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Perspectives: Financing new energy and infrastructure
0 Playsin 16 hours
Sir Danny Alexander, CEO, HSBC Infrastructure Finance & Sustainability, and Eric Francia, President and CEO, ACEN, join Zoë Knight, HSBC’s Global Head of Sustainability Research and Integration, for an insightful conversation on financing sustainable infrastructure.
Watch or listen to their discussion about the new energy economic multiplier impact, barriers to project finance, and the innovative solutions that can help catalyse financing for sustainable infrastructure.
This episode was recorded on the sidelines of the HSBC Global Investment Summit in Hong Kong on 26 March 2025. Find out more here: grp.hsbc/gis
Disclaimer: Views of external guest speakers do not represent those of HSBC.
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Transcript
Introduction to Sustainable Infrastructure
00:00:05
Speaker
Welcome to Perspectives from HSBC. Thanks for joining us. And now, on to today's show.
00:00:14
Speaker
Hello, I'm Zoe Knight. I'm the Global Head of Sustainability Research and Integration at HSBC Global Research. And I'm joined today by Sir Danny Alexander, the CEO of our HSBC Infrastructure Finance and Sustainability team.
00:00:32
Speaker
and Eric Franchier, the CEO and president of Us Incorporation. So today we're going to cover several topics around the opportunities and risks relating to sustainable infrastructure.
Role in Achieving Net Zero by 2050
00:00:45
Speaker
So I'm going to kick off with a question to you, Dani, which is really what is the role of sustainable infrastructure and what is the opportunity in this space? Well firstly, Zoe thanks for having me for this ah this this this this podcast.
00:01:00
Speaker
Sustainable infrastructure is a huge opportunity. If you think about and the needs and in the world towards the net zero transition, we're talking about trillions of dollars per year, maybe five trillion dollars per year globally by 2030.
00:01:13
Speaker
like twenty thirty And that's across a range of sectors, mainly energy related, ah clean energy, power grids and and and and distribution systems, energy storage, ah but also green transportation, electric vehicles, um you know across the across the range of areas.
00:01:31
Speaker
When you look at the analysis of the net zero transition, actually about 80 to 90% of the investment needed worldwide it for to achieve net zero by 2050 is infrastructure of one kind or another.
Economic Impact of Sustainable Investments
00:01:43
Speaker
um And then of course there are other drivers. You look at the digital transformation, investment in data centers and the and the power needs there. So rather than global and electricity consumption um you know growing steadily, we're seeing a much, much faster increase driven by technology, driven by needs of development, especially in the in the in the developing world.
00:02:03
Speaker
And so sustainable infrastructure will help us to make sure that the power that's generated to meet those needs is is clean, it's sustainable, and increasingly it's the cheapest form of power generation around as well.
00:02:15
Speaker
Well, that's certainly a massive opportunity and in in the trillions. Eric, are there any other benefits that we see um as well as the pure investment potential?
00:02:27
Speaker
Well, to state the obvious, the multiplier effect of those trillions of dollars. ah In the case of the Philippines, our home market, the Department of Energy estimates that the country would need around $500 billion dollars orders of magnitude in the next two decades to enable a successful energy transition. And you could imagine that's already the size of the ah banking assets today. Gosh. Right? so So it just goes to show that that we need to tap international funding as well over time.
00:03:01
Speaker
So, but apart from the obvious economic multiplier impact, which is quite significant, I think the the job creation is also significant. Those green jobs. There's estimates out there that put it at around ah more than 30 jobs created per megawatt.
00:03:20
Speaker
And we're talking about a few thousand megawatts per year that we need in in a country like Philippines. But, you know, we we span across the region as well. our Our company is and is also in ah Vietnam, Laos, Indonesia, Australia, India.
00:03:35
Speaker
So and again, we we typically ah build around 1000 megawatts per year. We're now at 7000 megawatts and counting. So you can imagine the the job impact as well. So it goes beyond just providing clean electricity, goes beyond the multiplier effect, but also goes deep into the community and the social impact.
