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Southeast Asia is one of the fastest-growing regions in the world. The region’s gross domestic product (GDP) grew 66 percent from 2006 to 2015 and, if all 10 countries were one economy, it would be the seventh largest in the world. This growth is projected to increase, averaging just over 5 percent annually from 2018 to 2022. With economic growth comes demand for energy. Southeast Asia’s power markets are undergoing profound change as rapidly growing GDP brings significant demand for electricity. Power demand in the region is expected to continue to grow dramatically, more than doubling by 2040.
Coal, natural gas, and hydropower are the three main sources of electricity generation in Southeast Asia, but the share of each has been shifting over time. However, renewable energy (wind, solar, geothermal, and sometimes hydro and biomass) is capturing an increasing, although not dominant, amount of attention from policymakers, investors, and the private sector as an important part of meeting this demand. Factors that drove the development include the economics of power generation, efforts to reduce greenhouse gas emissions, energy security concerns, and concerns over local air pollution.
Southeast Asia's growth in electricity demand is
among the fastest in the world-
The distribution of renewable energy resources is not equal for example, solar and bioenergy potential are relatively well-distributed, but hydro potential is significant in Cambodia, Laos, Myanmar, and Thailand, geothermal potential is limited to Indonesia and the Philippines, and wind potential is highest in Indonesia, the Philippines, Thailand, and Vietnam. Singapore is notable in that it has no exploitable natural resources and no hydro, wind, or geothermal potential. However, it does have solar potential, which the country is beginning to exploit. The ASEAN member countries have committed to increasing interconnection of their grids with the ultimate goal of building a regional ASEAN power grid.
Note
Existing Interconnections
--- Planned Interconnections
Across the region, there are at least nine cross-border power grid projects totalling 5.2 GW in capacity. Six projects worth 3.3 GW are under development, and another 16 projects worth 23.2 GW are planned. These projects form part of a wider strategy to enhance energy connectivity and market integration across the region to achieve energy security, accessibility, affordability and sustainability. Energy market integration and connectivity lie at the heart of the current ASEAN Plan of Action for Energy Cooperation (APAEC) and are seen to be essential for building the ASEAN Economic Community.
The single-buyer model with independent power producers (IPPs) is most prevalent in the region. In several Southeast Asian countries, national and state utility companies monopolise their respective jurisdictions and act as sole offtakers for IPPs. Cambodia has a unique power sector structure in the region with a strong presence of mini- utilities that have been operating since the 1970s. Singapore and the Philippines operate liberalised retail electricity markets. Private participation has played a key role in the ASEAN-5’s power sectors, where IPPs contribute more than half of these countries’ aggregate installed capacities. In 2006, the Vietnamese government approved a roadmap for the establishment of a competitive electricity market to improve the power industry’s competitiveness and independence. As of end- 2016, power generators were allowed to enter the market and sell electricity to the only buyer, Viet Nam Electricity. Given the liberalised power sectors of the Philippines and Singapore, electricity tariffs in these countries are market driven and among the highest in the world. In other countries, tariffs are regulated and controlled by the government. Tariffs, in particular residential, in Brunei Darussalam, Lao PDR, Myanmar and Thailand are among the lowest in the region.
Structure of Electricity Markets in Southeast Asia
Vertically Integrated Regular Utilities
Single buyer model with IPPS
Wholesale Spot Market
Retail
Competition
Electricity Future Market
Malaysia
Thailand
Indonesia
Brunei
Lao PDR
Myanmar
Cambodia
Philippines
Singapore
Vietnam
Source: KPMG
Cambodia: The Electricity Law of 2001 provides guidelines for issuance of power licenses by the Electricity Authority of Cambodia.
Indonesia: IPPs can sell renewable electricity to PLN (the state-owned power distribution company) through a direct selection process. Since 2015, permit procedures for electricity production have integrated into a one-stop service to streamline the procedure.
Lao PDR: The permitting procedure consists of numerous feasibility studies, impact assessments and submission of proofs of technical and financial capabilities.
