Decarbonization of ASEAN Energy Systems

Many nations pledged to reach carbon neutrality by 2050 or 2060 at the United Nations Climate Change Conference (COP26) in Glasgow, United Kingdom. ASEAN will likely face significant challenges in achieving carbon neutrality because: 

  1. ASEAN largely depends on coal-based electricity production and petroleum-based transportation.
  2. To gain economic parity with developed nations, ASEAN will likely continue to increase energy consumption.
  3. Renewable energy (RE) sources, such as solar and wind, have low potential in ASEAN because of low solar radiation and unstable wind speed.

 

As a result, RE may not eventually contribute to the region’s carbon neutrality. To achieve carbon neutrality by 2050-60, ASEAN must choose technologies that can reduce CO2 emissions in a cost-effective manner. The installation of zero-emission energy technologies, such as green hydrogen/ammonia production; carbon capture, utilisation and storage (CCUS); direct air capture and biomass energy with CO2 capture and storage, can help in this context. The implementation of these low- or zero-emission technologies will likely incur high marginal abatement costs, which calls for innovation in energy technology to reduce these costs. Another critical component in attempting to attain net zero emissions in the ASEAN area will be afforestation, as a measure of carbon offset. Table 1 presents estimates of major ASEAN members’ energy-related CO2 emission reduction targets.

ASEAN countries emission target

ASEAN holds material prospects for the RE industry because the region’s electricity demand is forecast to quadruple by 2040, then today’s demand, will be double the world average pace of electricity demand growth. To meet this challenge, member states are eager to attract foreign expertise and investments. For the transition to a net-zero power system, ASEAN needs to focus on technology transformation, large-scale deployment of RE and implementation of strong energy efficiency measures through the following measures: 

  1. No approval for new coal plants: New unabated coal-fired plants should not be approved for a net-zero emission (NZE) environment. 
  2. Large-scale deployment of RE: The current share of RE in the overall energy mix is less than 10%. To cater to the growing demand in the region, the share of RE needs to grow significantly, based on the availability of resources and the potential in the member states.
  3. Grid modernization and consolidation: Ensuring electricity security with a higher share of variable RE would require grid modernization and consolidation, demand side management, digitalization, enhanced cyber resilience and inter-region planning.
  4. Retrofitting old conventional plants: Coal- and gas‐fired plants should be retrofitted with CCUS or co-fired with hydrogen-based fuels (such as 15% methanol or 20% ammonia, with an aim for 100% methanol or ammonia) to enable existing assets to contribute to the transition while supporting energy security.
  5. Enhanced energy storage capacity: To manage high RE penetration, a large storage capacity would be needed. Thus, the government needs to promote RE projects with storage, hybrid (solar + wind + storage) projects, storage-only projects, pump storage and green hydrogen for long-duration energy storage.
  6. Well-designed framework: ASEAN needs to reform its regulatory framework, execute long-term clear policies, adopt least-cost system planning and cost-recovery tariff to lower investment and financing risks, and attract private sector investments for a net-zero scenario.
  7. International finance: International finance and inter-regional support play a key role in improving access to private finance for ASEAN, especially for early-stage projects, adoption of new technologies (e.g., CCUS and green hydrogen), and technologies with specific risks (e.g., exploration risk in geothermal energy).
  8. Distributed projects: Distributed projects play a crucial role in the Net Zero Energy (NZE) scenario. Based on resource availability, solar rooftops can be deployed in individual houses, shopping malls, parking lots, industrial sheds, institutional roofs, etc. This will likely meet the reduced demand for centralized power generation and lower system upgrade costs.
  9. Capacity development: Technology transformation and upgrade of the Transmission and Distribution (T&D) system would require new skills and capabilities. ASEAN should organize training programs, study tours and certification courses to enhance the skills of the workforce and train new talent.
  10. Demand creation for a flexible generation: The regulatory and policy framework should be revised to create demand for new green technologies, storage projects and flexible fuel (green hydrogen, ammonia, methanol, etc.) through minimum offtake obligations such as technology-specific Renewable Purchase Obligations (RPOs).
  11. Cross-border energy trade (CBET): Developing market mechanisms hold the key to promoting CBET. Existing and ongoing interconnections, particularly in neighboring states, should be used rather than building and operating additional plants to generate power.
  12. Energy as a service (EaaS): Customers should be engaged in energy management through the adoption of the EaaS model. The EaaS model offers consumers various energy-related services (energy advisory, energy-asset installation and energy management) rather than only supplying electricity.

 

The Economic Research Institute for ASEAN and East Asia (ERIA) calculated the cost-optimal deployment of energy technologies to attain carbon neutrality in ASEAN around 2060 by using an optimum technology selection approach. ERIA estimated the increase in yearly cost for carbon neutrality in 2050-2060 compared to the baseline at around 3.6% (US$0.58 trillion) of ASEAN’s GDP in 2060.

Gunung Capital — a private investment management firm — focuses on investments that help the world transition to a net-zero economy and promote sustainable communities. The company has recently assisted in the decarbonization of one of Indonesia’s finest steel plants. 

Several low-carbon technologies are available to reduce CO2 emissions during the energy transition phase, but decarbonization would encounter major economic challenges due to high CAPEX.  By collaborating closely with global investors, policymakers, non-governmental institutions and enterprises, Gunung Capital’s management supports investments in the carbon market, encourages the adoption of decarbonization technologies (through international collaboration) to reduce cost and, ultimately, funnels more capital into sustainable enterprises.

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