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  • Oil & Gas
18 December 2018

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  • Philippines

MANILA/BEIJING/TOKYO — The Philippines has become a new front in China and Japan’s infrastructure rivalry as companies from both countries bid to build the archipelago’s first liquefied natural gas terminal […]

 

  • Others
18 December 2018

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  • ASEAN

JAKARTA – Just a few years ago, when Mr Clifford Lee, head of fixed income at DBS, sounded out potential clients about their appetite for green bonds – debt sold specifically for sustainable purposes like building a wind farm – conversations were short and tended to end with “no”.

That’s because green bonds were no cheaper than their conventional cousins and sustainability for some just wasn’t a thing back then. But in the wake of the Paris Climate Accord, and a series of vicious storms and steadily deteriorating air and water quality in the region’s biggest cities, investors are coming around.

“There was always a long pause. Being practical Asians, it ended the conversation,” Mr Lee recalled of those exploratory conversations around the beginning of the decade.

Outside South-east Asia, green bonds have been in increasing demand, giving their socially conscious sellers bragging rights that they are serious about environment. About US$130 billion of the specialised debt will be sold this year.

In South-east Asia, enthusiasm has been muted – until now. This year marks the first full year of standardised Asean rules governing how the bonds are cobbled together, certified and sold. Governments, banks and renewable energy companies in Indonesia, Malaysia, Thailand and Singapore are among the issuers. About US$4 billion green bonds will be sold in the region this year.

“There is a revolution afoot,” said Mr Sean Kidney, chief executive of the Climate Bonds Initiative, an NGO focused on green bonds.

“People want cleaner air, cleaner water and that is going to take financing.”

In November last year, regulators, through the Asean Capital Markets Forum, set rules governing who may sell green bonds, how they’re certified and which projects may qualify. A gas-powered electricity plant, for example, is a non-starter.

The rules also compel green bond issuers to disclose information on individual projects and how proceeds of the bond sale are spent.

Creaking infrastructure and deteriorating air and water quality are already exacerbating challenges faced by beleaguered residents of Asia’s biggest cities.

Cyclists in Jakarta this month occupied the capital’s Dutch colonial city hall to threaten court action against the local government of Governor Anies Basweden to clean up air pollution. Research last month from the University of Chicago indicated air pollution in the worst affected parts of India can shorten life expectancy by a decade.

Elsewhere, wild fires in California in November, which destroyed 14,000 homes and claimed 85 lives, were the state’s deadliest. A trio of hurricanes and other storms in the United States last year caused a record US$306 billion in damages.

The International Energy Agency has said some US$53 trillion in new infrastructure will be needed by 2035 to avoid a sharp increase in global temperatures.

But there are signs the infrastructure is not getting built fast enough. Worldwide carbon emissions grew 2.7 per cent this year compared with 1.6 per cent last year as motorists drove more.

Mr Lee of DBS says that as the world focuses on the impacts of climate change, fund managers, companies and governments will be under increasing pressure to show clients they are investing sustainably. “Going forward it is going to be necessary to have long-term sustainability plans,” he said. “It’s not something that is simply nice to have.”

DBS Bank this year advised on a US$580 million sale of green bonds by Jakarta’s Star Energy Geothermal to refinance bank loans used to buy two Chevron geothermal fields in Indonesia’s West Java. HSBC advised the Indonesian government on its US$1.25 billion green Islamic bond – the first such instrument.

Indonesian officials overseeing the bond sale said the government was eager to show it was serious about meeting its commitments under the Paris climate agreement. Indonesia is a perennial target of environmentalists for failing to curb deforestation linked to oil palm plantations.

“The government of Indonesia has a vision and a mission to combat climate change,” said Mr Luky Alfirman, director-general of budget financing at the Ministry of Finance.

“The key benefit (of the green bond sale) was to raise Indonesia’s image as a leader in sustainable finance.”

Elsewhere, in Thailand, TMB Bank sold the country’s first green bond with a US$60 billion offering in June.

In April, Malaysia said it would offer grants to help offset the cost of setting up green Islamic bonds, known as sukuk, following a launch of a RM250 million (S$82 million) green Islamic bond by renewable energy company Tadau a year earlier to help finance a solar power station.

To be sure, there are limits to the usefulness of green bonds.

