Southeast Asia (SEA) is a diverse region with many countries vulnerable to the impact of climate change. At the recent Conference of Parties [COP] 26 conference at Glasgow, all 10 SEA countries upped their commitments to mitigate climate change. So far, six countries (Vietnam, Brunei, Lao PDR, Malaysia, Indonesia and Thailand) have announced net zero targets. However, in 2020, the coronavirus affected the regions’ energy sector, putting energy resilience to the test. Lockdown restrictions caused energy demand to plunge and many projects came to a standstill. The oil and gas sectors were particularly hard hit, with the price of oil nosediving, stalling exploration and hurting production.

To some degree, the renewable energy sector was also affected by disruptions in supply chains. But the region is recovering and is on track to achieve near-universal access to electricity by 2030. The increasing deployment of smart meters, a shift towards renewable energy and growing efforts to curb transmission and distribution losses to strengthen the system have contributed strongly to the growth of the sector. Going forward, it is expected that investments in renewable energy deployment, transmission expansion, and adoption of smart digital technologies are likely to increase.

Size and growth

Electricity

Generation: Rapid economic growth of the SEA nations has resulted in rising energy demand, averaging around 6 per cent per year. To meet this increasing demand, the region’s installed power capacity has grown from 208 GW in 2015 to 274 GW in 2020, recording a compound annual growth rate (CAGR) of 5.7 per cent. Indonesia, the largest country in the SEA region, has the largest share in power generation capacity amongst all SEA countries, followed by Vietnam, Thailand and Malaysia. According to IEA’s electricity market report 2020, SEA is one of the few regions of the world where coal-fired generation has been expanding, with close to 20 GW of new coal-fired generating capacity under construction.

The renewable energy segment has started gaining traction. The region’s installed capacity has grown from 55 GW in 2015 to 87 GW in 2020, recording a CAGR of 9.6 per cent. Notably, the solar power capacity more than doubled in the region in 2020, increasing from 10,404 MW at the end of 2019 to reach 22,850 MW at the end of 2020 according to data released by the International Renewable Energy Agency (IRENA).

The most impressive growth has been recorded in Vietnam, where capacity increased from just 4,898 MW by the end of 2019 to over 15,000 MW as of 2020, mostly due to its attractive feed-in tariff policy. Other large solar capacities are in Thailand, Malaysia, and the Philippines at 2,988 MW, 1,493 MW and 1,048 MW respectively. In addition, Singapore (329 MW) and Indonesia (172 MW) are emerging as attractive destinations for solar investments with many projects under development. Transmission and distribution: Among SEA countries, Indonesia has the largest transmission network with a line length spanning 61,334 circuit km and a transformer capacity of 150,038 MVA. Thailand and Malaysia are next with extensive transmission infrastructure, while Cambodia,Timor-Leste and Brunei are at the lower end of the spectrum.

Increasing electricity demand and growing electrification rates in SEA require augmentation of distribution infrastructure to ensure quality power supply to consumers. In terms of growth rates, the distribution line length in Indonesia and Cambodia have grown at a CAGR of 3.6 per cent and 1.9 per cent respectively between 2015 and 2020.

Oil and gas

The outbreak of the Covid-19 pandemic affected oil and gas upstream and downstream activities in the SEA region. The consumption of both oil and natural gas in the SEA region declined in 2020 due to a decline in demand brought about by the pandemic. According to the BP Energy Statistical Review of World Energy 2021, the region’s proven oil reserves stood at 10.9 billion barrels at the end of 2020, as compared to 11.1 billion barrels in 2019. Of the latest proven reserves, the maximum share belongs to Vietnam (40 per cent), followed by Malaysia (25 per cent), and Indonesia (22 per cent).

In 2020, the total crude output of the ASEAN region was 2,074 thousand barrels per day (bpd), the lowest recorded since 2016. The consistent fall in output can be attributed to maturing and ageing fields, together with the reluctance of exploration and production players to spend on exploration of new fields due to low crude prices. Meanwhile, the region’s crude oil consumption rose consistently between 2015 and 2019. However, followed by a decline in 2020, the consumption fell by 15.2 per cent to 5,430 thousand bpd from 6,404 thousand bpd in 2019.

According to the BP Energy Statistical Review of World Energy 2021, the region’s proven natural gas reserves stood at 3.9 trillion cubic metres (tcm) in 2020. Of the latest proven reserves, the maximum share belongs to Indonesia (37 per cent), Malaysia (26 per cent) and Myanmar (11 per cent). As in the case of crude oil production, natural gas production from the region has been falling since 2015. In 2020, the natural gas output of the SEA region was 208 billion cubic metres (bcm), the lowest recorded since 2015. The region’s natural gas consumption increased from 162 bcm in 2018 to 166 bcm in 2019 and then decreased by 8 per cent to 152 bcm in 2020. Gas consumption in Malaysia was affected by an increase in the consumption of coal because it has become increasingly competitive relative to natural gas for power generation.

Key trends and developments

COP26: At the recent COP26 held in Glasgow, all 10 SEA member states updated their climate plans, known as nationally determined contributions (NDCs), reaffirming the region’s commitment to climate action. In the updated NDCs, all SEA member states covered CO2 emissions, and only Myanmar did not include methane. Malaysia removed the conditional element, while Myanmar and the Philippines upgraded their NDCs by adding unconditional targets. However, the climate targets were considered critically insufficient for Singapore, Thailand, and Vietnam.

