The Upshot with Wymen Chan: Analysing the Role of Green Financing in Asia's Infrastructure Landscape
The Upshot is a new series by Infrastructure Asia to profile key leaders in the industry. We dive deep into their areas of expertise to present expert opinions and thought-provoking perspectives on the most pertinent aspects of sustainable infrastructure development.
The global community today faces unprecedented environmental challenges due to climate change. ASEAN economies will need infrastructure investments of at least US$2.8 trillion from 2023 to 2030 to reduce the impact of climate change while driving sustained economic growth. What opportunities and challenges lie ahead for Asia in the world of green financing amid continued climate change? Infrastructure Asia sat down with Wymen Chan, Head of Asia at SUSI Partners, a Swiss-based infrastructure investment manager, to find out more.
Wymen’s journey into Asia's energy transition first started over a decade ago when he made the switch from non-energy related investments in the United States to renewables in Asia. Seeing the region’s transformation over the years, he notes Singapore’s remarkable rise to lead the region’s push for sustainable infrastructure development today. “I think playing to our own strengths in energy transition was the key. Even though we lack the resources, we are still able to make a very notable impact on the region because our investments are not purely focused on Singapore itself,” he said.
Wymen believes that at the core of Asia's energy transition is a fundamental shift in mindset. “It is a recognition that climate change is one of, if not greatest challenge of our generation, and we must find a solution to it. This coupled with the priority of having it addressed through our policies and various government agencies results in a robust whole-of-government approach to climate mitigation.” he added.
Rethinking public-private partnerships
In this context, the interplay between public agencies and private capital also becomes more crucial. While public-private partnerships (PPPs) are essential, Wymen recognises their inherent challenges, such as slow progress. To overcome these challenges, he stresses the importance of having each side focusing on their individual strengths and the main objective they serve.
“For instance, the objective of the public sector would be to introduce regulatory frameworks and policies that would encourage private capital to finance the energy transition sector. An example would be the ASEAN Power Grid. The willingness for countries to look across borders for both exporting and importing its renewable power is a step in the right direction.”
While discussions for a cross-border interconnection grid have been going on for more than a decade, Wymen believes that the topic has gained momentum in recent months, which is an encouraging sign for the sector. “This is the kind of things that investment managers, like SUSI Partners, look to the public sector to; reducing the risk and uncertainty around structures like this so private capital can come in with manageable risk profiles in such projects.”
Wymen also shared his thoughts about the value he sees in facilitation offices like Infrastructure Asia. “Regional collaborations, facilitated by such offices, bring together stakeholders from different Southeast Asian and South Asian countries at various stages of their energy transition journeys. This fosters open and productive dialogue on challenging topics, such as energy subsidies or energy security; contributing to the collective progress of sustainability efforts in the region.”
"At SUSI Partners, our exclusive focus lies in green finance, and our primary aim is to facilitate and enable capital investment. This includes seeking opportunities in markets that have yet to embark on their energy transition journey.” With its Asia fund, SUSI Partners works towards mitigating the region's perceived risks while providing added value in the process. Infrastructure Asia plays a crucial role in providing fund managers like them access to various key government stakeholders across the region. This is particularly beneficial due to the highly diverse nature of the region, with each country at a different stage of development in terms of its energy transition journey. "Our association with Infrastructure Asia not only lends credibility to the governments and agencies in the region, but also strengthens our reputation," he said.
Notable shifts in the industry
Today, the industry is witnessing a remarkable shift towards smaller-scale projects. Wymen shared that the sector is witnessing a transition from nationalised, utility-scale projects to a landscape characterised by more distributed and individualised energy generation. While this is still in a nascent stage, small and medium enterprises (SMEs) are increasingly taking action towards climate mitigation. “Whether it's the installation of solar panels on factory rooftops or the implementation of energy-efficient practices, these developments are significant and reinforce the shift in mindset."
