Find your focus. To avoid becoming too diversified, investors and developers should focus their efforts on a few markets and renewable energy technologies. Selecting technologies that offer a clear competitive advantage is particularly important in the Asia-Pacific market, where the risk of failure and sunk costs is high, resulting in developers and investors seeing profits faster than in other regions. are under pressure to achieve.
Resource availability is often a key factor in determining market-specific renewable energy opportunities in APAC. For example, Japanese developers are prioritizing rooftop solar and offshore wind projects due to limited land availability. Distributed solar power combined with microgrids is emerging as a growth area to power many remote areas in the Philippines. Biomass-based projects are also gaining popularity in southern Thailand due to the abundance of raw materials in the region and the prevalence of farming communities. (See Renewable energy opportunities across the APAC region.)
Establish local partnerships. Building strong partnerships with local stakeholders is essential to unlocking access to land, navigating the local business environment, and even gaining the right to develop renewable energy projects in the first place. . Malaysia, for example, is a leading destination for solar power investment in the Asia-Pacific region, supported by a strong commitment to net zero emissions, export potential to neighboring Singapore, and a growing solar power manufacturing industry. However, according to local regulations, Malaysian interests must own at least 51% of companies developing large-scale solar power facilities.
Thailand’s renewable energy market is also targeted at domestic developers, making it difficult for foreign companies to secure land or sign power generation contracts on their own. To succeed in this market, foreign payers typically form joint ventures with or acquire equity in local companies.
In Japan, to develop renewable energy projects, it is essential to partner with local companies with established relationships and a good reputation, such as one of the country’s manufacturing conglomerates. Such partnerships meet two key requirements when foreign developers bid for offshore wind power: a detailed plan to stimulate the local Japanese economy and a share of the wind farm’s profits. can help establish a fund to distribute funds to local communities.
Expand your financing options. Foreign developers are facing pressure on their projects’ internal rates of return as increased competition leads to lower power prices in some APAC markets. This is the case in Thailand, where the decline in feed-in tariffs has put pressure on players to optimize the cost aspects of their projects to cushion the impact of declining revenues.
Local renewable energy companies are well-positioned to withstand these difficult conditions. Thanks to low-interest, sustainable financing from local banks, local players are more cost-competitive than foreign developers. In mainland China and Indonesia, we find that financing costs for local state-owned enterprises are estimated to be 4% to 8% lower than for international development companies.
However, the rise of blended finance and green funding from multilateral development banks and nations, through initiatives such as the Asian Development Bank’s Energy Transition Mechanism and the Just Energy Transition Partnership, has created a gap between domestic and foreign developers. The gap between them is about to be filled. These initiatives will encourage international private developers to participate in renewable energy projects in the Asia-Pacific region by lowering capital costs and mitigating risks. Asian Development Bank initiatives are leveraging blended finance to rehabilitate a hydropower project in the Philippines and finance a renewable energy project in Thailand that combines wind power and energy storage.
Access to development bank loans and similar funding sources allows international developers and investors to tap into more saturated markets. But they still have to change their expectations and accept potentially lower returns. For example, Taiwan’s rooftop solar power market has become an attractive market for renewable energy companies due to its double-digit growth, solid power generation mechanism, and strong power demand from enterprises. However, with Taiwan’s declining feed-in tariff system and rising construction costs, prospective developers will need to both secure low-interest financing and be prepared to accept single-digit returns.
Navigate your supply chain. When entering new APAC markets, players often face onerous requirements regarding local partnerships and local content. In Taiwan’s offshore wind power sector, 60% of wind farm components must be sourced from local suppliers, 26 key components must be produced locally, and foreign companies are required to build wind farms. We need to build partnerships with local players. Foreign developers face similar challenges in Indonesia and Malaysia, both of which have local content rules. Meanwhile, in Japan, bidders for renewable energy projects must prove they have a stable supply chain and can meet short delivery times, both of which favor local manufacturers.
Such requirements mean that players must take a customized approach to winning renewable energy contract auctions. This is because ensuring sufficient local content will not only impact the project’s cost structure, but also bidding strategy and supply chain management. In such situations, players may consider integrating companies in the upstream value chain (including silicon, silicon crystals, and silicon wafer suppliers in the case of solar panel production) more closely with their operations through partnerships. need to do it. This improves cost efficiency and allows developers to maintain the economic viability of their bids while meeting local requirements. However, value chain integration requires a deep understanding of the local market, including the capabilities and availability of local suppliers, and requires developers to develop strong relationships with suppliers.
Leverage offtake expertise. As competition for renewable energy tenders intensifies, developers who can demonstrate expertise in constructing and managing PPAs as part of their tenders will have a significant advantage. This is especially true in markets where bidding is highly contested, such as the Philippines, Singapore, and Thailand.
Developers with experience in building direct PPAs, where companies buy power directly from renewable energy generators, often have a particular advantage over other players. These agreements are emerging as attractive routes to markets in mainland China, Japan and Taiwan. For corporate end users, direct PPAs offer long-term price certainty, the ability to meet sustainability goals, and potential cost savings compared to fossil fuel-based contracts. For project developers and investors, direct PPAs also provide a stable revenue stream and access to a growing market segment.
To thrive in APAC’s renewable energy space and take full advantage of the region’s vast potential, developers, investors, and operators must adopt five key success factors. By incorporating these elements into their plans, international players will be able to tap into the world’s hottest renewable energy market. Without these, players risk being left out in the cold.
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