Cleantech rising in Southeast Asia
US and European-based firms currently lead the cleantech landscape but growing investment in Asia Pacific heralds a shift that could accelerate the market in Southeast Asia
Many of us love eating fast food because its tasty and convenient but some of us still worry about the waste generated though many outlets now use paper or plant-based packaging to reduce plastic pollution. Nevertheless, the problem of waste remains, just in a different form.
Imagine if there were a way to repurpose food and packaging waste into something useful? This would reduce the amount of waste and by extension, provide a breather to a planet already inundated with the leftovers of modern consumption.
A cleantech firm in Singapore is closing the loop for fast food chain outlets by recycling food and plant-based packaging waste into fertilisers for agriculture use. Tria started a pilot run with KFC in June 2022 and made an award-winning pitch in October 2022 to work with the Singapore Airport Terminal Services (SATS) to revamp its catering operations, part of which includes replacing plastic wares typically used for food packaging.
Cleantech, or clean technology, covers all the clean and green technologies that address the critical challenges of humanity, such as climate change and sustainability. The term climate tech has also been used to refer to technologies more specifically related to climate change mitigation and adaptation such as renewable energy, carbon storage and electric vehicles (EV).
Global cleantech market in 2023
Investment in global cleantech in the first half of 2023 fell by 18.1% to US$11.3 billion from US$13.8 billion for the same period a year ago (see Figure 1). This, despite the volume of deals rising to 683 from 619 for the same period. However, investment in the energy sector seems to be on a steady trajectory since the COVID-19 lockdowns and this signals a true transition to renewables, according to Cleantech Group. Investment in energy totalled US$3.1 billion in 1H 2023 after seeing a downward trend from the third quarter of 2022.
Other sectors have yet to recover to their pre-pandemic levels but if based on the numbers for the first half of 2023 alone, investment in the energy sector is followed by transport & logistics (US$2.7 billion); and resources & environment (US$2.0 billion). Examples of resources & environment technologies include plastic recycling, carbon capture usage and storage (CCUS) and carbon offsets, and mining.
In the US, venture capitalists opine that cleantech saw a smaller decline in funding in 2023 compared to overall funding due to a shift observed in the types of technologies invested and the stage of funding.
In terms of regional trends, Asia Pacific seems to be on track to have its biggest year, driven by a fast-maturing electric vehicle value chain and an appetite for risk in baseload power and long-duration energy storage investments (see Figure 2). The region’s investment share grew from 15.4% in 2022 to 27.6% in the first half of 2023, making it the third-highest, behind North America (41.7%) and Europe & Israel (28.4%).
While cleantech innovators in Asia Pacific mostly held steady at around 15% of overall global cleantech venture and growth investment over the past 5 years, that figure jumped to over 30% in the first quarter of this year. This is notable, given that in 2022, North American cleantech venture investments slipped 4% from a record year in 2021, with overall global growth still attributable to Asia Pacific and Europe.
The sharp increase in the share of investment for Asia Pacific is underpinned by higher investments in the energy sector; and transportation & logistics.
Energy has been the engine for growth in Asia Pacific over the past two years, compensating for a decline in investment in enabling technologies. Examples of enabling technologies in 2022 include complete solutions for supply chain management and new business models using geospatial imaging.
China remains the dominant source of energy innovation within the region, securing almost 60% of all cleantech fundraising. The country’s substantial activity in energy storage has enabled the region’s shift toward more upstream energy and materials innovation strength versus what was previously mostly downstream applications in vehicles and mobility services.
In India, there is prominent activity in electric mobility, as homegrown electric solutions such as electric three-wheelers and scooters raised rounds upwards of US$60 million from the first quarter of 2022 to second quarter 2023; but some early cases in battery materials companies attracting global investment may shape future trends.
Cleantech market in Southeast Asia
Southeast Asia, along with the Indian subcontinent and Sub-Saharan Africa, are projected to overtake China, North America and Europe as the key drivers of world energy use through 2050, and thus the need for multiple stakeholders (including cleantech firms) to accelerate the transition to renewables and other forms of climate change mitigation and adaptation.
