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As 2022 begins, IHS Markit looks at the power markets and
highlights the most pertinent issues for the sector in Southeast
Asia. These markets are estimated to add 17.4 GW of capacity (6%
increase year on year), comprising 7.6 GW of renewables and 9.8 GW
of conventional capacity in 2022. Below are the five big questions
facing Southeast Asia's power market in 2022 that will need to be
watched closely and will be covered in the research agenda for the
year:
Will there be a rebound in power demand to pre-pandemic
levels in 2022?
Despite the economic recovery in 2021, power demand was still
below pre-pandemic levels in Malaysia, Myanmar, and Thailand.
Indonesia, Philippines, and Singapore had a strong growth in power
demand of between 4.5% and 5%, reversing 2020 declines and rising
back to and even above 2019 levels. Vietnam was the outlier in the
region, as power demand had continued growing even during the
pandemic, albeit at a slower rate of 3% and 4%, respectively, in
2020 and 2021.
In 2022, the economic recovery is expected to continue, and
stronger growth is anticipated for most countries, barring any new
COVID-19 variant that requires major prolonged lockdowns. This
growth will result in GDP recovering and power demand to even
surpass pre-COVID-19 levels, and as there has not been any major
structural changes to the economy.
How will Southeast Asia's energy transition plan keep
evolving in 2022?
The year 2021 was filled with announcements of power plans and
policies across the region with a common theme of energy transition
for the power sector.
In 2022, Thailand and Vietnam are expected to issue their latest
power development plans (PDPs), PDP 2022 and PDP 8, respectively.
Both plans are likely to feature an increase in planned renewable
capacity, coupled with reductions in fossil fuel generation
capacity, in particular coal. Other key themes expected to be
featured in 2022 are plans for the early retirement of existing
coal-fired generators, following the COP26 pledges, longer-term
plans for nuclear, and more studies on the prospects for carbon
dioxide storage offshore.
What are the prospects for renewables in
2022?
The highly supportive renewable feed-in tariffs (FITs) in the
region ended in 2021 with the 31 October 2021 eligibility deadline
for wind in Vietnam. Such supportive pricing policies have been
successful in Southeast Asia to grow renewable capacity, but the
end of such support has also led to the drastic slowdown in
development of utility-scale projects in most countries unless new
award mechanisms are introduced.
Malaysia, Philippines, and Vietnam are expected to be the
renewable markets with the most potential in 2022. The first
renewable auctions in both Vietnam and Philippines will likely come
in 2022 once the policies and details are finalized by the
respective governments. Vietnam's FIT scheme has already supported
close to 21 GW of solar and wind capacity over the past three
years, and the government had announced in 2020 that auctions will
take over feed-in-tariffs.
The Philippines' Department of Energy issued the revised
guidelines for the green energy
auction program in late 2021. This will form the framework for
the first renewable auction (announced for up to 2 GW), which is
meant to help distribution companies secure renewable capacity to
meet their renewable portfolio standard obligations. Towards the
end of 2021, the Malaysian government issued the Malaysia Renewable
Energy Roadmap to support Malaysia's renewable target of 31% and
40% of installed capacity from renewables by 2025 and 2035,
respectively.
Will there be more cross-border power
transactions?
There were several announced plans in 2021 for cross-border
power transactions. Electricity Vietnam signed the region's first
wind export PPA for a 600 MW wind farm, developed in Laos by Impact
Energy Siam, BCPG, and Mitsubishi. Beyond transactions between
land-based neighboring countries, there were announcements
requiring the transmission of power across multiple countries and
via submarine cables. These came in the form of Singapore's trial
import of hydropower from Laos, via Thailand and Malaysia, and the
country's 4 GW power import plan. Singapore's power import request
for proposal has already attracted 20 potential importers, several
with proposed power export projects from Indonesia to as far as
Australia.
Countries have depended on power imports, owing to the lower
prices, supply security, and in some cases, lower development
barriers. As cross-border power transactions increasingly span
across multiple countries and greater distances, the increasing sum
of wheeling charges will negate the cost savings from the lower
cost of generation in the exporting country. Despite this, there is
still a strong case for such transactions because meeting renewable
energy demand across the region is facing challenges, as domestic
renewable resource potential may be limited or encounter
developmental challenges while neighboring countries may have their
own domestic targets.
Will international players continue entering the region,
mostly through acquisitions?
In the recent years, many independent power producers (IPPs) in
Southeast Asia have been expanding their footprint beyond their
home countries. They have mostly expanded within Southeast Asia
and, to a lesser extent, outside the region, owing to a better
understanding and acceptance of the complex business, political,
and regulatory environment and strong growth potential in the
region's markets. Based on the IHS Markit Power and Renewables
Assets and Projects database, 70-80% of operating, under
construction, and planned capacity is owned by domestics and/or
regional players.
These expansions abroad have been driven by the lack of
development opportunities locally to diversify their portfolio and
to grow their renewable capacity share. These goals have led to
many of the more established IPPs in Malaysia, Philippines,
Singapore, and Thailand venturing abroad, and Vietnam has been the
hotspot, owing to the favorable FIT and development opportunities.
It remains challenging for international companies from outside the
region to develop projects in Southeast Asia on their own, owing to
the challenging environment,
both in terms of the political and regulatory environment and
strong local incumbents. As a result, in 2021, there were several
large company share acquisitions by international players and also
smaller project acquisitions into either already-operating projects
or shovel-ready projects. This trend is expected to continue in
2022.
The IHS Markit Southeast Asian Power and Renewables team will
continue to watch the signpost for the region, and these will be
covered in the research agenda for the year.
To learn more about our Asia-Pacific energy research,
click here.
Posted 11 January 2022 by Joo Yeow Lee, Associate Director, Gas, Power and Climate Solutions, S&P Global Commodity Insights
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