Even before the recent earthquake, tsunami, and nuclear meltdown in Japan, many parts of Asia had already begun investing in "green" energy. But the disaster has certainly upped the urgency of the discussions.
“It's driven a lot of people to have a bit of a rethink on nuclear." —Robert Todd, HSBC
"Following the tragic events in Japan, this has spurred many people to review their policies towards nuclear," said Robert Todd, director for renewable energy in the Resources and Energy Group at HSBC. "Nuclear has an established position and is recognized as a relatively cost efficient and scalable source of electricity. The reviews will happen across the world and each country will consider their own energy mix characteristics together with local sentiment."
Todd was one of several panelists at the recent Asia Business Conference at Harvard Business School speaking on the current movement in Asia to shift to green and renewable energy sources. The event, moderated by HBS professor Ramana Nanda, was cosponsored by the student-run HBS Asia Business Club, Harvard Asia Law Society, and HKS East Asia Caucus.
"I think it's fair to say that what's happening in Asia in clean energy is going to be of vital interest to the energy industry at large," Nanda said.
This particular "green race" began as a sprint, an urgent need to bring Asian nations—especially China—into line with the rest of the world in using cleaner and more efficient energy sources. But lately it's turned into something of a marathon, with companies and financial institutions involved in the market slowed by regulatory and political climates that evolved in the face of new economic realities.
That's the bad news. The good news is there are plenty of opportunities in the clean energy field in Asia in general, and in China specifically-by 2020 China, India, Japan, and South Korea are expected to account for 40 percent of global clean power project investments. The challenge for entrepreneurs is to demonstrate the cost-to-benefit ratio that renewable and clean energy can bring to the thousands of companies in the region that are candidates for such a move.
"The key is finding a way to shift China from a high-carbon growth path to a low-carbon growth path. The country has gone through a very rapid change," said panelist Mina Guli, executive director and chief investment officer at Peony Capital, which operates in China. "They're in a new era of the green race, and it's all about the companies understanding the huge amount of commercial benefits in being green. It's not about backroom international dealings. It's about the fundamental desire of countries and companies to shift to a low-carbon growth path."
Diverse Set Of Challenges
One of the challenges facing investors and companies interested in getting into the game in Asia is the diverse set of cultural and political climates in the region. Asia is sometimes seen by outsiders as a monolithic whole, but is in fact just the opposite.
There are huge differences in the ways Asian countries approach renewables, said Han-koo Yeo, senior investment officer at the World Bank Group's investment climate advisory services.
“Clean energy isn't really competitive on its own yet, which is why we need a policy framework" —Han-koo Yeo, World Bank Group
"Some approach it from an industry perspective, and they want to create green jobs and promote the industry for export. That's mostly China, Japan, and South Korea. Others approach it from the energy policy perspective. They have no natural resources, which makes them highly dependent on imports from foreign countries. From a climate-change perspective, everyone knows [the current model] isn't sustainable anymore. There's a diverse economic and social policy angle in Asia. "
One bottleneck faced by outside companies is the shortage of local capital to help move projects forward. Many groups in the region that have ideas or projects in place are still in need of an influx of cash, the panelists said.
""The funding question is clearly important," said Todd, of HSBC. "The perception is that green is more expensive, leading to greater capital investment required upfront. To progress the projects, investors need to be comfortable with the risk profile in that regulatory environment."
In China, he added, where the market is driven by state-owned enterprises, "there's a comprehensive set of policies and regulations in place and the climate for investment is favorable."
The flip side of that coin is that in some countries the government exerts such a large influence on the energy sector that it can be difficult to navigate the social, political, and business waters. But in order to be successful, potential entrants are going to have to deal with that reality and perhaps use it to their advantage, Yeo said.
"Clean energy isn't really competitive on its own yet, which is why we need a policy framework," Yeo said. "The government can be an enabler for this. Clean has an international component, and there's an ongoing negotiation and green race among countries. There's a lot of capacity building that needs to go on here."
Until very recently, all of that work in China has been done by the state-owned enterprises (SOEs), which have an inherent advantage in the country's political system. But that is beginning to change, albeit very slowly.
"It was only in 2010 that the first non-recourse project financing was closed for a wind farm in China by an international bank, namely HSBC," Todd said, and the panelists expect that to be just the start of much more privately financed initiatives to come in the next few years. Most recently, the first offshore RMB bond issue for wind energy was completed by China WindPower in Hong Kong and led by HSBC, reinforcing investor appetite for the sector.
"We're going to continue to see more joint ventures in China. Turbine prices have dropped very significantly, and the efficiency has increased significantly, as well," said Samantha Ko, executive director of the China WindPower Group.
"The improvements in technology are not just led by Europe or the United States anymore. We're trying to bring the traditional expertise from Europe into China," she continued. "It's a very new industry in China, but policy is very transparent there. SOEs are more policy—driven and less profit—driven. It's companies like ours that help to balance efficiency and output."