John Walker, vice-chairman for Asia at Macquarie Capital was spot on when he told us that “Renewables in Asia probably offer the biggest [investment] opportunity globally”, in an interview earlier this year.
Indeed, the continent saw increased investment activity in the renewables space in 2018, offering investors more competitive returns than those generated in developed markets.
Shifting interest towards the region became apparent early in the year, with the record-breaking sale of Equis Energy’s portfolio to a consortium formed by Global Infrastructure Partners, Canada’s PSP Investments and China Investment Corporation for $5 billion.
The transaction included 1.9GW of operational, construction and shovel-ready onshore wind and solar assets across the Asia-Pacific region – including Australia, Japan, India, Indonesia, the Philippines, and Thailand – and a 115-strong development pipeline with a capacity of 9.1GW.
“The awareness created from the Equis transaction has led other investors to explore if this business model can be replicated with other established development teams looking to scale their business in the region,” Andrew Affleck, founder and managing partner of Singapore-based Armstrong Asset Management, told Infrastructure Investor in an earlier interview.
Fund managers have started to expand their teams to have a stronger presence in the region, with BlackRock creating a new position focused on renewables in Asia-Pacific, and Macquarie’s Green Investment Group acquiring a solar development portfolio from Conergy Asia & ME, that also included an Asia-based team of 88 professionals.
Similarly, during our roundtable on Asian renewables in November, Helge Rau, wpd’s head of M&A, stressed that a lot of financial investors were opening new offices in Southeast Asia. “That’s really a growth area, so there will be a lot of capital coming into the market,” he added.
In 2018 there was also a rush of international developers and fund managers landing in Taiwan to participate in the development of offshore wind projects. To meet its ambitious energy transition targets, the Taiwanese government allocated a whopping 5.5GW of offshore wind capacity during the first half of the year, with developers such as Ørsted, wpd and Northland Power, and fund managers such as Copenhagen Infrastructure Partners rushing into the market.
“It’s incredible the pace at which the European strategics have entered the local market,” Andrew Kwok, senior vice-president of private infrastructure, Asia, at Partners Group, told Infrastructure Investor after the auction process started. “They see Taiwan as the stepping stone into Asia and probably the brighter spot outside Europe.”
However, a proposal put forward by the Taiwanese government in December, to reduce feed-in-tariffs for offshore wind PPAs has had industry players up in arms and hints at a rockier year ahead.
Japan, where renewable energy has been on investors’ radars since the aftermath of the Fukushima nuclear disaster in 2011, has continued to attract major domestic and international players, with a consortium led by GIP snapping up a 610MW solar power portfolio, and SPARX and GE EFS raising funds focused on brownfield and greenfield projects in the country.
South Korea has also started to attract investors in the renewables and energy storage space. In May, the government announced it will open up state-owned property to boost the development of solar power in the country, with Canadian Solar announcing soon after that it had acquired the exclusive rights to develop an 8MW solar farm. Local public pensions, such as the National Pension System, are also willing to bet on renewables at home.
The outlook remained mixed for emerging markets in Southeast Asia, where investors still see too many risks and little bankability. “Markets are more difficult, they aren’t as mature, and you have more offtake and finance risk,” Nate Franklin, chief executive of Pacifico Energy, told us.
Despite this, nobody doubts that one of the world’s fastest-growing regions will continue to offer plenty of opportunities in the years to come. As Franklin told us during our roundtable: “Looking globally, Asia is where you have to be – that’s where the growth is.”