This piece is written by Alifya Athia Qorina and Ambiyah Abdullah
State of ASEAN Energy and Transmission Landscape
According to the 8th ASEAN Energy Outlook (AEO8), energy demand in ASEAN is projected to increase rapidly, nearly tripling by 2050 under the baseline scenario. Industry and transportation are expected to account for around 51% and 34% of the total increase in energy demand in ASEAN by 2050, respectively. Fossil fuels are projected to account for around 76% of total primary energy sources, while renewable energy accounts for 24% under the baseline scenario. Moreover, electricity demand is projected to account for around 20% of total fuel demand in ASEAN by 2050 under the baseline scenario. Its share is projected to increase by more than twice the level in the carbon-neutrality scenario. Thus, the reliability of the transmission infrastructure is crucial to ensuring that the supply side can meet ASEAN's energy demand by 2050. The current ASEAN transmission infrastructure expansion plan is estimated to cover only 45% of the additional transmission infrastructure required. The crucial need for transmission infrastructure is not only expansion but also ensuring its resilience in response to climate risks that may affect it.
Current Challenges and Risks in Transmission Infrastructure in ASEAN
Beyond expansion, the transmission infrastructure in the ASEAN region also faces significant technical challenges, including grid reliability issues and limited access to remote areas due to their geographical location. Adding to these challenges, high capital costs and technology risks hinder investment in transmission infrastructure in ASEAN. For example, over USD 100 billion is required to build a cross-border transmission network by 2045, but access to private and public capital remains limited. For cross-border transmission infrastructure, the challenges become more complicated, ranging from different policies, regulations, and technical standards. On the regulatory and institutional side, variations in technical standards, tariff mechanisms, and policy frameworks across ASEAN countries are slowing the implementation of cross-border grid projects. Meanwhile, operational risks from climate change, such as extreme temperatures and natural disasters, coupled with outdated grids, exacerbate the transmission system's vulnerability. Addressing these challenges is a prerequisite for scaling up transmission infrastructure financing in the ASEAN region.
Building Resilience in Transmission Infrastructure in ASEAN
Ideally, building resilience in energy transmission infrastructure should cover wider aspects than physical resilience. Physically, many transmission networks in ASEAN remain vulnerable to extreme weather disruptions such as storms, floods, and high temperatures, which are becoming more frequent due to climate change. Additionally, aging infrastructure and limited system monitoring technology also increase the risk of operational failures. Ultimately, the physical and operational resilience of energy transmission infrastructure can impact the economic, social, regulatory, and policy aspects, as well as the supply chain of the energy system. Designing business models that also address the resilience of energy transmission infrastructure can be a feasible option for ASEAN in achieving a secure, resilient, and interconnected low-carbon energy future by 2045.
Business model options for financing transmission infrastructure resilience in ASEAN
Business models for financing transmission infrastructure resilience in ASEAN can be achieved through either incorporating the resilience cost into existing energy financing mechanisms or establishing a dedicated resilience financing mechanism. The first option includes the public-private partnership (PPPs), bonds, grants, and loans. The PPPs are known as one form of reducing investment risk due to public sector involvement, guaranteeing that the public sector bears any potential risk. In contrast, the private sector provides the required investment amount. Adding the resilience cost to the PPP business model needs to be incorporated throughout the project cycle of PPPs, encompassing the project identification, project appraisal, tender, and contract management phases. Moreover, the share of risk allocation between the public and private sectors for PPPs will also depend on the type of PPP. Under the build-transfer-operate (BTO) PPP business model, the public bears the most significant part of the resilience cost, while under the build-operate-transfer (BOT) PPP business model, the private sector bears a part of the resilience cost of the transmission infrastructure project. Similarly, the inclusion of resilience into existing bond or loan financing follows the same principles as those for PPPs. Additionally, there have been former financing schemes applied by Multi Development Banks (MDBs) to include resilience costs into large energy infrastructure projects.
On the other hand, a dedicated resilience finance can also be another option for ASEAN to finance transmission infrastructure resilience (innovative resilience financial scheme). This financing scheme can benefit ASEAN by having additional financial sources for transmission infrastructure resilience. It encompasses various types of bonds, including catastrophe and resilience bonds, green bonds, environmental impact bonds, green banks, insurance, and climate bonds. Some financial schemes under the second option require an additional cost to cover third-party verification and certification of the resilience cost estimation. Moreover, it also requires longer administrative procedures to comply with the requirements of funding sources. However, most of the financial schemes under the second option offer longer-term financial availability and low-interest loans.
What needs to be prepared to finance transmission infrastructure resilience in ASEAN
Both business model options depend on the scope, characteristics, geographical location, and needs of the transmission infrastructure. Both business models require ASEAN to have the technical capacity to measure or estimate resilience costs and incorporate them at an early stage of transmission infrastructure projects throughout all phases of the project life cycle. Enhancing technical capacity in the ASEAN energy sector, particularly in terms of resilience costs and their inclusion in transmission infrastructure projects, is the most crucial thing that ASEAN needs to prepare for. It can be integrated into any existing technical capacity-building roadmap for the energy sector in ASEAN. Additionally, a knowledge-sharing forum across the energy and climate sectors is also crucial for both strengthening collaboration and access to any innovative climate resilience finance schemes.
