Southeast Asia’s electricity market presents tremendous growth despite challenges: report

Despite the rapid overall economic growth in Southeast Asia, varied levels of investment and economic development among its countries are impeding the growth of sustainable energy generation and the path towards a renewable energy landscape. The region is also facing multiple challenges of commoditization, integrating renewable energy sources into national power grids, and safeguarding returns on shareholder value for utility companies.

Still, Southeast Asia’s electricity market presents tremendous growth potential in light of a predicted surge in energy demand, a report by Capgemini recently found.

“Although largely controlled by monopolies, Southeast Asia’s energy markets are now at the cusp of transformation. Rising energy demand is driving investment into innovative ways to generate power in a socially, economically, and environmentally sustainable manner. More must be done in terms of public-private partnerships to leverage and seek new opportunities in renewable power sources and grid optimization, predictive asset management, and enhancing business models,” said Gaurav Modi, Managing Director, Non-Financial Services, Southeast Asia and Hong Kong, Capgemini.

Commenting on the impact of greater energy demand in Southeast Asia, Perry Stoneman, Head of Energy and Utilities, Capgemini said: “Historically, the pattern of development of electricity systems across Southeast Asia has had a distinctly national focus. That perspective is changing, with greater investment in energy infrastructure and integration of power grids supplied by a variety of energy sources. Despite each country having its own set of unique challenges, the greater demand for energy has driven operators and regulators to notable cross-border collaborations, similar to more mature markets like the US and Europe.”

These are the key findings for the Southeast Asia section of WEMO 2017:

1. Southeast Asia is in an uphill fight against climate change, with energy demand in the region frequently outpacing growth in sustainable energy

With energy demand projected to jump by more than 80% between 2015 and 2040 [International Energy Agency], governments in Southeast Asia face the daunting task of producing enough sustainable energy to meet the burgeoning demand for electricity. This is exacerbated by pragmatic energy policies favoured by many governments, which facilitate the rising demand for coal amid its abundance and relative affordability.

However, governments in Southeast Asia have been stepping up efforts to grow their renewable energy capabilities over the past few years, as well as boosting regional coordination and technical expertise. For example, although Singapore is heavily dependent on fossil fuels and among the highest contributors of CO2 emission in Southeast Asia, the country-state made early policy choices to reduce its Greenhouse Gas (GHG) footprint by switching from fuel oil to natural gas, even though it meant higher costs. It is also planning to implement a carbon tax on GHG emissions from 2019.

2. Soaring energy demand and mounting interest in sustainability across the Southeast Asia region is driving policy makers to review their energy mix, turn to deregulation and cross-border collaboration

Clean energy and climate has become one of the key agenda items for Southeast Asian economies, resulting in a rising focus on transition to low carbon energy sources. Significant investment is expected in developing renewable energy in the region, with approximately US$4.1 billion spent in 2016 on building capabilities in research and development, as well as new renewable energy and energy management technology.

Governments in the region are catalyzing investment in the region’s renewable energy space. For example, in 2016 Singapore committed more than US$650 million into research and development, and pledged to uphold this investment for the next five years.

Southeast Asia countries are also moving towards deregulation of the energy market, transforming from the traditional single-buyer, monolithic structure with fixed tariffs, to an open market offering modular,configurable and flexible billing systems. Singapore, for example, is gradually opening up its electricity market to retail competition, which is expected to result in competitively priced electricity packages tailored to individual business needs, and projected savings of between 5 and 15 % to contestable consumers.

Similar to more mature markets like the US and Europe, increasingly more and more countries are collaborating with one another to meet energy security needs and address the challenges of individual countries. The Singapore-Malaysia interconnection, for instance, has connected both countries aimed at emergency security and peak demand support.

3. Early adopters of digitization and smart technology, like Singapore, are leading the disruption of the industry by establishing innovative national programs for other market stakeholders to emulate

The accelerated pace of technological change is disrupting the power industry, especially in Singapore, the Philippines, and Vietnam. Cloud adoption in Southeast Asia is expected to continue bringing various systems together, such as infrastructure supporting modular or distributed topology1 and asset management, at scale and at an affordable cost.

Furthermore, the proliferation of the Internet of Things (IoT) and its applications are driving national efforts to build resilience, intelligence and interoperability in the country’s power grid operations. Singapore has set

up dedicated innovation labs and started pilot projects as part of its Smart Nation roadmap, and committed over US$700 million of new public-sector R&D funding for Urban Solutions and Sustainability.