MATHIAS STECK    Hello and welcome to the 13th series of the DNV Talks Energy Podcast. I'm your host, Mathias Steck. During this series, we'll be exploring some of the key insights from DNV Energy Transition Outlook, our annual independent model of the world's energy system, and what they mean for the future of our planet. Across the series, with the help of leading industry guests, we shed light on what's happening right now and the forecast as we move forwards. We explore topics from the geopolitical developments affecting the energy transition to what's needed from technology, finance and policy in delivering net zero. Crucially, we ask how do we move from ambition to urgent action over climate change? In this episode, we focus on one of the most important drivers of decarbonization: renewable energy.

To discuss this, I'm joined by Eduardo Karlin, Head of Commercial and Business Development, APAC at Mainstream Renewable Power. Together, we will explore the growth trajectory for renewables, the barriers to development that still exist, and the technologies and innovations that will accelerate the move towards cleaner energy use. We hope you enjoy the episode. Welcome to the DNV Talks Energy Podcast, Eduardo. It is a pleasure having you with us today.

EDUARDO KARLIN    Thank you very much, Mathias. It's a pleasure being here with you.

MATHIAS STECK    Could you, for the benefit of our listeners, give us some background about yourself and your role at Mainstream Renewables?

EDUARDO KARLIN    Definitely. So, my name is Eduardo Karlin. I am based in Singapore. And within Mainstream Renewable Power, I am the Head of Business Development for the company here in the Asia Pacific region. And concurrently to that I'm also the Deputy General Manager of Mainstream in the region, which covers essentially Vietnam, Philippines, Indonesia, Australia and Japan and our regional headquarters in Singapore.

MATHIAS STECK    So in DNV's Energy Transition Outlook, we explore the long-term and short-term forecasts of the energy transition. And within that, we found that despite short-term raw material and cost challenges, the capacity growth of solar and wind is unstoppable. By 2050, they would have grown 20-fold or tenfold respectively. What are the key drivers for this growth globally?

EDUARDO KARLIN    So certainly there are a number of aspects that are foreseeing this growth in renewable energy. I think if we look at the very discussed energy trilemma; energy security, energy reliance and of course cost effectiveness, renewable energy plays a key role for these three elements. From an energy security perspective, which now is clearly on top of the agenda for many different countries, renewable energy does not depend on the import of any sort of fuels, right? So that gives tremendous security to governments and also to consumers. Second of all, there is the aspect of reliance. More and more with the increased capacity of renewable energy in developed markets, there's no longer such a concern that there was in the early days around the so-called intermittent peculiarity of renewable energy. I think a lot has been done to overcome those challenges and even more is being done right now with new solutions being found, with smart grids being implemented, with transmission lines being enhanced. And so from a reliance perspective, we can see that renewable energy is becoming more and more reliant essentially. And then finally, from a cost-effectiveness perspective, the renewable energy sources aren't so volatile as let's say the thermal power plants are in certain countries because again, they depend on the import of certain fossil fuels such as coal, natural gas or oil. And therefore, I think it seems to me natural that governments and policymakers will want to continue fostering the growth of renewable energy. Finally, there's, I think, a greater element to all of this, which is climate change. Right. And the fact that if we do want to minimize the impact of climate change, there is an urgent need to reduce reliance on fossil fuels, and there's no other way to do it without renewable energy.

MATHIAS STECK    So in your current role, you are responsible for Asia Pacific. What are the key drivers for the renewables growth in the region here?

