ASEAN is one of the fastest growing regions in the world; a diverse, dynamic economy worth over US$ 2 trillion and with a projected growth of 4 to 6 per cent in coming years. Yet without sufficient energy investment, that growth will falter. As such, 2016 will be a pivotal year in developing the energy landscape moving forward.
ASEAN’s primary energy mix is predicted to rise on average 4.7 per cent each year, to reach 1,685 million tons of oil equivalent (Mtoe) by 2035 according to the ASEAN Centre for Energy.
Here we look into three key areas of focus for 2016 which will dictate the future of ASEAN’s energy landscape:
1. Energy Infrastructure Investment in ASEAN
The International Energy Agency’s (IEA) 2015 Southeast Asia report suggests a required US$ 100 billion of investment in energy infrastructure by 2040 to meet growing energy needs. This investment will provide the foundation for greater development of the wider energy landscape, and form the backbone of an efficient, modern energy network.
Yet according to the IEA, current annual spending sits at US$ 70 billion, a US$ 30 billion shortfall. Funds such as the ASEAN Infrastructure Fund (AIF), set up in 2011 and co-financed by the Asian Development Bank (ADB), will play a crucial role in bridging this gap.
One of the biggest obstacles ASEAN faces in meeting its energy requirements is the lack of a clear regulatory framework for the region’s energy infrastructure development. “Powering the nations in ASEAN is a challenge because the regulatory framework is constantly changing and this results in a lack of clear vision in the long-term,” said Kazunari Fukui, Growth & Strategy GM, Asia Pacific, GE Power.
“Part of advancing a nation’s energy infrastructure rests on a well-defined regulatory framework, which can enable investors in planning and executing sustainable, long-term projects. These kinds of projects need years of planning, from development to implementation – gas projects take about three years, coal projects at least six years and if you’re talking about nuclear energy that’s a 10 year project.”
Foreign direct investment (FDI) is also key, having quadrupled in Southeast Asia over the last decade and reaching a high of US$ 125 billion in 2013. “Countries alone cannot fund this. Long-term commitment by the government and a stable regulatory framework are a good start, but it’s not enough without Public-Private Partnerships (PPP). You need attractive projects for people to want to invest,” he said.
The third part of this puzzle is finding the right solutions to invest in. “When you look at the dynamics of this region and its energy requirements, you will realise that one solution doesn’t fit all – it’s much more complex than that. It’s not just a gas power plant, or a steam turbine. You need a portfolio of solutions and the right mix for what each country needs at each stage.
For example, if the immediate need is to power the country quickly, we’re talking about technology like gas engines, or mobile gas turbines, which can be brought in at short notice. High efficiency gas turbine solutions, on the other hand, take about three years to be built. These will require more time and planning, but are more cost-effective. If we’re looking at a long-term solution, coal and hydro technology are a more optimal answer. These need a longer time to be up and running, but are long-term solutions with lowest cost of electricity,” said Fukui.
Significant commitments for 2016:
Indonesia: Indonesia’s government committed to 35GW of additional generation capacity by 2019. Their private-public partnership model is seen as an efficient way of delivering on this promise. Indonesia has already faced challenges in delivering previous programmes, now scheduled to be complete in 2016. Key to the success of these investments will be the delivery of power purchase agreements (PPA), all of which are scheduled to be signed by the end of 2016.
Vietnam: The Vietnamese government estimates that the total investment required for the power sector is approximately US$ 48.8 billion up to 2020. In 2014 Vietnam received a US$ 172 million investment for energy development from the AIF. Further investment from the fund and others such as the German Development Bank (KfW) could be significant in 2016.
2. ASEAN Energy Infrastructure Integration
Greater integration of ASEAN’s energy infrastructure would deliver increased efficiency, stimulate economic growth and provide more efficient, reliable electricity throughout the region. This was identified as a key aspect of the ASEAN Energy Plan 2016-2025.
“ASEAN has made significant progress in this space but it still has some key barriers to overcome in that respect. In achieving a truly integrated system region wide, the power grids remain one of the main challenges. Some of the individual grids within countries are not strong enough, let alone cross border grids. Beyond the grids, coming to cross border agreements between countries is yet another obstacle. Every country has a different energy market structure, which means the cost of energy in each of these markets are varied,” said Fukui.
There are currently six cross-border power interconnections in operation in the region.How this progresses in 2016 will provide an insight into the possibility of greater integration moving forward.
