This is an extract from a recent paper “The European Role in Renewable Energy in Southeast Asia in Recent Years” by the European Chamber of Commerce.
This extract delves into the past long-term involvement of European OEMs and renewable energy financing in major economies of Southeast Asia. Historically, most nations have been net energy importers given their advancing industrialisation as manufacturing hubs, with energy demand outpacing its energy production capacities. This is set to change with state-led directives laid out in diversifying from conventional energy sources expediting the energy transition agenda in the region.
Vietnam
As an emerging economy within ASEAN, Vietnam has experienced robust industrialisation which has fuelled a surging demand for energy. With a total installed capacity above 75 GW, Vietnam’s energy mix is dominated by coal-fired electricity generation, followed by renewable energy sources, such as hydropower, solar PV and wind. The Government of Vietnam expects power consumption to grow 10 – 12% annually through 2030, one of the fastest power consumption growth rates in Asia. Where existing conventional energy sources are unable to meet electricity demand growth, Vietnam looks toward bridging this issue with renewable energy sources. Vietnam’s revised national Power Development Plan (PDP) for 2021-2030 outlines a projected rise in share of installed capacity for solar and wind power in 2050, a bid to progress into renewable energy sources in the future.
However, Vietnam lacks substantial indigenous gas and coal reserves, subjecting it to commodity price volatility and energy security vulnerability, which is further compounded by long-lead times to build thermal power plants. As such, the Government of Vietnam has clearly set out that renewable energy will be key to deliver on the country’s increasing energy demand. Between 2017 and 2021, Vietnam deployed a substantial amount of renewable energy, underpinned by an attractive Feed-inTariff (FIT). This resulted in the construction of over 20GW of installed capacity, comprising wind power (5GW) and solar PV (both rooftop and utility ground-mounted). Whereas solar PV technology has been predominantly Chinese, European turbine manufacturers managed to secure a significant amount of orders, with almost 50% of market share, dominated by Siemens Gamesa and Vestas.
However, it is expected that Chinese turbines will dominate the deployment of new wind power projects in the foreseeable future to meet Vietnamese authorities’ targets for lower electricity costs. This is due to a significant fall in LCOE in onshore wind power, with Chinese turbine technology, which saw the largest decrease from 2022 to the present. With regards to the investment side, it is worthwhile pointing out that European capital played a limited role during the period between 2017-2021. While exact estimates are not publicly available, very few European companies deployed equity in the over 20GWs of constructed projects. On the debt side, Europe played a more important role, particularly through export credit agency-backed lending for European wind OEMs, though the bulk of the lending has been either provided by local and regional banks, as well as multi-lateral development financing institutions. Considering the large amount of projects built, this can be seen as a potential missed opportunity for large European players to gain market share in such a burgeoning economy.
Regulatory uncertainty has been cited as one of the key reasons preventing European companies from investing in Vietnam. For example, the Power Purchase Agreement (PPA) framework has been considered by many European market participants as unbankable. Lack of curtailment protection provisions, coupled with limited compensation in the event of termination, has kept several investors away. Their fears have somewhat been confirmed by Vietnam’s recent proposed retroactive cuts in 2024 to subsidised pricing of Feed-In-Tariffs for solar and wind projects. In case such retroactive changes are applied, this is projected to threaten an estimated US$13 billion of investment and losses corresponding to equity capital, with the total investment value affected for foreign-owned projects alone estimated at US$4 billion, including more than 3,600MWp of solar power projects and 1,600 MW of wind projects
Philippines
Founded on the need for access to affordable energy as well as addressing energy security concerns, Philippines has similarly embarked on its renewable energy transition as a net energy importer. With a total installed power capacity at 28.3 GW in 2023, its energy mix is largely dominated by fossil-fuel generation, such as coal and gas, whose fuels are imported, making Philippines vulnerable from an energy security perspective. In a push to strengthen its energy security, as well as transition the energy mix and reduce electricity costs, the country has seen a sustained rise in installed capacity of renewable energy infrastructure in the past 10 years, with solar power capacity growing over tenfold within the same period.
This has largely been driven by ambitious targets set by the government, who plans to achieve 35% renewable energy share by 2035 and 50% by 2040. It shows a sustained willingness to adopt wind and solar as cost-effective, reliable energy sources in the coming decades. Furthermore, consistent support from government policies to promote renewables via the Green Energy Auction Programme (GEAP), running since 2022, and eliminating foreign ownership restrictions on renewable energy, are positive signals that have attracted European companies to be more active in the Philippines in recent years. These positive policies have seen the rise of European investment in renewable energy projects, predominantly through equity deployment in development and construction of projects. On the debt side, the Philippines boasts a mature local banking market that has dominated project financing, which has represented a barrier to European lending groups to substantially play a role in the renewable energy space in the Philippines.