Cleantech firms from Singapore and Indonesia represented the Association of Southeast Asian Nations (ASEAN) in the APAC Cleantech 25 Report (2023 edition).
From the list, we can see the major players of cleantech in the Asia Pacific region are from China, India, Australia and Singapore. The table below provides brief info about each of the cleantech firms from ASEAN in the list.
The companies above are just a small glimpse of the growing and diverse cleantech market in Southeast Asia. There are cleantech firms that have been in the business for decades and quietly doing the good work in biomass, agriculture and energy efficiency. No doubt the most prominent in the region currently are solar/clean energy firms, and the suppliers and manufacturers of renewable energy materials.
The region manufactures a substantial amount of materials needed in renewable energy technology. Thailand, Vietnam and Malaysia contribute up to 10% of the world’s production of solar photovoltaic (PV) cells and modules, according to a March 2023 McKinsey report. For electric two-wheelers (bicycles, kickscooters and mopeds), ASEAN countries contributes 6% to 10% of global production, primarily from Vietnam and Indonesia. For the batteries that power the technologies for solar panels and electric vehicles, Indonesia and the Philippines collectively produce 25% of the world’s nickel output.
The same report states that Southeast Asia has the potential to unlock up to US$200 billion worth of revenue from the manufacturing of renewable energy technology by 2050. This would, in tandem, create up to six million new jobs by the first half of the century, mostly in the manufacture of solar panels, two-wheeler electric vehicles and batteries.
These projections could spur the growth of cleantech in the region, which has seen a rise in funding activities. Radical Fund announced on 21 July it had secured the first close of its target US$40 million (RM182 million) fund. The venture capital fund is investing between US$250,000 (RM1.1 million) to US$800,000 (RM3.6 million) in pre-seed, seed and pre-series A founders in ventures across Southeast Asia that are scaling solutions across climate adaptation and mitigation.
Other recent announcements indicate a positive development for climate tech in the region:
- ViriyaENB — Indonesia’s first climate foundation announced its first round of partnership on 1 August 2023. Its initial funders include heavyweights such as Bloomberg Philanthropies, ClimateWorks Foundation, IKEA Foundation and Sequoia Foundation. The foundation will focus on the energy sector in its initial projects with one focusing on green hydrogen.
- ADB-Korea Climate Technology Hub (K-Hub) — In the first of three agreement signed between the Asian Development Bank (ADB) and South Korea in May 2023, the two parties agreed to establish the ADB-Korea Climate Technology Hub (K-Hub) in Seoul to connect ADB’s developing member countries to cutting-edge climate technology, experts, service providers, and other stakeholders in the climate tech ecosystem. Through the K-Hub, developing member countries will be able to access and implement solutions to challenges posed by climate change. In the third agreement, South Korea will contribute US$5 million to the Asia Pacific Project Preparation Facility (AP3F), a multi donor trust fund which provides technical support to developing member countries for the preparation of sustainable and inclusive public-private partnerships (PPP) projects to fill the infrastructure gap in Asia and the Pacific.
- International financing mechanisms — the Just Energy Transition Partnership (JETP) is a partnership whereby developed nations fund a coal-dependent developing nation to support the country’s own path to phase-out coal and transition towards clean energy while addressing the social consequences. The mechanism was first announced at the 26th UN Climate Change Conference of the Parties (COP 26) in Glasgow in 2021. In November 2022, Indonesia was announced as the recipient of US$20 billion in public and private funding over the next three to five years. Vietnam was announced as the third JETP recipient in December 2022 (South Africa was the first JETP recipient). Vietnam will receive US$15.5 billion in initial funding for the next three to five years. The country is expected to publish its JETP Resource Mobilization Plan (JETP — RMP) by November 2023. The JETP is expected to fund more countries and donor countries have apparently met with the Philippines, India and Senegal.
The three announcements listed above are intended for climate change mitigation and adaptation in general, and may not necessarily lead to funding for cleantech startups specifically, but there is a decent chance that part of the funding will flow to the cleantech market.
Public funding can be crucial for early-stage companies due to the longer time horizons for product development that would likely test the patience of most venture capitalists and the need for regulatory support for low-carbon energy, which often progresses alongside the related technologies. There is a role to be played by public interventions, such as bridging the gaps during the tricky and risky expansion periods of cleantech firms.