EDUARDO KARLIN    So if we look at the countries where Mainstream is present in Asia Pacific and as I mentioned earlier, that would be Vietnam, Philippines, Indonesia, Australia and Japan. Each of them have different peculiarities. But I think broadly speaking, many of them, if not all, still have a heavy reliance on fossil fuel energy production. So if you take, for example, Vietnam, it's a country that is growing very robustly from an economic perspective. Demographically speaking, it's a young population. So electricity demand is continuously growing in that country. How do you meet that demand? And if you look at the Vietnamese landscape, there is really little room for anything but renewable energy, because coal is practically not being financed anymore. You have gas. But that takes a long time to be built. LNG to gas is not straightforward. And then there's energy security. Most of that gas will need to be imported. And then finally, there's hydropower. But in Vietnam, hydro has been practically depleted. All of the resources have been used. So if the country wants to meet its energy demand, then it will need to obviously increase the capacity of renewable energy. And in fact, the government has been making significant progress on that. Last year at COP26, the Prime Minister of Vietnam, announced that Vietnam would have net zero targets by 2050. And we're seeing that in the new draft of the power development plan for the next year, there is a significant element of renewable energy. So Vietnam will certainly be a major driver of renewable energy growth in the region. If we look at the Philippines, which is another country where Mainstream has a very strong presence in, it also relies very much on the production of thermal-fired power plants. And similar if we look at the energy trilemma that I mentioned earlier, the Philippines is very exposed to the importation of coal and therefore that affects power prices. There's a lot of volatility. And in the meantime, it's a country that is endowed with phenomenal natural resources for solar, for wind, offshore wind. And therefore, we do see that that's another country that is going to have to meet its energy demands through renewable energy. And again, that government has been making significant progress there this year. There has been a green energy auction program launched. It was successful. It attracted two gigawatts worth of projects solar PV, onshore wind, hydro, biomass, and hopefully there's going to be even more in the coming years. So we see the Philippines again with a lot of optimism and a lot of the elements that I mentioned earlier in Vietnam apply to the Philippines, young demography, economic growth. So it's going to be a market for sure, which will represent hopefully a significant share of the renewable energy growth in the region. And then moving on to Indonesia, Australia and Japan, I think particularly Indonesia and Australia, they share characteristics that both are very large coal producers. Right. So there are different, let's say, elements that come into play compared to, say, Vietnam and the Philippines, because clearly they are less dependent on, say, coal imports, therefore less subject to price volatility. So many of the arguments that I mentioned earlier for Vietnam and the Philippines don't necessarily apply to Indonesia and Australia, but at the same time both countries have increased their commitments to transition. They are, I think, also on the path to, let's say, net zero targets or at least setting policies that go into that direction. So we are seeing very positive movements, particularly in Australia, where there's an increase in renewable energy capacity over the last years. The new government that has come into power in May has announced very ambitious plans around transmission grid upgrades, which will allow for more investments in renewable energy. And likewise in Indonesia. We have recently observed that policymakers are trying to implement rules and regulations that are more favourable to renewable energy. So probably Indonesia, out of all of these countries, has stayed a bit behind in the renewable energy growth, but without a doubt being the main economy in Southeast Asia, the largest population. The amount of renewable energy that will be installed there will be very significant over the coming decades. And then finally, Japan, which is Mainstream's most recent market in Asia Pacific, we clearly see that there's a lot of ambitions, particularly on the offshore wind side, a lot of gigawatts that hopefully will be coming online in the coming years. The government is supportive. There have been net zero targets announced. So generally speaking, these are the countries that of course, I can speak with greater knowledge because that's where we work as Mainstream. But of course, there are also other markets in Asia Pacific that are doing tremendous progress in renewable energy. So I wouldn't be surprised if over the coming decades, many of the gigawatts that will come online on the renewable energy sector will be within this region.

MATHIAS STECK    So what is your view on the renewables readiness of the countries you mentioned, especially those probably in South East Asia? There were quite some concerns about the integration of variable intermittent generation sources in the past, which we have very good experience with already. Maybe in Europe, for example, has that moved forward? Other countries are prepared to also integrate large amounts of renewables into their grids?

EDUARDO KARLIN    I think that's a challenging, let's say, question, because as you rightly point out, Mathias is one of the big problems that we have seen is grid. There's a very large amount of projects that are ready to be constructed to come online. But getting that grid availability is not straightforward. And it's been clear from, I think, experiences also in other parts of the world, that lack of investments in the transmission system is an issue, particularly for renewable energy, but just in general the whole energy sector, electricity generation sector. So I wouldn't say that there is complete readiness. There's much more that needs to be done in all of the countries where we are present, in Asia Pacific. I do think, though, that policymakers are becoming more and more aware of this issue. And as I mentioned briefly earlier, I think Australia is a good example. One of the first announcements that the new government made when it came to power was a very ambitious plan to invest in the grid. Right, because it's very clear that one of the main bottlenecks is transmission. So I wouldn't say that there is readiness, but there is a clear conscious of the issue and many of these countries, if not all, are trying to invest as much as possible in the transmission lines. But as a developer and the generator, Mainstream, we would welcome, of course, more to be done in this space.

