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As 2022 begins, we look at five big questions facing the power
markets in OECD Asia: Australia, Japan, and South Korea. We expect
these questions spanning across policy, market, and technology
development will shape the discussions around the power market in
the region. IHS Markit Asia Pacific Power and Renewables team will
closely monitor how the power market will evolve on the selected
topics.
What policies and implementation plans will shape a
pathway toward carbon neutrality?
Australia, Japan, and South Korea all have a significant
reliance on fossil fuels, with coal and natural gas making up more
than two-thirds of the electricity supply. The governments in these
markets all pledged to become carbon neutral by 2050, posing
enormous challenges in transforming their energy system over the
next 30 years. The pathway toward carbon neutrality is largely
unknown yet, as policymakers and industry players are just
beginning to contemplate various low-carbon fuels and carbon
abatement technologies to deliver their climate target. The
follow-up measures to be announced in the next 2-3 years will be
critical in building and locking new energy infrastructure across
the value chain for the next 30 years given its long lifespan.
In OECD Asia, we may witness a few signposts this year,
signaling which fuels and technologies may have the potential to
decarbonize the economy toward 2050.
Will coal power generation continue to drop in
2022?
With coal remaining one of the largest electricity sources,
Australia, Japan, and South Korea all expect the large share of
emission cuts to come from reducing coal power, as envisaged in
their emissions targets.[1][2][3] In fact, these markets were already on a
path to phase out coal power, even before their governments vowed
to become carbon neutral by 2050.[4] Coal generation peaked well
before 2020 and had already been on a declining trajectory, until
the economic recovery and extreme weather conditions put a brake on
the downward trend in electricity demand last year.
Whether coal generation will continue to drop in 2022 may signal
if the region is on track to meet the governments' climate
target.
Will CPPA drive the growth of the renewable energy
market?
CPPA has gained momentum among many companies in Asia Pacific,
as the suppliers face increasing pressure from their global
customers to become green in sourcing electricity. The member of
RE100, a global initiative with an aim to promote 100% renewable
energy sourcing, soared to 315 in 2021 from 155 in 2018. Australia,
Japan, and South Korea make up a quarter of total RE100 signatories
in 2021, thanks to supportive policy environment and the growing
interests among companies for going green. CPPA has become an
economically attractive procurement option for electricity buyers,
as the cost of solar PV and wind power declines at rapid pace. The
minimal operating costs also make them an effective hedging
instrument for electricity sourcing in a high and volatile
commodity price environment.
Despite all these factors that would spur the growth of CPPA,
the share of renewable energy in total electricity consumption has
remained low—the RE100 members of three markets in OECD Asia
reported that the share of renewable electricity was less than a
quarter in 2021, mainly owing to regulatory hurdles and limited
economic incentives to induce direct renewable energy sourcing. We
may witness the easing of some of these constraints in 2022.
Will the growing momentum in the offshore wind industry
continue in 2022?
Offshore wind in Asia Pacific has attracted many international
developers and investors, as the governments announced various new
policies to support this nascent sector. Policymakers have put in
place ambitious installation targets as they expect the offshore
wind to play a pivotal role in delivering the climate ambition:
Japan aims to install 45 GW by 2040, South Korea plans to raise its
current 2030 target of installing 12 GW, and Australia passed new
legislation in 2021 that will pave the way for the development of
an offshore wind industry. With the current policy environment
aimed at making offshore wind project development easier at a lower
cost, we may witness the first financial close on commercial-scale
offshore wind projects in some markets this year.
Will the new technologies of using hydrogen and CCUS in
power generation make progress?
Hydrogen and CCUS have been emerging as the most preferred
low-carbon technologies by some governments owing to their multiple
benefits, which solar PV and wind power could not provide. Hydrogen
and CCUS offer low-carbon, reliable source of energy with a
potential to alleviate concerns on the grid reliability, when the
penetration of intermittent renewable energy rises. Both could
harness some of the existing labor and infrastructure in coal and
gas industries, helping to protect domestic jobs and economies
during the energy transition. Some governments are moving ahead to
reap these benefits by setting a new target on deploying new
technologies—Japan plans to generate 1% of its power from
hydrogen and ammonia by 2030, while South Korea envisages CCUS to
capture 34-36% of the national gross emissions in 2050.
In 2022, new pilot projects are likely to be announced across
the value chain apart from the power generation
sector—including import/export terminals, shipping,
distribution, storage, conversion, and application—given the
majority will likely be imported from other markets where hydrogen
and ammonia could be produced at a lower cost.
