As more and more people become aware of the need to protect the environment, the demand for goods and services that are sensitive to such inclinations will undoubtedly increase. Green bonds, energy efficient buildings, solar parks, and wind farms are just some of the many initiatives to help attain the goal of a cleaner and more sustainable environment.
Locating green infrastructure investments opportunities
Where there is demand, there is almost always an investment opportunity. Such an opportunity has presented itself in the infrastructure sector. Studies by the Asian Development Bank (ADB) and the Global Infrastructure Hub (GIH) reveal that the total investment opportunity in the Association of Southeast Asian Nations (ASEAN) region between 2016 and 2030 is expected to be worth US$3.1 trillion. Green infrastructure investment opportunities are expected to make up 58 percent of that amount at US$1.8 trillion.
A 2017 report by Singaporean financial services group, DBS and the United Nations indicated that ASEAN’s total green financing opportunities between 2016 and 2030 is worth US$3 trillion of which investments in green infrastructure make up 60 percent.
The goldmine for green infrastructure investments lies primarily in energy transmission and distribution (US$700 million), climate change and mitigation (US$400 million) and water (US$380 million). Besides that, opportunities are also aplenty in rail (US$60 million) and telecommunications (US$260 million).
The crème de la crème
What drives investment in distributed grid development is low electrification rates in the region, primarily in countries like Myanmar and Cambodia with electrification rates (based on grid connectivity) of 26 percent and 65 percent, respectively. As these nations seek to improve electricity access especially to rural areas, this opens up avenues for investments upwards of US$100 million that can potentially reach US$1 billion with an average payback time of over 15 years. Besides that, countries with existing extensive grids that want to improve transmission of electricity like Vietnam, Indonesia and Thailand also offer lucrative potential for investment.
Water is also a crucial green infrastructure investment avenue in places like Indonesia and the Philippines as Southeast Asia’s water market is slated to grow 20 percent annually. The technology risk associated with such an investment is quite low given that such technologies like water treatment plants, dams and flood control waterworks are relatively established. However, innovation in business models to help convert non-revenue generating water to generating water may be necessary. Besides that, the high payback period, upwards of 15 years may impact credit risk and cause commercial financiers to shy away. However, given that most water assets are publicly owned, state concessions and grants are likely the more obvious sources of financing.
Telecommunications investments which cover civil engineering works like land and sea cables and transmission towers are also highly sought after in places like Indonesia, Vietnam and the Philippines. The cost to build a communications tower averages between US$200,000 and US$300,000 and with the burgeoning demand for faster communications speeds (4G and above), the demand for such structures will only increase in time. Private and public partnership ventures into this area will be highly leveraged as national and multilateral development banks will continue to support financing by way of debt, guarantees and equity.
Scraping the bottom of the investments barrel
Other areas of green infrastructure finance like rail works and climate adaptation are also present but the investment size and commercial viability is lower than in other areas. For example, climate change proofing infrastructures at times don’t offer direct financial returns but only social and environmental benefits. Nevertheless, herein lies potential to invest in terms of fulfilling a company’s corporate social responsibility portfolio.
Rail investments which represent a meagre US$60 billion when compared to the US$1.8 trillion investment cake suffers a similar predicament. Besides that, the lengthy average payback period of approximately 25 years establishes a significant credit risk. Still, investments in this area cannot be fully dismissed because it is incredibly sensitive to changes in technology like high speed electric trains and Hyperloop systems which can skyrocket its potential.
In short, there is no lack of investment opportunities in Southeast Asia when it comes to green infrastructure. As a developing region, such lucrative chances will only increase as more and more projects and initiatives are proposed. The astute investor will keep an eye out for such opportunities as the region continues to flesh out its potential.