MATHIAS STECK    Yeah. Let's talk about another finding of DNV's Energy Transition Outlook. We are expecting an 83% share of the electricity system in 2015 coming from renewables and they are squeezing fossils to a share to 50% of the overall energy mix. How and where will fossil fuels be phased out and how do you think renewables can replace them?

EDUARDO KARLIN    I think that probably there isn't one single answer because each different country has its own peculiarities. Right. So I don't think we can compare, for example, Vietnam and Philippines with Indonesia simply because Indonesia is the world's largest net exporter of coal. A significant amount of the economy is, let's say, pretty much dependent on the mining sector and even with relevant conglomerates that are active in the coal industry more in general. So the urgency, for example, that a country like Indonesia has compared to Vietnam or Philippines to reduce fossil fuel thermal generation fleet is probably less. Now, that doesn't mean that Indonesia will be slower. It could also change course and decide to accelerate its own transition. Right. But what I want to say, I think in summary, is that what we will see from a thermal power generation reduction, I think will be very much driven by those three elements of the energy trilemma, let's say the energy security, reliance and cost-effectiveness. And I think for most countries, renewable energy addresses that. And it's a matter of time on how each country will get there. I think some countries will probably reach that stage before than others, but ultimately in the next 30 years, hopefully, the predictions that you mentioned earlier will be fulfilled.

MATHIAS STECK    So can you share any example of a Mainstream Renewable Power project which is directly replacing fossil fuel use?

EDUARDO KARLIN    Definitely. I think the best example of this in Asia Pacific for us are projects in Vietnam and in the Philippines. In Vietnam alone, we have a development pipeline of over 2.4 gigawatts spread across offshore wind and solar PV. So around 1.9 gigawatts of offshore wind pipeline and 400 megawatts plus of solar PV. The offshore wind power projects that we are developing in Vietnam, some of which are at very advanced stage on which will start construction hopefully next year. These projects will have a key impact in the, let's say, energy mix of Vietnam because they are large-scale projects, they have quite significant amount of energy production. So their capacity factors are high and within this context they are a perfect substitute, let's say, to thermal power plants. And one very positive direction that we are seeing the Vietnamese authorities take is around dispatch. Right. And prioritizing the dispatch of renewable energy projects. The same applies to the Philippines. More recently there was an announcement in the Philippines whereby within the wholesale energy market, which is essentially the trading space of electricity in the Philippines, that there would be clear priority dispatch given to renewable energy projects. We have a 90 megawatt onshore wind project that is under development in the Philippines. It's a late stage and we expect to start construction on that project next year with our local partners, Aboitiz Power, which are very well established player in the Philippines. And again, that's electricity that will be generated, transmitted and will be replacing hopefully at least some portion of thermal power generation.

MATHIAS STECK    I would like to explore with you the newer renewable technologies, which may also be interesting for this region. You mentioned Japan, deep waters, floating offshore wind could be interesting. Singapore, Sweetwater reservoirs or Indonesia is all these islands which need to be electrified floating solar survival option. What do you think about these technologies and how could they make an impact on the race to net zero?

EDUARDO KARLIN    Mainstream Renewable Power just recently merged with Aker Offshore Wind, which is that's a part of our Aker family. And this merger is very important to us because Aker offshore wind bring significant amount of floating offshore wind expertise and therefore from our perspective we will really be investing in this technology. And as you rightly say, Mathias, it's potentially a very large game changer, right? Floating offshore wind, assuming it does reach a stage whereby it becomes cost competitive, which we will think will happen in a very short period of time that will basically unlock a market whose sky is really the limit, right? You can install floating offshore wind in a number of different places. In fact, at the moment, the key markets where we're in Asia Pacific, many of them do present floating offshore wind opportunities. Japan, as you rightly say, has massive potential. Philippines is another market where most likely offshore wind will pretty much be developed on the back of floating technology. More recently, Australia as well is seeming to embark on that journey. So from Mainstream's perspective, that is a key priority. We have a very strong mandate to pursue floating offshore wind and I do think that similar to the other technologies, it will eventually become mainstream.

