Laos’ Net-zero 2050: Renewable Power Generation Challenges and Opportunities

Renewable power generation is slowly gaining traction in the Lao People’s Democratic Republic (Laos). However, the country of only 8 million people doesn’t receive as much attention as its larger and more powerful fellow Association of Southeast Asian Nations (ASEAN) members, particularly Indonesia, Thailand, Vietnam and the Philippines.

Laos is pursuing economic growth, aiming to raise itself from its least developed country (LDC) status to a lower middle-income country through poverty reduction and sustainability. However, its debt levels remain problematic, at USD 13.8 billion, around 108% of its gross domestic product (GDP).

Laos’ Net Zero Target

In its submission to the UN in May 2021, Laos said it aimed to achieve net-zero emissions target by 2050 and reduce emissions by 60% from business as usual by 2030 – around 62 million tonnes of CO2.

The country has set a target for its power sector to reach 30% renewable energy. It has also set a conditional target of 1 gigawatt (GW) of total solar and wind capacity and 300 megawatts (MW) of biopower capacity by 2030, depending on the support it receives from developed countries.

Battery of Southeast Asia

Laos holds a unique place in the region. It is often referred to as “the battery of Southeast Asia” since it exports much of its electricity to neighbouring Thailand, China, Myanmar, Vietnam and Cambodia. Laos also exports smaller amounts of electricity to Singapore using existing interconnections from Thailand and Malaysia.

However, Laos generally suffers from energy instability because most of its power plants are owned by international businesses and generate electricity for export. It even has two electricity grids, one for exporting power and one for domestic usage.

Problems with Hydropower in Laos

Laos relies on hydropower and lignite (brown coal) for most of its power generation, making up 83% and 16% of the mix, respectively. However, by the end of last year, only eight solar power projects and four biomass power plants were in operation, with an installed generation capacity of 116 MW, representing just 1% of the country’s total electricity production. As of early 2023, Laos produced power from 76 hydropower dams, with another 43 still under construction.

At first glance, it would appear that Laos’ overreliance on hydropower would be beneficial in terms of energy independence and a negligible carbon footprint, but challenges remain.

Greenhouse Gas Emissions

On the one hand, hydropower is considered a clean energy source. Yet, all inland waters naturally produce some greenhouse gas emissions, while human-made reservoirs constructed for hydropower facilities change how carbon is emitted and stored in river systems, sequestering some carbon.

Hydropower plants also release embedded carbon in the form of methane emissions. Hydropower development can also increase drought and sediment blockage and negatively impact a hydro-reliant regional grid system.

More Coal Usage and Climate Change

Laos has also set targets for increased coal production and exports until at least the decade’s end. As of June 2024, it had 5.4 GW of coal capacity under development. The government claims it has to develop more coal-fired power generation to meet rising electricity demand.

However, a renewed emphasis on more coal production sends a mixed message about the country’s commitment to decarbonisation and fight against climate change. It contradicts the regional push toward more solar and wind power in the Lower Mekong Basin.

Is Renewable Energy Cheaper Than Fossil Fuels?

Notably, renewables are now the cheapest form of power, offering Laos a less carbon-intensive solution over new coal-fired power production. Amid climbing fossil fuel prices, global investments in renewables in 2021 saved USD 55 billion in global energy generation costs in 2022.

Solar Incentives

To its credit, state-run electricity company Electricité du Laos (EDL) is trying to encourage more solar power development by offering a tariff rate of USD 0.08 per kilowatt-hour (kWh). That’s higher than the rate for hydropower-generated electricity, which ranges from USD 0.05 to 0.06 per kWh. Commercial wind power capacity, however, could see limited development due to typically low wind speeds.

Grid Integrity

Laos has also struggled to maintain grid integrity, which could cause future grid curtailment as it seeks to develop more renewable energy sources. A World Bank report found that EDL has generally lacked resources for grid system maintenance and upgrades. This, in turn, leaves it unable to invest in the equipment and systems needed to address growing demand, with deteriorating infrastructure and a seasonal imbalance in Laos’ electricity supply.

“Financial losses sustained in the [Laos] power sector over the years have contributed to economic instability and national debt,” said Alex Kremer, World Bank country manager for Laos. On June 1, 2023, the World Bank approved a Power Distribution Improvement Project to increase the capacity and efficiency of Laos’ domestic electricity grid. The project should also strengthen EDL’s financial management.

A Two Billion Dollar Agreement

In March 2021, the Laotian government signed a USD 2 billion agreement with Electricite du Laos Transmission Company Ltd. (EDLT), a joint venture between EDL and the China Southern Power Grid Company, to manage a significant part of Laos’ power grid for 25 years.

The government made the decision because, due to its enormous debt, it could not manage and operate a network of such power. As such, it decided to allow China, which has the finances, technological aptitude and manpower, to take over.

While relying on another country to manage its power sector can bring in much-needed expertise, there are still challenges ahead. A better path forward would be for Laos to manage its own power grid to increase the efficacy of its growing electricity exports, along with much-needed revenue, and help develop its domestic grid for more solar power on its path to net zero in 2050.