HIGHLIGHTS
- Downstream project success can catalyse upstream policy reform. Bottom-up approaches through demonstration projects can shift government perceptions.
- Clear bilateral economic value (for buyers and sellers) matters more than generic incentives.
- Long-term policy consistency matters more to investors than inherent project risks.
- Early community engagement is essential to gain trust from local communities.
Asean’s decarbonisation challenge is both urgent and structural. Electricity demand is set to more than double by 2050, yet fossil fuels still dominate the generation mix and progress in renewable deployment has not translated into an economy-wide emissions decline.
The missing link is integration: stronger grids, deeper electrification, and cross-border trade that can move clean power from where it is abundant to where it is needed. The Asean Power Grid has long embodied this ambition. However, advancement has been uneven, shaped by wide differences in geography, market design and institutional capacity.
Rather than seeking a single grand blueprint, the region’s next phase of cooperation will depend on pragmatic, bankable projects that build confidence step by step, allowing bottom-up success to drive broader policy alignment and, ultimately, a more interconnected Southeast Asian power system.
Developing proof of concept through bottom-up initiatives
The Monsoon Wind Power Project, the first utility-scale cross-border wind export project in Asia — demonstrates that regional renewable energy integration in Southeast Asia is feasible even without a formal regional framework. Delivering 600 MW of wind power from Laos to Vietnam via a dedicated 500 kV transmission line, the project shows how bottom-up innovation, sustained stakeholder engagement, and robust financial structuring can overcome political, regulatory, and technical barriers.
Developed well before Asean had mechanisms for renewable power trade, Monsoon Wind progressed by aligning national interests: Laos pursued export-led RE growth and diversification beyond hydropower, while Vietnam sought dry-season electricity supply that complements domestic hydropower shortfalls. Further, embedding the project within the national power plans of the countries involved proved decisive, providing political legitimacy, thus enabling power purchase and grid coordination to proceed.
Bankability was critical too. Asian Development Bank led non-recourse financing, with carefully structured concessional loans, commercial capital, EPC (Engineering Procurement and Construction) contracts, and tailored risk mitigation anchored in a 25-year power purchase agreement (PPA), enabling successful financial close with over 20 lenders (Figure 2).
This set a regional precedent for cross-border renewables in Asean. Equally important were early and robust environmental and social safeguards, including community benefit-sharing, which helped secure local support and avoid delays.
Making regional grid infrastructure bankable
Cross-border power projects in Asean continue to face high transaction costs due to fragmented regulations, divergent technical standards, and inconsistent approval processes. The lack of harmonised rules on wheeling charges, PPA structures, and dispute resolution forces bespoke bilateral negotiations, delaying project turnover and contributing to the partial implementation of the Asean Power Grid (APG).
Innovative financing is central to unlocking scale. Blended finance, risk-sharing instruments, and PPP-based transmission models can considerably improve bankability while limiting public balance-sheet exposure. As demonstrated by the Monsoon Wind Power Project, these mechanisms can make complex cross-border renewables investable and catalyse policy learning.
Looking forward, financiers recommend operationalising a regional investment platform, such as the Asean Power Grid Finance Initiative (launched in October 2025 by the Asean Secretariat in collaboration with Asian Development Bank and World Bank) to standardise bankability requirements, aggregate demand, institutionalise finance tools and blend capital at scale, drawing on successful models from local and other geopolitical regions.
Pricing and offtake risks remain binding constraints in attracting private investments in grid infrastructure. Progress on cost-reflective tariffs, creditworthy purchasing arrangements, and standard risk-sharing provisions — supported by guarantees, FX hedging, and first-loss capital from multilateral and philanthropic actors — can accelerate deal progress in Asean.
If the first generation of cross-border projects were pathfinders, the next phase of Asean integration will require smoother policy pathways for replication at scale. Early reforms in countries such as Cambodia, with the revised PPP law encouraging private investment in transmission and cross-border links, and Malaysia’s leadership through policy frameworks like the Cross-Border Electricity Sales (CBES) Renewable Energy Scheme and the Energy Exchange Malaysia (ENEGEM) illustrate the intent towards regional integration at scale, but implementation remains uneven.
Overall, Asean’s energy transition depends on a shift toward a bottom-up integration model: enabling bankable pilot projects to demonstrate value, crowd in private capital, and drive upstream policy reform. With aligned political commitment, strengthened institutions, and innovative climate finance, the APG can evolve into a resilient power system to drive the region’s decarbonisation goals.
This article was authored by Dr Maitreyee Mukherjee (Research Fellow) and Ms Anmol Nayak (Research Associate) at the Institute for Environment and Sustainability, Lee Kuan Yew School of Public Policy, NUS.
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