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How clean energy can fuel Southeast Asia’s economic growth

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5 minute read 30 Oct 2021
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Energy and resources
Power and utilities
Oil and gas
Government and Public Sector
Sustainable Impact Hub

A swifter transition to renewables can address the region’s energy security challenge and spur economic spin-offs.

In brief

  • Advancing the transition to clean energy not only helps save the planet, but also offers opportunities for economic growth.
  • Clean energy has therefore become an attractive investment alternative, but challenges remain.
  • To effectively address these challenges, close public-private partnership is critical.

Of all the complex long-term issues in the world, advancing the energy transition to a carbon-free future is arguably one of the most pressing. It is not just about saving the planet — economic growth is also at stake. 

The International Monetary Fund, in its World Economic Outlook issued in October 2021, forecast the gross domestic product (GDP) growth for ASEAN-5 — Indonesia, Malaysia, the Philippines, Singapore and Thailand — to be 2.9% for 2021 and 5.8% in 2022. This follows a 3.4% fall in GDP in 2020 due to the pandemic. As Southeast Asian countries work toward economic recovery, a range of risks, including any worsening of the pandemic, geopolitical tensions and climate change, can impact progress. 

Fueling economic growth requires a steady and secure supply of energy. The challenge of energy security is real in Southeast Asia, given that the region does not produce sufficient energy to meet its own needs and relies on energy imports that are predominantly fossil fuels. Further, the growing energy demand from mainland China and India puts pressure on supplies to Southeast Asian markets. 

Meanwhile, calls to arrest climate change are intensifying, and environmental, social and governance measures are soaring to the top of the agenda for companies and investors. Governments and the energy sector are under pressure to decarbonize the production and use of energy. To that end, renewables look like a promising solution: they provide clean energy, and projects that drive their development also generate significant economic spin-offs.

How EY can help

Bright outlook for renewable energy

In the last five years, Southeast Asia has been ramping up generation of renewable energy. Notably, Vietnam more than doubled its renewable energy production between 2016 and 2020 (from over 17,000 megawatts to over 35,000 megawatts), according to data from the International Renewable Energy Agency. Land-scarce Singapore also increased its renewable energy production by more than 50% in the same period. 

Even as economies have been disrupted by the pandemic, the transition to clean energy has not come to a halt. An EY study of eight economies across Asia — Indonesia, Japan, Malaysia, the Philippines, South Korea, Taiwan, Thailand and Vietnam — between August and September 2020 found as many as 800 clean energy projects in the pipeline. Assuming all of them are realized, we are looking at an investment potential of over US$316b and an emission-saving potential of over 229 metric tons of carbon dioxide equivalent or MTCO2e. These projects and investments also have the potential to generate up to 870,000 jobs. 

The transition to clean energy remains attractive, with the private sector ready to deploy capital into it. This can be seen from how Malaysia has procured large commitments from solar energy developers during the pandemic, while other Asian economies have dedicated sizable portions of their COVID-19-related relief packages to clean energy-related initiatives.

The push to adopt cleaner energy in Southeast Asia has not gone unnoticed. According to the 58th edition of the EY Renewable Energy Country Attractiveness Index (RECAI) in October 2021, the Philippines, Vietnam and Indonesia have risen up the rankings of the world’s top 40 markets in terms of the attractiveness of their renewable energy investment and deployment opportunities. Indonesia is a new entrant to the RECAI, having set more ambitious renewables targets and policies to retire diesel and coal power plants.  

The traditional oil and gas sector is also tapping into opportunities in clean energy. According to the Powering ASEAN’s Energy Transition report by the EU-ASEAN Business Council, energy transition in the oil and gas sector can bring Southeast Asian countries economic opportunities of up to 20% of GDP.1 As oil and gas players seek to provide clean energy for consumers, they are also seizing growth opportunities that come with energy transition. Take for example the 10-year plan by Shell Singapore, which outlines how it could make significant investments in people, assets and capabilities to repurpose its core business and cut its carbon dioxide emissions by about a third within a decade.2

Not without challenges

While the merits of pursuing renewable energy are clear, the path is not without challenges. Inability to access financing, absence of or uneven government support in incentives and the implementation of renewable projects as well as geographical limitations — such as the lack of suitable or large land for solar or wind farms or hydropower generators — are some of the main challenges. 

Also, renewable energy projects are often located in remote locations due to traditional town planning, which places industrial assets far from suburban areas and increases the costs of renewable energy. This lowers the attractiveness for consumers to convert to renewable energy usage when conventional energy products may be cheaper and more accessible.

Further, Southeast Asia’s renewables market is still in development. Market knowledge is relatively immature and some countries are still exploring the right pricing structure. Such ambiguity may result in waning market interest over time.

Close public-private partnership can help tackle these potential roadblocks. From a regulatory perspective, policies and incentives can provide clarity on tariffs and drive investments in R&D or technologies for greater efficiency. As private players, companies can contribute by rethinking their role in the renewable energy sector and sharing feedback, data and best practices with regulators and the broader sector to support policymaking and the industry’s growth. Consumers can do their part too by educating themselves on the renewable energy services available and seeking out products that are greener, thereby creating greater supply-demand momentum.

Southeast Asian countries have committed to a target of renewable energy accounting for 23% of the total primary energy supply by 2025.3 The conditions for renewable energy are favorable but achieving the target will require swift action on the bottlenecks to progress.

Close public-private partnership between regulators and private players is crucial to help address the challenges of transitioning to renewable energy. Consumers can help create greater supply-demand momentum through self-education on renewable energy services available and by seeking out greener products.


Summary

Renewables can help address the significant energy security issue in Southeast Asia and generate substantial economic spin-offs. While challenges remain, close public-private partnership can help tackle potential roadblocks. For example, regulators can provide clarity on relevant policies and incentives, while companies can share information with regulators and other players to support policymaking and growth in the industry.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.