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Finger on the Pulse: 5 Key Learnings from Asia's Sustainable Infrastructure Development in 2023

In this edition of Finger on the Pulse, we explore five important takeaways from 2023 and the implications they have on Asia. Finger on the Pulse is a content series from Infrastructure Asia that covers key developments and trends across Asia's infrastructure landscape, providing you with key insights from the inside.

The clock is ticking on the world’s climate goals. With Asia accounting for half of the world’s carbon emissions due to its heavy reliance on fossil fuels, the region is a deciding factor in the race to limit global warming to 1.5°C by 2050.

While Asia has made significant strides for sustainable infrastructure development in 2023, it still has a long way to go to meet global climate targets. With escalating energy demands and worsening climate challenges, Southeast Asia alone needs over USD 1.5 trillion in investment to achieve a one-third reduction in emissions by 2030 — a substantial increase from the USD 5.2 billion reported in 2022. This growing demand makes the challenge even more daunting.

But in uncertainty, there is opportunity as well. The region possesses the resources to decarbonise and thrive, both at the country level and regionally. Asia is demonstrating a collective awareness of the critical need for change on the renewable energy front. Countries like Vietnam and the Philippines are displaying strong commitment to decarbonisation with ambitious renewable energy projects that are paving the way for wider energy storage adoption.

Let us take stock of 2023’s developments and unpack what they mean for Asia as we usher in the new year.

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1. The approach to sustainable infrastructure is evolving

While the fundamentals of sustainable infrastructure — delivering long-term economic, social, and environmental benefits — remain constant, the approach both globally and in Asia is evolving.
The traditional model of government-led infrastructure development is giving way to a more collaborative landscape. Private investors, developers, and even communities are increasingly playing crucial roles, fostering innovative partnerships and financing solutions. This approach leverages diverse expertise and unlocks new opportunities for sustainable infrastructure development.

Today, strong partnerships hinge on clear outcomes and shared benefits. Last September, Infrastructure Asia supported the Singapore leg of Manila’s Ninoy Aquino International Airport (NAIA) Project Roadshow. The project involves diverse stakeholders including the Department of Transportation – Philippines (DOTr), Manila International Airport Authority (MIAA), Public-Private Partnership Center of the Philippines, and the Asian Development Bank (ADB) to build a world-class infrastructure with lasting economic and social impact.

Asia's unique landscape demands a nuanced understanding of what sustainable infrastructure truly means to each country. Simply replicating global solutions might not be the most effective approach. Instead, phased transitions tailored to local landscapes and local communities are crucial. For example, in countries with relatively young coal plants, prioritising efficiency upgrades over immediate shutdowns are a more strategic and achievable initial step.

By fostering closer collaboration across the region, countries can leverage vital knowledge and expertise to progress towards sustainable infrastructure at a pace that aligns with their unique needs and challenges.

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2. Innovative financing models are gaining even more traction

The widening gap between infrastructure needs and available funding presents a critical challenge for Asia's sustainable development ambitions. In response, innovative financing models offer a much-needed lifeline to bridge this gap and accelerate the region's green transition.

Traditionally, governments shouldered the burden of infrastructure development. However, tightening budgets and stretched resources have limited their ability to keep pace with population growth, especially for Asia. Beyond simply increasing the funding pool, innovative financing mechanisms enhance project bankability for private investors by reducing risk, improving liquidity, and minimising volatility.

One such mechanism is by Bayfront Infrastructure Management. Its Infrastructure Asset-Backed Securities (IABS) help facilitate the recycling of capital and liquidity from banks to address Asia’s infrastructure financing gap. In September last year, Bayfront successfully issued its fourth IABS. This transaction featured a portfolio of diverse loans and bonds across 33 projects in 15 countries. Notably, it included an innovative Class D mezzanine tranche guaranteed by GuarantCo. This guarantee significantly reduces risk for investors, making the tranche more attractive and increasing overall investment in the sustainable infrastructure project portfolio.

For such mechanisms to work, transparency and clarity are crucial. Initiatives like the recently launched Singapore-Asia Taxonomy for Sustainable Finance establishes clear criteria for identifying sustainable infrastructure projects. This standardisation helps unlock additional funding sources from investors seeking green and transition investment opportunities.

Innovative financing mechanisms coupled with the increasing recognition for the need of consistency in standards, has the potential to unlock private financing and propel the region's progress towards a greener future.

