Clean Energy Can Help Southeast Asia Recover After COVID-19
Prior to the devastating impacts of COVID-19, Southeast Asia was becoming an economic powerhouse. Manufacturing, industry and services expanded across the region in recent decades. Energy demand also grew an average of 6% per year, one of the fastest growth rates in the world. But despite the global decline in renewable energy prices, Southeast Asian countries have largely embraced fossil fuels to meet their growing energy needs.
Close to 60% of Indonesia's electricity supply comes from its 29 gigawatt (GW) coal fleet. An additional 24.7 GW is in the works, making the country's coal pipeline the fifth largest in the world.
The latest Philippine Energy Plan proposed expanding the share of coal in the energy mix from an already high 52.1% in 2018 to 55.3% by 2040 to support industrialization. The share of renewables in the Philippines' generation mix dropped to 21% in 2019, from more than 23% in 2018.
While the clean power sector grew in Vietnam — solar went from 0.5% to more than 8% of the country's energy mix in 2019 – continued vigilance is needed to ensure the country's 80 GW of new power expected by 2030 is generated sustainably.
Meanwhile, the COVID-19 pandemic has exposed the vulnerabilities of this fossil fuel-driven economy. In a September 2020 update, the Asian Development Bank reduced its earlier projections of Southeast Asia's GDP growth for 2020 to reflect broad declines in consumption, investment and trade. The region's economy is now expected to shrink 3.8% in 2020, with eight of 11 nations posting negative growth. The Asian Development Bank estimated that 158 million to 242 million full-time jobs (6.0-9.2% of total employment) will be lost globally in a three-month or six-month containment scenario, with job losses in Asia and the Pacific accounting for about 70% of the total.
Building back better after COVID-19 will require quick and coordinated action from many stakeholders: national and local government leaders, financial institutions, electricity distribution utilities, grid operators and energy consumers. Leaders need to simultaneously address urgent socio-economic concerns that have arisen from, or been exacerbated by, the present economic and public health crisis: economic slowdown, record-high unemployment, high electricity costs and health risks.
Doubling down on coal is not the way to pull Southeast Asian nations out of crisis mode. Shifting energy systems onto a modern, low-carbon path can not only secure Southeast Asia's future as an economic powerhouse, but also create jobs, address climate change and improve public health in the process.
Southeast Asia's Future: Decarbonization, Decentralization and Digitization
Decarbonization, decentralization and digitization are key elements for a Southeast Asian energy transition, defining an inclusive and responsive shift that's pro-economy, pro-business, pro-people and pro-environment. Think about the transformation of the power sector from a one-way street of energy powered by fossil fuels into a multi-directional, multi-lane highway characterized by smaller-scale power plants harnessing limitless sources such as the sun and wind. Interlinked, these "3 Ds" provide a glimpse of the energy sector of the future:
Decarbonization can limit rising global temperatures and help meet the international Paris Agreement. Every organization in the world needs to find efficient and scientific techniques to both reduce their operating costs and lower greenhouse gas emissions.
Decentralization looks at smaller, dispersed energy generation units that deliver power to customers wherever they are, namely though renewable energy systems like solar panels. (These smaller units are also known as distributed renewable energy systems.) This can help countries withstand disturbances and disasters and bring energy to the 45 million people who lack electricity in the Southeast Asia region.
For archipelago nations like Indonesia, Malaysia and the Philippines, decentralization can mean energy resilience, because distributed renewable energy can be spread across many islands. For mainland Southeast Asian countries, mountainous terrain has presented challenges for centralized energy infrastructure that distributed energy can help address. Furthermore, swathes of rural Cambodia and Myanmar that have struggled to keep up with the rest of the modern world could access electricity for the first time with decentralized solutions.
Digitization can address complex challenges and rapid changes in the energy sector — including large-scale integration of distributed renewables, aging infrastructure and plant equipment, volatile dynamic pricing, business model disruptions brought by new technologies and operational disruptions by shocks like the COVID-19 pandemic. Southeast Asia's energy systems need to embrace digital solutions in order to usher in a power sector transformation, helping to manage large amounts of data collection and analysis and optimizing increasingly complex energy systems.
These "3 Ds" of the energy transition would serve the interrelated goals of savings, security, resiliency and sustainability in the post-COVID recovery and beyond, while delivering many benefits.
The Benefits of a Low-Carbon Transition in Southeast Asia
1. Addressing Economic Slowdown
The Southeast Asian region continues to be economically battered by the coronavirus pandemic, creating consequences on par with, or even greater than, the fallout of the 1997-1998 Asian financial crisis. Strict lockdowns and border closures have stifled private consumption, public investment and tourism spending, causing record economic contractions in a region that was among the world's fastest-growing prior to the pandemic.
