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September 2010 
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Cleantech Investment In Asia |
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Selina Harrison, February 2010 |
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Page 2 of 2 |
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Government grants, preferential tax policies, feed-in tariffs in some renewable energy sectors and preferential loan rates have all been introduced to support investment. At the same time, more developed Asian countries have launched well-publicised policies to encourage cleantech investment.
China, in particular, has a clearly articulated policy to develop the cleantech sector as part of its wider renewable energy plan and intention to develop a more sustainable economy. The main policies that govern the cleantech sector in China are the Renewable Energy Law, Sustainable Economy Law and the Medium and Long Term Renewable Energy Plan. It is using the legislation to push its existing energy providers into investing in the renewable energy sector. In late December 2009, China amended its 2006 Renewable Energy Law to require all utility companies to buy all power produced by renewable energy generator. Utilities that refuse to do so face fines of as much as double the economic loss sustained by the renewable energy generator.
However, it should be noted that a significant portion of renewable energy cannot currently be transmitted effectively to the grid, which is a problem. The amended law also requires the grid companies to improve transmitting technologies and to enhance grid capability to absorb more power from the renewable sources. "Having looked at both the original Renewable Energy Law and the amendments, my own view is that many of the amendments can be found, in one form or another, in earlier rules and regulations. The significance of the amended law is the clear underlying emphasis on the need to actually dispatch power from renewable energy generators not just have installed capacity" says Mr Cox. It is hoped that these recent changes will stimulate investment in smart grid and related technologies in China.
Japan has also announced several policies that will help to position itself as a leading developer and supplier of clean energy. Legislation includes the Low Carbon Technology Plan and the Innovation for Green Economy and Society Programme. It has also announced clean energy investments of approximately $66bn over the next five years, and the election of the Democratic Party of Japan could mean a boost for the cleantech sector, with talk of wider dispatch obligations and feed-in tariffs for renewable energy. Korea also has big plans for its contribution towards green energy. The Third Basic Plan for New and Renewable Energy Technology Development and Deployment was passed in Korea a year ago, and sets out medium to long-term goals for developing and utilising renewable energy, and a strategy to achieve its goals. In 2008, Korea’s stimulus package included $38bn for a ‘Green New Deal’ targeted at the energy and environmental sector, which has now been boosted by an additional $84bn five-year investment programme aimed at turning Korea into a top seven ‘green power’ by 2020 and a top five ‘green power’ by 2050.
Maximise value, mitigate risk
Asia presents many opportunities for investors into the cleantech sector, but as with any investment in a developing business or new sector, thorough due diligence is essential. It is critical to understand the restrictions on foreign investment in the country in question, as limitations will vary significantly across the region. Investors must structure their deals accordingly and ensure that the local enterprise has the requisite organisational structure, as well as any relevant government licences, registrations and approvals. Investors should also think about their exit strategy. “Partnering with a strategic investor, such as a utility or large manufacturer, will help to mitigate risk, as will side-by-side or initial investment from ADB or World Bank,” suggests Ms Jones. “These groups will add credibility to the project and improve the likelihood of securing additional capital when needed.” Another important factor that investors must consider is the appropriate intellectual property rights. Whether a technology is self-developed and needs protecting, or the technology is acquired from someone else, obtaining those rights is critical to the development of a successful cleantech business.
The short term outlook is positive. “2010 will be a growth year for cleantech investment in Asia. This is because valuations are still relatively low and cheap secondaries are gone. Also, clearer policy and price signals will encourage investors to deploy capital,” asserts Richard Youngman, a managing partner at the Cleantech Group LLC. He forecasts a wave of consolidation in the Asian cleantech market during 2010, particularly in China, where wind and solar manufacturers are suffering from overcapacity. Further, strong investment in LEDs and advanced batteries is likely to lead to a bubble that will peak around 2012 and force consolidation of this market segment.
Overall then, it is almost guaranteed that Asia will be a hotspot for cleantech deal activity for many years to come. Many governments across Asia are determined to position their countries as leaders of supply and production of clean technology. Going forward, the cleantech sector will be an important element of the Asian economy and national development plans, as the concept of sustainability starts to permeate other areas of the economy, and becomes more of an environmental and legislative imperative.
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