Energy Policy Dialogue - ESCAP Energy Committee pre-event
Delivered at UNCC in Bangkok, Thailand
Distinguished Business Leaders and Policymakers
Ladies and Gentlemen,
Welcome to ESCAP, the regional home of the United Nations in the Asia-Pacific, for the first public-private sector energy policy dialogue where we will deliberate on how the private sector and policymakers can work together to accelerate the energy transition.
There is global momentum towards a profound shift in how we source and use energy which will affect business, governments and consumers. Here in Asia-Pacific, decisive moves have been taken by some of our major economies to adopt more efficient and low carbon energy systems, while recognizing that fossil fuels, under most scenarios, still continue to play a role into the future. Both developed and developing countries will be increasingly adopting more sustainable energy technologies and seeking opportunities to reduce their energy use through improved buildings, transport networks, vehicle fleets, industrial processes and appliances.
This is opening up enormous markets and growth opportunities for companies which can develop the right technologies and business models. Major investments in energy are needed over the coming decades to meet new demand and replace aging assets. Based on IEA’s “450 scenario”, which envisages energy investment patterns consistent with keeping global warming with two degrees, cumulative energy investment of $16 trillion across all categories – oil, gas, coal, nuclear and renewables - will be needed in the Asia-Pacific by 2035. Of this amount, some $3.6 trillion may be allocated to renewables. A further $6 trillion will be spent on energy efficiency in the region, highlighting the prominent role it will play.1 Carbon pricing, as it is adopted across many jurisdictions in the region, will open up markets for innovative products and services that can offer a lower carbon footprint.
Hence the growth prospect for the private sector in the energy is positive but there are significant challenges. Key among these is the decline in the oil price which has impacted oil producing economies and oil companies, and weakened investment in new oil production capacity. Given the time lag from investment in oilfield development to production, there is a large risk that current low pricing, apart from impacting companies active in the supply chain, will set the scene for future oil undersupply with resulting price volatility and energy insecurity. 2
The success of the energy transition will depend to a large extent on the ability of the private sector to deliver new energy infrastructure and solutions in a sustainable manner. Effective cooperation between policymakers and the private sector will be needed to establish the necessary national and regional investment and incentive frameworks. The private sector has emerged as the principal source of technology, finance, innovation and know-how to drive the energy shifts needed to meet the challenges of the 21st Century. Here in Asia and the Pacific the private sector is transforming the energy landscape. Private sector participation in energy markets across the region is growing, principally through the emergence of independent power producers, despite a long history of state control. This engagement is welcome and brings competition and innovation while improving services for energy consumers.
Responding to growing markets for renewable energy and energy efficiency, Asia-Pacific companies have developed innovations, scaled up their production and driven down costs in a short space of time, and now lead the world in production of solar and wind energy technology. Since 2010, primarily due to China’s fast growing interests, the cost of solar power generation has declined by 58 percent3 and the cost of wind power down by one-third. These developments have created a “virtuous cycle” between industry and policymakers. The cost effective pathways for a clean energy transition will offer impetus to embark on deeper emissions cuts as called for under Paris Agreement. The private sector-led innovations and cost breakthroughs we have seen to date will be followed by others in critical areas of energy storage, smart grids, high voltage DC transmission, peer to peer energy trade and high efficiency appliances, all of which will transform the energy landscape in ways we are yet to understand fully.
Recognizing the large number of unelectrified people in our region, the private sector has critical abilities to make a difference to the challenge of ensuring universal energy access. As the rural electrification paradigm in many countries switches from grid extensions to decentralized energy systems and mini-grids, the private sector can bring to bear its capital, technology solutions and business models to assist government and multilateral development efforts in this sphere. According to the Sustainable Energy for All Global Tracking Framework $50 billion is required annually4 to meet the 2030 universal access goal. Current investment totals about $13 billion,5 with the private sector contributing only 18 per cent.6 If progress can be made in developing policies that reduce risks and build a pipeline of investment-ready projects, rural electrification could follow similar growth patterns to mobile communications. Here, the private sector could reap substantial growth opportunities given the IEA estimates that Asia-Pacific’s incremental investment for achieving universal energy access by 2030 could reach $240 billion. 7
Another key area for the private sector to contribute to a sustainable energy future is through enhancing energy connectivity. While political and institutional barriers exist, the future of the region’s energy will most likely involve a greater level of cross-border transfers of energy in the form of electricity, gas and oil. Connecting Asia’s vast energy resources with its population and industrial centers requires extensive modern energy networks such as power grids and gas pipelines. These initiatives are often mega projects involving hundreds or thousands of kilometers of infrastructure bringing vast technical and financing challenges, which require technology, capital and ideas from the private sector to support delivery by governments and financiers. To accelerate progress, governments need to create the right investment climate to encourage private sector participation in cross-border energy connectivity projects, reducing risks, co-investing and providing long-term policy certainty. As a case in point the “Asian Energy Super Ring” proposal connecting Russia, Mongolia, Japan, China and the Republic of Korea has been put forward by a consortium of private sector companies from the participating countries.
Given the complexity of energy projects with their investment intensive nature and exposure to sovereign and policy risk, there is a special case for the expansion of public-private sector partnerships or PPPs for energy. PPPs offer potential for energy development in the region, particularly for investments such as solar and wind farms, high voltage power links and gas pipelines. Innovative PPPs, if properly structured, can be used to stimulate technology and process innovation through appropriate project design specifying the outputs rather than inputs. This approach has found success outside of PPPs in cutting-edge policy initiatives such as reverse auctions for renewable energy.8 Reverse auctions have brought out the best in private sector renewable energy providers, stimulating competition and innovation and has pushed the cost of solar power below 3 cents per kilowatt hour in several projects.9 In the Asia-Pacific region, India’s activities stand out as where a series of reverse auctions for large scale supply of solar power to meet the ambitious targets of its National Solar Mission have delivered impressive results, grown the domestic industry and lowered costs for energy consumers.
In closing, there are many important issues to explore in this dialogue between the private sector and energy policymakers and one day is clearly not sufficient. I look forward to hearing the debates and learning your perspectives which will enhance the work of ESCAP, inform the Committee on Energy and shape the discussions of our leaders at the upcoming ESCAP Commission.
I thank you.
1IEA, World Energy Investment Outlook 2014
2IEA, 2015 World Energy Outlook Factsheet on Oil and Low Oil Prices https://www.iea.org/media/news/2015/press/151110_WEO_Factsheet_OilAndLowOilPrices.pdf
4SE4ALL Global Tracking Framework 2015 Report. http://trackingenergy4all.worldbank.org/~/media/GIAWB/GTF/Documents/GTF-2105-Full-Report.pdf
5IEA World Energy Outlook website http://www.worldenergyoutlook.org/resources/energydevelopment/energyforallfinancingaccessforthepoor/
7IEA, World Energy Outlook 2011, http://www.worldenergyoutlook.org/media/weowebsite/energydevelopment/weo2011_energy_for_all.pdf
8The move to reverse auctions from feed-in tariffs is a reflection of the cost competitiveness of renewables and allows greater competition on price.
9In April 2016, in Dubai a consortium led by Masdar won a renewable energy auction with a bid of 2.99 cents/kWh over 20 years. In September 2016 Marubeni and Jinko Solar won a solar auction in Abu Dhabi at 2.42 cents per kWh. This broke the previous record set in Chile in August 2016 of 2.91 cents per kWh.