Renewable energy capacity is expected to increase by two terawatts in Asia Pacific region over the next decade, driven by population growth, strong economic performance and significant market potential. Southeast Asia will play an important role in this growth, with the region’s electricity demand expected to double by 2040, an annual growth rate twice the global average.
In its recent report, “Riding the Renewables Wave in Asia-Pacific”, Boston Consulting Group (BCG) investigates the huge potential of the region’s renewable power ecosystem. Asia Pacific’s installed renewable capacity is expected to grow faster than any other region in the world, at a rate of 7% year-on-year. Under stated policy goals, this reflects a US$3.7 trillion ($4.98 trillion) investment in renewable energy over the next two decades, more than commitments of North America and Europe combined.
This green energy transition offers a pathway to more sustainable energy systems, expanding government revenues up to 30% through coal subsidy elimination, sowing fertile ground for green energy investors and operators.
A changing generation landscape
Renewable energy technologies offer an attractive power generation solution for the region. The levelised cost of energy (LCOE) for solar power has fallen 19% annually over the last decade. Offshore wind also presents an increasingly cost-effective generation technology, supported by technology transfer from mature markets in Europe.
Solar and wind technologies will drive regional renewables growth, with Asia Pacific emerging as the second-biggest offshore wind market by 2030, with annual growth of 24%. This growth is supported by geographical advantages in a region with significant wind potential, alongside strong early-phase development returns.
Southeast Asia is a diverse and complex region, and no single solution or investment strategy will guarantee success across these varied markets. A strategy that successfully delivers renewable generation in Singapore will be substantially different from one that is effective, for example, in the Philippines.
There is no one-size-fits-all solution for operators or investors looking to leverage this highgrowth market potential. Players must take a country-specific approach that reflects the local landscape, understanding market dynamics and potential for specific technologies.
Market-specific opportunities in Southeast Asia
Market trends powering renewable adoption are likely to be complemented by green postpandemic recovery programmes across the region, driving significant expansion of renewables in major Southeast Asian markets.
Indonesia is expected to triple its installed renewable capacity from 8GW (or gigawatts) to 24GW over the next decade, with renewables accounting for 21% of the power generation mix by 2030. Solar is likely to be the largest driver of this growth, but investment opportunities face market-specific challenges owing to the strong support for subsidised coal. Rooftop solar is poised as a major driver of solar growth, but a more supportive policy landscape and lower entry costs are required to encourage investment opportunities. Utility-scale solar remains a tough market proposition for investors, but opportunities are present in engineering, procurement and construction, as well as project development. Ambitious hydropower plans by state electricity firm PLN underpin significant hydropower potential, but this remains a challenging investment proposition for investors owing to both regulatory and infrastructure complexities, a position echoed in the geothermal industry.
Malaysia is expected to more than double its renewable capacity from 6GW to 14GW, rising from 18% to 30% of the generation mix. This will be primarily driven by a push towards largescale solar investment, which offers an attractive partnership proposition for many international players. Market liberalisation efforts are also underway, with a fully competitive power market targeted over the coming years. Joint-venture partnerships with local vendors offer a lucrative route to solar market entry. While foreign bidders have seen successful entry to the market, foreign ownership of companies remains limited to a 49% equity share. Malaysia also has a substantial solar manufacturing industry, offering wider potential partnerships for integrated developers. Grid access and connectivity remain a challenge for domestic solar growth. Malaysia also boasts a unique opportunity for green hydrogen, a technology that has long threatened to revolutionise the energy industry. Green hydrogen could offer a sustainable longterm industry in Sarawak, offering investment potential for both infrastructure players and storage developers.
Thailand is expected to expand its renewable capacity from 11GW to 17GW, growing renewables from 30% to 39% of the renewable energy mix. Solar energy will be a major driver in Thailand, promoted as part of the Power Development Plan 2020. At the same time, a surplus energy capacity largely fuelled by gas will likely hamper renewable adoption, inspiring national players such as PTT to look overseas for renewable energy investment. Solar remains the most lucrative opportunity for investors, particularly around small to mediumsized projects, but success may well be predicated on entering projects at earlier development stages. Wind power potential is evident, but suffers from a lack of focus due to surplus power capacity from legacy assets.
Vietnam will double renewable capacity from 23GW to 45GW in the next 10 years, but despite this remarkable growth, substantial electricity demand projections mean that renewables share in the total power mix will remain constant. Large-scale solar will play a major role in meeting this electricity demand growth, with external investors and constructors playing an important part in development. Government support and market liberalisation will drive uptake, but constraints remain around grid capacity and purchasing agreements. Wind also presents a major area of opportunity, as demonstrated by the world’s largest wind farm under construction in the country. Favourable foreign investment conditions are expected to be announced to further spur this growth.
The Philippines remains a regional outlier, increasing installed capacity by just 2GW from 12GW to 14GW, with the share in the power mix dropping. Despite this limited growth, the Philippines’ renewable investment market still offers notable potential in solar power, thanks to a supportive feed-in-tariff mechanism. The government is also keen to push foreign investment in hydropower, although this requires understanding of complex local socio-environmental challenges.
Singapore has modest targets of 2GW of renewable capacity by 2030. Solar photovoltaics will be a main driver, primarily due to land limitations and supported by rooftop installations. Offshore floating solar farms offer another potential avenue, with the world’s largest installation recently launched in the Straits of Johor. Further increases in renewable adoption can be expected after 2023, with anticipated increases in the nation’s carbon tax. Singapore’s position as a regional investment hub could see it benefit as a facilitator of this major US$3.7 trillion regional investment opportunity. The nation’s oil and gas industry could drive a pivot towards major plays in green hydrogen, offering lucrative potential to evolve legacy industries. This green energy transition will only accelerate in the coming years, providing a remarkable landscape for sustainable opportunities for nations and investors alike.
Dave Sivaprasad is managing director and partner, SEA leader for climate action, Boston Consulting Group; and Dr Marko Lackovic is partner at Boston Consulting Group
