Over the past decade ASEAN countries have achieved an impressive 5% average annual GDP growth rate. Yet, this economic surge has been fuelled by a parallel surge in energy demand, which now stands as one of the world’s largest after China, the US and India. As the region grapples with the dual challenge of decarbonisation and the mounting impacts of climate change, it finds itself at a pivotal juncture. By James Harris, John Yeap, Will Stroll, Peter Jang and Jonathan Fong, Pinsent Masons MPillay LLP.
Cross-border power projects and the ASEAN Power Grid (APG) are gaining prominence as a multifaceted solution to address the region’s pressing energy needs. Driven by a convergence of economic, environmental, technological, and political forces, they hold the promise of enhancing energy security, ensuring affordability, and fostering sustainability across ASEAN member states.
However, the APG, first proposed nearly three decades ago, has made limited progress. Could we now be witnessing a turning point? This article dives into the latest developments surrounding cross-border power projects and the APG, shedding light on the challenges – both historical and future – that these transformative endeavours face in shaping ASEAN’s energy landscape.
ASEAN Power Grid
The APG was originally proposed in 1997 under the ASEAN Vision 2020 as a key solution towards improving access to energy affordability and security by connecting power grids across ASEAN member countries. Since that time there has been only partial progress on the APG as it has faced a variety of challenges including: i) regulatory constraints such as the requirement to harmonise national regulations on cross-border licensing and network access; ii) technical constraints, including the synchronisation of electricity grids and managing frequency regulation between differing power systems, and also physical challenges arising from the island geographies of countries such as Indonesia and the Philippines that require extensive use of subsea cables to connect power networks; iii) financial constraints including the high levels of capital investment required and limited private sector investment; and iv) the underlying requirement for political support and commitment between ASEAN members and overcoming other potential stakeholder inertia.
However, with ASEAN countries facing increasing energy demands, the requirements to decarbonise through employing renewable energy and the critical impacts of climate change facing communities in these regions, there has recently been a growing momentum behind the APG. At the ASEAN summit in Indonesia in 2023, multilateral power trade was high on the agenda, with member nations ultimately adopting the “Joint Declaration of the 41st AMEM on Sustainable Energy Security Through Interconnectivity” with the aspirational regional target for interconnection by 2045.
A historic milestone for the APG was achieved in June 2022 with the commencement of the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP) importing up to 100MW of hydropower from Lao PDR to Singapore via Thailand and Malaysia using existing interconnections. To date, most cross-border power trade in ASEAN has involved bilateral trade between countries, and the success of this pilot project could pave the way for the APG to gradually move from bilateral connections towards increasing multilateral power trades and as a model for other proposed multilateral initiatives such as the Brunei-Indonesia-Malaysia-Philippines Power Integration Project.
While numerous challenges remain, with the underlying impetus to decarbonise and the growing impacts of climate change in ASEAN countries, this may be a pivotal point for the development of the APG, with the LTMS-PIP being a pathfinder project that could serve as a model for future multilateral power trades.
Cross-border power projects
Laos continues to be the main exporter of electricity within ASEAN nations, with up to 78% of its energy production being supplied to other ASEAN nations. In addition to the various hydropower export projects built over the past few years and the construction of the path-leading 600MW Monsoon Wind Power Plant, it is expected that there will be a further number of renewable projects under development in the coming years to strengthen Laos’ position as the "battery of South-East Asia", including large-scale solar plants.
Malaysia has also been active in enhancing the interconnectivity of the APG and furthering its pursuit to become the renewable energy powerhouse within the ASEAN nations. In the past 12 months, the market has witnessed several plans from Malaysia to increase its contribution to the APG, including: the Malaysian Government lifting the ban on the export of renewable energy in 2023; TNB Genco and YTL Power Seraya entering into a joint agreement to export and import 100MW of electricity from Malaysia to Singapore using the newly upgraded interconnector for a trial period of two years – which is the first-time electricity from Malaysia is being supplied to Singapore on a commercial basis; and various other MoUs and feasibility studies being entered into with neighbouring ASEAN countries for the development of renewable energy exports.
