ASEAN looks to strengthen power exchanges, trade

Hakim Hayat

For the past two decades, the Association of Southeast Asian Nations (ASEAN) has achieved remarkable progress in the energy sector in terms of the acceleration of rural electrification access, rapid provision of large-scale national grid systems, successful mobilisation of indigenous resources, gradual adoption of new technologies and sharing of renewables into the energy mix.

This was said by Han Phoumin, Senior Energy Economist at the Economic Research Institute for ASEAN and East Asia (ERIA).

He said the region is also beginning to see cross-country electricity entry trade bilaterally and power exchanges that will promote the future market of multilateral trade.

However, he added, the future energy landscape of ASEAN will rely on today’s actions, policies and investment to change the current dominant fossil fuel-based system towards a cleaner energy system.

“The world is focussed on containing the spread of COVID-19,” he said. “Policy measures will have mixed outcomes as to when it is appropriate to re-open the economy, either partially or fully, to reduce the economic impact as well as bring back jobs and strong markets.”

The pandemic has already plunged the world into recession, with global growth expected to contract by 4.9 per cent and ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore and Thailand) by 1.3 per cent this year.

“According to forecasts, the global energy demand is expected to fall by six per cent in 2020, compared to the 2019 level,” Phoumin said. “However, countries experiencing partial or full lockdown could see energy demand drop by as much as 18-25 per cent in 2020, with global oil demand expected to decline by eight million barrels per day.”

As a result, he said global carbon dioxide emissions are expected to fall by eight per cent in 2020.

He also said, “The crisis has put 300 million jobs at risk globally, of which 3.2 million out of 40 million in the energy sector may have already been lost.

“Many millions of jobs in the informal sector have already been impacted severely and millions of people may have already fallen below the poverty line.”

The crisis has led some countries in ASEAN to face the challenge of increasing national debt or depleted national savings as more spending is needed to protect life, well-being and the need to have an appropriate stimulus package to save the economy.

Phoumin warned that without proper economic stimulus packages, the recovery will be slow and the impact enormous.

“However,” he said. “when the post-COVID-19 era begins – hopefully by 2021 – energy demand as well as emissions would bounce back strongly.”

Currently, he said, most parts of the world face tremendous challenges for the future energy landscape including how the energy transition will embrace a new architecture such as sound policies and technologies to ensure energy access with affordability, security and sustainability.

“Thus,” he added, “all decisions and energy policy measures will need to be weighed against potentially higher energy costs, affordability and energy security risks for post-COVID-19.”

The economist said that given the high share of fossil fuel – 80 per cent share of oil, coal and natural gas – in ASEAN’s energy mix, the clean use of fossil fuel through clean technologies deployment is indispensable for de-carbonising ASEAN’s emissions. “Natural gas should be promoted as a transitional fuel in ASEAN. Renewables, energy efficiency and renewable hydrogen should be accelerated along with the adoption of clean technologies in the medium to long term,” he said.

He added that while they comprise the most abundant energy resources in ASEAN, “the intermittent renewables have so far contributed negligent amounts (2.4 per cent in 2020) to the power mix”.

“Inevitably,” he said, ” there is a need for reform in the energy sector, especially in the electricity market, to have more open competition in all sections of the electricity market, such as generation, transmission and distribution.”

He added that “further reform in rules and procedures will be needed to allow more advanced and competitive technologies to enter the market share of energy mix rather than using old rules and procedures that favour traditional fuel”.

The future electricity market, he believes, will need to move from the hybrid model of ‘single buyer’ to full market competition with an independent power regulator and regional institutional system operator, to facilitate wholesale as well as retail markets and encourage more market players to join.

“In this way,” Phoumin said, “electricity reform will attract foreign investments to modernise the electricity infrastructure, including more efficient power systems and gradual phasing out of inefficient power generation and technologies.”

He also said for energy resiliency in post-COVID-19 era, quality energy infrastructure will need to be promoted and adopted in ASEAN as it will ensure inclusive growth to bring harmony of people, development and environment sustainability.

“ASEAN leaders should take the COVID-19 impact and the period of low oil prices as an opportunity to make serious energy policy reforms, such as fossil fuel subsidies,” he said.

“Developing economies should reach out for international support to ensure that national green economic recovery stimulus packages are sufficient to make long-lasting impact in lowering emissions.”

While COVID-19 has delayed a number of energy-related infrastructure projects, Phoumin said countries need to revisit their energy policies to ensure that post-coronavirus plans will attract long-term and sustainable investment for clean energy technologies, new sources of clean fuel such as green hydrogen, and renewable energy.

The unbundling of ownership in the electricity market, the non-discriminatory third-party access to transmission and distribution networks, and the gradual removal of subsidies in fossil fuel-based power generation ensure the pre-conditions for market competition by bringing a level playing field to new technologies and renewables entering into the energy mix.

Other necessary policies to attract foreign investment include fiscal policy incentives, reduction in market barriers and regulatory burdens, and reduction in upfront investment costs such as rebated payment systems through government subsidies and guarantees to make investment more feasible and less risky.