Using project financing as a yardstick, solar PV continues to lead non-hydro clean energy investment in the region given the abundance of solar resources, its increasing cost-competitiveness and its developing market.
Investment in solar projects in Southeast Asia totalled USD 892 million in 2016, attracting 1.5 times more than the USD 588 million invested in wind power projects (although this solar-to-wind investment ratio is expected to shift in 2017 after significant wind power deals totalling more than USD 1 billion were finalised). Since 2010, at least USD 8.3 billion of solar project financing deals have been made, an indicator of the sector’s strong standing in the region (Conergy/Clean Energy Pipeline, 2017). There is a clear correlation between the countries where significant levels of investments have occurred and the countries that have enacted price support policies (Figure 4.1).
Thailand currently accounts for the largest share of the region’s installed solar capacity at more than 2 GW as of 2016 (IRENA, 2017f). Solar is expected to continue being a priority; the aim is to install 6 GW by 2036 as part of the overall target of 30% renewables in the energy mix that year. Thailand also envisages robust growth in rooftop solar installations, in response to constraints on land availability for utility scale installations, as is the case for the Bangkok metropolitan area (IRENA, 2017d). Private investment has been so far mainly incentivised through support programmes like feed-in policies.
Thailand kick-started solar investment in 2007 with a feed-in premium known as the Adder Program, but in recent years shifted to a fixed feed-in tariff to enhance investors’ confidence. Table 4.3 presents the tariffs offered in selected Southeast Asian countries. Since the introduction of the FiT, Thailand has regularly increased the targeted volume of installed PV and revised tariffs in a way that reflects developments in the sector while attracting further investments. Moreover, increasing the duration of the PPA from 10 to 25 years helped increase the attractiveness of investments (Pugnatorius Ltd, 2017). The rooftop market, however, is yet to be developed due largely to both technical and regulatory constraints (IRENA, 2017d). In the last quarter of 2017, Thailand is expected to end a decadelong restriction on households and commercial buildings selling leftover power generated by their solar rooftops to the Electricity Generating Authority of Thailand at a rate fixed below Thai baht (THB) 2.6/kWh. The total capacity to be allowed, however, is not determined yet (Fredrickson, 2017).
The second-largest increase in installed solar PV capacity has occurred in the Philippines, where the FiT drove solar PV development into high gear. With an initial FiT of USD cents 23/kWh (20-year term and 0.6% degression rate), solar capacity jumped to 62 megawatts (MW) in 2014. Tariffs were revised to USD cents 19.58 /kWh in 2014 and installed capacity reached 108 MW by 2015. By the end of 2016, with a FiT of USD cents 17/kWh, another 17 projects made the cut bringing 2016 to a close with 903 MW grid connected installed solar PV capacity and 3.2 MW installed for self-consumption. Experts point out that the FiTs were high due to the extra risk for investors resulting from the Philippines’ unique “first come, first served” scheme which stipulated that a project would only learn of its Energy Regulatory Commission award when the project reached commissioning stage. The unique approach discouraged lenders and placed extra risk upon project developers. Net metering regulations and interconnection standards went into effect in July 2013 and supported the deployment of rooftop installations below 100 kW. Unlike the FiT programme, which targets 500 MW awarded on a first-come basis, there is no upper limit for the net metering market. Excess electricity exported to the grid is given a credit based on the exported quantity at the average monthly cost of generation (approximately 50% of the retail tariff). Since these net metering rules have been put into effect, there has been a marked increase in activities in the industry, and it is expected that this development will accelerate due to continued solar cost reductions and retail tariff increases. Overall, significant future growth in solar PV capacity is expected in the Philippines; 3 GW of installed capacity is projected by 2022. As of end-2017, solar developers were still waiting for Renewable Portfolio Standards (RPS) to be enacted, and auctions to take hold with the expectation that both mechanisms will reinvigorate the growth of the renewable energy sector. In the interim, renewable energy developers, particularly for solar PV, have pursued bilateral arrangements with distribution utilities to participate in the Philippines’ spot market, while waiting for the next directive
The growth in Malaysia has been slow but steady. Malaysia’s FiT was put in place in the 2011 Renewable Energy Act and the tariffs were revised every year up to 2016 in response to falling technology costs and changing market conditions. Under its FiT scheme, the installed capacity increased modestly by about 30% each year in 2015 and 2016, to 297 MW at the end of 2016 (IRENA, 2017f). The basic FiT in 2017 for installations below 72 kW was US cents 12.17/kWh with a potential bonus FiT of up to US cents 8.06/kWh (Ho, 2017).
In 2016, Malaysia introduced a net metering scheme to support a total installation of 500 MW by 2020 in Peninsular Malaysia and Sabah, with a 100 MW capacity limit a year. Consumers can generate their own electricity with one meter installed and sell excess power to the national utilities (SEDA, 2016a).
In 2017, a solar auction resulting in 563 MW (with locational distribution of 360 MW in Peninsular Malaysia and 100 MW in Sabah/Labuan) was successful in spurring market competition. Although bidders were required to have previous experience in project financing and operation of power plants, the auction attracted almost 1 632 MW of submissions in the Peninsula and 190 MW in Sabah. Project capacity was constrained to between 1 to 30 MW, and bidders were inclined toward large scale projects in the Peninsula: 1 198 MW were received for projects between 10 and 30 MW, 172 MW for projects between 6 and 10 MW, and 72 MW for projects between 1 and 6 MW (Kenning, 2017). Foreign participation was capped at 49%, in line with the government’s strategy to support the local industry, and projects were to be commissioned in 2019 and 2020 (Bakermckenzie, 2017). Prices were in the range of US cents 8-12/kWh (MYR 0.34- 0.53/kWh), less than the administratively set FiT (Kenning, 2017).
