This is an extract from a recent report “World Energy Outlook 2023” presented by the International Energy Agency (IEA)
Southeast Asia is home to nearly 9% of the world population and accounts for 6% of global GDP. It is a major engine of economic growth and has an outsized influence in global energy. The collective GDP of countries in Southeast Asia has nearly tripled since 2000, outpacing growth in global GDP over this period. As a result, energy demand growth in the region has also outpaced the global average, and that is set to continue: in the Stated Policies Scenario (STEPS), the region experiences the second-highest energy demand growth in the world after India until 2050, driven by an increasing population, rising standards of living and rapid urbanisation.
As a result of its continued reliance on fossil fuels, Southeast Asia also sees the largest absolute growth of CO2 emissions of any region in the world. Its emissions increase by 46% from 2022 levels by 2050 in the STEPS, with coal responsible for much of the rise. Southeast Asia is one of the few regions in the world where electricity generation from coal increases in the STEPS through to 2050. While the share of coal in power generation falls to less than one-third by 2050 in the STEPS, it is still the second-highest of any region in the world by 2050.
Currently, Southeast Asia relies heavily on coal for electricity generation. Two ambitious Just Energy Transitions Partnerships (JETP) were established in Southeast Asia in 2022, one with Indonesia and another with Viet Nam. The partnerships promise better access to international financing to accelerate transitions away from unabated coal-fired power to help reduce emissions. In Viet Nam, the latest power development plan seeks to reshape its energy system, including by moving away from unabated coal use and by scaling up the use of low-emissions hydrogen and ammonia in the power sector.
Southeast Asia has emerged as a global hub for clean energy technology manufacturing, with VietNam and Indonesia joining the ranks of exporters of equipment such as solar PV modules. However, the race to build industrial capacity risks leading to rapid development of captive coal projects, such as for nickel processing in Indonesia. Overall, clean energy investment in the region was nearly USD 30 billion in 2022, which looks to more than double by the end of this decade. Nevertheless, there is more to do to be on track to deliver longer term ambitions as reflected in the Announced Pledges Scenario (APS). For this to happen, clean energy investment needs to nearly quadruple by 2030 and continue rising afterwards. Investment on this scale in the APS leads to solar power increasing almost sixfold by 2030 and to coal-fired power generation halving by 2050 from 2022 levels, reducing overall CO2 emissions by over 40%, even as the region’s economy grows by well over two-and-half-times larger.
How can international finance accelerate clean energy transitions in Southeast Asia?
Marshalling the necessary finance to fulfil clean energy transition objectives can be challenging for emerging markets and developing economies as they tend to rely heavily on public investment by governments or state-owned enterprises. They face relatively high borrowing costs, and stepping up investment calls for multiple sources of finance: both domestic and international private finance have pivotal roles to play. Mobilising this capital requires international cooperation, involvement of international and development finance institutions, and reforms to domestic policy and regulatory frameworks that facilitate private investment.
Just Energy Transition Partnerships, launched at COP26 in Glasgow in 2021, attempt to address this challenge. They are a financing cooperation mechanism between advanced economies and a coal-dependent emerging market and developing economy which commits to ambitious emissions reduction targets and defines a credible national transition pathway. The JETP framework includes multilateral development banks, national development banks and private lenders. The aim is to make available a mix of financing, some at concessional terms, with the goal of mobilising more resources by catalysing international private investment.
The JETP between Indonesia and the International Partners Group (IPG) – which includes Canada, Denmark, European Union, France, Germany, Italy, Japan, Norway, United Kingdom and United States – was developed to help Indonesia get on track to bring emissions to net zero by 2060. The JETP helped strengthen Indonesia’s ambitions, bringing its pledges in line with the milestones set out in the Energy Sector Roadmap to Net Zero Emissions in Indonesia, which was prepared in cooperation with the Indonesian Ministry of Energy and Mineral Resources. Putting the economy on a trajectory consistent with reaching net zero emissions by 2060 necessitates more than doubling total annual investment in the energy sector by 2030, raising the share of renewables in the power sector to one-third by 2030. It also means power sector emissions peaking at no more than 290 Mt in 2030, and unabated coal-fired electricity generation peaking at around the same time.
In pursuit of these objectives, the Indonesia JETP aims to secure an initial USD 20 billion in financing over three to five years from both public and private sources. USD 10 billion consists of public sector finance backed by the International Partners Group, with the remainder to be obtained through a combination of market-rate loans and private investment. Another objective of the partnership is to help Indonesia update its technical and regulatory frameworks in order to overcome barriers to investment, facilitate the deployment of support and mobilise further domestic and international capital to speed up the transition to net zero emissions.
The JETP between Viet Nam and the IPG was developed to support the country in pursuit of its target to reach net zero emissions by 2050. It reflects its ambition to accelerate its transition to a carbon neutral energy system, including its intention to bring about a peak in emissions by 2030, to cease issuing permits for the construction of new coal-fired power plants, to promote the development of renewables and to improve energy efficiency, while ensuring energy remains secure and affordable. The Viet Nam JETP aims to mobilise at least USD 15.5 billion over the next five years. Half of this, nearly USD 8 billion, will be public sector finance backed by the IPG. As with Indonesia, the aim is for international funding to help catalyse additional private sector finance that at least matches the level of public sector finance, and to help Viet Nam attract the capital it needs as its clean energy transition moves forward.
VietNam’s Power Development Plan (PDP) 8, approved in May 2022, sets out its increased ambition and details a pathway for power sector development to 2030. It also includes a longer term vision to 2050. In line with JETP commitments, coal-fired capacity is planned to peak at about 30 GW in 2030, down from 55 GW in the previous PDP. Beyond 2030, coal plants would have to close when they are 40 years old unless converted to run on ammonia or biomass. Significantly raising the share of variable renewables in the electricity mix is another key component of the plan, and is accompanied by a recognition that substantial investment in grids is needed to make this work. Offshore wind is planned to play an important role, reflecting the fact that Viet Nam is home to some of the best offshore wind resources in Southeast Asia.
How can regional integration help integrate more renewables?
Clean energy transitions in Southeast Asia, supported by the JETP programme, will reshape power systems and help to strengthen energy security. Establishing markets and mechanisms for renewables deployment, scaling up clean energy investment and limiting coal-fired power will be crucial in the period to 2030. Integrating rising wind and solar PV capacity into electricity systems will become an increasingly central task after 2030, as their share of the overall generation mix rises from 20% in 2030 to over 50% in 2050 in the APS, compared with just 5% in 2022.
Enhanced regional integration through strengthened electricity grids can improve electricity security and aid renewables integration in Southeast Asia in several ways. Flexibility needs can be reduced through regional integration by enabling electricity demand to be balanced over larger areas, which tends to smooth out variability and can moderate peak loads. Flexibility needs can also be reduced by linking systems that rely on wind and solar PV to varying degrees and that have different production profiles. Regional integration can also boost the available supply of flexibility by facilitating the pooling of a wider set of resources, including hydropower, fossil fuel-based capacity and energy storage. Better integrated systems could also mitigate the risk of outages and increase system resilience.
Regional integration requires the scaling up of investment in electricity grids, including in interconnections between countries. In Southeast Asia, grid investment rises from around USD 10 billion in 2022 to USD 16 billion in 2030 and USD 40 billion in 2050 in the APS. There is already growing momentum for increasing regional integration of the electricity network in Southeast Asia. Programmes such as the ASEAN Power Grid have boosted collaboration between countries and brought greater awareness of the advantages of integration for the region.
Access the complete report here