Editor’s note: Kairous Capital, AC Ventures & Solar AI Technologies are participants of Life’s A Pitch! (Renewable energy) on Apr 28.
The fact that nine out of 10 countries in ASEAN pledged to achieve net-zero carbon economy does provide tremendous opportunities for renewable energy startups in the region.
The nine ASEAN members with net-zero emissions targets made their pledges in 2020 and 2021 when their economies took heavy hits from the COVID-19 pandemic.
ASEAN is targeting a 23 percent share of renewables in total primary energy supply and a 35 percent share in installed power capacity by 2025. The intergovernmental organization also wants to see a 32 percent energy intensity reduction from 2005 levels.
The latest figures show ASEAN had a 13.9 percent renewable share of primary energy and a 28.7 percent share of power capacity in 2019. But the region had already achieved a 21.8 percent cut in energy intensity by that point, according to Asean Centre for Energy (ACE).
Indonesia, Thailand, and Vietnam are expected to see some of the largest renewable capacity expansions in Southeast Asia in 2022, according to ACE.
Some of the venture capital firms have already started scouting opportunities to invest in renewable energy startups in the region and closely watching the sector.
“It is proven now that energy from fossil fuel sources is unsustainable, and coupled with the devastating effects on global warming, there is [a] tremendous impetus to shift to renewable sources,” Malaysia-based private equity and VC firm Kairous Capital Partner Dr Michael Gan told TechNode Global.
“With the current geopolitical situation, this need has been higher due to the escalation of oil price. As many countries have committed to reaching net-zero by 2050, there would be significantly increased spending in this sector,” he said, adding that some estimates put the additional spending at around $1-2 trillion annually.
“As such, we believe there would be much potential for this sector. We have not invested in any such startups previously but are willing to consider it,” he added.
Earlier this month (May 10), the US Energy Information Administration (EIA) said it sees Brent crude oil prices averaging $107 per barrel in the second quarter this year (2Q22). The agency said sanctions on Russia and other independent corporate actions contributed to falling oil production in Russia and continued to create significant market uncertainties about the potential for further oil supply disruptions.
EIA expects the Brent price to average $107 per barrel in 2Q22 and $103 per barrel in the second half of 2022. The average price is expected to fall to $97 per barrel in 2023, it said, adding that the price forecast is “highly uncertain”.
Although renewable energy has yet to become a focused sector for AC Ventures, the Indonesia-based VC firm has already invested in a renewable energy startup.
“The scope of renewable energy generally includes large-scale infrastructure projects, whereas we prefer to invest in less capital-intensive sectors,” AC Ventures Vice-president of investment Laura Lestari told TechNode Global. “However, with the rapid growth of technology, there are opportunities for innovative technologies within the scope of renewable energy. We invested in Xurya, a renewable energy startup focusing on rooftop solar power plant rental in Indonesia.” Xurya claimed it is an Indonesian renewable energy startup pioneering the ‘No Investment’ method of switching to solar, according to its website.
As Southeast Asia’s largest country, Indonesia accounts for 40 percent of the region’s energy consumption, and the demand is predicted to increase further following the rapid economic growth, Laura said.
She said Indonesia is home to the enormous potential in renewable resources, including hydropower, geothermal, biomass/biogas, solar photovoltaic (PV), wind power, and marine energy. For the past decades, Indonesia has been largely dependent on fossil fuels- such as coal (which contributes over half of the energy share), natural gas, and oil for energy and electricity production, she said. “This offers huge potential opportunities given that the energy sector is one of the main contributors to emissions after agriculture, forestry, and other land uses”.
Following the Paris Agreement, Laura said Indonesia has increasingly stepped up its efforts against climate change, and these resources will hold Indonesia’s ground in its commitment to reduce greenhouse gas emissions by 29 percent of the business as usual level by 2030.
“Deal flows in renewable energy do not come as often, given that the capital intensity may not make VCs well-positioned to invest compared to FinTech and e-commerce,” she noted.
Growth in this region’s internet economy is also wired by the shift in consumers’ behavior who have adopted and embraced digital services, particularly after the pandemic, which deepened the usage of digital consumption. With this new behavior ingrained in consumers’ lives, it will only further accelerate the growth of eCommerce and its enablers, she added.
Kairous: renewable energy sector in the region not as mature, but improving
While some may view renewable energy as a ‘less popular’ sector in the Southeast Asian region, Dr Gan begged to differ and opined that the industry is merely not as mature as compared to developed nations.
“I don’t think it is less popular or ‘less sexy’ here, but I’d have to say we are not as mature as developed countries. Take a look at their carbon offsets markets, it is already well-developed and become mainstream. The carbon finance sector is extremely important and must be taken into consideration in any business model,” he shared. “However, we see that this is starting to change, as Southeast Asia gets more well-informed and committed to fighting climate change. We will get there.”
