• Home to over half of the world’s population and a quarter of the world’s economy, emerging and developing Asia[1] (Asia thereafter) will drive the lion’s share of the world’s energy demand growth in the next decade.
  • Balancing economic development with the need for urgent climate actions, while maintaining reliable and secure energy access, will be the defining challenge for the region in the next decade.
  • Reflecting on the lessons learnt from the past ten years of the energy transition, how can emerging and developing Asian economies leapfrog the western economies and supercharge the next wave of energy transition?
Energy transition in Asia in the past decade

Emerging and developing Asia comprises of a diverse set of countries spanning across the Southeast Asia and South Asia regions. According to the 2021 World Economic Forum’s Energy Transition Index (ETI), an index that measures a country’s level of energy transition progress, Asia has improved at the fastest rate in comparison to other regions, increasing its ETI index score by 6% as compared to a decade ago. This is driven by significant improvement in its performance in energy access and security.

Sustainability is however proving to be a challenge. In fact, energy per capita in emerging and developing Asia has grown by almost 18% within the past decade, in contrast to a 4.8% fall in advanced economies. Coal continues to play a significant role in many of Asian economies’ energy mix, making its growth particularly carbon-intensive. In fact, the global coal consumption has continued to grow in absolute terms over the last decade – despite accounting for a lower share in the overall energy mix – driven primarily by the continued growth of coal use in Asia. As the world’s manufacturing base and home to a thriving petrochemical industry, Asia will eventually face significant headwinds as it seeks to decarbonise and transform the fundamental backbone of its economies.

Energy transition is picking up momentum and the pace of change is accelerating in Asia, along with the rest of the world. Most notably, investment in energy transition – particularly in renewables – has grown. China is, by far, the largest market for energy transition investment globally, having overseen $135 billion worth of investment in 2020, up from $48 billion a decade earlier.

China has set out to achieve its carbon neutrality ambition by 2060 while other Asian economies plan to achieve their emission reduction targets and goals for increasing the share of renewable energy in their energy mix by 2030s or earlier. There is also a growing awareness amongst citizens and consumers in the region who are increasingly demanding actions – especially when it comes to clean air in cities and the protection of natural resources, from water to rainforests.

The question is – what should Asian economies consider as they navigate the energy transition through the decade ahead?

3 key considerations for Asia’s energy transition
  1. Adopt a System Value approach to making decisions. Many of the region’s power sectors are state-owned vertically integrated utilities whose purpose is to provide reliable access to electricity and ensure security of supply. It will now fall on the shoulders of these utilities to deliver the system transformation required by a greener power system. For state-owned utilities, evaluating investment decisions beyond costs and thinking end-to-end across generation, transmission & distribution, and end consumers (vs. in electricity segments) is already in its DNA.

    For example, increasing the use of solar with big battery technology (for both utility-scale or behind-the-meter), deploying digital end-to-end, and thinking holistically about incentives like net-metering. These could help avoid the deep duck curve experienced in high solar producing markets, such the U.S. and Europe, that had led to increased balancing, T&D capex, and reserve costs.  It could be argued that there is a greater scope to adopt an integrated approach when it comes to energy system design and investment decisions.

    Source: System value framework, World Economic Forum

  1. Leapfrog by leveraging learnings from other markets. As Asia continues to expand and develop its energy system to meet the growing energy demand, it has the opportunity to leapfrog its energy transition by learning from the challenges and adopting practices that have been tested in markets such as Europe and the US.

    For example, we have seen how interconnections have supported the integration of variable renewables in Continental Europe, or how using hydropower and/or natural gas to complement wind and solar has allowed many markets – UK, Ireland, Denmark, Portugal, Spain, Germany, and US markets such as California (California ISO) and Texas (Electric Reliability Council of Texas) – to reach maximum wind and solar penetrations well over 50%.  In order to scale clean energy solutions and practices rapidly, Asia will require international collaboration to support cross-border technology transfer, sharing of know-how and capacity building in local markets.
  1. Finance the transition through innovation. The UN Intergovernmental Panel on Climate Change (IPCC) estimates that annual investments in clean energy and energy efficiency need to increase by a factor of six by 2050, compared to 2015 levels, in order to limit warming to 1.5C. A significant portion of this investment will be in Asia.

    With the cascading impact of the pandemic putting significant pressure on government budgets, a wide range of funding solutions – from green bonds to innovative PPAs – will be critical to attracting diversified and resilient sources of capital.  For example, in 2019, the international energy group Enel was the first company to launch sustainability-linked bonds in US and European markets. Enel linked its sustainability strategy to the terms of general corporate debt, using a pricing mechanism that incentivises the achievement of ambitious sustainability targets within a pre-determined timeline. 

Balancing economic development with the need for urgent climate actions, while maintaining reliable and secure energy access, will be the defining challenge for Asia and the world in the next decade. Asia has an opportunity to leverage learnings from the past decade of energy transition and leapfrog its energy transition journey.

END

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[1] Emerging and developing Asia defined as Malaysia, Thailand, Philippines, Vietnam, Sri Lanka, Indonesia, Brunei Darussalam, China, India, Cambodia, Bangladesh, Nepal and Mongolia

Valentin de Miguel

Senior Managing Director and Strategy & Consulting Lead, Growth Markets

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