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Investment Opportunities in the Southeast Asian IPP Market
Frost & Sullivan, Sep 2010, Pages: 130
This research service covers the state of the power market, analyzing the fuel mix, plant ownership mix, key energy policies, foreign investment policies, and environmental policies in Southeast Asia. Besides, key industry challenges, market drivers and restraints for growth faced by independent power producers (IPPs) is given. Based on these, country risk analysis and risk assessment summary is provided. The research service also provides the status of top twenty IPP projects currently under development in Southeast Asia. Geographies covered in the study include Indonesia, Vietnam, Thailand, The Philippines and Lao PDR. The base year is 2010, historic period is from 2007 to 2009, and forecast period is from 2011 to 2015.
This research service titled Investment Opportunities in the Southeast Asian IPP Market provides comprehensive insights on the investment potential for IPPs in the growing capacity addition in Southeast Asia. The study analyzes the industry challenges, key market drivers, restraints, and government energy policy framework. The proportion of IPP and non-IPP addition and the break up of the capacity addition in terms of fuel mix are also discussed. In this research, Frost & Sullivan's expert analysts thoroughly examine the following segments: conventional power plants and renewable energy power plants.
Market Overview
Financial Constraints on State-owned Utilities Provide Attractive Opportunities for Independent Power Producers (IPPs) to Invest in Southeast Asia
The upsurge in demand for power in Southeast Asia due to its rapid economic growth and low electrification rate in some of the countries in the region have resulted in large capacity additions in the power generation space. Sustaining economic growth momentum requires a stable and reliable power infrastructure. Implementation of rural electrification programs, initiatives adopted by the various governments to hike installed capacity, and improvements made in government policies are the prominent reasons driving IPP investments in Southeast Asia. “There is a pressing need to bridge the gap between demand and supply by new capacity building,” notes the analyst of this research service. “Observations reveal that Southeast Asian countries require private investments in this sector as state-owned utilities have limited cash reserves to fund planned projects.”
Although the prospects for the market look upbeat, there are some challenges restraining market progression. Lack of clarity on power purchase agreements, difficulty in securing fuel supply and land, ensuring timely financial closure of projects, and unfavorable existing policies are the major hurdles in setting up new plants. However, the governments in the region have been taking appropriate steps to improve the policy framework and provide incentives to private sector investing in power generation plants. Bureaucracy is a major restraining factor that not only delays the implementation of new policies, but also hinders IPPs from obtaining timely clearance for new projects. In most of the countries, state-owned utilities dominate power generation, transmission, and distribution functions and IPPs role in the power sector is confined to power generation. Furthermore, power generated by IPPs is largely sold to a single buyer (utilities) at an agreed price. The low electricity tariffs in some countries do not justify heavy investments in new power projects. Negotiating a favorable power purchase price with the utility is one of the most challenging tasks for a private power investor.
“The IPPs need to build a strong rapport with the government as well as the state-owned utilities in order to negotiate and agree upon a fair power purchase price,” says the analyst. “In some cases, when arranging fuel supply becomes challenging, the IPPs may enter into direct agreements with fuel providers either in the host country or one from neighboring countries.” Foreign investment policies must be made attractive to sustain the investors’ interest for a longer term, especially in the capital-intensive power generation sector.
Market Sectors:
Expert analysts thoroughly examine the following market sectors in this research:
- Conventional power plants
- Renewable energy power plants
By Geographic Region:
- Indonesia
- Lao PDR
- The Philippines
- Thailand
- Vietnam
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