Menu
ASEAN is projected to more than double its energy demand by 2050, driven by economic and population growth. To meet this surge in demand, fossil fuels are still expected to remain the dominant source of energy supply. Without mitigation measures, this trajectory would significantly increase emissions and energy costs. Managing the pace of demand growth and curbing emissions makes the energy transition essential through energy efficiency, renewable energy, and other low-carbon solutions.
Beyond climate goals, energy transition is also crucial for strengthening energy security and reducing exposure to dynamic global energy markets. Efforts in the region have created over 85,000 jobs since 2019. The economic benefits of the energy transition in ASEAN are projected to be approximately USD 5.3 trillion in GDP and 66 million new job opportunities by 2050. It can also bring economic benefits to ASEAN’s manufacturing sectors, especially in countries that produce critical materials for clean energy technologies.
According to the most recent report of the Energy Transition Index (ETI) in 2025, most ASEAN Member States (AMS) rank near or above the global average. This indicates that ASEAN has made significant progress in its efforts towards an energy transition. However, a closer examination of the components of the ETI and each AMS situation might reveal a different story, particularly regarding transition readiness.
The regulatory framework and investment is one the key parameters that determine the readiness of an energy transition indicator. Currently, ASEAN’s progress on the regulatory framework and investment is lagging. The region is predicted to delay meeting the 2025 targets (23% Renewable Energy (RE) share in TPES and 32% of the energy intensity reduction), and only USD 30 billion was mobilized to finance the energy transition in ASEAN. The persistent energy investment gap further underscores the challenge, with a massive shortfall in required funding. Thus, scaling up energy transition investment is a one-time action essential to foster energy transition efforts in ASEAN.
The region requires massive and sustained investments to achieve its energy transition and carbon neutrality goals. Under the Carbon Neutrality Strategy (CNS), USD 446 billion will be needed for power infrastructure by 2030, escalating to USD 6 trillion by 2050. The power sector will need the largest share of funding, particularly for scaling up renewable generation capacity.
Beyond power generation, grid infrastructure would demand significant upgrades to support this transition, especially with a higher share of variable renewable energy in the grid. Meanwhile, EV development would require substantial investments in both vehicles and charging systems. Coupled with the increasing demand, this demonstrates both the scale of ASEAN’s clean energy transition and the significant financial challenge of realizing it.
Despite these needs, current financing levels remain critically inadequate to support ASEAN’s energy transition. Between 2016 and 2021, the annual RE investment average was just USD 8 billion, far short of what’s needed. To meet the 2021-2030 RE target alone, the region faces an estimated funding gap of around USD 96 billion. Looking ahead, the challenge intensifies: ASEAN will need USD 1.3 trillion by 2030 and USD 11.9 trillion by 2050 to fully transition across all energy sectors. Similar trends happen in other sub-energy sector investments in ASEAN, underscoring the urgent need for accelerated funding.
Among other factors, high capital costs, high reliance on public funding, insufficient private sector participation, limited access to diverse financial sources, and uncertainty of policy and regulation hinder the scaling of energy investment in ASEAN.
The high capital cost of clean energy investment in ASEAN is estimated to be twice that of developed countries. Capital cost represents the expected financial rate of return for the equity and the interest rate of the debt in the clean energy project’s finance. The high expected financial return and interest rate indicate the high risk perceived by the investor, designed to minimize such risks during the project’s lifetime.
The high risk perceived by the investor stems from several factors, including the credit rating, maturity level of the market, technology risk, and uncertainty surrounding regulatory, policy, and governance structures. Maintaining macroeconomic conditions will directly impact on the fluctuations in the interest rates applied for lending. It will then spread into the financial and banking system, and even further, the currency exchange rate. The currency exchange rate becomes more crucial as the energy investment is expected to come not only from domestic investors, but also from foreign investors, including private and development banks.
The maturity level of market and technology risk is interconnected. Higher technology risk represents a lower level of market maturity. It is represented by new emerging technologies or clean energy technologies that are considered new in the ASEAN market. Ultimately, it also impacts the credit rating of ASEAN member states, which has led to a high reliance on public funds and limited access to international financial sources.
The cycle of the above factors is strongly interconnected and starts with the uncertainty of policy and regulation. Reversing the whole cycle, the certainty level of policies and regulations set by the government influences the macroeconomic conditions, which directly affect fluctuations in currency exchange and interest rates. This, in turn, lowers the perceived risk by private investors and improves their credit rating.
The set of policies and regulations also must be tailored to the maturity level of the specific clean energy technology market to mitigate technology risk effectively. In other words, this means that a set of policies and regulations needs to be certain yet flexible, following the market phases of technological advancements.
Additionally, bridging the energy investment gap also requires innovative financing mechanisms that not only complement the existing ones but also tackle the barriers hindering the scaling of energy investment in ASEAN. The choices range from blended finance, sustainable bonds, green bonds, green sukuk, international carbon market, philanthropy funds, and others.
Ultimately, it necessitates a well-coordinated policy among relevant stakeholders, not only nationally but also regionally and globally. Strengthening regional collaboration among AMS under the umbrella of the ASEAN Plan of Action for Energy Cooperation (APAEC) is timely and relevant, especially with the upcoming significant milestones this year: the forthcoming annual ASEAN Ministerial Energy Meeting and participation at COP30.
ASEAN Centre for Energy (ACE) is an intergovernmental organisation within ASEAN structure that represents the 10 ASEAN Member States’ (AMS) interests in the energy sector.