Artificial intelligence and cloud computing is sparking a rush to build data centers around the world, and some of the biggest areas of growth are in Asia. Earlier this year, Ali Baba announced it will spend over fifty billion dollars on data centers and other AI infrastructure. That's over the next three years. It's creating an insiciable demand for electricity.
And here in Asia, countries from Japan to Vietnam are increasingly deregulating those energy markets, creating opportunities for renewable energy like solar and wind. You're listening to Asia Centric from Bloomberg Intelligence. I'm John Lee in.
Hong Kong, and I'm Kadidmitrieva, also in Hong Kong.
Here to discuss the renewable energy scene in Asia is Gavin Adda. He's the CEO of Peak Energy. It's a portfolio company under Stone, Peak the infrastructure giant with over seventy billion dollars in assets under management. Gavin, Welcome to the show.
Thank you to be here now.
Gavin, you're joining us from Singapore. One question I had, and this is for the lay listener who might not know a lot about this industry, but could you tell us you know what do you do?
Yeah, okay, So I develop solar, wind and battery projects and sell renewable energy.
To corporates across Asia.
So that could either be building a system on top of their roof, on their facility or something like that. Or I'm taking a large solar farm or wind farm, constructing it and then pushing the electricity through the grid to large corporates.
And this isn't sort of your solar panels on the roof of your house. Can you tell us about the size of these projects, like how big are these projects?
Who are the players involved?
So maybe a good example would be someone like Nike, Right, So Nike has about two million people working for them across Asia. You know, particularly in Indonesia and Vietnam, they have these big flat roofs with thousands of people inside. And you're taking those big flat roofs and basically covering them in solar panels, for example, and pushing that power
directly into the building. That building is then using that electricity for their machines, for their air conditioning, for whatever they're using, and then any excess power ideal is being sent to a grid and being used by residential customers or whatever. But that's kind of the model for on site solar projects.
And govin just how big is this industry? Just give us some numbers and tell us how fast it's growing.
Yes, So if I just deal with the on site side, if you look at a mature market, somewhere like the US is doing about ten billion dollars a year of on site solar projects, and we're starting to see that business building up now in Asia. So somewhere like Singapore, which is quite frankly, very small land mass, not much rooftop, they have a target to do about two billion dollars
of solar rooftop. And then if you think about somewhere like Indonesia or Philippines, they could do many multiples of that, but todate have done very little.
So it's a very new market that's just taking off.
And I'm assuming that here in Asia it's growing much faster than the rest of the world.
Yeah, I think that's true.
I mean I think if you look at the forecasts for an analysts, they'd say that power demand in Asia expected to triple over the next five years, which is really an extraordinary growth rate, and at least fifty to sixty percent of that to come from renewables, and that kind of mirrors what we're seeing all across the world.
So why renewables in Asia? Like, what is happening here that's really driving that demand? We talked about about data centers AI is it that? Is it something more?
Yeah, there's a lot to unpack in there. So the situation is you've got massive increases in the demand side, and then you've got certain constraints on the supply side that have pushed us towards renewables. So if I start on the demand side, you've got your base growth, You've got you know, populations become wealthier and moving into cities using air conditioning TVs.
The normal expectation.
I think the second big driver is the move of the world's supply chains from China to Southeast Asia. So China is no longer as competitive as it was, and so you're seeing people moving into Vietnam and Indonesia and Philippines, And that's the second driver. Nike used to be in China now in Southeast Asia, and many of these global brands as they move out of China are looking for
inneable energy. They've made commitments to anewable energine, so they're looking for which market can I go into and get that kind of supply. I think then the third driver is data centers and AI that's just starting to come online now in most markets as a broad range of different maturity. So somewhere like Singapore, seventeen percent of the entire country's power is going into data centers and so that's driven up grid prices very significantly, and it's starting
to reach maximum capacity. So that's really on the outside. Then on the supply side, the base growth was already too much for the utilities. Right, most of these countries are having regular brandouse, regular blackouts. If you think about Philippines, Indonesia, et cetera, constantly having problems getting enough power in to the demand side. And the structure is monolithic, right, if you go to Indonesia, there's one company that manages transmission,
the grid, the generation. They have a very significant monopoly on the supply side, and they are regulated markets, so the government basically controls the price and it's a sensitive voting topic. There are in examples of riots as grid prices get increased. So that's made it very very difficult for utilities to increase the tariffs, increase the power prices. So we're now in a situation where the cost of power is actually higher than the revenue that they're getting from selling that power.
So they're loss making.
So they're loss making, massively loss making, and they've got to subsidize that loss. We're taxpayers money. So if you look at somewhere again like Indonesia is a good example, about five billion dollars a year of taxpayers money is going into the utility to keep it alife. This was all then exacerbated significantly by the conflict in Ukraine by COVID.
You've seen commodity prices spike, You've seen.
