Southeast Asia Energy Outlook 2024

Table of Contents

• Southeast Asia Energy Outlook 2024 1
• Foreword 3
• Table of contents 4
• Executive summary 5
• Introduction 11
• Energy in Southeast Asia 14
• 1.1 Today’s energy trends 15
• Southeast Asia’s economies and energy systems have experienced rapid growth over the past two decades, with strong country-by-country variations in the energy mix 16
• Industry and transport have driven strong growth in energy consumption 17
• Although the contribution of clean energy is growing, fossil fuels – led by coal – have met the lion’s share of growth in Southeast Asia’s energy use over recent decades 18
• While transport has been the major source of oil demand growth, industry has pushed up energy consumption across the board, and rising incomes drive higher demand in buildings 19
• Growing electricity use has been met mostly by coal, which now accounts for about 45% of the electricity mix, although capacity additions have diversified over the last five years 20
• Rapid growth in demand has seen Indonesia and Viet Nam become Southeast Asia’s largest electricity markets 21
• Electricity generation has tripled over the past 20 years, mostly from coal-fired power plants, while recent years have seen an uptick in wind and solar deployment 22
• The global energy crisis was a major shock for Southeast Asia, but governments provided a measure of protection for the region’s households 23
• This protection came at a cost: fossil fuel consumption subsidies reached a record high in 2022, posing significant fiscal risks 24
• The global energy crisis exposed significant vulnerabilities in the security and affordability of Southeast Asia’s fossil fuel-dominated energy supply 25
• The composition of energy investments in Southeast Asia is gradually shifting, pointing in the direction of a cleaner energy mix in the future 26
• However, for the moment, Southeast Asia shows a continued strong relationship between its GDP and CO2 emissions, which are rising in parallel 27
• Southeast Asia’s ability to meet its energy and climate goals in a secure and affordable way will depend on its success in mobilising energy investment 28
• 1.2 Economic and demographic prospects 29
• GDP growth in Southeast Asian countries is picking up after the pandemic and the global economic crisis, and is assumed to remain well above the global average to 2050 30
• The region’s population is expected to rise towards 800 million by mid-century, with all of the increase in urban areas 31
• Economic growth and demographic trends are fundamental underlying forces shaping our outlook for the energy sector in Southeast Asia 32
• 1.3 Resources and geography 33
• Despite some technical and spatial limitations, Southeast Asia is home to accessible solar and wind energy resources that could be much more widely exploited 34
• Tapping substantial clean energy potentials will be crucial in meeting rising energy demand and achieving goals for emissions reduction 35
• 1.4 Energy and climate policies 37
• Increasing policy momentum in Southeast Asia could reinforce energy security and accelerate clean energy deployment, but only if pledges translate into actions 38
• Key announced energy and climate pledges in Southeast Asia 39
• 1.5 International context 41
• Some co-operative frameworks are in place, but Southeast Asia will require sustained, large-scale support if it is to achieve its energy and climate goals in full 42
• Key international cooperation frameworks 43
• A new framework for international collaboration: The Just Energy Transition Partnerships (JETPs) with Indonesia and Viet Nam 44
• Southeast Asia’s energy outlook to 2050 46
• 2.1 Total energy demand 47
• Demand for all major energy sources continues to grow in the STEPS, while faster build-out of clean energy in the APS and NZE Scenario pushes fossil fuel use into decline 48
• Southeast Asia’s future energy mix will be dramatically re-shaped by mid-century if countries achieve their announced national climate goals 49
• More energy is needed in all scenarios to support Southeast Asia’s growth, but the mix of fuels and technologies remains open, as do the implications for energy security and emissions 50
• 2.2 Total final energy consumption and emissions 51
• Industry maintains its leading role among the end-use sectors and faster electrification of mobility leads to declining long-term energy demand in transport in the APS 52
• Efficiency gains and electrification moderate the impact of rising energy demand in the STEPS; deeper modal, material and behavioural shifts in the APS result in demand being avoided 53
• Today’s policy settings leave significant untapped potential to reduce growth in final energy demand in all end-use sectors and to tackle the challenge of industrial decarbonisation 54
• Implementing announced pledges leads to decreasing CO2 emissions, but emissions per capita fall more slowly than in other regions and rise above the global average in the STEPS 55
• CO2 emissions by sector and scenario, and CO2 intensity by economic grouping and scenario, 2010-2050 55
• Stronger policy action is required to put the region on track to reach its decarbonisation pledges 56
• The APS sees almost 100 000 fewer premature deaths in 2035 than in the STEPS, largely due to faster progress in clean cooking that reduces exposure to particulate matter 57
• Exposure to polluted air worsens in the STEPS to 2050, driven by delays in clean cooking progress and the slow development of clean transport for an urbanising population 58
