The Asset webinar: Renewables generate strong interest as Asia’s hottest asset class
The renewable energy sector in Asia bucked the impact of the Covid-19 pandemic and continues to find favour among sponsors, investors and lenders
17 Jul 2020 | The Asset

In a webinar hosted by The Asset Events+ on July 15, renewable energy projects, such as those involving solar and wind, continue to perform, and although projects under construction slowed down due to lockdowns their progress should remain on track.

“For projects that have been under development and financial closing was imminent, they continued to progress,” notes David Uy, managing director and head of power, energy and infrastructure in the Asian investment banking division at MUFG Bank. “The appetite for renewables amid Covid-19 has not changed; it was as strong as ever.”

Eduardo Francisco, president of BDO Capital, notes the quarantine imposed to stem the spread of the virus in the Philippines underpinned a sort of a change in energy mix. “It was positive for renewables, and they fared better than fossil fuels,” he points out.

It was a similar story in India with renewables unaffected by the pandemic. “Operationally, there has not been much of an impact,” says Ashish Khanna, president for renewables at Tata Power. Projects under construction were hit due to the inability to transport materials and the restricted movement of the workforce. “But in terms of the bidding for new projects, we have seen unprecedented interest, which indicates that sentiments remain in the long term as it is something that the government and the companies are very keen to pursue,” he adds.

Billy Betts, head of project finance at Cathay United Bank, says the impact of Covid-19 on offshore wind projects in Taiwan is relatively minor as Taiwan has done a good job in managing the response to the virus outbreak. “The mandate for renewable energy in Taiwan has not changed in terms of goals that have been set for projects coming online in 10 to 20 years,” he says. “Projects that are under construction will be completed relatively on time, and the pipeline of projects that need financing looks likely to get the funding in the timeframe that they are looking at.”

Darren Wu, manager of the alternative investment department at Taiwan Life Insurance, the first-ever insurer to participate in the financing of a greenfield offshore windfarm, says it was business as usual in terms of the conditions for the future development of the renewable energy sector in Taiwan. “The projects that we are looking at are still on track,” he notes.

Indeed, such resilience adds to the attractiveness in investing in renewables in Asia. “The one thing that continues to impress with Taiwan is the high level of infrastructure investments in roads, tunnels and bridges, and in renewables around wind and solar projects,” says Betts. “What makes Taiwan attractive to sponsors is the high level of renewable targets, namely its transitioning of 20% of its power to renewable energy by 2025 comprising of 20 gigawatts (GW) of solar and 5.7GW of offshore wind. It looks like Taiwan can meet the targets for wind projects.”

As an asset class, MUFG’s experience on renewables has been very good, according to Uy. “As people realize that renewables are a good asset class, they are coming to Asia,” he says. “A lot of interest is coming from developers and sponsors who have either experienced some level of success in other markets, which are more advanced in terms of where renewable developments are compared with Asia. At the same time, we are also seeing interest from those who sort of missed the boat. So, everybody wants to get in. That has been driving a lot of the demand.”

In addition to Taiwan, Uy notes that India is generating a lot of attention as this market offers huge opportunities in terms of developing its renewables capacity. The same thing goes for Malaysia. “Although Malaysia’s solar power programme is not very large, they have what many considered a well-laid out programme on renewables,” Uy says. “The amount of interest you see in this market relative to the amounts of projects that are actually available is disproportionate.”

Tata Power’s Khanna also cites the potential of India with 748GW for solar power and 746GW for wind power as he highlights the attractiveness of Asia for renewable investment. “In many parts of Asia, the per capita consumption of power is hardly one-sixth of that of developed countries. So, for some time to come, there is a need for power in this part of the world,” he says.

Khanna notes the energy mix is changing from fossil fuel-based energy, and that renewables offer long-term predictability in terms of return. He describes the technology investment in Asia in renewables as phenomenal, resulting in the cost of renewable power today becoming more competitive than the other sources of power.

For Francisco, one of the things that underpins the interest for renewables is the incorporation of environmental, social and governance (ESG) initiatives into their investment philosophy. “Everybody wants to do the right thing and even the consumers are buying into that,” he says. He notes that investors are buying into projects by early renewable developers. He cites the case of Prime Metroline Infrastructure Holdings of businessman Enrique Razon, which signed an agreement in June to invest 1.5 billion pesos (US$30.30 million) for a 50% stake in Solar Philippines Tarlac Corporation, the owner of the largest solar farm in the Philippines.

“There is a continuous churn in renewable projects, and foreign investors continue to express interest in many of these projects, which is good for the market,” he adds. This comes even as the returns are going down. He explains: “Previously, returns were in the high teens. Now, some investors are willing to take lower spreads, but given that the 10-year returns have fallen significantly and with the projects being de-risked, this makes it acceptable to both local and foreign investors.”

As an investor, Wu says Taiwan Life’s involvement in financing the offshore wind project, unlocking a new funding source for renewable energy, was driven by the Taiwanese government’s push to promote the sector. “We are patient and, at the same time, determined in what we are trying to achieve in terms of investing in the right asset class,” he says. “The participation of the export credit agencies in the project was a driving force behind our investment decision. They took on the challenge with us to lobby with the regulators, explaining to them why this is such a good asset class.”

In terms of return, Franck Constant, president of ConstantEnergy, notes that about five to six years ago, with the feed-in tariff in place, they could generate double-digit type of returns after tax in most markets, such as those in France and Italy. “Today, we can only achieve this kind of return mainly from corporate power purchase agreements (PPAs), that is why we are moving into that space,” he says. “A few exceptions are in markets such as Vietnam where you can get a return of over 10% in US dollar equivalent. But there are not many markets like that.”

Constant describes corporate PPA as the fastest growing business in renewables at the moment. “It is one where we can generate higher than the average return in the utilities space,” he says. “This provides good returns for equity investors, and, over time, I see this displacing the conventional feed-in tariff regime in every market.”

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