Southeast Asia (SEA) is a very diverse and dynamic region, but policymakers across different countries have been intensifying their efforts to build a secure, affordable and more sustainable energy sector. This includes action to facilitate investment in fuel, power supply and infrastructure, while also focusing on efficiency. Overall, East Asia and SEA’s electricity access rate stands at 98 per cent. The Covid-19 pandemic and declining fossil fuel reserves have brought to the fore issues impeding the sector. However, the region has a robust renewable energy potential, which is driving increasing international investments and assistance into the region.
Size and growth
Rising economic conditions of the SEA countries have led to a rapid increase in energy demand of the region. To meet this demand, the region’s installed power capacity has grown from 191.71 GW in 2014 to 255.4 GW in 2019, recording a compound annual growth rate (CAGR) of 5.9 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. Timor Leste, which got independence in 2002, has less than 1 GW of installed power capacity as its economy has still not completely stabilised. Brunei also has power capacity of less than a 1 GW, but it has a very small area and is a rich economy with 100 per cent electrification.
SEA is a renewable-energy-rich region with a solar potential of over 41 TW and wind potential of 1.8 TW. However, in spite of the large potential for renewable energy, the uptake has been limited. As of year end 2019, SEA’s total installed capacity of renewable energy stood at 72.3 GW, recording a CAGR of 7.6 per cent from 50.19 GW in 2014. Majorly, Thailand, Vietnam and Indonesia contribute to 63.7 per cent of SEA’s total renewable capacity, while Brunei and Timor Leste have low renewable capacities, with no significant additions over the last five years. Meanwhile, Singapore’s renewable energy capacity has almost tripled in the last decade.
The SEA region has large gas and coal reserves which makes them an affordable option for power generation. Hence, in terms of fuel mix, fossil fuel-based plants comprising coal, gas and oil have the highest share (69 per cent) in installed power generation capacity. Hydropower dominates the energy mix of the region among renewables that contribute to a fifth of the total installed capacity, while non-hydro renewables account for only 10 per cent of the energy mix. Nuclear power is beginning to see an uptake only recently and thus, has been absent from the fuel mix.
Transmission and distribution
Among SEA countries, Indonesia has the largest transmission network with a line length spanning 58,959 circuit km and transformer capacity of 144,408 MVA. Malaysia and Thailand are next with extensive transmission infrastructure, while Cambodia and Brunei are at the lower end of the spectrum.
The increasing electricity demand and growing electrification rates in Southeast Asia require augmentation of distribution infrastructure to ensure quality power supply to consumers. In terms of growth rates, Cambodia’s distribution line length recorded the highest CAGR of over 26.9 per cent between 2014 and 2019. The distribution line length in Indonesia and Lao PDR has grown at a CAGR of 3.6 per cent and 4.6 per cent respectively during the same period.
The number of electricity consumers in the SEA region grew from about 122 million in 2014 to over 156 million in 2019, recording a CAGR of 4.9 per cent. Electricity sale also grew exponentially to reach over 980 BUs in 2019 from 750 BUs in 2014, at a CAGR of 5.5 per cent. Indonesia accounted for nearly 50 per cent of the consumers and 25 per cent of electricity sales in the region. Distribution losses in the SEA region have varied between 5.12 per cent and 14.75 per cent in the last six years. Laos and Cambodia have the highest losses in the range of 10-15 per cent in the region, while other SEA countries have recorded single digit distribution losses in the last three years.
Key trends and developments
Electrification rates: Electrification rates have increased significantly in SEA countries. All SEA countries except Cambodia, Myanmar, Lao, the Philippines and Indonesia have 100 per cent electrification. Myanmar reported the lowest electrification at 66 per cent in 2018. Overall, East Asia and SEA’s electricity access rate stood at 98 per cent.
Technological advancements: Coal-based thermal power plants are adopting ultra-supercritical (USC) technology to enhance efficiency, with Indonesia and the Philippines already having commissioned their first USC plant in 2019. For curtailing sulphur oxide (SOx) and nitrogen oxide (NOx) emissions, various technologies such as flue gas desulphurisation, selective catalytic reduction, selective non-catalytic reduction systems, and low-NOx burners are being adopted. Greater use of digitalisation and automation for operations and maintenance is being done for larger plants. The next phase of digital transformation through smart grids and advanced metering infrastructure is also under way. Further, blockchain and microgrid technology are also gaining traction.
Increasing investments in renewable energy: The SEA region has witnessed an increase in international investments in the renewable power space. Vietnam saw investments of $2.6 billion in the renewable energy sector in 2019, whereas Indonesia received only $0.4 billion of investment in the same period – less than Cambodia, a country with a fraction of Indonesia’s population. A major upcoming investment in renewables includes the South East Asia Clean Energy Facility’s (SEACEF) plan to invest $2.5 billion in clean energy in SEA and aid the region’s green recovery.
Expanding the ASEAN Power Grid (APG): The APG is a key programme under the ASEAN Plan of Action for Energy Cooperation (APAEC). It aims to facilitate electricity trading among SEA countries and enhance their integration. The APG has progressed gradually from bilateral to subregional arrangements. The current regional cross-border transmission capacity among ASEAN member states stands at 2,275 MW. Since 2005, electricity trade in ASEAN member states has increased by over five times to 35 TWh. Notably, the power export from Lao PDR to Thailand accounts for about 79 per cent of power trade volumes.
Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP): LTMS-PIP is the first multilateral power trade pilot project in ASEAN. The energy purchase and wheeling agreement (EPWA) was signed by Lao, Thailand and Malaysia in 2017. It entails power trade up to 100 MW of hydroelectricity from Lao to Thailand. As of August 2020, a total of 30.2 GWh of electricity has been traded under LTMS-PIP Phases I and II.
Move towards electric vehicles (EVs): The SEA countries are witnessing growth in the adoption of EVs due to environmental concerns. As per Bain estimates, the SEA region’s annual new investment in passenger EVs will grow to $6 billion by 2030 and another $500 million will be required in new charging infrastructure to support electrification needs. So far, Thailand, Singapore, Indonesia, Malaysia and the Philippines have launched supportive EV policies and regulation.
Impact of Covid-19
Like the rest of the world, the electricity consumption in the SEA region reduced significantly and shifted largely to the residential sector, creating an overall change in daily load profiles. During the lockdown period in March and April 2020, the daily power demand in the region declined by an estimated 8 per cent to 26 per cent, translating into 0.6-3.5 per cent of power demand in 2019 over the lockdown period (as per IHS Markit).
The decline in demand has impacted entities in the entire power value chain. For independent power producers (IPPs), the sudden unplanned reduction in demand has led to less revenue, which has affected their debt servicing obligations and operating expenditures. Due to lower energy demand during the Covid-19 outbreak, Indonesia’s PLN posted a Rp 12.2 trillion loss in the January-September 2020 period as compared to a profit of Rp 10.8 trillion in the same period in 2019. Similarly, Philippines’ Manila Electric Company’s (MERALCO) consolidated core net income declined by 14 per cent in the first half of 2020 to PhP 10.6 billion from PhP 12.3 billion a year ago. The Electricity Generating Authority of Thailand (EGAT), the Metropolitan Electricity Authority (MEA) and the Provincial Electricity Authority (PEA) also struggled to remain liquid after extensive spending to subsidise power bills from March to June 2020.
In several SEA countries, contractual purchase of electricity is governed by power purchase agreements (PPAs) wherein the offtaker is obligated to buy the entire electricity, at a floor or ceiling price. Covid-19 has led to a situation of oversupply and a utility like Indonesia’s PLN is now in a situation where it must pay for the capacity even when it does not need it. However, Meralco, an electric distribution utility in the Philippines, has invoked force majeure in several PPAs during the lockdown. Meanwhile, EGAT is considering delaying the commercial operation dates of small power producer plants with PPAs due to existing overcapacity.
The pandemic also adversely disrupted the supply chain and brought project development activities to a standstill, mainly due to restrictions on movement of equipment and labour. Utilities also face the challenge of potential project cost overruns.
Issues and challenges
The majority of SEA’s power generation is through fossil fuels. The domestic reserves in SEA countries are declining, which implies that SEA may become a net importer of fossil fuels in the next few years. Many SEA countries have moved to natural gas which has also reduced the surplus of gas for export. As per the International Energy Agency (IEA), this will raise the financial burden on the SEA governments. Moreover, as the energy mix of the region is less diverse, energy security may become a challenge in the future.
A key issue is the lack of grid infrastructure for renewable energy integration. This issue is more prominent in countries like Indonesia and the Philippines where there are problems in integrating renewable energy to the national grid. Also, the national grid is fragmented because of the region’s geography.
Further, the SEA countries still have high fossil fuel subsidies, challenges in acquiring land for power projects, delayed approval processes and lack of a transparent tendering processes. In the case of renewable energy, while most countries have adopted a competitive bidding approach, majority of the countries in SEA continue to rely on feed-in tariffs (FiTs). Also, with many developing and low-income economies in the region, low-cost financing from large international investors is a challenge in the renewable space especially in the absence of enabling policies.
Apart from these issues, the SEA region has long suffered from economic and political hardships which have hindered the development of its energy sector. Laos, Cambodia and Indonesia have high T&D losses. Electricity theft and billing/collection problems also remain key issues. High costs for grid infrastructure development have led to a slow expansion of electrification in remote areas across SEA.
As per the IEA’s Southeast Asia Energy Outlook 2019, electricity demand is expected to double in the region in the next 20 years to 2,000 TWh. Meanwhile, the share of renewables in power generation is expected to rise from 24 per cent in 2018 to 30 per cent by 2040. As per the IEA, the region’s investment needs under the stated policies scenario stands at $2.5 trillion, while it is $3.2 trillion under the sustainable development scenario during 2019 to 2040. Notably, Indonesia accounts for one-third of the investment needs. However, the report highlights that the current investment trends are not aligned with stated policies and require a sizeable reallocation of capital.
Renewable energy can be a major contributor in meeting the growing energy demand in the SEA region, going forward. As per a Greenpeace report (December 2020), China, Japan and South Korea have identified a $205 billion opportunity for renewable energy finance in SEA in the next 10 years. As per a report (November 2020) by Bain and Company, going green could bring up to $1 trillion in annual economic benefits to SEA economies by 2030. Further, SEA’s emerging green bonds market is also making an international shift away from fossil fuel finance. While SEA countries like the Philippines, Indonesia, Thailand and Singapore have begun adopting energy storage systems, the steps to implement utility-scale energy storage have been slow in Malaysia. Utilisation of energy storage will increase the portion of renewable energy for energy supply by providing a more efficient and stable grid. Furthermore, it can even support SEA’s island nations to achieve a 100 per cent electrification ratio by utilising energy sources available on each island.