MATHIAS STECK    So a lot of potential. But what would you say are the challenges for the implementation of those technologies?

EDUARDO KARLIN    First of all, one key challenge that we see in these markets and probably this would also apply to the more mature markets where Mainstream has been operating in, is the establishment of a strong and reliable supply chain, right. Particularly when it comes to offshore wind, we have seen that the development of projects here and even the amount of megawatts that have come online is probably slower or smaller than, let's say, compared to some parts of Europe. So establishing that supply chain will take time. It's not a straightforward process, and of course, it also requires patience. But in many of these countries where we operate in Asia Pacific, clearly there are electricity demands that need to be met immediately in the very short-term. Right. So expecting policymakers to balance that necessity to meet short-term requirements with a long-term view is not always straightforward. Right. So we have to find a way to make sure that the policymakers essentially are comfortable in supporting the offshore wind industry, particularly acknowledging the fact that floating offshore wind will not happen overnight. It will require support. And so for us, I think that's the main challenge, is getting policymakers to endorse the technology. And by doing so, allowing for a supply chain to establish itself and thereafter allow the industry to flourish, essentially.

MATHIAS STECK    So we have understood the matter of urgency, of the energy transition. We do have the technology, we have the demand and more energy, electricity. And you briefly alluded to the importance of policy. What would be your wish there? How could policy support the energy transition? What more needs to happen there?

EDUARDO KARLIN    Well, I can speak for the countries that we operate in Asia Pacific, and probably if I were to list out my wish list from a policy perspective, I could go on and on for a long time here. I do acknowledge as well, though, that of course, governments have to go through their own political economy and issuing the policies that are perfect to us, developers. Independent power producers of renewable energy is not always straightforward. So I think there are really two major elements that we need to be looking at for policy to be successful in flourishing the renewable energy market, particularly in Southeast Asia, probably less applicable to Australia and Japan. But in Southeast Asia, and in this case I'm referring mostly to Vietnam, Philippines and Indonesia, we would welcome, let's say, policies that are open to foreign investment. And in this aspect, we have seen a lot of progress being made. Vietnam has welcomed a lot of foreign investment over the last years in the renewable energy space. I think they are promoting this quite comprehensively. Philippines is also in the process of lifting foreign ownership restrictions for renewable energy. Now that process still hasn't been completed, but it seems to be going towards that direction. And also, Indonesia has been doing so for quite a while. Many of the renewable energy projects that have been built to date have been done in partnerships between local and foreign investors. So from our perspective as an international renewable energy player, that's probably one element. And I don't say this only because it's, let's say one aspect that is important to us as a company. But I do believe that for a renewable energy industry to flourish in all of these countries, there needs to be a collaboration between local and foreign partnerships. Right. I think it goes both ways. And this was the model that was adopted in Europe. The other second element, which for me is quite key on the policy front, is ensuring that there are routes to market that allow for projects to be successful, to provide electricity that is reliable, that is secure and that is also affordable, and that won't happen overnight. That's something that needs to be looked at in the long term, which means that maybe in the short term we need to have policies that accept higher, for example, tariffs for floating offshore wind that accept as well, that there will need to be some sort of incentives promoted and adopted in the industry with a view that eventually the levelized cost of energy for those technologies will reduce. And there is a track record for that, right? We're not saying this as just a sales pitch, you know, give us a higher tariff and then we'll look at it afterwards and kick the can down the road. It's a reality. I mean, when we entered and started seeing the UK offshore wind market, I believe that the early CFD or the contracts for difference PPAs that were or the power purchase agreements were around over £150/megawatt hour. Then a few years later that was coming down to let's say £115/megawatt hour, more or less. And more recently we saw that offshore wind power projects in the UK were bidding for power prices of just around GBP 40/megawatt hour. So a massive decrease. It happened. It's proven that if there is policy that incentivizes the industry, there will be benefits to it and it can happen actually pretty quickly.

MATHIAS STECK    And what we have heard quite a bit from investors and lenders that they find it quite difficult to find interesting projects to invest in or to lend money to. And now if we look ahead with all these great plans of the countries to develop renewables, are you concerned that there's suddenly not enough finance to realize all that?

