How are ADB's Private Sector Operations Helping to Put Developing Asia on Clean Energy Path?

Article | 23 April 2020

Asia and the Pacific’s energy demand is projected to almost double by 2030. The region urgently needs innovative solutions to generate power in socially, economically, and environmentally sustainable ways. ADB works with the private sector to fill the investment gaps and finance facilities that generate and distribute clean energy.

Jackie Surtani and Shantanu Chakraborty, division heads of Infrastructure Finance Divisions of ADB's Private Sector Operations Department, discuss renewable energy projects in Asia and the Pacific and what ADB has been doing to support clean energy development. ADB’s private sector operations aim to achieve development impact while ensuring profitability and commercial success for its clients.

Jackie Surtani (JS): Our focus is to find, first and foremost, clients that both have the technical and financial creditworthiness to pursue renewable energy projects.

Shantanu Chakraborty (SC): I have a few countries in my region which have hitherto been smokestack economies, significant dependence on fossil fuel, but they are very committed to the Nationally Determined Contributions (NDCs) under the Paris Agreement. They have embraced renewables, they are coming up with very robust public-private partnerships (PPP) and regulatory frameworks and actually attracting and welcoming a lot of international investor interest.

JS: I think one of the key things is with these countries that we both operate in is that the cost of renewable power in many of these countries is falling rapidly and is able to compete with coal-fired power projects and other sources of thermal power. So some great innovative ways to make renewable power more competitive for the people in those countries.

SC: Talking about specific projects, we are about to close a hydroelectric project in Nepal after about 24, 25 years, which is a big achievement.  

And we're actually hoping to do our first domestic investor-sponsored solar project in Bangladesh.

The third first that comes to my mind is Afghanistan, where again after a big hiatus of about 12 to 13 years, ADB is going to do its first private sector transaction in Afghanistan by supporting a 15.1-megawatt solar power project, again using a significant amount of concessional and donor funding to de-risk the project in an area which you know very well is heavily affected by political and other unrest.

"I think one of the challenges that we both face is these renewable energy projects are very small and we’re not focused only on project finance as a lending modality." - Jackie Surtani

JS:  Similarly on our side, we were able to do our first solar project in Mongolia, a 15-megawatt project, which is next to the new airport in Ulaanbaatar.  Secondly, it took us two years to do, but we've finally done our first renewable energy project in Viet Nam, which as I was saying was a combination of - it's a floating solar project, which combines hydro and solar technologies together.  

And thirdly, we are really trying to unlock private sector capital in the Pacific islands and the Board (of Directors) approved a Pacific renewable energy program for $100 million to support these small renewable energy projects in the Pacific islands. 

SC:  Actually we are trying to replicate your most innovative Pacific Guarantee Program for Afghanistan as well. So we are trying to also adopt somewhat of a programmatic approach, in terms of de-risking some of the risks that you mentioned, backstopping a lot of these risks.  

JS: Certain countries here in Asia are blessed to be on what's called the ring of fire. And because of the volcanic activity in those countries, they have what's called a geothermal resource, which is again an indigenous fuel resource. So, we've been very successful in Indonesia, where we've done three great geothermal projects and we're also again here in the Philippines, we supported two geothermal plants through a bond issue called Tiwi-MakBan. So, I'm really hopeful that we can do more geothermal projects in the future.  

What was the most amazing is I didn't realize and I don't know, again this is something that you may even consider, is that geothermal is typically viewed for power generation, but we discovered that there's a low-temperature geothermal resource in (People's Republic of) China. So, we were able to work with an Icelandic company to even develop district heating using geothermal power. 

SC: What kind of trends do you see going forward, Jackie, in the next let's say two to five years?

JS: I'm glad you asked that Shan, because I think one of the challenges that we both face is these renewable energy projects are very small and we’re not focused only on project finance as a lending modality. 

So, one of the things I think we both need to approach our clients with is more of a portfolio type approach. So we did this in Indonesia, for example, where we took a wind project of 72 megawatts and combined it with four smaller solar projects that the client was also developing at the same time, three at five megawatts and one at 20 megawatts, and put that together as a financing package, as more of a portfolio. And that combined with we're seeing trends where we're talking to clients to introduce them to things like green bonds, so going to the bond markets.  

What do you think?

"We expect the topography of the energy sector in many of these countries to dramatically change in the next five to 10 years." - Shantanu Chakraborty

SC: Actually, just to take on your first point, Jackie, we also again in the more mature countries in my region - and India comes to my mind first - we have been adopting something similar to what you said, a portfolio type of approach because we have to talk at scale in those markets. The markets have matured, the markets have gone through various phases of de-risking and we have to talk at scale. So as you rightly said, we have supported, for instance, ReNew Power at an early growth stage through equity. 

It also de-risks the portfolio because the money gets diversified across various discrete assets. That's one trend that we do wish to continue to follow in some of these countries.  

The second trend I am seeing is a real attempt on the part of the frontier fossil fuel-dominated economies to actually go green. So a lot of action and the countries that come off the top of my head are really countries like Uzbekistan, Kazakhstan, Azerbaijan, these are all very, very fossil fuel-rich countries, but they are making a very serious attempt at instituting a very robust regulatory and PPP framework, attracting investor interest.  

The third trend really is a strong commitment again, as I mentioned earlier, to the NDCs and the Paris Agreement. We are seeing a lot of push in these areas and expect actually the topography of the energy sector in many of these countries to dramatically change in the next five to 10 years.

JS: What we really should emphasize when we talk about renewable power compared to thermal power, is that really unlike thermal power you don't really have - your fuel source is essentially free, right?  It's the sun, it's the wind, it's water, but really your big cost is your financing cost. Blended finance is very important.

SC: Because without that, I think it's very difficult for these new alternative sources of energy to penetrate into deeply entrenched fossil fuel-based energy mix countries.

JS: I agree with you, we're very grateful to the Canadian Fund, the LEAP Fund  (Leading Asia’s Private Sector Infrastructure Fund). We've been using the Clean Technology Fund for a long time to ensure that some of these projects which are, as you rightfully said, the first of its kind in these countries and could not have happened.  

It's a completely new legal and regulatory framework that some of these renewable energy projects have to enter into. They need our long-term financing from ADB, blended with a certain percentage of concessional finance to make these projects bankable. 

SC: So, I think we are doing our best in terms of supporting our member countries as they embark themselves upon a very robust renewable roadmap.