“Renewable energy could be a brightspot in Myanmar’s future”
In Myanmar, two out of three people in the country live without power. This astonishing number affects education, health services and businesses, hindering economic growth. With the aim to achieve its development goals, the government of Myanmar has set an ambitious goal of providing all citizens with electricity by 2030. Given the tremendous potential for hydropower and solar power, renewable energy resources can play a significant role in helping meet these ambitious targets and in turn, contributing to economic growth. Interestingly, hydropower and solar power could act in tandem in Myanmar as solar power could help reduce the strain on water resources during summer months. Up to $40 billion is needed to power-up the country, the bulk of which can be raised by international investors. But, that requires investor-friendly policies and conditions that reduce risk and encourage a stable environment for the creation of new markets.
Southeast Asia Infrastructure brings you the views of Vivek Pathak, Director, East Asia & the Pacific, IFC on the role of renewable energy in promoting Myanmar’s economic growth, key issues and challenges, the way forward…
In a recent trend, why is Asia and emerging economies such as Myanmar focusing on the renewable energy market?
Latest trends across the world are driving governments in Asia to focus on the renewable energy market and move it up on their agenda. Globally, more than 170 countries encourage renewable deployment as part of their policies. This makes sense because renewable energies when developed sustainably – both environmentally and socially – provide cleaner and more affordable energy, and can enable governments across the region to meet their electrification goals.
Investing in renewable energies also makes a strong business case. As solar photovoltaic (PV) and wind have reached price parity with the addition of new fossil fuel capacity in more than 30 countries, power generation is shifting away from a reliance on fossil fuels. Costs are a fraction of what they were a decade ago – solar PV has dropped by about 80 percent, wind power prices are lesser by about 50 per cent. Wind turbine capacity factors, meanwhile, have improved by about 30 per cent. With renewable energy costs at an all-time low, the industry is tempting more investors, paving the way for markets across Asia.
Renewables should undoubtedly play a significant role in Myanmar’s electricity mix. With strong solar radiation and immense water resources, the government is exploring hydropower and solar options. Myanmar has a capacity of 46,330 MW of hydropower potential, which surpasses any other neighboring country. However, it is imperative that we include other options in this mix in addition to hydropower to demonstrate that renewables can work. Despite the country’s strong solar potential, a large-scale grid connected solar project is yet to be built.
IFC is also relatively new to the renewable energy market in East Asia. Our portfolio in renewable energies continues to grow and is a strategic priority for IFC in this region.
In what ways can renewables contribute to Myanmar’s economic growth?
Access to renewable energy can be an environmentally and socially sustainable driver of development, helping lower poverty and boost prosperity in Myanmar. The country has a lot of renewable energy potential drawing from solar and water resources that have been untapped. By developing renewables in Myanmar sustainably in coordination with each other, they can collectively contribute to economic growth ensuring clean energy is produced. Myanmar could also expand in renewables to meet their domestic electricity needs and create jobs.
More than 1 million off-grid households are using solar as their primary source of electricity, and that number is growing rapidly. Through IFC’s Lighting Myanmar program, we our helping build that market, introducing higher-quality products and new business models. Large commercial and industrial facilities are also exploring rooftop solar due to unreliable grid supply and high diesel backup costs. Several projects have already been installed, and IFC will be supporting the growth of this market over the next few years.
What are the steps that the government is taking to promote the renewable energy sector?
In the hydropower sector, the government is making a turn-around to demonstrate to stakeholders that this source of renewable energy can be developed sustainably. In 2015, IFC started working in partnership with Myanmar’s Ministry of Energy and Electricity and the Ministry of Natural Resources and Environmental Conservation – two key ministries that are engaged in environmental and social sustainability of the hydropower sector. Soon after, officials began to build their capacity on a number of topics related to environmental and social sustainability. They also worked towards strengthening their interministerial coordination and learned how to better engage stakeholders, and lower project risks. While these are essential steps forward, the government needs to demonstrate through successful project work that sustainability in the sector can indeed be a reality.
At present, the government – alongside IFC with the Australian government’s support – is paving the way to bring environmental and social sustainability to the decision making table in the hydropower sector. One way is by developing of Myanmar’s first strategic environmental assessment. Once complete, the assessment will be a tool to help decision makers better understand the environmental and social risks associated with hydropower development. The year-long study led by the government reveals there is a strong interest in not only developing renewables, but ensuring sustainability for long-term sector growth. This work is now being systematically expanded to include the development of templates for concession agreements for the hydropower sector.
