Notably in Southeast Asia, there's a growing emphasis on renewable energy sources, such as solar and wind power, driven by both environmental concerns and the region's abundant natural resources. However, key challenges lie ahead for the Association of Southeast Asian Nations' (ASEAN) journey to net zero over the next five years. Infrastructure development, regulatory frameworks, and investment constraints pose significant hurdles. Managing director of Markland Infrastructure Asia, Allard Nooy, joins Reed Smith's Matthew Gorman and Joyce Fong, to share their insights and vision for the future of ASEAN's energy landscape by 2030.

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Transcript:

Intro: Hello, everyone and welcome to Energy Explored. This podcast covers the challenges of achieving a carbon neutral global economy, cutting emissions of gasses and pollutants and setting up new energy systems. Join Reed Smith lawyers and guest speakers as they shed light on the most important trends in emissions control and new fuels. Tune in as we follow the ever evolving journey through the transition of energy.

Joyce: Hello and thank you for joining us on this podcast. I'm delighted to be chatting with Allard Nooy and Matthew Gorman today about the energy transition in Southeast Asia. For the benefit of our listeners Allard is a senior advisor at RPS. He has extensive experience in strategic planning, directing growth, developing financing and implementing major renewable energy and infrastructure projects in Asia-Pacific. Matthew is a partner, Reed Smith. He is a seasoned corporate finance lawyer with extensive experience of cross-border transactions in Europe and Asia. His experience spans a range of industry sectors, including energy and natural resources with a focus on infrastructure and renewables. Allard and Matthew, from your long experience in Southeast Asia, are there any uniquely Asian or Asian energy trends which you have observed?

Allard: Well, first and foremost, energy demand in ASEAN is the total final energy consumption or TFEC abbreviated, we should recognize that projection is to reach 473 million tons of oil equivalent or MTOE and that's by 2025 and 1.2 million by 2050. So fossil fuels are projected to continue to dominate the regional energy demand with oil still making up the largest share of TFE through 2050. Industry and transportation shares are projected to remain the largest energy consuming sectors. Their shares in TFEC will grow by 3.8% and 3.6% respectively. Cooking and cooling appliances will remain the largest energy consumption in the residential space making up about 82% of the sector's demand by 2050. Secondly, on the energy demand side of the house, this is expected to grow fourth-fold from 650 million TOEC in 2020 to about 2.6 million by 2050. Oil, natural gas and coal are forecasted to continue to dominate an ASEAN’s energy supply accounting for about 88% of the total primary energy supply in 2050 leaving renewables at just 12%. Now with out significant discoveries or addition to existing production infrastructure and with the expected rate of utilization of fossil fuels ASEAN is projected to become a net importer of natural gas by the mid of this century and of coal by 2040.

Matthew: You know from a from a trend perspective and from an ASEAN perspective, I think one of the things that people need to understand is that, you know, one of the challenges across pretty much most of ASEAN is that demand for energy is still growing significantly. I mean, even even in, you know, a number of places across the region, you know, having a reliable or even any electricity supply is still a challenge. Uh and therefore, you know what ASEAN or a lot of large parts of ASEAN are trying to, to achieve and to against the context of the of net zero targets is actually, you know, just coping with that, you know, huge demand that's still, you know, happening as a result of many of these, you know, countries being on a on a development, you know curve that still has a long way to go, you know, as a result of which it's, it's it's a bit of a sort of, you know, balancing act which, which, which the government, regional governments have to, to balance of kind of, you know, satisfying that growing demand, whilst at the same time, you know, achieving a mix which is more in accord with global targets.

Allard: Yeah, and Matt just to add to that, there is a direct correlation between GDP growth per capita and energy consumption and with the ongoing urbanization in particularly in emerging markets in ASEAN, this will continue to drive energy demand.

Joyce: So based on these trends. What do you see as the key challenges to ASEAN'S journey to net zero over the next five years?

