Basic Regional Profile
Southeast Asia is one of the fastest developing regions globally, with projections indicating a 50% increase in overall energy demand and a 100% rise in power demand by 2040 compared to 2022 levels. This growth presents a significant opportunity for the region to harness its vast renewable energy potential. While current policies suggest that fossil fuels will continue to meet a large portion of this new demand, there is a promising shift towards cleaner energy sources.
Despite expectations for an increase in coal and gas power plant capacities (from 100 GW to 150 GW for coal and from 100 GW to 180 GW for gas by 2040), the momentum is gradually moving towards renewables. This shift is driven by declining costs of wind and solar energy, heightened public concern over energy security, emissions, and local pollution, and a notable reduction in planned coal projects, which have halved since 2021.
The increasing investment in renewable energy is evident, with significant strides in wind and solar power, particularly in Viet Nam, which has added approximately 18 GW of solar capacity in recent years. Projections indicate an eight-fold increase in solar and wind capacities by 2040, potentially surpassing fossil fuel capacities. This transition not only addresses environmental concerns but also positions Southeast Asia as a leader in the global move towards sustainable energy.
Overcoming Key Challenges
Southeast Asia, with its abundant renewable energy potential, is still largely reliant on fossil fuels. In 2022, more than 70% of the region’s electricity generation came from fossil fuels, with coal accounting for over half, while wind and solar contributed around 5% (IEA 2023). The ASEAN Plan of Action for Energy Cooperation (APAEC) 2016-2025 aims to reduce energy intensity by 30% and boost the share of renewable energy in primary energy to 23% by 2025 (with 20% achieved in 2022). The diverse and dynamic nature of the region presents unique challenges to achieving these targets, with country-specific contexts playing a significant role (IRENA, 2020).
A significant opportunity for advancement lies in improving policy planning and alignment. Currently, the lack of a robust and transparent policy framework, coupled with inconsistent coordination between countries and government ministries, hinders a more ambitious energy transition. The Association of Southeast Asian Nations (ASEAN), the driving force behind APAEC, promotes intergovernmental cooperation on energy and climate issues. However, the absence of a coordinated long-term policy vision for renewables affects all aspects of the energy transition. This gap is partly due to a need for stronger ownership of the energy transition by national governments. More transparent and inclusive policymaking processes, as well as strengthening regional platforms for exchange and coordination is key to improve policy and planning.
Enhancing regional grid and market integration offers another exciting avenue for progress. Despite being included in the APAEC, grid integration remains a lower priority for national governments, who often focus more on domestic energy security. The potential for regional grid integration, especially for incorporating higher shares of variable renewables, is substantial. However, energy planning processes currently remain confined within national borders. Building trust, a common vision, and knowledge sharing can lead to more ambitious plans for renewable energy deployment. Although wind and solar development varies across the region due to different resources and market conditions, challenges will arise individually in each country as these technologies are deployed. Modernizing policy planning, market design, and system operations will help overcome these challenges, moving away from processes and assumptions like grid management based on baseloads. The ASEAN Power Grid can become a driving force for multilateral power trade in the region.
Securing affordable finance for renewable energy projects remains a common key challenge impeding the energy transition in the region. High financing costs, for both debt and equity, have a significant impact on the competitiveness of renewable energy compared to fossil fuels in CASE countries. Despite the cost of wind and solar systems having significantly reduced in recent years, their perception as riskier investments by financial institutions remains.
This outlook reflects several real and perceived barriers that stem from a variety of informational, technical, regulatory, financial, and administrative sources. Renewable energy investments are perceived as high risk due to underlying policy barriers such as regulatory, licensing and market inefficiencies. This is compounded by a weak technical understanding of local financing institutions which tend to overestimate the risks of RE projects and have little control over de-risking mechanisms. While not directly addressing the underlying policy barriers, such mechanisms can mitigate or transfer risks from the developers to the public sector but besides being poorly understood also do often not yet exist in the countries.