Malaysia: The Renewable Energy Act outlines the terms for obtaining a feed-in approval certificate to generate renewable electricity and the tariffs offered. The rules and regulations outline the laws related to renewable energy generation and plant operation.
Philippines: A web-based platform, “the energy virtual one-shared system,” is used to facilitate and streamline applications. The evaluation process cannot exceed 45 working days.
Singapore: Licensing requirements for intermittent generators depend on the size of the installation. Enhancements made in 2015 clarify the licensing framework and streamline market registration and settlement procedures.
Thailand: The Energy Industry Act of 2007 established the Energy Regulatory Committee that grants permits to any energy operation, with or without remuneration.
Viet Nam: A circular was issued in 2015 that regulates the sequence, procedures for issuance, revocation and duration of power operation licenses required for power plants with an installed capacity of 50 kilowatts (kW) and above.
Investment in Energy in the ASEAN region in 2017
F
Electricity Networks
$14 Bil
E
Fossil Fuel Power Generation
$9 Bil
D
A
B
C
E
Oil and gas, upstream/ downstream
$30 Bil
Note
A: Renewable Transport & Heat
B: Coal Mining & Infrastructure
C: Energy Efficiency
D: Renewable Power Generation
​
Source: UNESCAP, Statistical Perspectives, Energy and Development in the ASEAN Region Report
Expansion of regional electricity needs presents a significant opportunity for foreign investment. According to the International Energy Agency, modernizing the regional electricity infrastructure requires US$1.2 trillion of investment between now and 2040. A pathway in line with the Paris Agreement and the United Nations Sustainable Development Agenda would require an extra $300 billion and greater investment in renewables than in fossil fuels or in transmission and distribution assets. Several countries around the region are leading investors in Southeast Asia including China, Japan, Korea and United States.
Recent declines in the cost of solar PV and wind have strengthened the economic case for the adoption of renewable energy. Juxtaposing a technology’s cost against its benefits is important to understand the long- term impacts of transitioning to a particular energy source. Solar PV experienced the most significant cost reduction from 2012 to 2016. Weighted average installed costs were USD 3,915/kilowatt (kW) in 2012 and USD 2,134/kW in 2016 – a 45% decline in four years, which is in line with the global average during the period. Weighted average installed costs for onshore wind also decreased, from USD 2,627/kW in 2013 to USD 2,342 in 2016 – an 11% difference also in line with the global average. geothermal is the only technology that has seen a slight increase in weighted average investment costs, from USD 2,937/kW in 2014 to USD 3,185/kW in 2016. Geothermal costs are highly dependent on the quality and quantity of the resource (and associated economies of scale) and the technological options chosen to develop a site. The observed increase in investment costs of 8% is most likely because of the quality of sites being developed in 2014 and 2016. Hydro costs virtually stayed the same from 2011 to 2016 at around USD 1,500/kW. Capital costs of bioenergy projects vary significantly depending on size and location. Bioenergy costs for a subset of 53 projects commissioned between 2010 and 2016 ranged between USD 900/kW and USD 2,433/kW with a weighted average of USD 1,660/kW.
Achieving the regional target of 23% of renewable energy in primary energy by 2025 requires an estimated investment of USD 27 billion a year compared to USD 2.6 billion in 2016
Given the favourable conditions of investment cost and local Government's incentives, the renewable energy sector has grown in the region, the capital mix and the range of financing institutions engaged has, therefore, also evolved. Beginning with a key role for development finance backing large-hydro, geothermal and bioenergy projects before 2000, followed by increasing private sector investments supported through public-private partnership models and carbon markets. The diversity of financial actors engaged in the sector has grown providing equity and debt financing, while also setting the stage for unlocking capital through less developed avenues such as green bonds and climate funds. Indeed, the countries in the region are at different stages of financial sector maturity and development of the renewable energy sector. Public finance will continue to have an important role to play – around USD 6 billion has been invested cumulatively by development banks in renewable energy between 2009 and 2016. Scaling-up investment to the levels needed to achieve the regional aspirational target of 23% primary energy from renewable energy by 2025, will require efforts to catalyse private investments and address macroeconomic, regulatory and financing-related barriers.
Explore Opportunities-
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