Financing and Incentives for Clean Energy
00:03:56
Speaker
I think this point you're touching on about the people impact is a really important one. One of the pieces of work that we're doing at HSBC is looking at how the net zero transition will be delivered and the value disruption linked to this. And without bringing people along, it's really difficult to make the the transition at the speed that is necessary to to help us with our climate goals. So it's it's really useful to hear you talk about that.
00:04:22
Speaker
um Danny is there another way of thinking about how we finance the transition. I mean so far companies have been sort of setting targets for financing.
00:04:33
Speaker
ah How is how is this financing metric evolving into thinking about the old fossil to new clean funding requirements. one of the ideas that's that's emerging is about the ratio between and your clean investments and investment in other older energy sectors and that that ratio measures um in a sense how much you're you're doing in the in the new sectors that are that are that are emerging and so I think has the effect of incentivizing more financing,
HSBC's Infrastructure Investment Plans
00:05:04
Speaker
right?
00:05:04
Speaker
For HSBC Infrastructure Finance, the business that that I lead, you know we have plans to substantially increase our investment in infrastructure and especially investment in infrastructure related to the to the net zero transition.
00:05:16
Speaker
renewable energy, storage, um EVs, also some of the emerging sectors. So think it's another benefit of of this of this um of this transition, but it's also incentivizing innovation. it's and And I think it's encouraging the the the speed of innovation and the speed by which new innovations are are brought to maturity and then scaled across the market to be much faster. And and so I think that but you know financial institutions like HSBC, we have a strong commitment in this space. But in a sense, you know we need to really now step up our efforts to to see this as a crucial commercial opportunity, um as as well as one that's around kind of policy commitments and and measurements.
00:05:56
Speaker
That makes a lot of sense because we know that the the volume of capital requirement is huge and we've known about the climate problem and and what to do about the climate problem for a long time but we're just not moving at the pace that's required. So what really are the the risks in terms of of project delivery and what sort of barriers have you seen in this space Eric in terms of the practicalities of of how ASIN is working?
Policy Challenges in Energy Transition
00:06:21
Speaker
Well, there's quite a few, right? the Number one is the the policy. it It really differs by by market, by region, and so forth. But at the broader level, policy is emanating from the United States just to make it very current.
00:06:37
Speaker
do have some impact, not not a great, great deal, but you know elevated interest rates do have some ah do create some headwinds for the rollout of renewables, given that 90% of the levelized cost of electricity of renewables is really capex-related, right? Because it's zero fuel. So mostly it's capex and a little bit of opex. So we're very sensitive to the cost of capital and the sort of liquidity of the financial markets.
00:07:07
Speaker
There's also infrastructure or the lack thereof, right? the the This energy transition is very demanding in terms of upgrading our grid infrastructure that Danny mentioned earlier.
00:07:21
Speaker
and And it's not easy, right? you've got right-of-way issues. um You've got the NIMBY mentality, the not-in-my-backyard. So it's not as easy to build new lines, new transmission lines, or upgrade them because you'll really need to to earn your social acceptance and public support. when Danny was discussing the capital requirements and the ratios, one thing that came to mind is actually, if on a like-for-like basis, we're we're building, we're focused now on renewables as a company, and we're building something that maybe that would be equivalent to a mid-merit gas plant, like 12 hours a day as opposed 24 hours a day.
00:08:01
Speaker
So this is a combination of solar and battery storage. The investment for, let's say, a 400 megawatt ah renewable and storage ah plant is about $1.5 billion. dollars The equivalent of a 400 megawatt gas plant is less than half.
00:08:23
Speaker
but it's It's not because gas is cheaper. the the The capex is cheaper, but then you need to buy the fuel. The lifetime costs now for the renewable option are often cheaper, right? Yeah, versus gas. But it's the big investment out front that needs to be taken care of. that yeah That's correct. yeah that's correct and the the the Again, it's like crystal balling because the the perennial debate is renewables already as competitive versus fossil fuel.
