The energy transition in Asia is all the more urgent as the Southeast region is experiencing strong growth in electricity demand. It has in fact increased by more than 6% per year over the last two decades. In 2020, the Covid-19 pandemic caused only a 1% reduction in demand.
Coal-fired power generation has largely accompanied the development of the region, and continues to thrive. Nearly 20 GW are even under construction and more are in the pre-construction stage.
However, the energy players are far from being insensitive to the calls for energy transition, as the region is particularly vulnerable to climate change. Southeast Asia must therefore make trade-offs between two contradictory issues.
Focus on Southeast Asia’s energy transition and the reasons for coal’s continued success in the region.
Asia’s energy transition away from coal
35% of the electrical capacity produced from RE 2025
The energy transition in Asia, particularly in Southeast Asia, is driven by the ASEAN Plan of Action for Energy Cooperation ( APAEC ). The plan calls for 23% renewable energy (RE) in the region’s total primary energy supply by 2025. As for the electrical capacity, 35% of it will have to be produced by renewable energy. This requires the installation of 35 to 40 GW of RE capacity in the region.
The region’s four largest electricity consumers, Indonesia (26%), Vietnam (22%), Thailand (19%) and Malaysia (15%), have individually put forward energy plans that favor RE.
Vietnam has the most ambitious project. It wants to reduce its carbon emissions by 15% by 2030. The country’s national development plan also calls for 50 GW to be generated from wind and solar power by 2030.
Indonesia wants to increase its share of RE to 31% by 2050. For its part, Thailand expects that 33% of its electricity will be produced from RE by 2037. Malaysia wants to increase its share of RE from 2% in 2019 to 20% by the end of 2025, with USD$7.9 billion of investments.
23% of planned energy investments in RE between 2019 and 2040
RE will account for 23% of total energy investment in Southeast Asia between 2019 and 2040. Initiatives like SEACEF bring together energy development stakeholders to accelerate the energy transition. They channel investments towards innovative projects and companies in the RE sector.
However, this push towards “clean energy” does not mean that the region is done with fossil fuels. Indeed, one should not believe that the increase in RE will mechanically lead to a decrease in coal consumption.
Coal still vital to South Asian growth
36% coal in the regional energy mix in 2040
According to Wood Mackenzie, coal will remain the main source of power generation in Southeast Asia for a long time to come. Its use is expected to increase further until 2027 before slowing down. Nearly 20 GW of new coal-fired power generation capacity is currently under construction. Mainly in Indonesia, Vietnam and the Philippines. Much more is in the pre-construction stage.
In 2040, coal will still represent 36% of the regional energy mix for electricity generation.
6% growth in electricity consumption per year for the past 20 years
Driven by strong economic growth and exponential consumption, the demand for electricity has increased by more than 6% per year over the past two decades. A substantial part of this consumption was based on coal-fired power generation. To put a quick stop to the sector would therefore risk altering regional development.
Moreover, RE remains less competitive in terms of cost in Southeast Asia compared to the rest of the world. Acquiring land for power plants is more difficult than elsewhere. The high irregularity of production linked to the problems of intermittency of renewable energies forces us to find costly storage solutions.
Island states such as Indonesia have a particularly difficult time building large, efficient RE networks. Coal has the advantage of being able to be transported from one island to another without being transformed. Indonesia is the 5th largest producer in the world.
The coal industry is still attracting investment
Far Eastern development banks associated with the coal industry
Energy growth in Southeast Asia requires large investments that often exceed the capacity of the countries in the region. Development finance institutions in peripheral countries contribute significantly to energy projects. This is especially true for the coal industry.
For example, the Japan Bank for International Cooperation has signed contracts with Indonesia to develop 6.7 GW of coal-fired power plants valued at $12.3 billion. A Japanese-Korean partnership is also developing two large coal-fired power plants in Vietnam valued at USD 5.37 billion.
Financial institutions in both countries often partner with loan recipients to take equity stakes in the plants, so that these projects create long-term revenues. These plants also use many parts manufactured in the lending countries.
Japan to support coal projects using “highly efficient technologies
Yet Japan and South Korea have committed to reducing their funding of coal-related projects. The announcements came as banks in both countries made massive investments in new coal-fired power plants.
According to a report in the Global Trade Review, Japan will continue to support coal projects when they use “highly efficient technologies. These ultra-supercritical coal-fired power plants burn the ore more efficiently.
However, many experts and NGOs say that these plants will not reduce carbon emissions much in the context of ever-increasing energy consumption.