The Southeast Asian (SEA) region is home to more than 640 million people residing in 10 countries at present; the population is expected to increase to 715 million by 2025. This means that roughly 8.5 per cent of the world’s population inhabits just 3 per cent of earth’s total land area. The SEA also has some of the most rapidly growing economies in the world. In fact, the region’s economy is expected to grow at a rate of more than 5 per cent per year. Increasing population coupled with a growing economy will result in a 4 per cent growth in energy demand per year. Hence, energy demand is expected to grow to 956 million tonnes of oil equivalent (mtoe) in 2025 from 642 mtoe in 2014, which translates to a 50 per cent increase in the energy demand.
Present energy scenario
While renewable energy can certainly be a big contributor to meeting growing energy demand, the uptake of renewables has been comparatively lower in SEA than in the rest of the world. As of July 2018, SEA had around 61 GW of total installed renewable energy capacity, which includes hydropower, contributing just 10 per cent to the total primary energy requirement of the region. One important factor behind this is the legacy of over-dependence of the entire region on fossil fuels, especially coal. Powerful fossil fuel lobbies across the region work to not only promote fossil-fuel-based power but also hinder the progress of renewables. Hence, despite high potential, primarily in the solar, geothermal and wind power segments, SEA is far behind the rest of the world in terms of renewable energy output.
Another factor at play in the region is the lack of enabling policies and regulations that may work to encourage investments from the private sector in spite of the high renewable potential of the region. The region lacks policies like capital cost subsidies or guaranteed grid offtake that can provide an initial boost to the sector. As a result, SEA has been only a minor participant in the growth of global renewable energy capacity (excluding hydropower), with its capacity increasing from 100 GW in 2000 to just 1,000 GW in 2017.
Case for renewables
The traditional dependence on fossil fuels is likely to change soon owing to a couple of important factors. First, SEA does not have sufficient indigenous fossil fuel reserves to meet its growing energy demand, and relies heavily on imported fuels. This share will become higher with increasing energy demand, severely affecting energy security and the stability of the region. Energy demand will increase not only due to greater electricity production but also due to greater fuel demand from industry and transport. This will lead to an increase in the use of renewable energy technologies like solar, geothermal and bioenergy.
Secondly, rising carbon dioxide emissions due to greater fossil fuel consumption in the region will have global implications, especially in the wake of worldwide efforts to curb climate change. In addition, external costs (including the impact on human health and agricultural yield) due to exposure to pollution from the combustion of fossil fuels is expected to increase from an average of $167 billion annually in 2014, to an average of $225 billion annually by 2025 in the region. Given that this translates to 5 per cent of SEA’s cumulative GDP in 2025, the enormity of additional costs might push the region towards greater renewable energy adoption. Besides, global capital markets have started to price carbon risks leading to an increase in the cost of fossil fuels. With financial institutions such as Standard Chartered moving out of coal financing, the cost of investing in coal projects is increasing while that for renewable energy projects is decreasing.
In addition to these two factors, the decreasing cost of ownership of renewable energy assets is the most important growth driver for the sector in SEA. With record low tariffs discovered in solar and wind power auctions globally, energy prices have crossed grid parity in most countries. As a result, the largest new capacity additions in recent years have been in renewable energy. Since the renewable energy industry is still at a nascent stage in SEA, the region can benefit immensely through large capacity additions of less capital-intensive renewable energy to meet its increasing energy demand.
ASEAN’s renewable energy plan
Significant efforts are under way in SEA so as to get the maximum economic benefits from renewable energy uptake. The Association of Southeast Asian Nations (ASEAN) has a target to generate at least 23 per cent of its primary energy needs from renewable energy by 2025. To this end, in October 2018, ASEAN and the International Renewable Energy Agency (IRENA) signed a memorandum of understanding to boost renewable energy investment and deployment in the region through knowledge sharing, policy assessments, innovation and developing a roadmap. The SEA region generates only 10 per cent of its primary energy from renewable energy sources at present. This implies that a twofold increase in renewable energy generation is required to meet the objective of generating 23 per cent of its requirement through renewable energy sources.
The target is an ambitious prospect for the region, as it lags behind in the sector not only due to limited potential or lack of market interest, but also insufficient policies and overdependence on coal. IRENA estimates that if the current as well as planned policies and regulations are followed, the SEA region would only be able to achieve a renewable energy share of 17 per cent by 2025. Thus, the entire region needs to revamp its renewable energy scale-up plans and set up an enabling regulatory environment to overcome the 6 per cent gap between the targeted and projected share. To meet this challenging yet achievable target, some SEA countries will have to increase the share of renewable energy three to four times compared to 2015, while some will have to double its share every year.