Compared to the previous year, numbers for April-June 2020 show Malaysia's GDP shrinking by 17.1%, the Philippines' by 16.5%, Singapore's by 13.2% and Thailand's by 12.2% —all record results in the past 20 years. Indonesia also recorded its worst GDP figure since 1999, posting a 5.3% contraction. Vietnam managed a marginal 0.4% increase, far below its 7% growth prior to the pandemic.
While the region's immediate recovery and regrowth strategy eased lockdowns, created reciprocal tourism corridors and promoted domestic tourism, a green recovery plan could provide a much-needed boost to quell fears of a U-shaped recovery, in which economic damage lasts for up to two years before reaching levels of growth again. Every dollar invested in the energy transition gives three to eight times the return, according to the World Economic Forum, citing numbers from IRENA. Well-designed green projects for renewable energy assets, grid modernization and building efficiency retrofits have been found to generate more employment and deliver higher short-term returns per dollar spent, compared with conventional fiscal stimulus.
The Philippines Climate Change Commission has called for an economic recovery centered on ecological investment and programs that build climate resilience. This includes supporting low-carbon technologies, eco-construction and design policies, research and development for ecological purposes and natural capital investment for ecosystem resilience and regeneration. This is in line with what UN Secretary-General António Guterres called for at the beginning of the pandemic: as we spend huge amounts of money to recover from the coronavirus, we must deliver new jobs and businesses through a clean, green transition.
2. Creating Renewable Energy Jobs
In June, the Philippine government shared the dire news that more than 7.3 million jobs have been lost due to COVID-19, as the country's unemployment rate hit a record high of 17.7%. Meanwhile, Indonesia's National Planning and Development Agency also announced that its unemployment rate could hit its highest in more than a decade, rising to 9.2% (nearly 13 million people) by the end of 2020. Thailand's state planning agency said that up to 2 million jobs may be lost this year and 8.4 million more are at risk.
The widespread adoption of renewable energy technologies creates employment opportunities up and down the supply chain, with the sector employing 11 million people worldwide, as of 2018. A May 2020 report by McKinsey showed that government spending on renewables and energy efficiency creates three times more jobs than spending on fossil fuels.
Moreover, the renewable energy sector draws on a diverse and inclusive employment pool, with needs ranging from unskilled labor up to executive positions. In addition, energy efficiency jobs directly create local employment opportunities and opportunities within small- and medium-sized enterprises, which account for 89-99% of total establishments and 52-97% of total employment in Southeast Asia.
3. Reducing Health Risks
Higher consumption of fossil fuels increases air pollution and threatens human health. The World Health Organization estimated that outdoor air pollution caused 4.2 million premature deaths worldwide in 2016, with the greatest number of deaths observed in Southeast Asia and the Western Pacific.A Harvard studyalso showed that exposure to air pollution is linked to higher risk of infection and death due to COVID-19. A sound pandemic recovery response includes efforts to curb air pollution. A low-carbon energy transition is a path toward cleaner air.
4. Reducing Electricity Costs
Despite the plummeting price of coal and oil in global markets during COVID-19 lockdowns, the price of electricity in the Philippines remained high. This paradox can be resolved, in part, through a change in the industry model and energy mix — that is, by reducing dependence on large power plants powered by (mostly imported) fossil fuels and shifting to distributed energy generation using local, renewable sources. These renewables have become progressively cheaper and do not require centralized infrastructure.
In Indonesia, plans to increase electricity tariffs for 12 non-subsidized groups starting in 2020 after two years of flat rates are a wake-up call on the real costs of fossil-based electricity. Solar and wind can now meet or undercut the price of power from the fossil-heavy electricity grid, a reflection of decades-long reductions in renewable energy prices. In the Philippines, a study released last year showed that the full retail price of solar power was already cheaper than grid electricity rates, a trend since 2018. Another study showed that in Southeast Asia, clean energy can reach levelized costs as low as $64 per megawatt-hour (MWh) for solar photovoltaics and $42/MWh for wind, which are cheaper than new coal and other fossil-based generation plants.
A transition to a decarbonized, decentralized and digitized energy system can also emphasize consumer choice for low-cost, clean and climate-friendly energy sources. Cheaper electricity results in savings and better profit margins for businesses, particularly small- and medium-sized enterprises, which are more sensitive to changes in month-to-month expenses. Likewise, the savings for consumers enhances their purchasing power and furthers economic activity.
