Renewable energy landscape in Asia Pacific
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Increased efforts towards sustainability are observed in the Asia Pacific region, with more governments pledging to be carbon neutral. Countries such as Japan, Malaysia, New Zealand, and South Korea have set 2050 as their carbon-neutral targets. Japan recently announced its green growth strategy which aims to not only triple the share of renewable energy from the current level of 20% to 50-60% by 2050, but also install up to 45GW of offshore wind power by 2040 to make it the main contributor of renewable energy.
As for China, President Xi Jinping in September 2020 had committed the world's biggest user of energy and emitter of greenhouse gases to be 'carbon neutral' by 2060. Additionally, China's investments in renewable energy has now overtaken investments in traditional energy. These changes further reinforce the significance of renewable energy in the future – which brings us to the question, what challenges will there be?
Changes for the administration (government and authorities)
China in the past had a limited number of players with large power generation plants, and this made the electricity transmission industry concentrated. Now, the market is equipped and filled by a multitude of smaller power plants which are all connected to the power grid, making it more difficult to control due to the network. This change of transmission from a centralized control of the grid to a decentralized one increases the difficulty in managing the distribution of renewable energy.
As renewable energy supply varies based on time periods and are produced at specific times when solar panels are exposed to sunlight, for instance, or when wind turbines are exposed to windy conditions, there is high dependency on weather and seasons. Hence, to a certain extent, this requires specific knowledge on the use of battery storage to regulate the network stability.
Difficulty in transporting peaks of electricity production can become an acute problem. For example, a few years ago in Xinjiang, more than 10% (went up to 18%) of produced electricity by solar plants were not absorbed by the electricity grid. As electricity produced in the west of China could be consumed in other parts of China, unless issues with electricity transportation is resolved, this will pose a challenge for the country's administration and investors in the future.
Energy transition is also linked, in certain countries, by having manufacturing champions move from traditional thermal energy and even nuclear energy, to renewable energy. Japan's TEPCO Renewable Power, part of Tokyo Electric Power Company Holdings, for instance, has plans to invest approximately USD9-19 billion to develop 6-7 gigawatts (GW) of offshore wind and hydroelectric power projects by 2035. Additionally, following the Japanese government's law encouraging the development of wind farms which was introduced in 2019, Japan's offshore wind power market is expected to take off.
From an industry perspective, this poses a real challenge given that highly technical equipment such as wind turbines are typically in prototype phase and produced in low volume. Now however, manufacturers of such specialized equipment are confronted by serial, 'mass' production demand for wind turbines, masts, blades, solar panels and even generators. This scenario mirrors the cost-saving targets experienced in the automotive industry and poses a big change that industrial organizations must adapt to; a challenging feat for the heavy industry manufacturers.
Renewable energy means new exposures
Renewable energy projects tend to be exposed to natural catastrophes; wind turbines to typhoons, and solar panels to hail. While solar panels are resistant to a certain level of hail, a situation where it is raining large hailstones could compromise installation of the solar panels and severely damage them.
"One main concern becoming increasingly apparent for (offshore wind) projects operating in areas with high NatCat exposure is that affordable insurance capacity may become harder to secure as the sector develops. Insurers and reinsurers have to manage and control risk accumulation and therefore can only underwrite a certain amount of catastrophe exposure for any one defined area." (Swiss Re, 2020)
Given that technology related to renewable energy is relatively new, there is also the element of human error to contend with. This might result in wrong cabling of solar panels, incorrect installation of hail resistant glass panes for solar panels, not following the process when erecting wind turbines, and more. Additionally, cutting-edge technologies of the renewable energy sector make it is difficult for the insurers to rely on experience with such equipment. Hence, this makes it critical to have engineers with the ability to analyze and assess potential exposures for key equipment.
Additionally, the fast-paced innovation in the industry increases the challenge. This is why it is key to have specialists who are in regular contact with primary players in this perpetually evolving industry – manufacturers, erection companies, certification bodies, administrations etc. From an insurance perspective, success in the renewable energy industry involves acquiring timely and relevant knowledge that helps our customers make informed decisions.
With more governments committing towards being carbon neutral as part of their sustainability efforts, renewable energy is increasingly being turned to as a solution. Consequently, the demand surge imposes various technical challenges for the industry. This includes factors related to energy storage and transportation, as well as manufacturing of highly specialized equipment. Additionally, there are climate considerations for renewable energy projects as they tend to be exposed to natural catastrophes.
In spite of the above scenarios and challenges, what is key for companies to consider as they embark on their sustainable journey and transition towards renewable energy, is the need to have the specialist skills and knowledge capabilities in this area. If, when assessing their internal capabilities, companies uncover gaps, it is essential that they identify a partner that can not only fill these gaps but also offer them locational and advice that could help them make objective decisions.