Image source: World Atlas
In 2025, ASEAN steadily built momentum for climate action while navigating external factors including geopolitical conflict, rising energy demand and high inflation. According to the International Energy Agency (IEA), clean energy investment in the region reached a record USD47 billion last year, comprising nearly half of the region’s total energy investments .
Nonetheless, ASEAN now approaches a critical inflection point as soaring electricity demand coupled with new compliance costs test the readiness of regional power systems. Beyond installed renewable capacity, energy sustainability is increasingly anchored by digitalisation, industrial competitiveness, grid reliability and diversified baseload options.
Energy Watch maps out five key focus in today’s energy landscape, offering a clear view of the defining sustainability trends that will shape ASEAN’s energy outlook in the year ahead.
1. Carbon readiness becomes mandatory for competitiveness
The world’s first carbon border adjustment mechanism (CBAM) is set to take effect in 2026, making carbon management an integral part of corporate decision-making. The European Union (EU)’s CBAM imposes a levy on emissions embedded in imported products like steel and cement, supporting fair competition while encouraging greener production.
Although the mechanism formally targets EU importers, ASEAN cannot avoid the impact of CBAM as the EU’s third-largest trading partner. While the initial scope has limited effects on ASEAN exports, expanded coverage could result in more pronounced impacts on energy-intensive sectors across Indonesia, Malaysia, Thailand and Vietnam.
Despite the challenges, CBAM presents the opportunity for ASEAN to ramp up renewable energy adoption, strengthen access to low-carbon electricity and integrate green practices across high-emitting industries. ASEAN exporters are already accelerating emissions reductions and adjusting their strategies to remain competitive in European markets.
Indeed, a study by the ASEAN Centre for Energy (ACE) highlights that ASEAN can turn this regulatory shift into a competitive edge for the low-carbon future. The findings point to three key strategies for the region: implementation of carbon pricing mechanisms, investment in low carbon technologies and establishing strategic trade partnerships.
2. Data centres accelerate renewable procurement growth
ASEAN’s fast-growing digital economy and technology sector has turned the region into a major hotspot for data centre development, with global hyperscalers including Microsoft, Google and AWS investing heavily in the region. Total data centre capacity in the region is projected to triple by 2030 , reaching 5.2 – 6.5GW, according to US consulting firm, BCG.
This explosive growth in data centres, driven by AI and semiconductor expansion, is intensifying pressure on regional power grids. As a result, access to low-carbon energy has become a critical factor in site development, with hyperscalers and enterprises increasingly procuring renewable power through corporate or direct Power Purchase Agreements (PPAs) across Southeast Asia in 2026.
These arrangements provide data centre operators with additional pathways to secure clean energy, while remaining reliant on grid infrastructure to maintain reliability at scale. Google for instance signed a solar PPA with Shizen Energy under Malaysia’s Corporate Green Power Programme last year, covering a 29.9MW solar project to power its regional data centres.
For energy utilities and policymakers, data centres are emerging as anchor off-takers that can accelerate renewable buildout while also testing grid readiness, market design and the ability of national energy infrastructure to support energy-intensive digital growth. This is pushing governments to fast-track grid upgrades, storage deployment and energy reforms.
3. Battery storage becomes central to solar economics
ASEAN’s solar project economics are improving as battery costs continue to fall and storage becomes increasingly viable for utility-scale and commercial developments. Energy think tank Ember indicates that battery prices have declined to a level where dispatchable solar is now economically feasible , fundamentally altering how solar assets are valued.
Solar project profitability in the region rose by 9%, driven in part by the integration of battery energy storage systems that enable solar generation to better match demand. Integrated battery storage improves grid stability by smoothing intermittency and supporting peak demand management.
Storage-enabled renewables are strengthening the business case for clean energy while reducing system-level risk. Rather than viewing storage as an optional add-on, grid developers and investors across ASEAN are increasingly treating batteries as a core component of energy infrastructure.
This shift is reshaping power pricing, grid planning and procurement strategies, as dispatchable solar competes more directly with conventional generation sources. It is also accelerating investment decisions and reinforcing storage as a prerequisite for large-scale solar deployment across the region.