5. Achieving Electricity Access for All People
The energy transition will help achieve 100% electrification in the Southeast Asian region. While millions of new consumers gained access to electricity since 2000, some 45 million people in Southeast Asia are still without electricity today. In the Philippines, close to 2 million consumers still lack access as of last year. Decarbonized and decentralized power generation systems that do not require pricey and logistically challenging transmission networks in rugged and remote terrain would further the goal of total energy access.
Since 2018, a 4 MW solar battery microgrid in Occidental Mindoro, Philippines has brought 24/7 power to a remote community without relying on government subsidies, and at a lower cost to consumers than prevailing oil-based sources. Another solar battery microgrid project in Sabang, Palawan, Philippines is estimated to save the government at least $4 million dollars in subsidies, compared to a fully diesel-powered plant.
Digitization will connect communities to foster trade, develop livelihoods in far-flung areas and provide energy beyond household electrification. Once interconnected, far-flung communities can reap the benefits of better healthcare and education services via low-carbon and modular energy systems, enhancing their quality of life and expanding access to opportunity generally.
6. Curbing Climate Change
In most of the world, the power sector's share of energy-related emissions is projected to fall by 2040, even as electricity consumption expands. The same is not true for Southeast Asia, where a coal-heavy expansion of power generation is expected to increase the power sector's share of total emissions to about 50% in 2040, up from 42% today. This does not bode well for the region, as the Philippines, Indonesia, Myanmar and Vietnam face high to extreme risks from the impacts of climate change.
Philippine Central Bank Chief Benjamin Diokno has repeatedly acknowledged that climate change and environmental challenges can pose risks to the stability of the financial system, because climate-induced disasters disrupt human activity and layer on to the existing crisis. Malaysia's central bank has said that nearly one-quarter of the local insurance industry's assets could be exposed to climate-related financial risk, and has warned that climate change could pose a systemic risk to Malaysia's financial system. Singapore acknowledged that mean sea level in the Straits of Singapore increased in the period spanning 1975-2009.
The low-carbon energy transition will help curb climate change and reduce the carbon intensity of Southeast Asia's power sector.
7. Improving Energy System Resilience
Southeast Asian nations' electric power systems currently use the early 20th-century model of centralized power generation, where large generation facilities supply end users through transmission and distribution networks. However, this has posed challenges for reliable power supply to a region with frequent typhoons, earthquakes and volcanoes that damage transmission and distribution networks. Indonesia and the Philippines are made up of more than 23,000 islands, and much of the region is inside the Typhoon Belt and the Pacific's "ring of fire." The region needs a much better energy configuration.
Distributed renewable energy (DRE) systems that are not dependent on fuel that needs to be transported are better suited to the geographic profile of Southeast Asian countries. DRE systems are smaller, modular by design and can be located closer to consumption. This configuration reduces the need for extra-long transmission lines that can be exposed to frequent storms or other natural disturbances.
Renewables are also better positioned to benefit from battery energy storage systems, which have dropped in price by 50% over the past two years. DREs, especially those backed by batteries, can provide fast backup power during calamities, making the energy system more resilient.
The COVID-19 pandemic affected the energy sector in ways unseen before. The pandemic hit the power industry with a drop in demand and shift of commercial and industrial consumption to residential due to the quarantine and lockdown directives. In the Philippines, electricity demand dropped by as much as 30% during government-imposed lockdowns. Meanwhile, power industry personnel had to comply with health and safety protocols, delaying regular on-site meter readings for three months. The eventual surge of billing charges resulted in confusion and outrage from consumers. This could have been avoided if smart meters analyzed electrical consumption remotely for utilities and customers, placing emphasis on the need for digitization as part of the energy transition.
Digitization can even go further with intelligent building energy management systems coupled with distributed renewable systems such as solar rooftops, as suggested by the chief strategist of Malaysia's Sustainable Energy Development Authority.
Building Back Better After COVID-19 in Southeast Asia
The human and economic impact of the pandemic has been a wake-up call that we must shift from business as usual to better protect people from unhealthy pollution and build a new economic foundation for sustainable growth. Despite their seemingly cheap costs, we should move away from oil and other fossil fuels as fast as possible and take decarbonization, decentralization and digitalization seriously. These technologies modernize and improve the efficiency and effectiveness of our energy economy.
As Indonesia, the Philippines and the rest of Southeast Asia recover from the effects of COVID-19, it is necessary to enact policies for sustainable, inclusive and resilient growth. Building back better today by investing in clean energy can secure a prosperous and progressive future for all.