What are the new policy initiatives that will be required to draw investments and fuel growth in the sector?
With a more effective policy in place, world-class investors will be able to enter the renewables market, fueling growth in the sector. In the hydropower sector, the government is working steadily on the development of guidelines on environmental and social impact assessments; likewise, the strategic environmental assessment of the hydropower sector will help decision makers draw up more sustainable policy and development plans.
Being aware that strong policy initiatives are essential to attract the right investors, in 2015, IFC established Myanmar’s first Hydropower Developers’ Working Group – encouraging the private sector to undertake a role in the development of the sector and help shape policy and guidelines that effect their work. A year in, Hydropower Developers’ Working Group (HDWG) members in Myanmar have made a commitment to work collectively to tackle the most pressing issues in their sector. In Myanmar’s context, they have prioritised stakeholder engagement skill building, improving model documents and procurement issues.
What are the current concerns with respect to grid integration and management in Myanmar?
Concerns about grid integration have definitely slowed down market growth in the renewable energy sector. This can be attributed to the government’s hesitation to commit to new projects until it is equipped with more information on the risks of developing the grid. International experience suggests that these concerns are manageable.
The World Bank Group is planning to support the government with a study that will aid officials’ understanding of how much renewable energy can be added to the grid, when and where. This will build on the existing work that has been done in the space by other donors.
What are the expectations in technology trends, etc.?
New technologies show us that grids can be made more resilient and flexible than they were in the past, accommodating new renewables and increasing efficiency. The global smart grid market is anticipated to exceed $60 billion by 2020.
In hydropower, IFC is planning to bring its experiences and lessons learned from other countries on fish passage technology and how it might work in other contexts. Additionally, the team is working to bring new approaches to Myanmar on how to optimise cascades of hydro to reduce cumulative environmental and social impacts.
What are the key challenges in the sector?
In addition to the know-how and need for policy and regulation, financing is a key challenge in the renewable sector. In solar, the two main challenges have been financing and concerns over grid integration, given the quality of the existing grid and lack of experience in managing renewables. A couple of solar projects signed power purchase agreements with the earlier government. However, without sovereign guarantees, it is difficult for them to access the requisite financing. Finding bankable solutions for these projects will help clear the way for the rest of the market to move forward.
In the hydropower sector, IFC and partners from the international development community are working to ramp-up officials’ knowledge on how to advance a more environmentally and socially sustainable sector and choose the best projects to prioritise. Projects that adhere to good industry practice and follow internationally recognised environmental and social standards, such as IFC’s Performance Standards, will have easier access to finance. The development of standardised and bankable power purchase agreement templates will go a long way towards alleviating the concerns of international investors and lenders, and this will help bring down the pricing of the power delivered to the country.
What are the likely financing requirements of the sector in the next two to three years?
The sector is likely to need upwards of a $4 billion-$6 billion over this period and a significant portion has to come from the private sector through PPPs in the power generation space.
What innovative financing structures are likely to be expected in the future?
In the renewable energy sector, our approach is to invest in technology and scale, to help lower cost and grid parity. This will enable it to become an affordable and accessible source of energy in emerging markets such as Myanmar. IFC typically invests in renewable companies that are interested in expanding to emerging markets; local companies that are cost-competitive; and leaders in technology that seek solutions to industry challenges.
IFC’s industry experts are on the ground ready to work hand-in-hand with clients to provide innovative solutions to strategic financing, blending investment with advice and resource mobilisation. One innovative way of providing support to hydropower companies includes early-stage risk capital to help projects get off the ground. Another option is to work with MIGA to help structure PPP solutions that would reduce risk and bring in cheaper sources of private capital into Myanmar.
For IFC, financing requirements in renewables require the sponsor to have a good reputation with a strong track record in the sector. Additionally, long-term commitment to the project, to address environmental and social sustainability, proven financial strength and technical expertise are imperative. There should also be a sustainable debt equity ratio, a solid equity contribution, and a financing structure in place that is aligned with the project’s goals.
IFC is the largest multilateral source of debt and equity financing for companies in emerging economies worldwide.