The Climate Action Tracker rated Indonesia as highly insufficient, because its NDC targets remained unchanged even though it improved its long-term planning towards net zero in 2060. Vietnam and Brunei committed to reaching net zero by 2050, joining Laos and Malaysia. Indonesia has committed to reaching net zero by 2060 or sooner. Thailand announced it would target carbon neutrality by 2050 and net zero by 2065. Thailand was determined to have 15 million electric vehicles on the roads by 2035 as part of the country’s strategies to lower greenhouse gas emissions. The Philippines presented its newly launched Sustainable Finance Roadmap, a blueprint to raise green investments. None of the SEA member states endorsed the declaration on accelerating the transition to 100 per cent zero-emission cars and vans, and the statement on international public support for clean energy transition.The SEA nations were also missing from the Beyond Oil and Gas Alliance, the first global coalition of countries committed to ending oil and gas extraction.

Clean energy transition: To improve renewable energy capacity, SEA governments have laid out the second phase of the ASEAN Plan of Action for Energy Co-operation [APAEC] 2021-2025. Under this, a target has been set to achieve 23 per cent share of renewable energy in the total primary energy supply in the region and 35 per cent in SEA installed power capacity by 2025. This would require around 35-40 GW of renewable energy capacity to be added by 2025. Further, SEA’s seeks to optimise clean coal technology by deploying more efficient, less emissive supercritical and ultra-supercritical power plants. Apart from removing all subcritical plants, it is working on the blending of coal and biomass or co-firing for power generation.

Under APAEC Phase II, SEA will also enhance its efforts towards building an ASEAN Power Grid. In the gas sector, the region will pursue the development of a common gas market. On energy efficiency and conservation, SEA aims to reduce energy intensity by 32 per cent in 2025 based on 2005 levels and encourage further efforts in the transport and industry sectors. Green power grids: SEA is seeking ways to pool renewable energy resources and form a green power grid in the region. A key project is the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project. It entails power trade of up to 100 MW of hydroelectricity from Lao to Thailand.

Another key project is the Australia-ASEAN Power Link, with an estimated cost of more than A$30 billion, which will export energy from the world’s largest solar farm and battery storage facility in Australia’s northern territory via undersea cable. Construction of the link is expected to begin in late 2023, with the first supply of electricity to the city of Darwin in 2026 and to Singapore in 2027, before reaching full capacity by the end of 2028.

Decarbonisation: The region’s external costs caused by air pollution from fossil fuel combustion will increase by 35 per cent, jumping from USD167 billion in 2014 to USD225 billion in 2025, according to an IRENAASEAN regional REmap analysis. Resultantly, SEA is now actively seeking to decarbonise the region’s energy mix, with coal power projects being phased out steadily. Currently, 67 per cent of Indonesia’s electricity and 57 per cent of the Philippines’ power generation comes from coal. Indonesia has committed to reducing emissions by 29 per cent by 2030 and achieving net zero emissions by 2060. The Government of the Philippines recently announced plans to place a moratorium on new coal-fired power plants.

Digital advancements: Greater use of digitalisation and automation of operations and maintenance is being done for large plants. The next phase of digital transformation through smart grids and advanced metering infrastructure is also under way. Recently, Thailand’s Provincial Electricity Authority undertook a pilot with the roll-out of 116,000 smart meters in Pattaya city, Thailand. Further, Electricidade de Timor-Leste has secured funding from the Asian Development Bank to modernise its grid network and facilitate the roll-out of 140,000 smart meters. Additionally, blockchain and microgrid technology are also gaining traction.

Issues and the way forward

The SEA region’s high dependence on coal-based power plants is an area of concern. According to the IEA’s World Energy Outlook 2021, existing coal power plants in the SEA region have an average age of 10 years; hence, a lot of capital is yet to be recovered from such plants. Further, the high mix of subcritical facilities has negative implications for carbon emissions and air pollution because they lack the technological improvements of more recent ultra-supercritical facilities. However, financing coal has become increasingly difficult in the region as international pressures related to climate change mount and erode the expected profitability of new coal plants. In this regard, the Asian Development Bank is carrying out a feasibility study with potential host countries in SEA (initially Indonesia, the Philippines and Vietnam) on the energy transition mechanism, a platform to accelerate the retirement of coal power using blended finance, and to support investment in renewables.

The domestic reserves of fossil fuels in SEA countries are declining, which implies that SEA may become a net importer of fossil fuels in the next few years. Moreover, as the energy mix of the region is less diverse, energy security may become a challenge in the future. Further, SEA is also exposed to the effects of climate change, which can pose significant challenges to its hydropower systems. To minimise the adverse effects, governments and utilities need to scale up their efforts to address potential climate risks and identify effective measures to enhance resilience to climate change. In the case of renewable energy, rapid solar photovoltaic expansion in Vietnam boosted the region’s capacity additions to a record 13 GW in 2020 – 60 per cent higher than in 2019.

However, the phasing out of feed-in tariffs in Vietnam and relatively sluggish renewable energy growth in Indonesia and Thailand may lead to a two-thirds decline in 2021 and 2022 relative to 2020. Besides, securing low-cost financing from large international investors for renewable energy projects is a challenge, especially in the absence of enabling policies. Another key issue is the lack of grid infrastructure for renewable energy integration, as the national grid is fragmented because of the region’s geography. Even if it was to be achieved, greater SEA interconnectedness, both internally and with the larger global economy, could translate to concerns over energy independence.

Although several SEA countries have already begun to implement the development of energy storage at the technical level, specific policies to encourage further adoption of these storage systems lag behind. According to the ASEAN Centre for Energy, only a few SEA countries have related policies. Investment in the power sector in SEA needs to increase significantly. Under the stated policy scenario, cumulative investment between 2025 and 2030 needs to reach $350 billion; while it needs to reach $490 billion under the sustainable development scenario, according to the IEA World Energy Outlook 2020. Both scenarios also require much higher levels of investment in electricity transmission networks not only to better integrate renewables but also to meet energy security, sustainability and access goals. While public financing will continue to be important for SEA, the region must explore private participation to bridge the financing gap.