Vietnam, Pakistan, Argentina: 2017’s renewables stars?

The three markets should provide investment-grade project opportunities and promising returns for renewables investors this year, according to fresh research.

A handful of countries that remain largely off investors’ radars are set to emerge as attractive clean energy markets in 2017, according to Thai-based consultancy Modern Energy Management. 

Vietnam in Southeast Asia, Pakistan in South Asia and Argentina in Latin America are set to offer the best opportunities to develop investment-grade projects and secure assured high returns for investors, the firm said in a report released last week.

Vietnam, which recently launched its solar feed-in tariff scheme, is supported by strong economic growth and political commitment to a low-carbon economy, MEM noted. However, the progress of renewables development has been undermined by the country’s financially weak utility, which oversees a network suffering regular shedding and distribution losses. 

The firm suggested the main difficulty for investors in Vietnam is to find financial returns that sufficiently compensate for such risks. Entering the market with a regional lender is key for developers to secure IRRs of 15 percent, it said. 

The Pakistani market is still in its early development phase, but the short construction timelines of wind and solar plants offer an attractive solution for independent power producers, politicians and local utilities in a country still faced with significant shortages. 

“Many investors have misunderstood the country’s risk profile, and overlooked investing here,” the firm commented. “While risk tolerance differs across investors, the Pakistani PPA is a good way to mitigate that risk. The PPA market in Pakistan is encouragingly positive, and among the best, if not the best in the world.” 

The Pakistani PPA offers terms such as indexation to US dollars, which makes it easy to convert and expatriate funds and comes with a sovereign guarantee. Incentives to encourage foreign investment could also allow for IRRs to reach 17 to 19 percent, the firm said.

Turning to Latin America, MEM described Argentina as a country with “excellent resources and enormous growth potential”. However, its “recent awkward attitude” towards private investment and opaque regulatory behaviour has been a cause for concern among international investors. 

Last year’s renewable energy auction signaled a welcome change, with several international companies among the winning bidders. Argentina anticipates these to boost the country’s renewables installed capacity from its current level of 1 percent to 8 percent by the end of this year. 

“We are already seeing fully permitted projects with PPAs offered for sale, potentially indicating some developers may have been unsuccessful in attracting finance at projected returns,” said MEM, adding the highly competitive nature of auctions may lead to some attrition in bidders before the allocation reaches commercial operations.