The growth of solar electrical generation in the developed world — Europe, the U.S., Japan, and, to an extent, Australia — has been phenomenal. But in less-developed nations, and particularly Southeast Asia where electrical grids are not as mature and there is enormous unmet demand, solar growth potential is even greater.
For many years, solar generation was simply too expensive. Subsidies helped the industry gain traction, and around 2010 there came a tipping point. Power prices were relatively high, and economies of scale kept driving down the cost of renewable energy, helped by improvements in technology. Today, the cost of photovoltaic (PV) generation makes it not only competitive but also compelling.
Let’s look at the opportunities in Thailand, Vietnam, and Singapore, which have different approaches to meeting the growing demand for electricity.
Solar Energy in Thailand
Thailand is easily the longest-established Southeast Asian market for electricity generated by photovoltaic (PV) modules, with its involvement in solar going back to the 1990s. In the beginning, the government provided a level of subsidy and made licenses available very easily, but there weren’t many takers because the returns were so low. Eventually the Solar Power Group Company saw an opportunity and started acquiring licenses to develop projects. As the price of PV panels plummeted, solar farm projects became very attractive, generating internal rates of return of 30%, 40%, and 50% before the government curbed the incentives. It was quite crazy.
Today, the solar-farm phase is over, generation has moved to rooftops, and pricing is more market driven. Developers are finding a big market because there are lots of very large rooftops on industrial sites. It’s very attractive for a developer to build a rooftop project on behalf of a building owner and sign a power purchase agreement (PPA) to sell them electricity at a discount. These discounts are somewhere in the range of 30% compared with the peak tariff.
Thailand has been a great example of how policymakers can be very proactive in promoting solar. They are a stable group, they involve industry, have lots of discussion and interaction, and, luckily, seem to be insulated from politics.
Solar Energy in Vietnam
In contrast to Thailand, Vietnam is a much newer market for solar. Fueled by population growth, demand for electricity in Vietnam has been growing at a compound annual growth rate of 9.7% since 2010. The nation’s standard of living is rising, requiring a lot more electricity per person.
Based on the German model, Vietnam came out with a feed-in tariff set originally at 9.53 U.S. cents per kilowatt-hour for 20 years. International bankers and analysts considered the contracts unbankable at first, seeing a lack of acceptable guarantees from the state monopoly EVN as counterparty, but local entrepreneurs weren’t worried about the utility reneging, and entered the market. The feed-in tariff dropped to 8.38 cents after the end of last year, and there’s now talk of a much bigger drop to under six cents.
Inevitably, Vietnam will switch to market-based prices, much the way India did years ago, the way Singapore has always operated, and the direction Thailand is headed today.
Solar Energy in Singapore
In Singapore, the government has always avoided market-distorting subsidies. The nation-state’s Energy Market Authority, the key regulator, has consistently welcomed all forms of regulation-compliant generation, but never offered feed-in tariffs. Yes, there were initially some small grants and some payments for test-bed purposes, but there were never any subsidies in the actual market.
Because of its size, Singapore doesn’t have much land for solar farms, and private landed housing comprises only about 2% of the market. Industrial and commercial rooftops in the private sector have been key to driving the market, as has the Housing Development Board (HDB), which has installed solar panels on thousands of apartment buildings.
Since rooftop projects are much smaller than utility-scale solar farms, the problem in Singapore was reaching economies of scale to make borrowing money easier. To solve the problem, the Economic Development Board of Singapore got together with the HDB and JTC, the government agency in charge of industrial development, to bundle rooftop packages of 50 to 70 megawatts, which are big enough to attract financial investment and bring down costs through economies of scale.
Recently, as Singapore became more interested in meeting its carbon goals and commitments to the Paris Agreements, it has set some ambitious solar targets. Specifically, it intends to reach 1.5 gigawatts of PV capacity by the year 2025 and 2 GW by 2030. As of the first quarter of this year, nearly 450 megawatts are installed, leaving around 300 to 400 megawatts a year to reach the 2025 target.
About Christophe Inglin
Christophe Inglin is the Managing Director of Energetix Pte Ltd., which he co-founded in August 2015 with two colleagues from Phoenix Solar. From December 2006 until July 2015, Christophe was Managing Director of Phoenix Solar Pte Ltd., which he co-founded in late 2006 as a joint venture with local partners and the German company Phoenix Solar AG. Prior to that he was the Managing Director of Shell Solar. Mr. Inglin is also Vice Chairman of the Sustainable Energy Association of Singapore (SEAS), where he also chairs the Renewable Energy Committee.
This energy industry article is adapted from the GLG Remote Roundtable “Navigating the Solar Energy EPC and Developers Landscape in SEA.” If you would like access to events like this or would like to speak with energy industry experts like Christophe Inglin or any of our more than 900,000 industry experts, contact us.