According to Dr Gan, a good example would be the oil and gas or energy utility companies. They are seriously looking into renewable energy space and committed plenty of capital to it.
For instance, Malaysian national oil and gas firm Petronas’ expansion into renewable energy started as early as 2013, through its first internal solar photovoltaic project in Pahang, Malaysia. By 2018, this had increased to a total of five assets located across Malaysia and Italy.
In 2019, Petronas New Energy has also established its presence as an international renewable energy player through the acquisition of Amplus Energy Solutions Pte Ltd. Shortly after, Petronas also launched its flagship rooftop solar solution, known as M+ by Petronas.
To-date, Petronas has grown its solar capacity under operation and development to over 1GW in India, Malaysia and Dubai, servicing over 200 customers across more than 400 projects and growing, data from its website showed. In a recent interview with local business weekly The Edge Malaysia, Petronas vice-president and chief sustainability officer Charlotte Wolff-Bye said the company is investing about one-fifth of its capital expenditure in new energy and low-carbon initiatives.
“Other ongoing efforts to reduce carbon emissions include reducing flaring at its upstream assets and incorporating solar power at its facilities for better energy efficiency, in addition to its solar energy ventures that are well established in parts of Asia,” she was quoted as saying.
Oil and gas firms globally are under pressure to set targets that are consistent with the Paris Agreement, the climate accord which is widely seen as important to tackle the climate crisis. In May last year, a Dutch court ruled that oil giant Shell must cut its carbon emissions by 45 percent by 2030. That is a much higher reduction than the company’s earlier target of lowering its emissions by 20 percent by 2030, CNBC reported.
“There are definitely many investment opportunities in the green agenda here, as I feel the awareness is quite high,” Dr Gan said. “Even if most of the ‘hardcore’ research are done in the west, there would be opportunities for customization, localization and distribution in this region. In fact, perhaps it’s a good time now, before such startups reach higher up on their S-curves.”
Commenting on where to look for opportunities within the sector, Kairous’ Dr Gan said the VC firm also considers the other spillover effects in the renewable energy industry.
“We don’t look at this sector just from the renewable energy sources such as solar, wind, storage, hydrogen, per se, but also many of the other spillover effects. For example, disruptive technologies that encourage, enable, facilitate or distribute the use of renewable energy,” he shared, adding that ‘energy reduction’ startups such as those in the reduce, reuse, recycle (circular economy), shared economy are also in focus.
Dr Gan also shared the criteria he would consider when he invests in renewable energy startups. “Preferably companies that have a unique and innovative solution to solving the problem at hand, which is the energy conundrum in this instance. They should also have experienced decent growth and able to scale with some growth capital. We would also evaluate how we can help this company from our regional network. Companies with longer horizons might do better with investments by private equity funds though,”
The main challenges for startups: awareness & funding
Bolong Chew, the Co-Founder and Chief Executive Officer of Singapore-based renewable energy startup Solar AI Technologies, has noticed that in the past few years, the production cost for renewable energy like solar and wind has already fallen below traditional sources of energy, and the technology is already well-proven by now.
“These technologies can really shift the needle in the energy crisis and climate change, and what we really need now is to drive operations and deployment of them in a scalable manner, and I believe digitalization and business model innovation can contribute a lot,” he told TechNode Global. “It’s encouraging to see that in the last one to two years, the number of startups in the climate tech space in the region is starting to grow.”
His company, Solar AI Technologies, provides building intelligence for rooftop solar projects. The firm combines data analytics with software to digitize and streamline the end-to-end solar process, enabling property owners to monetize their unused roof space with no money upfront. It aims to hyperscale the deployment of distributed solar and the transition towards 100 percent renewables by modernizing the way rooftop solar is sold.
Solar AI Technologies, which is currently in seed stage, plans to raise about $1.5 million, he said. “We are not yet actively fundraising, but will be starting to do so in a couple months.”
Engie, a French multinational utility company, is the firm’s sole investor in its previous pre-seed funding round.
On the challenges the startup faces, Chew said there is a lot of education and awareness that need to be driven around the benefits of renewable energy, as well as business models behind it – be it for its customers, investors and financiers or partners.
“While solar technology has been in the market for decades, the understanding of it, especially in the region, is oftentimes still rather low. This is why we are really focused on building awareness in the way we operate as a company,” he said.
Chew also pointed out that climate problems are typically capital intensive, and there is a significant lack of early-stage project financing in order to help startups.
FinTech continues to be a hot sector in Southeast Asia after a booming 2021