As Lao PDR holds the ASEAN Chairmanship in 2024, the country pushes forward the regional cooperation agenda through the theme of “Enhancing Connectivity and Resilience”¹. The country chairmanship put interconnected power system under ASEAN Power Grid (APG) as a priority agenda, which can facilitate higher electricity power trading amongst ASEAN Member States (AMS). The Joint Ministerial Statement (JMS) from the 41st ASEAN Ministers on Energy Meeting (AMEM) serves as the core of the current theme of ASEAN Chairmanship, highlighting the importance of regional interconnectivity and integration in ensuring sustainable energy security in the region through APG. Given the vast amount of the region’s renewable energy (RE) technical potential with various natural resources in each country, the development of APG shall focus on establishing more physical interconnection and initiating a regional power market to tap it to its full utilization potential. Moreover, pushing the development of a regional electricity market would be beneficial to reduce electricity costs and provide flexibility in power trading, especially for the well-interconnected sub-region in ASEAN.

Shall ASEAN start to initiate a Regional Electricity Market?

An electricity market enables the flow of electricity in the economically best direction by optimising the use of available resources. Take the Nordic Power Pool (Nord Pool) as an example. Norway’s power production is dominated by renewable hydropower plants (more than 80% of the installed capacity), while its neighbours, Sweden and Finland, have immense power production capabilities from Thermal power plants (including nuclear). During the dry season, hydro-dominated Norway will have low electricity reserves and will most likely import electricity from neighbouring countries with excess reserves. A similar case also applies in the Southern Africa Power Pool (SAPP), where the northern countries of the SAPP with high hydropower share in the generation mix (i.e. Democratic Republic of the Congo and Zimbabwe) tend to export electricity to southern countries of the SAPP with the dominance in thermal power generation (i.e. South Africa and Botswana) during the wet season. By having a common regional electricity market as a platform for different countries to interact enables them to make optimal use of resources, utilise the most optimum price of electricity, and forge mutual collaboration in ensuring reliable electricity supply.

In the ASEAN context, these conditions are similar and can potentially be replicated already in the northern ASEAN Sub-region (consisting of Cambodia, Lao PDR, Peninsular Malaysia, Myanmar, Thailand, and Vietnam), which has vast hydropower potential and relatively better grid interconnectivity among the countries. On top of that, the regional electricity market would provide an opportunity for greater electricity trading by avoiding curtailment for high RE penetration grid systems like those experienced by Vietnam recently, which also poses a challenge to the national power system stability. Looking at the 7^th ASEAN Energy Outlook (2022), the high projection of the 63.2% ASEAN renewable energy share in installed capacity by 2050 could be safely accommodated with the support of a regional power market².

Additionally, the regional electricity market could provide benefits as an additional balancing mechanism to complement the existing long-term bilateral trades with more flexible trades and management of power transmission congestion and determining available transmission capacity. In an integrated electricity market with long-term bilateral and monthly forward contracts, trading through the day-ahead and intra-day markets provides power supply flexibility. Besides optimality in resource usage, market mechanism in the electricity supply business would encourage competition and leads to efficiency, that can potentially lower the cost of electricity supply. To some extent, introduction of regional market could maximise economic welfare by providing stable and affordable electricity prices. Back in 2022, the European Union Agency for the Cooperation of Energy Regulators (EU-ACER) conducted a study on the EU wholesale electricity market design, in which two scenarios were proposed: a scenario where no cross-border electricity trade across the EU Member States and the 2021 historical market data scenario. The results showed that cross-border electricity trade delivered an estimated 34 billion Euros of benefits in 2021 while helping to significantly smoothen price volatility³. Through an integrated electricity market and cross-border power trading, price volatility due to the intermittent characteristics of renewable energy could be dampened and stable electricity prices across the country could be achieved, thus supporting sustainable economic growth. These kinds of potential benefits echo the importance of considering the common regional market in ASEAN to be initiated.

How Close is ASEAN to Establishing a Regional Electricity Market?

In establishing a common regional electricity market, the process does not strictly adhere to a sequential process. Bilateral, multilateral, and regional power trade could coexist and complementary to each other, with each bringing unique advantages to enhance the effectiveness of regional power trade. The most common way to establish a regional electricity market is through a multi-phased approach, evolving the power trade from bilateral cross-border power purchase agreements (PPAs) to multi-lateral power trade with multiple seller-buyer regulatory frameworks and a fully integrated regional competitive power market. According to standard practices, cross-border interconnection coupled with an unbundled national power market structure will help facilitate the regional power market development. Although it has been proven successful in developed countries, Zambia and several other nations in the SAPP with a single-buyer power market model had progressed towards the regional power market by joining the establishment of the SAPP.

Singapore, Philippines, and Vietnam have liberalised the nation’s power sector through the establishment of a wholesale electricity market, establishing a competitive environment in the electricity generation sector, and even the consumer-side. Amidst the AMS’ various phases of power market liberalisation, with the single buyer model being the most common, establishing a joint regional market platform is possible. The vast resources of the ASEAN region, eight interconnections within the ASEAN North Sub-region in operation under the APG, and not to mention the infamous success of the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP), should become the catalyst in realising a regional electricity market. Moreover, the release of the 41^st AMEM Joint Ministerial Statement (JMS) marked the ASEAN’s collective commitment to expand the multilateral power trade in the region through the proposed Brunei Darussalam-Indonesia-Malaysia-Philippines Power Integration Project (BIMP-PIP). A regional power market can be found over any power trading arrangement, including multilateral PPAs and bilateral long-term PPAs. Thus, the concept of a regional power market will still maintain the sovereignty of each national power market and control over its assets while also providing trading potential for excess generation. The concept of a regional electricity market could be realised through shared interests, strong political will, and agreed regional market rules and platform development.

Conclusion

Considering the vast technical potential of the region’s renewable resources, the existing operational cross-border interconnections, and the active bilateral power trade agreements, it is timely to ASEAN establish a regional electricity market. Examining the current ASEAN power landscape, the existing operational interconnections in the northern part of the region, and vital energy cooperation among the countries should enable the regional power market to be achieved. Through the market, the region’s available resources may be utilised optimally with decreased power curtailment, therefore improving the region’s economic welfare. Therefore, establishing a regional power market would significantly benefit the ASEAN region from a technical and financial perspective.

Although to fully realise the regional market idea, political will from each AMS to achieve common objectives is needed, along with the intergovernmental agreements to support the establishment of the market. Technically, harmonised regulations, third-party access to transmission networks, transmission pricing, wheeling charges, and available transfer capacity calculation should be considered and arranged to ensure a seamless establishment process. An independent institution overseeing and operating the regional power market with its own dispute resolution mechanism is also an integral part of supporting the market to function optimally⁴. Overall, a regional power market is achievable in the current ASEAN power sector and would be the future of energy cooperation in the region.

¹ Lao PDR to Assume ASEAN Chairmanship 2024 in Succession to Indonesia – ASEAN Indonesia 2023 (asean2023.id)
² The 7th ASEAN Energy Outlook (2022)
³ Final Assessment of EU Wholesale Electricity Market Design (EU, 2021)
⁴ Establishing Multilateral Power Trade in ASEAN (IEA, 2019)