Solar financing innovation in Southeast Asia


Southeast Asia proves to be especially innovative when it comes to financing, as solar companies integrate further downstream and provide equity during the development phase. New funds with a clear renewable energy focus are being incorporated in Southeast Asia.
The global slowdown has prompted the solar PV industry to ask searching questions about how it does business and to redefine its business models for the new reality in which it finds itself. Yet the wisdom of the proverb, ‘necessity is the mother of invention’ seems especially applicable to the solar business. This existential awakening is, perhaps, most clearly apparent in the creative approaches to solar finance being adopted in Southeast Asian (SEA) markets.
Why is SEA proving so attractive to solar investors, and what kind of innovation are we seeing? What lessons being learned in SEA have relevance for other markets?

Eyes on Southeast Asia

SEA has rapidly become a nexus of solar activity as historically strong markets in Europe – such as Germany, Spain and Italy – have matured and been subject to policy cuts. The region is promising for a number of reasons, not least the impressive levels of solar irradiation. In addition, SEA demonstrates faster growth than more traditional solar markets. For instance, 2012 GDP forecasts by the World Bank suggest economic growth for the Philippines of 5%, with Malaysia (4.8%) and Thailand (4.5%) also showing strong growth. A consequence of this economic development is recognition of the need to invest in a power sector that can deliver the social benefits that access to electricity provides. Herein lies the opportunity for PV.
The opportunity is being crystallized by policy developments. Many countries in SEA have installation targets for renewable energy, backed up by revenue support schemes. Malaysia, for example, aims for 1.3 GW of PV by 2021, and launched its FIT scheme in 2011 to help achieve this goal. More recently, in mid-2012, the government in the Philippines announced its own FIT, albeit with a relatively low cap of 50 MWp for the first three years.
It is Thailand, however, which is rapidly becoming the region’s star performer. The attractive Adder policy is driving PV deployment, by providing a 10 year premium on top of wholesale electricity prices. This TBH 6.50/kWh (US$0.21/kWh) incentive (previously as high as THB 8.5) cements Thailand’s status as a key solar market in SEA. The Thai government has announced plans to amend the current policy until year-end with rumors mentioning lower premiums, but longer terms. Although the economic and policy environment of SEA is promising, fulfilment of this potential demands a third, equally important, component: cost-effective finance. And it is in this area where SEA is proving to be a seedbed of exciting ideas and trends.
In response to cutthroat competition on cost, established manufacturing companies are seeking involvement in the financing of projects at the engineering, procurement and construction (EPC) phase or even developing utility-scale solar projects, going beyond the previous trend of offering longer payment terms to customers.
A good example of strategic EPC contracting is the Nakhom Pathom utility-scale project in Thailand. This project was engineered by Conergy, an integrated module manufacturer who supplied their own modules, and constructed in partnership with Annex Power, a local player. This strategically important project establishes Conergy in the attractive Thai market which is characterized by liquid lending conditions. The financial conditions in Thailand enabled Nakhom Pathom to raise finance with a similar gearing (75% debt-to-equity ratio) to projects of this size in mature European markets. Meanwhile local banks such as Kasikornbank and Bangkok Bank are comfortable in providing non-recourse finance without the backing from development banks, such as ADB or IFC, and offer single-digit interest rates.

Strategic EPC contracting: 34.25 MW solar park (eight farms, several stages)
InvestmentTotal cost THB 4.4 billion, 75% financed by loans
Year of operation2011
DeveloperYanhee Solar & Ratchaburi Electricity (joint venture with Solarta Company Ltd)
Debt providersKasikornbank and Bangkok Bank
ManufacturerConergy; PowerPlus modules (local system integrator: Annex Power)

While companies like Conergy have been offering EPC for many years in various markets, they are prepared to go one step further. To secure attractive projects, companies all along the solar supply chain are now ready to go downstream, providing full or partial equity during the development phase. This downstream trend is not limited to the case of EPC contractors offering vendor capital – there are examples of former pure-play development-only firms seeking to take on EPC contracts as both a strategic move to open up new markets and as an attempt to add value.
SPCG Public Company Ltd, a fast mover and now one of the leaders in solar farm development in Thailand, received non-recourse project finance from a consortium of Thai banks and development banks, such as the International Finance Corporation (IFC) and the World Bank. Based on its ample experience in developing solar farms in Thailand this local player now aims to become a full EPC player, able to provide services in-house and to third parties. Meanwhile SunEdison, a leading developer and independent power producer (IPP) from the US, covers the full supply chain from development through to investment (co-investing with partners) with the aim of holding assets medium to long-term. The company, a subsidiary of MEMC, a leading US wafer manufacturer, had raised US$26.1 million in 2006 in private equity lending, led by Goldman Sachs. In 2011 it received a further US$250 million to build an estimated 540 solar power plants in Thailand. The financing has been provided by Overseas Private Investment Corp, a US government agency.
In addition, conventional contractors from civil industries are also trying to offer EPC contracts as they strive to compete in these crowded markets. These firms have the advantage of requiring historically low margins and aim at increasing the utilization of their local teams.
The consequence of formerly specialized industrial players becoming involved in construction finance is that the pre-construction financing arena is becoming an exciting space – with a multitude of players and a dynamic range of roles and responsibilities. Although this brings risks of its own, the trend strongly indicates that the solar industry is proactively addressing global market challenges through innovation in financing.

