US promote Asian energy security

By Terry Lacey

(July 01, Jakarta,Sri Lanka Guardian) Indonesian and Asian renewable energy project developers are frustrated by lack of access to finance in a global crisis. Fossil fuel is subsidized in most Asian countries, while renewable energy is not. This was made clear at the Indonesia Clean Energy Investor Forum organized by the Private Financing Advisory Network (PFAN), backed by USAID in Jakarta last week.

Meanwhile Uncle Sam was showing in the House of Representatives in Washington that he is beginning to get his energy back on climate change. But how long will this take to positively impact on Asia?

Peter du Pont, who manages PFAN in Asia, led a round table in Jakarta, acknowledging to 130 project developers and bankers that a far more practical approach was needed. “We want to save the planet and make some money” he said.

Mitigating climate change, although desirable, and now supported by the Obama administration, was not yet perceived as the main driver for a new Asian energy mix.

“In Asia climate change is not a key driver for Asian governments. Energy security is a bigger driver,” he said.

ASEAN+ 3 (ASEAN with China, South Korea and Japan) is the part of the world most dependent on Middle East oil, with negative implications for security of supply and energy pricing, despite Asian perceptions that the US and Europe are more at risk.

So when du Pont, announced PFAN will focus project support and financial brokering on China, Thailand, Philippines and Indonesia, these are precisely the countries most vulnerable to Middle East oil supply disruption, and major oil price hikes. The US and EU are protected, but Asia, without a new energy mix, is not.

For these Asian countries, with burgeoning electricity demand, and with China and Indonesia showing consistent economic growth despite the global crisis, security of supply is the biggest worry.

The likely rises in oil prices after the 2008 demand slump will lead to vastly more expenditure on Asian fossil fuel subsidies, and disruption of public expenditure budgets, starting in two or three years time. Solutions must be found soon. The present relief due to lower oil prices is surely temporary.

Indonesia is just concluding a 10,000 Megawatts (MW) crash program based on coal technology with the state-utility PLN to help solve the supply crisis, with a second 10,000 MW program based more on renewable energy, especially geothermal.

Du Pont challenged the Jakarta meeting to work out what was needed to build 4,000 MW of renewable energy projects in Indonesia in five years, requiring perhaps 120 new small and medium sized projects a year to be planned, financed and built using, for example, geothermal, mini-hydro, biomass and wind technologies.

Without progress on risk-sharing, improved Power Purchase Agreements, guarantees and faster-produced bankable proposals, and new attitudes by bankers, there is the risk the renewable energy part of this program could falter, or be seriously delayed.

Irwan M Habsjah, commissioner of PT Bank Tabungan Pensiunan Nasional (BTPN) and Chairman of the Indonesia-Benelux Chamber of Commerce pointed out Indonesian and Asian power investment was still suffering loss of confidence from the 1998 Asian banking crisis.

Dr. Ir. Verina J Wargadalam, Coordinator of the Renewable Energy Research Group in the Ministry of Energy and Mineral Resources said progress could not be made without a big effort on capacity building. “State officials were used to intensive dialogue with each other and not with investors or stakeholders,” she said.

Walter North, Deputy Head Mission, US Embassy, said the US, will now back climate change and renewable energy in Indonesia and Asia, and is working on improving co-operation between stakeholders to involve USAID, Exim Bank, the Department of Energy and the Overseas Private Investment Corporation (OPIC).

Renewable energy developers were pleased with the US policy changes and promise for energy cooperation with Asia. It´s also understood it will take a bit of time to turn the US ship of state around. But Asian renewable energy power developers have been disappointed before and what they want to see is results.

Terry Lacey is a development economist who writes from Jakarta on modernization in the Muslim world, investment and trade relations with the EU and Islamic banking.

-Sri Lanka Guardian