Singapore shaping up as regional springboard


June 22, 2015

Singapore – Given Singapore's small hinterland, which limits the growth of solar energy here, and neighbouring countries' more serious stance on renewable energy, industry players are leveraging the Republic as a starting base for regional expansion as well as a hub for financing solar assets in regional markets.

Countries across South-east Asia, such as Thailand, Indonesia and Malaysia, have been ramping up on renewable energy assets, including solar energy, through feed-in-tariffs (FITs), which are subsidies for renewable energy that is pumped back into the power grid.

The Philippines, too, with one of the highest energy prices in the world, is an attractive place to invest in the solar sector.

With Singapore taking a stand against FITs to enhance the local cost-competitiveness of energy, local players are thus incentivised to expand their operations abroad.

Said Mathias Steck, regional manager for the Asia Pacific energy team at DNV GL, a technical adviser to the energy sector: "We are seeing many new business models emerging across markets in Asia, with Singapore acting as a hub for investments of this kind." Singapore-headquartered solar equipment manufacturer REC Solar is already active in Thailand, Indonesia and the Philippines.

Jen Tan, REC Asia-Pacific vice-president of sales and marketing, told BT that Singapore, with its stable economy and strong regulatory environment, represents an ideal experimental ground for the company to test solar business models, such as power purchase agreements (PPA), which it does not offer anywhere else in the region.

Through PPAs, REC is able to generate a sustainable income while customers are able to adopt solar energy with no upfront installation costs.

Meanwhile, Sun Electric, which in 2014 was the first solar company in Singapore to obtain an energy retail licence from the Energy Market Authority, is launching its operating platform in other cities.

Its founder and managing director, Matthew Peloso, told BT that Singapore presents an ideal place for the company to launch its "city-based operating platform" because the country is unable to accommodate a utility-scale solar system.

The resulting platform will be the future model for cities in similar situations that require a managed distributed solar system.

Sun Electric's platform creates a transparent distribution system that accounts for the flows of intermittent energy on a city's power grid and manage energy customer requirements.

"The high standards and high power quality achieved in Singapore means we must test our technology on a demanding network," Mr Peloso said. "We see South-east Asia as a viable launching point to other cities, and that this model will also be useful in southern US states to counter the embedded generation models effect on energy utilities."

Separately, Singapore's largest solar leasing company, Sunseap Leasing, whose parent company also has operations in Malaysia and Thailand, is working with a local bank on a S$50-70 million green bond issuance later this year, and is contemplating taking the company public over the next 12 to 18 months.

"An investment grade creates confidence with government or multinational corporation-backed projects," CEO Frank Phuan explained to BT.

DNV GL's Mr Steck told BT that the popularity of the China Singyes Solar Technologies Holdings bond issued here by Standard Chartered in November last year bodes well for similar projects in the future. "The key determinant of successfully raising capital through this route is the credit rating and solar credentials of the issuer."

Mr Steck added that another alternative for Singapore to participate in solar energy financing is through a yieldco which comprises solar assets across the region.

The emerging market yieldco which global renewable energy company SunEdison launched in the US earlier this year, TerraForm Power, could provide a model for Singapore, given that the city-state is home to SunEdison's regional headquarters, he said.

A yieldco is a publicly traded company comprising operating assets that focuses on income.

Ashish Sethia, Asia-Pacific lead for the gas & power markets at Bloomberg New Energy Finance, told BT that a diversified regional portfolio of solar assets would spread the risks and speed up the listing process.

He said: "If you are going to constrain yourself to Singapore, it will take a much longer time to get the asset to a certain size to list on the stock exchange or issue bonds. You have to convince so many people and assess so many rooftops.

"The chances of an aggregator listing in the Singapore market, with a diversified asset base across South-east Asia are much higher than a pure play Singapore player."

Mr Sethia added that Singapore, while having a less mature solar market than those of China and India, has the advantage of being a mature financial market, characterised by lower cost of debt as well as sovereign risks.

He said that it would take local banks about two to three more years to get more comfortable with financing solar assets here. Banks in Singapore, once foreign to the idea of solar energy financing, are slowly warming up to the sector.

In 2010, Sunseap had sought to secure its first term sheet through the local branch of a foreign bank, instead of a local bank. Even then, the bank had to fly in its US counterpart to provide advice, Mr Phuan told BT.

Now, Mr Phuan sees "an increasing number of local banks taking up solar financing projects, at more competitive financing costs, as the financiers get more familiar with solar assets as well as managing risks in the solar industry".

"I believe Singapore can be the financing and technology hub for solar in Asia . . . but we may lose our position if we do not move fast as global solar players are eyeing the rapidly growing South-east Asian markets as well."

Published by: The Business Times, Chan Yi Wen