Whilst the Philippines’ recent policies have attracted new equity investors, new projects since 2022 have been consistently and increasingly deploying Chinese OEM technology rather than European technology. Pre-2022, most wind power projects in the Philippines had European OEM technology, with Siemens Gamesa holding the largest market share in the Philippines. This has since declined, where most new wind power projects in process of construction, or starting construction, are committed to Chinese OEMs. This represents a lost opportunity for European OEMs, as this flourishing market is tapped by more competitive Chinese turbine manufacturers.
Indonesia
Indonesia, Southeast Asia’s largest population and economy, has the region’s largest power generation installed capacity at 91.2GW. Detaining one of the world’s largest coal reserves, most of Indonesia’s power generation comes from coal-fired power plants, as it provides the country with energy security at a competitive price. Its current new and renewable energy installed capacity is 14.6% of total capacity and is projected to reach a target of 23% by 2025 according to the National Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listri) 2021-2030. As Indonesia pushes to further transition its energy mix in the long term, the Ministry of Energy and Mineral Resource (MEMR) projects that several billion dollars of new investments will be needed annually to reach net zero emission by 2060
As far as solar PV and wind technology is concerned, Indonesia has stayed behind compared to the other large Southeast Asian countries. To-date, it is estimated that the total solar PV installed capacity is approximately 700MW, while installed wind power capacity remains at 150MW, with no new wind power built in the last 5 years. From a purely economic perspective, there have not been sufficient incentives for the Government of Indonesia to deploy renewable energy given the affordability and security of its coal generation, reflected in a steady rise of coal in share of generation as Indonesia rapidly industrialises. This state-led role in a slow decarbonisation trend is consistent with a lasting monopoly in Indonesia’s energy market post-liberalisation from 1992. To-date, 60.7% of electricity generation is run by state-owned enterprise PT Perusahaan Listrik Negara (PLN) and 26.5% by IPP. It is expected that, as Indonesia progressively pushes forward an agenda to transition its energy mix, there will be substantial opportunities for renewable energy players to deploy technology and capital in the region’s largest country. This is further underscored by the induction of the Just Energy Transition Partnership (JETP) in 2022 between the government of Indonesia and signatories of the European Union and other European states, with an initial commitment of US$20 billion as a catalyst for dispatchable renewable energy and variable renewable energy acceleration. This signals the receptiveness of European state capital in entering and developing Indonesia’s renewable energy market.
Yet, structural issues persist for private capital, in that inertial resistance from domestic renewable energy financing has reflected risk aversion in general for renewable energy projects. Indonesia’s high cost of debt, coupled with collateral requirements by banks for project finance, poses economic challenges to investors, reducing the equity value and hence attractiveness of investing in Indonesia.
Malaysia
Malaysia has a total installed capacity of 45GW, of which approximately 70% – 75% comes from fossil fuel sources and approximately 27.05% from renewable energy, predominantly from hydropower and solar PV. It aims to achieve 70 percent renewables in its power mix by 2050, which would increase the country’s installed capacity by 11 times compared to 2023 levels. As a net energy exporter of oil and natural gas, it looks towards diversifying into renewable energy, with its total installed renewable energy capacity growing threefold from 2010 – 2021 and a rising predominance of hydropower within the renewable energy mix.
With a lack of wind power potential, solar PV, alongside hydropower, emerges as the country’s main renewable energy source. Europe’s role in the energy transition is limited, given that Malaysia boasts one of the tightest foreign ownership restrictions on equity investment, preventing foreign investors to detain majority shareholding, and that Malaysia’s domestic solar PV production capacity held 80% market share by Chinese-owned solar panel makers in 2024, effectively diluting the role of European OEMs in Malaysia’s solar PV developments.
Thailand
Thailand’s installed power generating capacity is approximately 53GW. Over 75% of the power generation mix is dominated by fossil fuel thermal power generation, with renewables accounting for 23% of the total installed capacity. Solar PV and wind power installed capacity is approximately over 3GW and 1.5GW respectively. The country also imports electricity derived by hydropower from Lao PDR.
As part of the country’s effort to further transition its energy mix, Thailand has a net zero target by 2065. Furthermore, in its National Energy Plan there is an ambitious target to increase renewable energy to over 50%. With regards to European companies’ presence in the Thai market, they have played a substantial role in the deployment of the 1.5GW of wind power projects, most of which built between 2012 and 2017, and European turbine manufacturers having a dominant role in the market share. However, from a capital deployment perspective, these projects have mostly been financed domestically by Thai banks and sponsors, with limited European involvement in renewable energy financing. On the technology front, it is expected that all new wind projects reaching construction going forward will likely deploy Chinese OEM technology, implying that the role of European companies and technologies on future Thai energy transition is expected to be limited.
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