there is nothing to suggest that international players can simply switch attention to Southeast Asia to deliver shareholder value. International players need to re-evaluate strategies where they get rich with Asia, and not from Asia – and for me that applies whether you are in China, in India or in Southeast Asia.
Dale Probasco, Managing Director, Navigant Consulting Inc, US
This is an interesting question and, for me, the answer is somewhat dependent on a company’s current position.
The sheer size of the markets in China and India, even during a slower period of growth, would dictate that a power company with a current presence in either market is likely to continue seeing benefits.
However, diversification into other markets such as Malaysia, Thailand and the Philippines may also be an option to protect against a potential downturn in China or India.
Further, since global markets are often dependent on each other, the impact of the slowing of any economy is likely to be felt in other areas, and we know there has already been some slowdown in the Malaysian, Thai and Philippine markets.
For power companies just establishing their presence in Asia, it might be prudent to start in a smaller market with growth which can serve as a stepping stone into other regional economies.
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