The Southeast Asian renewable energy market has matured over the past five years. Primary factors driving the market include falling capital costs, abundant resources, environmental consideration, and socio-economic benefits. Decreasing technology costs have contributed to better and more efficient exploitation of renewable energy resources in the tropical region. Moreover, global pressure to combat climate change has also contributed to growing capacity installations that not only help the environment but also have wider social and economic consequences.
Capacity growth trends
The region’s renewable energy capacity grew at a compound annual growth rate (CAGR) of 10.7 per cent over the past 10 years, from 23.3 GW in 2006 to 58.3 GW in 2016, according to the International Renewable Energy Agency (IRENA). The highest growth was recorded in 2012 at 16.3 per cent, after which it fell to 10.7 per cent in 2013. The capacity, however, has been rising steadily since then at an average of 7.9 per cent per annum.
In terms of the current renewable energy installed capacity, the Southeast Asian market is significantly fragmented. Vietnam is the only country that accounts for more than 15 per cent of the market share. Other key countries include Indonesia (14.9 per cent), Thailand (14.8 per cent), the Philippines (12.3 per cent) and Malaysia (12.1 per cent). While Cambodia has grown the most over the past 10 years, at a CAGR of 54 per cent to reach 963.5 MW of capacity in 2016, Brunei has recorded virtually no growth since 2010. Vietnam is the country with the largest renewable capacity with about 18 GW of installed capacity, which recorded a CAGR of 16.4 per cent during the period 2006-16.
Hydropower is the largest source of renewable energy in the region, accounting for nearly two-thirds or 43 GW of the total installed capacity. Bioenergy accounts for 7.2 GW or 12.3 per cent of the total capacity and is the second largest source of renewable energy in the region. Solar and wind power account for 6 per cent and 1.9 per cent respectively, indicating low penetration of globally mature technologies.
Policy and targets
Most countries in the region have defined renewable energy targets governed by national energy plans. As a group, the Association of Southeast Asian Nations (ASEAN) is targeting a renewables share of 23 per cent in the primary energy supply by 2025.
Interestingly, despite the lack of renewable energy growth in Brunei, it has a forward-looking target to produce 954,000 MWh or 10 per cent of the electricity generation mix from renewable energy sources by 2035. Similarly, Cambodia plans to transform its energy mix.
According to Indonesia’s National Energy Plan, the use of gas is likely to more than double, the use of coal is expected to triple, while renewable energy generation is targeted to grow more than 11-fold by 2025. Moreover, the plan aims to complete the electrification of the country by 2020 and ensure full access to energy, which could prove to be a difficult undertaking considering Indonesia’s difficult geographical expanse. Meanwhile, Lao People’s Democratic Republic (Laos) aims to increase the share of renewables to 30 per cent and reduce the use of fossil fuels by 2025.
Malaysia’s action plan established generation targets until 2050. According to the government, renewable energy should contribute 24 per cent of the total energy mix by 2050, up from 1 per cent in 2011 and 9 per cent in 2020, enabling more than 30 million tonnes of CO2 emissions to be avoided. Myanmar’s ongoing energy crisis that renders half of its population without power and most major cities often blacked-out has compelled the government to look at alternative energy sources beyond hydropower and natural gas. According to the country’s energy master plan, the share of hydropower is projected to decrease from almost 70 per cent in 2012 to 57 per cent in 2030 and that of natural gas is likely to fall from 28 per cent to 8 per cent. Solar power is expected to account for 5 per cent, while the dependence on coal is likely to increase significantly from 2 per cent to almost 30 per cent.
Thailand aims to increase the share of renewable energy in the country’s power generation to 30 per cent by 2036. The government is making efforts to provide access to fund the installation of about 19 GW of renewable energy capacity. Vietnam’s renewable energy strategy aims at promoting onshore wind power until 2030 and assessing offshore wind resources potential as an electricity solution after 2030. Renewable power generation is targeted to account for 7 per cent of the total generation in 2020 and 10 per cent in 2030.
The Philippines’ renewable energy sector has so far been restrained, given President Duterte’s continuous pursuit for the cheapest form of power generation. Under such political circumstances, this sector is unlikely to receive favourable policy measures or financial aid from the government, leaving renewable energy to develop purely on its own in the country.
Singapore has limited renewable energy potential and a limited scope to develop the potential it has owing to its small size and densely populated urban areas. Apart from solar rooftop power generation, there is nearly no other form of renewable energy in the country. It therefore plays the role of a clean energy hub for the Southeast Asian region as the preferred headquarters for international renewable energy companies.
Technology trends
Southeast Asian countries are largely dependent on hydropower for their electricity needs. However, given the increasing demand and decreasing hydropower potential, countries are looking to diversify their sources of power generation. A deliberate decrease in the regional share of hydropower can be seen from 78.3 per cent in 2012 to 73.9 per cent in 2016. This trend is expected to continue as power demand in the region, according to the International Energy Agency, is expected to increase at an annual rate of 4 per cent until 2040.
It is interesting to note that the share of geothermal energy has seen an increase, growing from 1 per cent in 2012 to 5.9 per cent in 2016; its capacity is expected to reach 11 GW by 2025. The share of wind power too increased to almost 2 per cent from 0.4 per cent during the period between 2012 and 2016. There have, however, been a decrease in the share of solar power from 7.6 per cent to 6 per cent in 2016, although this is not a reflection of installed capacity, which continues to grow. In fact, while hydropower is expected to grow to 82 GW by 2025, solar power is likely to grow to 57 GW.