Despite a significant endowment of renewable energy potential in CASE countries, the region remains reliant on fossil-fuels. For most CASE countries, energy security and affordability of supply are prioritised at the national level, yet regional solutions are rarely considered. Within this context, the concept of energy security is still pinned to the security of fossil-fuel supply. For energy-importing CASE countries, conventional energy from fossil-fuels is still perceived as more affordable and reliable. For those countries with high concentrations of domestic fossil reserves and resources, energy production and export contribute considerable revenues to state budgets. Consequently, fossil-fuel interests, either through state-owned enterprises or petrochemical corporations, retain a dominant influence in policymaking, which is amplified when governments rely on the energy sector to support other developmental policies or initiatives.
Poor knowledge sharing, data availability and limited capacity building opportunities are some of the key non-technical challenges facing the energy transition in the region. The lack of a clear, independent ‘knowledge holder’ for the energy transition means that a lot of expertise is imported from outside the ASEAN region, and consequently may not be fully aligned with national or regional interests. The lack of a regional institution has spill-over effects to the development of early career academics and young professionals: many study abroad or gain experience outside of the region, and a system of intraregional experience sharing is generally absent. A culture of knowledge sharing within the region is still in its nascent stages, which is reflected in poor access to power system data, e.g., transmission loads, project performance or sub-national data.
Windows of Opportunity
Outside of ASEAN’s Plan of Action for Energy Cooperation (APAEC) and the United Nations Framework Convention on Climate Change (UNFCCC), there are few regional energy-specific policy processes. Consequently, key opportunities to disseminate evidence and engage policymakers often arise at specific summit meetings.
Key ASEAN Meetings
Key meetings include the Senior Officials Meetings on Energy, meetings of the Heads of ASEAN Power Utilities and Authorities (HAPUA), and ASEAN Ministers of Energy Meetings (AMEM). These meetings lay the groundwork for the annual ASEAN leaders’ summits. Formal partnerships with ACE have previously enabled international institutions to participate and present collaborative analyses at these meetings.
Asia Pacific Economic Cooperation (APEC)
APEC, which includes 21 Pacific Rim economies, including ASEAN member states, also presents opportunities, especially in climate and energy-focused events. Some ASEAN meetings are held as side-events to APEC events, further enhancing engagement prospects.
Additional Opportunities
ASEAN and APEC events are prime opportunities to engage directly with policymakers. Additionally, impactful direct engagement at the country level can influence regional decision-making. Other energy and renewable-focused events, such as the Asia Clean Energy Forum, Singapore International Energy Week, and ASEAN Energy Business Forum, also provide valuable platforms for stakeholder outreach and engagement. These events, often attended by government officials, serve as venues for national policy announcements.
The ASEAN Energy Outlook (AEO)
ASEAN institutions, including the Senior Officials Meetings on Energy, meetings of the Heads of ASEAN Power Utilities and Authorities (HAPUA), and ASEAN Ministers of Energy Meetings (AMEM). These meetings provide the blueprint to the annual ASEAN leader’s summits. Through formal partnerships with ACE, other international institutions have been invited to participate in some of these meetings in years past, to present specific analysis completed in collaboration with ACE.
The Asia Pacific Economic Cooperation (APEC)
The Asia Pacific Economic Cooperation (APEC) is a wider intergovernmental organisation for the 21 economies in the Pacific rim that includes the ASEAN member states. Despite the broader scope, APEC meetings and events, especially those focused on climate and energy-related issues, present further windows of opportunity, as they can directly impact discussions within ASEAN. Some ASEAN meetings also coincide as side-events to APEC events.
ASEAN and APEC events and activities are thus an opportunity to directly engage with policymakers.
ASEAN and APEC events and activities are thus an opportunity to directly engage with policymakers. Meanwhile, impactful direct engagement is also possible at the country levels and could be key to influencing decision-making at the regional level. Other energy and renewables focused events in the region also provide ample opportunity for stakeholder outreach and engagement, including government officials. Many of the events, including the Asia Clean Energy Forum, Singapore International Energy Week and ASEAN Energy Business Forum are well attended by government officials and have also been used as outlets for national policy announcements.