Resetting Asia’s Energy Transition in an Era of Heightened Risk
Resetting Asia’s Energy Transition in an Era of Heightened Risk
Brendan Dunlea, Regional Head of Property & Construction Manager, QBE Asia
Favourable market conditions in the coming years should present clean power project owners and operators with enormous growth opportunities, and the hope of reaching net zero — providing they navigate a wide range of risks
Much continues to be said about Asia’s need to decarbonise. Collectively, the region currently accounts for almost half of global greenhouse gasses, and although many Asian countries have made bold net zero commitments by around mid-century, few are on track to meet these.
A recent report by the UN’s Economic and Social Commission for Asia and the Pacific predicts the region will miss its 2030 Sustainable Development Goals targets, including goal number 13 on climate action, which aims to limit global warming to 1.5° Celsius above pre-industrial levels. Momentum in Asia has slowed, the report warns, and with every passing year, the 2030 targets become less achievable.
Progress has been derailed by multiple global crises. The COVID-19 pandemic, Russia’s invasion of Ukraine, and China-US trade tensions have severely disrupted the supply chains of projects, while simultaneously rising materials and labour costs have made many ventures unaffordable. These are just some of the events that have severely disrupted Asia’s net zero ambitions. Plus, with higher costs of living, and spiralling business costs, policymakers are understandably channelling time, effort, and money into these issues instead.
Resetting the agenda
All is not lost, however. With many of these crises beginning to abate, and with the upcoming COP 28 summit to be staged in Dubai later this year, there is an opportunity for governments and the private sector to reset the climate agenda. Energy transition is once again front and centre in the minds of Asian government officeholders – and critically, the executives of companies that will help build Asia’s low carbon projects.
The region’s energy transition will require a wide range of solutions. Natural gas emits 50% less carbon that coal, and the switching from coal-fuelled power generation facilities to gas-powered plants is already gathering pace. Asia’s consumption of this energy form is expected to grow 78% by 2050.
Likewise, Asia’s investment in renewable energy should grow exponentially in future. GlobalData predicts that renewable energy will account for 65% of total power capacity in 2035, up from 40% in 2022. Most of this new capacity will be met with solar and wind power projects: not only do these clean forms of energy produce near-zero emissions, they are also cost-comparable to conventional power sources, including coal and natural gas, according to the International Renewable Energy Agency. It’s also worth noting that about 150 million people in Asia don’t have access to electricity, and an estimated 500 million don’t have access to a basic water supply. Additional renewable energy capacity can help bridge both gaps.
The building of new, low carbon power plants, combined with new and retrofitted distribution networks, will accelerate the region’s net zero journey. Such facilities will also bolster Asia’s energy security — the region is currently a net importer of energy. The issue of achieving energy security isn’t solely down to the importing of energy forms from overseas; project developers and operators must make sure that their plants are continuously up and running, and trouble-free.
To do so, they must manage the many on-site risks that these plants are exposed to. Such risks are already delaying projects, which in turn are leading to enormous financial losses for project owners, builders, and support. These include flooding, typhoons, machinery breakdown, and technology issues. They also encompass collapse, fire damage, and interruption caused by manpower shortages, supply chain bottlenecks, and surging input costs, among other risks.
In Vietnam for example, a market recently heralded as a renewables powerhouse, such risks are severely setting back the country’s ambitious low carbon plans. The nation is reportedly over two years behind schedule in its 10-year plan to 2030, which prioritises renewable energy and natural gas over coal. Project delays have also increased the likelihood of electricity blackouts, and some completed projects are unable to access the grid.
Novel energy sources
Getting to net zero by mid-century will also require novel energy sources. Many of the technologies that will realise Asia’s energy transition are in the nascent stage of development, and as they stand, are unable to be deployed at the scale needed to replace tried and tested fossil fuels.
Hydrogen is one such fuel, especially ‘green’ hydrogen made from renewable energy. Hydrogen is expected to power hard to abate industries such as steel manufacturing, and shipping. However, hydrogen production and its distribution currently lack the necessary infrastructure to produce and ship at scale.
Aside from hydrogen, other novel energy solutions will appear in the coming decades, like emerging bioenergy sources, and advanced materials to make wind turbines and solar panels more productive. However, if their development is rushed and without the necessary quality controls, they may prove to be ineffective, or worse, raise safety concerns. This has been evidenced recently, where manufacturers, in a bid to keep up with their competitors, have fast-tracked the development of new clean energy solutions, only to experience reliability and supply chain issues; while at the same time, these new technologies remain unproven.
Robust planning and execution
How can project owners and operators ensure that they are adequately prepared to meet their production and health and safety obligations?
First, planning: by being prepared and agreeing a timeline that is realistic and not rushed. This will allow developers the time to gather the necessary resources and funding to research and build a project, while ensuring they comply with local laws and construction best-practices. Second, conducting timely testing and certification is also a must, to ensure that robust equipment is deployed and provides reliable operation. Faulty equipment can be costly, not just in terms of repair or replacement, but also in terms of downtime as well.
Similarly, projects must have appropriate fire and natural catastrophe protection, and be manned by skilled workers that have the experience to execute their tasks. Japan’s ‘solar rush’ in the wake of the Fukushima nuclear disaster in 2011 serves as a reminder of the importance of robust planning and execution. The market’s many shortfalls severely delayed projects, with only 40% of these coming online by their agreed start date.
Lastly, the insurance industry can play an important role in supporting net zero projects. Each venture is unique and is typically exposed to many risks. Insurers can equip projects with the financial assurance required to operate smoothly, even when unforeseen events strike — and help reset Asia’s energy transition. It is important that project owners look to work in partnership with insurers, those that understand their challenges, to help them achieve their ambitions.
QBE Asia has market leading experience in power generation and renewables. Boasting almost 70 years of power generation experience in Singapore alone, which includes nearly 60 years in renewables globally. This experience encompasses one of the US’s largest solar plants, and Singapore’s largest floating solar farm, among others. A strong relationship with original equipment manufacturers is also key. We are proud that key brokers come to us to share knowledge and solutions.
By Brendan Dunlea, Regional Head of Property & Construction Manager, QBE Asia