On the bright side
Not everything is as bad as it looks on paper. Some countries like Singapore, Thailand, Malaysia and the Philippines are already on the right track to achieve these targets. However, renewable energy growth and penetration is not uniform across these countries. For instance, while some are promoting renewable energy through clear policy incentives for independent power producers to sell renewable power to utilities, other countries are propagating the installation of distributed renewable energy systems. A case in point is Singapore, which has initiated the SolarNova programme under which solar rooftop systems generate electricity for government-owned buildings. Likewise, Indonesia has a scheme under which solar mini-grids are installed in rural areas through private companies and NGOs.
One of the countries that deserves a special mention is Thailand, which is aiming for a 30 per cent renewable energy share of the total final energy consumption by 2036 to decrease its energy imports. At present, it relies heavily on bioenergy, especially in its end-use sectors. Thailand aims to set up a total capacity of 3 GW of solar power and 6 GW of wind power by 2036 as highlighted in the Thailand Integrated Energy Blueprint 2015-2036. It was created by integrating all major energy plans of the country into one massive document that serves as a de facto combined national energy policy and energy sector development plan. Moreover, with an anticipated increase in demand in the transport sector, Thailand is also aiming for massive influx of electric cars into the country by 2036.
The Philippines has also been making significant efforts to increase renewable energy penetration for future energy security. This is aided by its abundant geothermal, hydropower and ocean energy potential, apart from its adequate solar and wind energy resources. The country already had about 1.9 GW of geothermal power installations until 2015, owing to its close proximity to the Pacific “Ring of Fire”. It has set a renewable energy target of 15.3 GW by 2030, supported by schemes such as feed-in tariffs. It is also implementing solar photovoltaic or bioenergy-based microgrids to provide power to the unelectrified regions.
As per IRENA’s estimates, the targeted 23 per cent renewable penetration by 2025 is achievable provided aggressive measures are undertaken. Traditional bioenergy needs to be replaced with modern biofuels and the use of solar thermal should be increased in direct heat applications like cooking and industries. IRENA predicts that the largest increase in renewable power will come from solar PV followed by wind power. Small-hydro, geothermal and biofuel power will also contribute to some extent in this endeavour. In addition, the SEA countries need to increase the flexibility of power systems to integrate renewables and have smarter systems in place for data sharing and assessment.
Recent investments
As per IRENA, SEA will need investments of about $290 billion over the next 10 years to reach its targets, which means an annual investment of around $27 billion will be required between now and 2025. Certain SEA countries have already starting making conscious efforts in this direction and the region has finally begun to attract investments from both the public and private sectors. The Dam Nai wind project in Vietnam is one such example. It is being developed by Singapore-based The Blue Circle and is Vietnam’s first foreign-owned wind plant. With 6 MW of capacity in operation and another 34 MW to be commissioned soon, the Dam Nai project is going to be one of the largest wind projects in Vietnam upon completion. In November 2018, The Blue Circle partnered with Philippines-based Ayala Group’s AC Energy to jointly develop and construct about 1,500 MW of wind power projects in the region. Of this, at least 700 MW of capacity is planned in Vietnam, while the rest is distributed in Laos, Indonesia and the Philippines.
In 2018, a Singapore-based company, Sindicatum, signed a deal with GuarantCo Limited (part of the Private Infrastructure Development Group) for $60 million worth of green bonds. This will be used to fund the construction and acquisition of solar and wind power projects in Asian countries including the Philippines. Another company called Infraco is also planning significant investments in the region including a 168 MWp utility-scale solar PV project in Vietnam, alongside Singapore’s Sunseap International. One of the older private players of the region, Armstrong Asset Management had 20 renewable energy projects in operation across SEA, including five solar energy projects in the Philippines and the first phase of a wind farm in Vietnam in the beginning of 2018. It is notable that most of these projects were set up under the company’s Clean Energy Fund for SEA, constituted mainly through international funding.
Outlook
With global concerns surrounding climate change and increased worldwide consciousness about the adoption of cleaner energy sources, pressure is slowly increasing on SEA countries as well to reduce their dependence on fossil fuels. Countries such as Thailand, Vietnam and the Philippines are severely vulnerable to extreme weather events according to the latest Global Climate Risk Index. Hence, the region cannot afford to ignore the threat of climate change for long and must adopt renewable energy solutions to meet its present and future energy demands. SEA can also no longer depend on the international capital markets for financing its coal projects as they have started redirecting their finances towards renewables. Hence, the region has to deploy renewable energy in order to source international investments.
While SEA countries stand to gain a lot from the large-scale uptake of renewable energy, they do have a long road ahead when compared to their Asian counterparts – China and India. Both these countries have already achieved significant renewable capacity additions in a short timeframe with a lot more in the pipeline due to an enabling policy and regulatory environment. Lessons learnt from the renewable energy journey of these two countries can be used by SEA to propel its own energy transition. Since the first steps have already been taken by most of these countries, a competitive market can soon be created to increase private sector participation. Hence, the overall outlook is positive for the region, provided policy hurdles are effectively overcome.
