The Association of Southeast Asian Nations (ASEAN), representing 10 countries in Southeast Asia with a gross domestic product (GDP) of almost $2.4 trillion, is one of the most dynamic economic regions in the world and is home to over 630 million people.
ASEAN’s economy is linked to its diverse energy resources, high level of urbanisation and rapid industrialisation. However, the region’s growing economy is facing the challenge of sustainable development as it is confronted with issues such as deteriorating energy security, environmental pollution and insufficient investment. That said, opportunities exist to tackle these issues. Increasing energy efficiency (both supply and demand side), exploitation of renewable energy resources (mostly hydro), and an integrated approach to energy resource management are some of the measures that the countries can adopt to move on a sustainable energy path. Because the options are capital-intensive cooperation and development of appropriate institutional structures and decision mechanisms across the region are urgently needed.
Energy demand in the region is forecast to grow by almost 2.3 times from 789 TWh in 2013 to about 2,200 TWh in 2040. In 2016, the International Energy Agency estimated that an investment of around $2.5 trillion would be needed to supply the region’s projected energy needs between 2016 and 2040. About half of the projected investment will be utilised for the development of the power sector, and the balance will be shared between fuel supply and energy efficiency. For the power sector in particular, the investment requirement stands at $618 billion in generation and $690 billion in the transmission and distribution sectors by 2040.
Sector challenges
The ASEAN region is undergoing a phase of sustained economic growth with increasing urbanisation and industrialisation, which is leading to greater per capita material consumption of all types, including energy. As a consequence, the region will face several challenges related to energy security, investment, energy access and environmental sustainability. Success in addressing these challenges will be more easily achieved if member states work together with a shared vision and a long-term roadmap.
In the coming years ASEAN is expected to consume significantly more oil and natural gas to meet the region’s growing energy demand. With the gradual depletion of domestic reserves, this continuing dependence on fossil fuels raises energy security concerns for the region. After many years of being a net exporter of fossil fuels, ASEAN has steadily become a net importer of fossil fuels. This import dependence will place an increasing fiscal burden on member states.
Singapore, for example, is one of the world’s eight economies without energy resources, and is completely dependent on imported energy. Cambodia’s imported diesel accounts for 90 per cent of domestic electricity production. In general, these countries have relied on imported fuels, so they are more affected by the rise in fuel prices and experience more supply shortages than the other member countries of the region. Meanwhile, other countries such as Brunei, Indonesia, Myanmar and Vietnam are known for exporting energy resources. These countries, whose main source of income is commercial energy, will continue to provide important energy resources to other countries in the region.
However, a surprising fact is that member countries that export energy are not able to provide for their own needs. For example, Vietnam is known as a coal exporter, but has not been able to supply enough coal for its own needs in recent years due to the exhaustion of high quality coal. Ironically, the country has experienced energy shortages due to this.
Given the increasing fiscal burden, the region’s governments alone cannot fund the development of the power sector. In order to bridge the widening financial gap, the member states have been relying on support from foreign direct investment (FDI). However, there has been a gradual decrease in the inflow of FDI in recent years due to the paucity of attractive oil and gas prospects, the low domestic prices of gas and electricity, and the many regulatory obstacles.
In addition, the region’s energy sector is facing environmental concerns as increasing industrialisation has led to an exponential increase in energy consumption, which in turn has caused a lot of damage to the environment. Energy production and consumption cause many environmental problems such as water pollution, deforestation and land degradation. Air quality has experienced a dramatic deterioration due to the emission of greenhouse gases (GHG) from industrial processes. Within the region, the environmental risks posed by coal combustion and the development of biofuels are particularly prominent. ASEAN countries are therefore facing the environmental consequences of their extensive energy use as well as the accelerated growth in energy consumption worldwide. The region needs to take a stand on crucial issues that support further economic growth and also have serious environmental repercussions.
Notwithstanding the structural and economic diversity among the region’s member states, their respective challenges around energy transition can be best met through increased regional cooperation. In terms of energy, regional cooperation has been initiated through cross-border integration of power grids and natural gas pipelines. These measures should be further strengthened to connect large energy generating sources with demand centres separated across international borders. Increased connectivity through physical infrastructure and energy trading will address the concerns of energy security and environmental sustainability by diversifying the resource mix, helping replace coal with the region’s abundant natural gas supply in power generation, and improving dispatchability of renewable energy sources. However, maximising these gains will require multilateral market-based mechanisms to trade energy across national borders.
Another major challenge posed is the legal, regulatory and technical barriers that not only result in varying priorities among member states but also constrain potential energy collaboration. Developing a shared vision that optimises energy system performance in the region will need sustained political will, a suitable investment environment and appropriate institutional frameworks that support cross-border integration of physical infrastructure and energy markets.
