Image source: U.S Mission to ASEAN

For much of the past decade, the ASEAN Power Grid (APG) has been discussed as a question of infrastructure – build the transmission lines and connect the networks, and regional electricity trade will follow. Recent developments suggest that phase is finally gaining momentum. Nine of ASEAN’s 18 priority interconnection projects have been completed, with an estimated 10.2 GW of cross-border transmission capacity under the ASEAN Plan of Action for Energy Cooperation (APAEC) Phase II: 2021-2025.

Building on the Laos-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP) initiative, five interconnection projects – including Vietnam-Malaysia-Singapore (VMS) interconnection, Sarawak-Peninsular Malaysia-Singapore link, and enhanced interconnection between Malaysia, Thailand and Singapore – are beginning to link Southeast Asia’s power systems together.

APG’s long-term success will hinge on stronger institutional coordination

Yet connecting ASEAN is proving easier than coordinating it. Over the past few decades, ASEAN member states have invested billions in physical infrastructure, expanding transmission, and cross-border interconnections. However, the next challenge lies in strengthening the institutional infrastructure that sits behind these networks, which refers to the common governance, market rules, technical standards, and commercial frameworks that enable electricity to be traded reliably and efficiently across borders. And ultimately, the APG’s long-term success will hinge on stronger institutional coordination.

Political sovereignty versus regional coordination

To understand the scale of what ASEAN is attempting, it is highly effective to look at the European Union’s (EU) Internal Energy Market (IEM), one of the world’s most mature examples that has spent decades institutionalising a deeply integrated cross-border electricity market.

Central to this task is Europe’s independent regulatory agency, the EU Agency for the Cooperation of Energy Regulators (ACER), which coordinates regulatory decisions, resolve cross-border issues, and ensure energy markets operate under a common set of rules. These institutional arrangements also enable shared regional trading platforms like Nord Pool, where electricity is traded across borders through a common market mechanism rather than via separate country agreements.

ASEAN, however, is structurally different. Power systems across the region are highly uneven: exporters such as Laos sit alongside import-dependent economies such as Singapore. Tariff structures, market reforms, and energy priorities also differ significantly across member states, reflecting varying stages of economic development and national policy objectives. Unlike the EU, which benefits from supranational institutions, ASEAN operates on principles of national sovereignty and consensus-based decisions. As a result, strengthening regional electricity integration will require a coordination model that reflects the “ASEAN Way”.

Institutional coordination the “ASEAN Way” still nascent

Given the independence of ASEAN states, the region is currently still working towards a unified market design to allocate electricity efficiently across borders. Today, cross-border transmission fees are negotiated on a “case-by-case” basis instead of being automated through a common methodology.

In the LTMS-PIP project, for example, Thailand and Malaysia act as the transit providers, receiving wheeling charges for allowing Laotian hydropower to flow through to Singapore. The wheeling charges remain project-specific commercial negotiations, heavily driven by diplomatic collaboration and political willingness to get the project off the ground, rather than market-driven methodology.

Even for such bilateral or pilot multilateral agreements, there is currently no standardised formula for calculating the wheeling charges. Therefore, each new cross-border agreement requires commercial terms to be negotiated individually, adding time and complexity to new project development.

The lack of standardisation also affects project financing. According to a recent International Energy Agency (IEA) report, “Financing the ASEAN Power Grid”, it was argued that financing – not technology – is now the main barrier to implementing the ASEAN Power Grid. Investors and private players view high upfront costs and long timelines as a deterrent to investment, further exacerbated by complex cross-border arrangements.

As ASEAN moves toward a more mature grid, the region will need to slowly move away from negotiating on a “case-by-case” basis and agree on a uniform market formula, and then a larger market design which can provide predictability to industry players. Recognising that ASEAN member states are at different stages of readiness, the Economic Research Institute for ASEAN and East Asia (ERIA) proposed a Layered Market Approach that allows long-term bilateral agreements, short-term bilateral trading, and future regional markets to coexist. This enables countries to strengthen regulatory alignment and harmonise operational practices where beneficial, while preserving flexibility for national implementation.

