Southeast Asia has abundant energy resources but is generally slow to diversify its energy mix to include renewable energy (RE) sources, according to the ‘Renewable Energy Market Analysis – Southeast Asia’ report by the International Renewable Energy Agency (IRENA). This is due in part to problems accessing adequate financing for such projects. Southeast Asian countries would need to invest up to US$290 billion in order to secure 23% of primary energy needs from renewable sources by 2025, according to 2016 findings by the IRENA.
Currently, the need for investors is mismatched against a low supply of bankable renewable energy projects in the development pipeline. Whereas investors need assurance that financial risks are identified and managed, checks and balances are at present inadequate due to the lack of regulatory structures. Financial structures which have only been cognizant in handling fossil fuel projects so far are less equipped to handle RE projects, resulting in a high volume of unbankable projects turned out so far. Because local banks have completed so few RE projects, they can provide little data against which benchmarking guides can be set for commercial banks to gauge investment risks.
On top of that, a lack of clarity in the actual risk also exists because local contractors don’t have experience in handling RE projects. This makes it difficult for them to structure projects in such a way as to manage risk well. It is due to all these factors that renewable energy projects in Southeast Asian countries simply pose less attractive returns for global investors compared to asset classes elsewhere.