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China's announcement at the United Nations General Assembly that
it will no longer build any new coal-fired power plants abroad
accelerates the energy transition in Asia's emerging markets but
also raises challenges, according to a new analysis by the IHS
Markit Global Power and Renewables service.
Robust demand growth ahead
In nine key emerging Asian markets[1] that IHS Markit analyzes in
the region that receive significant foreign investment in energy
projects, electricity demand is expected to grow by 750 TWh during
2020-30, or roughly equivalent to the total demand of France and
Spain combined.
Much of the expected electricity demand growth will need to be
fulfilled by 24/7 baseload generation due to the high share of
industrial customers in these countries relative to mature
economies as well as basic electrification of households. This is
why coal has been an important power sector fuel in South and
Southeast Asia.
Given the low per capita power demand in the region, many of
them will not reach levels of developed countries even by 2030,
posing continued supply challenge as income levels rise across
emerging markets.
Future technology cannot meet current
demand
While renewables like wind and solar power can help meet much of
that new demand, the intermittent nature of renewables make it
harder to fill the baseload generation gap.
IHS Markit estimates that if solar and battery storage were used
to meet all of the incremental demand, it would require 70-130 GW
of batteries. In comparison, only about 5 GW of battery storage
capacity were installed globally in 2020, the highest year on
record.
Battery storage technologies are not yet mature enough to be
deployed today at such scale to back up wind and solar and meet the
immediate demand growth in emerging Asia. While battery storage
should be much more mature, scalable and cheaper by 2030, future
technology cannot meet current demand.
The role of natural gas
Many regional governments have recognized natural gas as a
"bridge" to meet the short-to- medium-term demand challenge with
energy transition. Indeed, natural gas-fueled power plants can be
built relatively fast and can fulfill baseload capacity
requirements while providing flexibility to meet peak demand.
However, most of these markets are facing difficulties to source
enough gas supply, mainly due to domestic gas supply constraints
and lack of LNG import infrastructures. There are also pricing
questions about gas—especially LNG—relative to coal in
Asia.
Significant international financial support would be required
for natural gas to realize its potential as a 'transitional fuel'
in Asia. Most of the countries remain low or lower-middle income.
Building out natural gas infrastructure and paying for the
electricity relative to coal-fired power would necessitate
assistance.
New coal plants still expected to come online in the
region
As a result of this supply-demand gap and limited alternatives
for baseload generation, IHS Markit expects that a number of new
coal plants—mostly those that are already under construction or
have secured financing and in advancing planning—will still
come online in the next decade.
There are roughly 34 GW of coal-fired plants under construction
in the region (this figure does not include an additional 32 GW
under construction in India), according to the latest IHS Markit
data. An additional 24 GW are in fairly advanced planning stages or
have closed financing but have yet to begin construction. IHS
Markit expects roughly half of them—about 11 GW and almost all
in Vietnam and the Philippines will still be brought online.
IHS Markit still expects around 45 GW of new coal-fired power
capacity in South and Southeast Asia to enter service over the next
decade or so. Were these not to be brought online, such a gap would
need to be addressed with other solutions or you risk running into
reliability issues and economic disruption in these emerging
markets.
Worth noting is that our outlooks also include significant new
renewables, hydro, natural gas and battery storage capacity to be
built as well - any shortfalls in these technologies would create
supply shortfalls as well.
Beyond 2030 IHS Markit expects very few—if any—new coal
plants to be built in the region. This means it will be critical
for mature battery storage technologies to be developed to grid
scale over the next decade to assure long-term supply reliability.
Gas-fired power will also be needed to provide baseload and
flexibility.
"All of the above" approach
The fact of the matter is that, for South and Southeast Asia
markets, investment in power infrastructure must continue to grow
for all technologies just to keep up with demand. There is a
complex balance between supply reliability and moving towards clean
energy for fast-growing regions. Ending the buildout of new coal
plants needs to be part of a much bigger discussion.
