Climate of change: Green versus black

The green vanguard

Mr Andrew Affleck, who heads Armstrong Asset Management, feels Singapore needs to step up to become a regional hub for green finance.
Mr Andrew Affleck, who heads Armstrong Asset Management, feels Singapore needs to step up to become a regional hub for green finance.ST PHOTO: JASMINE CHOONG

Lots of sun, plenty of wind and plunging renewable technology costs. As Asean nations seek to rapidly boost power generation to fuel their economies and reduce poverty, it should be boom time for green energy, reflecting the race to go green that is already sweeping China, India, Australia and elsewhere.

Not quite. While hydropower and geothermal projects have captured much of the green power investment interest in the region, wind, solar and battery storage have lagged behind in South-east Asia. A combination of entrenched support for coal-and gas-fired power plants and mega hydropower dams, financing skewed towards older technology plus billions of dollars in subsidies for fossil fuels has made it harder for large-scale investment in wind and solar in Asean to really take off.

Things are slowly changing as costs plunge, protests against coal and gas power plants grow and governments face more pressure to meet climate goals agreed under the Paris Agreement. Pioneers in clean energy development in the region have also helped governments learn about wind and solar project development and finance, laying the groundwork for future developments and expertise.

Singapore is the base for a number of first-mover green energy developers and investors. Among them is Armstrong Asset Management, headed by Mr Andrew Affleck, 52.

Mr Affleck, who has lived in Asia for 28 years, 14 of those in Singapore, started his specialist green energy fund in 2011 and received start-up support of US$50,000 from the Asian Development Bank (ADB). With nine investors, including the International Finance Corporation, he built a US$164 million (S$225 million) investment fund that has conceived, co-funded and built 11 operating wind and solar projects in the Philippines, Thailand and Vietnam, with another five set for completion by mid-2019. All up, the total capacity of the projects is 344 megawatts, enough to power 138,000 homes.

Mr Affleck, who has a background in asset management and investment banking, said he had seen the need for some time for a specialist fund that would demonstrate that green power projects could be commercially viable in the region.

"About 2006, I saw the increasing use of coal and other fossil fuels, the continued drive in energy demand as the region was growing and just felt ... there was no dedicated vehicle or funding mechanism that existed to support new green infrastructure for South-east Asia."

Early efforts by the ADB to seed funding projects had mixed success in part because of lack of policies supporting green energy and lack of local expertise, he said."I felt compelled to do something and came up with the idea of a private equity fund to support early-stage work with developers. There seemed to be money out there for projects when they were operational or ready to start construction but for the 12 to 24 months of permitting, design and feasibility work that was needed to validate a project, there was a significant funding gap.

"The idea was to put together a fund that could invest in that early stage but also have enough money to support the construction of those projects through to operation and prove the case from a commercial, social and environmental perspective (that they were viable)."

Over time, the model proved successful and Armstrong staff worked closely with local officials, local development partners and local banks in each of the countries. He said he's been repeatedly surprised by local banks stepping up and financing renewable energy projects, often for the first time.

"It was learning by doing," said Mr Affleck. This included getting permits issued and handling communication between the different ministries. There wasn't a rule book per se, he added.

"We knew the theory. It was helping in each country and in each jurisdiction to make the process more efficient and give feedback on how potentially it could be improved over time. We were and still are early movers, so in many cases we were working on the first batch of projects of its type in a specific country and sector.

 
 

"What we're trying to do with all this is to create benchmarks that others can follow and ultimately scale up, which is what is needed," he added.

Armstrong, along with Singapore-based wind power developer The Blue Circle, co-developed and funded Dam Nai, the first Vietnamese wind farm developed and financed by international sponsors. Phase 2 of the 40 MW project was completed earlier this month.

Mr Affleck said investment in renewables was picking up. "We certainly see a lot more local and international developers looking to develop projects. There continues to be interest from pension funds and other institutional money."

But he felt Singapore needed to step up to become a regional hub for green finance, by introducing financial tools and innovative funding structures to channel the billions of dollars required to meet regional renewable infrastructure targets. "The money, the institutions and sophistication are here which can be combined with precedents and financial products that support renewable energy financing that already exists elsewhere in the world," he said.

Singapore's big three banks, for example, have come under criticism for continuing to focus much of their energy lending on coal-fired power stations in the region. DBS, OCBC and UOB say coal financing is meeting an investment need. And a rapid switch to renewable energy is not feasible for now, they add - though they also say they aim to progressively encourage customers to take a greener path.

"To me, the key message is: To the banks and other investors, there should be no more excuses. Enough has been proven. It's time to stop making excuses that this doesn't make sense commercially whether it's from a lending or an investment perspective," Mr Affleck said.

A version of this article appeared in the print edition of The Sunday Times on November 25, 2018, with the headline 'The green vanguard'. Print Edition | Subscribe