- We remain broadly optimistic on the development of the ASEAN Power Grid Initiative (APG), although we believe that any concrete electricity trading will happen outside of our forecast period.
- We believe that strong government commitment will drive progress in the initiative, with Thailand and Laos set to be key players.
- Over the longer term, increased electricity trading will also support the broader decarbonisation goals in the region.
We remain broadly optimistic on the development of the ASEAN Power Grid Initiative (APG), a cross-border regional grid system across South East Asia that would achieve stronger regional power market integration. The APG has gained traction in the last few years after being mooted for decades. While most cross-border trading in the region remains bilateral, we note that ASEAN governments have repeatedly reiterated their commitment to the APG. Most recently, Singapore has announced that it is looking to import 100MW of electricity from Malaysia under a two-year trial period, via an existing electricity interconnector between the two markets. The Energy Market Authority intends to issue a Request for Proposal by March 2021, which could see the trial begin at end-2021. We note that this will be the first time that Singapore engages in any electricity trading, and sets the stage for phase 2 of the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS PIP). At present, the respective governments and Heads of Power Utilities are reviewing the first phase of the LTMS PIP, which is the first multilateral connection in the region. The aforementioned governments are also expected to sign a Memorandum of Understanding on this at the upcoming ASEAN Energy Ministerial meeting next month. Concurrently, ASEAN governments are also looking at a separate Lao PDR-Thailand-Myanmar power integration project. Nine power interconnection projects have already completed construction to date, with several ongoing cross-border transmission projects also underway. We believe that these latest developments form a good starting point for the region to move toward realising the initiative.
That said, we believe that any concrete electricity trading will happen outside of our forecast period. The APG is currently still at its nascent stages, with most trading being bilateral and unidirectional. The main obstacles to greater power sector cooperation among various members of ASEAN are policy and technical issues. This is because power markets in the region are at different stages of development and have different regulations (including on market structure and mechanisms, power prices) and technical issues (such as voltage and frequency, wheeling charges), which governments have not yet reconciled. Furthermore, there needs to be mutual agreements on data and information sharing, which lies on a fine balance between creating an efficient trading market, and protecting sensitive information on critical infrastructure. Difficulty in attaining infrastructure financing to build more cross-border transmission lines, particularly in some high-risk markets, will also present challenges. These factors present downside risks to realisation and mean that implementation will be slow.
We believe that Laos is well-placed to become a main beneficiary, as the APG will be crucial for Laos to fulfil its electricity export ambitions. Laos has established hydropower development as part of their economic growth strategy, as they seek to become the ‘battery of Southeast Asia’. The country is well-placed to become a significant exporter of power, as the country contains a sizeable hydropower potential (estimated at 26GW), but domestic power demand is limited due to its small population size. Concurrently, power consumption in the wider Southeast Asia region is set to rise rapidly, as power demand from burgeoning manufacturing centres and the economy continues to grow. Laos commitment to boosting exports and making the country a regional hub for electricity was reaffirmed when the government announced a detailed strategic plan in 2019, which outlined for increasing power generation capacity for exports to 14.8GW annually by 2025, and to develop policy parameters for modernization of the grid and improved interconnections. Despite opposition to hydropower plants, we believe that Laos will continue to forge ahead with its ambitious plans, and be largely successful in ramping up power capacity and exporting excess power to its regional neighbours. Laos has already been exporting electricity to its five neighbouring states, as well as to Malaysia via Thailand’s transmission lines in the first phase of the LTMS PIP. We forecast that by 2029, Laos will be exporting a net 29.9TWh of electricity annually, up from an estimated 23.2TWh in 2019.
We believe that Thailand will also be a key player in facilitating the APG, given its geographic location in the region. Thailand is increasing its power trading with neighbouring countries, with Laos well placed to become a noticeable exporter. At present, Thailand has already signed PPAs to buy a total of 6,000MW of power from Laos, and this is expected to increase to 9,000MW by 2030. The Ministry of Energy has formed a working group with the aim to promote Thailand as the regional power trading hub by improving grid connections and high-voltage transmission lines across the country. The latest power development plan envisions surplus electricity generated in Thailand and Laos, which can be sold to other regional neighbours. As at September 2020, the Electricity Generating Authority of Thailand (EGAT) has signed a cooperation deal with the Stock Exchange of Thailand (SET) to conduct a deeper study into establishing a wholesale electricity market, and the need for revised regulations around electricity trade and businesses to facilitate these plans.
Over the longer term, increased electricity trading will also support the broader decarbonisation goals in the region, as renewables continue to register cost deflation. We expect to see robust growth in renewables capacity across several markets, amid strong ongoing regulatory support and rising investor interests. That said, its integration into the grid still remains limited compared to its capacity potential, due to cost concerns and grid bottlenecks. The realisation of the APG could unlock substantial new demand streams, particularly in more developed power markets which are typically in a better position to explore renewable technologies at present. For example, Singapore has explicitly stated that it wishes to import electricity from renewable energy sources in the upcoming trial. While Singapore remains keen to boost its domestic solar potential, land constraints will remain a significant hurdle for any substantial ramp up in renewable capacity. Concurrently, Malaysia’s solar sector is poised for stronger growth and has seen oversubscription and record-low bid prices in its latest auctions. As such, there’s some interest in supporting the development of utility-scale renewable facilities abroad (in Malaysia) that can generate clean electricity, which can then be imported into Singapore, in a win-win situation for both markets.
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