RE-powering ASEAN: Readying Power Systems for Renewables [Op-Ed]

The Association of Southeast Asian Nations (ASEAN) can align economic development with higher renewable energy goals as it prepares its post-2025 energy cooperation blueprint. ASEAN is facing a 7% shortfall in reaching its 23% renewable target by 2025. Rapidly scaling renewables is key to bringing countries in the region on track towards net-zero goals.

A recent study under the project Clean, Affordable and Secure Energy for Southeast Asia (CASE) outlines several policy options that would address market barriers, mobilise investments, and thus help significantly accelerate the renewable energy deployment in the region.  

ASEAN’s power generation fleets nearly tripled in size between 2005 and 2022 and are expected to at least quadruple again by 2050. According to the International Energy Agency (IEA), the region must invest at least USD 190 billion annually in clean energy technologies by 2035 to meet demand growth and climate goals. This represents a fivefold increase from current levels, and wind, solar, and grid infrastructure would drive the surge in energy investment.

Wind and solar dominate global investment in new electricity generation, supplying about 13% of global electricity. In ASEAN, their share remains 4-5%, but leading economies have started looking to renewables to address surging electricity demand. 

For example, Thailand’s 2022 tender procured over 5 GW of mostly solar capacity, including solar farms with battery energy storage, and more is underway. The Philippines secured a similar number through auctions between 2022-2023. Vietnam deployed about 21 GW of wind and solar energy between 2019-2022 and is now preparing a new set of price and procurement mechanisms to expand wind and solar energy over the coming years. Meanwhile, Indonesia’s plan to develop 75 GW of renewables by 2040 while phasing out coal signals clean energy transitions across ASEAN are getting off the ground.   

Tackling Barriers to Renewables Investment

Policy and regulatory reforms that address market barriers and mobilise investment would help scale up renewables in ASEAN member states. Transparency, consistency and long-term visibility in renewable energy auctions and tenders are essential. The Philippines’ Green Energy Auction Program provides valuable insights for its ASEAN neighbours. A move to competitive procurement can unlock cost savings, particularly in countries with high investor interest, like Thailand. 

Renewable energy projects across ASEAN still face steep hurdles, such as land acquisition risk, grid connection delays, and unfavourable contractual terms. They often compete in an unequal playing field owing to subsidies on the consumption of domestically sourced fossil fuels. These aspects have affected the competitiveness of wind and solar in the region. Unlike fossil fuel assets, which benefit from financially secure arrangements such as capacity payments and guaranteed energy offtake, renewables are exposed to greater revenue uncertainty – contributing to project risk and higher capital costs.  

Investment de-risking measures have enabled the rapid expansion of Southeast Asia’s fossil fuel fleets over the past decades. A similar strategy would help countries to deploy renewable energy technologies at scale and pace. Renewables would need a stable price for all their available output and receive compensation when not dispatched. Such risk-mitigating measures are applied in many power systems around the globe and exemplify so-called “pay-as-produced power purchase agreements (PPA).”

This contractual arrangement is well-suited for power systems in the early stages of transition and ensures that zero-fuel cost electricity is effectively utilised. The adoption of pay-as-produced PPAs for renewable energy projects would mitigate financial risk. This would lower capital costs and reduce the minimum tariff required to earn back the investment, thereby supporting clean and affordable electricity. 

Besides improving utility procurement of renewables with better auctions and favourable contracts, unlocking new investment opportunities is essential. Corporate demand for clean energy now exceeds the supply of renewable capacity from centralised planning. This has led Thailand, Malaysia, and Vietnam to approve direct PPA schemes, allowing businesses to purchase energy directly from renewable developers. These pilots could significantly boost investment and potentially reshape single-buyer systems towards new hybrid designs with multiple buyers and sellers.

In parallel, rooftop solar PV holds vast untapped potential for renewable energy growth in the region. Despite favourable conditions, many Southeast Asian countries have installed less than 500 MW of rooftop solar capacity. Addressing technical limitations, bureaucratic hurdles, and restrictions on grid back-feeding is essential to improving the investment climate for end-consumers.

Three R’s for Efficient Fossil Fuel Exits: Retire, Reserve and Repurpose

Renewables are ready to drive power system expansion in ASEAN, but adapting power systems to integrate wind and solar variability is crucial. Revising rigid fossil fuel contracts to enable this transition can unlock system operators’ flexibility and accelerate renewable integration. Addressing overcapacity in coal-fired power plants, especially in Indonesia and the Philippines, offers an opportunity to reduce costly payment obligations while making room for renewables.

A holistic transition strategy can align the growth of renewable energy with the phase-out of fossil fuels and grid infrastructure upgrades. Early retirement of coal and gas power plants is critical but constrained by legal and financial hurdles. In parallel, strategic reserves could be established to manage overcapacity in coal-fired power plants while safeguarding backup supply during the transition. Yet other plants should remain operational during the transition to balance renewable energy from wind and solar. Governments, utilities and producers would need to develop a set of new contractual arrangements for the remaining fossil fuel plants to value and incentivise supply flexibility appropriately. Additionally, decentralising grids is essential to accommodate more renewable energy injection points.

Southeast Asia, particularly Indonesia, Thailand, Vietnam, and the Philippines, possesses vast potential to become renewables-driven powerhouses. Unlocking this potential necessitates streamlined procurement processes to bolster investment certainty and reduce transaction costs, targeted contractual revisions to ensure stable revenues for renewables, and a reorganisation of fossil fuel fleets supported by contractual reforms to unlock power system flexibility. As ASEAN charts its energy future post-2025, these measures are vital to meet escalating energy demands sustainably and affordably.

This opinion is co-authored by Dr. Tharinya Supasa (Agora Energiewende), Dr. Siripha Junlakarn (Energy Research Institute, Thailand), Fabby Tumiwa (Institute for Essential Services Reform, Indonesia), Alberto Dalasung III (Institute for Climate and Sustainable Cities, the Philippines), and Sascha Oppowa (Deutsche Gesellschaft für Internationale Zusammenarbeit/GIZ) under the project ‘Clean, Affordable, and Secure Energy in Southeast Asia’ (CASE)

CASE aims to support a narrative change in the SEA power sector towards an evidence-based energy transition in the pursuit of the Paris Agreement goals. CASE focuses on the four largest countries in the region: Indonesia, Vietnam, Thailand and the Philippines.
 These four countries represent nearly three-quarters of the total power generation in the region and account for about 72% of the region’s GDP and 82% of its population. Their energy development will largely impact the region’s ability to achieve its development and sustainability goals and the Paris Agreement’s objective. CASE focuses on offering evidence-based solutions to the policymakers facing challenges and building social support for the region. To do so, a joint fact-finding approach is applied to reduce areas of disagreement through expert analysis and discussion. The project also supports coordination in the SEA power sector by providing technical and policy support and facilitating discourse on energy visions.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Energy Tracker Asia.