Southeast Asia Energy Outlook 2019

Comprehensive review of a region on the rise

The IEA's 4th Southeast Asia Energy Outlook provides a comprehensive review of the energy system and current market trends in the ten countries of the Association of Southeast Asian Nations (ASEAN). It explores a set of possible futures for the region with a particular focus on cooling, regional power trade, and investment in the electricity sector.

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The growing weight of Southeast Asia

Any assessment of the outlook for global energy has to reckon with the growing weight of Southeast Asia. Home to nearly one-in-ten of the world’s population, the rapidly growing economies of the region are shaping many aspects of the global economic and energy outlook.

Southeast Asia is a very diverse and dynamic region, but one common element is that policy makers across different countries have been intensifying their efforts to ensure a secure, affordable and more sustainable pathway for the energy sector. This includes action to facilitate investment in fuel and power supply and infrastructure, while focusing also on efficiency. The potential benefits of a well-managed expansion of the region’s energy system, in terms of improved welfare and quality of life for its citizens, are huge.

There are encouraging indications in many areas, but also some warning signs. Rising fuel demand, especially for oil, has far outpaced production from within the region. Southeast Asia as a whole is now on the verge of becoming a net importer of fossil fuels for the first time.

Southeast Asia's growing economic and energy role

	2000	2010	2018
GDP	4.82	5.594450317	6
Population	8.56	8.60748032	9
Energy demand	3.83	4.232457213	5
Coal demand	1.38	2.344839612	4
Oil demand	4.21	4.61	5.427105851
Gas demand	3.55	4.53	4.130095198
CO2 emissions	3.00	3.41	4.29959725
Renewables capacity	2.31	2.57	2.611203141
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At the same time, Southeast Asia is well on the way to achieving universal access to electricity by 2030. Millions of new consumers have gained access to electricity since 2000, yet some 45 million people in the region are still without it today and many more continue to rely on solid biomass as a cooking fuel.

Southeast Asia’s growth in electricity demand, at an average of 6% per year, has been among the fastest in the world, but a number of power systems in the region are facing significant financial strains.

Since 2000, overall energy demand has grown by more than 80% and the lion’s share of this growth has been met by a doubling in fossil fuel use. Oil is the largest element in the regional energy mix and coal – largely for power generation – has been the fastest growing. This has underpinned the region’s development and industrial growth, but has also made air pollution a major risk to public health and driven up energy-related carbon dioxide (CO2) emissions.

Southeast Asia has considerable potential for renewable energy, but (excluding the traditional use of solid biomass) it currently meets only around 15% of the region’s energy demand. Hydropower output has quadrupled since 2000 and the modern use of bioenergy in heating and transport has also increased rapidly. Despite falling costs, the contribution of solar photovoltaics (PV) and wind remains small, though some markets are now putting in place frameworks to better support their deployment.

Driven by rising incomes, industrialisation and urbanisation

	TPED change	TPED change
Latin America	310	0
Southeast Asia	0	413
Middle East	443	0
Africa	480	0
China	785	0
India	925	0
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	Coal	Oil	Gas	Nuclear	Hydro	Other renewables 	Traditional use of solid biomass
2018	143.0592306	244	135.17	0.00	15.84	91.07	71.69
2025	188.2817408	291	168.21	0.00	16.69	111.91	66.80
2030	215.5891035	313	192.05	0.00	23.04	135.60	61.82
2035	244.288818	325	219.93	0.00	27.78	158.61	55.72
2040	272.3016161	329	245.72	3.08	31.14	183.72	48.59
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Southeast Asia is one of a few regions where the share of coal in the power mix increased in 2018 and, based on today’s policy settings, coal demand is projected to rise steadily over the coming decades. This is largely to fuel new and increasingly efficient coal-fired power plants, although the headwinds facing these projects are growing – including increasing difficulty to secure competitive financing for new coal facilities.

