Higher cost of renewable energy, lack of funding and lack of clarity on long-term profitability are ‘bottlenecks’ to clean energy transition in APAC.
Countries in the Asia-Pacific (APAC) region will need to address the funding gap for renewable energy projects in order to boost their transition to a net-zero future, according to a study by Sumitomo Mitsui Banking Corporation (SMBC) and Economist Impact.
The survey surveyed 450 executives across nine countries within the region to see how the public and private sectors are driving the transition to a net-zero future.
According to the executives, the reasons behind the bottlenecks are economic. In the survey, it was found that the top three challenges faced in the APAC region are the higher cost of renewable energy, lack of funding for renewable energy and the lack of clarity over long-term profitability at 39%, 33% and 33% respectively.
In addition, the study found that the APAC region will require trillions of dollars in investments and innovative financing for it to wean off its dependency on fossil fuels.
To be sure, the Asia Investor Group on Climate Change (AIGCC) estimates that the investment gap for Asia’s energy supply to achieve net-zero is between US$26 trillion ($36.92 trillion) to US$37 trillion cumulatively from 2020 to 2050.
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Even within the APAC region, the study found that there is uneven progress as nations strive to reduce their fossil fuel use.
While the majority of countries in the Asia-Pacific region have some form of renewable energy national policy, most often for specific renewable energy sources, the study reveals that they largely lack a comprehensive and credible transition plan.
The study also found that emerging economies will require significant funding to wean national dependencies on cheap fossil fuels used, both domestically and exported.
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Other factors impeding the acceleration of the transition includes political hesitancy, where the poorest are cushioned against the impact of rising energy costs especially in emerging economies.
“Breaking the dependency on fossil fuels, which is the backbone for some economies and the ticket to faster industrialisation, will not only depend on capital but also on political will,” reads the study.
On the green energy transition, 46% of the executives surveyed believe that government subsidies are a “viable” instrument to fund the move.
“According to supporting research and expert interviews, this is particularly the case where a project does not achieve bankability or financial viability, and poses risks to investors,” reads the study.
It adds: “However, only a quarter of respondents (25%) said that they currently rely on subsidies to fund their companies’ energy transitions, using internal funding and corporate social responsibility (CSR) initiatives instead.”
Looking ahead, the study notes that more comprehensive regulations and policies are needed to support countries in the APAC region to achieving their energy goals in the next five years.
This is evident in the study, which saw 40% of survey respondents reporting that a clearer renewable energy regulatory framework – which provides clarity on aspects such as tariffs and renewable purchase obligations (RPOs), and promotes grid connectivity and the development of the market – is what is most needed in their transition journey.
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Technology will also be critical in fast-tracking decarbonisation across the region, with over three quarters of respondents (83%) prioritising the adoption of green technologies to support the energy transition.
The same respondents will also be prioritising collaborating with innovative technology partners to accelerate climate awareness and solutions and investing in the research and development of new energy solutions.
Storage technologies, electrification of vehicle fleets, energy efficiency and digital grids were cited by experts and survey respondents as levers to help achieve decarbonisation targets.
Providing skills to the workforce to develop and adapt to new energy technology, increasing regulatory governance for market-based instruments such as renewable-energy certificates to offset carbon emissions, as well as increasing research and development budgets from governments and the private sector are also seen as some of the solutions for the green-energy transition.
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