EDUARDO KARLIN    In my point of view Mathias, there is quite a significant amount of capital out there that is ready to be flowed into renewable energy projects. However, and what I have observed here in Asia Pacific, but I think this applies to anywhere else in the world, is that it's not easy to find good renewable energy projects. And I say that from a developer's perspective, Mainstream Renewable Power in its DNA is a developer. That's how we began and grew as a business. We have now transitioned into becoming also an independent power producer, meaning that we retain ownership of projects throughout the operational lifetime. And in fact, in the moment, Mainstream has around 1.4 gigawatts or 1400 megawatts of installed capacity, onshore wind and solar PV projects that are either fully operational or in construction. So developing projects is not a straightforward task. There's a lot of capital willing to come into projects that are, let's say, already ready to build. And the issue is that not all projects that reach that stage have been developed to high standards. And that's a big issue, because if a project then stumbles into problems during construction or operations, it's very difficult to undo those problems, right? So the development needs to be done very well and has to take into account, let's say, the very high development standards, essentially. So to date, we've always applied, let's say, what we call our global development standard, which is very much inspired in the IFC's Equator principles. And therefore, when we bring lenders on board or other types of investors, we tend to navigate very well in the environmental and social requirements, not to mention the technical qualities of the projects. But we have come across many other projects that haven't been developed by us whereby we don't see that same amount of work done during development. And clearly, lenders aren't comfortable in pursuing projects that haven't been properly developed. So I do think there's a lack of well-developed projects on one hand. On the second hand then there is the challenge of bankability, right? So having regulatory frameworks, power purchase agreements that are bankable that assure banks that their capital will not be placed in extremely high risk. And this varies a lot from market to market. Vietnam, I think, is a very known example in Southeast Asia of a PPA whereby international lenders have been critical of because there are a number of problems that have been identified. But that applies to the international investor community. When speaking to local authorities, there is a sense that, well, the PPA wasn't supposed to be bankable, but then suddenly 20 gigawatts or more of solar PV onshore wind projects were built. That is true. But I think going forward, if we want the large offshore wind projects to come online, if we want to meet this electricity demand growth in Vietnam with a significant amount of renewable energy supply, we would need to see hopefully some changes made to the regulatory framework which let's say welcomes more the international lenders. So I would say that there's two major issues. On one hand, lack of well-developed projects that give the comfort to lenders that these will be successful endeavours in the long term. And then secondly, there is the issue of policy framework, which sometimes is not fully welcoming with regards to international lenders.

MATHIAS STECK    I want to end with a final question about your own outlook for the energy transition. How optimistic are you that renewables will continue on this growth trajectory that we see so strongly today?

EDUARDO KARLIN    I'm very optimistic personally. And let's say and speaking on behalf of Mainstream that renewable energy will continue to be a mainstream source of electricity. And in fact, if you allow me to say, when Mainstream was founded in 2008, the name Mainstream came from the fact that at the time renewable energy was very much associated to an alternative source of electricity. Right. Almost as if it were an outsider in the energy mix. And 14 years from that, we have seen that renewable energy has really gone mainstream. So in that context, I think that we as a company hopefully were able to contribute some of that. And going forward, I think there's a massive challenge ahead of us - climate change, resolving the energy trilemma. And so it's very difficult to see a world without renewable energy being a key source of electricity. And this will be even more once the electrical economy grows, with electrical vehicles becoming dominant and smart grids, let's say, becoming more and more sophisticated. So in short, there's a lot of challenges ahead. It's not going to be an easy path to undertake. But without a doubt, the answer will be renewable energy.

MATHIAS STECK    Thank you so much for these very comprehensive insights you gave us, Eduardo. It was a pleasure having you here.

EDUARDO KARLIN    Thank you, Mathias, for the invitation. It was my pleasure to speak to you.

MATHIAS STECK    Thank you for joining us for this week's episode. Eduardo provided a comprehensive account of how evolving renewable technologies are making a significant impact in energy production across South East Asia. He explained how one of the challenges in expanding these technologies further is not a lack of available finance, but insufficient attractive projects in which to invest. Eduardo ended with a cautiously optimistic view of the future, as once alternative energy sources are established as the mainstream. Join us next time for a discussion about hydrogen technologies, the pace of their uptake and the role they play in the journey to net zero.

To hear more podcasts in the series, please visit dnv.com/talksenergy.