| This column echoes Renewable Energy Institute report “Renewable Energy to Replace Coal Power in Southeast Asia; Pragmatism to Deliver a Sustainable Bright Future” published on October 17, 2019. All references are provided in the report. |
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With China and India, Southeast Asia is one of the last dynamic coal power markets in the world today1. However, thanks to economic opportunities for renewable energy (RE) and because of environmental constraints, this unsustainable development pathway based on the dirtiest electricity generating technology – seriously damaging ecosystems, leading to premature deaths and destroying wealth – should soon belong to the past. Especially in a region that is quite vulnerable to climate change.
On a positive note, Southeast Asia is blessed with abundant and various RE resources (bioenergy, geothermal, hydro, solar, and wind), which simply deserve a fair chance to compete and thus demonstrate they can be massively deployed from the Mekong river basin to the Malay archipelago. Some recent successful developments such as Vietnam’s solar boom in the first half of 2019, or Cambodia’s first solar auction delivering a record low winning bid below $40 per megawatt-hour last month, invite to optimism.
Japan as a historical trade partner of Southeast Asian countries should play an important role again in accompanying power infrastructure developments that will turn Southeast Asia into a perennial rich region. To do so, Japan will have to adopt a forward-thinking mindset. Concretely, this means turning its back on coal and fully embracing RE.
There are three key ways Japan may accompany and benefit from Southeast Asia’s energy transition in the power sector:
Some major Japanese commercial banks and trading houses such as Mitsubishi UFJ Financial Group, Itochu, Sumitomo Mitsui Trust Bank, and Marubeni appear to have understood better and faster the ongoing shift of paradigm than Japanese public financial institutions by stating over the past year that they will no longer invest in new coal capacity – in some cases, however, exceptions may be considered. To guarantee their credibility and efficiency these policies should be fully implemented without exceptions.
Concerning Japanese public financial institutions, Japan Bank for International Cooperation (JBIC), Japan International Cooperation Agency (JICA), and Nippon Export and Investment Insurance (NEXI) are already all familiar with RE financing in Southeast Asia. For instance, between 2009 and 2016 investments in RE projects in Southeast Asia of JBIC and JICA reached $1.1 billion (#3 among development finance institutions) and $0.5 billion (#5), respectively. Though this is encouraging, compared to coal power, their investments in RE remain much smaller. This signals opportunities to scale-up RE financing by redirecting funds allocated to coal power.
- 2. Japanese power companies to significantly and exclusively participate in RE power plant projects in the region.
Until now, a number of large Japanese power companies have entered the hydropower market in Southeast Asia, among which Kansai Electric Power Company and J-POWER have been the most dynamic. However, apart from geothermal power projects, commitments of these companies in the development of other RE power projects have been pretty scarce.
Indeed, with the exceptions of JERA and Kyushu Electric Power Company – through their shares in Thai independent power producer Electricity Generating Public Company, large Japanese power companies have neither solar nor wind attributable capacity in the region. This is in stark contrast with other Japanese companies which have recently made headlines for their participations in mega-solar power plant projects in Vietnam such as Idemitsu Kosan or Sharp. With increasing cost competitiveness of both solar and wind power this situation is to become an abnormality that should trigger strategic realignments. These realignments would have to be at the opposite of the recent and significant, unprecedented and untimely participations of large Japanese power companies in coal power plant projects, particularly in Indonesia.
Moreover, the fact that Southeast Asian solar and wind power markets are still largely in their infancy with limited competition – including from expansionist European power companies – should whet Japanese power companies’ appetite to become dominant first movers.
- 3. Japanese businesses established in Southeast Asian countries to push for 100% RE procurement options to meet their electricity consumption in the region.
In their quests, they may find other Japanese businesses that will provide them with solutions to meet their objective. For example, in July 2019, Osaka Gas established a joint venture, OE Solar, to supply industrial and commercial consumers with electricity generated from solar power mainly in Bangkok, Thailand.
These proposals are advanced envisioning that these new business approaches by Japanese public & private financial institutions and industrial & commercial organizations could be supported and coordinated by the Japanese government as a new diplomatic, economic, and environmental national strategy vis-à-vis Southeast Asian countries.
- 1Southeast Asia is defined as the members of the Association of Southeast Asian Nations (ASEAN); Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