Renewable sources of energy follow the global trend of increasing cost-competitiveness in Southeast Asian countries, with the gap in levellised cost of power generation continuously narrowing. By 2025, solar power, biopower and geothermal energy are all expected to become cheaper than conventional fossil fuel-based power. This is due to various reasons, the major among these being decreasing capital costs, abundant resources, and a maturing market for these renewable energy segments. Wind power, albeit with low onshore potential in the region, is likely to become increasingly competitive in the coming few years.
Investment trends and plans
Renewable energy investments in the Asian region (excluding China and India) have increased significantly from $14.5 billion in 2009 to $50.5 billion in 2014. However, there was a fall in investment owing to a steep decline in the capital costs of various renewable sources of energy, with investments in 2015 falling to $46.1 billion and further to $26.8 billion in 2016. Moreover, unstable political environment in countries such as the Philippines is also responsible for the decline.
IRENA estimates that the region will require around $27 billion per year in investments to reach its target share of renewable power by 2025. During the period, about $12.1 billion per year of investments will be required for the hydropower segment, $8.5 billion for solar power, $5.8 billion for geothermal energy, and $3.8 billion for wind power.
Investment plans for renewable energy have been drawn up by various countries in the region. Cambodia’s total investment through to 2030 has been envisaged at $165.7 million, of which the Asian Development Bank has committed to providing $31 million, the private sector will contribute $95 million, the government will give $10 million and the rest will be provided by the Scaling-up Renewable Energy for Low Income Countries Program Investment Plan (SREP IP).
About $1.3 billion is expected to be invested in the power and renewable energy sectors of Indonesia by investors from the US, Europe and Qatar. Currently, investors are assessing potential areas for solar-powered electricity generators, such as North Sulawesi, West Kalimantan, South Kalimantan and East Kalimantan, as well as East and West Nusa Tenggara. Another $900 million is likely to be invested in various wind power and marine energy projects.
Lao PDR is currently in the process of securing loans worth $150 million to be invested in hydropower projects across the country. In Malaysia, about 111 renewable energy projects worth a total of $0.45 billion and 19 energy efficiency projects valued at $58.5 million are in the works, while another $0.29 billion is to be invested in an upcoming 150 MW solar power park. Myanmar is seeking an investment of $275 million for an upcoming 220 MW solar power project in Minbu located in the Magway region of the country. Another 300 MW solar project has been planned in Wandwin, Mandalay. Large amounts of investments are required to revive the 1,600 MW of stalled hydropower projects. Despite lack of political support, the Philippines is in the process of investing $230 million in several wind and solar power projects.
Singapore will be investing about $366 million in projects across the fields of solar, wind, microgrids and energy management segments that will lead to the creation of 400 professional clean energy jobs. Another $15 million is being invested by Germany-based VDE for setting up a major energy storage testing and certification lab in Singapore.
Around $1.4 billion is likely to be invested in Thailand in various wind and solar power projects by Absolute Energy. Another $9 million has been earmarked for investment to expand the grid to include renewable energy plants over the next few years by the Electricity Generating Authority of Thailand.
In Vietnam, Mainstream Renewable Power, GE and the Phu Cuong Group are together working on an 800 MW wind farm with an investment of $2 billion. US-based AES Corporation, Vietnamese firm Xuan Thien Daklak, Long Thanh Infrastructure Development and Investment Company, Japanese firm Fujiwara, and South Korea’s Solar Park Global are investing in renewable energy projects worth $45 million to $2.2 billion.
Key issues and challenges
The Southeast Asian region is highly dependent on hydropower for power generation, primarily because of the abundant hydropower resources available in most countries that has also acted a major deterrent to the exploration of other sources of clean power. Over the next few years, the share of renewable other than hydropower in the electricity mix is likely to increase. However, funding remains a major constraint. As most economies in this region are still developing, getting low-cost financing for the renewables energy segment continues to be a challenge. Since the sector is in the growth stage, banks, non-banking financial institutions and other lenders are unsure of the returns on such funds; interest rates, therefore, on funding for renewable energy projects tend to high, thereby increasing the cost of capital.
The other major issue facing Southeast Asian countries is that most are island clusters, which makes it difficult to build a unified countrywide grid. While this promotes off-grid renewable energy systems, it often becomes a hurdle in getting power purchase agreements for large power plants due to high offtake risk. While most developing nations have moved to competitive bidding for project allocation for renewable sources of energy, countries in this region have stuck to feed-in tariff (FiT) mechanisms. Malaysia, however, has adopted the new concept by doing away with FiTs, and introducing net metering for rooftop systems and competitive bidding for utility-scale projects. Poverty and rampant corruption have also proven to be significant challenges in the growth of renewable energy capacity in the region.
Future outlook
Lack of financing and political will could impede the development of renewable energy in the region. Countries like the Philippines must be encouraged to pursue renewable energy growth instead of short-term gains. Power system flexibility will need to be increased to include renewable energy and provide modern energy access to all while making efforts to reduce the dependence on traditional sources of power. High potential countries are developing renewable sources via increased investment and subsidies, and a move to competitive bidding in order to become sustainable economies.
This can be achieved with the help of a series of acceleration measures that include enhancement of synergies between energy efficiency and renewable energy targets, improvement of data availability for better monitoring and analysis of supply and demand, development of a sustainable and affordable bioenergy market to harness biopower potential, and creation of a repository of best practices for renewable energy development in the region.
