Southeast Asia’s rising energy demands and what lies ahead

As Southeast Asia continues to grow economically and urbanise at a rapid pace, the region is emerging as a key player in global energy markets. With energy demand expected to increase by over 60% by 2040, Southeast Asia is making substantial strides in reshaping its energy mix. Driven by ambitious renewable energy initiatives, the region is working to reduce its dependency on fossil fuels while tackling the complex challenges of energy security, infrastructure, and climate change.

Meeting the region’s growing energy demand

According to the International Energy Agency (IEA), Southeast Asia’s energy demand is set to grow by 60% by 2040, fueled by population growth, urbanisation, and economic expansion. 

In countries like Indonesia, Vietnam, and the Philippines, energy demand is rising quickly, and governments are increasingly turning to renewable energy as a solution to meet these needs.

Historically, Southeast Asia has depended heavily on fossil fuels like coal and natural gas to power its growing economies. However, a paradigm shift is underway, as nations across the region are embracing clean energy sources such as solar, wind, and hydropower to ensure long-term sustainability. Governments are setting ambitious targets for renewable energy adoption to reduce greenhouse gas emissions and increase energy independence.

Harnessing renewable energy potential

The region is home to abundant renewable energy resources, with enormous potential to expand the use of solar, geothermal, wind, and hydropower. The ASEAN Centre for Energy estimates that Southeast Asia’s solar power capacity alone could reach 35GW by 2025. Additionally, Indonesia, which holds the world’s second-largest geothermal potential, is planning to ramp up its geothermal capacity to 10GW by 2030.

Countries such as Vietnam are leading the way with proactive policies that encourage the development of renewable energy. The government’s Feed-in-Tariff (FiT) program has been a catalyst for the rapid growth of solar and wind energy projects. As of 2022, Vietnam has installed more than 16GW of solar capacity, making it the leader in solar power in Southeast Asia. With a target to increase its renewable energy share to 47% by 2030, Vietnam’s energy transformation is underway.

Indonesia, meanwhile, is focusing on geothermal energy as part of its strategy to reduce reliance on coal. The country has set a target to develop 10GW of geothermal power by 2030, attracting international investors looking to capitalise on the country’s rich natural resources.

Thailand has also made significant strides in its energy transition, with its Power Development Plan aiming to have 30% of its energy mix come from renewables by 2037. 

Solar and biomass projects are at the forefront of this plan, with private sector investment flooding in as the country strives to meet its clean energy goals.

Attracting global investment

As Southeast Asia moves toward renewable energy, it is becoming an increasingly attractive destination for global investors. Policymakers across the region have made strides in creating a favourable investment climate for renewable energy projects.

Vietnam has become a top market for renewable energy investment in Southeast Asia. The FiT program and long-term power purchase agreements (PPAs) have made the country an attractive investment destination for global players from Europe, Asia, and the United States. According to the World Bank, policy predictability and transparent rates have contributed to the success of Vietnam’s renewable energy market.

Indonesia has recently updated its renewable energy laws, making it easier for foreign investors to develop geothermal and solar projects. This is part of the country’s broader goal to achieve 23% renewable energy in its energy mix by 2025.

Meanwhile, Thailand has encouraged public-private partnerships (PPPs) to fund renewable energy projects. These efforts, combined with attractive tax incentives, have led to significant private sector participation in Thailand’s renewable energy sector, particularly in biomass and solar energy.

Enhancing energy security through regional cooperation

Energy security remains a top priority for Southeast Asia. To address this challenge, countries are focusing on improving local energy production and enhancing regional integration.

Key regional initiatives, such as the ASEAN Power Grid (APG) and the Trans-ASEAN Gas Pipeline (TAGP), aim to create a more connected energy infrastructure across the region. The APG, for example, facilitates electricity sharing among Southeast Asian countries, improving grid reliability and energy access.

The TAGP is designed to balance supply and demand by facilitating the trade of natural gas across borders. Indonesia and Malaysia, as major natural gas producers, are working to increase pipeline connectivity to supply neighbouring countries, enhancing energy resilience across the region.

Climate commitments, emission reduction

Southeast Asia is also facing the growing threat of climate change, with rising sea levels and more frequent natural disasters affecting communities across the region. In response, countries are increasingly aligning their energy strategies with international climate commitments.

Green financing initiatives are gaining traction, with Indonesia and Thailand leading the way. Indonesia has issued green sukuks (Islamic bonds) to fund sustainable projects, attracting international interest in the country’s renewable energy and infrastructure projects.

Countries such as the Philippines and Thailand are exploring carbon trading mechanisms to incentivise carbon reductions and create a regional carbon market. 

Infrastructure and policy challenges

Despite the progress, Southeast Asia faces several challenges in achieving its renewable energy goals. One major obstacle is outdated infrastructure. Many countries in the region have ageing electricity grids that are ill-equipped to handle the increasing share of renewable energy. Modernising infrastructure will require significant investments, which some countries may struggle to secure.

In addition, regulatory inconsistencies across the region can create uncertainties for investors. To overcome these challenges, governments need to work toward policy harmonisation and ensure that the regulatory environment is clear and supportive of renewable energy projects.

Southeast Asia’s global energy impact

Southeast Asia’s growing role in the global energy market is not only about increasing domestic renewable capacity but also about its impact on global energy flows. As the region reduces its dependence on fossil fuels, traditional oil and gas suppliers may face shifts in demand. Additionally, Southeast Asia’s rich mineral resources, such as lithium, nickel, and cobalt, are crucial for the development of green technologies, including batteries and electric vehicles.

The region’s increasing role in the global supply chain for these critical minerals positions it as a key player in the green energy revolution. Southeast Asia is set to become a hub to produce renewable energy technologies, with significant implications for global markets.