00:08:50
Speaker
You know, I think we we tend to oversimplify that when the sun is shining, it is cheaper, but it's an unfair comparison. If it's not shining, you have to make it more reliable, ah dispatchable and so forth. Once you put in the transmission infrastructure and the storage and so forth, you could argue It depends. It depends on where the gas price and coal price ah is. But the thing is, at least you're assured of energy security because you are harnessing indigenous resource. People harnessing indigenous resource is invaluable. And I think that's one of the strongest propositions of renewable energy as well.
00:09:25
Speaker
think one of the points that you made earlier around um uncertainty and and making sure that there's an enforcement mechanism to make sure that the the mechanism is implemented is really important because we've had experience in the past where investors have been burnt because of um a pullback of subsidization of renewables in Europe. and And that that does create uncertainty. Investors do have long memories. and and it's And it's really important to keep up that sort of that that guidance and that direction, that that the certainty and the policy that is going to play out the way that investors inspect expect.
Insights from Asian Infrastructure Investment Bank
00:10:01
Speaker
So it's a tough one.
00:10:02
Speaker
um Danny, from your previous roles, is there anything that you can tell us about the barriers to project finance in emerging markets, for example, in terms of areas that are holding us back?
00:10:17
Speaker
So before coming to HSBC, I was with the Asian Infrastructure Investment Bank, which is a multilateral development bank. So public ah money goes goes in there. And um you know one of the things we saw there, but and I think it links very much to what Eric was saying about policy regimes,
00:10:34
Speaker
that you can even look around ASEAN, you can see very different policy regimes in different in different countries. And as a result, the the the market is more is is much more or less developed.
00:10:45
Speaker
And one of the things I developed at AIB before i before I moved on was a new instrument for them called climate policy-based financing, where the notion would be to finance the government in exchange for the policy reforms that would be necessary to create the stability of, look firstly, the quality of regulation, secondly, the stability of regulation,
00:11:02
Speaker
that is necessary to to to help the private sector. Because you know for for the for the public resources that those institutions have, of course you can you can do blended finance on a project by project basis, that can be very valuable sometimes.
00:11:15
Speaker
But actually if you can help to and reform the system, then that can make a big difference. you know but Before going there I was a minister in the in the British government. I was part of designing the regulatory regime for offshore wind in the UK, which was ah was ah was a balance between giving clear incentives to investment, whilst also trying to regulate the impact on consumers' bills.
00:11:41
Speaker
um and actually it was extremely successful. After I left office we saw a huge increase in offshore wind investment in in the UK. HSBC is has then supported a lot of those those those projects over the years.
00:11:53
Speaker
um And it's it's a good example where if you get the regulatory framework right and of course the stability that Eric talks about, then that can make a big difference to to to to private investors. um mean I mean I also think that we do see a lot of political noise around some of these issues.
00:12:10
Speaker
and And I think that that in a sense, we have to look through the noise to both the scale of the opportunity globally, but also I think to to move this from being something which is really political talking point to being ah ah considered primarily as a commercial opportunity.
Scaling Up Infrastructure Finance
00:12:28
Speaker
What can we do to go faster? What are the solutions looking like to unblock these these niggles that we have in terms of driving this forward? um Danny, if I may continue with you for a second, you know what's HSBC doing to catalyze this transition? you know what what what are we what have What have we got in place that helps us move this forward?
00:12:51
Speaker
Well, to start with with, we're scaling up our infrastructure finance business with this with this in mind. So um we'll be providing more finance to more infrastructure deals around the world. so um you know And I think that HSBC is very well set up for this ah agenda because if you look at the markets where we're strongest here in in Asia, in the Middle East, and where we have ah an amazing presence dating back 160 years some cases,
00:13:17
Speaker
in some cases um then that's where the the the investment is needed most. It's where you see the growth in electricity demand. It's where you see the need for energy transition and the opportunities for for for for clean energy to be strongest.
