As a result of the global concern over climate change, the ASEAN Member States (AMS) is committed to prioritising sustainable development practices into both their economies and their energy systems. ASEAN as a group has identified a target of 23% share of renewable in the primary energy mix by 2025. To achieve this target, the region will need to double or even triple the current share of clean energy. The ASEAN Power Grid (APG) provides one potential solution to regional clean energy goals and offers the dual benefits of deeper energy & economic integration, as well as the amplification of ASEAN’s influence in the global economy and environment. This blog post explores the prospects for deeper energy market integration (EMI) in ASEAN, the APG’s current progress, and barriers to further EMI & APG development. It is concluded that an all-inclusive approach that incorporates a mix of economic policies and incentives, will have the greatest impact on global and regional EMI and the successful development of the APG.

Integrating clean energy resources into global power grids and markets is challenging due to variability, uncertainty and flexibility of energy supply, financial support, physical infrastructure, and policy mechanisms. Grid interconnections among AMS could contribute to a higher share of renewable electricity in participating Member States. The necessary energy and environmental transformation required in Asia and AMS necessitate significant cooperation and commitment between governments, business players, and consumers. The case of the APG requires both national and regional-level support, and here the role of ASEAN as a community is vital to the success of the APG and broader EMI in Southeast Asia.

Cross-border as well as interregional power grid interconnections could relieve burdens related to excess power generation capacity, assuming that participating parties pledge mutual support and technical issues are readily harmonised. In addition to poverty alleviation and developmental impacts, the APG could reduce energy prices, mitigate supply shortages and power shocks, incentivise further market integration, manage regional and subregional resource endowment differences, and facilitate sustainable development goals.

Besides enhancing reserve capacity, the more diversified sources of reserve energy would also improve broader energy security prospects. Although there is concern that relying on other countries for energy lowers energy security, the diversification effects could overrun the reliance on energy imports if well balanced with other sources of supply (for example, the share of each source of import is less than 5% or 10%), and if technicalities and relationships of interconnections are well managed.

Implementation of the APG can also foster a stronger utilisation of endowed resources and power system assets of those countries involved. Collaborations based on the complementarity of power assets of different countries can increase the utilisation rate of energy resources, thus increasing the economic return to investors. Cross-border power grid interconnections are necessary assets to realise these prospects.

While financial concerns over EMI are at the forefront of implementation challenges, economic analysis has identified the positive feasibility of APG and EMI projects among AMS. There are significant net economic savings achievable through power interconnection among the AMS, as it facilitates further development of cheaper renewable energy resources in ASEAN and saves a large portion of investment during the peak period of power generation. The interconnection of grids in the region enhances the overall capacity of countries to adopt renewable sources of power generation, and studies show the implementation of feed-in-tariff (FiT) policies could further encourage integration.

ASEAN itself has to overcome barriers of EMI and APG, that include expanding human resources, developing, and implementing policies and regulations. While involvement in APG would be voluntary, common rules and procedures must be agreed upon for multilateral cross-border trading. Strong institutional and policy support, market liberalisation and ambitious clean energy goals are also important for APG realisation. Establishment of a strong and efficient national electricity market is also a necessary prerequisite in order to develop the APG, and ASEAN has a potential role to play as facilitator and manager of the pooling of resources. Beginning with bilateral trading, if well-managed, can add to the confidence in cross-border cooperation based on the sound historical performance record of parties involved. A burgeoning bilateral trade of electricity in the region could also enable investment in the physical grid connections required for broader APG development. ASEAN could also benefit from long-term institutional developments, fostering a systematic approach to electricity market interconnection and integration in the region.

In response to the global climate change, ASEAN has identified a way to not only transition towards lower-carbon economic systems but also increase connectivity and continue to enhance the quality of life in the region. The successful implementation of the APG and greater EMI in ASEAN would provide substantial benefits to regional sustainability goals. The success of the APG hinges on regional EMI, grid expansion, and innovative economic, financial and policy solutions to the identified barriers. Strengthening electricity capacity and developing bilateral electricity trading for wider, regional integration of electricity markets through the APG will be beneficial for ASEAN and individual AMS, and should remain a priority for the region.

The blog post is a result of collaboration with Clare Richardson-Barlow – Researcher at the University of Leeds, the UK, and Yanfei Li – Energy Economist, Economic Research Institute for ASEAN and East Asia.

References

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Mundaca, Luis, Carl Dalhammar, and David Harnesk. 2013. “The Integrated NORDIC Power Market and the Deployment of Renewable Energy Technologies: Key Lessons and Potential Implications for the Future ASEAN Integrated Power Market.” In Energy Market Integration in East Asia: Renewable Energy and its Deployment into the Power System, edited by S. Kimura, H. Phoumin and B. Jacobs, 25-97. Jakarta: ERIA.

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