Significant developments in 2016:
Thailand and Laos have already signed a significant memorandum of understanding regarding cross-border power, with Thailand committing to buy 3,316 MW from Laos’ Hongsa Power Plant. 2016 will see the final generation unit at the plant going live. Discussions regarding the expansion of these agreements between the two nations could
provide even greater integration in 2016.
Laos’ significant hydropower generation capacity will continue to drive energy exports for the country, and 2016 will see the start of Vietnam’s energy imports, receiving electricity from the Xekaman 1 hydropower plant.
Electricity connections were established between Sarawak in Malaysia and West Kalimantan in Indonesia as of January 2016, the first steps in a trans-Borneo power grid. Despite being 2 years behind schedule, this new infrastructure will see Malaysia’s Sarawak supplying 230MW of electricity to Indonesia, and could offer a vital step towards further energy integration moving forward.
3. Fuel diversification
Fuel diversification will play a key role in future energy security and efficiency in the medium-to-long-term, as well as dictate individual nations’ environmental impact.
2016 could see significant changes in ASEAN nations’ primary fuel mix, in many cases, driven by a drive for increased renewable capacity. Brunei Darussalam has targeted a 10 per cent electricity generation from renewables by 2035, Myanmar between 15 and 18 per cent by 2030, and The Philippines has a firm target of 15GW installed renewable capacity by 2030.
For many regions, liquefied natural gas (LNG) is one of the most feasible fuel diversification source. Several ASEAN markets are looking at importing more LNG to meet growing energy demands. An important component of the fuel mix, LNG could offer a more secure and cleaner energy future for Asia.
In progressing this diversification, nations must wrestle with volatile oil prices, expected to stabilise at below US$ 40 a barrel. The low cost of oil offers a cheap, short-term alternative which could create a challenging environment for renewable energy development globally.
Despite these low oil prices it is coal which may well be the fuel that powers much of ASEAN’s economic growth. The IEA predicts coal will overtake oil as the largest share of the energy mix in Southeast Asia by 2040, with 40% of new power plants powered by coal. There remains a significant opportunity for increasing the efficiency of coal power generation within the region.
Key areas of diversification in 2016:
Growing domestic needs in coming years could see a significant reduction in Malaysia’s net export of liquefied natural gas (LNG), at the same time increasing its dependence on oil imports. Meeting increased energy needs while maintaining a targeted 45 per cent reduction in energy intensity between 2005 and 2035 will see a growing reliance on high-efficiency coal power and expanding renewable energy generation capabilities. 2016 will provide a vital snapshot as to the success in meeting this need.
Indonesia is the largest coal producer in the region and the world’s largest coal exporter. The low cost of coal as a fuel source will see it playing a significant part in the nation’s energy development.
Indonesia also has huge renewable energy potential, with 40 per cent of the world’s geothermal reserves. In the short-term the Indonesian government has set a target of 19 per cent renewable energy as part of the total energy mix by 2019, up from 5 per cent currently.
Indonesia’s first wind farm was announced in 2015, and the progress of construction and continued government support could play an important role in inspiring similar projects in 2016. Rumours of the Indonesian government considering setting up a dedicated renewable energy utility outfit could dictate a substantial change in the energy landscape.
A more significant shift may already have been signalled by Vietnam, with a review recently announcing its venture into coal power plant investment and a halt on any new coal power development. With the Vietnam government expected to soon release their Power Master Plan VII, 2016 could see a step towards greater focus on renewable energy, and further investigations into the feasibility of nuclear power within the country.
Summary of the ASEAN Energy Landscape in 2016
ASEAN comprises a complicated and diverse energy landscape. The projects identified are expected to play a large part in shaping that landscape into the future.
Significant investment, both internal and FDI, will be essential to financing the infrastructure which will provide the backbone to that landscape. Further infrastructure integration will provide a more efficient, resilient regional energy network to generate further growth and energise development.
Fuel diversification will play a vital role. The low price of oil beside the cheap energy afforded by abundant coal reserves may offer an easy short-term solution to meeting energy needs. Ultimately however the diversification of fuels towards more efficient, varied sources will aid energy resilience, meeting long-term power needs in the development of a thriving region, while ensuring member nations meet the cleaner energy targets they themselves have set.
Energy is vital to growth, and growth is the food on which our economies thrive. Successfully meeting these energy needs in 2016 will be key to the future of ASEAN’s energy landscape, and ultimately play a critical role in delivering the growth to which the region aspires.