There has been steady growth in Southeast Asian economies over the past couple of decades. Since 2000, the average growth rate of the regional gross domestic product (GDP) was about 5.3 per cent (expressed in real GDP terms) as the economies showed resilience despite weak global economic growth since 2008-09. The growing economic prosperity, coupled with the growth population, fuelled the regional demand for electricity. Countries responded to the challenge of burgeoning demand by adding generation capacity at an unprecedented rate.

The challenge to catch up with the growing demand is expected to intensify in the future as the regional economies continue to grow at a healthy pace. According to the Southeast Asia Energy Outlook, 2015, published recently by the International Energy Agency (IEA), electricity demand in Southeast Asia is expected to almost triple between 2013 and 2040 because of economic and demographic growth. The countries plan to meet the demand challenge by increasing the supply of electricity, primarily through the addition of coal- and renewable energy-based capacity and by improving the efficiency of energy consumption.

Demand expectations

Country-wise, there are variations in demand growth expectations. According to   Indonesia’s national power utility Perusahaan Listrik Negara’s (PLN) latest business plan, demand for electricity will more than double from 219 TWh to 464 TWh between 2015 and 2024. This implies an average annual growth rate of 8.6 per cent during the decade, which is higher than the actual growth of about 7 per cent in electricity consumption during 2005-14.

Comparatively smaller countries like Cambodia are also expected to experience high growth in energy demand. According to Cambodia’s Power Development Plan prepared by the Ministry of Industry, Mines and Energy in 2007, electricity demand in the country is expected to increase at a high annual rate of 9.4 per cent. Similarly, high annual growth rates of 9 to 10 per cent are projected for Myanmar, with peak demand in the country increasing to 3,575 MW by 2020 and 7,335 MW by 2030.

Demand for electricity is also expected to increase at a fairly high rate in Vietnam. As per the country’s Revised Power Master Plan VII, the demand for power will increase to 289,544 GWh by 2020 and further to 571,752 GWh by 2030, registering an average growth of about 6 per cent. The demand growth is expected to be comparatively lower in the Philippines, Thailand and Malaysia.

The Philippine Energy Plan 2012-30 estimates that electricity demand in the country will increase at a compound annual growth rate (CAGR) of 4.79 per cent during the 18-year period. According to Thailand’s recently released Power Development Plan (PDP 2015), the demand for electricity will increase from 197,891 GWh in 2016 to 260,764 GWh in 2025, registering a CAGR of 3.11. Similarly, the forecast for electricity sales in peninsular Malaysia implies a CAGR of about 2.9 per cent, according to the country’s Energy Commission.

Demand drivers

The growth in electricity demand is primarily driven by economic and population growth. Economic conditions heavily influence electricity demand as industrial and commercial sectors account for a major share of energy consumption. The IEA forecasts that, on an average, the annual growth rate of Southeast Asian economies will be 4.6 per cent per annum between 2013 and 2040. Economic growth will be driven by rising domestic demand, particularly in middle-income countries such as Thailand and Malaysia, as well as an increase in foreign investment in less developed countries like Cambodia and Myanmar.

Demographic growth also affects the size and pattern of energy demand. The IEA forecasts that Southeast Asia’s population will grow by almost a quarter from 616 million in 2013 to 760 million in 2040. The average population growth rate during this period is likely to be 0.8 per cent. Besides growing population, the demand for electricity will get an additional boost from the growth in  urbanisation in the region. Southeast Asia has been urbanising rapidly in recent decades and this is set to continue. The IEA projects the urbanisation rate to grow from 46 per cent in 2013 to 60 per cent in 2040.

Other major drivers of energy consumption in the region are the various ongoing programmes targeted at increasing electrification rates. On an average, about 19 per cent of the population in the region does not have access to electricity. In countries like Myanmar and Cambodia, the situation is much worse as more than 65 per cent of the population lives without access to electricity. Power demand in such countries will jump considerably as grids are expanded to reach remote areas to connect this segment of the population. PLN, for instance, targets an increase in its customer base by an average of 2.1 million per year, so that the electrification ratio reaches 99.4 per cent in 2024.

For a country like Indonesia, another key factor influencing the growth of electricity demand is the shifting of consumers from captive to grid power. This shift is being driven by rising fuel prices, which has increased the cost of self-generation to levels much higher than those available from the grid. The impact of this shift, however, depends on the capability of the electrical systems in the region to expand and meet new demand. In Malaysia, the growth in electricity demand is expected to be driven by, among other things, tight monetary conditions which will positively impact structural adjustments and reform measures. Grid security concerns are also adding to the need for adding more capacity. Thailand, for instance, has set a target of maintaining appropriate reserve margins at above 15 per cent of peak power demand.

