Adapted from the ThaiWEA Newsletter
Industry Pulse: South East Asia Energy Transition
The nations of South East Asia continue to press for economic growth, and energy demand will increase with economic and population growth. A growing urban middle class is driving residential and service-sector electricity demand. The region is still highly reliant on fossil fuels, with demand outstripping production.
The region is increasingly dependent on imports, resulting in greater concerns on energy security and exposure to commodity prices. The transition to cleaner and greener energy sources in the region has tended to lag behind more developed countries. However, the policy is gradually moving to reconcile growth with domestic concerns over air quality and health and to enhance national self-reliance.
Until now, Thailand has led the region in wind and solar, with slower growth in the Philippines and Indonesia. However, the powerhouse of renewables growth in the region in 2019 has been Vietnam, with solar, offshore and onshore wind developments.
Nevertheless, the region has significant policy uncertainty regarding renewables ambitions and promotion policies. Energy is highly politicized and fossil fuels remain effectively subsidized, with both producer and consumer subsidies from governments. These hinder renewable-energy developments and slow the transition towards new technologies in generation and energy efficiency.
GROWING ENERGY DEMAND
According to the DNV GL Energy Transition Outlook (ETO), energy demand in SE Asia will continue to grow in coming decades. Much of this increase will come from buildings, due to population growth and an increase in income per capita, leading to greater demand for space cooling and appliances. Energy demand for transport and manufacturing will also grow. The share of electricity in final energy demand will continue to rise, from 15% in 2017 to 41% in 2050. All three main sectors will see strong electrification in the period. The 2050 electricity mix will be dominated by solar PV, with more than one third of the electricity supply, followed by natural gas and wind. Due to the region’s geography and topography, offshore wind is expected to be large, with 15% of overall electricity supply.
Oil, currently the largest energy carrier, will remain relatively stable. Beyond 2030, natural gas will overtake coal, with both coal and natural gas challenged by growing renewables in the power sector. Solar PV and wind will both see strong growth, but fossil-fuels will continue to dominate to 2050.
South East Asia electricity generation by power station type
Source: DNV GL Energy Transition Outlook 2019
POINTERS TO THE FUTURE
- Meeting surging energy demands from ever-increasing populations in expanding economies is the key priority for South East Asian countries.
- Soaring gas demand will drive LNG regasification capacity growth by 330%. Governments in Thailand, Indonesia, Malaysia, and Vietnam have EVmanufacturing ambitions, with fiscal incentives to automakers. The well established, traditional two-wheeler fleet will electrify.
- The region is well placed for electrification through its renewable-resource potential. However, lack of certainty about policy direction, with bank dominated funding categorizing large-scale renewable projects as risky, as well as vested interests in hydrocarbons, are throttling renewable-energy investments in the region. Singapore is the first to introduce a carbon tax in 2019 and the region is expected to be pulled along by China’s carbon pricing efforts. A likely first step is removal of fossil-fuel subsidies.
- Gas and power networks largely operate in isolation, and the stresses on grid infrastructure from integration of variable renewables need to be handled. Grid initiatives will contribute to greater collective energy security and stability, and the Association of Southeast Asian Nations’ Power Grid vows to do more to build a regional power grid. The Laos-Thailand- MalaysiaSingapore Power Integration Project is a first step in this direction. Some countries in the region (e.g., Philippines, Vietnam, Malaysia) are transitioning from vertically integrated market structures towards competitive electricity markets, which will encourage new and efficient generation.
- Cheap coal from Indonesia and Australia, combined with lower demand from other countries, will flood the regional energy market, putting pressure on transition mechanisms. Australia is predicting a growth in export of coal to Cambodia, Myanmar, and the Philippines to replace potential lost exports to China.