Trends in Southeast Asian power sector-
The power sector of Southeast Asian countries is diverse in size and composition. While some countries are still trying to extend electricity access to all its citizens, others at a more advanced stage of development are facing a different set of challenges. Despite this heterogeneity, the countries have adopted similar approaches in recent years: they have welcomed greater private sector participation, added capacity, changed their fuel mix, and increased the share of renewable energy, to varying extents.
Between 2006 and 2010, the total installed generation capacity of Malaysia, Singapore, Indonesia, Thailand, the Philippines, and Vietnam increased from 116,438 MW to 137,169 MW. Moreover, the aggregate power production of these countries rose from 529,841 GWh to 650,822 GWh. In the course of this growth, many facets of the sector have transformed. Southeast Asia Infrastructure reviews some of these trends.
Fossil fuels dominate
Fossil fuels (coal, along with oil and gas) still dominate the fuel mix of Southeast Asian countries. The share of fossil fuels used in the different Southeast Asian nations ranges from 74 per cent in thePhilippines to 96 per cent in Singapore. Within fossil fuels, the mix used for power generation has altered considerably, though not always in favour of cleaner fuels.
For instance, the practice of using oil for electricity generation has waned, primarily because oil has become increasingly expensive. On the other hand, there has been an upsurge in the utilisation of coal due to its comparative abundance, relative stability in supply, and ease of transport within the region via sea routes. Gas has conventionally been a popular fuel for power generation, as a gas-based plant can be set up swiftly at low capital cost and requires lower expenditure for maintenance. However, of late, the supply of gas has come under strain in some countries, caused at times by the prevailing policy environment. For example, gas subsidies have distorted the price of gas in Malaysia, hence discouraging new investment in the sector.
Fossil fuels are likely to remain the main fuel source for electricity generation in the coming years. The share of coal in the ASEAN region will reach around 45 per cent by 2030; the proportion of natural gas will be around 25 per cent, while that of oil will drop drastically to around 1.5 per cent according to the Third ASEAN Energy Outlook.
Looking at alternatives
To reduce their dependence on fossil fuels, countries in the region are looking at alternative sources of energy. The Third ASEAN Energy Outlook has predicted that the share of nuclear energy in the region’s fuel mix will increase to 1.7 per cent by 2030. Construction of nuclear power plants is likely to begin by 2020. Nuclear energy in Indonesia will contribute to 1.4 per cent of energy sources by 2025. At the same time, Malaysia and the Philippines plan to add 2,000 MW of nuclear capacity by 2023 and 2025, respectively. Thailand intends to add 5,000 MW of nuclear capacity during the 2020–28 period.Vietnam has set an even more ambitious target of 10,700 MW by 2030.
Renewable sources of energy have been receiving increasing attention over the past few years; they are expected to account for between 20 per cent and 30 per cent of the energy consumption in some of the Southeast Asian countries. Among the reasons for this growth are the increase in demand for electricity on account of rapid economic growth and the still-low levels of grid access. For instance, in some of the faster growing economies like Indonesia, blackouts are frequent and a substantial number of people do not have access to electricity. In such countries governments are willing to provide various incentives for development of renewable energy-based generation plants.
E. Kirkjwik, managing director of Asia Green Power – an independent financial advisory and investment firm based in Singapore – highlights these and the differences between Southeast Asia and Europe in their motivation for turning to renewables: “In Europe, the motive for renewable energy was merely an attempt to transition to ‘green power’ for which there was insufficient demand. Naturally, this situation has led to over capacity in Europe.”
Thailand has been the most successful market for renewable energy so far. Moreover, Indonesia and the Philippines are both big markets with attractive tariffs which are suitable for increasing renewable-based energy generation. The price of electricity in Indonesia varies from $0.04 to $0.14 per kWh, depending on the type of customer and number of units consumed, while the tariff in the Philippines is in the $0.07–$0.11 per kWh range. Committed players in the renewable energy sector are already getting drawn to the two countries. Although Malaysia has strong fundamentals, its demand growth in electricity is sluggish, and hence, there is less emphasis on increasing renewable energy-based generation. In the case of Vietnam, Kirkjwik notes that while the country “has tremendous potential, policies and incentives aren’t yet in place”.
Ascent of private generation
Besides changing the fuel mix, increasing demand for electricity means that countries also need to augment their existing generation capacities rapidly. To meet this need, countries in the region are now encouraging private players (independent power producers [IPPs]) to participate in setting up generation plants. In the past, state-owned utilities have held the majority share in power generation in Southeast Asia.
Singapore and the Philippines have been the most aggressive countries in the region in privatising their power generation:Singapore’s power generation capacity is 100 per cent privately owned, while the Philippines’ state-owned National Power Corporation owns only 9 per cent of the installed capacity in the country.
Thailand, the first country in the region to start privatising its power sector, has been increasing the private sector’s stake in power generation. Between 2005 and 2010, the share of the Electricity Generating Authority of Thailand (EGAT) in the country’s installed capacity fell from 61 per cent to 51 per cent. Even Indonesia and Vietnam, where state-owned companies have historically had a firm grip on their respective country’s power sectors, have started reversing this trend. In Vietnam, the state-owned EVN’s share of installed capacity dropped from 78 per cent to 71 per cent during the same period, while that ofIndonesia’s PT PLN fell from 85 per cent to 81 per cent. Malaysia has also allowed several IPPs to set up power plants in the Peninsular and Sabah regions in recent years.
Looking ahead
According to the Third ASEAN Energy Outlook, power consumption in the region is likely to grow in the range of 5.8 to 6.4 per cent; hence, total electricity consumption will rise to 2,068–2,414 TWh in 2030. In recognition of this growth, Southeast Asian countries have formulated plans to increase their power generation capacity. According to the Philippines’ Transmission Development Plan 2011, the country intends to add over 6,000 MW of capacity between 2011 and 2019. Thailand’s Power Development Plan 2010 has set a target for EGAT to add 3,235 MW of generation capacity between 2010 and 2015, besides proposing to increase power purchases from Small Power Producers. Indonesia’s Ministry of Energy and Mineral Resources has prepared a power development plan to increase its capacity by more than 51,000 MW during the 2011–19 period. Vietnam’s Power Master Plan VII envisages a total generation capacity of 75,000 MW for the country by 2020.
Substantial investments to augment generation capacity are required to meet these targets. Private players are expected to play a vital role in this area. To tap into the private sector’s resources, governments are likely to continue offering incentives to attract investments. Furthermore, the reliance on fossil fuels is not expected to diminish any time soon. However, the outlook for the growth of the renewable energy sector remains positive due to strong market fundamentals and governments’ increasing emphasis on clean energy.
