Renewable energy is a pivotal force in the global energy transition, particularly in the Asia Pacific (Apac) region.
Despite starting from a low base, renewable energy is experiencing robust growth in Apac, with installed generation capacity increasing at an average CAGR of 9%. By 2030, renewable energy is expected to account for 30% to 50% of the power generation mix across most Apac markets.
Apac’s vast potential and diverse market dynamics present significant opportunities and unique challenges for renewable energy developers, investors, and operators. These complexities are examined in Boston Consulting Group (BCG)’s latest report, Asia Pacific is Ready for Renewables. Are Energy Players?
Navigating this complex landscape demands a nuanced understanding of each market’s intricacies and a strategic approach tailored to local conditions. Achieving substantial renewable energy integration will require significant investment. According to the International Energy Agency’s Announced Pledges Scenario, revised in August 2023, investments in Apac renewables from 2022 to 2030 are projected to reach US$286 billion ($386.9 billion).
Singapore, the region’s leading commercial and financial hub, stands out as a key player in the Apac renewables market, serving as a vital lynchpin for the region’s renewable energy development.
The promise of renewable energy in Singapore
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Singapore’s proactive stance on renewable energy reflects its commitment to mitigating climate change and ensuring future energy security.
Despite its limited land and industrial landscape, Singapore has set ambitious targets for renewable energy adoption, aiming to achieve net-zero by 2050, with the public sector reaching net-zero by 2045. Strategic investments include a $5 billion fund in clean energy technology and infrastructure, backed by policy initiatives aimed to significantly increase the share of renewables in the energy mix, reducing reliance on fossil fuels and advancing towards a greener, more resilient future.
Key levers underpinning the nation’s net-zero goal by 2050 include:
Electricity imports: Achieving an import target of 4 gigawatts (GW) of clean power by 2035, accounting for about 30% of total electricity supply. This is critical due to the limited land available for large-scale renewable projects.
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Solar energy: Leveraging abundant sunlight with a targeted 2 gigawatt-peak (GWp) of solar capacity by 2030, meeting 3% of power demand.
Natural gas: Remaining the main electricity source, but its share is expected to decrease to 50% by 2035.
Hydrogen: Green hydrogen applications will be explored to further diversify the energy mix. Starting in 2024, new or repowered power plants must be at least 30% hydrogen-compatible.
High and progressively increasing carbon taxes, reaching S$50–80 per metric tonnes in carbon dioxide equivalent (tCO2e) by 2030, further incentivise businesses to reduce emissions and invest in cleaner technologies. Singapore’s approach — combining electricity imports, solar energy, hydrogen integration, and stringent carbon taxes — positions it as a regional leader in the energy transition, enhancing energy security and setting a benchmark for the Apac region.
Market-based factors shape Apac renewable markets
Renewable energy development in Singapore — and across the Apac region — is driven by several key elements, each adding momentum toward a sustainable energy future. One significant driver is the reduction in costs. Advances in technology and economies of scale have made renewable energy increasingly competitive with traditional fossil fuel-based power generation. This cost parity, particularly in solar, has accelerated the adoption of renewables in Apac, driving investment and the deployment of clean energy infrastructure.
National climate commitments also play a crucial role. Singapore’s commitment to achieving net-zero by 2050 is supported by strategic targets in electricity imports, solar energy, natural gas, and hydrogen. MNCs with significant operations in Singapore are setting ambitious decarbonisation goals aligned with global standards. This shift drives renewable energy demand and facilitates diverse offtake arrangements, such as corporate power purchase agreements (PPAs), fostering collaboration between renewable energy developers and corporate partners.
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The development of hydrogen technology will be key to decarbonisation, presenting significant local opportunities, especially in consumption. This includes tenders for bunkering solutions and hydrogen-powered plants, driving demand and stimulating local industry growth.
Singapore is actively connected to regional power grids, including those of Malaysia and Indonesia, supporting the government’s large-scale electricity import plans. Currently, Singapore imports electricity from Laos through the Laos-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP) and plans to source from Cambodia, Indonesia, and Vietnam. This connection not only supports import plans but also generates export opportunities for excess Singaporean power generation.
Charting a course for success: Essential Strategies at play
In navigating the renewable energy landscape across Singapore and Apac, developers and investors must adapt to the diverse business environments present in each market. We have identified five key factors for both developers and investors to consider:
- Finding focus by concentrating efforts on specific markets and technologies;
- Establishing local partnerships to access land and navigate regulatory landscapes;
- Broadening financing options to address challenges of lower returns and increased competition;
- Navigating the supply chain by integrating with local players and meeting local content requirements; and
- Leveraging offtake expertise to gain a competitive edge in tender processes.
Singapore’s power market presents opportunities primarily in floating solar, distributed solar photovoltaic (PV), and low-carbon hydrogen. Given the advanced market with established players, investors must identify niche opportunities across the value chain to succeed, including:
- Floating solar: Investors can participate in upcoming Public Utilities Board (PUB) tenders to deploy floating solar projects. Adopting advanced technology, such as smart string inverters, can enhance project efficiency and competitiveness.
- Distributed solar PV: Companies can offer decarbonisation services through rooftop solar PV combined with behind-the-metre battery storage solutions. Establishing robust customer relationship management systems is crucial for maintaining and expanding the customer base.
- Hydrogen: Opportunities exist to build and operate low or zero-carbon ammonia power plants. Success in this sector will require winning tenders from the Energy Market Authority (EMA).
Despite the opportunities, investors in Singapore’s renewable energy market face significant challenges. Adapting to market dynamics while maintaining financial viability and sustainability requires agility, foresight, and a deep understanding of local market conditions.
One major challenge is intense competition. The renewable energy sector is moderately fragmented, with numerous established players competing for tenders. This competitive landscape demands innovative approaches and differentiation to stand out. Resource availability is another constraint, with opportunities in wind, hydro, and battery storage limited due to natural resource constraints. Geothermal energy is still under study, with its potential uncertain.
Variable returns add to the complexity. The internal rate of return (IRR) for solar projects can vary significantly depending on contract negotiations. Additionally, the high cost of capital, ranging from approximately US$1.5 million to US$2 million per megawatt for solar, impacts financial planning and project viability.
Merger and acquisition opportunities are also limited. Established players tend to maintain ownership and operations, reducing entry points for new investors looking to enter the market through acquisitions.
By embracing these challenges as opportunities for growth and innovation, investors can contribute to Singapore’s renewable energy transition and unlock value for stakeholders across the energy value chain. Success for energy players remains tied to their ability to adapt to local market conditions, form strategic partnerships, and leverage advanced technologies.
Marko Lackovic is managing director and partner, while Suncica Zdunic is project leader, both at Boston Consulting Group
