Frost: Environmental Concerns, Oil Prices Drive SE Asian Renewable Energy Markets

April 9, 2008 // Published as a news service by IHS

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Rising oil prices and the urgent need to reduce greenhouse gas (GHG) emissions are ensuring development of the Southeast Asian renewable energy markets, according to Frost & Sullivan.

Continued exploration of potential sites and a growing number of project proposals underline the sustained interest of industry stakeholders in the region's renewable energy markets.

Analysts said the positive environmental impact of using renewable energy, combined with substantial untapped potential, will provide lucrative opportunities for local and multinational companies across the value chain.

Recent analysis from Frost & Sullivan of the Southeast Asian renewable energy markets found earned revenues of $1.90 billion in 2007, with estimates to reach $4.31 billion in 2014.

"Growing environmental awareness among the public, the need to increase rural electrification ratio and preference for captive power generation are paving way for the rapid development of renewable energy in the Southeast Asian region," said Frost & Sullivan industry analyst Suchitra Sriram.

"This is further supported by the enormous availability of natural resources and favorable renewable energy policies being introduced by governments in the region."

Continuing with government policies, individual nations in the Southeast Asia region have fixed renewable energy targets that are to be achieved in a specified timeframe. Analysts said in the 9th Malaysia Plan, for instance, the government has increased the target for renewable energy to 30% or 350 megawatt (MW) by 2010.

In Thailand, the landmark Very Small Power Producer (VSPP) legislation was revised in 2006 to include additional privileges for small power producers. The VSPP regulation allows for net metering arrangements and established streamlined interconnection process to minimize VSPP connecting costs.

Analysts said the lack of adequate financing options is thwarting the development of the Southeast Asian renewable energy markets.

Banks and financial institutions in the region are usually reluctant to finance renewable energy projects, as their viability is yet to be proven. For instance, in Malaysia, there is little commercial financing of projects from any nationalized or foreign banks.

"Another significant reason for the slow investments in renewable energy technologies is the very high up-front capital costs, with a minimum gestation period of 10 to 15 years," said Sriram.

"As investment costs are very high, project development takes a backseat for a number of prospective clients, especially the small and medium enterprises."

Going forward, it is important to guide the stakeholders by informing them on new product development and availability of potential sites through periodical information dissemination, demonstration of projects and organization of seminars.

Analysts said liberal and transparent approval procedures and attractive feed-in tariffs would encourage the entry of new industry participants across the value chain to propose and execute challenging renewable energy projects.

Source: Frost & Sullivan.