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3. The compelling case for investing in brownfield assets

It is becoming increasingly evident that the transition to clean energy requires a two-pronged approach: scaling up clean energy supply and optimising energy demand. Investing in the performance of existing infrastructure can be a powerful strategy for achieving both goals. Retrofits and upgrades help to increase the lifespan of existing buildings and can be a more sustainable and cost-effective option than constructing an entirely new infrastructure.

One example is Keppel's Energy-as-a-Service (EaaS) model, which enables building owners and tenants to subscribe to energy usage and management services without upfront capital investments. Keppel designs and retrofits existing chilled water systems to improve efficiency, leading to substantial energy savings and reduced operational costs. For instance, Keppel's EaaS project at Centara Watergate and Watergate Pavilion in Thailand is expected to achieve over 23% in cost savings over the project's 20-year lifespan. Additionally, it will reduce carbon emissions by over 18,000 tonnes.

But the potential goes beyond commercial buildings. Industrial facilities like factories and treatment plants also present rich opportunities for retrofitting and upgrades. By making these existing assets more efficient, we can reap significant environmental and economic benefits. Dive deeper into the growing potential of brownfield investments in our 2023’s ASIA Panel Report.

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4. Leveraging both proven and new technologies are key to scaling sustainable infrastructure development

Building upon the advancements of recent years, digital solutions like data analytics and artificial intelligence (AI) monitoring continue to be crucial in boosting sustainable infrastructure projects. They pave the way for smarter and more responsive infrastructure that minimise resource consumption and maximise impact. Take Lippo Malls in Indonesia as an example. Partnering with an energy services company, G-Energy Global, it managed to achieve the EDGE green building certification last year for two of its malls. Through rainwater harvesting and smart faucets, the malls were able to increase energy savings by over 20% while reducing water usage by 30%. With energy efficiency being a key point of focus for Asia’s decarbonisation pathway, digitalisation will continue to help building owners and developers optimise energy, leading to smaller carbon footprint and cost savings.

Together with established technologies, exploring innovative solutions like hydrogen fuel will also be crucial for meeting ambitious net zero targets. With an estimated USD 500 billion worth of hydrogen projects planned globally by 2030, the potential is vast. Hydrogen offers a cleaner alternative for hard to abate sectors like steel, petrochemicals, and fertilisers, where emissions are notoriously difficult to reduce.

While still in its nascent stages in Asia, hydrogen holds immense promise for decarbonisation and sustainable infrastructure development. The Hydrogen Declaration of Intent at COP28, with 27 countries agreeing to endorse a global certification hydrogen standard and recognise existing hydrogen certification schemes, further reiterates the importance and momentum behind this cleaner alternative fuel.

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5. Regulatory reforms are needed to achieve ambitious net zero targets

Ambitious net zero targets and international pledges like COP28's commitment to triple renewable energy capacity and double the annual rate of energy efficiency improvements to 2030 paint a promising picture. Asia is also seeing encouraging progress. India's clean energy transition is an example of this regional resolve, having gone beyond its COP21 commitment by achieving 44% non-fossil fuel power capacity well ahead of schedule. This rapid growth of solar and wind in India's energy mix offers valuable lessons for the rest of the region.

Despite these positive developments, the gap between ambitions and reality remains stark. Asia's economic growth continues to be heavily reliant on fossil fuels, putting the region on track to deplete the global carbon budget for a 1.5°C future by 2040. Robust governance reforms are crucial to bridge this gap.

Implementing clear policy measures like preferential tax treatment for green buildings or penalties for non-compliant energy-efficient standards can incentivise sustainable choices and discourage fossil fuel dependence. Additionally, robust enforcement mechanisms and transparent reporting requirements are essential to ensure intentions translate into tangible results. The Philippines stands out as a promising example with it extending foreign ownership to 100% for renewable energy projects. The country’s second green energy auction held last year awarded 3.4 GW of renewable capacity, where 1.2 GW was set aside for ground-mounted, rooftop solar, and onshore for 2024 to 2025 and 2.2 GW for 2026.

We believe that infrastructure investment will continue to be the cornerstone to accelerate progress towards achieving our UN's Sustainable Development Goals. But the diverse and complex landscape of Asia demands a rethinking of our approach.

This ties in with our upcoming Asia Infrastructure Forum (AIF) 2024, happening on 4 to 5 June, which invites all stakeholders to embrace fresh perspectives, solutions, and strategies for sustainable infrastructure development. Together, we can identify novel solutions and forge strategic partnerships to help propel Asia in making more assertive strides towards its sustainability targets, building a future where economic prosperity coexists with environmental responsibility.

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