Asian energy focus shifts to renewables

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Raphael Minder, FT Syndication Service
HONG KONG: The harvest season is in full swing in Shandong province in eastern China - and with it come bonfires.
The fires, set by farmers burning stalks left over from corn and cotton harvests, are of such magnitude that the restricted visibility they cause occasionally forces the closure of roads, as well as the airport at Jinan, the provincial capital.
The practice has been banned but continues unabated. "It's just the way we've always done it and there's nothing else to do with this cotton waste," says Zhang Tingwen, a 53-year-old farmer who led a cow-drawn cart stacked high with cotton bags back to his farm one recent evening.
However, 30km away, a new biomass power plant is about to offer an alternative, paying about Rmb200 ($27, €18, £13) per tonne for unwanted cotton stalks. Asked whether he would take the opportunity to add at least 5.0 per cent to his harvest income, Mr Zhang's sunburnt face breaks into a smile and he gives the thumbs-up.
China is set to overtake the US as the world's largest energy user soon after 2010, according to the International Energy Agency, whose report this week concentrated on problems resulting from an expected doubling of energy demand in China and India by 2030. The IEA called for greater investment in renewables and nuclear power to ease pressure on scarce and ever more expensive commodities.
Coal accounts for about 70 per cent of China's power generation and 56 per cent of India's. But there are already signs that China and India are embarking on aggressive diversification plans that could go well beyond the IEA's expectations.
Beijing wants to turn renewable sources from an almost meaningless contribution to 15 per cent of the Chinese energy supply by 2020, while more than doubling nuclear generation capacity. Already back in 2005, A.P.J. Abdul Kalam, India's former president, said the country needed to boost renewable energy from 5.0 per cent of power generation to 25 per cent by 2030.
The IEA forecast this week that renewable sources would represent 10 per cent of global energy usage by 2030. Much still depends on how quickly Asia translates political pledges into legislative reality.
"With renewables, you need regulations to drive it hard and also create investment certainty," says Martijin Wilder, a partner in Baker & McKenzie's renewable energy practice.
With oil rising towards $100/barrel, the incentive to invest in renewables is increasing, especially in countries such as Sri Lanka that still have many oil-fired power plants. However, for China and India, the cost advantages of coal remain the prime consideration.
Robin Cheng, a UBS analyst who specialises in solar power, says: "No matter how cheap the renewables, they are still more expensive than coal. Things are going in the right direction, but there is a trade-off and I think maintaining the growth in China and India will outweigh concerns for the environment."
China and India are not alone in pushing for greater use of renewable energy.
Indonesia, another leading coal producer, announced this week that it was looking into a new integrated food and fuel policy, in part to reap more benefits from its growing palm oil sector.
Singapore has earmarked S$350m ($243m, €166m, £115m) over five years to develop sectors such as solar power and biofuels. Thailand recently adopted a tariff system to encourage renewable production, while the Philippines this year introduced legislation forcing oil companies to include a small percentage of biodiesel and bioethanol in output.
As for China, Mr Wilder argues: "The reality is that, if the Chinese want to do it, they will."
The view is shared by several foreign companies investing on the back of Beijing's renewable goals, despite the relative failure of previous foreign forays into the country's power sector.
The Shandong biomass plant is majority-owned by CLP, Hong Kong's largest power company. CLP is also investing in Chinese wind power, joining General Electric of the US, Gamesa of Spain, Vestas of Denmark and Sulzon of India.
K.K. Chan, head of renewables at CLP, says: "This is a very good opportunity for foreign investors to go back in because, with renewables, you really need the technology and know-how and not just the capital, which China now has a lot of." (Additional reporting by John Aglionby in Jakarta, Roel Landingin in Manila, Amy Kazmin in Bangkok, and Amy Yee in New Delhi)