Acceleration to clean energy can fuel Asean's economic growth

OF all the complex long-term issues facing the world, advancing the energy transition to a carbon-free future is arguably one of the most pressing. It is not just about saving the planet - economic growth is also at stake.

The International Monetary Fund, in its World Economic Outlook issued in October 2021, forecast the gross domestic product (GDP) growth for Asean-5 to be 2.9 per cent for 2021 and 5.8 per cent in 2022. This follows a -3.4 per cent GDP growth in 2020 due to the pandemic. As Asean countries work towards economic recovery, a range of risks - including any worsening of the pandemic, geopolitical tensions and climate change - can impact progress.

Fuelling economic growth requires a steady and secure supply of energy. The challenge of energy security is real in Asean, given that the region does not produce sufficient energy supply to meet its own needs and relies on energy imports that are predominately fossil fuels. Further, the growing energy demand from China and India also puts pressure on supplies to Asean markets.

Meanwhile, calls to arrest climate change are intensifying and environment, social and governance measures are soaring to the top of the agenda for companies and investors. Governments and the energy sector are under pressure to decarbonise the production and use of energy. To that end, renewables look like a promising solution - it provides for clean energy and projects that drive their development also generate significant economic spin-offs.

In the last 5 years, Asean countries have been ramping up generation of renewable energy. Notably, Vietnam has more than doubled its renewable energy production (from over 17,000 megawatts to over 35,000 megawatts), according to data from the International Renewable Energy Agency. Land-scarce Singapore has also increased its renewable energy production by over 50 per cent between 2016 and 2020.

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Indeed, even as economies have been disrupted by the pandemic, the transition to clean energy did not come to a halt. An EY study of 8 economies across Asia - Indonesia, Japan, Malaysia, the Philippines, South Korea, Taiwan, Thailand and Vietnam - conducted between August and September 2020 found that there is a robust pipeline of 800 clean energy projects.

Assuming the entire pipeline is realised, we are looking at an investment potential of over US$316 billion and an emission-saving potential of over 229 metric tons of carbon dioxide-equivalent. As well, these projects and investments have the potential to generate up to 870,000 jobs.

The transition to clean energy continues to be attractive with the private sector ready to deploy capital into it, judging from how Malaysia has procured large commitments from solar energy developers during the pandemic while other Asian economies have dedicated sizeable portions of their Covid-19-related relief packages to clean energy-related initiatives.

The push to adopt cleaner energy in Asean countries has not gone unnoticed. On the EY Renewable Energy Country Attractiveness Index (RECAI), which is now in its 58th edition, the Philippines, Vietnam and Indonesia have risen up the ranks as one of the world's top 40 markets in terms of attractiveness of their renewable energy investment and deployment opportunities. Indonesia is a new entrant to the RECAI, having set more ambitious renewables targets and policies to retire diesel and coal power plants.

The traditional oil and gas sector is also tapping into opportunities in clean energy. According to Powering Asean's Energy Transition by the EU-Asean Business Council, energy transition in the oil and gas sector can bring Asean countries economic opportunities of up to 20 per cent of GDP.

As oil and gas players seek to provide clean energy for consumers, they are also seizing growth opportunities that come with energy transition. Take for example the 10-year plan by Shell Singapore, which outlines how it could make significant investments in people, assets and capabilities to repurpose its core business and cut its CO2 emissions by about a third within a decade.

While the merits of pursuing renewable energy are clear, the path is not without challenges. Inability to access financing; absence of or uneven government support in incentives and implementation of renewable projects; and geographical limitations such as the lack of suitable or large land for solar or wind farms or hydropower generators, are some of the main challenges.

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Also, renewable energy projects are often located in remote locations due to traditional town planning, which places industrial assets far from suburban areas and elevates the costs of renewable energy. This lowers the attractiveness for consumers to convert to using renewable energy when conventional energy products may be cheaper and more accessible.

Further, Asean's renewables market is still in development. Market knowledge is relatively immature and some countries are still exploring the right pricing structure. Such ambiguity may result in waning market interest over time.

Close public-private partnership can tackle these potential roadblocks. From a regulatory perspective, policies and incentives are welcomed to provide clarity on tariffs and drive investments in R&D or technologies for greater efficiency.

As a private player, companies can contribute by rethinking their role in the renewable energy sector and sharing feedback, data and best practices with the regulators and the broader sector to support policymaking and the industry's growth. Consumers can do their part too - by educating themselves on the renewable energy services available and seeking out products that are greener, thereby creating greater supply-demand momentum.

The Asean countries have committed themselves to a target of 23 per cent renewable energy in total primary energy demand by 2025. The conditions for renewable energy are favourable, but achieving the target will require swift action on the bottlenecks to progress.

• The writers are from EY. Gilles Pascual is the firm's Asean power and utilities leader and Sanjeev Gupta is Asia-Pacific oil and gas leader. The views here are the writers' and do not necessarily reflect the views of the global EY organisation or its member firms.