The 6 trends shaping Southeast Asia’s clean energy sector
Two-thirds of the global increase in demand for energy will come from Southeast Asia as it modernises, and experts say more than half of this will be met with renewable energy. Eco-Business looks at the corporate and geopolitical trends that will shape the growth of energy in the region.
Southeast Asia’s energy consumption is set to boom over the coming decades, alongside a growing population, a more energy-intensive economy and greater access to the grid.
The International Energy Agency (IEA) foresees a two-third increase in demand and an additional 150 million energy users by 2040, representing “one-tenth of the rise in global demand, as the region’s economy triples in size”. Bloomberg’s New Energy Finance (NEF) predicts that 58 per cent of the power mix will be renewable by 2050, with photovoltaics in particular helping to bring fossil fuels down from today’s 84 per cent.
What will this mean for the regional economy, and how can Southeast Asia seize the opportunity to develop sustainably?
The clock is ticking down to Asia Clean Energy Summit 2019 (ACES), where leaders in renewables policy, research and business will soon be gathering in Singapore to discuss the challenges and opportunities on the path ahead. Ahead of the conference, Eco-Business casts an eye over some of the mega trends, technologies and innovations that will shape Southeast Asia’s energy sector.
1. Financing solar with security
Working out the environmental economics of energy infrastructure is a complex business, and in a challenging risk environment, development banks or green funds have been doing the heavy lifting when it comes to investing in infrastructure projects—as much as USD$6 billion from 2009-16.
But corporate power purchasing agreements (PPAs), spurred by companies’ renewables targets, have been emerging as a key driver of solar infrastructure around the world.
Companies enter contracts to buy from a provider for a set period of time, often while leasing roof area as part of the arrangement. These contracts provide the liquidity and assurance necessary to fund development of solar farms or rooftop installations, without exposure to the merchant risk of the open electricity market.
2. Renewable microgrids powering remote communities
According to the Centre for Strategic and International Studies, Southeast Asia should achieve full electrification by the 2030s, and more than half of the additional demand from the region is expected to come from mini-grid and off-grid technologies.
Microgrids or mini-grids are small, self-contained power networks that can maintain themselves without physical connection and access to a larger municipal, regional or national system.
But with small-scale, decentralised power generation from wind or solar, microgrids have the potential to become cheaper, more resilient, and better for the environment. Rapidly-evolving battery and grid controller technologies are already helping microgrids in challenging island terrain off the coast of East Kalimantan, in Puerto Rico, and in Samoa are achieving cheap, resilient electrification with 100 per cent renewable energy.
3. P2P blockchain-based energy trading
Blockchains tend to be associated with cryptocurrencies, but the technology underpinning them, distributed ledgers, have a vital role to play in the energy systems of the future. Using distributed ledgers rather than traditional systems, it’s far easier to track and transact multiple sources of generation.
Blockchains allow market participants “to record an otherwise unidentifiable unit (here, kWh of electricity) and make sure it is indeed only sold and consumed once…to avoid any fraudulent activity,” says Mathias Steck, manager of DNV GL’s Asian digital hub in Singapore.
Blockchain solutions open the door to peer-to-peer (P2P) energy trading, allowing households to become energy ‘prosumers’ by producing electricity for their own consumption and selling excess supply at spot prices, unlike fixed feed-in tariffs.
And the myth of blockchain technologies being energy-intensive may also be overplayed. While some “proof of work” approaches, such as Bitcoin, do require power-hungry computing infrastructure, evolved models such as “proof of stake” are far more environmentally friendly.
4. Central banks and mandated disclosure in finance
Recent years have seen an explosion in shareholder activism, from large asset managers to shareholder pressure groups, focused on ‘greening’ companies’ operations and finances. But there’s also a nascent regulator-driven movement to legislate the disclosure of climate risks by corporates, alongside a surge in central banks arguing that climate change is a systemic macroeconomic risk.
Taken together, it would seem that green finance is moving from an optional marketing tools into the realm of the mandate. For instance, the Financial Stability Board created a Taskforce for Climate-related Disclosures in 2015, aimed at developing guidelines for companies to voluntarily disclose their “physical, liability and transition risks” associated with climate change. A coalition of central banks also came together to form the Network for Greening the Financial System and expedite change.
As Singapore and other Asian economies have demonstrated, however, achieving meaningful reporting has been a challenge, leading to a growing realisation that mandatory climate risk reporting may be necessary across the globe.
In a business climate where a company’s environmental footprint is only going to become more transparent, this is likely to drive corporates to not only source cleaner energy, but also to look harder at the impact their investments have on the world. Growing divestment from fossil fuels could mean a bigger slice of the funding pie for renewable energy projects.
5. Virtual power plants transforming energy storage
While batteries have already proven themselves immensely useful for households, vehicles and grids, the increasing sophistication and adoption of virtual power plants (VPPs) is about to unlock a step-change in energy storage solutions.
A virtual power plant is a centrally controlled system that links to different energy sources and coordinates them like one large energy generator. Rooftop solar panels, small wind farms and gas turbines could all be networked, and used to report or modify how much power is available to the grid. This ‘Internet of Energy’ approach is essential to integrating large amounts of small-scale, distributed renewable energy into electricity networks of the future.
For batteries and other storage technologies, VPPs represent an even greater opportunity. Connecting hundreds or thousands of batteries into a VPPcan produce a massive and efficient tool to discharge or soak up power and balance an energy system.
Virtual power plant trials are advancing across Southeast Asia, from cutting-edge research at Nanyang Technological University’s REIDS group, to a pilot at Malaysian national utility Tenaga Nasional Berhad.
6. Emerging materials and supply chains
The trade wars heating up across the Pacific may be nominally about semiconductors and smartphones, but supply chains for emerging renewable energy technologies are also becoming a key battleground.
Rare earths, are minerals crucial to the production of some types of batteries, fuel cells, and wind turbines, but their processing can produce radioactive waste and pollution. Malaysian government has signalled hesitant support for a rare earths industry it sees as worth 100 billion Malaysian ringgit (US$23 billion) by 2030.
Secondly, China’s move to limit waste imports have pushed much of the world’s recycling trade to Southeast Asia. Meanwhile, growth in installation of photovoltaic solar panels means that 78 million tonnes of material will need to be recycled by 2050, while electric vehicles could provide another 11 million tonnes of batteries by 2030.
There’s much uncertainty—and therefore opportunity—in the trajectory of the rare earths and renewables recycling industries over the next decade, but Southeast Asian businesses will need innovative remanufacturing technologies and strong policy environments to take advantage of them.