LNGG prices go up, and that's made it even more difficult for the utilities to survive. And meanwhile, they were really not able to invest into their infrastructure, they were not able to install renewables, and so that's really been the straw that broke the camel's back. And the reaction is government's saying, okay, I have to deregulate. Prices are going up. I can see that there's a way to bring in new power from someone else, from foreign investors.
So I'm going to deregulate and allow independent power producers to come on board. So that's really been the big driver. That's been the really exciting thing that we're starting to see is all these different markets opening up and allowing independent power producers to come in.
How competitive is it?
Like?
Can you paint us an image of what that looks like when you as a company go in and you want to supply that power? Is there an RFP like a bidding process? Are you in there like taking these governments out for meetings?
Maybe like a beer? What does that look like?
So? What I like about this is that it's a point to point discussion. Right, So it's me talking to a company. The company is running a tender. The company is then going through a process of evaluating all the different suppliers. How much power can you provide? What's your price of power? And Asia is really a grid parity market. We're not like Europe or the US where there are large substy is helping renewables. We need to be cheaper than the grid otherwise we struggle to install large volumes.
What I like as a foreign investor is I'm not having to spend as much time with utilities and finding ways to.
Build relationships there.
It's a pure performance kind of conversation price and volumes.
So you said you mentioned grid parody. Are you saying that if you source your energy or you're from solar or wind, it's actually cheaper than traditional sort of fossil fuels.
Yeah.
I mean that's been the really exciting point that I think is not that well known in the region. So if I install a solar system for a customer in Thailand, I'm going to be fifty percent cheaper than the grid.
Wow, fifty five zero.
Fifty percent, right, So we have customers who are saving two million dollars a year by installing solar systems on their facilities. And then even in Indonesia, where taxpayers money is being used to subsidize the price of the grid and keep it low, even there we're thirty percent cheaper than the grid. So when you look at that, you think, well, hold on a second, why isn't there more renewables coming into these markets?
And that's really been about regulation and deregulation.
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and share. Yeavin, I'm going to ask a really stupid question here, like how reliable is solar Like, for example, if you've got solar panels and it suddenly rains days on end. You sometimes see that in Southeast Asia. Does that mean that you don't get the solar or is there.
Just that's the key point, right, So you've got your solar system on your roof, you're sending the power into that building. You know, you're forecasting what the power is going to look like for the next ten or twenty years. Retake the risk. And this has been the problem historically is you need an investor, an expert who's willing to take the risk of that weather. And that has been something that has stopped the market from taking off in
the past. But generally speaking, and I'm sitting in Singapore and it's been raining NonStop for three days, non stop right day and night, and your solar system gets less sunlight, but it gets better performance. It's cleaner, it's cooler, and it performs better in that situation. So you might see a thirty percent drop in performance or a forty percent drop in performance, But the quality of the technology means now that there's not that much of a difference.
I think that's one point.
Then the second point is you're still connected to the grid, so it just means that you take less power from the grid than you would from the solar system. And then I think the third point is that batteries are coming in, and batteries change the complete sort of scheme of this because we now install larger solar systems, especially if you can do a solar farm, large batteries, and then you're able to provide power right the way through the night and it's firm.
It behaves just like a guest clut.
And you said you're willing to take the risk because there's not a lot of companies, the investors who would be willing to take that risk. Why are you guys able.
To do that? I think that we have the engineering team, we have the data sources, so we basically are connecting into people like NASA and downloading multiple decades of data to know exactly how well a solar system is going to perform in any given scenario. So rather than trusting someone, we have our own ground up, you know, prime research that we're doing to understand exactly what a solar system
is going to do. First part, and then the second part is the team and I have run billions of dollars of solar plants in Asia, so we would be one of the more experienced. So we're quite comfortable that we know how to operate and maintain that system. So can we get out there clean it? Can we make sure the cabling is working?
Okay?
Do we see the problem before it happens. These kind of things are really important in terms of actually running. It's a very simple system, but it's still a.
Power plant and you need somebody who knows what they're doing.
So Gavin Asia is pretty diverse. You know, what are the most hottest areas in your world? In Asia? Which countries are they?
Yeah, that's a good question. The challenges that it changes year to year, and I would like to say that I'm able to forecast what's going to happen next year. But the one thing I've learned in the last twenty years in Asia, you can't, so I would say, you know, we've added maybe half a billion dollars worth of projects
in Korea. There's a huge amount of demand there. There's a lot of manufacturing, a lot of export, and so a lot of the corporates there are looking to buy renewable energy in order to be able to fulfill some of the sustainability requirements that you get from Europe.
So that's really sustainability driven at the moment.