00:13:32
Speaker
And then a lot of it is happening across the corridors, you know Asia, Middle East corridors ah within within within Asia, where again HSBC is kind of uniquely well positioned.
00:13:43
Speaker
But in addition to that, we're also building platforms um to to help mobilize investment. So I think blended finance is going to be very important in some markets.
00:13:54
Speaker
we've We've worked with our partners in Temasek to create a platform called Pentagreen. and That's now mobilizing finance from a number of development finance. institutions where the focus is really on what what we call marginally bankable projects. Those projects that maybe just have a few things that need to be fixed to get them to the point where they can be financeable. So this blended finance platform should bring a lot more projects to across ASEAN and South Asia, a lot more projects forward that can then be you know bankable in in the in the in the private sector.
00:14:24
Speaker
Well, there's a lot of work going on there. Eric, what about um any innovative mechanisms that you've come across, across ASEAN in the work that you're doing?
Early Coal Retirement and Transition Credits
00:14:34
Speaker
Yes, absolutely, um ah including innovations in financing. we We at ASIN have supported the pioneering work on early coal retirement, um which could be a controversial topic. i often get asked, you know why retire a coal plant that when the country is growing strongly in terms of electricity demand, right?
00:15:04
Speaker
especially in this part of the world now. the The thing is we are well behind our climate targets and it's easy to make an excuse that in Asia, which by the way accounts for around 80% the plants globally between China, India and Southeast Asia, that's where the bulk of it is.
00:15:28
Speaker
And coal plants account for about 20% of global emissions. right So we need to do something about it, and it's not in our in our DNA to to just say it's not our problem, and therefore we'll continue business as usual. Now, it does require some support, and there is some um intent and and underwriting that's already been announced with the Just Energy Transition Programs, JETP.
00:15:57
Speaker
The ADB, Asian Development Bank, pioneered, pushed for the concept of energy transition mechanism as an innovative mechanism that entails the leveraging of low-cost purpose-driven financing to enable the you know buyout of coal plants with the purpose of shutting down coal plants earlier than their technical life.
00:16:20
Speaker
We love the concept because as ASEN shifted from a fossil fuel focused company in our first five, six years of existence, ah that was 2011 to 2016, we made the pivot in 2017 to start divesting our coal plants and basically go all in on renewables and go beyond the Philippines as well. So inspired by ADB's ETM, we said, look, we think this can be done.
00:16:43
Speaker
um even onshore because it's a modest size coal plant that we're shutting down through this mechanism. It's 246 megawatts in the Philippines. We were supported by both banks and insurance companies, both on the debt and equity side, and we made it happen. So we closed the first world's first market-based energy transition mechanism in November 2022.
00:17:02
Speaker
It didn't entail any subsidy. It's really a smart financing ah mechanism where we divested the coal plant, but we as the sponsor, ASEN, committed to enable the shutdown of the coal plant after 25 years of operations, which is in 2040.
00:17:19
Speaker
COPLANS typically last for 40, 50 years. But we got financing for that, and we were able to recycle the capital into renewables. Now we're being more more ah bold ah because the ADB encouraged us to accelerate further from 2040 to 2030. Why? Because if we are to meet our 1.5 degrees target, half of the world's co-plans need to be shut down between 2022 and 2030. A daunting task, mission impossible, but challenge accepted. So we said, but we need another mechanism. The ETM will not work to to to further accelerate that by 10 years, shutting down a co-plant at year 15.
00:17:57
Speaker
And this is where the notion of carbon credits or transition credits, ah which is a form a high integrity form of carbon credits. And this is being pushed or led by no less than the Monetary Authority of Singapore and the Rockefeller Foundation banded together and selected our project to be the world's first pilot project for transition credits. It's exciting new space.
