How important is renewable energy to strengthening energy security in the Asia-Pacific region?
Renewable energy is important because it helps countries to diversify. Most of the Asian Development Bank’s member countries are dependent on oil, and some of them on gas, so it is important for them to see how they can diversify, using renewables. As long as they are dependent on oil, they will be subject to oil price volatility, and so most countries are asking how they can address this. Some have come up with policies. For instance, Thailand has a 15-year renewable energy programme, not only to invest in solar, but also wind and biomass. The Philippines has a feed-in tariff that applies to biomass, hydro, wind and solar; and Indonesia has this year brought in feed-in tariffs for solar and geothermal. India has its own renewable energy standards and emissions programme, as well as a tax break [which ended in 2012 but may be renewed] which increased investment in wind farms. Similarly, policies introduced by the National Development and Reform Commission in China have increased investment in solar PV by a huge amount. Frankly, in 2012, Asia-Pacific attracted $101 billion of investments in clean energy: that’s over 40% of the global total. China won about $65 billion of that total, with $31 billion going into solar, $27 billion to wind and the rest to small hydro, geothermal, marine and biomass. This added about 23GW of new clean energy capacity to the mix in China. Over the last nine or ten years clean energy investment has been growing in Asia, while in Europe it’s in decline.
But is enough investment coming in for renewables to play a significant role in reducing emissions?
I don’t think so. It’s not the actual money that’s the problem: it’s whether the appropriate policies and incentives are in place – by which I mean feed-in tariffs backed by a sufficient regulatory environment to buy back some of the electricity generated by the renewables. When this is the case, private investment follows. ADB can also help to advance some of the private sector projects. For example, in the case of Thailand, the private sector came to us for money get the first three solar PV projects off the ground. They didn’t need us for the cash per se: what they wanted was a long-term contract. The commercial banks in Thailand were giving them 7-8 years, but to make the project workable they wanted 15-18 years. We came into the transaction to provide this, and the commercial banks then saw that we were involved and felt more confident in contributing also. We also provided some risk mitigation in contingency funding. Now, after those first three projects, subsequent ones don’t need to come to us because the Thai banks are confident that the projects are feasible. They are now even willing to lend with the same tenure, 15 years or more.
How do you think national governments can boost investor confidence?
Every country is different. India has a policy mandating that each state must have a certain percentage of renewables in its portfolio. So, if a state doesn’t have enough, it can buy from one that does, trading in renewable energy certificates. It’s pretty good! You have Gujarat and Rajasthan with high installation rates in solar PV and CSP, both selling back into the grid; Tamil Nadu in the south is doing wind, and the excess is traded. This kind of policy has to be thought through very clearly, though: there’s no one-policy-fits-all.
What are the barriers to effective policies to promote renewable energy? What’s the impact of fossil fuel subsidies, for instance?
Fossil fuel subsidies are a barrier: there’s a huge amount of support being given to fossil fuels. The other barrier is policy makers themselves. They need to be aware that it’s no more business as usual. They need to come in with regulations to support renewable energy.
Do you mean in terms of climate change?
In terms of climate change, yes, but also in terms of energy security. Of course, coal is going to be a major stay here, but they have to say no to the old-style coal-fired plants that pollute a lot. If they are really going to do coal, then they have to go up a technology level and build super critical or ultra-super critical plants, because then the efficiency is higher, less coal is burnt and less CO2 is emitted. They need to move towards that. They also need to switch to gas, advocating combined cycle power plants. The latest plants, by GE and the likes, have conversion efficiency rates of up to 61%.
Is there a conflict between the shift towards clean coal and gas, and the drive to increase the renewable share of the mix?
No, I don’t think so. It depends how you look at it, but if you take the German view and say renewables should be first to be dispatched, then utilities just shut down because you can’t have them lying idle. I think that’s a skewed policy: you have to look at both environmental and financial sustainability. In Asia, people are poor, and they can’t afford to waste resources, so there has to be a balance of trade. You have 700 million people here without access to electricity, so you have to provide that access. In some cases, coal is the cheapest and most readily available source of electricity. But we need to push the efficiency level.
What role can renewables play in increasing access in remote, rural regions?
In some regions, they have developed off-grid systems: solar, biomass and micro-hydro in run of the river situations. There’s not one fix-all technology: it depends where the community is based and what natural resources are available. But when it comes to large-scale applications, where you need a base load, then sometimes the only option is coal or gas. Lao has the potential for large-scale hydropower, but Myanmar doesn’t. Let me give you another example. Pakistan currently uses high sulphur fuel which is worse than coal in terms of toxins. The gas reserves are dwindling; the gas pipeline from Turkmenistan hasn’t come through; the other pipeline from Iran hasn’t come through, and isn’t going to any time soon with the US sanctions. Hydro is too difficult: you’re dealing with tribal areas, and the water reserves are contested by India. They are between a rock and a hard place, so what can they do? Coal is the least costly solution for them to sustain their economic growth; otherwise they will continue to suffer without access to electricity.
So in Pakistan specifically, how is ADB encouraging efficient use of coal?
We simply tell them that the plants have to be super critical, minimum, or no money from us. And they’ve agreed, even though it means importing some of the coal because the domestic supply won’t suit the super critical power plant. That’s the leverage we have. But this will be the first coal project we have supported since 2010. Most of the projects we support are in renewable energy or energy efficiency, high voltage power lines, or combined cycle gas.
How optimistic do you feel that a low carbon future will be possible in the region, given the challenge of climate change?
I always like to look at the glass as half full. If governments take climate change very seriously and put policies and regulations in place that really support renewable energy, I’m sure it will have a far more important role to play in the power supply than fossil fuels in the long-term. And at the same time, governments should take steps to remove fossil fuel subsidies, gradually. You cannot remove them from one day to the next, because it will have social impacts on a lot of people, but you need to fix a timeframe to gradually phase them out.
Are there any such time frames?
Malaysia has said it will remove subsidies on any fossil products by 2015. Indonesia hasn’t come out with a target, but has already started telling the public that it cannot afford the subsidies, which are a huge fiscal burden on the budget. It has started increasing electricity tariffs, and also petroleum product prices, by 33% last year and again this year. Subsidies distort the market, not just in the country but in the region as a whole. In the Philippines, where there are no subsidies, cheap fuel gets in from Malaysia through the back door, and so the Filipino Government loses its tax revenue from non-subsidised diesel products.
What do you think should be the priority for investment in the region?
Our main target at ADB is to achieve universal energy access by 2030, which will require investments of more than $40 billion a year. We aim to connect another 40 million people to the grid by 2015, but it all depends on the projects we agree with national governments, and ultimately on their policies.
Anthony Jude is Chair, Energy Committee and Senior Advisor for Regional and Sustainable Development at the Asian Development Bank. Anna Simpson is Editor, Green Futures.
Photo credit: iStockphoto/Thinkstock, Asian Development Bank