• Exposure to polluted air worsens in the STEPS to 2050, driven by delays in clean cooking progress and the slow development of clean transport for an urbanising population 59
• 2.3 End-use sectors 60
• Industry 61
• All industrial sectors grow faster than the global average to 2050, as Southeast Asia expands as a manufacturing hub, driving up energy demand with implications for CO2 emissions 62
• Urbanisation and infrastructure projects underpin rising demand in energy-intensive industries, while manufacturing grows due to trade openness and relatively low costs and skilled labour 63
• The fuel mix meeting industrial demand does not evolve significantly in the STEPS and a strong push will be required to shift major energy users onto a lower-emissions path 64
• Electrification is the major option to reduce the CO2 emissions of industry, complemented by low-carbon fuels and CCUS for more energy-intensive sectors 65
• Transport 66
• Biofuels and electricity gradually reduce the dominance of oil in the transport sector 67
• Oil remains the predominant fuel for transport, although biofuel blending mandates and increasingly cost-competitive electrified options take increasing market share 68
• Two/three-wheelers are the most popular mode of transportation in Southeast Asia, and represent a major opportunity for electrification, but passenger car ownership is set to rise 69
• Total ownership of cars and two/three-wheelers, and sales and stock of electric cars and two/three-wheelers, 2023-2050 69
• Electric car and two/three-wheeler transport is starting to gain momentum, supported by national policies and the availability of affordable models in the region 70
• Total cost of ownership for electric two-wheelers is already lower than for ICEs in some places, and EVs have lower life-cycle emissions than their ICE counterparts across the region 71
• Lifetime costs of electric two-wheelers in the top markets in the region – Indonesia, the Philippines and Viet Nam – are about 15% to 45% lower than those of their ICE counterparts 72
• Buildings 74
• Total final energy consumption in Southeast Asia’s buildings sector grows in all our scenarios, driven by rising incomes, increasing floorspace and population growth 75
• Surging electricity demand and reduced use of traditional biomass are key structural trends in buildings, with major potential for efficiency improvements and health co-benefits 76
• Southeast Asia is on course to reach universal electricity access by 2030, but progress in providing access to clean cooking stalled due to the pandemic and higher fuel prices 77
• Accelerated efforts and ambition are needed to bridge the clean cooking gap, as full implementation of government pledges will not achieve universal clean cooking access by 2030 78
• Increasing AC ownership drives a surge in energy demand for residential cooling 79
• Policies to improve the performance of building envelopes and AC efficiency reduce space cooling demand growth by more than a quarter in the APS by 2050 compared with the STEPS 80
• Southeast Asia presents a mixed picture for regulations and standards to support efficiency improvements in buildings, with some improvements since the last edition of this Outlook 81
• 2.4 Electricity 82
• The share of electricity in total final consumption rises by 50% in the STEPS and doubles in the APS by 2050, overtaking the world average under announced pledges in the long term 83
• The strong increase in demand for cooling and appliances are the biggest drivers in electricity demand growth, but electricity use for transportation depends on the strength of policy support 84
• Led by solar PV, renewables are set to enter a period of rapid expansion, supplying over 50% of Southeast Asia’s electricity by 2050 in the STEPS and nearly 90% in the APS 85
• Both coal and natural gas use for electricity generation continue to grow in the STEPS, even as their shares in the electricity mix slowly come down 86
• In both the STEPS and APS, solar PV is set to become the largest and wind the second-largest source of new power generation capacity by 2030 87
• In both scenarios, installed solar PV capacity is projected to eclipse that of gas and coal by 2035, while battery storage grows rapidly in the APS, helping integrate rising shares of solar PV 88
• Average costs per unit of electricity fall towards the global average in both scenarios, helping keep electricity affordable for consumers in Southeast Asia 89
• Even as electricity demand grows, electricity costs moderate as fuel prices stay low and the rise of renewables helps insulate power systems from fuel price shocks 90
• 2.5 Fossil fuels 93
• Slowing but continuous growth in oil demand in the STEPS contrasts with a turnaround in the APS, with oil use for transport falling by over 30% to 2050 94
• Road transport drives rising oil demand in the STEPS, while in the APS, gasoline demand recedes and renders petrochemicals the sole source of oil demand growth 95
• Continued declines in oil production throughout the region mean Southeast Asia’s reliance on imports is growing 96
• Oil production is set for continued decline as producers face strong competition for investment 97
• Policy makers and power and industrial consumers face some strategic choices as Southeast Asia shifts to become a net importer of natural gas 98
• Gas follows a robust growth path in the STEPS but loses out to renewables in the APS 99
• Southeast Asia’s gas sector is at a crossroads as natural gas demand soon starts to exceed domestic production 100
• Efforts to bolster the domestic supply of gas in Southeast Asia do not avoid long-term reliance on LNG imports 101
