<Conference Takeaway> Clean Energy Transformation
Key Management takeaways:

  • Sembcorp Industries (SCI) is well-positioned to contribute to the region’s energy transition and global megatrends – 
    • Decarbonisation – 50% of global power generation is expected to come from renewable sources by 2035;
    • Electrification – Electricity demand will double by 2050, driven by increase in demand for electric vehicles and electrification in buildings; and 
    • Asia Urbanisation – Asia’s urban population is projected to rise from 50% of total population in 2018 to 66% in 2050.
  • Currently, SCI has 3.3GW gross capacity in renewables, of which ~73% is wind in India & China, 23% is solar in India, Singapore & Vietnam and remaining is energy storage system in UK.
  • SCI is amongst the top companies in Singapore for corporate governance, ranked 8th out of 577 Singapore-listed companies in the Singapore Governance and Transparency Index (SGTI) 2020. It also has a good ESG score, rated A by MSCI ESG Ratings

Key data points to watch for

  • SCI plans to transform its portfolio from brown to green, quadrupling its renewable portfolio to 10GW by 2025, from 2.6GW of wind and solar capacity, in Southeast Asia, India and China as of end 2020. This shall lift renewable as % of total energy capacity from 20% to >50%. Coupled with urban business, sustainability solutions are expected to contribute to 70% of group earnings by 2025.
  • SCI plans tospend S$5.5bn capex in 2021-2025. This will be funded by debt (50%), as well as internal cash flow and capital recycling (50%).
  • SCI aims to achieve double-digit ROE and significantly improve capital management by 2025. This will be achieved through 5-year CAGR of 30% for renewables and 10% for integrated urban solutions, less ~S$100m loss of income resulted from potential divestments, capital recycling and expiry of contract / concessions.

Frequently asked questions

  • India operations. There is little impact from resurgence in India COVID cases this time round.In fact, power demand is rebounding strongly in China, not only back to 2020 level but also above 2019 level.
  • ROEs for renewable. Renewable assets have average life span of 25 years. Return tends to be lower around mid-to-high single digit in first 5-years due to production ramp up and financing cost; gradually improves towards mid-teens after 5-years and potentially 20% or so after 15-years.
  • Capital Recycling. Mature, stabilised sustainable solutions assets could be divested to recycle capital and fund growth pipeline for returns uplift. Obvious targets are the less core assets and coal-fired plants.SCIshall not be investing in anymore coal assets as company pivots towards clean energy.
  • Equity raising. There is no pressing need to raise new equity money as there are other options available to SCI such as green financing market and capital recycling.
  • Dividend policy. SCI aims to reward shareholders with stable dividends as well as by other means such as energy transformation.