Natural gas faces competing pressures in Southeast Asia. It appears to be a good fit for the needs of the region’s fast-growing cities and lighter industries, as well as (in the form of liquefied natural gas [LNG]) a way to displace costly oil use in some island communities. However, increasing reliance on imports makes the fuel less price-competitive. In our projections, it is industrial consumers rather than power plants that are the largest source of growth in gas demand.

In the Stated Policies Scenario, the share of renewables in power generation rises from 24% today (18% of which is hydropower) to 30% by 2040, but this still lags far behind the levels reached in China, India and some other economies in Asia. Wind and solar are set to grow rapidly from today’s low levels, while hydropower and modern bioenergy – including biofuels, biomass, biogas and bioenergy derived from other waste products – remain the mainstays of Southeast Asia’s renewable energy portfolio.

Heading for rising energy import bills...

The pathway that Southeast Asia is on includes the realisation of some major energy policy goals, including the vital task of ensuring universal electricity access and some progress with diversification of the energy mix.

Yet our Stated Policies Scenario also highlight some major potential risks. A widening gap between indigenous production and the region’s projected oil and gas needs results in a ballooning energy trade deficit. By 2040, Southeast Asia is projected to register a net deficit in payments for energy trade of over $300 billion per year, almost entirely due to imports of oil. This would also imply growing strains on government budgets, especially if subsidy policies remain in place that shield consumers from paying market-based energy prices.

The large increase in imports also raises energy security concerns. In the case of oil, the region’s overall dependence on imports exceeds 80% in 2040, up from 65% today.

	Oil	Coal	Gas	Total net trade
2000	-10.3554	2.10253	18.4528	10.2
2001	-9.48061	2.79327	15.7391	9.1
2002	-11.387	2.88721	15.5011	7
2003	-14.5994	3.5326	17.0167	5.9
2004	-25.274	6.42457	19.4466	0.6
2005	-34.2234	9.34313	21.9976	-2.9
2006	-43.1915	13.746	23.6651	-5.8
2007	-57.5919	16.1611	23.6004	-17.8
2008	-74.9242	24.1209	35.6074	-15.2
2009	-52.2866	23.9804	25.4375	-2.9
2010	-75.6718	26.0831	31.462	-18.1
2011	-120.447	43.1479	40.6352	-36.7
2012	-126.967	35.8827	40.351	-50.7
2013	-134.71	33.3291	36.4063	-65
2014	-127.867	26.7489	36.5271	-64.6
2015	-65.8671	16.9506	22.151	-26.8
2016	-55.3276	18.544	14.8277	-22
2017	-78.2924	25.7828	16.6596	-35.9
2018	-107.67	31.2831	19.2078	-57.2
2019	-108.396	27.1647	17.0952	-64.1
2020	-116.749	24.4733	14.539	-77.7
2021	-124.676	23.2479	12.8721	-88.6
2022	-138.706	21.2393	9.83648	-107.6
2023	-151.243	19.7024	7.33698	-124.2
2024	-164.597	17.5226	5.0032	-142.1
2025	-173.724	15.8816	2.96716	-154.9
2026	-182.25	14.9861	1.11767	-166.1
2027	-190.12	13.8748	0	-176.9
2028	-198.036	13.045	0	-187.5
2029	-205.676	12.5835	0	-197.3
2030	-212.968	11.5775	0	-207.4
2031	-220.844	10.7988	0	-217.7
2032	-228.611	10.1402	0	-228
2033	-236.51	9.42621	0	-238.6
2034	-244.039	8.80763	0	-248.8
2035	-251.485	8.02686	0	-259
2036	-257.708	6.98662	0	-268
2037	-263.883	5.40306	0	-277.1
2038	-269.984	4.70569	0	-285.2
2039	-275.861	4.10959	0	-293.2
2040	-281.6	3.46573	0	-301.5
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... and rising emissions

The consequences of energy-related air pollution on human health remain severe. The number of annual premature deaths associated with outdoor and household air pollution in Southeast Asia rises to more than 650 000 by 2040, up from an estimated 450 000 in 2018. Some 175 million people across the region still remain dependent on the traditional use of solid biomass for cooking in 2040.

