[ASEAN]Opportunities and challenges for new energy development in ASEAN countries
Author: Gu Baihe, Associate Researcher, Institute for Strategic Consulting in Science and Technology, Chinese Academy of Sciences
Yu Donghui, Graduate Student, Institute for Strategic Consulting in Science and Technology, Chinese Academy of Sciences
Since the Russia-Ukraine conflict, a new round of energy crisis has spread around the world, and energy security has once again become the focus of attention for all countries, with more and more countries beginning to reflect on the negative effects of reliance on high fossil energy development.
The green and low-carbon transition is becoming a new driving force for countries to stimulate economic growth and achieve a green recovery, and the development of new energy sources is a crucial part of this.
ASEAN countries are recovering from the new epidemic and, as one of the world's most dynamic regions, are seeing a strong economic recovery, accompanied by a further rise in energy demand.
In its Southeast Asia Energy Outlook 2022, the International Energy Agency (IEA) states that "Southeast Asia's reliance on fossil fuels to meet growing energy demand has proven to be one of the biggest weaknesses in regional development in today's energy crisis." The IEA also highlighted the urgent need for Southeast Asia to accelerate its energy transition.
In November this year, ASEAN mentioned in its COP27 joint declaration that the overall share of renewable energy in ASEAN's total primary energy consumption has reached 14.32%, with the share of installed renewable energy rising to 33.5% by 2020, while ASEAN will further expand its investment in renewable energy, emerging low-carbon energy, energy storage, green hydrogen and other green alternative technologies in the future.
While ASEAN is well motivated to develop new energy sources, accelerating the development of new energy sources requires not only appropriate policy design, significant financial support, a benign market environment and a robust and just transition (a transition to a low carbon economy that minimises the negative impacts of moving away from fossil fuels and maximises the benefits to workers, communities and consumers), but also the financial resources, technology and experience that international cooperation can bring.
ASEAN has a bright future for new energy development
ASEAN is in a phase of rapid development, with urbanisation for example, with the number of people living in cities set to climb from less than 50% today to over 60% by 2040, increasing demand for air conditioners alone by 300 million units. This means higher energy demand, and filling the energy demand gap is one of ASEAN's top priorities for energy technology development.
Driven by ASEAN's rapid economic development, ASEAN's electricity demand has grown at a staggering 6% per annum over the past 20 years, or by about a third every five years, and the IEA forecasts that the region's electricity consumption will continue to grow at an average rate of 4% per annum until 2040, when total electricity consumption will be twice as high as it was in 2020.
The volatility of fossil fuel prices, such as coal, is having a serious impact on ASEAN countries' fossil energy-dependent power systems, and the development of new energy sources will be the only option for ASEAN to sustain a low-cost energy supply.
Consensus is building for the development of new energy sources in ASEAN countries, and both ASEAN as a whole and ASEAN countries have set targets for the development of renewable energy. By 2025, the share of renewable energy in the primary energy mix of ASEAN countries will reach 23%.
The ASEAN Energy Centre estimates that under a scenario where each country fully meets its national energy efficiency and renewable energy targets, total installed renewable energy will reach 37% by 2040, with photovoltaic being the fastest growing of all power sources, with an average annual growth rate of 10.4%.
The ASEAN region has huge potential for renewable energy resources development and utilisation. The ASEAN region has some of the best hydropower development potential in the world, particularly in Indonesia, Myanmar and several lower Mekong River countries. The OECD estimates that Laos alone has a hydropower potential of around 26 GW. The region also has very strong levels of global light radiation, averaging 1.5-2 megawatts per square metre per year, comparable to the solar light levels in the Ningxia and Xinjiang regions of China.
This, coupled with high quality resource reserves in wind, geothermal, marine and biomass energy, makes the future of renewable energy development in the ASEAN region quite bright.
In terms of cost of energy use, the cost of renewable energy is decreasing worldwide, and renewable energy has become the cheapest source of electricity in most ASEAN countries.
The International Renewable Energy Agency (IRENA) estimates that the LCOE (Levelised Cost of Energy) of PV in Southeast Asia in 2021 will be in the range of US$0.05-0.075 per kWh, already below the average price of fossil fuels in the G20 countries.
The lower energy prices and the potential economic and social benefits of new energy development have led more and more ASEAN countries to take practical action to promote new energy development.
Challenges cannot be ignored
Despite the strong desire to develop new energy sources, ASEAN countries face a number of challenges on the road to development, given their complex national circumstances.