This approach is already taking shape through initiatives such as the Enhanced ASEAN Power Grid (APG) Memorandum of Understanding (MoU) and dedicated APG Task Forces, advanced under Malaysia’s ASEAN Chairmanship at the 43rd ASEAN Ministers on Energy Meeting (AMEM). Together, these initiatives lay the institutional foundations needed for deeper cross-border electricity trade.

A model for consensus-driven integration

The Layered Market Approach is not a foreign concept. Other regional power markets have similarly recognised that successful market integration is most effective when evolved in stages, allowing participating countries to strengthen coordination before transitioning towards more advanced market arrangements.

A practical example is the Southern African Power Pool (SAPP), a cooperation of the national electricity companies in Southern Africa established through an intergovernmental MoU. Similar to the proposed Layered Market Approach for ASEAN, SAPP adopted a phased pathway to market integration; it began with the Short-Term Energy Market (STEM) in 2001, allowing participating utilities to gain operational experience, strengthen institutional capabilities, and build confidence in cross-border electricity trading before moving towards more advanced market arrangements.

Southern Africa’s experience has also proven that regional energy organisations can operate without a supranational legal authority – SAPP’s regulatory arm, the Regional Energy Regulators Association (RERA), has successfully worked to harmonise market rules and drive effective coordination across its 12 member countries.

For ASEAN, the SAPP illustrates how a phased, readiness-based approach can provide a practical pathway towards deeper regional integration. This same principle is now reflected in ASEAN’s own implementation roadmap – developed under the ASEAN Interconnection Masterplan Study (AIMS) III Phase 3 programme, the Implementation Strategy for Multilateral Power Trade (MPT) recommends strengthening existing regional coordination mechanisms and sets out a phased pathway towards a multilateral electricity market. Endorsed by the ASEAN Ministers on Energy Meeting (AMEM), the strategy provides a common framework for advancing the ASEAN Power Grid while recognising the differing needs and levels of readiness across member states.

The ASEAN Power Grid: From vision to partial reality

ASEAN electricity demand is expected to more than double by 2050. This provides a powerful rationale for regional optimisation. The ambition is to link ASEAN’s power systems, but several steep hurdles stand in the way. One key technical challenge is that regional grid codes remain unharmonised, with differences in dispatch protocols and reliability standards limiting interoperability.

Without convergence in these operational rules, the ability to scale multilateral electricity trade will remain constrained, regardless of how much physical capacity is added. To take regional interconnectivity to the next level, ASEAN will need to agree on a rulebook that harmonises rules, pricing mechanisms, governance structures, and market arrangements across borders.

Greater institutional coordination will also help ASEAN respond more effectively to emerging implementation challenges, from investment uncertainty and evolving geopolitical dynamics to the operational risks associated with increasingly interconnected power systems.

Within this trajectory, Malaysia is well positioned to contribute to the development of regional standards and settlement mechanisms alongside other ASEAN member states. Geographically, it sits at the centre of the region’s most advanced power trading corridor, while its active participation in ASEAN energy initiatives has enabled it to support the region’s evolving electricity needs.

Malaysia is therefore well placed to facilitate closer coordination between ASEAN’s exporting and importing countries, while supporting the alignment of commercial arrangements. As the nation’s utility, Tenaga Nasional Berhad (TNB) has been one of the key industry players supporting the operationalisation of APG initiatives, alongside regional utilities and institutions to translate the vision to life.

Earlier this year, TNB signed a two-year tripartite Energy Wheeling Agreement with Electricity Generating Authority of Thailand (EGAT) and Electricite Du Laos (EDL) which completes the implementation of LTMS-PIP 2.0, increasing the total traded capacity under the framework to up to 200MW. EGAT governor Dr Narin Phoawanich said the signing of Phase 2 marks a significant step toward realising the APG vision and represents a strategic advancement in regional energy cooperation between Laos, Thailand, Malaysia and Singapore. EDL deputy managing director Souksavart Sosouphanh added that they “look forward to seeing more countries involved in support for regional clean energy security and sustainable development.”

Moving forward, ASEAN’s path to integration will be led by the gradual accumulation of standard practices and trust. In that process, leadership will not be defined by infrastructure scale alone, but by the ability to coordinate amongst one another.