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Asean's road to a green economic recovery

Faced with a grim economic outlook, how can Asean member states include the clean energy transition in their Covid-19 recovery plan?

In Southeast Asia, Covid-19 has worsened the already grim economic growth in 2019 that resulted from US-China trade tensions and Brexit uncertainties.

The latest figure from Asian Development Bank (ADB) has forecasted that the economic growth of Asean Member States (AMS) will contract by 2.7 per cent in 2020, a notable cut from 1 per cent growth projection in April 2020.

Realising the fuller extent of Covid-19, International Monetary Fund (IMF) and World Bank have also adjusted their outlooks to more relaxed recovery scenarios in June 2020.

The sharp decline in international trade and tourism that flow through Asean has considerably slowed down economic activity, dragging Asean to the face of a deep recession.

With less electrical demand, coal power plants could be turned down or phased out. Eventually, by phasing out fossil fuel subsidies, AMS could create massive fiscal space to boost low-carbon power generation.

As the economic powerhouse of Asean, Singapore has been hit the hardest, with the economy shrinking by 41.2 per cent in the second quarter of 2020. While Indonesia, the biggest economy in Asean, has anticipated prolonged contraction in the third quarter of 2020.

With the recent  resurgence of Covid-19 cases in Asean, apart from Vietnam, most AMS are opting for a stringent social distancing practice instead of complete lockdown to avoid a further economic downturn.

To strengthen health systems and kick-start economic activity, AMS has spent an immense amount of US$355,509 million of which 50.6 per cent was allocated to maintain the purchasing power of people and business. With the hope of achieving an L-shaped recovery curve, governments are aiming to cover the current Covid-19 spending with earnings from taxpayers in 2021 onwards

However, if the economic rebound is not achieved next year, we as taxpayers, should be aware that the accumulated debt could be catastrophic for a future generation.

Momentum of Change

Under the movement restriction policy in Asean, most offices, factories, and malls have been closed, resulting in millions of people staying at home. The changes of routine have modified the load curve with weekdays mimicking weekends.

The typical load peak in the morning has flattened out as the use of space cooling, water heating, and electrical communication are spread out on a longer period. As seen in Figure 1, the flatter peak time curve can be identified on Singapore’s half-hourly demand, one week before vs one week after the ‘circuit breaker’ implementation. Which means on the supply side, there is less need for non-renewable backup power.

 

Change in Singapore's load curve EMA

Change in Singapore’s electricity load curve during the lockdown period. Image: Singapore Energy Market Authority

Covid-19 has caused a decline in electricity sales. Energy utilities are receiving less relative to the pre-Covid-19 revenue projections. In Asean’s case, where the structure of the power-sector system is still vertically integrated, the financial burden is shifted to the government, requiring a much larger fiscal incentive to compensate the sales gap, on top of an already heavily subsidised electricity tariff.

With less electrical demand, coal power plants could be turned down or phased out. Eventually, by phasing out fossil fuel subsidies, AMS could create massive fiscal space to boost low-carbon power generation.

Additionally, with increasing awareness of the importance of a healthy environment, especially the related risks of respiratory problems, renewable energy has become a better alternative instead of carbon-intensive counterparts.

An additional plus point is that most renewable energy power plants can be monitored and controlled remotely, which fits perfectly with the working style in current circumstances.

Involuntary subsidising carbon intensive energy

However, a closer look into the composition of AMS’ stimulus package in the energy sector reveals that cash assistance has been allocated to subsidise the electricity sector directly or indirectly.

Countries such as Brunei Darussalam, Indonesia, Malaysia, Myanmar, Thailand and Vietnam are providing direct subsidies to state-owned utilities by heavily discounting electricity bills. The amount of direct subsidy provided differs by country, ranging from US$125.31 million in Malaysia to US$471 million in Vietnam.

Asean’s power generation mix is currently dominated by coal, with an installed capacity of 62.7 GW as of 2018., In Indonesia, the share of coal power plant capacity could reach 46 per cent, followed by Vietnam with 39 per cent, Philippines 37 per cent, and Malaysia 31 per cent.

In other words, around a third of dedicated stimulus budget for electricity has been involuntary subsidises for the most carbon-intensive power plants. Similarly, the vast majority of Covid-19 stimulus around the world, totalling US$509 billion,  has been rolled out to finance high-carbon industries.

Asean cooperation amidst the Covid-19 pandemic

AMS have taken various  policy measures in response to Covid-19. Most recently, there has been a cohesive approach as a region, which was reflected in the Chairman’s Statement of the 36th Asean Summit on 26 June 2020.

The statement reaffirms the commitment which was made at the Special Asean Summit and Special Asean Plus Three Summit (China, Japan, and South Korea) on 14 April 2020 by establishing the Covid-19 Asean Response Fund. It further focuses on the improvement of regional connectivity through the implementation of the Master Plan on Asean Connectivity (MPAC) 2025, which aims to boost the regional trade network, supply chain efficiency, human capital, and people mobility.

In the energy sector, the Asean Plan of Action for Energy Cooperation (APAEC) recognised the need for a clean energy transition and have set an aspirational renewable target of 23 per cent.

But the current energy target is not tied to the regional response to recover from the Covid-19 crisis. What is missing is the acknowledgement that the clean energy transition is key to enhancing regional energy security and accessibility in the time of Covid-19, and is essential to ensure universal health coverage.

AMS’ responses to Covid-19 have demonstrated the resilience of governments to intervene decisively in the state of emergency. Likewise, the Asean community has been able to adapt well by prioritising health through social distancing and work from home practice. In short, there is a glimmer of hope.

Covid-19 has forced us to consider health at the centre-stage and shows the possibility of a new energy trajectory that prioritises both health and economic recovery. Recovery packages should aim to kill two birds with one stone, and include investments in the energy transition towards net-zero emissions.

Asean’s green power sector relies rely on foreign supply chains and investment, making it vulnerable. As a regional community, Asean should consider nationalising its vital sector.

With several AMS’ initiatives to include the clean energy transition in their Covid-19 recovery plan, such as the recent opening of 1GW of Large-Scale Solar (LSS) in Malaysia and invitation of investment in renewable energy projects under Covid-19 Economic Relief Plan (CERP) in Myanmar, the region has a promising market for domestic suppliers.

Accordingly, if the investment is extended to develop regional expertise of renewable energy for research and development (R&D), installation, operation, and maintenance, citizens of Asean countries could replace international consultants.

Moreover, Asean could invest more in the manufacturing capability of renewable energy technology. For example, the existing manufacturers of some photovoltaic components in Malaysia, Thailand, Vietnam, Philippines, and Singapore, could expand their shares in the regional market.

In conclusion, during this recovery period, Asean should aim for broader developmental challenges, and look beyond reactive measures. The low-carbon power development could make future Asean economies more resilient, ensuring the achievement of universal electricity and health access, and mitigating the climate change.

It is time for Asean to work together to close the economic disparity among AMS by enhancing the transparency in business and governance system.

Monika Merdekawati is a sustainable energy, renewable energy and energy efficiency officer at the Asean Centre for Energy. The opinions expressed in this article are the author’s own and do not necessarily reflect the opinions of institutions or organisations that the author may or may not be associated with in professional or personal capacity unless explicitly stated.

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