How to unlock clean energy in South and Southeast Asia

Both South and Southeast Asia offer significant opportunities for global climate action, with many governments setting ambitious net-zero goals. Solar, wind and hydropower development possibilities abound.

To achieve these goals, renewable energy deployment, particularly solar and wind power, must increase Five times by 2030. Asian investment in renewable energy has grown exponentially since 2004, with an average annual growth rate of 23%, reaching US$345 billion by 2022, driven largely by China. It is 80%.

Despite the region's diversity in infrastructure, industrial development and funding sources, there are lessons to be learned from successful public and private fundraising efforts both domestically and internationally.

Domestic Finance

Infrastructure investments in South and Southeast Asian economies have traditionally relied on domestic public financing. However, the region's bank-dominated financial systems have shown little interest in financing renewable energy projects, often seen as too risky to invest in. Also, the short-term nature of bank financing makes it unsuitable for long-term energy projects.

South and Southeast Asian economies also struggle with limited fiscal space, with high levels of debt relative to tax revenues. For example, in Bangladesh the tax-GDP ratio was Only 8.5% in 2021-22 The fiscal year is lower than the World Bank's recommended rate 15% For sustainable development. In comparison, the Organization for Economic Co-operation and Development (OECD) average rate represents 38 major economies 34% by 2022.

If domestic public banks view renewable projects as high risk, so do private investors, so renewable projects seek support from actors who can reduce risk, often the government. But in Myanmar, renewable energy developers face barriers to acquisition Government support, such as sovereign guarantees or risk-sharing agreements, are necessary to protect their investments. Also, underdeveloped domestic capital markets limit opportunities for local businesses to raise funds through bonds. Across ASEAN countries, government bonds Exceeds corporate bonds in scaleIncreases financial challenges.

International Financial Challenges in Asia's Least Developed Economies

Multilateral and bilateral financing are important sources of foreign capital for infrastructure financing in Asia's least developed economies. For example, the Asian Development Bank (ADB) Funded Cambodia's first solar plantIncluding major projects in Laos Largest wind farm in the region, also received assistance from ADB and the World Bank. Similarly, Nepal has made strides in renewable energy with projects supported by World Bank and ADB support programs. However, heavy reliance on multilateral support has led to high external debt and underdeveloped domestic financial markets.

International private finance also plays a significant role, especially in Laos, where most infrastructure projects are undertaken by international corporations. Nevertheless, private foreign investment remains wary of investing in emerging Asian markets due to potential policy changes and unreliable regulatory frameworks.

Long approval processes, opaque procedures and delays, etc Laos And Bangladesh, deter investment. Likewise, the Delay in implementation Feed-in tariffs in Vietnam have stalled renewable energy projects. Challenges also persist in ensuring that renewable energy plants can deliver electricity. In Myanmar, the outdated and limited electricity grid, which relies on small 230 kilovolt (kV) lines, leads to significant losses over long distances. Plans for a 500 kV line connecting Yangon and Mandalay were seen Limited progress From 2021 onwards. In Nepal, meanwhile, electrification of rural and remote areas is challenging due to rugged terrain and inadequate grid infrastructure.

Developing renewable energy markets in South and Southeast Asia

India and Malaysia are two countries that stand out in establishing standardized and transparent renewable energy auctions. These initiatives have boosted investor confidence through increased transparency and policy consistency. Attracts capital. Compare this with Indonesia's announcement Payment plan Based on competitive bidding, it has faced regulatory issues and frequent legislative changes, particularly barriers to solar photovoltaic power generation. And inside Myanmar And BangladeshThe absence of competitive processes or standardized power purchase agreements (PPAs) for renewable energy discourages foreign investment in favor of transparency and predictability.

A well-designed procurement process can reduce risks for investors interested in renewable energy infrastructure. For example, India has successfully attracted foreign investors in its solar energy sector Solar Energy Corporation of India (SECI), an intermediary with a higher credit rating than state-level electricity boards. SECI's presence as a guarantor increased investors' confidence in their ability to repay, thereby reducing investment risk. This centralized procurement model depends on a company's strong credit rating, as faced by state-owned distribution companies such as Perusahan Listrik Negara and Bangladesh Power Development Board in Indonesia. In the financial crisis, they could not fulfill the intermediary role that SECI did in India.

Another way to expand the market for renewables is to allow large commercial and industrial customers to buy directly from power plants, bypassing state intermediaries. The Philippines and Malaysia have adopted this approach, encouraging the development of renewable plants for private industry. However, Vietnam currently has no such concessions.

Much remains to be done, but the achievement is within reach

The dominance of the banking sector in South and Southeast Asia highlights the importance of banking infrastructure to effectively finance renewable energy projects.

One approach is to establish dedicated lenders such as non-banking financial institutions (NBFCs) that specialize in niche areas. In India, NBFCs focusing on the energy sector play a significant role, with six major NBFCs extending. Funding of INR 1,500 billion (USD 18 billion). to the renewable sector by 2023. More importantly, these dedicated lenders can address the critical need for the infrastructure sector and offer longer-term loans than banks. Also in Bangladesh Infrastructure Development Corporation (IDCOL), A state-owned non-bank financial institution that finances renewable energy projects. Nepal's NMB Bank has gone a step further and secured a separate renewable energy division to focus solely on green projects. USD 25 million green loan from International Finance Corporation (IFC)

To have a larger impact, governments can use public funds to encourage private capital investment, which typically yields higher returns than using public funds to build infrastructure.

The success of Malaysia's Green Technology Financing Schemes (GTFS) – which provided loan subsidies for renewable projects – is instructive. From 2010 to 2017, 28 financial institutions supported 319 projects through GTFS, totaling $1.6 billion, resulting in completed projects generating 532.9 megawatt-hours (MWh) of electricity annually. In March 2019, the Finance Ministry approved an upgraded scheme called GTFS 2.0, which provides scheme developers with an annual interest subsidy of 2% for the first seven years, with the government providing a 60% guarantee of scheme funding.

As demand for renewable energy continues to drive innovation in the region, examples like these will become more common. However, countries already have enough success stories.