Southeast Asia could emerge as clean energy heavyweight in global race to decarbonise

Southeast Asia, once regarded as a “slow starter” relative to the advanced economies in the clean energy transition, has sharpened its act and could emerge as a heavyweight in this multi-faceted race over the next decade. But if the region really wants to swing the needle on decarbonisation efforts, it should pay just as much attention to retiring its polluting fossil-fired plants, say experts.

“It’s one thing to say a country will implement renewable energy, but it’s altogether different to say it will start to proactively retire the highest carbon-emitting power plants as early as possible. It’s better to do both things,” said Sharad Somani, KPMG Asia-Pacific’s partner and infrastructure head. The power sector accounts for around 40 per cent of the region’s energy-related emissions.

Among ASEAN nations, Indonesia, Malaysia and the Philippines have the highest shares of coal-based electricity while Singapore and Thailand have a high share of natural gas-based electricity, according to Maybank Investment Banking Group’s sustainability research head Jigar Shah. Coal and gas-fired power plants are the region’s key sources of electricity today.

Shah added: “There are existing large investments in coal and gas related energy infrastructure in most key ASEAN markets. It is not easy to do away with these investments (as) there are jobs associated with it directly and indirectly.”

As ASEAN’s energy demand is set to grow rapidly, the generation share of renewable energy sources is expected to rise from 2 per cent in 2020 to 23 per cent by 2025. While this may appear ambitious considering the current scenario of 1-2 per cent, Somani referred to it as a “low-hanging fruit”.

He explained: “The reason I say it’s a low-hanging fruit is because it does not necessarily require effort to accommodate costs, which are way beyond what you can afford. Secondly, it isn’t posing any particular grid risk or implementation risks to the utilities... as it is tried and tested.”

To further raise the share of renewable energy over total energy capacity, countries need an “energy transition mechanism” that includes retiring fossil-fired plants early, chiefly the most inefficient or “subcritical”, said Somani, who deemed this as the “biggest agenda” facing the world, and one that is currently further challenged by geopolitical headwinds and a global energy crunch.

Clearly, the green energy transition is going to be a “long, multi-decade journey” and both fossil fuels and green sources from solar and wind to electric vehicles are going to co-exist for an extended period of time. Towards this end, Bain & Company’s global sustainability innovation centre partner and co-director Dale Hardcastle said there is a need to “strike the balance to be able to attack both sides” of the energy transition equation to meet carbon neutrality targets.

“I think there is a bias to look for silver-bullet solutions as we focus on (going) green. But if we want to have any sort of hope of delivering decarbonisation goals such as the COP26 promises, we need to attack both sides of the problem,” he said.

Thailand, Vietnam, Malaysia and Laos are aiming for net-zero emissions by 2050 while Singapore hopes to get there by or around 2050. Indonesia, one of the world’s largest coal producers, has set 2060 to hit its zero-carbon goal, while the Philippines has not made any net-zero announcements.

According to the International Energy Agency (IEA) in a recent report on the region’s energy outlook, energy demand in Southeast Asia has increased on average by around 3 per cent a year over the past two decades. This trajectory is expected to continue to 2030 with 3 quarters of this increase met by fossil fuels, leading to a near 35 per cent increase in carbon emissions.

Between 2000 and 2020, demand for coal, long a traditional cheaper power source for Southeast Asia, expanded by a factor of six, and its share of total energy supply increased from 8 per cent to 26 per cent. Over the same period, energy supplied by renewable sources more than doubled, almost all of which comprised modern bioenergy, geothermal energy and hydropower, although solar photovoltaic and wind use have also upped in recent years.

Accenture managing director and utilities lead for Southeast Asia, Sean Lim, pointed out that about 82 per cent of new power capacity added in 2020 was renewable, led by a massive renewable push (mostly solar) from Vietnam. Somani deemed Vietnam’s efforts over the last 2 years to implement 16GW of renewable projects as “the largest installation by any single country in the region in such a short time frame”.

“Southeast Asia’s push to adopt clean energy has not gone unnoticed,” remarked Gilles Pascual, EY Asean power and utilities leader, pointing to a report by EY on the Renewable Energy Country Attractiveness Index (RECAI) released in May.

The Philippines, Vietnam, and Thailand rose up the ranks of the world’s top 40 markets in terms of investments and opportunities in the renewable space. Indonesia emerged for the first time in the latest rankings after setting ambitious renewables targets and policies to retire diesel and coal power plants.

The report noted as well that Malaysia was consistent in procuring large commitments from solar energy; Vietnam has more than doubled its renewable energy capacity between 2016 and 2020 to over 35,000 megawatts (MW); the Philippines has announced a 2,000MW renewable energy auction; and Thailand’s next wave of renewables capacity addition would be something investors can look forward to. Land-scarce Singapore also increased its renewable energy production by more than 50 per cent in the same period, said Pascual.

Accenture’s Lim said: “But with Southeast Asian countries at disparate stages in their development and sustainability journeys, the different geographic and economic conditions will mean unique challenges – as well as opportunities – for each country. For example, countries that are considered behind the curve have opportunities to leapfrog and learn from others as they push for renewables expansion.”

Somani believes no individual country in the region can reach a net-zero decarbonisation goal on a standalone basis. “All the countries have to collaborate (to) create an energy grid. Policymakers and associations have to come together to talk about integrating both the electric and fuel grids in the region to ensure energy security,” he added.

Even so, renewable energy protectionism by certain countries in the region could dampen integration hopes.

Said Bain’s Hardcastle: “We definitely see competing constraints in thinking about renewable strategies across different countries. Many countries want to attract more investments from overseas, but they also want to democratise solar and wind development in the wider economy... (and) build local champions. Of course, they (also) need to manage the complex issues of a transition with the incumbents.

“So, I do think some of these competitive concerns get in the way of the scaling and acceleration of more projects and investment.”

Towards this end, the ASEAN power grid plays a pivotal role as it shapes innovation and cross-border power flows in the renewable energy space based on a more “regional mindset”.

Most experts reckon the next decade is going to see the Southeast Asian energy landscape fundamentally change, and that includes the cost of clean energy as well as job generation.

Maybank’s Shah said: “Over the next 10 years, there will be a lot of acceleration; if renewables’ (solar and wind) share of total power generation needs to rise 4 to 5 times in the next 3 decades, the investments need to take place now. Many ASEAN countries are committed to reducing their energy intensity by 50 to 55 per cent by 2030. That too would ensure a much larger investment into green energy than in earlier decades.”

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