4. ASEAN Power Grid (APG) meets investment and geopolitical realities
The ASEAN Power Grid (APG) agenda is gaining renewed traction through multilateral coordination, regional leadership momentum and a growing focus on implementation readiness. In October last year, all ten ASEAN states endorsed the ASEAN Plan of Action for Energy Cooperation (APAEC) 2026-2030 plan under the 2025 ASEAN Chairmanship, placing grid interconnection at the core of regional energy policy.
Building on this momentum, key ASEAN utilities including Tenaga Nasional Berhad (TNB), Electricite Du Laos (EDL) and Electricity Generating Authority of Thailand (EGAT) signed an agreement this year under Phase 2 of the Laos–Thailand–Malaysia–Singapore Power Integration Project (LTMS-PIP) to supply up to 100MW of renewable energy from Laos to Singapore, with Thailand and Malaysia acting as energy wheelers.
Cross-border interconnection and multilateral power trading promise efficiency gains, energy security and better renewable resource optimisation. However, realising the APG will require substantial capital, projected around USD 248 billion by 2040, including USD16 billion for cross-border grid interconnection alone.
This scale has drawn growing interest from foreign investors, development institutions and clean energy companies active in solar, wind and transmission infrastructure. The Asian Development Bank (ADB) and World Bank pledged to mobilise over USD12.5 billion last year to finance initiatives under the APG.
As opportunities expand, geopolitical considerations are increasingly shaping how and where capital flows into regional power infrastructure. Investors are likely to favour markets with lower geopolitical risk, clearer regulatory frameworks and strong utility institutions capable of delivering stable, long-term returns.
5. Growing interest in nuclear and diversified baseload options
Rising electricity demand driven and decarbonisation pressures are prompting ASEAN countries to reassess long-term baseload options needed to support reliability. Nuclear power, including small modular reactors (SMRs) has re-entered regional discussions through recent feasibility studies and global cooperation.
The Philippines plans to commission the first nuclear power plant in Southeast Asia by 2032, following the enactment of the National Nuclear Safety Act in June 2025. Building on this momentum, Philippines is set to host the World Nuclear Supply Chain Conference (WNSC) in May 2026, signalling its intent to participate more actively in a rapidly expanding global nuclear ecosystem.
Meanwhile, the Philippines, Singapore and Malaysia have all signed the 123 Agreements with the US, enabling nuclear cooperation under strict non-proliferation safeguards. Malaysia is also considering nuclear power as a potential long-term baseload option to support energy-intensive developments such as data centres while reducing reliance on fossil fuels.
To this end, the Ministry of Science, Technology and Innovation (MOSTI) is collaborating closely with the Ministry of Energy Transition and Water Transformation (PETRA) to advance related technologies, develop talents and formulate regulatory frameworks via six technical task forces. As Prime Minister Datuk Seri Anwar Ibrahim stated in the 13 th Malaysia Plan, “The government is considering nuclear energy as one of the clean, competitive and safe energy sources. A structured assessment is currently underway to evaluate its role in Malaysia’s long-term energy mix.”
Execution will define ASEAN’s energy sustainability in 2026
Carbon compliance, digital demand, grid readiness and diversified baseload are converging into a single competitiveness equation
ASEAN’s energy transition narrative is being reshaped by the ability to execute under economic, regulatory and geopolitical pressure. Carbon compliance, digital demand, grid readiness and diversified baseload are converging into a single competitiveness equation.
Utilities, policymakers and investors that align ambition with delivery discipline will continue to set the pace for the region. In 2026, energy sustainability in ASEAN moves beyond targets towards infrastructure, market design and capabilities that can work, scale and endure.
It is within this context that TNB’s Energy Transition Conference 2026 (ETCon26) returns in June, convening regional and global leaders to examine how the convergence of energy and artificial intelligence can strengthen execution. Anchored on the theme Energy and AI, the conference will explore how clean power can enable digital growth, how AI can optimise and modernise energy systems, and how the transition can remain inclusive and grounded in real economic value.
As ASEAN enters a more delivery-focused phase, platforms such as ETCon26 provide space for policy alignment, cross-sector collaboration and practical pathways that translate ambition into sustained progress.
To learn more or register your interest, visit https://the-etconference.com/