The idea of an energy transition conjures images of a smooth and gradual process – a consistent evolution away from fossil-fuel based energy production, and towards cleaner energy sources for a low-carbon future.
The reality of the low-carbon transition has been more of a stop-start affair than a smooth process
The reality has been more of a stop-start affair, as countries wrestle with unique challenges for their individual transitions. COVID-19 has delivered a further shock to the global switch towards renewables as border lockdowns halt supply chain movements.
Governments have to carefully balance decisions for low-carbon pathways at a time when while communities are struggling to pay bills, fossil fuels such as oil and coal are at record low prices. Policymakers must balance the short-term economic recovery of national accounts against the long-term future of the entire planet.
Below we explore how three countries are each progressing in their respective transitions. We consider three key factors: market and consumer dynamics, infrastructure readiness, and regulatory willpower.
The Energy Transition Around the World
The nations of northern Europe are often celebrated for their ambitious energy transition goals. Renewable energy is a critical element of this transformation, with Denmark, Norway, and Sweden each targeting 100% renewable energy use. These efforts are supported by geographical benefits, with Norway and Sweden tapping into significant hydropower reserves, and Denmark leveraging its pioneering history as a leader in wind power generation.
Research indicates that the total cost for energy transition across these nations is roughly US$357bil by 2050, less than 1% of cumulative GDP over this period. However, those expected costs are projected to be offset almost entirely by consequent fuel savings.
Interconnectivity with the wider European energy grid is fundamental to a successful transition. Nordic countries have long benefited from their own integrated regional grid. The flexibility of the wider European electricity grid infrastructure provides an enhanced level of resilience that further boosts the potential for a low-carbon energy future.
South Korea is a modern economy with a strong industrial base, traditionally powered by fossil fuels as part of an independent power grid. The nation’s industrial economy has driven energy demand, making it one of the world’s most energy intensive developed economies.
South Korea’s energy transition provides a route to reduce the carbon intensity of its economy and to enhance energy security. The country is aiming to achieve 35% renewable energy in its electricity mix by 2040, more than double the 15% today. This energy transition will see traditional reliance on nuclear and coal-fired power reduced, with both renewable energy and liquefied natural gas (LNG) increased to replace them.
However, despite renewed Government commitments, independent analysis indicates their goal of achieving 60GW of renewable energy by 2030 is likely to fall short. This is because necessary subsidies to energise industry growth remain lacking, meaning legacy fossil fuels and nuclear energy remain cheaper in the short-term. This challenge is a recognised hurdle to the energy transition, as short-term cost decisions lead to long-term impacts.
Southeast Asia is wrestling with similar challenges in its own energy transition. The needs of the region are diverse – Indonesia has the largest geothermal energy reserves globally, but must balance its energy transition while powering 17,000 islands in this developing nation. Malaysia benefits from significant solar energy potential, but wind power lacks both technical and economic promise.
Vietnam’s success in solar power reveals the role governments play in steering energy transitions
Vietnam provides an intriguing view of the energy transition. Vietnam’s economic growth has been meteoric in recent years, with GDP growing from US$31.17bil in 2000 to USD245.2bil by 2018. This has led to a consequent increase in energy demand, with electricity demand alone expected to grow by 8% annually to 2035.
Vietnam put in place renewable energy targets in 2016, aiming for renewable energy to contribute 10% of total energy generation by 2030. Solar power was to be a large contributor to this journey, yet by 2017 uptake remained muted. The Government took action to spur adoption, introducing feed-in-tariffs that incentivised solar power. This accelerated solar power from 9MW in 2018 to a remarkable 5,695MW by 2019.
Vietnam’s success in driving solar power reveals the important role governments play in steering energy transitions. But this single power source is not a silver bullet for the country’s energy challenges. With a reliance on coal continuing to challenge Vietnam’s overall energy journey, renewed focus on major projects in both wind and solar power will only meet part of their growing energy demand without significant efforts from both private and public sector organisations. That partnership approach will be fundamental to the success of energy transition across Southeast Asia.
The Future Transition
Steering global energy transition is complicated, with national technical, financial, and regulatory challenges to balance. Indonesia’s emerging economy of 17,000 islands will have vastly different market dynamics to Singapore’s developed city state. The technology and infrastructure capabilities of a value-added manufacturing economy like Malaysia are evidently different than the largely agricultural economy of Laos.
Vietnam offers an example of how government support is fundamental to guiding the country’s transition. Equally, the example of Northern Europe makes a case for the importance of cross-border cooperation in meeting the shared goals of the energy transition. For nations like South Korea, the evolution of technology in areas such as floating solar and offshore wind reveal how emerging technologies can unlock new opportunities.
Long-term policies must balance the energy trilemma
The key to the energy transition is balance. Clear long-term policies from governments are needed to balance the energy trilemma, and support the energy transition. These policies will fuel the transition by allowing a change in market dynamics, encourage technology and infrastructure evolution, and if done right, hold all sectors accountable for Southeast Asia’s varied but shared energy transition.
In the energy evolution, it’s not just the power sector that has to make steps in the right direction. Transport and agriculture represent two major economic sectors which are also essential in steering a successful route towards the coveted net zero status. Aligning the critical elements of these sectors in each individual country will form the foundation for a successful energy transition that actually delivers on the promise of a net zero future.