There is little doubt that the general awareness surrounding sustainability has grown over the past few decades. Yet as investor attitudes and public perception continue to progress, the transition to a sustainable, clean energy system is one fraught with challenges, further disrupted by the ongoing COVID-19 pandemic.
The Investor Market For Renewables
While Southeast Asia’s renewable energy consumption doubled over the last two decades, it still accounts for just 15% of energy demand. There are several reasons contributing to this slow transition – and the main issue isn’t what you think.
The upfront cost in implementing renewables is relatively high
Emerging economies such India, China, and countries in Southeast Asia are at the forefront of their industrial and economic progress. In these countries, the cheapest and most affordable fuel for generating power are fossil fuels – coal, natural gas, crude oil are all engines of today’s modern economy.
While the levelised cost of energy for renewables now competes favourably with fossil fuels, there is still a higher upfront capital cost for implementation. Those costs tend to be steeper in Southeast Asian countries, where investment markets and regional infrastructure are far less mature. With their economies still developing, affordable energy is a top priority for these nations, oftentimes pursued at the cost of sustainability.
In 2019, International Energy Agency (IEA) predicted the Southeast Asian region would require US$140 billion to shift towards low-carbon power production. However slow the clean energy transition was before, these targets present a huge investment opportunity for the private sector, especially given the anticipated growth in energy demand in Southeast Asia. The pandemic has also driven global interest rates to a historical low, reducing the long-term cost of borrowing – providing further impetus to investors.
Policy That Promotes Opportunity
Government policy makers and regulators will be key in unlocking this huge regional opportunity. But having recently spent huge shares of their national wallets on safeguarding people and livelihoods during the COVID-19 pandemic, they now face difficult decisions that will change the course of their energy transitions.
These decisions come at a time when fossil fuel prices hover at a historical low, creating an attractive short-term proposition for countries looking to reduce costs post-COVID-19. Yet policy makers are urged to consider a long-term strategy. Short-term declines in fuel prices offer temporary economic relief but prices may not remain low forever.
The continued reliance on fuels could also create a ‘carbon lock-in’ scenario, locking in a nation’s energy industry into existing fossil fuel-based systems, on the basis of lowering business risk and reducing power costs. The entire nation is caught in a self-perpetuating cycle that incentivises reliance on old technologies, denying it the chance to explore alternative energy infrastructure.
The post-COVID world provides chances for a structural transformation
In a post-COVID world, the crisis could provide the platform needed for structural transformation. For nations highly reliant on fuel exports, the shift in demand is forcing them to re-evaluate existing economic structures. In Southeast Asia, major oil and gas producers Indonesia and Malaysia could be significantly impacted by the decline in oil demand – at present, roughly 13 percent and 20 percent of their domestic revenues respectively are contributed by the oil and gas sector.
Low fuel prices and falling consumer demand could initiate nation-wide economic transformation and diversification, which would prove challenging even in usual times. Fuel exporting countries who traditionally have lesser reasons to prioritise renewable growth, are now offered the opportunity to diversify energy sources, moving slowly away from fossil fuel production and reliance.
In Malaysia, one limiting factor in the renewable energy shift is the price of renewable energy. Through the nation’s Large Scale Solar program, companies bid for the right to generate (and sell) clean energy that will be used by Malaysian consumers. This allows the price of renewables to remain competitive as interested parties compete with each other by offering attractive proposals to win the project.
However, the overall amount of generation capacity for renewables must adhere to the amount allotted by the Malaysian autorities. Hence, producers must also adhere to a limit on the amount of clean energy they’re able to produce with their solar farms. This limit prevents the price of renewables to be further reduced through economies of scale, a concept that outlines how manufacturers with larger production capabilities are able to do so at a lower cost, helping drive down overall prices so that more consumers are able to afford their products. To push for a quicker and more cost effective shift towards clean energy, regulators should look at ways to make the most of economies of scale, so that everyday people can afford to make the switch to renewable energy.
New Avenues For Sustainable Energy
In balancing the current challenges, policymakers should explore new avenues for long-term investment. Allocating post COVID-19 stimulus packages towards new technology infrastructure is one way of addressing the issue – new policies and investment can spur opportunity in areas such as carbon capture and storage technology, clean hydrogen, and grid modernisation. This could result in a multiplier effect on employment and economic growth.
As interest in sustainable urban cities of the future increases, one of the biggest areas of growth for renewable energy in ASEAN will include the development of low-carbon cities. These cities integrate technologies such as smart meters, smart traffic, and smart lighting to reduce energy wastage and increase efficiency. Increased adoption of rooftop solar will even unlock the opportunity for peer-to-peer renewable energy trading, where individuals and businesses generate and sell electricity across a shared marketplace.
Other regions, like the European Union (EU), can provide a template for Southeast Asia to emulate. In the EU, the renewable rollout is supported by broad regional consensus and cross-border power. The sharing of power across borders is crucial to manage the intermittent and sometimes inconsistent power generated by renewable sources. By tapping unto different country’s geographical strengths, the challenges that come with variable renewable energy is better resolved. That brings to light a compelling argument for initiating the long-touted ASEAN power grid.
Policymakers should explore new avenue for long term investment in renewables.
Identifying technologies and systems needed to drive the Fourth Industrial Revolution will be key for policymakers and industry players alike. This is a significant market opportunity, but it is one that can only flourish with the right regulatory support.
Renewable energy also provides the opportunity to leverage on the region’s huge biomass potential, with Malaysia’s agricultural industry alone creating 70 million tonnes of biomass and residue annually. Indonesia on the other hand, is a promising market gone untapped. The country accounts for roughly a third of regional electricity demand, yet is largely dominated by coal-fired power. The country’s population is roughly three times that of Vietnam, but just one-quarter of its renewable energy capacity.
Renewable Resilience For The Future
There are unlikely to be any easy answers in a post-COVID-19 world. The economic reality of today creates a challenge around delivering affordable, secure electricity supply. Government and industry will need to work together to meet growing electricity demand, while navigating that fine balance between low-carbon and traditional energy technologies. Far more than economic opportunity, nuanced decision-making could secure our world a better future.