The ESG Interview: Renewing Interest in Renewables

Innovative financing solutions are needed to drive Southeast Asia’s transition to clean energy, according to Wymen Chan, Managing Director of Asian Investments, SUSI Partners.

Asian Development Bank (ADB) President Masatsugu Asakawad described the progress made at the COP26 climate summit as “promising”, adding that he was “personally encouraged by the spirit of collective determination and willpower [shown] at COP26 to solve what is the critical issue of our lifetime”.

Asakawad’s optimism for the future of Southeast Asia did not come without caveats, however.

“More needs to be done,” he said. “More financing, more innovation, and more collaboration are needed faster to meet this challenge.”

Predictably disappointing

Among the organisations focused on providing more finance and innovation to the region is SUSI Partners.

Wymen Chan, Managing Director of Asian Investments based in SUSI’s Singapore office, says the company invests in sustainable energy infrastructure investments across the region with the dual objective of generating returns and “contributing meaningfully to achieving global carbon neutrality”.

Chan’s assessment of the COP26 summit’s impact on Asia’s transition to net zero greenhouse gas emissions was one of frustration. On the one hand, two weeks in Glasgow saw additional funds being pledged for adaption to renewable energy, but it failed to secure a commitment from China and India to phase out use of coal for power generation.

“COP26 was disappointing but that was not entirely unexpected,” he says.

Chan has some sympathy for the Chinese and Indian positions, noting that neither country wanted to be the first to move on coal eradication, since both remain highly dependent on the fossil fuel to support their burgeoning economies.

He observes that the developed world, perhaps unfairly, continues to apply significant pressure on its fast-developing counterparts to support a transition to net zero by 2050, while failing to fully appreciate that much of their carbon emissions are the result of manufacturing goods for export to wealthier nations.

“Given that Aisa is the manufacturing centre of the world and continues to grow, it will be the biggest polluter by default. There needs to be recognition of the geopolitical tension between the ‘haves’ in the developed world and the ‘have nots’ in the developing regions,” he says.

However, while the progress made at COP26 left Chan somewhat underwhelmed, he notes that the summit generated more investor interest in renewable energy projects in Asia.

“COP26 at least brought [sustainable investing] to the forefront again and we see this reflected in our markets. We have more investors coming to us with a renewed interest.”

Fastest growing economies

Southeast Asia is home to some of the fastest growing economies in the world and boasts some of the youngest populations but suffers from chronic underinvestment in sustainable energy sources.

These three factors, Chan says, make the region attractive for investors wanting to put capital to work managing environmental risk.

“Asia is the fastest growing of all the emerging markets regions and will be the biggest polluter. Investors recognise there are opportunities to make a difference in the region.”

Alongside investments in solar and wind farms, this year SUSI partnered with Malaysian energy company InvestEnergy through its SUSI Asia Energy Transition Fund, to provide finance for bespoke waste-heat-recovery and combined cooling, heating and power systems for Southeast Asian companies.

The fund completed its first close in May after reaching US$81 million with backing from development banks (Asian Infrastructure Investment Bank and the Netherlands Development Finance Company), Nordic development finance institutions (Norfund and Swedfund), as well as private institutional investors from Germany and Singapore.

In October, SUSI announced a further partnership with Singapore-based developer Canopy Power providing finance for microgrid projects across Southeast Asia which will replace emissions-intensive and expensive diesel generators in underserved off-grid locations.

Chan says: “Company boards can look at their energy supply and consumption today and see how much it costs them versus the baseline numbers of moving to renewable energy. We can guarantee that if they use our capital to put changes in place, they will become the owner of a more efficient manufacturing process. Those energy cost savings are then shared between the company and the investors.”

SUSI’s innovation approach to clean energy investment, Chan concedes, means that its offering does not exhibit traditional asset class characteristics. This can make it a challenge to convince investors to take a leap into the unknown.

“Energy efficiency does not quite fit as an asset class; it doesn’t lend itself to an equity ownership model because in this case we don’t own anything. We can own a solar farm and sell that at the end of the day but with moving to energy efficient lighting, for example, it is about structuring the financing to make it attractive enough so that companies are willing to will implement it. You need to make the economic case very clear to all the counterparties,” he says.

Diverse markets

The opportunities in Southeast Asia may be plentiful, but Chan warns against viewing countries in the region as homogenous.

“Culturally, politically and economically from country to country and even within each country there are significant differences. You have more developed economies like Singapore and Malaysia and Thailand. Then you have the least developed ones, including Myanmar which is politically unstable.”

He continues: “We identify what the needs are for each country; does this particular country require more energy or less? Does it need to focus on climate adaptation or mitigation?”

While Chan acknowledges the political instability in Southeast Asia, he refutes the suggestion that this represents a significant investment risk.

“Nothing is risk free but a lot of the risks in Southeast Asia are based on the perception that political risk in the region is worse than anywhere else. I would recommend people test that assumption.”

Chan points to inconsistent policies by a number of major European governments in their approach to renewable energy projects over the past decade, relating to contracts and tariffs, as well as the Trump administration’s weakening of greenhouse gas limits.

“Is political risk solely confined to emerging markets? I would say not. In fact, as a foreign investor to Southeast Asia, there is more access to government than is the case in a developed country. They are willing to listen and engage with you as private stakeholder because they are keen for the investment,” he argues.

Chan says a successful overhaul of Southeast Asia’s energy supply and consumption depends on more innovation from the financial sector, with providers able to support a shake-up in ownership of electrical grids which are in desperate need of investment. He also predicts the demand for capital to support new technologies that will improve existing wind farms in the region, and he says there will be greater focus on sustainable energy storage.

He says: “The future is full of opportunity in Southeast Asia. We just need to build on the momentum in the market and get capital to work in the right places.”