Believe the hype

Macquarie Capital’s John Walker called renewables Asia’s ‘investment opportunity of the century’. He’s right.

Fortune favours the bold – or at least the early movers. That’s the lesson being forcefully imparted by those who dared to be first in the spectacular growth story that is Asian renewables.

Denmark’s Industriens Pension is a good example. Having co-invested just under DKr600 million ($99.7 million; €80.6 million) – alongside Actis and Equis Group – in a number of solar and wind projects in Japan, India, Thailand and the Philippines between 2012 and 2015, the pension sold them earlier this year for DKr1.2 billion – a tidy return of over 100 percent.

Want another one? Take a look at our recent interview with CGN Private Equity chief executive Raymond Fung, in which he outlines how the firm is currently making 20 percent-plus returns from operating renewable assets in China, backed by feed-in tariffs. Or have a read about Partners Group’s Japan Solar exit, which netted the Swiss manager a 3.2 times gross blended return. Having first invested in Japan Solar in 2014, together with Equis, the platform went from having four projects under its belt to 27 at the point of sale to a Global Infrastructure Partners-led consortium, with 600MW for secured development and 200MW in operation.

So when you hear Macquarie Capital’s John Walker, vice-chairman for Asia, describe Asian renewables as the region’s “investment opportunity of the century” this does not come across as hyperbole.

“When you look at where the various countries are in terms of their economic development and their demand for energy, it’s a huge opportunity,” Walker enthused in a recent video interview. “This includes the so-called developing markets, such as Indonesia and Vietnam, but also the very developed markets. So, we see in Taiwan 23GW of renewables being developed by 2023, in Korea 20GW of renewables, Japan 18GW.”

As if to underline the size of the opportunity, GIP, one of the industry’s largest fund managers, led the consortium that acquired Equis Energy last October, a $5 billion deal billed as “the largest renewable energy generation acquisition in history”. The latter will give the buyers 1.9GW of operational, construction and shovel-ready renewables assets across Asia-Pacific, in addition to a 115-strong development pipeline with a capacity of 9.1GW.

However, this isn’t just about the size of the pipeline; it’s also about the type of assets on offer. At a time when renewables, in places like Europe, are moving away from feed-in tariffs towards merchant power exposure and power-purchase agreements, many of the countries Walker refers to above are offering solid tariff frameworks in what are effectively developed economies. Or put differently, Asia is offering a huge pipeline of core infrastructure assets powered by the twin engines of decarbonisation and denuclearisation, both strong themes.

Partners’ and Equis’ Japan Solar journey is, in this sense, a classic early-mover story: after Japan introduced its solar feed-in tariff framework in 2012, it took the partners only two years to establish the platform. Four years after that, it was time to pass the baton.

But this isn’t a story about the best of Asian renewables being behind it; this is a story about the many opportunities that lie ahead. And even if the early-bird window is starting to close in some markets (Fung, for example, argued there’s only a five-to-seven-year period to get the kinds of returns he described above), there are many more plays to be had, encompassing development, construction, operation, platform-building and everything in between.

While not quite Manifest Destiny stuff, what’s happening in Asia brings to mind one of the key phrases associated with that era. So go East, infrastructure investors – it’s time to grow with Asia.

Write to the author at bruno.a@peimedia.com