I'd say a lot is happening in Japan, so we're seeing a similar model, and Japan is very aggressively deregulating to encourage more foreign investors into their market. Then go
across to Malaysia, and Malaysia is exploded. It's come from a very monolithic, very monopolized market where it was really difficult to get into even on the rooftop side, and now with the spillover of data center is from Singapore, you're seeing very significant demand and we're looking at sort of multi hundred million dollars solar farms in Malaysia.
But it moves all the time.
If you'd ask me last year I think Philippines would have been probably the most interesting market last year.
Yeah, oh wow.
So it really does change year t year.
It changes year to year so very rapid because what's happening is the governments are all fighting against each other deregulating to try and make their country more attractive for the investment, not just for people to come in on the infrastructure side, but then on the customer side. So you've seen very interesting sort of geopolitical wrangling. Singapore is a good example because you've got the data center sort of explosion. Now seventeen percent of the country's energy supply
going into data centers. It's getting to the stage where its difficult to see that being sustainble on the long term.
Singapore was then trying.
To pull in renewable energy for its neighbors, and you saw Malaysia and Indonesia basically come out and say we are flat out banning any supply of renewable energy to Singapore. And I was in meetings with senior officials in those countries and saying, then why don't you sell power from your country to Singapore at a higher price.
You're going to make a lot of money.
And the response was we know that those data centers manufacturers are in Singapore. We want to bring them to our country and we will do whatever we can to get the jobs and the investments of those manufacturing sites here. If that means strangling renewable supply for Singapore, that's what we're going to do. So you've definitely seen those kind of geopolitical battles going on.
Oh well, and that's quite interesting.
You know.
I know that energy security is a big issue in Europe, especially with the Russia Ukraine war, but it sounds like energy security and geopolitics is becoming a big factor in Southeast Asia as well.
Yeah.
Absolutely, I think that the last few years of commodity spikes has rocked a lot of the region. Like Philippines is an energy importer, Indonesia's becoming more and more of an energy importer. So you have no choice but to take your energy or energy from whoever's supplying and solar and wing the batteries. It's pretty exciting because once you've installed your system, it just sits there. It's more expensive to turn a solar system off than to have it
just running. The costs of solar systems are reducing so fast that you've now got to a stage where you know, like for like there as I say, for fifty percent cheaper. And I think that where you had some resistance from the incumbent utilities historically, the governments are now cutting through that because the costs of subsized utilities is too much.
So a lot of these countries are thinking, I build large solar farms or wind farms or whatever resource you've got, and I reduce and I hedged my exposure to the global commodity markets.
And you mentioned earlier that there's a lot of global companies. I think you mentioned Nike, but maybe it's like companies like Samsung that are moving out of mainland China to Southeast Asia. How influential are these companies in driving the agenda for renewable energy.
Yeah, that's definitely a huge, huge topic, and it's much more driven by them than by the developers. So you know, I've again had those meetings with regulators, et cetera, where they're complaining and saying, please get these Western American or European.
Companies out of my office.
They're in every day saying I'm going to leave your country if I don't get renewable energy.
You have a regulated market.
You know, there's no way for independent power producers to come in, and your local utility is not giving me the renewables I need. So there's huge influence. I mean, Samsung is twenty percent of Vietnam's.
Energy production.
One fifth, yes, yes, and Samsung has moved a lot of their sensitive technology out of China into Vietnam, specifically to reduce the potential exposure.
On technology transfer. So it's a huge factor.
And the amount of money that's going in around data centers, and then some of the regulations whereby countries are requiring their data to be kept in their country, it means that you then have to spread of data centers into markets like Indonesia, et cetera. So there's a lot of influence that they have.
Well, it seems like a long term trend, like as you see more companies pulling out of China, I don't think it's going to change anytime in the next four years, at least with tariffs, but it does kind of leave you with the question of what happens if these companies leave, right, Like all these companies that have moved to Malaysia, Vietnam, Thailand to diversify or do a China plus one strategy.
There are reciprocal tariffs that are in the books, and we know that President Trump is looking to target a lot more countries than just China. So is there like, how do you think about the risk of these companies who are driving the agenda right now kind of pulling back or pulling out.
Yeah, it's something that I'm watching very closely. And we definitely needed sustainability support to get the business, to get the industry going. When I first started developing solar projects in Asia, I was previously developing projects in the US and Europe sort of twenty years ago, and you could see even back then that with the cost curve on solar so twenty percent per year reducing over the last twenty five years and very significant drops every now and then.
So we had a fifty percent drop in the last twelve months, you could see that it was going to come under the grid. I meanwhile, the grid is going up. So for me, the important part is we as an industry need to behave like mature energy players, not always looking for the subsidy. So and sustainability is I think going to get hit. We've also seen CSRD regulations in Europe.
So the regulations around how you report who needs to report on their sustainability and carbon footprint reduced very significantly in the last two three weeks. So I'm watching it very closely. But I believe and I'm driving the team to focus on cost as the main driver, and that's perfectly viable.
