ASEAN’s power gamble will shape the region’s economic future

Southeast Asia is entering a decisive phase in its energy transition with ASEAN governments no longer simply opting how to cut emissions, but now faced with the question of how to secure enough electricity to support industrial growth, AI infrastructure and rising living standards – all without triggering power shortages or politically damaging energy costs.

Because of this, the push to build an integrated regional electricity market through the aptly named ASEAN Power Grid (APG) has become one of the region’s most important developing economic stories.

Electricity demand across the wider ASEAN region is rising rapidly. Manufacturing expansion, electric vehicle (EV) adoption and the construction of energy-intensive data centres are driving consumption higher and higher every day. At the same time, much of Southeast Asia still relies heavily on coal, imported LNG supplies and ageing and depleting domestic gas fields.

Renewables capacity is expanding quickly, but solar and wind generation remain intermittent and in most ASEAN countries, battery storage is playing catch-up. LNG is cleaner than coal, but exposes countries to volatile international prices and geopolitical shocks as has been seen following the outbreak of war between the US and Iran. Coal on the other hand remains reliable and relatively cheap in Southeast Asia, but increasingly conflicts with climate commitments and investor pressure.

As such, the result is a regional shift towards cross-border electricity trading and large-scale grid investment as well as a renewed interest in nuclear energy.

The APG sits at the centre of that strategy.

For years, the project existed as little more than a diplomatic concept with ASEAN governments intermittently discussing regional electricity integration, but progress was slow because national energy systems remained fragmented and politically sensitive. That is now changing.

The logic behind the APG is straightforward if not overly simple to achieve. Different ASEAN countries possess different energy advantages. Laos has abundant hydropower resources. Vietnam and the Philippines are rapidly expanding their solar and wind capacity output. Indonesia and Malaysia have significant renewable energy potential and the all important critical mineral resources. Singapore, by contrast, has limited land and few domestic energy resources of note, thereby forcing it to import cleaner electricity if it wants to meet decarbonisation goals.

To this end, instead of building isolated and incompatible national systems, ASEAN officials are increasingly looking to put in place an interconnected grid capable of moving electricity across borders to help achieve supply and demand principles.

The clearest example to date is the Laos–Thailand–Malaysia–Singapore Power Integration Project, known as LTMS-PIP – a project which allows electricity generated in Laos to move through Thailand and Malaysia to the south before ultimately reaching Singapore. It is being seen as ASEAN’s first serious experiment in multilateral electricity trading.

In turn this will help large technology companies investing in AI and cloud infrastructure meet requirements for enormous amounts of stable electricity. Data centres planned across Malaysia, Singapore and Indonesia are predicted to sharply increase power demand over the next decade. Manufacturers across other ASEAN countries are also under pressure from global customers to reduce supply-chain emissions meaning that access to renewable electricity is increasingly becoming a condition for attracting investment.

The APG could and likely will therefore influence where factories, semiconductor facilities and perhaps most importantly of all, data centres are ultimately built.

When in place, the APG also offers ASEAN governments a hedge against volatile fuel markets demonstrated by the energy crisis following Russia’s invasion of Ukraine which saw LNG-importing economies hit by sudden price spikes. This was repeated in the wake of US and Israeli action against Iran more recently. Thailand, Vietnam and the Philippines have all increased LNG imports as domestic gas production declines and in time, a greater degree of regional electricity integration could significantly reduce dependence on imported fuels.

Nuclear energy too has its role to play. For decades, nuclear power carried political and safety concerns across Southeast Asia. Several proposed projects stalled or were abandoned altogether. But that position is now softening.

Indonesia, Vietnam, Thailand and the Philippines are all actively exploring the nuclear option while Singapore is looking at advanced reactor technologies and regulatory frameworks to one day enable the use of small modular reactors (SMRs).

Such renewed interest reflects a growing concern among policymakers that renewables alone may not provide enough reliable baseload electricity – yet – to sustain industrialisation.

This is especially important for ASEAN economies attempting to move up the manufacturing value chain. Semiconductor fabrication plants, heavy industry and advanced manufacturing all require uninterrupted power supply 24/7.

Added to this is Indonesia and Vietnam now attempting to position themselves as manufacturing hubs for solar panels, batteries and EV supply chains. Malaysia and Indonesia are already promoting carbon capture and storage industries aimed at serving Asian heavy industry while Singapore-backed undersea power cable projects are emerging as strategically important infrastructure connecting renewable resources across borders.

There is also growing interest in green hydrogen exports from Malaysia, Indonesia and Brunei, although commercial viability remains uncertain - for now.

Taken together, such developments point to a broader restructuring of Southeast Asia’s energy system meaning that energy policy in Southeast Asia and across ASEAN is no longer a secondary environmental issue. It is becoming central to economic strategy and future industrial competitiveness.