The renewable energy opportunity

Why renewables?

All forms of electricity generation produce climate-change inducing greenhouse gasses (“GHGs”) whether during initial construction, fuels consumed, land-use change or transmission. Nevertheless, by simple virtue of not requiring fuel, renewable energy options such as solar & wind produces significantly less GHGs compared to coal or natural gas. As a bonus, pursuing renewable energy affords countries a modicum of independence from energy imports.

To fully enjoy these benefits, renewables must be pursued at scale. Ideally aiming for a significant contribution to generation capacity within the medium term, and total displacement of non-renewables over the long term. While this presents a significant economic, regulatory and technical challenge, it is also an investment opportunity.

In recent years, we have witnessed a confluence of factors that makes investing in renewables in Southeast Asia increasingly attractive.

There is robust future demand for electricity in Southeast Asia due to demographics, urbanization & economic growth

With a combined population of >600m people and GDP of >USD 3trn a year, Southeast Asia is a global powerhouse. While not yet a cohesive single-market like the EU, taken together Southeast Asia is already the world’s 7th largest economy.

Southeast Asia is relatively young and rapidly urbanizing. As more people enter the middle class and settle in cities, usage of modern but energy-intensive appliances such as refrigerators and air-conditioning is expected to increase, leading to a surge in per-capita electricity consumption.

Total electricity demand in Southeast Asia in 2040 is expected to be 60% more compared to current levels[3]. To reliably meet that demand, generation capacity will need to double; to 565 GW from 240 GW today.

The prevailing assumption is that this future demand will be met via increased investments in coal, with renewables only playing a supplementary role due to costs and reliability concerns. While even a supplementary role still represents a bright outlook, we believe the true size of the renewable energy opportunity in Southeast Asia is understated.

Population pyramid of
Southeast Asia[1]

Urbanization rate of
Southeast Asia[2]

Average annual growth in per-capital electricity consumption in Southeast Asia, 2000-2015[3]

Grid interconnections and progressive liberalization will make the Southeast Asian electricity market accessible to new players

Historically, Southeast Asia’s electricity market were dominated by state utility monopolies operating in isolation. The utilities typically control their entire value chain from generation, to transmission to distribution among consumers.

However with the completion of major milestones of regional grid interconnection[4] projects such as the Laos, Thailand, Malaysia and Singapore Power Integration Project (“LTMSPIP”), it is now possible for electricity generated in one country to be sold in another. Several similar projects are under construction. These developments effectively decouples local electricity demand from local supply, a conducive trend for renewable energy players.

Malaysian example of electricity market liberalization efforts[6]

Proposed & existing grid interconnection
projects in Southeast Asia[5]

Renewable energy enjoys progressive government support

Southeast Asia is expected to be severely at risk from the negative effects of climate change, and many of its member countries have ratified or approved the Paris Climate Agreement.

There is proven track record of governments in Southeast Asia implementing supportive policies such as feed-in-tariff schemes and official GHG emission reduction targets. The absence of nuclear power in Southeast Asia means these targets will have to be met almost completely via expansion of renewable energy.

Many big cities in Southeast Asia are in low-elevation coastal zones which may see increased risk of flooding due to climate change[7]

Almost all Southeast Asian
countries have ratified / approved the Paris Climate Agreement[8]

Renewable energy will reach grid parity in Southeast Asia sooner rather than later

Southeast Asia is endowed with enough renewable energy resources to cover its needs several times over[9]. A myriad of commercial-scale projects in solar, wind, hydro & biomass in the region have been running for enough time that the viability of new proposals can now be objectively assessed. There is no problem of supply.

In execution, almost every aspect of the regional market have improved over the last ten years; technology has matured, supply chains has tightened, and financing has become more accessible. If this trend continues, renewable energy (particularly solar) is expected to be cost competitive with coal and natural gas within the medium term.

Falling module costs have accelerated grid parity timeline expectations[10]

Estimated levelized cost of
electricity in Southeast Asia—Solar PV

Estimated levelized cost of
electricity in Southeast Asia—Wind

The Southeast Asian renewable energy market is able and ready for scale-up

While renewables still constitute a minority of Southeast Asia’s electricity generation mix, they have grown significantly in recent years.

With enduring demand, market unification and grid parity imminent in the medium term, eventually they will become economically favored vis-à-vis their fossil fuel counterparts.

An entirely new ecosystem of regional projects and companies are readying themselves for institutional exposure to take advantage of this paradigm shift. Our mission is to accelerate their growth.

Historical power generation mix in Southeast Asia[11]