New focus: Renewable energy integration
Dependence on fossil fuels in ASEAN countries has increased rather than decreased. Fossil fuels draw on finite resources that will soon dwindle, becoming more and more expensive and damaging the environment. In contrast, renewable energy – wind, solar, geothermal and biomass – promises a future with clean energy sources that will have a lower environmental impact and will not run out. In the face of economic growth, population growth and climate change, over 160 million ASEAN residents still do not have access to electricity. Speeding up the development of renewable energy would seem to be the right solution to solve energy issues in the ASEAN region. With abundant renewable energy sources, it is time for renewable energy to flourish in ASEAN to prevent problems such as energy shortages and global warming emissions, and protect citizens’ health, the environment and the climate.
With increasing focus on the integration of renewable resources, the member countries of the region have agreed to a target of meeting 23 per cent of energy supply through renewable resources by 2025. Among the ASEAN countries, Indonesia and Vietnam will be the primary drivers for the region to achieve the renewable targets, requiring around 50 GW and 40 GW, respectively, of the total renewables capacity.
Indonesia, as a leader in the region for renewable energy, has completed guidelines for the integration of biomass, biogas and small hydropower resources, while Myanmar has announced its guidelines for the integration of renewable energy resources. In addition, Malaysia has completed its guidelines for grid integration of small hydropower as well as solar implementation, while the Philippines and Vietnam finalised their guidelines for grid integration of solar power in early 2017. Although each country has its own plan to develop renewable energy, they still collaborate with each other. One such joint effort was the common target and roadmap called Remap Options for a Clean, Sustainable and Prosperous Future, which provides a breakdown of renewable energy potential by sector and source, and establishes guidelines to achieve all targets.
ASEAN Power Grid
The ASEAN Power Grid (APG) is being implemented to feed the growing demand in the region with the primary aim to ensure regional energy security and to enhance cross-border electrcity trade. Of the 31 high voltage transmission lines proposed to create the APG, so far eight cross-border projects on a bilateral basis have been implemented with a power exchange and purchase of 5,200 MW. As of September 2017, works on three priority cross-border projects were being pursued, which will double exchange and purchases of electricity to 10,800 MW in 2020 and beyond 16,000 MW post 2020.
In the coming years, the APG is expected to evolve beyond bilateral exchanges to subregional multilateral power interconnections. A more recent initiative to enable multilateral interconnections is the Laos-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP). The pilot project will be the first multilateral power trade facility in ASEAN. The objective of the project is to enable power trade between Lao PDR and Singapore by interconnecting the grids of Thailand and Malaysia.
Emerging technology
ASEAN’s member countries are exploring options to meet the huge electricity demand in a cost-effective and sustainable manner through rapid development of numerous energy technologies such solar photovoltaic (PV), battery storage, electric vehicles (EVs), etc. These new technologies will significantly change ASEAN’s energy system in the near future. Some of the new focus areas in terms of technology that have recently gained traction in ASEAN countries are:
Energy storage: Governments in the region are racing to tackle issues related to low electrification and underdeveloped power grid infrastructure. Creation of self-sustaining isolated grids, of which energy storage is a key component, is one of the solutions being adopted to provide electricity access mainly in remote communities or smaller islands. Nearly 70 per cent of the 141.5 MW of lithium-ion storage projects in the pipeline in the Asia-Pacific region are in the Philippines (100 MW), with the remainder located in China. In 2016, the Philippines-based subsidiary AES Cooperation completed a 10 MW lithium-ion installation in the Philippines, the first grid-scale battery energy storage facility in Southeast Asia and the largest such facility in Asia.
EVs: ASEAN governments have identified the benefits of EVs and are working on creating policies that will support the shift from traditional gasoline-powered automobiles. The Singapore government, led by the Electricity Market Authority (EMA) and Land Transport Authority, has had a test bed EV programme since 2009. The Philippines has had programmes to develop EVs in the country since 2013, while in Thailand, the government established the Electrical Vehicle Association of Thailand in 2015.
Indonesia is considering revising its tax scheme to offer higher tax breaks for low-emission vehicles and is in the midst of making plans to develop the necessary charging infrastructure. The Philippines targets 1 million EVs on the road by 2020 and is considering tax exemptions as well as to reach that goal while Singapore is considering tax rebates for EVs and hybrids that pass specific emission tests.
Thailand, the region’s largest car manufacturer, has already taken steps to boost EV manufacturing with tax incentives and aims to reach 1.2 million EVs on the road by 2036. Malaysia is working with Chinese manufacturers to advance its domestic EV industry and aims to have 100,000 EVs and 2,000 electric buses on its roads and 125,000 charging stations installed by 2020.
According to a report by the International Renewable Energy Association, the region is expected to create a market of around 59 million electric two- to three-wheelers and 8.9 million electric four-wheel vehicles by 2025, comprising approximately 20 per cent of the passenger automobiles on the road.
Going forward
Given that ASEAN member states are at different stages in their respective energy transition journeys, developing a common vision can help in the sharing of best practices in areas such as energy efficiency, faster deployment of innovative technologies and solutions, and integration of renewable energy sources. ASEAN will continue to embrace improvements in technologies while capitalising on the global trend of rapidly decreasing costs of variable renewable energy resources. Nevertheless, robust policies and investments are still very much needed to transform the energy landscape in ASEAN