The projected increase in fossil fuel consumption, particularly the continued rise in coal demand, is felt in a two-thirds rise in CO2 emissions to almost 2.4 gigatonnes (Gt) in 2040. In most other parts of the world, the power sector’s share of total energy-related emissions falls to 2040 even as electricity expands its role in final consumption. However, the relatively high carbon intensity of an expanding generation fleet in Southeast Asia means that the region’s power sector is responsible for just under half of CO2 emissions in 2040, up from 42% today.

The future is electrifying in Southeast Asia

Southeast Asia’s electricity sector is in a very dynamic phase of development, both for supply and demand.

Relatively low generation costs and indigenous supply have traditionally given coal a prominent place in power sector planning. This is maintained in the Stated Policies Scenario – our measured assessment of planned additions means that the share of coal-fired generation in the region’s power mix remains broadly flat at near 40% over the next two decades, Natural gas-fired plants, based on domestic supply as well as imported liquefied natural gas are also set to maintain a strong foothold in Southeast Asia.

However, the declining costs of renewables and concerns over emissions and pollution are starting to alter the balance of future additions to the power mix. Recent revisions to policy planning documents have tended to boost the long-term share of renewables, typically at the expense of coal.

Moreover, a switch is visible in near-term project developments, with a significant slowdown in decisions to move ahead with new coal-fired capacity and a rise in additions of solar and wind. In the first half of 2019, approvals of new coal-fired capacity were exceeded by capacity additions of solar PV for the first time.

	Coal	Gas	Solar PV	Wind	Hydro	Other renewables
Coal 	3.092321053					
Gas 		3.413533526				
Renewables			0.252146505	0.092537526	1.649658505	0.498849474
Coal 	4.350687273					
Gas 		4.875128845				
Renewables			3.853368694	0.986214163	3.009794098	1.113292273
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On the demand side, electricity consumption in Southeast Asia doubles to 2040; the annual growth rate of nearly 4% is twice as fast as the rest of the world. The share of electricity in final energy consumption is 18% today but this rises rapidly to 26% in 2040 and reaches the global average.

Space cooling is one of the fastest growing uses of electricity to 2040, propelled higher by rising incomes and high cooling needs. For the moment, less than 20% of households across the region have air conditioning: in Indonesia, the most populous ASEAN country, around 10% do. In our projections, appliance ownership and cooling demand skyrocket, not only raising overall electricity demand but accentuating strains on power systems as the share of cooling in peak power demand rises towards 30%.

	Demand growth	Demand growth
Space cooling		254.2152326
Large appliances	150.1200639	
Connected and small appliances	141.7439477	
Space and water heating	112.152904	
Lighting	69.39781395	
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There are real opportunities for efficiency policies to reduce some of these projected strains: our detailed market analysis shows that the average efficiency of air conditioning units sold today is well below the global average, even though much more efficient units, including those manufactured locally, are available at comparable cost. Enhanced efforts to improve building and equipment efficiency (as in the Sustainable Development Scenario) would be sufficient to reduce the growth in cooling demand in 2040 by around half (read more in The Future of Cooling in Southeast Asia).

Energy investment

Whichever pathway the region takes, meeting Southeast Asia’s energy needs and policy priorities will require higher levels of investment. The need to step up investment is particularly acute in the power sector. Today’s investment levels fall well short of the projected needs in the Stated Policies Scenario and are more than 50% lower than what would be required in the Sustainable Development Scenario.

Mobilising investment requires broad participation from the private sector, as well as the targeted use of public funds. Public sources have thus far played a very important role in financing thermal power plant projects and large-scale renewables (such as hydropower or geothermal) with sizeable upfront capital needs. By contrast, wind and solar PV projects have relied much more on private finance, spurred by specific policy incentives.