Allard: So with regards to installed capacity and power generation, not just in the next five years, but up to 2050 which is for a number of ASEAN countries uh forecasted to be net zero or at least that's what they committed to during the last couple of COPs. Um It is forecasted that we will have about 960 gigawatt of installed capacity and this is expected to be a three-fold increase from the 2020 level. In 2020 renewables installed capacity amounted to 97 gigawatts. By 2025, the renewable installed capacity is expected to reach 35% and the installed capacity should not be confused with dispatch capacity. As many renewable energy technologies are still intermittent including solar and wind. Whereas most of the hydro geothermal are providing base load capacity. Despite fossil fuels remaining dominant ASEAN is on track to achieve its regional targets. And in order to complement the intermittent renewable energy assets, batteries will play an important role as they can be used to provide stored power during midday, peak hours overnight periods, and other times when solar and wind generation are reduced. Batteries will be crucial in enabling higher penetration of renewable energy and maintaining the power grid stability. The region is expected to require roughly 26 gigawatt of battery capacity to store about 1100 gigawatt hour of electricity by 2050.

Matthew: So I, I think, you know, there are, there are, there are two sort of areas I see as being important. One is the sort of the framework if you like from a regulatory perspective, where I think a lot can still be done uh across the region you know, for regulatory perspective to make investment into um the, the, you know, the, the construction and operation of renewable energy projects a more efficient process and one that can be implemented uh more easily, you know, across in different countries. The second is more the practical perspective of ensuring that the grid you know, can cope with and access a lot of the projects that people would like to build across the region. I think there's no shortage of interest, you know, both from domestically and from international investors and developers to build these projects. But one of the biggest issues I think that a lot of them have is with grid connectivity, either being not readily available in the place where the projects could be built or alternatively, you know, not up to, you know, the grid, not having the capacity to handle, but the generation, the power that's generated you know, when it, when it, when it comes online. And so I think those, you know, those two things really are are key challenges which I think have to be addressed by, by regional governments.

Allard: Yeah, and that just to add to that, I mean, what would really help is enabling legislation for the private sector to be able to invest in transmission and distribution networks, which is in a number of jurisdictions still not feasible.

Matthew: That's right and, and also, you know, you one shouldn't forget that with, in particular, you know, if we're looking regionally, you know, Indonesia and the Philippines are, you know, the disparate, you know, archipelago with a lot of challenges to make this happen. I mean, it's ok, you know, on the main, uh you know, the main islands like Java and Sumatra, et cetera. But beyond that, you know, there are some really difficult issues to to cope with, which is why as Allard mentioned earlier in some of these places, batteries will be very important in ensuring, you know, the stability of supply on the ground.

Joyce: You've touched on this briefly already. But can you please elaborate on what changes need to happen to make the goal of net zero more achievable in ASEAN?

Allard: Well, firstly, attainment of electrical vehicles and deployment targets will be absolutely crucial to reduce carbon footprints. And national policies are projected to lead to an EV share of about 2.5% of passenger road transportation by 2025 and close to 10% by 2050. In the commercial sector, electricity will deliver most of the energy demand approximately 75%. And of that about 24% of the demand will be from officers followed by retail hospitals, hotels, et cetera. In my view, efforts need to be stepped up to improve the data quality and to ensure that energy savings can be properly overseen, measured and managed in the commercial sector. Uh Because that will drive basically the reduction of co two footprints and all these goals cannot be achieved without financing including considerable commitment from the private sector. Between ’21 and 2030, the annual investment requirement in the energy sector alone varies from anywhere between 17 to 34 billion USD. And as per the seventh ASEAN energy outlook projection illustrates four scenarios. Two of these scenarios follow a declining trend between 2031 and 2040, reaches the highest value of 31 billion for the baseline scenario uh between 2041 and 2050. As the region expands new builds to meet higher energy demand and annual ...

Energy transition in Southeast Asia: Current trends