VPower Group, which completed a $208 million initial public offering in Hong Kong last month, plans to invest heavily in a relatively untapped market where it sees huge potential for businesses.
The company manufactures small-scale generators, but is now going beyond that, offering large banks of its generators as a temporary power station — providing electricity in spots that lack a connection to a centralised power network.
“At the moment, all of the world’s temporary power suppliers together produce only about 10% of the demand globally,” Rorce Au Yeung, co-chief executive officer of VPower, told FinanceAsia in an exclusive interview. “This market segment is underpenetrated and you can see the vast potential for us to do business here.”
Au Yeung was specifically referring to the provision of interim power supply for industrial projects, particularly in emerging markets, that require electricity ahead of the development of large-scale infrastructure projects.
“Many infrastructure projects in emerging markets cannot afford the lengthy process of building large-scale power plants,” Au Yeung said. “Our products cater to their needs because we can set up power stations for them within a short period of time.”
Fast-track power supply
Hong Kong-headquartered VPower manufactures distributed power generators, commonly known as gensets. Fuelled by diesel and natural gas, they can serve as an alternative to centralised power plants.
The gensets and ancillary equipment are integrated in a soundproof canopy about the size of a standard shipping container. They are designed to be easily deployed and removed.
VPower has been manufacturing and selling integrated gensets since 2001 but it was not until 2012 that it started undertaking interim electricity power supply projects – shipping generators to a particular location and charging a tariff for electricity use. It is able to gain a competitive edge because it can build a power station quickly by deploying multiple gensets to a site, Au Yeung said.
“We have an edge over large-scale power plants because our power stations require less time for planning and construction, and face less stringent environmental impact assessment,” Au Yeung told FinanceAsia. “We can deliver our projects within two to twelve months, while large-scale power plants could take years.”
Bankability is one of the difficulties of developing large-scale power stations. Since these projects will be in operation for several decades or longer, it generally requires larger investment and more time for the project owners to set up financing.
In contrast, VPower normally enters into operating agreements with a two- to five-year term and therefore requires less upfront investment.
Strategy
Au Yeung said one of the common misconceptions of the business is that it is a direct competitor to centralised power plants. “In fact, we complement centralised power plants by providing temporary power supply while these large-scale power plants are being built,” he said.
VPower undertakes electricity supply projects in a range of developing countries including Bangladesh, Indonesia, Myanmar, Ghana and Nigeria. While these emerging markets offer potential they also expose it to risk.
In response, the company has purchased insurance to cover any potential political events and natural disasters that may impact its power plants.
It is also minimising risk by working only with local governments instead of private companies, allowing it to record a zero default rate since starting the supply business four years ago.
Au Yeung believes the company will be able to ride on China’s One Belt One Road Strategy and benefit from the increased infrastructure spending in countries along the land-based “Silk Road Economic Belt” and the sea route “Maritime Silk Road”.
It is also a likely beneficiary of the gradual shift of the world’s power mix towards renewable energies.
“Many forms of renewable energies are unable to produce energy at a constant rate. Solar power doesn’t work at night, while wind and hydropower depends on weather and climate conditions,” Au Yeung said. “Consistent and temporary electricity supplies like us could therefore complement these power sources.”
Such shift in power mix may also provide business opportunities in developed countries, such as China, in the long term, according to Au Yeung.
VPower has also been selling integrated gensets in developed countries. Its products are used to generate electricity for some world-famous pieces of infrastructure, including China’s Qinghai-Tibet Highland Railway and Hong Kong’s International Commerce Centre skyscraper.
Au Yeung believes there will be opportunities to undertake projects in developed countries in both the public and private sector in the long term. Yet, in the near term, it will focus on emerging markets where power shortage is much more severe.
Last month, VPower completed the largest IPO from a Hong Kong-headquartered company in nearly two year, since Hong Kong Broadband Network’s $748 million IPO in February last year.
VPower shares closed at HK$3.26 midday Wednesday and are up 13% on the firm’s HK$2.88 listing price.
