Asean renewable energy sector gets boost from China’s solar projects, faces hurdle of fossil fuels reliance

China’s export surge in solar modules has helped push down prices of such equipment and boost Asia’s renewable sector
Apart from its fossil fuels dependency, Asean also faces hurdles such as a lack of clear rules and financing options to ramp up renewable output

Energy

Biman Mukherji

Published: 4:30pm, 2 Feb 2024

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Southeast Asia’s push to triple renewable energy production in line with last year’s United Nations pledge is likely to get a boost from China’s record solar installations, but the region will need to overcome multiple hurdles for its clean energy transition, according to analysts.

China added 216.9 gigawatts of solar energy in 2023, surpassing 175.2 gigawatts generated in the United States, the world’s second-largest solar market, according to a report by Bloomberg News last week. The steep increase has facilitated a price plunge in renewable equipment, helping the rest of Asia.

“The result is that China has a dramatically larger capacity to export solar modules as 2024 and 2025 unfold, and the resulting global oversupply is pushing [solar] module prices down dramatically,” said Tim Buckley, Sydney-based director of Climate Energy Finance.

China’s export prices of modules have halved, and their efficiencies have improved dramatically because of investments in research and development, he said.

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“All of this is increasing the commercial viability of solar relative to alternative sources of electricity, both within China and in the wider Asian markets and globally,” Buckley said. Though its early days, China should be able to leverage its leadership with trade partners in Asia, Africa and South America, he added.

Southeast Asian nations like Thailand, Vietnam and Singapore are speeding up renewable capacity in line with their net-zero emission goals by 2050 or 2060, but have found it tough to reduce their dependence on coal and gas.

“There is sort of a buyer’s market which is being created, characterised by an oversupply of modules [because of China]. So this now makes it easier for the other Asian countries to look at solar as a viable option to expand their respective power systems,” said Aditya Lolla, the Asia Programme Director of energy think tank Ember.

But the challenges for other Asian countries are “very different” to China’s because of a lack of access to finance and mature markets for renewables, as well as inadequate grid infrastructure and battery storage systems, he added.

Blessed with natural renewable resources, Southeast Asia has “a lot of room for growth in renewable energy production”, said Gerry Arances, Executive Director of Center for Energy, Ecology and Development.

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China has been developing and financing solar power projects in other Asian countries, especially in Southeast Asia.

According to the Global Development Policy Center, China said in 2020 that it had invested or was committed to investing US$36.6 billion in solar power projects in countries under its Belt and Road Initiative, of which US$10.4 billion was in Southeast Asia.

Some of these include the 2.2-gigawatt Mekong River Floating Solar Project in Thailand, the 168-megawatt Don Sahong Dam Solar Project in Laos, and the 140-megawatt Cirata Floating Solar Project in Indonesia.

As China invests more in overseas renewable projects, its supply of parts has helped companies in the region to build their capacities.

Oliver Tan, President and CEO of Citicore Renewable Energy Corporation in the Philippines, said his firm had been getting photovoltaic panels from China’s Trina Solar – with which it signed an agreement last October – for its domestic solar plant.

A station for charging electric vehicles in Petaling Jaya, Selangor, Malaysia. Photo: Bloomberg

However, there is still a lot of work ahead to fully realise the region’s renewable energy potential, say industry executives.

China’s financing in this area in the Asia-Pacific has mostly been on a short-term basis as opposed to a more longer-term financing, said Mike Lim, partner at TRIREC, a Singapore-based venture capital firm involved in decarbonisation.

Murky regulations, lack of finance

The regulatory environment in many Asian markets – where local investors have certain advantages or entitlements – also poses hurdles, he said. There is a lack of clear and consistent policy and incentives for renewable energy in the region, he added.

Many of these nations’ renewable roll-out plans could benefit if China were to share its insights on policymaking, government incentives and project monitoring, Lim said.

“China’s installation of record solar power generation is translating into more renewable access to equipment and generation across Southeast Asia and other parts of Asia, but it is not enough to accelerate the region’s shift from coal-based generation,” he said.

02:31

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On the other hand, China’s installed wind and solar capacity will overtake coal for the first time this year, the China Electricity Council said in a report this week.

Indonesia, Malaysia, Vietnam and the Philippines are the top coal-consuming countries in Southeast Asia.

Global Energy Monitor said in a report earlier this month that it had catalogued 28GW of solar and wind capacity across Asean countries, with a 20 per cent increase in operational capacity since January 2023. There is also additional capacity either in the pipeline or being constructed across the Association of Southeast Asian Nations (Asean).

“However, construction rates across the region remain low, with only 3 per cent of this prospective capacity in construction phases. Asean countries face several challenges that have slowed the progression of projects,” said Janna E Smith, a researcher at Global Energy Monitor.

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The region’s reliance on fossil fuels remains “substantial” with coal demand having accelerated during the pandemic even though natural gas has been promoted as a transitional fuel towards developing renewable energy, said Smith.

“Ultimately, these conditions send mixed signals to solar and wind developers about their place in Asean countries’ energy transition,” she added.

The Philippines, Malaysia and Vietnam are accelerating solar development, but their overall generation is too small to cover the electricity needs of the region, said Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air.

“The current situation means that Asean is missing out on affordable solar power that could boost economic development,” he added.