Geopolitics cloud high hopes for clean energy in Southeast Asia

Several commitments have been made in 2023 to boost clean energy in the region, and observers are now looking for signs of real action. Meanwhile, solar manufacturers could be in for a bumpy ride.

Thailand floating solar experiment
Solar panels are tested for use on water, as part of a floating installation project in Thailand. Image: Wikimedia Commons/ Joe628.

The year 2023 ended with global political commitments to triple renewable energy capacity and draw the curtains on the coal era, which energy industry-watchers believe will translate into bolder climate action in Southeast Asia.

However, they also warn of larger geopolitical tensions sweeping over the region, along with supply chain issues and bureaucratic red tape that could continue to stall the growth of renewables.

Southeast Asia, home to almost 700 million people, is one of the fastest growing blocs in the world. Jumpstarting clean energy development in the fossil fuel-reliant region is seen as crucial to keeping global warming at bay.

“Energy security and economic development will remain the key drivers in national energy decisions, while environmental considerations will play an increasingly important role in that decision making process,” said Dr Victor Nian, chief executive of Singapore-based think tank Centre for Strategic Energy and Resources (CSER).

Nian added that renewable energy will “remain the trending development” in most Southeast Asian countries this year, and there could be more developments in regional clean energy trading.

Singapore last year issued conditional approvals to seven projects to import several gigawatts (GW) of low-carbon electricity from Cambodia, Indonesia and Vietnam. Over a dozen applications could still be in the pipeline since the city-state called for ideas in 2021, and its regulators have said they are studying the viability of approving further projects.

Malaysia could be a country to watch – it lifted a federal ban on renewable power exports last year, and has been working on domestic regulations to facilitate such trading. The state of Sarawak in East Malaysia, which enjoys some autonomy in energy matters, is separately pursuing a hydropower export deal with Singapore.

While there has been progress on the policy front, these projects would more likely only come to fruition near the end of the decade.

Momentum could also come from last month’s COP28 global climate summit in the United Arab Emirates. Mark Hutchinson, director of the Southeast Asia task force for Global Wind Energy Council (GWEC), said the industry group is watching how countries are moving after signing a pledge on tripling renewable capacity by 2030.

A non-binding pledge for this target had the backing of four Southeast Asian countries – Brunei, Malaysia, Singapore and Thailand – though the final summit text had called for all nations globally to support the endeavour.

Vietnam and Indonesia are among big Southeast Asian absentees from the pledge. But Hutchinson added that a “huge corporate push” for procuring renewable power will help accelerate development across Southeast Asia.

Businesses in renewables powerhouse Vietnam will be hoping a trial on direct power purchasing deals with solar and wind developers that bypasses the country’s state utility can start soon. The trial was mooted in 2022, though rules for the exercise remain in development as of late last year.

Such rules are more developed in neighbouring the Philippines, and the “next big milestone” for the country would be an offshore wind auction in a year or two, Hutchinson added.

The Philippines sought proposals for 11.6GW of renewable energy developments in its annual auction last year, but delays in power transmission works saw developers commit only to providing 3.4GW of new installations.

The government has since said it is looking to host a separate offshore wind-only auction, and major global developer Corio has said it wants in if the exercise happens this year. The Philippines theoretically has 178GW of offshore wind potential, and the World Bank previously said it made sense to exploit up to 21GW of the capacity by 2040.

However, Hutchinson warned that the wind energy supply chain could bottleneck as countries ramp up developments – a problem the industry is facing globally, except in China.

Meanwhile, developers in Indonesia are hoping for clearer rules to help them access the market. In a poll with 10 renewable energy businesses by think-tank Institute for Essential Services Reform (IESR) late last year, half of them felt national energy transition regulations have not been consistent.

In addition, all said public funding for renewables is either inefficient or insufficient, and many called for the introduction of feed-in tariff schemes, where the state buyer guarantees fixed and sufficiently high power purchasing prices.

Greater leadership and more rigorous policy frameworks are needed for Indonesia’s clean energy transition, IESR said in its 2024 energy transition outlook report.

The country’s three presidential election candidates appear to be aware of this, and have all said they would continue to cut coal and boost renewables. Two candidates, Prabowo Subianto and Ganjar Pranowo, said they would open the power market to private-sector competition, Reuters news agency reported, a move developers say can help crowd in more renewables.

Indonesia’s presidential election is set for 14 February.

Manufacturers brace for slowdown

Southeast Asia is increasingly shaping up to be a solar panel manufacturing hub, with several large Chinese firms having set up shop in recent years.

The next few years may be tough for them, however, with resource consultancy Wood Mackenzie predicting a global slowdown in the growth of the solar power industry up until 2028 due to natural economic cycles, with the problem felt most sharply in mature Europe and China markets.

At the same time, the industry is significantly at overcapacity currently, with buyer inventory at record levels, according to Paula Mints, founder of research firm SPV Market Research. As such, producers in Southeast Asia will not enjoy significant profit margins, Mints told Eco-Business.

Adding further to complexities are the United States tariffs against Chinese makers of solar panels, cells and modules operating in Southeast Asia, which were announced in 2022 and set to start this June.

The heavy import duties of up to 250 per cent of initial prices, originally only imposed on China, were extended to Cambodia, Malaysia, Thailand and Vietnam as the US accused Chinese firms of dodging fees through offshoring. The four Southeast Asian countries account for over 75 per cent of US solar panel imports.

The new taxes could cause a shift in where Chinese manufacturers set up shop: some have recently announced entry into Indonesia. The firms could also change what they produce: China’s Trina Solar, one of the largest photovoltaics makers globally, has started manufacturing silicon wafers, a precursor to solar cells, in Vietnam, saying the move helps it comply with US laws that target components further down the production value chain.

Mints added that there is a “pretty big loophole” in the US regulations, in allowing Chinese producers to ship solar cells to assemblers in other countries, outside the four regional countries from which exports are taxed.

Chinese projects will nonetheless be contributing to Southeast Asia’s clean energy development in the coming years. CSER’s Nian pointed out that Chinese solar giants are investing in renewable power projects across countries like Malaysia, Thailand, Vietnam and the Philippines.

Battery giant CATL is also starting work on an electric car cell factory in Indonesia this year, the Jakarta Post reported. The manufacturer wants to eventually build an end-to-end supply chain in the country, from mining to battery recycling.

Nascent tech breakthroughs?

Nian added that there could be further development in both nuclear power and clean hydrogen fuel in Southeast Asia, both being “hot topics” in the region.

Indonesia and the Philippines, which are aiming to develop atomic energy over the next two decades, could start progressing on policy and regulation, he said.

Both countries have last year signed early agreements on small modular reactors, which are said to be safer and cheaper to build than full-size variants. Indonesia has ties with the US and South Korea. The Philippines is both working with the US and talking to China about a tie-up – which could also have geopolitical implications.

“Balancing the interests of stakeholders and strategic partners amidst uncertainties in China-US relations will be a challenging and turbulent path for Southeast Asia countries,” Nian said.

The coming years will also be “critical” for hydrogen developments, he added.

“If policy commitment cannot beat perceived uncertainties and risks by the industry, there will be real uncertainty about a sustainable growth trajectory for hydrogen development,” he said.

While Southeast Asia nations have been exploring replacing industrial fuels and even power production with hydrogen made from renewable sources, or paired with carbon capture, price and supply chain issues are keeping projects on ice.

Maintaining an “open door” policy in foreign direct investments from neighbours such as China, Japan and South Korea will be “critical” for Southeast Asia’s clean energy goals, Nian said.

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