Across the world around 1.3 billion people still have no access to electricity, and 87% of these people live in rural areas where extension of the grid is impracticable. Microgrids can help to provide electrification, as well as stability and resiliency to these areas, ultimately helping to pull a large portion of society out of energy poverty.
One of the regions that has transformed in the past years is Southeast Asia, which has one of the highest volume of yearly power outages. Of the 625 million people living in Southeast Asia, about 125 million lack of access to stable electricity. In countries such as Indonesia and Philippines, it is a major challenge to provide electricity to communities living on remote islands, and geographical factors make it difficult to connect macro-grids. For locations served by the grid, total daily supply rarely surpasses 18 hours. Electricity is therefore a top priority. Global Climate Scope expects Southeast Asia to spend $14 billion to reach universal electricity access by 2030, with 75% of off-grid population mostly served through remote microgrid systems.
The Singapore-based Renewable Energy Integration Demonstrator (REIDS) is aiming to improve quality by bringing more affordable access to energy across Southeast Asia. The multi-million microgrid effort is expected to facilitate the development and market penetration of the energy technologies, recognizing that remote microgrids will increasingly become key to addressing the need for better and more affordable energy access. A consortium of international corporations, as well at the Nanyang Technological University, have partnered together to test and demonstrate a range of solutions suitable for deployment in Southeast Asia. The participant list provides a snapshot of the players who are looking to penetrate the regions markets in the coming years.
Diving into country activity
Whilst some countries such as Thailand, Malaysia, and Vietnam have seen more of a focus on grid extension, other countries are looking to remote microgrids as a key solution: Myanmar, Indonesia and Philippines.
Out of all the countries in Southeast Asia, Myanmar has the highest percentage (60%) of communities without access to electricity. The government is prioritizing the provision of electrical infrastructure and has opened up foreign companies’ participation, allowing up to 100% ownership on any remote microgrid project.
The need for increased mobile phone connectivity, which was at 10% coverage in 2014, has been one of the key drivers for remote microgrid deployment. A push for cell tower deployment requires remote microgrids to power the towers, which in turn act as anchor clients. In April, Myanmar-based Yoma Micro Power, founded in 2015, raised $28 million made up of equity and debt financing. Funding came alongside a partnership agreement with the International Finance Corporation (IFC), Norwegian investment fund Norfund, and Singapore-listed Yoma Strategic Holdings to develop community microgrids with cellular towers as anchor clients. The rational behind the Yoma Micro Power’s strategy is to have some amount of the revenue in the form of contracted cash flow to decrease risk, so that investors and lenders are willing to put money into rural electrification. Another example, Voltalia, a Paris-based renewable energy developer, announced that it signed a 10-year contract in partnership with MNTI, the local cell tower owner, to supply electricity to 171 cellular towers.
With more than 17,500 remote islands, Indonesia faces distinctive geographic restraints when it comes to electrification. Two years ago, the government enacted the “Bright Indonesia” program to electrify the last 15% of the population. In the same year, Indonesia adopted the “Accelerating Electrification in Rural Areas” policy, which outlined the framework for private sector investment and development of remote microgrids. Energy projects that come near to the national utility, Perusahaan Listrik Negara (PLN), require strict approval. Regulation around foreign project ownership is also a challenge for business activity. Any microgrids at 10MW or above are allowed up to 95% ownership, but restricted to 50% on projects between 1 and 10 MW. Under 1 MW, the law forbids foreign ownership completely. Today, many microgrids come under 10 MW, and almost all island microgrids are below 1 MW.
Corporates such as Engie have entered the space, signing three partnership agreements to develop, co-finance, operate and maintain remote microgrids for a total value of $1.25 billion over the next 5 years. They are partnering with Electric Vine, PT Arya Watala Capital and Sugar Group. Other companies include Caterpillar and GE who signed a partnership agreement last year to support development of a portfolio of microgrid assets in the island state. Akuo Energy installed three remote microgrids in June, powering 460 homes. Lastly, Singapore-based Canopy Power is also working on remote electrification, selling microgrid equipment to off-grid commercial operations.
With 7,000 islands, the Philippines have a similar rationale to Indonesia for remote microgrid development. Remote regions without electricity and those that are connected suffer from frequent power outages. The country has ambitious targets, aiming to reach 100% electrification by 2022, up from 91%. What makes the Philippines stand out from other countries is a relatively open regulatory environment, with the government in support of establishing tender agreements to add renewables to remote islands, drawing in interest for new business opportunities. Organizations such as the Alliance for Rural Electrification are actively encouraging foreign companies to come into the country, helping spur the development of microgrids through advocacy.
Last month, Solar Philippines, one of the country’s largest solar providers, announced they will put $15 millon towards developing remote microgrids at ten locations, and have recently partnered with Tesla to deploy a 2MWh Tesla Powerpack battery system, eliminating the town of Paluan’s brownout problem. In May, Philapinas Shell Foundation, Shell’s local non-profit organization, announced they are advancing 20 microgrids for rural communities on Palawan island. Similar to Indonesia, foreign ownership is limited to 40% for all energy systems, requiring foreign companies to partner with local firms, meaning engagement is needed in order to capitalize on the opportunities that exist.
Where is the innovation?
Technologies like remote microgrids monitoring and microgrid maintenance are creating opportunities for the development of scaling requirements, which tie utilities to performance contracts. These solutions provide reassurance for international donor organizations, such as the World Bank, who are active participants looking to help end energy poverty in the region, providing reassurance that their contributions will service rural communities in the future.
Okra Solar, a startup based out of Cambodia and founded in 2016, works closely with local utilities to supply rural communities with energy and has been supported through organizations such as the World Bank, including grant funding from UKAid and the SNV Netherlands Development Organisation. The company develops efficient microgrid systems that connect assets together through a software solution, which can remotely monitor and control remote microgrids as well as notify customers – the utilities – when action is required. Systems are provided to utilities, who pay per system sold, as well as for an ongoing subscription fee for the remote-control system, which promises to reduce the utilities’ operational costs. Okra Solar recognized that local companies are better with community engagement and sourcing labor, and therefore modeled their business around local business engagement. Whilst many of the players in the region are large corporates, Okra is an example of how opportunities are also possible for smaller players via disruptive technologies that can drive change across the industry. The company is looking to capitalize on the opportunities currently available in Philippines for large scale deployment.
For new technologies, challenges arise in a few areas. In some countries, energy theft attempts are still frequent, with people attempting to connect directly to power networks, skipping meter systems. There is also continual underestimation of failure frequency for many microgrid components. When traditional OEMs are used, there are issues around products not being suitable for climate conditions, as well as challenges with after-sales support. Components such an inverters can burn out due to adverse temperatures or moisture, and in remote locations, part replacement can take months.
For many new companies coming into the region, the business case is much more than just technology deployment, but about forming partnerships that can aid community engagement, labor, local regulation and after-sales support. This makes the remote microgrid business in the APAC region more about creating holistic solutions that perform along the entire supply chain.