00:18:22
Speaker
It will be done under Article 6, which is also relatively new. ah But I believe that there is a huge opportunity in terms of the international cooperation using Article 6 framework to ensure ah high integrity, high quality projects because integrity is now a key question on carbon markets, right?
00:18:41
Speaker
But with credible institutions like MAS, I think, and it's exciting. We're learning a lot. So we're hoping that we could have a proof of concept that that this project can work this early coal retirement and that it can be replicated and scaled up as well.
00:18:59
Speaker
That's particularly interesting. And so for those of our listeners that are maybe not as close as we are to the Paris Agreement, yeah Article 6 is the mechanism about carbon credits and how countries can use them um ah in terms of trading for all there to meet their climate goals. Thank you for elaborating. That was well synthesized. i think it's really impressive the leadership that you've shown in that in that area. And I mean precisely to your point,
00:19:26
Speaker
um we have to create scalable mechanisms that enable that to happen, in ah as you said, in in a high integrity way. you know One-off transactions help to prove the concept, but to get to the scale that's needed, transition credits is is is is is an is an important idea.
00:19:45
Speaker
The contribution that ADB is making is is with their development finance is also very relevant here. um And I think it's...
Viewing Energy Transition as Commercial Opportunity
00:19:54
Speaker
you know, when i look at this agenda, you always feel this combination, you go go to COP meetings, you come away feeling both um a little bit pessimistic because you see that the progress the world is making is not fast enough to meet the the goals that have been set in the Paris Agreement. But I also come away feeling very optimistic because of the amount of innovation that's going on.
00:20:15
Speaker
The new companies, the new ideas that are being developed, the scale at which and the pace at which financing is being ramped up, deployment of of transition technologies, renewables and so forth is being is being ramped up.
00:20:28
Speaker
um But I do think that what's what's important here is to see this issue increasingly through the lens of the commercial opportunity. um And and that that we that we take steps to put the right policy frameworks in place but in in in markets where those aren't as as optimal as they as as it could be.
00:20:47
Speaker
We work much more effectively across public and private sectors where blended finance ah is is is is needed. um And that we understand better the real risks of these projects, but also the risk of not doing it of not doing anything.
00:21:01
Speaker
And I think that way we can really see the the the commercial finance scaling up. I think one of the areas that where where innovation is is is needed, and this is a focus for us at HSBC, is about and increasing the velocity of circulation of our capital.
00:21:17
Speaker
you You know, there there are there are there are large pools of capital out there that want to hold infrastructure assets, performing assets for for for the long term. and And so what we need to do with our capital is support the the the creation of new assets, lend through the construction period and so forth, but then distribute those assets to other partners.
00:21:36
Speaker
And that that that that's an issue not just for HSBC. I think it's an issue for the whole transition. you know that the the the the The faster capital can circulate back to the next project and those assets can be handed on to people who want to be stewards of them for that the long term, the better.
00:21:50
Speaker
And that's something that that we're working on, and international institutions are ah working on, and I believe it's a critical part of the solution to this problem. That's a very interesting way of thinking about the speed of of capital circulation. Eric, what does success look like for you in the next five years and the company?
00:22:12
Speaker
I think from our point of view, Zoe, it's about staying the course and continue to do what we all do best. It's so easy to get lost these days with all the noise. And I think it's critical that we separate the noise from the fundamentals. The fundamental truth in my book is that the energy transition is an underlying mega trend, sustainable trend. It's irreversible.
00:22:38
Speaker
So I think bottom line is, There has to be companies that that that that should remain steadfast. Maybe we we finesse the trajectory, be more realistic, but to me, what's important is we talk less and we do more at the end of the day.
00:22:57
Speaker
That's an incredibly good note to end on. So I'd just like to say a heartfelt thank you to both of you for joining us here today. And I look forward to seeing what happens in the future.
00:23:10
Speaker
Thank you for joining us for this episode of Perspectives. Make sure you're subscribed to HSBC Global Viewpoint to stay connected.