The Southeast Asian (SEA) region accounts for nearly 5 per cent of global energy demand and this share has been increasing owing to growing industrialisation and urbanisation. While coal had a major share in the primary energy demand growth during 2000-18, policymakers of SEA countries are now focusing on expanding renewables to meet international climate commitments.  In 2019, SEA countries moved a few inches closer to their renewable energy target, increased cross-border power trading, expanded smart metering programmes, and mobilised investment for new power projects. Southeast Asia Infrastructure presents key trends and developments in the SEA power sector in the year gone by…

Growing focus on renewables

Like the rest of world, the SEA countries are also shifting towards renewables for power generation in line with ASEAN’s target to meet at least 23 per cent of its primary energy needs from renewables by 2025. According to IRENA Renewable Energy Statistics 2019, the cumulative renewable energy installed capacity by the 10 SEA countries increased from 60.5 GW in 2017 to 62.6 GW in 2018.

There were some notable developments in the renewables space in Southeast Asia in 2019. Key among these is the Vietnamese government’s initiative to switch to auction-based bidding for large solar photovoltaic projects from the earlier feed-in tariff regime. In December 2019, Vietnam’s Ministry of Industry and Trade issued Notification no. 402/TB-VPCP detailing the contours of the auction process. The move is largely in line with global trends as reduced capital costs and higher capacity utilisation factors are making solar viable without additional subsidy support from governments.

In the same month, Malaysian distribution utility Sarawak Energy Berhad (SEB) launched a renewable energy certificate (REC) mechanism to encourage the development and consumption of clean energy. Further, tariffs in Malaysia’s Large Scale Solar (LSS) programme have also been falling steadily. In September 2019, the results of the third tender for 500 MW capacity under the LSS programme were announced wherein the lowest bid of RM 0.1777 ($0.042) per kWh was discovered. This is considerably lower than bids offered in the previous rounds (LSSs 1 and 2), which ranged from RM 0.34 per kWh to RM 0.53 per kWh.

In October 2019, the Philippines’ Department of Energy (DoE) issued a circular notifying the framework for energy storage systems (ESSs) in the country to address the growing adoption of renewable energy systems. In the same month, the Philippines’ distribution utility Meralco and Japanese multinational conglomerate Hitachi Limited installed a 2 MW/2 MWh battery-based ESS in Luzon. The DoE has also chalked out a set of policies to fast-track renewables growth. These include renewable portfolio standards under which distribution utilities will be mandated to source a minimum percentage of energy from renewable sources, the green energy option that will empower consumers to demand that their energy be sourced from renewable resources and the green energy rate or a baseline price for 2,000 MW of new renewable energy capacity.

In addition, Thailand’s cabinet approved the Power Development Plan 2018-2037 (PDP 2018). As per the plan, about 56 GW of power generation capacity will be added in the country by 2037 to reach a total capacity of 77,211 MW. By 2037, 53 per cent of the total capacity would come from natural gas, 20 per cent from renewable sources, 12 per cent from coal, and the remaining from other sources including imports.

Further, key renewable energy projects were commissioned in Southeast Asia in 2019. For instance, one of the largest wind power projects in Southeast Asia, the 260 MW Hanuman wind farm in Thailand, was commissioned in May 2019. The Kansai Electric Power Company commissioned the 290 MW Nam Ngiep 1 hydropower project in Lao PDR.  Scatec Solar commissioned a 66 MW solar power plant in Malaysia, which is the company’s first large-scale solar project in the country. Japan-based Sharp Energy Solutions completed the construction of a 49 MW solar project in Quang Ngai and India’s Waaree Energies has commissioned a 49.5 MW ground-mounted solar project in Khanh Hoa province, Vietnam.

Cross-border power trade

Cross-border power trade is high up in the agenda of most SEA countries as the creation of the ASEAN Power Grid (APG) can lead to greater regional power integration, energy security and system resilience. It can not only help balance supply and demand and alleviate shortfalls but can also spur infrastructure upgrades across the region. In September 2019, Thailand, Laos and Malaysia decided to extend the Laos-Thailand-Malaysia Power Integration Project (LTM-PIP). The first phase of the LTM-PIP, seen as a milestone to enhance multilateral electricity trade under the APG project, was launched in January 2018. The agreement enabled Thailand to buy power from Laos, which generates surplus electricity from dams along the Mekong river, to be sold to Malaysia. Now, the project is set to transition to the second phase from January 2020. Under the new agreement, Thailand will increase the amount of electricity that it buys from Laos from 100 MW to 300 MW. This will result in a surplus in its own power grid, which the country will sell to Malaysia.

The Laos government too is interested in selling power to Cambodia and Myanmar under its Battery of Asia initiative. Laos has a demand of 1,000 MW of electricity. However, its natural resources are expected to generate around 20,000 MW-30,000 MW of electricity, which can be fed into Thailand’s power grid and sold to Myanmar, Cambodia and Malaysia.

In addition, Indonesian state-owned electricity company Perusahaan Listrik Negara (PLN) signed an MoU with its Malaysian counterpart, Tenaga Nasional Berhad (TNB), in September 2019, to begin a feasibility study for exporting 600 MW of power to TNB. It aims to connect PLN’s Sumatra network to TNB’s western network by 2028.

