How clean energy can fuel Southeast Asia’s economic growth

A swifter transition to renewables can address the region’s energy security challenge and spur economic spin-offs.

Of all the complex long-term issues in 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 — Indonesia, Malaysia, the Philippines, Singapore and Thailand — to be 2.9% for 2021 and 5.8% in 2022. This follows a 3.4% fall in GDP in 2020 due to the pandemic. As Southeast Asian countries work toward economic recovery, a range of risks, including any worsening of the pandemic, geopolitical tensions and climate change, can impact progress. 

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

Meanwhile, calls to arrest climate change are intensifying, and environmental, 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 decarbonize the production and use of energy. To that end, renewables look like a promising solution: they provide clean energy, and projects that drive their development also generate significant economic spin-offs.

Not without challenges

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 the implementation of renewable projects as well as 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. 

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

Further, Southeast Asia’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 help tackle these potential roadblocks. From a regulatory perspective, policies and incentives can provide clarity on tariffs and drive investments in R&D or technologies for greater efficiency. As private players, companies can contribute by rethinking their role in the renewable energy sector and sharing feedback, data and best practices with 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.

Southeast Asian countries have committed to a target of renewable energy accounting for 23% of the total primary energy supply by 2025.³ The conditions for renewable energy are favorable but achieving the target will require swift action on the bottlenecks to progress.