A green energy party

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??This week: A deal between Keppel, the Asian Development Bank (ADB) and Enterprise Singapore (EnterpriseSG) potentially addresses significant areas of need for the parties involved.

Keppel entered into a memorandum of understanding this week with ADB and EnterpriseSG to explore US$800 million in energy transition and environmental sustainability and blended finance opportunities in the Asia-Pacific region.

Keppel, once an industrial conglomerate, is transitioning into a manager and operator of infrastructure, real estate and connectivity assets through the sale of its offshore and marine and logistics businesses. The old business was heavily reliant on the order book, which meant that earnings could be lumpy due to differences in the scale and timing of projects. The new business model is focused on recurring fees, which Keppel receives as a manager and operator of physical assets, as a provider of energy services, or as a fund manager.

But an asset manager needs assets to manage, and a fund manager must have assets into which it can deploy capital. The pact’s biggest value for Keppel could well be its contribution to Keppel’s pipeline. Keppel listed the decarbonisation of power generation, renewable energy, electric mobility, green buildings, water treatment and resource recovery including waste-to-energy as possible projects.

The US$800 million figure represents a target for total project value between 2025 and 2030. Keppel’s reported deal flow pipeline for infrastructure as at end-June was S$9 billion, so the potential projects from this collaboration will only be a fraction of Keppel’s business. However, Keppel needs all the deals it can get; growth and global clout in its funds business, especially, ride on Keppel’s ability to continue to obtain deals.

For ADB, a private-sector partner can be an important impact multiplier, offering capital at a scale that the development bank cannot provide on its own. It also addresses a critical development need for the region, which is fast-growing but still highly carbon intensive and in need of developmental aid. The projects are estimated to reduce greenhouse gas emissions by at least one million tonnes of carbon dioxide equivalent per year.

One of the main challenges of decarbonising South-east Asia is that financing severely trails the amount that is needed. Keppel can therefore be a valuable partner because of its ability to not only develop and operate projects, but also to mobilise capital for these projects. Moreover, Keppel has the ability to recycle capital by placing assets in funds, improving the pace at which capital can effect change. Keppel’s recent acquisition of half of asset management firm Aermont Capital also creates a new channel for monetising assets.

A possible hurdle is that Keppel must operate on commercially sound terms, or its shareholders won’t be too pleased. Yet the energy transition can be extremely costly, and developing countries in the region will not be able or willing to foot the full bill of going green. Hence, the amount of compensation that commercial developers and investors like Keppel might demand could be more than what communities that need the projects are able to pay.

Blended finance – in which a small amount of concessionary capital in the financing mix takes on enough risk to make the deal palatable to commercial participants – could be used to close the gap, but scaling up blended finance remains a problem that the financial sector has yet to solve.

If ADB can be the concessionary partner in this collaboration, the path for Keppel will be smoother. It could even allow Keppel to access some projects that may be less accessible to its rivals. If ADB’s concessionary appetite is not big enough, the deal partners might need to recruit other collaborators.

Still, a tie-up between a major multilateral development bank, a multibillion-dollar infrastructure player and Singapore’s trade development agency is as good a fellowship as any to try to complete this quest.

There’s a much larger and enticing market up for grabs if the deal partners can make it work. A report by Bain, GenZero, Standard Chartered and Temasek estimates that South-east Asia’s green economy could be worth another US$300 billion per year by 2030. That’s a lot of potential growth for Keppel.

??Top ESG reads:

1. Mould is tarnishing the sustainability glow of mass timber in tropical buildings like Nanyang Technological University’s Gaia building.
2. Australia has approved SunCable’s US$24 billion solar and battery farm, bringing an electricity export deal with Singapore a step closer to fruition.
3. DBS is providing turbine provider Envision Energy with a 500 million yuan green loan facility to build a 100-megawatt wind farm in China.
4. Sembcorp Industries has signed an in-principle deal to export green ammonia from India to Japan.
5. Petronas will assess carbon capture and storage options with Abu Dhabi National Oil Co and Storegga to build capacity of at least five million tonnes of emissions per year.

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