The main importers in the region are currently Thailand and Cambodia, the biggest power trading partners for Laos. The LTMS-PIP, Nam Thuen 2 Hydropower, 1,070MW, Nam Ngum 2 Hydropower, 615MW, Nam Ngum 3 Hydropower, 440MW and Hong Sa Mine Power Plant, 1,878MW, from Laos are all helping to meet the electricity shortage that Thailand is facing due to increased growth and energy demands. There are other nations that are currently inactive in the import and export of power, including the Philippines and Brunei, primarily due to their island geographies, which would require extensive use of subsea cables.
While approximately 76% of all ASEAN’s power generation currently comes from coal and natural gas-fired power plants, despite hydropower having been the main source of electricity export/import over the past decade, the market is seeing a shift and momentum towards the solar and wind renewable energy space. For example:
* In the ASEAN region, solar projects have been and continue to be a strong source of renewable energy. Vietnam has installed approximately 17GW, with Thailand having circa 3GW, and Malaysia circa 2GW of installed capacity. It is expected that solar projects will continue to be built around the region including the Philippines and Laos, which could be a strong future source for cross-border exports.
In particular, Laos is considered to be significantly outpacing its economic size in developing utility-scale solar capacity, with several gigawatts in renewable prospective capacity, and with much of this earmarked for cross-border exports. Also, Indonesia launched a 145MW floating solar plant in November 2023, being one of the largest in South-East Asia, and there are plans to further expand this project’s capacity to 500MW. With land rights being a common challenge for solar projects and a growing scarcity of suitable land for ground-mounted solar, floating solar installations are expected to play an increasingly important role in South-East Asia.
* The ASEAN market focus for wind power is predominantly in countries such as Vietnam, Thailand and the Philippines, where wind conditions are more favourable. However, with the growth of larger turbines that can capture energy from lower wind speeds we are seeing new markets open up for wind projects. Vietnam currently has circa 4.1GW of installed capacity, with Thailand having circa 1.5GW of wind power operating in the country at present.
Challenges with developing wind power in these markets remain however, with curtailment being a key challenge in regions where the grid infrastructure is underdeveloped or where significant grid congestion arises due to the intermittency of renewable energy production. In certain ASEAN countries there has also been a shift away from the traditional feed-in-tariff model or changes in the calculation of the feed-in-tariff mechanism that can result in a project’s underlying rate of return becoming less attractive or less certain to investors.
* Vietnam and the Philippines are now moving towards offshore wind, following in the footsteps of the development in east Asia. Vietnam has recently unveiled through the draft National Power Development VIII that it plans to achieve 7GW of offshore wind power by 2030. The Philippines has also announced that it aims to develop 21GW of offshore wind by 2040. The move towards offshore wind is welcomed by the industry as it would enable larger-scale renewable energy projects to be developed in the ASEAN region and greater opportunities for cross-border exports of power.
These ambitious targets are facing a number of challenges, however, including: (i) regulatory uncertainty, one of the key challenges in these markets that can often be characterised by complexity and in certain cases a lack of regulations specifically tailored for offshore wind; (ii) unclear timelines for developers and an overly complicated permitting process (particularly with regard to maritime and offshore permitting aspects and also environmental and social issues relating to marine ecosystems), which adds to the uncertainty and risk of delays for offshore wind projects in these markets; and (iii) significant investments in grid and transmission capacity being needed to support the power from these large offshore wind projects, with many of the proposed sites for offshore wind projects being located at substantial distances from existing onshore connection points of a country’s power grid.
* As the reliance on solar and wind increases, battery energy storage systems (BESS) will become essential for capturing solar and wind energy when supply peaks and in assisting with the stability of grid transmission for power exports between countries. We are also seeing that cross-border power initiatives have a requirement for "firm" power, meaning that BESS will continue to grow in importance to achieve this requirement.
While the BESS is considered to be in its infancy in South-East Asia, Singapore is leading the way with the launch of a 200MW utility scale BESS project in 2023, being the largest BESS currently in the region. The Philippines is also implementing a number of BESS facilities for off-grid solar applications, which may become an increasingly common solution for those ASEAN nations with significant island regions or off-grid communities.
Countries such as Indonesia and Thailand have also recently launched initial battery storage pilot programs. Developing appropriate regulations to encourage having BESS systems as a part of the solution to the power mix remains one of the key initial hurdles for ASEAN nations.
