Southeast Asia is poised to become the world’s fourth economic superpower by 2050. However, this promising economic outlook also comes at a certain expense and challenges. First, Southeast Asia’s current energy consumption is mainly based on fossil fuels, with coal, oil, and gas dominating the region’s energy profile. Second, the region’s aspiration to accelerate the energy transition will likely meet serious financing gaps and institutional challenges.
Energy infrastructure development clearly needs to be prioritised to accelerate the energy transition in Southeast Asia. However, expanding energy infrastructure also comes with a grandiose cost, estimated to reach over $190 billion by 2035, which is almost five times the current investment level. Meanwhile, ASEAN reportedly received an investment value of $43 billion as of 2022. This exposes a colossal investment gap for the ASEAN renewable energy agenda.
While it is true that developed countries must fulfil their climate finance pledges to developing countries, ASEAN, on the other hand, should also reflect on itself and examine its institutional shortcomings on renewable energy. This is due to the fact that energy and climate change debates in ASEAN to these days are still largely fragmented, with discussions on the energy sector falling under ASEAN’s economic pillar and climate change falling under the socio-cultural pillar. Further, none of the ASEAN member states countries have imposed a long-term plan and robust investment scheme in renewable energy. Unlike the European Union, which has a precise time frame on how investment money on renewable energy will be allocated, ASEAN has yet to define a similar scheme.
Overcoming investment shortages will require cross-cutting engagements, especially the multilateral banks and private sectors, to mobilise investment funding. However, the latest ASEAN Ministers on Energy Meeting (AMEM) left these engagement and financing challenges as the most critical “elephant in the room” that everyone obviously ignored. AMEM’s latest meeting in September instead focused on too many decisions and swept investment gap issues for another year to come. While reaching several decisions can look hopeful, having too much on its plate without funding certainty would eventually lead ASEAN renewable energy nowhere. The region’s present focus on the ASEAN Power Grid (APG) may be the most sensible decision to look forward to. However, even expanding the ASEAN Power Grid alone will require ASEAN a whopping USD 21 billion investment annually from 2026-2030.
Southeast Asia’s coal phase-down will undoubtedly need significant financial assistance from developed nations due to the region’s different socioeconomic backdrop from that of high-income nations today. Energy infrastructure in high-income nations is currently old and nearing the end of its useful life; so, energy and climate policy can intervene to displace coal infrastructure and drive solar and wind generation to cost-competitive levels. However, this is not the case in middle and low-income nations, including Southeast Asia, where the coal power fleet is largely young, with an average plant age of only 14 years in 2024. This issue has been debatable, even more so with a contending analysis from GEMA that the average age of coal power plants in ASEAN will be 28 years by 2040, meaning they can be profitably retired under particular policy schemes.
However, it is absolutely fair not to ignore the socioeconomic fact that the people of high-income countries have now reached comfortable living levels, with their energy consumption already levelling off. While on the other hand, Southeast Asia’s population living standards are currently at an aggregate level, with a growing appetite for economic expansion. As of July 2023, Southeast Asia has around 106 GW of coal-fired power capacity in operation, with an additional 40 GW in the pipeline. With both financial and energy demand on the rise, this does not mean that renewable energy acceleration in ASEAN will become impossible, but it certainly will require more funding so that renewable energy policies can progress in substitution.
Finally, the question of whether ASEAN should prioritise addressing its institutional problems or tapping into climate funds is a “chicken and egg” situation. The two are correlated to each other and must proceed at the same time. It is true that Southeast Asia will need massive investments to fund energy infrastructure and retire young coal fleets. At the same time, developed nations must also reconfirm their funding deliveries to developing countries. However, focusing on funding alone without the support of an enabling environment will also not work out. To boost investment funding and make things work, ASEAN must also sort out its institutional challenges.
To begin with, ASEAN can consider three main priorities. First, to address cross-sectoral issues and integrate climate change and energy discussions on one pillar. Second, to put in place a robust and clear investment strategy so that renewable energy funding can be precisely projected and timely disbursed. Finally, and most importantly, to discuss and tackle major concerns, including ASEAN’s financial shortages, at its high-level energy forum.
