Market overview Southeast Asia

​published on 10th August 2020

The renewable energy markets have grown worldwide over the years – mainly due to the decreasing costs of energy for wind and solar power. PV electricity has reached grid parity at the level of utility companies. This is no longer a subject of a debate, but a fact. The advantages of renewable energy sources are considerable, as they combine three main aspects of modern society: economic, environmental and social development. In addition to the current challenges related to the coronavirus crisis, the energy sector is still under pressure of decarbonisation, and needs to invest in renewable technologies. This series of articles on the regions of East Africa, Latin America and Southeast Asia provides an overview and assessment of the investment potential there.

Southeast Asia is a very diverse and dynamic region. Nevertheless, what all countries of this region have in common is that policy makers there have intensified their efforts to ensure a secure, affordable and sustainable energy sector. We want to show the current state of development of renewable energy in Southeast Asia and its economic and technological potential, and attempt to draw a conclusion for the near future.

Renewable energy targets 2030 and potential

At regional level, the countries of Southeast Asia have set themselves a goal of generating up to 23 percent of their primary energy from sustainable, renewable sources by 2025. In addition, total energy demand is expected to increase by almost 50 percent. The member states of the Association of Southeast Asian Nations (ASEAN) have also committed themselves to collective targets of energy efficiency and energy savings.

Each member of the ASEAN has set its own renewable energy (RE) target. Indonesia, for example, aims to achieve a 31 percenr share of renewables by 2030, and the Lao People's Democratic Republic – a 30 percent share by 2025.
Myanmar, on the other hand, has a more clearly stated goal of achieving an energy mix where hydropower would represent 38 percent or 8,896 MW, natural gas 20 percent or 4,758 MW, coal 33 percent or 7,940 MW, and other renewable sources 9 percent or 2,000 MW by 2030-31.

The Philippines plans to increase the installed capacity of renewable energies to 15.3 GW by 2030.
Thailand aims to increase the share of renewable energies in the total energy consumption to 30 percent. To achieve this, it is assumed that the share of renewables in the electricity sector should be 20.11 percent, in the heating sector 36.67 percent and in the mobility sector 25.04 percent.

Vietnam, on the other hand, aims to achieve a renewable energy share (especially wind, solar and small hydropower) of almost 21 percent by 2030. An additional 17 percent of the total energy mix is to be generated in large hydropower plants in 2030.

All in all, Southeast Asia promises to drive forward the expansion of renewable energies on a large scale in the coming decades.¹

Renewable energy development, 2015-2018

Share of renewable energy and installed capacity

Energy consumption in Southeast Asia almost doubled between 1995 and 2015. Taking into account the development and economic growth of the region, it is expected that the average annual growth in final energy consumption will be 3.4 percent.

The share of consumption of renewable energy presented in Figure 1 shows that the Lao People's Democratic Republic and Myanmar had the highest shares in 2015 at 86.37 percent and 58.85 percent respectively. Nevertheless, in many other countries this share is currently still marginal.

 
Figure 1: Share of renewable energy

Figure 2: Installed capacity in 2018 (note: logarithmic representation)

As regards the installed capacity of the Southeast Asian countries from 2015 to 2018, a significant development can be observed. In terms of numbers, the total installed capacity increased from 120 GW to 162 GW.

The three countries boasting the highest growth in relative terms are Singapore, Indonesia and Thailand. Singapore almost tripled the share of renewable energies, while the share in Indonesia increased by 45 percent and in Thailand by 40 percent.

Between 2015 to 2018, India invested mainly in solar and wind energy and had a total installed capacity of 27 GW and 35 GW respectively. Nevertheless, it is hydropower that remains the country's most important renewable energy source.

Indonesia was also able to increase its total capacity in the said period, with hydropower playing the major role at 5.5 GW. However, the biggest successes have been achieved in geothermal energy.

Figure 3: Expansion of renewables between 2015 and 2018 (note: logarithmic representation)

Investments and financing

Currently, there are many funding opportunities that focus on the development of renewable energy sources in Southeast Asia. These vary between European and international government institutions, private institutions and banks. Information on the individual countries can be found on the website of the Federal Ministry for Economic Affairs and Energy.²

The support systems also include other support instruments that are enshrined in law, e.g. in India. These include feed-in tariffs, tariff reliefs for the construction of power plants, renewable energy credits (net metering), and capital subsidies. There are also accelerated depreciation procedures.

However, many other funding instruments exist only at the federal state level, which is why the procedure of applying for such funding may be complicated and non-transparent in some cases.

In Vietnam, feed-in tariffs are currently used as a tool to incentivise, in particular, the expansion of wind and solar energy. (Corporate) tax exemption, accelerated depreciation, reduction in real estate rental fees, and financial aid are among the possible support options. Furthermore, no import tax is levied on materials and equipment used in RE projects.

A mix of coal and geothermal energy is the future of Indonesia. The potential of wind power and photovoltaics is estimated to be rather low. This strategy is relevant to the main islands. However, the numerous micro grids on the smaller islands could potentially be equipped with PV hybrid systems.

India, on the other hand, has set itself ambitious goals and the expansion figures indicate that the created incentives and funding mechanisms have stimulated the market, making the country a very promising investment destination with enormous potential. As yet, however, no energy has been produced from geothermal sources in India. However, analyses of the country’s potential have already been carried out. The government plans to generate geothermal energy at 1,000 MW (heat) / 20 MW (electricity) by 2022 and 10,000 MW (heat) / 100 MW (electricity) by 2030. The fact that each federal state handles subsidies differently remains a major obstacle for foreign investors. Therefore, when entering this generally promising market, many legal regimes should be examined.

The legal and regulatory framework conditions as well as basic economic parameters generally greatly vary across the Southeast Asian region. One way to address these uncertainties could be e.g. public-private partnerships (PPPs) or green bonds. PPPs – as a form of mixed financing – enable bringing together the expertise and resources coming from both public and private sector. PPPs for renewable energy projects can facilitate risk sharing, contribute to the development of larger projects, generally improve awareness and consensus about a project and increase the understanding of technical solutions and the risks involved by the stakeholders.

In summary, there are many countries in the Southeast Asian region which have set themselves ambitious goals concerning the expansion of renewable energy. However, the implemented support policies and energy laws greatly vary across countries. A decision whether a market has potential – irrespective of the political goals set – can only be made following a thorough analysis of these legal and economic framework conditions. What is certain is that there are countries in Southeast Asia where the technology-specific conditions are favourable for the entire spectrum of renewable energies. Once an accessible market has been identified and energy market conditions permit foreign business ventures, it is possible to launch very profitable projects.

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¹ https://www.irena.org//media/Files/IRENA/Agency/Publication/2018/Jan/IRENA_Market_Southeast_Asia_2018.pdf
² https://www.german-energy-solutions.de/GES/Redaktion/DE/Standardartikel/Ihr-Export/kurztext-finanzierungsmodul.html

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