• Indonesia continues to dominate coal production, while the region’s relatively young coal assets make the transition to lower-emissions alternatives more challenging 102
• Coal production declines as the world transitions to lower-emissions alternatives, but despite falling demand for coal in the APS, it remains a source of flexibility to power systems 103
• 2.6 Low-emissions fuels 104
• As potential substitutes for fossil fuels in hard-to-abate sectors of the economy, low-emissions fuels are essential building blocks of a low-emissions energy system 105
• Solid bioenergy leads the growth of modern bioenergy with end uses in power and industry, while liquid biofuels are increasingly blended into transport fuels 106
• Modern sustainable bioenergy improves energy access, fortifies energy security and reduces greenhouse gas emissions in Southeast Asia 107
• Demand for hydrogen and hydrogen-based fuels expands beyond the refining sector in the APS, supplied by a ramp up in low-emissions hydrogen production 109
• Hydrogen and hydrogen-based fuels can help to decarbonise hard-to-abate sectors, but firm indications of demand are required to incentivise low-emissions production 110
• Hydrogen projects highlight the region’s natural endowment of renewable energy sources and the development of national strategies underway 111
• Transforming climate pledges into action is key to ramping up CCUS deployment in more diverse applications from 2030 in the APS and requires huge investments 112
• CCUS can help to address emissions across Southeast Asia’s energy system, well beyond the current focus on upstream oil and gas projects 113
• 2.7 Energy security 114
• The outlook for Southeast Asia rings alarm bells for rising oil and gas import requirements, import bills and exposure to energy security risks 115
• As natural gas supply sources evolve, the region is vulnerable to geopolitical events and disruptions in oil procurement 116
• Clean energy and greater electrification offer the main avenues to mitigate the risks from rising fuel import dependence 117
• Energy security concerns provide powerful reasons to accelerate structural changes in Southeast Asia’s energy sector, even as some emerging security issues require attention 118
• Countries in Southeast Asia are on the front lines of climate change, facing increasing climate hazards such as heightened flood risks and more frequent heat waves 119
• Climate hazards pose challenges to the operation and resilience of energy systems 120
• Extreme weather events such as tropical cyclones can have a direct impact on the physical resilience of energy systems 121
• Building climate resilience is essential for energy security in Southeast Asia 122
• In-depth analysis of key priorities and implications 123
• 3.1 Implementing COP 28 outcomes in Southeast Asia 124
• At COP 28 in Dubai (2023), countries agreed on global energy objectives to keep the 1.5 C limit alive, but what does this imply for Southeast Asia’s energy transition? 125
• While Southeast Asia’s renewables capacity doubles by 2030 in the STEPS, full alignment with national and global goals requires a much faster pace of change 126
• Today’s deployment plans indicate that Viet Nam is set to remain the largest renewable power market in the region, while the highest growth rate is seen in the Philippines 127
• Alignment with COP 28 outcomes necessitates a concerted effort to accelerate renewables deployment across Southeast Asia, over and above current plans 128
• Southeast Asia’s fluctuating energy intensity has been lagging declining global trends, but all sectors show potential for efficiency improvements to 2030 130
• Efficiency investments are lagging far behind the level that would be consistent with the COP 28 outcomes, with significant gains to be made in buildings and appliances by 2030 131
• Methane emissions have remained stubbornly high over the past decade, but targeted country and company efforts improve the outlook to 2030 133
• Methane emissions in the region are evenly split between coal mines and oil and gas facilities, with four countries accounting for over 90% of the total 134
• Tackling methane emissions from fossil fuel operations is key to limiting near-term global warming 135
• Detailed methane abatement plans can take Southeast Asia from pledges to actions 136
• 3.2 Emerging issues for clean energy transitions 137
• Safeguarding the security and reliability of power systems 138
• Tackling rising flexibility needs, ensuring the adequacy of supply and reinforcing grids are critical to guaranteeing the security and reliability of Southeast Asia’s power systems 139
• Peak demand increases in both the STEPS and the APS, driven by higher activity and strong electrification, but energy efficiency gains and better building insulation mitigate the growth 140
• Peak demand increases faster than total demand in both the STEPS and the APS, driven by strong electrification, increased use of air conditioners and EV charging 141
• Across the day, the net load becomes much more variable, especially after 2030, due to the strong growth in solar PV, the proliferation of air conditioners and rising EV uptake 142
• Due to seasonal swings in the output of wind and solar PV, as well as rising air conditioner usage, the variability of the net load across the year also increases 143
• The variability of the net load increases with rising shares of wind and solar PV in the electricity mix and growth in electricity demand from air conditioning and electric vehicles 144
• In Indonesia in the APS, short-term and seasonal flexibility needs increase substantially to 2050, underpinned by rising shares of wind and solar PV in the electricity mix 145