	Public	Private
Coal and gas power	42.423	25.148
Hydropower and geothermal	9.893	5.800
Utility-scale solar PV and wind	0.629	10.515
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There is a critical need in Southeast Asia to attract additional private sources of capital. This would require governments to address the risks that affect the bankability of projects; we highlight four priority areas for action:

  • enhancing the financial sustainability of utilities;
  • improving procurement frameworks and contracting mechanisms, especially for renewables;
  • creating a supportive financial system that brings in a range of financing sources
  • promoting integrated approaches that take the demand-side into account.

The types of investment that go ahead will also depend on the extent of regional cooperation and integration, especially progress with the ASEAN Power Grid – an ambitious project to interconnect the power systems in the region and establish multilateral power trading.

Regional power system integration is vital to facilitate growth in renewable sources of generation, in particular from wind and solar PV. Integration allows access to a larger and more diverse pool of flexible resources on the supply side (from sources such as hydro or gas-fired power) as well as the demand side. Interconnecting with neighbouring grids also reduces the system variability of wind and solar output, which is smoother when individual plants are aggregated over larger geographic areas.

Our detailed case study shows that multilateral power trading and an expansion of cross-border transmission bring major cost savings in building and operating the region’s power systems. They also bring significant environmental gains when they accompany and enable an expansion of renewables-based power.

Crucial choices ahead for Southeast Asia

This World Energy Outlook special report does not provide a forecast of what will happen in Southeast Asia’s energy sector. Our aim is rather to provide a set of scenarios that explore different possible futures and the actions or inactions that bring them about.

Moving towards the Sustainable Development Scenario for Southeast Asia would require concerted action across all parts of the energy sector, deploying multiple technologies and approaches. There are no simple solutions, but energy transitions in other parts of the world offer valuable guidance as well as making the various policy and technology options more affordable.

	Stated Policies Scenario	Sustainable Development Scenario
2010	1038.04126	1038.04126
2011	1073.967395	1073.967395
2012	1122.578259	1122.578259
2013	1167.422792	1167.422792
2014	1238.501427	1238.501427
2015	1298.917724	1298.917724
2016	1316.892711	1316.892711
2017	1370.780327	1370.780327
2018	1429.334873	1429.334873
2019	1482.113054	1469.975177
2020	1535.578759	1498.702936
2021	1576.230102	1520.3012
2022	1620.683181	1532.404411
2023	1679.403914	1547.860827
2024	1732.957968	1551.5555
2025	1779.356215	1548.037489
2026	1822.228122	1530.65812
2027	1865.119434	1505.895457
2028	1907.810459	1474.35674
2029	1948.224191	1437.721999
2030	1986.210849	1395.332648
2031	2025.387287	1351.535403
2032	2064.868495	1310.863827
2033	2105.305238	1271.331381
2034	2142.075694	1234.854512
2035	2182.19562	1197.553868
2036	2220.502463	1160.454568
2037	2258.058954	1123.023276
2038	2291.765877	1084.435041
2039	2322.702686	1046.747808
2040	2354.595093	1011.686526
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Initiatives from individuals, civil society, companies and investors can all make a difference, but the greatest capacity to shape Southeast Asia’s energy destiny lies with governments. We highlight four areas in particular that would be essential to move the region beyond the outcomes in the Stated Policies Scenario:

This is the largest single element of Southeast Asia’s transition (in contrast to other parts of the world, where ‘stated policies’ are already more favourable towards renewables). In the Sustainable Development Scenario, the share of renewables in power generation almost triples from today’s level by 2040, reaching 70%. Inside and outside the power sector, Southeast Asia has large potential for the sustainable use of modern bioenergy, both in terms of today’s technologies and in the development of advanced biofuels to improve the sustainability of the transport sector.

This is not only a pillar of sustainable energy use but also eases energy security concerns by curbing import growth, while keeping consumer energy bills in check. Efficiency plays a role across all sectors, but is especially important in fast-growing sectors such as cooling and road transport.

Southeast Asia has made progress on reducing fossil fuel consumption subsidies, but this process is not complete. Seeing it through is essential to spur more sustainable energy consumption and investment decisions.

Among the policy options, carbon capture, utilisation and storage is a vital technology to reduce emissions from the power sector and from industry.