We do need some more regulation reduction in orders for us to do that.
You brought up some interesting points, so it's more cost focus rather than sustainability goals. Cat did mention President Trump. Now since he's become the president, there's been a big backlash against ESG. Trump has got a really famous policy like you know, drill, baby drill. How is this change as.
Opposed to sun baby son or wind baby wind?
This is changing at ordinarrative for renewable energy.
I don't see it yet.
So what I'm seeing at the moment is is if you think about Amazon, it's very interesting. So Amazon was one of the first people that went into sustainability. It was primarily driven by the employees, right. The employees pushed, consumers have pushed, and that has pushed the regulation right, and so that that fundamental driver.
I don't think it changed.
So We're definitely going to see fluctuations towards and away from sustainability. That's been the case for the last twenty years. This is a particularly relevant one, but I think that we just need to stay the course, focus on the cost differences, and quite frankly, I don't see any change from our customers right so Amazon or Microsoft or Google or Nike or Samsung, they're all very actively looking for
renewable procurement from us. So I haven't seen any of that kind of But you know, no, right a year down the line, you want to watch Abe Kefley.
So no pullback yet, is what you're saying. It hasn't been like the past couple months you're suddenly getting a drop in demand.
Definitely not, Definitely not, Gavin.
I love to talk about renewables as an asset class. So can you tell us who are the big investors in renewable energy from your point of view?
Yes, So I've started two companies. One I sold to Shell and Keppel and the second one I sold to Total. So the oil and gas companies for the last five ten years have been very hungry, and I think about the investor bases. Really, strategics are strategic large companies and
then financial investors. The strategics think about this as a new business model that is going to be inevitably growing over the next ten, twenty thirty years, and so they are looking for how do I take my employee base move them into that, what are the different business models that I can drive, how can I drive returns, et cetera. And the financial investors are more focused on the results. I think that it's like a golden goose and golden eggs. Generally,
financial investors like the golden eggs. These are long days did very stable infrastructure returns. We have twenty year contracts or twenty five year contracts. As long as the sun comes up, it's going to generate. That's very stable. Sometimes their inflation linkedins, and so you've seen a lot of interest from pension funds, softign wealth funds, infrastructure funds. There's definitely been a pendulum shift from the strategics more towards
the financial investors in the last year or so. I think that's good because there was a bit of distortion before where some of the investors that were coming in weren't coming in for necessarily the returns. They were coming in for other aspects, and that distorted the market. That meant they were willing to take risk return profiles that might not make a lot of sense in order to gain volume, whereas the financial investors are a bit more stable, a bit more return focused.
You mentioned inflation linked assets. There does a federal reserve and the pace of inflation price growth does that impact the business at all.
So a renewable project, generally speaking, will be twenty to thirty percent equity, twenty to thirty percent my cash going into a project, and seventy to eighty percent debt that I'm going to be taking from a big, regional or local bank. And so the interest rates are a big factor. So what is the interest rate on that debt has a big impact on the weighted average cost of capital
of that project, So I track it very closely. The reason that relatively constable is usually an increase in interest rates is going to increase is going to have an inflationary impact, and so you're going to see grid prices go up, which makes it easier for me to then put in a price that everybody is happy with as a discount to that grid price.
Gavin, before I let you go, I wanted to ask a question like I saw your LinkedIn page, and you've got a lot of experiences in a lot of different countries. I think I saw obviously the UK, the US, Korea, Singapore, India, maybe Finland. But like, tell us your background. How did you get into this space?
Oh? Wow, okay?
So I was originally doing it tech so twenty or thireny years ago and thought, well, you know, Asia is the exciting part of the world.
I want to come over to Asia and be part of that growth.
And did an MBA and join Samsung and had the chance to run various different businesses for Samsung. We did about a billion dollars of investments in the US and you could see then that renewable energy was taking off. So that really very run the numbers and you could see that if if it's making sense in the US, I should be able to replicate that business in Asia and build a viable business without necessarily relying on subsidies.
There is I think a podcast that referred to as the Indiana Jones.
Oh God, what was.
That about Indiana Jones A renewable investing.
Yeah, that doesn't come up very often.
I have to admit, No, I did an archaeology and a topology degree in Cambridge at some point allegedly and so apparently that has some connection with renewable ERI, but I have not worked out what the connection is yet.
All Right, we'll think of a segue. We'll think of a yeah between those two. Thanks so much for joining us today.
Thank you for your time.
Thank you, Kevin, really good fun.
You've been listening to asia Centric from Blueberg Intelligence. My name is Katy Dmitrieva. I'm here in Hong Kong.
And I'm John Lee, also in Hong Kong.
You can find other episodes of asia Centric on Apple Podcasts, Spotify, or wherever you listen.
And this podcast was produced and edited by Clara Chen And thanks for listening.
I'll see you next time.