New entrants, new models

There are also new entrants with interesting organizational models emerging. For instance, within the private equity sphere one ambitious new entrant is the Equis Fund Group. Founded in Singapore in 2011, the group recently bought a local developer’s solar portfolio in Thailand, worth US$200 million. This acquisition made the fund a leading player in the Thai solar market overnight. Due to the attractiveness of the Asian opportunity, Equis is now aiming to increase its fund size to US$750 million by the end of 2012.
Some new entrants have the backing of large international players. For instance, Armstrong Asset Management is supported by the Global Energy Efficiency and Renewable Energy Fund (GEEREF), the German Development Bank (DEG) and an Asian corporation. Supported by these noteworthy investors, the fund announced the closure of its first US$65 million in August 2012. It predominantly targets sub-10 MW renewable energy projects in SEA.
The Singapore-based Challenger Fund is sponsored by experienced fund manager Challenger and large Japanese industrial conglomerate Mitsui & Co. The fund is aimed at emerging market infrastructure assets in several sectors – of which the environment is a key area of interest.
While not entirely new to the scene, funds such as the K-Green Trust are interesting due to their unusual background and mode of operation. The K-Green Trust was formerly part of the Keppel Group, one of Singapore’s largest government-linked multinational groups, spanning activity in offshore and marine, infrastructure and property. This business trust has been listed on the Singapore stock exchange since 2010 and is now operating independently. It is a low capital cost source of finance, investing in Asian renewable energy assets post-construction, and targeting creditworthy assets with reputable off-takers. K-Green Trust was awarded a Solar Pioneer Award for its PV installation at Keppel Seghers Ulu Pandan NEWater Plant (UPNP) by the Singapore Economic Development Board and the Energy Market Authority. When completed in February 2013, the 1 MWp PV installation will be the largest in Singapore.
One of the most remarkable features of SEA solar finance is the extraordinary diversity of scale of organizations providing project finance. For instance, the provision of non-recourse debt ranges from global players such as the IFC, to regional organizations such as the Asian Development Bank and regional banks such as Standard Chartered, with local players, such as Kasikornbank or Bank of Ayudhya having a big impact in Thailand. Banks remain relatively cautious though and panel manufacturers are approved on a case-by-case basis only, due to bankruptcies, restructurings and financial turmoil within the industry, which is now impacting even large Chinese players.

EPC providers branch out into development equity: Two 6 MW solar PV parks
InvestmentEquity: THB 189 million per park; syndicated loan: THB 890 million
Year of operationKorat 2: September 2011; Loei 1: March 2012
DeveloperSolar Power (Korat 2) Company Ltd and Solar Power (Loei 1) Company Ltd – subsidiaries of Solar Power Co. Ltd
Debt providersInternational Finance Corporation, Clean Technology Fund of the World Bank, Kasikornbank, Bank of Ayudhya, Thanachart Bank
ManufacturerKyocera Corp: polycrystalline panels

Towards maturity

In a tough, competitive climate, the solar industry has been forced to redefine its financing models and consider new markets.
This is undoubtedly testing the industry, but – as a mark of increasing resilience and maturity – companies are finding creative solutions. In SEA the solar sector is taking up the gauntlet thrown down by the global economic situation and is exploring new options: the result is striking fluidity and diversity in how projects are being financed.
Necessity is indeed proving to be the mother of invention – and it is certainly giving birth to some exciting business models. Some of these models can be, and are already applied to, regions outside SEA, and we can be sure the same spirit of innovation in the solar sector will create new ways and means of doing things, wherever the projects are.

GL Garrad Hassan

GL Garrad Hassan is the world’s largest renewable energy consultancy, offering independent technical and engineering services, products, and training courses to the solar, wind, wave and tidal sectors. The company has 11 offices in the Asia Pacific region with offices in Singapore, Bangkok, Beijing, Shanghai, Seoul and Tokyo. Its policy services unit is a multidisciplinary team providing strategic and policy advice to high profile multinationals, industry bodies, NGOs and financial institutions, drawing upon its global network of technical experts.


This content is protected by copyright and may not be reused. If you want to cooperate with us and would like to reuse some of our content, please contact: