Southeast Asia is a rapidly growing economic powerhouse and a major player in the global energy sector. The region’s energy demand is set to rise significantly over the coming decades, second only to India. Since 2010, Southeast Asia has accounted for 11 per cent of the growth in the global demand for energy, and projections indicate it will contribute over 25 per cent to the total increase in demand by 2035 under the Stated Policies Scenario (STEPS). STEPS provides a sense of the prevailing direction that Southeast Asia’s energy sector could take, by considering how it might develop based on a detailed reading of the latest policy settings in the region, including energy, climate and related industrial policies that are in place or that have been announced. This trend is driven by rapid industrialisation, population growth and economic expansion, positioning the region as a key manufacturing and industrial hub. However, this trajectory brings with it significant concerns related to energy security, environmental sustainability and economic resilience.
Rising dependence on fossil fuels
Southeast Asia has relied heavily on fossil fuels, which have met nearly 80 per cent of its growing energy demand since 2010. Today, coal and oil each account for more than a quarter of the region’s energy consumption, with natural gas contributing approximately one-fifth. In 2023, coal generated half of the region’s electricity, accounting for 80 per cent of power sector emissions. Despite global efforts to transition towards cleaner energy sources, fossil fuel consumption is projected to rise further, with demand for oil increasing by 20 per cent and that for coal and gas growing by over 30 per cent by 2035 under STEPS.
The reliance on imported fossil fuels raises concerns about energy security, particularly amid heightened geopolitical tensions. Russia’s war in Ukraine and ongoing conflicts in the Middle East have exposed Southeast Asia’s vulnerability to fuel price shocks. In 2022, the region’s fossil fuel subsidies soared to a record $105 billion – nearly 60 per cent above the previous peak – highlighting the financial strain of sustaining high fossil fuel consumption. Southeast Asia imports 60 per cent of its oil from the Middle East, making it particularly susceptible to price volatility and supply disruptions.
Beyond energy security, the environmental impact of Southeast Asia’s energy consumption is a growing concern. The region’s carbon emissions are set to rise by one-third by 2050 unless significant measures are taken to curb the reliance on fossil fuels. Today, Southeast Asia is one of the few regions where GDP and emissions continue to rise in tandem, indicating the carbon-intensive nature of its economic growth.
Air pollution is another pressing issue, with 85 per cent of the population exposed to air pollution levels exceeding World Health Organization (WHO) safety limits. In 2023 alone, outdoor air pollution caused 300,000 premature deaths, while indoor air pollution – linked to the use of polluting fuels for cooking – led to an additional 240,000 deaths. The region is also increasingly vulnerable to extreme weather events, including severe heat waves and flooding, exacerbating climate change-related risks.
The transition to clean energy
While the momentum for clean energy transition is growing, the region is still far from meeting its net
zero goals. Eight of the 10 Southeast Asian nations have committed to net zero emissions targets, with Brunei Darussalam, Cambodia, Lao PDR, Malaysia, Singapore and Vietnam aiming for 2050, Indonesia for 2060 and Thailand for 2065. However, meeting these targets will require cutting emissions by nearly two-thirds by 2050 – an ambitious challenge given the current reliance on fossil fuels.
Clean energy is projected to meet over 35 per cent of Southeast Asia’s energy demand growth by 2035, driven by expanding solar and wind power, modern bioenergy and geothermal energy. Nevertheless, fossil fuel consumption is also set to increase under STEPS, indicating that the transition is not occurring at the pace necessary to meet global climate commitments. The share of renewables in electricity generation is expected to rise to one-third by 2035, with Vietnam leading the region in renewable energy adoption, followed by Indonesia and the Philippines.
Electricity demand and the need for infrastructure
Southeast Asia’s electricity demand is expected to grow at an annual rate of 4 per cent until 2035, surpassing the overall global energy demand growth rate of 3 per cent. Electricity consumption is projected to increase from 1,300 TWh today to over 2,000 TWh by 2035. The buildings sector, driven by surging air conditioning usage, will be the main contributor to this rise. By 2035, cooling is expected to account for nearly 30 per cent of the electricity used in buildings, underscoring the need for stronger energy efficiency standards.
Despite the rise of renewables, coal-fired power generation will continue to grow by 2 per cent annually until 2035. This persistence is partly due to the region’s relatively young fleet of coal power plants, which average under 15 years in operation. Transitioning away from coal without compromising energy security requires innovative strategies such as early coal plant retirements, flexible operation of existing plants, and co-firing with lower-emission fuels like biomass and ammonia.
Investment needs
To ensure a secure and sustainable energy future, Southeast Asia needs significant investment in grid infrastructure, regional interconnections and clean energy development. Annual investments in electricity networks are expected to more than double to $22 billion by 2035. Projects such as the ASEAN Power Grid and the Greater Mekong Subregion power trade agreement aim to enhance cross-border electricity trade and integration.
Greater flexibility in electricity systems is also necessary to accommodate higher shares of renewable energy. While thermal power plants and hydropower currently provide most of the region’s flexibility, the adoption of battery storage, demand response mechanisms and flexible grid-connected electrolysers will be critical in balancing supply and demand.
Clean energy’s economic potential and just transition
Southeast Asia’s transition to clean energy presents vast economic opportunities, particularly in the manufacturing of renewable energy components. The region is already a major player in solar photovoltaic production, with Vietnam, Thailand and Malaysia among the world’s largest manufacturers. Additionally, Southeast Asia’s electric vehicle (EV) battery manufacturing capacity is expected to grow significantly, particularly in Indonesia, which is set to become a leading hub for lithium-ion batteries and nickel processing.
Despite these opportunities, the transition must be managed carefully to ensure it is inclusive and just. Coal-dependent economies like Indonesia and Vietnam must create pathways for affected workers, providing reskilling programmes and alternative employment opportunities. Additionally, biofuels, electrification and fuel economy standards will play a key role in reducing oil dependency in the transport sector.
Policy and financial reforms
For Southeast Asia to achieve its net zero goals, strong policy support and financial reforms are essential. Currently, for every dollar invested in fossil fuels in the region, only 80 cents go to clean energy – far below the global ratio of nearly 2-to-1 in favour of clean energy. To align with its climate goals, the region must attract over $190 billion in clean energy investments by 2035 – more than double the current projections.
One key challenge is the high cost of capital for clean energy projects in Southeast Asia, which is at least twice that of advanced economies and China. Policy measures, concessional funding and international cooperation will be necessary to reduce financing risks and accelerate investment in renewables.
Conclusion
Southeast Asia stands at a crossroads in its energy transition. The region’s economic growth and industrialisation continue to drive energy demand, but its dependence on fossil fuels poses significant challenges for energy security, climate action and public health. While progress has been made in clean energy deployment, the pace remains insufficient to meet long-term climate goals.
By prioritising policy reforms, accelerating renewable energy investments, modernising infrastructure and fostering regional cooperation, Southeast Asia can chart a more sustainable and secure energy future. The establishment of the IEA’s Regional Cooperation Centre in Singapore highlights the region’s strategic importance in global energy affairs and underscores the collective commitment to advancing a cleaner, more resilient power sector. The choices made today will determine Southeast Asia’s energy landscape for decades to come.