Collaboration between countries, as exemplified by ADB’s Korea Climate Technology Hub (K-Hub) and Asia Pacific Project Preparation Facility (AP3F), are another way to receive funding support and upscale clean technologies. Cross-border financing can help new technology reach markets, especially in other low- and middle-income countries where it can solve similar societal challenges. In general, low- and middle-income countries tend to have lower availability of local risk capital for energy technologies, and many start-ups are reliant on international funders.
China having emerged as a key player in the trade of renewable energy products presents a well-placed opportunity for ASEAN countries to partner with, considering the two sides have existing cooperation in other areas. China’s total public investment in renewable energy projects in ASEAN between 2000 and 2020 reached US$31 trillion, accounting for 60% of total foreign public investment in the region over that period.
Towards a robust cleantech ecosystem in Southeast Asia
The cleantech ecosystem in Southeast Asia seems to be gaining traction but there are areas that can be improved. According to the ASEAN Centre for Energy (ACE), for the clean energy sector to thrive, ASEAN countries should focus on providing an enabling environment for investment, particularly supportive institutional and regulatory frameworks. Some examples are listed below.
- Having a transparent and consistent schedule for renewable energy project auctions — this would allow investors to align their project timelines with the scheduled auctions and to better allocate project development costs.
- The streamlining of lengthy licensing and permitting processes — the prolonged permit process can pose project delay risks to investors and inflict additional transactional costs during these processes. This may reduce the projects’ attractiveness, which discourages private investment.
- Realigning public budgets to support the clean energy transition — the private sector involvement plays a key role in achieving the regional targets of the clean energy transition but public finance remains much needed. Public finance can signal the government’s commitment to the clean energy transition agenda and help de-risk investment in renewable energy.
- Creating an enabling domestic environment to attract investment in electric vehicle product manufacturers — ASEAN member countries such as Indonesia possess critical minerals for EV production and this is a draw to investment. Leveraging this would enable member countries to participate in the value chain of EV products.
The above examples can also be extended or adapted to other clean technology sectors apart from energy.
As for the materials essential for the clean technology market, the Asia Pacific economies would do well to heed a call by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) to foster climate-smart trade and investments. This comes as environmental goods (solar panels and wind turbines) continue to face higher tariffs and more trade barriers compared to carbon-intensive fossil fuels.
UNESCAP data found that in 16 out of 26 economies in the Asia-Pacific region, the average applied tariffs on carbon-intensive fossil fuels were lower than those on environmental goods.
A climate-smart trade and investment landscape can be nurtured through policies such as liberalising trade in environmental goods; addressing cross-border trade inefficiencies; setting emissions standards for imports; and addressing other wasteful subsidies. Governments will eventually need to phase out fossil fuel subsidies and establish strong carbon pricing mechanisms.
Staying the course
Enabling a market that encourages the rise of cleantech firms, however, must come with guard rails that ensure the rush towards decarbonisation does not come at the expense of the problems they were meant to solve.
For example, biodegradeable plastics that are supposed to address plastic solution should undergo rigorous testing to ensure it does not cause more harm to the environment; the setting up of a solar farm should not involve large-scale deforestation, particularly in a major biodiverse area; clean energy should be safe, accessible and affordable; the electricity used to charge electric vehicles should not come from fossil-fuel generated power plants; and most importantly, the mining of minerals needed to drive the transition to renewable energy should not be done in a manner that degrades nature, disrupts local communities and violates human rights. Lastly, cleantech should not be used as a so-called silver bullet to allow certain parties to continue their high-emissions pathways such as those that use carbon capture to justify the continued drilling for oil and mining for coal.
And then there is the issue of greenwashing. The term means the act or practice of making a product, policy, activity, and so on, appear to be more environmentally friendly or less environmentally damaging than it really is. This article provides great examples of greenwashing that occurred in 2021. There are currently insufficient laws to protect against greenwashing but this should be looked into by policymakers. For the rest of us, if we happen to be an investor in a cleantech firm, or consumers of a product based on clean technology, we should ask the right questions.
In the race towards decarbonisation, we must not lose sight of the objectives.
