Governments should take the lead in tackling new challenges and continue to expect that those markets with the greatest ambition around policies and infrastructure to mitigate uncertainty for investors will turn stronger.
FREMONT, CA:With electricity demand continuing to increase, power prices are pushed significantly higher by increasing fuel, equipment, land, and labour costs. Rising interest rates add further complexity. There are various challenges in the APAC region’s future generation mic, investment outlook, and growth in renewables.
Asia’s power generation costs are expected to rise by around 650 billion USD per year for the next three years. With the reduced gas demand in the power sector due to high prices, coal-fired power has often filled the gap as gas-to-coal switching leads to higher coal prices and hence power prices. However, for those with low-cost domestic coal supply, the logic has been more compelling for a few countries significantly increasing coal-fired output. Today, those markets with more liberalised electricity pricing systems encounter various challenges.
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Asia’s economic dynamism propelled a 200 per cent increase in power demand over the two decades. With net-zero and decarbonisation targets set across the region, this should be changed. Renewables will play a vital role in meeting this, with wind and solar generating half of Asia’s electricity, potentially rising to two-thirds in an accelerated energy transition scenario. Today, there is an expectation that Asia’s power market will hit 2.9 trillion USD over the next decade, a 28 per cent increase from previous years. Although the impact of higher energy prices on coal and gas generation is challenging along with increasing renewable prices.
With a huge volume of renewable investment in the pipeline, there are more opportunities. However, as market conditions rapid change, there are various risks across the sector. Cost inflation is the primary concern. Equipment costs are increasing, logistics costs have more than doubled and labour is becoming more expensive. Revenue is another challenge where curtailment risks are rising as solar and wind capacity heads towards 90 per cent grid load in a few markets shortly. Further, market exposure is another risk for renewables. Renewable developers see price cannibalisation as projects combat to get on the grid. There is more volatility in prices and pass-through of system costs to developers. In addition, end-users become less willing to sign long-term contracts and demand lower prices for clean power.
Governments should play a key role and those markets with the greatest ambition around policies and infrastructure to reduce uncertainty for investors will become the strongest. On the other hand, the risks of investments underperforming due to unnecessary boom-and-bust cycles increases for those who shift risks back onto excessively optimistic developers and allow market forces to determine results.