Southeast Asia at an energy crossroads: The Southeast Asian region risks exposure to stranded assets from coal-power expansion and losing out on an estimated USD 1 trillion clean energy opportunity. South Pole's latest report assesses shifting energy landscape of Indonesia, Myanmar, Philippines, Thailand and Vietnam.
The ecosystem supporting new coal investments for short-term gains in Southeast Asia still remains strong. The main forces preserving this status quo include the availability of subsidised financial incentives for coal technology exports from East Asian countries, ready supply of and aggressive overseas support for cheap coal from Indonesia, as well as the lack of policies prioritising renewable energy and low-carbon business innovation. The implementation of
just 50% of the planned fossil investment of 400 GW of new capacity would lock the region into an expensive, unsustainable energy development scenario, quash the gains of a low-carbon transition for Southeast Asia, and render the global Paris climate goals unattainable. At the same time, the region risks missing out on an estimated USD 1 trillion investment opportunity and the substantial socioeconomic benefits to be realised through a clean energy transformation.
These are the findings of the latest report from global sustainability solutions provider South Pole, 'From Liability to Opportunity: Shifting the Energy Landscape in Southeast Asia', which assessed the policy, finance and market barriers to the deployment and development of clean energy across Southeast Asia, specifically Indonesia, Myanmar, Philippines, Thailand and Vietnam.
At an energy crossroads: USD 1 trillion at stake
While the global trends in renewable energy, energy efficiency and e-mobility have not yet converted into business development and investments at scale in Southeast Asia, quickly decreasing clean energy costs will soon become competitive in the region, making existing and new coal plants obsolete within the next 3 to 5 years. This will create considerable financial risks for public and private owners of fossil fuel based resources, with an estimated USD 1 trillion worth of assets that risk being stranded. This may pose a substantial risk especially for governments in light of rapidly falling prices for various types of renewable energy: the report findings show that nearly 100% of the electricity traded in the power markets of the five target countries are based on government-backed, long-term fixed contracts with fossil energy projects.
However, the report also finds that the aggregate climate-smart investment potential across the five countries assessed was also worth USD 1 trillion, opening up engagement opportunities for investors and countries alike in various sectors such as clean technologies, sustainable transportation, green buildings, and waste. Several financing institutions and private equity funds have already spotted this opportunity and support clean energy deployment in the region to various degrees, with different priorities and the use of diverse instruments.
“One of the biggest battles to save the climate needs to be fought in Southeast Asia," says Ingo Puhl, Co-Founder, South Pole, and one of the lead authors of the report. “Our research shows that we have either a trillion to lose, or a trillion to gain - it is up to us to decide. If we lose, it will be to the tune of USD 1 trillion of costs and externalities that the public has to pick up. We need the broadest alliance possible - corporates, investors, and governments - to help Southeast Asian economies and societies unlock from fossil fuels, and to pioneer commercially viable solutions."
“We have the investment need and we have the investment opportunity - we must now work together to overcome the obstacles that are slowing down the clean energy transformation in Southeast Asia," continues Johannes Spaleck, Senior Project Manager, South Pole, and research lead for South Pole's report. "It is paramount that current gatekeepers of energy policies understand their exposure to the risk of stranded assets and hedge against it by strengthening their role as solution providers in the low-carbon transition."
Call to action: Six core areas to be addressed by business and government
The report puts forward six core areas to focus on in order to strengthen the required infrastructure to deliver a clean energy shift at scale, and to catalyse risk assessment and transformation efforts in current policy making processes in Southeast Asia:
With the backdrop of these rapid developments in Southeast Asia, there is an urgent need for action on all fronts to capture the benefits of decarbonization in the region. The South Pole team invites experts, practitioners, businesses and governments to join the quest to unlock the USD 1 trillion investment potential and finance a low-carbon, climate-resilient future.
For further information, please reach out to Nadia Kahkonen, Head of Communications, South Pole.
Disclaimer: These findings do not constitute of investment advice or recommendation by South Pole of an investment strategy or whether or not to "buy, sell or hold" an investment.