Firstly, ASEAN's own energy mix is heavily reliant on coal-based fossil fuels, with installed capacity of coal power reaching 89GW in 2019 and expected to double to 163GW by 2040. in the context of the global clean energy transition, the accelerated withdrawal of coal power will exacerbate power system and energy security risks in ASEAN.
The decommissioning and retrofitting of young coal power plants is also a challenge that ASEAN will have to face in the process of developing new energy sources. The average life span of coal power plants in operation is about 11 years. The clean energy transition will lead to the early retirement of a large number of coal power plants, accompanied by a high risk of stranded assets.
Carbon Tracker reports that over 70GW of coal plants are currently planned or under construction in Southeast Asia, with US$124 billion of coal investments at risk. With the withdrawal of coal power comes the risk of a just transition, with a large number of jobs dependent on the coal chain facing impact, and the impact on social stability will be a concern.
The lack of a stable power industry policy and the low level of electricity marketization are also among the important factors limiting the development of new energy. Indonesia, the second best country in the world in terms of geothermal resources, is actively developing geothermal energy, but geothermal price subsidies have been revised more than five times since 2008, and such frequent policy changes have deterred many investors from taking the plunge.
Currently, the overall level of marketisation of electricity in most ASEAN countries is still low, and market flexibility is still limited by the community of interest formed by the power sector and the coal sector, which is difficult to separate.
In addition, most ASEAN countries have a low capacity for clean technology innovation and a low level of core R&D. ASEAN's own talent output cannot meet the current large-scale new energy development, resulting in a large technology and talent gap.
Although ASEAN is actively working on inter-regional power grid cooperation projects such as the ASEAN Power Grid within ASEAN, with a view to balancing power demand across countries and maximising the use of renewable energy. However, most ASEAN countries have weak power infrastructures, such as Indonesia, which has a fragmented power grid due to the large number of islands, making it difficult to use new energy on a large scale.
Finally, ASEAN itself faces a huge funding gap to develop new energy sources. According to a study by the ASEAN Energy Centre, Vietnam has the highest investment in new energy among ASEAN countries, but it is only a third of that of Chile, which is ranked 20th in the world. Weak financial and capital markets and a lack of experience with green financing all pose challenges to the development of new energy sources.
International cooperation to boost new energy development in ASEAN
Economic dynamism and high energy demand have brought about numerous opportunities for international cooperation.
Over the past few years, international cooperation models with ASEAN have increased from financing to technical solutions, such as the German Agency for International Cooperation's (GIZ) Technical Assistance Energy Support Programme (ESP) in Vietnam, which provides investments of around €6.9 million over the period 2014-2018.
USAID's Green Prosperity Indonesia programme is investing over USD 300 million to support Indonesia's energy transition, and USAID's Clean Power Asia programme is investing over USD 750 million in Southeast Asia.
At COP27, the Asian Development Bank announced $150 billion in financing for green projects in Southeast Asia "to achieve a prosperous, inclusive, resilient and sustainable Asia-Pacific region"
In September 2021, President Xi Jinping announced a halt to new overseas coal power projects, and in the same year, China released the Belt and Road Green Energy Cooperation Qingdao Initiative, which mentioned that future green energy cooperation between China and Southeast Asia would become a key focus of regional energy cooperation.
At the ASEAN+3 Ministerial Meeting in September 2022, China, Japan, Korea and ASEAN announced further cooperation in the field of renewable energy. In the post-meeting report, it was highlighted that a series of capacity building activities on PV+ between the China Institute of Water Resources and Hydropower Planning and the ASEAN Energy Centre, supported by the ASEAN China Cooperation Fund, have yielded good results. The new energy cooperation between China and ASEAN has started to move from simple investment and trade to capacity building cooperation, and the breadth and depth of cooperation is expanding.
Making good use of its financial and technological advantages and sharing best practices is the basic grasp for China's continued participation in ASEAN's new energy cooperation. ASEAN has made the energy sector an important part of its post-epidemic economic recovery, and new energy will provide important opportunities for ASEAN to achieve balanced economic, social and environmental development.
China should actively engage in dialogue with ASEAN countries to share its experience in the development of low-carbon transition in electricity, such as the development of photovoltaic, wind power and electric vehicles, policy considerations for the orderly withdrawal of coal, etc., and provide locally tailored energy transition planning solutions. Carry out international cooperation with ASEAN countries on clean energy technologies and funding, promote the clean transformation of the stock of coal-fired units in the light of the actual situation in ASEAN countries, and promote cooperation in renewable energy technologies, smart grids, distributed energy systems, energy storage technologies and other areas, and form international standards. Actively support the upgrading of power grids in Southeast Asian countries and promote cross-country grid interconnection.