Southeast Asia has become one of the fastest growing regions in the world, with Indonesia leading the way in terms of growth rate. According to China Economic Network, the country's economic growth in the second quarter of 2023 once again exceeded market expectations, with a year-on-year growth of 5.17%, maintaining above 5% for seven consecutive quarters.
Energy security pressure, urgent transformation
The booming economy has brought about an increase in energy demand. According to a report released by the International Energy Agency in 2022, energy demand in Southeast Asia has increased by an average of 3% annually over the past two decades. In the current policy environment, this trend will continue until 2030. Faced with huge energy demand, Southeast Asia is shifting towards renewable energy to ensure its energy security.
Various fuel supply volumes in Southeast Asia (2000-2020), with a relatively small proportion of new energy sources
Image source: IEA report
But Rome was not frozen in a day: research by the ASEAN Energy Center shows that fossil fuels still dominate the energy structure of the region, accounting for about 83% in 2020, while the proportion of renewable energy during the same period was only 14.2%. The center states that by 2050, oil, natural gas, and coal will account for 88% of the total primary energy supply.
The energy modeling and policy planning manager of the center, Zulfikar Yunnaidi, said that this "huge dependence" on fossil fuels increases the region's vulnerability to energy price shocks and supply constraints.
In recent years, global events such as COVID-19 and the Russia-Ukraine conflict have pushed the oil price up, and the benchmark oil price reached its highest level in more than a decade in March 2022. After the outbreak of the Israeli-Palestinian conflict last week, oil prices surged by nearly 6%.
Faced with a series of international events, Southeast Asian countries have to consider their own financial capacity. Yulnaidi has a clear understanding of this: "Our fiscal capacity is different from Europe. We cannot afford higher prices than developed economies to obtain our own natural gas supply.
David Thoo, electricity and low-carbon energy analyst at BMI Fitch Solutions, said that as electricity consumption in Southeast Asia increases, the region's natural gas and coal power generation is also expanding, making these markets increasingly affected by fluctuations in international fossil fuel prices.
Overall, policies and trends in the region indicate an urgent desire for countries to transition to clean energy.
According to the ASEAN Energy Center, if Southeast Asian countries do not make significant discoveries or increase their existing production infrastructure, the region will become a net importer of natural gas by 2025 and a net importer of coal by 2039. This trend will inevitably lead to an increase in fossil fuel prices, further increasing the burden on consumers.
To prevent this from happening, the region must achieve energy diversification to promote economic growth and security. According to the Global Times, the regional goal set by ASEAN is to achieve a 23% share of renewable energy in the primary energy structure by 2025.
From the recent series of policies issued by various Southeast Asian economies, it can be seen that most Southeast Asian markets have made great strides, announcing renewable energy targets and formulating low-carbon energy transformation plans. Overall, the policies and trends in the region indicate that countries are eager to transition to clean energy, but in terms of specific policies, the "Eight Immortals Cross the Sea and Each Show Their Magic".
Policies for New Energy Transformation in Southeast Asian Countries
Malaysia
Among Southeast Asian countries, Malaysia seems to be the most aggressive in its new energy transformation: according to the country's Ministry of Economy, the country launched a national energy transformation roadmap in July this year, which will expand renewable energy production capacity and reduce its growing dependence on natural gas imports.
The Ministry of Economy of the country stated that the roadmap identified 10 flagship projects, including plans to build the largest 1 gigawatt solar photovoltaic power plant in Southeast Asia, which can directly convert sunlight into energy.
Since 2011, solar power generation has been the most encouraging part of Malaysia's renewable energy sector, with a compound annual growth rate of 48% in installed capacity, according to the government.
Other planned development projects include the establishment of a comprehensive renewable energy zone, five centralized large-scale solar parks, and three green hydrogen production plants. The Ministry stated that these projects will fully utilize Malaysia's approximately 290 gigawatts of renewable energy technology potential to create a more resilient low-carbon power system.
However, the Malaysian government has been providing subsidies for fuel and electricity for a long time, resulting in low oil prices and a lack of motivation for businesses and the public to switch to using new energy. According to the Global Times, the local price of No. 95 gasoline is around 2 Malaysian ringgit per liter, equivalent to approximately 3 RMB.
Vietnam
In May of this year, Vietnam announced its electricity development plan, promising to vigorously develop wind and natural gas energy while reducing its dependence on coal. According to Reuters, the Vietnamese government predicts that by 2030, renewable energy sources such as wind and solar energy will account for at least 31% of the country's energy demand.
According to the plan, by 2050, all coal-fired power plants in the country must switch to alternative fuels or cease operation. Reuters reported that although coal will continue to be an important source of energy in the short term, estimated to account for 20% of the country's total energy mix by 2030, this will be a decrease from nearly 31% in 2020.
Chinese enterprises have strong competitiveness in Vietnam's electricity construction and investment market, and the energy cooperation between the two countries has been continuously upgraded in recent years, especially in the field of clean energy. According to the Global Times, according to incomplete statistics, as of May 2022, there were over 70 wind power projects invested or constructed by Chinese enterprises in Vietnam. Vietnam has replaced Australia as the country with the most new and accumulated exports of wind turbines in China.
Singapore
Singapore's "2023 Green Plan" also emphasizes the utilization of renewable energy. The Ministry of Sustainable Development and Environment of the country stated that the goal of the plan is to increase solar power generation capacity to at least 2 gigawatts by 2030, which will meet approximately 3% of the expected electricity demand. Currently, approximately 95% of Singapore's electricity comes from natural gas.
Although Singapore's geographical conditions limit its renewable energy options, the plan will implement measures such as rooftop solar panels and import electricity and hydrogen from other Southeast Asian countries to reduce dependence on fossil fuels.
Last year, Keppel Power Company of Singapore signed a two-year agreement with Laos, under which Laos will export up to 100 megawatts of renewable hydropower to Singapore through Thailand and Malaysia. According to local media reports, this marks Singapore's first import of renewable energy and also the first multilateral cross-border electricity trade involving the four ASEAN member countries. It is evident that Singapore understands the role of energy reliability and has strong resilience under various energy shocks.
the Philippines
BMI's Thoo believes that the Southeast Asian market also hopes to attract foreign companies with expertise in renewable energy to develop its renewable energy industry; Compared to the Chinese and Western markets, the development level of renewable energy in the Philippines is relatively low.
According to foreign media, Baker McKenzie, an international law firm, stated that in November, the Philippines lifted ownership requirements for its residents in certain renewable energy fields, allowing foreign investors to fully own projects involving solar, wind, hydro, or marine energy resources. In the past, foreign companies could only own up to 40% of the shares in such energy projects.
According to a report by the World Bank, by 2040, the Philippines has the potential to install 21 gigawatts of offshore wind power generation equipment, which is equivalent to one-fifth of the Philippines' electricity supply; At present, the Philippines heavily relies on imported fossil fuels, which puts it at risk of tight electricity supply and rising prices.
But the World Bank says foreign companies can bring their knowledge and experience, especially in helping renewable energy projects move from early development to later stages, as higher expenses are required in the later stages.
Indonesia
Indonesia has relaxed some foreign ownership restrictions to promote investment in renewable energy. For example, according to the Asian Journal of Business Law, the country now allows 100% foreign ownership of transmission, distribution, and power generation (with a power generation capacity exceeding 1 megawatt) projects. We are optimistic that there will be a significant influx of foreign investment in the next few years, resulting in more renewable energy projects in the region, "said Yolnaidi.
Disclaimer: The content of this article is for research and learning purposes only and does not constitute any investment advice.