Wymen added that overall attitudes of the financial sector towards green financing have also made significant progress, with energy transition being recognised and accepted as a bankable asset class. Furthermore, practical financing solutions are now more readily available for renewable energy projects. For instance, securing financing for solar projects has become more accessible through banks.
Moving forward, SUSI Partners sees potential to emphasise a more holistic approach to sustainability and impact investments. This incorporates more unconventional financing instruments linked to metrics such as responsible procurement and sustainable supply chain management. "At SUSI Partners, we design our financial instruments to incentivise borrowers to achieve key performance indicators (KPIs) associated with less commonly used metrics. Should the borrower meet these KPIs, they unlock benefits such as a reduced effective interest rate for the following year. This approach underscores a more holistic focus on sustainability and impact, encompassing intangible costs related to supply chain issues, forced labour, and other social concerns."
Challenges in energy efficiency and storage
Despite Asia's considerable progress in renewable energy, challenges persist in the adoption of energy efficient practices. Wymen highlights the need to pivot from concentrating solely on greening the supply side to modifying demand consumption patterns. “The industry’s focus as a whole has primarily been on greening the supply, with less emphasis on addressing the demand for power."
SUSI Partners also advocates for financing of smaller-scale energy efficiency projects due to their potential for significant environmental benefits. Back in 2019, the investment manager invested in a joint venture with Malaysian energy company InvestEnergy to finance energy-saving infrastructure projects across Southeast Asia; targeting bespoke waste-heat-recovery as well as co- and trigeneration systems for commercial and industrial offtakers.
Wymen shares that solutions to improve energy efficiency can at times be as straightforward as installing more energy-efficient heat pumps or LED lighting in buildings such as factories and hospitals. However, these simple yet often overlooked solutions tend to lack viable financing avenues. As such, SUSI Partners focuses on assuming the earlier development risks in such businesses and aggregating them to achieve economies of scale.
Highlighting key distinctions between the Asian and European energy markets, he pointed out that Southeast Asia's economy is rapidly expanding compared to Europe's more mature economies. “There is a phenomenon where supplying renewable energy into more mature markets displaces something that was there previously, like nuclear power in Germany when wind and solar energy were added into the mix," he explained. In Asia, the incorporation of renewable energy does not necessarily displace existing sources. Instead, it helps to address the region's increasing demand for power sustainably, given that building more coal plants is not a viable long-term solution. The focus must shift towards renewables and energy storage to accommodate the region’s growing energy needs.
In line with this, Wymen foresees energy storage becoming increasingly economically feasible in Asia and will assume a more prominent role in mitigating the inherent intermittency challenges associated with renewable energy. He said, “I believe that within the next five years, Asia will make significant strides in this direction, primarily due to the growing affordability of energy storage. This is bolstered by the expanding utilisation of batteries, driven by the increasing adoption of electric vehicles (EVs) and the economies of scale that apply to global trends in energy storage.”
However, he acknowledges that the energy storage sector in Asia is currently still relatively unexplored and has yet to experience the level of adoption seen in other regions. “In contrast to some other economies where utility-scale energy storage solutions have received financing, we are still awaiting such developments in Asia. At present, there are only a handful of projects of this scale in the region.”
Looking ahead to a greener future
As a specialised fund manager, SUSI Partners, is positioned to address the unique challenges of the energy transition sector. Wymen explained that their cross-functional team is designed to mitigate emerging market risks and maintain rigorous standards in technical quality, environmental and social governance, and compliance across their portfolios. This specialised expertise enables SUSI Partners to bridge gaps in understanding and implementation, ensuring that their investments adhere to the highest sustainability standards.
Underscoring the ever-evolving nature of investment in energy transition, he expresses a commitment to adapt to industry trends and provide capital where it is most needed. “There is an urgent need to keep pace with the needs of energy transition projects, to provide the right financing and achieve the region’s sustainability goals,” he concluded.