Mr Rudy Suparman, Star Energy’s chief executive, says regulation can be a bigger headache. Indonesia’s caps on electricity prices crimp profit in a business where it costs US$10 million to drill a single well.

“We’re very happy with the sale. There was a lot of interest,” Mr Rudy said.

But the government caps on tariffs means “there’s no room for error”.

Mr Rudy is not sure if a green bond is even necessary for a company that has the word “geothermal” in its name. Star Energy generates electricity from steam produced by hot rocks 1,500m deep, giving him all the green bragging rights he needs.

“This is our business,” Mr Rudy said. “We aren’t doing anything extra for this.”

Pure play renewable energy companies aside, proponents say green bonds help back up more diversified companies’ claims of corporate social responsibility.

But making the sales of green bonds more commonplace in South-east Asia will hinge on incentives and education.

Last year, the Monetary Authority of Singapore said it would reimburse green bond auditor fees up to a cap of S$100,000. It’s a good start but regulators need to talk up the product more, Mr Kidney said.

“They need to explain what it is and what it does. We need investors to say they want it and we need deal flow,” Mr Kidney said.

“The goal is to flush out potential issuers.”

  • Renewables
18 December 2018

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  • Philippines

China-headquartered Trina Solar on Tuesday said it hopes to capture at least 10 percent of the Philippine market for residential solar energy.

The company has just launched its solar rooftop product— the Trinahome Solutions—in the country.

In a press conference in Makati City, Trina Solar Philippines country manager Junrhey Castro said the company expect to reach its initial goal of 10-percent market share by 2019.

“We have quite a bit of an aggressive target in the Philippines. We are given the task to meet at least 10 percent market share,” he told reporters. “For the residential share of the market, we’re looking at least 5 to 6 megawatts a year in the Philippines.”

Depending on the roof size and customer requirements, Trinahome panels are designed as 1.5-kilowatt, 3.5-kilowatt, 5-kilowatt, and 10-kilowatt systems and costing from P100,000 to P500,000.

Castro claimed the Trinahome system pays for itself in four to six years, it is the “perfect investment.”

All components of the product—solar modules, inverter, grid box, and mounting—are backed by a 25-year Trina Solar warranty.

“The whole system is backed by one supplier. All the components work together seamlessly to provide greater efficiency,” Castro noted

  • Bioenergy
18 December 2018

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  • Philippines

THE DEVELOPMENT of waste-to-energy (WTE) facilities in the Philippines through public-private partnerships (PPPs) may be plagued by uncertainty due to an inadequate legal framework, the Asian Development Bank (ADB) said.

“Municipal solid waste (MSW) processing and disposal remains a challenge in Bangladesh, India, and the Philippines. The uptake of WTE as a proven MSW treatment solution has not been realized in Bangladesh and the Philippines,” the ADB said in a working paper.

According to the ADB, the three countries are among the most populated, due to rapid urbanization. They are also the top MSW generators in Asia and in the world, and remain underdeveloped in terms of MSW processing and disposal. They are also net energy importers, and have not realized 100% electrification.

“Despite a well-established PPP regulatory framework and a mature PPP market for municipal infrastructure and public services, potential business opportunities in WTE in the three countries have not attracted private sector investors and financial institutions due to numerous barriers, and thus remain largely unexplored,” the ADB said.

“Ambiguity and inconsistency that leads to an open interpretation of WTE’s role needs to be avoided. The ban on incineration in the Philippines is an example,” it added.

This is because the Clean Air Act, Ecological Solid Waste Management Act, and the Renewable Energy Act bans municipal solid waste incineration can be interpreted in various ways.

“It could mean either a totally unconditional ban on incineration regardless of technology specifications and emission standards, or a conditional ban that applies only to incineration that emits poisonous and toxic fumes exceeding the stipulated limits,” the ADB said.

The PPP Center is currently bidding out the P22-billion Quezon City Waste-to-Energy facility project that is expected to be implemented by early 2019. The facility will have the capacity to convert up to 3,000 metric tons a day from Quezon City’s municipal waste to 42 megawatts, which can power around 60,000 to 90,000 homes.

The PPP Center earlier described WTEs as the “next wave” of PPPs, due to strong local government and investor interest. Cebu is also considering setting up its own WTE facilities.

According to the working paper, the Philippines’ 45.2 million urban population produces 30,000 tons of municipal solid waste per day, mostly from Metro Manila. This compares with China’s 520,000 tons per day, 707,000 tons in the US, 188,500 tons in India, and 61,400 tons in Bangladesh.