The APG would allow the ASEAN countries to achieve a balanced energy mix and promote greater energy stability in the region as it pushes towards energy transition and carbon reduction.
Singapore electricity imports
Since it first began seeking proposals in November 2021, there has been clear momentum behind Singapore’s target of importing up to 4GW of low-carbon electricity by 2035. During 2023, the Energy Market Authority announced conditional approvals to various developers including importing 1GW from Cambodia, 2GW from Indonesia, and 1.4GW from Vietnam.
The conditional approvals follow the development by Singapore of other intergovernmental agreements including three signed with Indonesia on energy cooperation, cross-border electricity trading projects, and investment in renewable energy manufacturing industries such as solar photovoltaics (PV) and battery energy storage systems (BESS).
While there is clear momentum behind Singapore’s 2035 target, challenges lie ahead. From a technical perspective, importation of power from Indonesia will require constructing extensive subsea cables, interconnector infrastructure and developing local supply chain capabilities. A further challenge is the absence of tried and tested regulatory framework for electricity export and import in the region in terms of market structure, tariffs, and standards, with issues including cross-border regulations and licensing, balancing fair network access with network security and promoting competition between power generators and power tariffs.
Financing of such projects remains another significant challenge, including the significant capital costs of subsea transmission and interconnector infrastructure, and encouraging private sector investment in which multilateral development banks may play a key role.
Notwithstanding these challenges, Singapore has already made important strides towards diversifying its energy supply and its commitments to carbon reduction and renewable energy, and in achieving these objectives in the future, it also has the potential to emerge as a strategic regional hub for power trade by connecting the different regions of ASEAN member countries.
Transmission aspects
There are some challenges that the ASEAN member states must overcome for successful implementation of the APG.
Unlike Europe or North America, a number of the ASEAN countries are islands. This necessitates the use of submersible high voltage power cables, which increase the costs of design, supply, installation, operation and maintenance. This is particularly the case for the countries including the Philippines, Indonesia, Brunei and Malaysia where the distance between the connection points can be quite far.
Further, the ASEAN member states have different grid standards, specifications, procedures, frequencies, voltages and information technology systems relating to electricity transmission and distribution, which makes it technically challenging to streamline the integrated power grid. The harmonisation of these technical standards and operational procedures is required before closer collaboration can take place between the relevant ASEAN countries, especially noting that these grids have been operating independently of each other for decades.
There may be reluctance from the respective utilities – particularly if they currently have dominance over their local markets – to allow a more competitive market structure arising from the market integration. For example, state-owned utilities may have incentives to protect their dominant positions of their market rather than entering competition with other utility providers from the ASEAN countries. A unified reform may be required in order to tackle these challenges. That will require political will at the highest levels.
Another challenge is that many of the relevant countries may not be fond of information sharing, particularly with concerns about data security. For example, in the LTMS-PIP, a number of stakeholders thought the wheeling charges were too excessive while others considered them insufficient. It was agreed that the wheeling charges within the relevant countries lacked a precise formula and were established with a focus on fostering collaboration to expedite project initiation.
Lastly, some countries have more pressing needs than the APG when it comes to transmission lines. There are a few member states that still lack in national power connection. For these countries, the immediate concern would be connecting their fragmented power grids – or addressing the lack of power grids - rather than focusing on import and export of power through the APG.
Closing remarks
The concept of a regional power grid across South-East Asia has been in discussion for decades. However, concerns around surrendering sovereign authority and independence on energy security, together with the technical, geographic and regulatory challenges of harmonising the grid networks across the region, have so far hindered much progress. Nevertheless, economic and climate imperatives have in the past decade delivered bilateral cross-border power trades.
If the region is to meet its commitments on climate, the imbalance in the renewable energy resources across the ASEAN countries will need to be recognised and addressed. The "use or lose" nature of wind and solar power generation means the region will need to have in place an effective energy trading mechanism so that all such resources can be used, and not lost. However, that will require regional coherence of policy on an intra-regional governmental level. ASEAN as an institution could continue to help drive that, though ultimately, the countries that have most to gain or lose from such a trading mechanism will likely have to drive the developments bilaterally if we are to see quicker progress towards the end-goal of having a regional power grid.
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