Energy Transition

How South-East Asian countries can cooperate to enhance energy interconnectivity

Laos … hydropower potential, a crucial part of the renewable energy mix.

Laos … hydropower potential, a crucial part of the renewable energy mix. Image: Unsplash/Parker Hilton

Ratnesh Bedi
President, Pacific Energy Corporation
Asheesh Sastry
Managing Director and Senior Partner, Boston Consulting Group
Toong-Yuen Chong
Lead Knowledge Analyst, Boston Consulting Group (BCG)
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  • With its uneven energy distribution, South-East Asia must enhance its energy interconnectivity.
  • Infrastructure investment remains an important obstacle in the region.
  • ASEAN countries can look to Europe as an example in fostering regional collaboration.

The urgency of enhancing energy interconnectivity within the Association of Southeast Asian Nations (ASEAN) is becoming increasingly crucial as the region embarks on a sustainable energy transition. ASEAN's diverse energy landscape is characterized by the uneven distribution of energy resources. Laos, for instance, boasts significant hydropower capability, positioning itself as a major electricity exporter within the region. And Indonesia possesses the potential for up to 2,900GW of solar PV capacity.

In contrast, countries like Singapore, with its limited natural resources, are emerging as significant power demand hubs, reliant on low-carbon energy imports to decarbonize. Thailand, the Philippines and Vietnam are all witnessing the depletion of their domestic gas fields, prompting increased investments in liquefied natural gas (LNG) terminals due to anticipated growing energy demands.

Recently, a community of business leaders from the ASEAN region, hosted by the World Economic Forum, underscored the critical role of power infrastructure, such as grids, gas/LNG infrastructure, and EV charging stations in a joint “Shared Aspirations” document. Enhancing the connectivity of low-carbon energy sources across the region could significantly reduce overall system costs and improve energy security, thereby mitigating the energy trilemma – the challenge of balancing energy security, equity and environmental sustainability.

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"Enhancing our regional energy networks is a strategic necessity for sustainable development in South-East Asia. By leveraging diverse energy resources – from Indonesia's solar potential to Laos's hydropower and Vietnam’s offshore wind – we can build a resilient, integrated energy framework. This will not only improve our energy security, but also promote equity and environmental sustainability. It is essential to align our efforts and invest wisely to address infrastructural and regulatory challenges, ensuring a robust energy future for ASEAN," said Azis Armand, Group CEO at Indika Energy.

ASEAN’s energy interconnectivity

ASEAN has made strides in fostering electricity and gas interconnectivity, albeit with varying degrees of success and numerous challenges. Regional grid projects like the Laos-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP) and the Borneo-Indonesia-Malaysia-Philippines Power Interconnection Project (BIMP-PIP) exemplify efforts to enhance electricity connectivity. While there has been progress, financial limitations remain a considerable obstacle. The International Energy Agency (IEA) estimates that an overall grid investment of approximately $21 billion annually will be needed in ASEAN from 2026 to 2030. Additional complications include dated grid equipment, the necessity for standardized grid codes, potential community oppositions and political obstacles, such as ensuring policy continuity despite governmental changes – an issue that is commonly encountered across the region.

Annual clean energy investment by sector in ASEAN (USD billion), 2022-2035.
Annual clean energy investment by sector in ASEAN (USD billion), 2022-2035. Image: IEA

Natural gas has been pivotal in enhancing energy security in ASEAN, especially as the integration of variable renewable energy sources grows and countries seek cleaner alternatives to coal. Significant progress has been made in linking gas supply and demand within the region, primarily through the Trans-ASEAN Gas Pipeline (TAGP) project. In recent years, LNG has stolen the limelight with substantial investments in infrastructure emerging in the Philippines, Thailand and Vietnam; a combined capacity of 41 million tonnes per annum of LNG terminals that are proposed or under construction.

Despite these advancements, the region faces considerable challenges in establishing a unified gas market and encouraging intra-regional LNG transactions. The primary obstacle remains the high investment requirements associated with the capital-intensive nature of gas pipeline infrastructure and LNG terminal development. Establishing regulatory frameworks across the region that act as enablers, such as open access and gas specification harmonization, can be complex.

Both electricity and gas interconnectivity within ASEAN face a common obstacle: the shortage of necessary infrastructure. This issue is particularly challenging as most ASEAN states, being developing economies, tend to prioritize investments toward immediate domestic needs within their borders. Even if ASEAN states have the capacity to invest in infrastructure, potential disparities may occur with rural and low-income communities being left behind, as urban and economically prosperous areas typically receive most of the money.

The European example

What actions can ASEAN member states take to achieve early success by 2030, considering that nine out of 10 of them have committed to achieving net-zero emission targets by 2050-65?

The journey towards enhanced energy interconnectivity is not unique to ASEAN. Global precedents, such as the synchronous grid of continental Europe which benefits 24 countries and 450 million people, offer valuable lessons for the region. One key enabler in the development of the European grid is the Projects of Common Interest (PCIs) scheme. Key cross-border infrastructure projects with PCI status gain access to exclusive financial assistance and benefit from expedited permitting procedures, thereby accelerating their development. Given limited resources and the urgency of meeting net-zero targets in ASEAN, collectively prioritizing projects of regional importance that offer the greatest impact is crucial. By adopting a similar scheme in South-East Asia, ASEAN states can accelerate their energy connectivity efforts optimally and equitably.

At the national level, ASEAN countries could alleviate concerns regarding policy continuity and boost investor confidence by adopting legislation for net-zero emission targets, similar to the approaches taken by the UK and France. By enacting such laws, current and future governments would be obligated to meet these targets, with their progress subject to legal scrutiny. This approach ensures a stable policy environment, encouraging long-term investments in energy transition.

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The path forward requires a concerted effort from all stakeholders, including governments, the private sector, and international partners, to realize the vision of a cohesive and integrated ASEAN energy market. The ASEAN energy landscape is diverse, with each nation having unique resources, but this fragmentation hinders progress toward a sustainable energy future. The ASEAN Leaders for Just Energy Transition (ASEAN JET) community, with over 20 CEO members across sectors in South-East Asia, is poised to play a pivotal role in uniting business leaders to build a robust cross-border power infrastructure. By working together, we can ensure affordable clean energy for all and achieve a sustainable, interconnected ASEAN.

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