It noted that the Philippines only collects 40-85% of the generated waste, meaning the 15-60% is improperly disposed of.

The Philippines has one WTE facility, the Payatas Controlled Waste Disposal Facility in Quezon City, which opened in 2008. Electricity generated from the facility is sold to the Manila Electric Company to supply nearby communities. — Elijah Joseph C. Tubayan

  • Oil & Gas
18 December 2018

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  • Vietnam
Vietnam repeatedly calls itself one of the countries that would be most devastated if climate change worsens, but it is also preparing to import liquefied natural gas (LNG), which emits the greenhouse gases that accelerate climate change.

Rather than drastically boost renewable energy, Vietnam plans to start using LNG for the first time in 2020, a decision that highlights how hard it is for countries to balance energy costs with environmental protection.

While emissions resulting from LNG extraction, production and use are low compared to other fossil fuels, its increasing usage means it will be the biggest source of carbon emission growth by 2025 according to the energy consultancy Woods Mackenzie.

Le Van Luc at the Ministry of Industry and Trade explains that, as the economy grows quickly, domestic energy supplies can not keep up with the need for more electricity.

“You could see that for Vietnam, our country used to produce and export energy for many years,” said Luc, deputy director of electricity and renewable energy at the ministry. “However, in 2015, we became a net energy importer, especially of coal and natural gas.”

The communist country of 100 million people is not alone.

FILE - Participants take part in plenary session during COP24 U.N. Climate Change Conference 2018 in Katowice, Poland, Dec. 13, 2018.
FILE – Participants take part in plenary session during COP24 U.N. Climate Change Conference 2018 in Katowice, Poland, Dec. 13, 2018.

Other United Nations members gathering for climate talks in Poland this week face similar challenges, from the yellow vest protesters in France angered by fuel price hikes, to the U.S. officials trying to convince U.N. colleagues in side events that coal can be clean.

Elsewhere in Southeast Asia, as well, peers like Indonesia and Thailand intend to burn ever more coal, despite also fearing the threat of climate change.

For Vietnam, LNG is making its debut in part because policymakers believe there are limits to renewable energy. Luc said that the country is reaching the upper limit of the hydro power it can get from dams, and that natural gas is a bit more affordable than wind or solar power.

FILE - A solar water heater, left, and a solar panel, right, are seen at Entech Hanoi, an international trade fair on energy efficiency and the environment, at the Giang Vo Exhibition Center in Hanoi, Vietnam.
FILE – A solar water heater, left, and a solar panel, right, are seen at Entech Hanoi, an international trade fair on energy efficiency and the environment, at the Giang Vo Exhibition Center in Hanoi, Vietnam.

LNG is also being discussed because the United States wants to promote it here, which would allow American companies to export more of the fossil fuel. The U.S. government organized a natural gas conference last week, when Mary Tarnowka, the U.S. consul general in Ho Chi Minh City, warned of energy shortages to come in southern Vietnam. She noted the city she currently calls home has annual economic growth of 10 percent.

FILE - This aerial photo taken on October 19, 2018 shows houses along the Xuyen Tam canal in Ho Chi Minh City.
FILE – This aerial photo taken on October 19, 2018 shows houses along the Xuyen Tam canal in Ho Chi Minh City.

“All of this is creating a growing middle class, and a society and culture that is growing as quickly as their energy demands,” she said in a speech. “With the rising demand for energy approaching a growth rate of 8 percent in 2018, Vietnam is currently facing significant challenges in the southern provinces in order to keep pace.”

Natural gas is typically transported through pipelines, but for longer distances, it must be cooled down to a liquid state, so that it can be shipped in containers. That would allow it to travel from the United States, across the Pacific to Vietnam.

Once it arrives, though, there has to be infrastructure to receive the LNG and warm it back into a gaseous state that can be used for fuel. That is where U.S. companies and agencies are coming in to advise on construction.

“The difficulty and challenge for Vietnam is that we have yet to have any experience in constructing or operating LNG infrastructure,” Luc said.

He added that the country is still investing in electricity generated from the wind and the sun. But fossil fuels are needed as a buffer, Luc said, for when the wind is not blowing and the sun is not shining.

