The energy transition is a fundamental theme dominating infrastructure investments globally, with unique opportunities present in Asia-Pacific, industry players say.
Deployment has mostly been in Asia-Pacific's developed markets, but sources said developing markets could soon present interesting opportunities.
"Infrastructure investments represent a big opportunity in APAC because of its $4.7 trillion spending gap in meeting required infrastructure investment through 2040," said Valerie Speth, APAC co-head of climate infrastructure at BlackRock Inc.
BlackRock sees "transformative opportunities across entire value chains" with particularly exciting climate infrastructure examples across APAC, added Ms. Speth, who is based in Singapore.
BlackRock, which had $9.09 trillion in assets under management as of March 31, has invested $2.5 billion in various climate infrastructure platforms across developed Asia including wind and solar in South Korea, solar in Japan, solar, electric vehicles and battery storage in Taiwan, and EVs and battery storage in Australia, she said.
BlackRock has also deployed capital for climate infrastructure in developing countries, a spokeswoman said.
On May 8, BlackRock Alternatives said that it would invest in CleanTech Global Renewables Inc. to build large-scale solar assets in the Philippines through Climate Finance Partnership, BlackRock's flagship public-private finance vehicle held in partnership with the governments of France, Germany and Japan, as well as U.S. impact organizations.
The Climate Finance Partnership in 2021 raised $673 million in commitments from a global consortium of investors including governments, philanthropies and institutional investors. The announcement did not disclose the amount of money invested in CleanTech.
Other infrastructure investors have similar convictions about developed markets in Asia. For instance, the Queensland Investment Corp., Brisbane, which manages A$98.7 billion ($65.6 billion) in assets, of which approximately A$58 billion belongs to the state of Queensland in Australia, has invested in various assets that are a part of the climate transition theme.
In Australia, the firm has invested in Tilt Renewables, Australia's largest renewable energy generation platform; Pacific Energy, which provides low-cost, reliable, off-grid power solutions to the Australian resources industry and remote townships; and Lochard Energy, a critical gas storage business for Australia's east coast National Electricity Market, said Ross Israel, head of global infrastructure at QIC, based in Brisbane.
Outside of Australia, it has deployed capital to climate infrastructure in the U.S. and is actively seeking opportunities in the U.K. and Europe. It expects to broaden its investment geographic mandate to Asia in the next five to eight years because "we've got a lot of strong relationships with Asian investors who are investing with us."
"We have strong investor relationships in (South) Korea and Japan," said QIC's Mr. Israel. "I would say Korea has been more advantageous in giving international investors the opportunity to buy into their infrastructure. Japan's been far harder to acquire infrastructure assets. There hasn't been a lot of privatization and private ownership that's outside of Japanese hands."
QIC looks at the energy transition through the lens of five key subareas as defined by the International Energy Agency — renewables, energy efficiency, electrification, hydrogen and carbon capture, Mr. Israel said.
"Fleets across the board in ASEAN countries will be interesting as electrification becomes a reality, and costs lower particularly in respect of batteries. We previously had an exposure in India," he said. "Other Asian markets we've looked at include the Philippines and Indonesia. These are more challenging because of currency and regulatory environments."
Specifically, the team has looked into airports and power projects in the Philippines, and water, power and roads in Indonesia, he added. Elaborating on the challenges, he said: "Currencies are significantly more volatile and less liquid from a hedging perspective. Regulation is less mature and review and rule of law higher risk if regulation is required to be challenged."
Cyril Cabanes, managing director of infrastructure for APAC at the C$402 billion ($297.8 billion) Canadian pension fund manager Caisse de Dépôt et Placement du Québec, Montreal, agreed that Southeast Asia has been challenging for climate infrastructure investing.
"Southeast Asia in general has been tricky for everybody," said Mr. Cabanes, who is based in Singapore. "Southeast Asia is not naturally well endowed with either wind, except in some places, or sun — it's generally pretty wet, meaning there's a lot of cloud cover, so it's not ideal. And lots of countries are pretty rocky so it's not straightforward."
"But I'm generalizing here," he added. "It's got other resources, which people tend to forget. Geothermal is pretty good in Indonesia and the Philippines. Hydro is pretty good in a lot of places because it's wet; you've got significant rivers."
However, he cautioned that geothermal and hydro plants can be challenging to develop. For instance, geothermal has a "pretty patchy track record," he said. "It's a bit like oil — you drill hoping to find something but you're not entirely sure what's going to be there."
As for hydropower plants, there are environmental and social impacts to consider as homes could be affected by water flows after dams are constructed and people have to be relocated. Hydro projects take about a decade to be completed, he added.
CDPQ in 2021 earmarked $10 billion for investments that would decarbonize the real economy. The strategy involved exiting its investments in oil production and helping portfolio companies reduce carbon intensity.
The fund has reduced the carbon intensity of its portfolio by 52% since 2017, making it well on its way to reaching its goal of achieving a 60% reduction by 2030, Mr. Cabanes said.
CDPQ has invested in climate infrastructure in areas such as renewables and networks globally. Within Asia, the fund in October signed an agreement with Shizen Energy Inc. in Japan that involved a ¥20 billion ($145 million) investment in Shizen Energy and a co-investment framework involving potentially ¥50 billion worth of investments by CDPQ.
In Southeast Asia, Mr. Cabanes said it is fascinating to see how themes of renewables and network infrastructure, and the growing trend of friend shoring — where supply chain networks are shifted toward countries that are political or economic allies — will play out.
"There are a few things you need to think about. Who is in the right zip code, which countries are likely to attract American or Japanese or Western European capital, who has sufficient and credible renewable projects pipelines to meet demand, and who is building the network to connect them?" he said.
Asian countries are in competition with each other right now and it's going to be interesting to see who gets there first, he added.
BlackRock's Ms. Speth agreed that the developing markets in Asia are at "an interesting juncture, with scaling opportunities emerging and numerous paths to enter the market."
"Many institutions have also increasingly established impact funds or allocated capital to markets that need these resources the most. In the past two years, with volatile market conditions, many local companies have increasingly prioritized fuel and electricity price independence. Additionally, manufacturing companies have been relocating to countries such as Malaysia, Indonesia and Vietnam, enabling collaboration to provide them with electricity," she said.
