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Will Southeast Asia be the Favoured Destination for IPPs Seeking New Markets?

This market insight covers the current state and future potential of the independent power producer (IPP) industry in Southeast Asia. It provides in-depth analysis of the drivers and restraints, along with their impact during the study period. It provides a detailed analysis of the key stakeholders in the industry, the regulatory landscape, the ownership mix, and the power project structure in Southeast Asia. An analysis of growth strategies and various risks in the Southeast Asia IPP industry are also covered in the study.

Research Scope and Objectives

Research Period
•Study Period: 2010–2020
•Base Year: 2013
•Historic Period: 2010–2012
•Forecast Period: 2014–2020

Research Scope
•This research covers Southeast Asia, with a focus on the following countries: Indonesia, Thailand, Malaysia, Vietnam, and the Philippines.
•The target group of interest is independent power producers (IPP) with installed capacity of more than X MW.
•Small power producers (SPP) and captive power producers are excluded from this study.

Research Objectives
•To assess the current state of the IPP market in Southeast Asia
•To provide a strategic analysis of industry challenges and market drivers impacting each country
•To provide insights on the competitive environment (i.e., ownership structure), regulatory framework governing the sector, and the contractual structure of prevailing power projects
•To provide analysis of the possible growth strategies and the risks undertaken by IPPs

Key Research Findings—Southeast Asia

•Southeast Asia remains a hot spot for IPP investments due to the region’s growing demand for electricity and the inability of government to enhance capacity through public investment. Private power has thus been increasingly sought after in countries such as the Philippines, Indonesia, and Vietnam.
•Power shortages, tight reserve margins and power utilities’ lack of cash reserves are driving the liberalisation of power markets. Power utilities find it increasingly costly and inefficient to remain as the sole power producer. This presents a significant opportunity for IPPs investing in Southeast Asia.
•While Malaysia and Thailand have developed their IPP markets by letting private generators build greenfield projects, Singapore and the Philippines have created it by privatizing the generation assets of erstwhile state utilities.
•Increasing pressure on profit margins, rising competition, and access to finance are the key challenges that power producers face in the region. IPPs must find appropriate solutions to better manage risk, procure equipment, and secure financial support so as to deliver large-scale projects on time without compromising quality.
•Major challenges for new IPPs entering the market include the ability to gain market share in the face of stiff competition from government linked IPPs/utilities and incumbent (usually local) IPPs. Local IPPs are known for reliable power supply, knowledge of the local market, and strong business relationships with local stakeholders.
•The single-buyer model is being practiced in most countries, where the incumbent utility is the sole offtaker of electricity generated. This ensures stability and certainty for the IPPs, even though the financial situation of some of the state off-takers have become questionable.
•Despite apparent liberalisation of the power sector, it has been evident that domestic conglomerates with strong government relationships often win the bids to develop projects and enter into power purchase agreements (PPA). Foreign investors and developers usually create a special purpose partnership with these local conglomerates to put in a bid.
•Coal is expected to take precedence over gas as the main fuel source for power generation due to its cheaper price and bountiful supply. To ensure energy security and to attain a more sustainable fuel mix, the adoption of more efficient clean coal technologies is being encouraged in the region.
•To address environmental concerns, countries are expected to mandate the use of supercritical/ultra-supercritical technologies in coal-fired power plant development projects. However, IPPs are expected to be less receptive to more advanced technologies such as Integrated Gasification Combined Cycle (IGCC) and carbon capture technologies (CCT) as their application lacks proven results.
•The utilisation of renewable energy is also expected to gain more traction over the next Xyears.
•Fuel supply constraints are expected to be a major risk factor for IPPs as countries in the region face depleting domestic fuel reserves and rising competition for imported fuel from fast growing economies. Other risks include:
oLand acquisition risk
oCompetitive risk
oWater-related risk
oRegulatory risk
•Despite pockets of growth in individual countries, the IPP market in Southeast Asia is far from being truly regional or robust. Capital, energy resources, and demand are all unequally distributed in the region. There are very few investments by the large international IPPs, thus depriving the region of best project-development and operating practices. Even cross-border investments within Southeast Asia are few, mainly because of regulatory bottlenecks and preference for local entities.

Key Research Findings—By Country

Current Situation:
•Single-buyer model with the state-owned power utility (PT PLN) as the sole offtaker
•Fairly strong and transparent regulatory framework
•Land acquisition
•Lack of domestic finance
•Absence of government guarantees
•Acute shortage of capacity to meet growing demand
•Low electrification rate
•Power generation market relatively open to foreign IPP participation
Opportunity Ranking:
•Very high

Current Situation:
•Single-buyer model with Electricity Generating Authority of Thailand (EGAT) as the sole off taker
•Relatively matured and saturated power generation market
•Strong and transparent regulatory framework
•Strong track record of successful IPPs
•Dominance of state-owned utility and local IPPs
•Few opportunities for new IPPs; the only viable market entry option for new entrants is through the country’s SPP program
•Offers a low-risk investment climate
•Strong support from local and international financial institutions for project funding
Opportunity Ranking:

The Philippines
Current Situation:
•Most liberalised power sector in the Sustainable Energy Authority (SEA)
•Relatively mature power generation market
•Dominance of local conglomerates which have significant political clout
•Foreign ownership limitations imposed on build-operate-transfer (BOT) projects
•Fastest growing country in SEA; power supply unable to keep up with demand
•Government to continue privatisation of the state-owned power generation assets
Opportunity Ranking:

Current Situation:
•Single-buyer model with TNB as the sole off-taker
•Relatively mature and saturated power generation market
•Dominance of Tenaga Nasional Berhad (TNB) and local IPPs
•Local participation favoured over foreign participation
•High risks in project agreements
•Expiring power purchase agreements (PPAs)
Opportunity Ranking:

Current Situation:
•Single-buyer model with Electricity of Vietnam (EVN) as the sole off-taker
•Relatively less developed power generation market
•Low wholesale electricity tariffs
•Unclear regulatory framework that lacks transparency
•Unfavourable investment opportunities for IPPs
•Acute shortage of power supply to meet growing demand
•Huge potential for IPP expansion; role of IPPs set to grow along with plans to create a more competitive power market
Opportunity Ranking:
•Very high

Table Of Contents

Changing Dynamics of the Independent Power Producer (IPP) Industry in Southeast Asia
Table of Contents

Executive Summary 4
Drivers and Restraints 12
Key Stakeholders in the IPP Industry 26
Regulatory Landscape 37
Ownership Mix Analysis 48
Power Project Structure 56
Growth Strategies 61
Country Risk Analysis 67
Conclusion—Future IPP Landscape 75
Appendix 80
The Frost and Sullivan Story 84

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