• Power system flexibility needs are set to increase, and new technologies like batteries and demand response will join thermal power plants and hydro to meet this challenge 146
• Variable renewables generate over 60% of Indonesia’s electricity in 2050 in the APS, but dispatchable sources remain essential to meet demand in all hours 147
• Batteries become and thermal power plants remain crucial in ensuring security of supply at times of peak net load, when high electricity demand is not met by renewables output 148
• Grid expansion and cross-border interconnection are key to meeting growing demand for access to clean electricity and require an increase in investment to deliver announced targets 151
• Grid expansion enables the integration of affordable, indigenous renewable energy by connecting the resource-rich areas to demand centres 152
• Despite the broad agreement on the benefits of grid expansion, challenges remain for its accelerated development for a secure energy transition 155
• Regional, subregional and bilateral grid interconnection initiatives are increasing, with infrastructure development and power integration high on the agendas of ASEAN governments 156
• Clean energy technology supply chains 158
• Southeast Asia looks set to retain a stake in global solar PV manufacturing capacity even as leading economies also expand their facilities 159
• The growing market for clean energy technologies presents fresh opportunities for Southeast Asia’s strong manufacturing base 160
• Southeast Asia can play to strengths in solar PV and EV battery supply chains 161
• Announced projects could lead to strong upstream growth in EV battery component manufacturing 163
• Critical minerals offer Southeast Asia opportunities to be a major contributor to global supply chain diversification 164
• The rapid growth of nickel supply from Southeast Asia fuels global production of batteries, and offers the potential to build a regional downstream manufacturing value chain 165
• Southeast Asia is becoming a key rare earth supplier, both of raw materials for established manufacturers and as a region to diversify refining operations 166
• Opportunities exist to boost critical minerals exploration and bolster environmental, social and governance (ESG) performance 167
• Exploration and mineral development 167
• Innovation 167
• Regional and international cooperation 167
• Improving ESG performance and due diligence 168
• With efforts to establish the region as a global manufacturing and industrial hub, clean energy transitions have created more than 85 000 jobs in Southeast Asia over the past five years 170
• The energy transition is a net creator of jobs but requires all parts of the energy sector to pivot their workforce to different segments 171
• Clean energy employment has grown by 4% since 2019, led by strong growth in clean manufacturing employment, while fossil fuel jobs decreased over the same period 172
• Improved labour productivity drives near-term decline in coal employment, signalling long-term uncertainties over the implications of energy transitions for the sector 173
• 3.3 Investment and finance 175
• While most countries in Southeast Asia now have ambitious long-term clean energy goals, the investments required to meet these targets are not yet on track 176
• Current clean energy spending for renewable power, grids, battery storage and energy efficiency needs to scale up rapidly to meet announced energy and climate pledges 177
• National efforts to mobilise investment need to be complemented by enhanced international finance and support 178
• Debt financing is more prominently used in power and distribution assets, while larger equity stakes are seen in fossil fuels and end-use technologies 179
• Government investments dominate in fossil fuels, underscoring the role of state-owned enterprises, while households drive investment in buildings efficiency and transport 180
• DFIs prioritise investments in renewable energy and end-use sectors, reflecting a transition away from fossil fuels 181
• Commercial finance remains the dominant source of financing in the region, while DFI financing plays an important role in power supply and end-use sectors 182
• Carbon pricing instruments have so far played a marginal role in decarbonising the Southeast Asia energy system, but most countries are experienced with carbon credit markets 185
• Countries in the region are increasingly exploring a mix of compliance carbon pricing instruments and carbon credits to decarbonise their power and industry sectors 186
• Despite well-established green and sustainable debt markets, Southeast Asia represents a mere 3% of global issuances 187
• Transition finance: Further efforts are needed to increase finance to the sectors and countries which are struggling with energy transitions 188
• Managed phase-out of unabated coal-fired power plants is vital to achieve the energy transition with capital recovery of young power plants in Southeast Asia 189
• Venture capital (VC) can support Southeast Asia’s energy transition by financing innovative clean energy technologies and taking on early-stage investment risk 190
• VC investment in energy start-ups in Southeast Asia has grown but remains under-represented compared to other sectors and regions 191
• Southeast Asia’s energy start-ups raised substantial funding for electric mobility, renewable energy, waste-to-energy and energy management, driving regional clean energy innovation 192
• Annex 193
• Acknowledgements 194
• Abbreviations and acronyms 197
• Units of measure 198