Besides domestic demand, generation capacity addition is influenced by export demand. In the case of Laos PDR, which has a relatively low demand against a significant generation potential, the impetus for generation growth is coming from demand from surrounding countries. The country has signed MoUs to sell electricity to various countries including Thailand (7,000 MW), Cambodia (300-500 MW) and Vietnam (5,000 MW).

Supply response

The IEA projects that in response to the expected growth in demand for electricity, the regional generation capacity will increase from about 210 GW in 2014 to almost 550 GW in 2040 at an investment of about $1.3 trillion.  Indonesia will continue to lead capacity addition in the coming decades. According to the RUPTL 2015-24, generation capacity in the country is expected to increase by 66,639 MW between 2016 and 2024. This includes projects being developed under the government’s Fast Track Programmes (FTPs) – 10,000 MW Phase I (FTP I) and 17,458 MW FTP II.

Thailand’s PDP 2015 states that the installed capacity in the country will grow to 70,335 MW by the end of 2036. Between 2016 and 2024, generation capacity is projected to grow by 9,700 MW. Vietnam revised its capacity addition target for the 2016-25 period to 61,283 MW in the Power Master Plan VII from 121,524 MW in the Power Master Plan VI. In peninsular Malaysia, the generation capacity is expected to increase by 7,158 MW by 2022, given the total number of projects under construction in the region. Overall, the country targets to add over 16,000 MW of installed capacity up to 2024.

In the Philippines, 14,276 MW of capacity is planned to be added to the existing grid between 2014 and 2020. Myanmar’s Ministry of Electric Power plans to develop around 5,000 MW of new generation capacity by 2021. In Cambodia, over 3 GW of generation capacity is at various stages of development and planning; the projects are planned to be executed by 2020.

Given the magnitude of investments required, the onus of capacity addition is being shared by private players. For instance, in Indonesia, most of the upcoming generation capacity or about 34,047 MW is being developed by independent power producers, while PLN is developing about 19,072 MW. The remaining 13,524 MW of capacity in Indonesia is yet to be allocated and will come up only after 2020.

Fuel diversification

Fuel diversification to optimise indigenous resource potential, particularly coal and renewable energy resources, is central to the energy strategies of the Southeast Asian countries. Of the 400 MW of generation capacity projected to be added by 2040 by the IEA, almost 40 per cent is coal based, 33 per cent is from renewable sources (of which 14 per cent is hydropower) and 24 per cent is gas based.

Coal is being favoured due to its price advantage and the abundance of indigenous supply. The power sector has already begun to shift towards coal as over half the thermal capacity added during the last five years was coal based. Indonesia, with abundant coal reserves, is in the process of developing numerous coal-fired plants. Of the 35 GW of generation capacity addition target set for 2019 by the President of Indonesia, an aggregate of 20 GW of capacity is based on coal.

Renewable energy capacity addition is also being aggressively followed by several countries in the region. Thailand, under the Alternative Energy Development Plan, 2015, aims to increase its installed renewable capacity in the country from 7,490 MW in 2014 to 19,634 MW in 2036. Of this, a major proportion will be contributed by solar (31 per cent) and biomass (28.36 per cent). Malaysia plans to increase its renewable energy capacity to 700 MW by 2020, contributing 3 per cent towards the generation mix. In the case of countries like Lao PDR and Cambodia, more than 60 per cent of the upcoming capacity is based on hydropower.

Efficiency improvement

Countries across the region are adopting a broad range of practices to improve energy efficiency and conservation. There has generally been greater reliance on voluntary approaches such as information and awareness campaigns rather than mandatory measures and incentives. Thailand provides a good example of a country that has implemented a comprehensive approach to improving energy efficiency through an Integrated Energy Blueprint, which includes a target to reduce end-use energy intensity by 30 per cent by 2036 compared to 2010 by removing fossil fuel subsidy and accelerating energy efficiency actions across a broad range of sectors. The energy saving of almost 89,672 GWh by 2036 under the Energy Efficiency Development Plan is expected to lead to an investment saving of around 10,000 MW.

Conclusion

The booming economies of Southeast Asia are rapidly emerging as energy-consuming giants, propelled by demographic and economic factors. Rapid electricity generation capacity addition and improving efficiency of consumption hold the key to meeting the supply challenge. For this, most countries have defined appropriate targets and put in place comprehensive plans. The countries are looking to forge greater cooperation in the area of energy security in the future. The Fourth ASEAN Plan of Action on Energy Cooperation (APAEC) for 2016-20, which is currently under preparation, is expected to focus on promoting energy efficiency, developing and deploying renewable energy sources, increasing interconnections between national power grids to enable cross-border power trade, and cooperation on clean coal technologies. The success of the regional economies in improving access to electricity will depend on the effective implementation of such plans.