Malaysia’s solar market also receives fiscal support. Corporate tax incentives are available with additional incentives in place for solar systems. Solar systems are eligible for a capital allowance (initial allowance of 20% and annual allowance of 14%) enabling tax deductions over a period of six years (Hasilnet, n.d.).
A FiT program was first introduced in 2002 when the Ministry of Energy and Mineral Resources (MEMR) issued a regulation for small-scale renewable power plants below or equal to 1 MW. In 2013, an auction scheme for 172.5 MW of solar capacity across dozens of sites was announced (Parnell, 2013). The auction scheme was not successful and was cancelled in 2015 due to issues with local content requirements and premiums. In 2016, a new regulation on local content was issued for solar PV according to a set of requirements from the Ministry of Industry (ACE, 2016b). A net metering scheme for residential and commercial rooftops was mandated in 2013, obliging PLN to credit excess energy produced by solar through a bidirectional meter to a customer’s account. Credits were to be carried forward indefinitely. In 2017, the government approved a decree that changed the FiT from a predetermined fixed tariff to a new tariff that is based on the cost of electricity generation, which varies from region to region. This was meant to encourage the deployment of renewable-based power outside Java-Bali. The tariff is negotiated between the IPP and PLN, as the state-owned power utility was unwilling to sign renewable power contracts with higher fixed tariffs. The new law provides a cap based on the electricity supply costs of the region where the project is to be developed (costs vary greatly across Indonesia’s different regions and islands). As such, regions with supply costs above the national average receive a FiT capped at 85% of the average. Regions with supply costs lower than the national average are expected to negotiate bilaterally between developers and PLN. The national average supply cost in 2016 was US cents 7.4/kWh (IDR 13 307/kWh), meaning that the new decree implies a significant reduction in the solar tariff of almost 50% (from the previous FiT to between US cents 6.5–11.6/kWh). Moreover, the set tariff is fixed throughout the term of the PPA, whereas PPA tariffs for conventional power projects are indexed to inflation and foreign exchange rates. The new law puts solar power in direct competition with coal-fired power plants, and since coal is the predominant form of power generation in Indonesia, this puts solar options in a challenging position.
Other countries are also showing willingness to utilise new programmes to spur investment in solar. In mid-2017, Viet Nam’s first solar PV FiT programme and PPA template were launched, gaining considerable attention from regional project developers and investors. A pilot auction for 50 MW was also launched and a net metering scheme was introduced. Cambodia, with the support of the Asian Development Bank (ADB), signed its first PPA for a large-scale solar (10 MW) project and within months announced the launch of a 100 MW solar park to be competitively tendered with ADB assistance.
Furthermore, countries with existing solar programmes have revised and increased solar targets recently. In 2017, the Singaporean government doubled-down on its goal of 300 MW of solar PV by 2020 in the city-state, by upping its target for 1 GW beyond 2020. As of late-2017, Singaporean authorities announced plans for tendering 56.7 MW of two floating solar PV plants at reservoirs (Osborne, 2017).
POLICIES TO SUPPORT THE LOCAL SOLAR INDUSTRY
To maximise the benefits of renewable energy to their economies, Southeast Asian countries have adopted policies to support the development of a local industry for solar PV. Malaysia, for example, aims to be the second-largest producer of solar PV modules in the world by 2020. In 2015, Malaysia was the third-largest exporter of solar PV modules, contributing to 12% of total global shipments with almost 51 MW (after China at 48% and Taiwan at 20% and ahead of Japan at 6%) (SEDA, 2016b). The development of the local solar industry was mainly driven by the proximity of Southeast Asian countries to Chinese markets and the spinoff of technologies, the existence of a competitive semi-conductor sector, the potential for Chinese companies to ship equipment to European and American markets without being subject to antidumping rules and the large potential for those countries to adopt solar technologies. As such, policies enabling the development of the industry were put in place, including education, research and development, and instruments to incentivise the use of locally sourced products and services.
Education and research and development
The development of a local industry in the region benefited from complementary policies such as those aiming at attracting foreign direct investment (FDI), which resulted in a significant share of the global investments flowing into solar manufacturing. To support those investments, countries in the region implemented a mix of policies to support research and development and education in the sector; in this regard, Malaysia’s National Renewable Energy Policy and Action Plan is exemplary.
In addition to designing and implementing a renewable energy advocacy programme consisting of communication efforts with stakeholders and the general public to increase knowledge and understanding, the Malaysian plan focused on supporting technology and innovation through adequate financing and developing human capital in the field. The need for skilled people was addressed through actions designed to build local expertise and provide individuals with the appropriate incentives to acquire these skills. These actions were co-ordinated among various ministries (finance, higher education, human resources) and included (IRENA and CEM, 2014):
• Incorporating renewable energy into technical and tertiary curricula, requiring collaboration with relevant ministries and certification of training courses according to the National Skills Development Act;
• Developing training institutes and centres of excellence, meeting international quality standards for renewable energy education and promoting high-class facilities at universities; and
• Providing financial support, including technical training subsidies that are paid to individuals after they have completed renewable energy courses, and fiscal relief for higher education that allows students to treat payable fees as deductible expenses.
Incentivising local products and services
Some countries have introduced additional incentives for the use of locally manufactured products. For example, when introduced, the Indonesian FiT provided additional tariffs for ensuring a minimum local content of 43.8%. This was also the case of the Malaysian FiT that provided an additional US cent 1/kWh (MYR 0.05/kWh)2 for the use of locally manufactured or assembled solar PV modules and an additional US cent 1/kWh for the use of locally manufactured or assembled solar inverters (SEDA, 2017). In addition, the Malaysian auction capped foreign participation at 49%.