Economic disparities, differing policies holding back Asean's energy transition plans

This article was licensed through Dow Jones Direct. The article was originally published on Business Times Singapore.

The Asean (Association of South East Asian Nations) power grid was first mooted in the late 1990s as a way for South-east Asian nations to cooperate in energy efficiency and conservation, as well as work on developing renewable energy sources.

More than 20 years on, this regional grid is, pretty much, still just an idea.

The Asean power grid is a casualty arising from the lack of a common regional policy on energy cooperation, said Philip Andrews-Speed, a senior principal fellow at the National University of Singapore's Energy Studies Institute.

"Moving forward with the low-carbon energy transition requires three things: sustained political will, state capacity and finance. Without the first two, the third will not come. Few governments in Asean have shown sustained political will, (and many) lack the capacity to formulate and implement coherent and appropriate policies to attract investors," said Andrews-Speed.

Other experts and energy players also cited economic disparities and differing energy policies across Asean member states as factors holding back this region's transition to cleaner energy, despite its huge potential.

Economic disparities and grid reliability

Member states of Asean have put up an action plan for energy cooperation since the late 1990s. Under the latest Asean Plan of Action for Energy Cooperation (APAEC), member states aim to expand multilateral electricity trading and increase the share of renewable energy to 23 per cent by 2025 in the region's energy mix.

However, Andrews-Speed said that the APAEC is mostly an aggregation of national plans of each Asean member state rather than a true regional plan.

While diversity has often been touted as Asean's strength, it can also be a weakness in the area of energy transition.

"It's such a diverse mix of nations at very different stages of growth. So ... you cannot expect the same kind of involvement or the same kind of commitment towards renewables like a developed country can have," said Kohe Hasan, who is a partner at international law firm Reed Smith and specialises in energy and commodities law.

For one, there are still parts of Asean that still do not have access to cheap and stable power supply, which has traditionally, until the advent of the Russia and Ukraine war, come from the burning of fossil fuels.

While energy access has been improving in South-east Asia where around 95 per cent of households today have electricity, the reach is lower in countries like Cambodia and Myanmar, according to the International Energy Agency's (IEA) 2022 energy outlook for South-east Asia.

Energy access to all at an affordable cost is still a priority for several countries in this region, pointed out Subodh Mhaisalkar, an engineering professor at Nanyang Technological University and the executive director of its Energy Research Institute.

Further complicating this matter is the fact that energy demand is projected to increase in South-east Asia.

While global energy demand is expected to peak in 2035 due to electrification, energy demand in South-east Asia is expected to double from the present day to 2050 as the region experiences economic and population growth, said Brice Le Gallo, regional director of energy systems for Asia Pacific at energy advisory company DNV.

Hence, Asean governments face the well-known "energy trilemma", which refers to the difficulties in balancing security, affordability and sustainability in how energy is accessed and utilised.

Improving grid reliability and upgrading it to integrate renewable energy sources, to address its intermittency, is one important factor in the energy transition process, noted experts.

However, Mhaisalkar noted that grid maturity varies significantly across the region. "While Singapore and Thailand have made significant progress towards smart grids, a number of countries in the region are still grappling with grid reliability," he noted.

Tan Wooi Leong, who is the energy and industrial managing director at infrastructure and urban development consultancy Surbana Jurong, said that one challenge they face, while working on renewable projects across Asean, is that conventional grid operators may not be too comfortable integrating renewable energy sources into the grid, as they tend to be unstable.

"So you have that challenge of convincing the operators that this is the right thing to do. And they are concerned because everybody is used to conventional, who likes change right? So when faced with such changes in terms of unpredictability, then it causes anxiety," said Tan.

Differing policies

The lack of joint standards or a unified model for cross-border energy trade is another area pushing back energy transition for Asean, noted experts.

Having a functional Asean power grid would require the grids across member states to be connected, for example, with subsea cables, but there is no framework yet for the bloc to do this, said Le Gallo.

On top of having to physically connect the Asean grid, some protectionist legislations in the region are also not conducive.

Both Malaysia and Indonesia, for example, have banned the export of renewable energy.

"Of course, there is the bigger concern among many of these countries, 'How do I export power if my own people are facing energy difficulties,' right?" said Hasan.

"So I think it's about effectively educating the public that this is actually good for everyone. It's not a case of one country coming in and taking power away and preventing you from getting access. But actually this country coming in and making the right investments so that everyone can benefit from it," she added.

Beyond developing standards and frameworks across the region, there is also a need for energy policies to be aligned within a country.

Surbana's Tan pointed out that the regulations at the provincial level may not be aligned with those at the national level, or different ministries may have contradictory policies on energy.

For example, developing an energy or power project is also about land acquisition. Hence, a company that may have got the rights to start work on a renewable project may struggle to acquire the necessary land.

"Everybody is probably trying to struggle now towards reconciling all their various policies in-country towards meeting (the Paris Climate Agreement) targets. That reconciliation will take some time. The energy transition process in-country is also something that needs to be cutting across all sectors.," said Tan.

"I would say policy also needs to transition as well to meet the energy transition process," he added.

Financing renewable projects

The various challenges Asean member states face in energy transition have resulted in a lack of investment in renewable energy projects in the region, noted various reports.

According to IEA's report, investment in clean energy in Asean has never exceeded US$30 billion annually, and the amount needed to meet the countries' climate aspirations is 5 times of that.

A recent report by Bain & Compane and Temasek also reported that South-east Asia's green sector will see US$1 trillion in economic opportunities by 2030, but only US$15 billion has been invested since 2020.

Besides issues relating to grid reliability and differing policies, the lack of data on green projects in Asean is also another factor, said Kavilash Chawla, founder of Foresight Economics, a think-tank for the financial sector.

In addition to the typical financial information required by investors, other metrics, such as the tracking of the level of decarbonisation, would also be required before investors put their funds into renewable projects.

And while there is plenty of academic research, not enough is being input into commercial investment and public policy decisions, noted Chawla.

This opaqueness in the renewable energy market in South-east Asia is unfortunately a structural problem that cannot be resolved in the short term.

Energy transition requires patient capital, said Philip Lim, senior adviser at Foresight Economics.

"You cannot (think) very short term like the stock market, in 2 years, you want X number of returns. It's not going to happen that way," he added.