Some investors say Vietnam pays too low a tariff to make renewables viable, but others are already making a profit from solar power and say firms need to accept the price rather than hope for it to change.

Environmental economist Le Viet Phu said Vietnam needs a diverse energy mix. The country is not going to abandon coal, but using more natural gas will be less polluting than coal, and alternative energy is on the rise, he said.

“Renewables are good for shedding peak loads, but renewables are not cheap,” said Phu, of Fulbright University Vietnam. “We have seen renewables picking up speed recently, but it will be years until we see some significant impact on the system.”

And activists are not giving up on alternative energy, including biomass, which refers to plants that can be burned as fuel.

“Ho Chi Minh City and the Mekong Delta are the areas with the largest potential in the country for renewable energy development projects,” environmental group CHANGE wrote on its blog, “especially solar and biomass, with many hours of sunshine, a long sunny season, and abundant agricultural by-products, such as straw, rice bran, and rice husks.”

  • Coal
18 December 2018

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  • Indonesia

JAKARTA: Indonesia is expected to produce between 480 million tonnes and 500 million tonnes of thermal coal in 2019, and an estimated 500 million tonnes this year, a leading industry association told reporters on Tuesday.

“There is a possibility that output next year will be flat,” Indonesian Coal Mining Association chairman Pandu Sjahrir said.

However, among factors contributing to a possible decline in output are “uncertainties” surrounding the transfer of coal contract mining rights to new permit structures, Sjahrir said.

The government is also expected to make a decision in January on domestic market supply requirements for coal miners, he added.

  • Oil & Gas
  • Others
18 December 2018

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  • Malaysia

Houston — Malaysia’s Petronas will buy LNG from Cheniere Energy under a 20-year agreement that will support building a sixth liquefaction train at the exporter’s Sabine Pass terminal in Louisiana.

The long-term offtake deal for approximately 1.1 million mt/year of LNG will be shipped on a free-on-board basis beginning following the date of first commercial delivery from Train 6. Cheniere CEO Jack Fusco told S&P Global Platts in October that the company hoped to make a final investment decision on the train by early next year.

In a statement announcing the sale and purchase agreement with a unit of Petronas, Cheniere said the deal is expected to support the continued progress toward an FID in 2019. The purchase price for the LNG will be indexed to the monthly Henry Hub price, plus a fee.

“We think SPL6 is money-good, and the real questions are really at what price/contract structure and when,” Wells Fargo Securities analyst Michael Webber said in a note to clients after the announcement. “With execution of the EPC contract with Bechtel (November), the one milestone they now need to sort out over the next 3-4 months is financing.”

Despite market uncertainty and continuing US trade tensions with China, Cheniere has projected a confident market outlook in recent months, and on both the financial and commercial fronts it has managed to outmaneuver many of its US peers, thanks in part to being first to market among major US LNG exporters when Sabine Pass started up in 2016. Also, its one-stop shop for producing, marketing and delivering LNG around the world on a destination-flexible basis gives it a competitive advantage.

Cheniere has been stressing to the Trump administration the importance of US LNG in the global marketplace and encouraging it to ease tensions with Beijing. China imposed tariffs on imports of US LNG starting September 24, and with less than two weeks before the end of 2018 there is no sign of the duties being lifted anytime soon.

Click here to view larger image

Cheniere Energy's exports from Sabine Pass terminal

Cheniere is currently operating five trains at Sabine Pass and one train at its export terminal near Corpus Christi, Texas. The facility in Texas recently shipped its first cargo, which is on its way to Greece. Two more trains are under construction at Corpus Christi.

While the agreement with Petronas is the first one announced by Cheniere that is directly tied to the proposed Train 6 at Sabine Pass, in general, other SPAs with investment grade counterparties can be used to support financing for new LNG capacity. Cheniere has reached several such deals this year, though early ones will support the third train at Corpus Christi.

“We think Cheniere had been looking to get one or more FOB contracts signed to help simplify the financing process (it’s simply easier to underwrite fixed-price FOB contracts and keep DES business at CMI) — with 1.8 mtpa (~38%) FOB commitments and the inclusion of one DES contract (1.45 mtpa PGNiG or 2 mtpa CPC) able to get them to ~70-81% (which should be more than sufficient coverage to take to its lenders),” Webber said.

The analyst added, “Given significant commercial progress and Cheniere’s investment grade rating, we don’t expect any major issues with financing.”

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