In May 2019, Myanmar and China signed preliminary agreements that would allow the former import 1,000 MW of electricity from China’s grid network developer China Southern Power Grid by 2021. Cambodian utility Electricite Du Cambodge also signed an agreement to import 200 MW of power from Laos’s Dan Sahong hydropower dam for the period 2019 to 2021.

Investments and financings

The International Energy Agency projects investment needs in ASEAN’s energy sector at between $2.5 trillion and $3.2 trillion, depending upon different policy scenarios. SEA countries drew significant investments/investment commitments from multilateral financing institutions, particularly the Asian Development Bank (ADB), during the past year. In April 2019, ADB announced the first drawdown of funds under a financing package totalling over $305 million for Jawa-1, Indonesia’s largest combined cycle gas turbine (CCGT) power plant with a capacity of 1,760 MW. ADB also signed a $227.7 million loan agreement with Gulf SRC Company Limited for the implementation of a 2,500 MW combined cycle power plant in Chonburi, Thailand. The loan agreement for the project was signed with its co-financiers, including the Japan Bank for International Cooperation and 10 other international and local commercial banks.

Besides, ADB and Singapore’s Infrastructure Asia signed a cooperation agreement to help governments in Southeast Asia adopt innovative and green finance approaches to identify and develop bankable and sustainable infrastructure projects. ADB also made an investment of THB 3 billion in the maiden green bond issued by Thai energy company Energy Absolute PCL for the Hanuman wind farm.

Further, Malaysia’s state energy firm Petronas has set up a $350 million venture capital arm, Petronas Corporate Venture Capital, for industrial and energy investments. In a separate development, Petronas acquired Singapore-based Amplus Energy Solutions as part of a strategy to diversify into renewable energy. Overall, the Malaysian government expects that the country will need investments of RM 33 billion to increase the share of renewable energy in its energy generation mix from 2 per cent in 2018 to 20 per cent by 2025.

In Indonesia, the energy ministry anticipates an investment requirement of $15 billion to meet its target of reaching 7.2 GW of geothermal power capacity by 2025 from less than 2 GW currently. During 2019, the World Bank approved a loan of $150 million for Indonesia to scale up investments in geothermal energy by reducing risks of early-stage exploration. The loan is accompanied by grants worth $127.5 million from the Green Climate Fund and the Clean Technology Fund.

In addition, the Myanmar government approved a Euro 35.7 million loan by Agence Française de Développement to upgrade five hydropower plants in the country. The funds will be used over the next five years to upgrade the Ye Nwe and Zaung Tu power plants in Bago, the Mone Chaung power plant in Magwe, the Kin Tar power plant in Mandalay, and the Thapan Seik power plant in Sagaing.

Smart metering

Power distribution utilities in the SEA region are embarking upon the next phase of digital transformation through smart grids. A study by the Northeast Group estimates an investment of $9.8 billion in smart grid infrastructure between 2018 and 2027 in the SEA region. It estimates the largest market segment will be advanced metering infrastructure (AMI), the technology behind smart metering, where an investment of $4.6 billion will be made.

SEA utilities have already initiated smart metering projects. For instance, Malaysian utility TNB announced plans to install 9.1 million smart meters in peninsular Malaysia by 2026. Around 1.5 million smart meters are scheduled to be installed at consumer premises in Melaka and selected areas in the Klang Valley between 2018 and 2020. Besides, the SP Group, one of Singapore’s largest corporations, has installed smart meters for business consumers buying electricity online from retailers of their choice. Smart meters will be extended to all other consumer classes by 2020.

In the Philippines, the DoE notified a draft circular on providing a national smart grid policy framework for the Philippine electric power industry and a roadmap for distribution utilities in July 2019. The Manila Electric Company, the largest private sector electric distribution utility in the Philippines, started rolling out smart meters from 2015 and set a target of 3.3 million smart meters by 2024. So far, the company has installed 100,000 smart meters as against 140,000 meters approved by the regulator.

Thai utility Provincial Electricity Authority (PEA) has a smart metering pilot project under way in Pattaya city in Chonburi province. Under the project, about 116,000 smart meters will be deployed by Itron and the ALT Telecom Public Company until 2020. The Metropolitan Electricity Authority (MEA) is also installing smart meters in six districts. The project, for replacing 29,250 conventional meters, began in 2018 and is expected to be completed by 2020. In July 2019, the MEA and Krungthep Thanakom Company signed an MoU to develop electricity infrastructure for the Smart Metropolitan Bangkok project.

In Indonesia, PLN signed an MoU with a French company, Think Smart Grid, to develop smart microgrids in Mandalika, West Nusa Tenggara province, and on the Sulawesi Island.

Outlook

The SEA region is fast catching up on global trends though progress varies among the 10 member countries. While universal electrification is a key priority for countries like Myanmar, Laos and Vietnam, augmentation and the technological transformation of power infrastructure are crucial goals for Thailand, Malaysia and Singapore.

In coming years, e-mobility is expected to be a technology disruptor in the region. According to a report by the International Renewable Energy Association, 20 per cent of all vehicles in Southeast Asia will be electric, including 59 million two- and three-wheelers and 8.9 million four-wheelers, by 2025. The region’s annual new investment in passenger electric vehicles will grow to $6 billion by 2030, according to Bain estimates, and it will need another $500 million in new charging infrastructure as service providers support electrification needs.

Overall, the key upcoming trends in Southeast Asia will revolve around decarbonisation, digitalisation, and decentralisation of energy.