TO SUCCESSFULLY meet their climate ambitions, economies in South-east Asia will need to dramatically ramp up their investments in clean energy – to an annual level of some US$180 billion by 2030, from current levels of around US$30 billion per year.

But, to attract this level of capital, the region needs greater transparency around the financial performance of renewables projects, stronger regulatory frameworks and better risk management tools.

Imperial College Business School (Imperial) and the International Energy Agency (IEA), which posited this in a report titled, Asean Renewables – Opportunities and Challenges, out on Monday (Mar 27), also looked at the opportunities, barriers and solutions for such investment.

For Asean to successfully transition to a lower-carbon economy, it said, the deployment of renewables must be significantly accelerated in the region. However, the penetration of renewable energy in the region has been slower than in other parts of the world and hampered by risks and barriers to private cross-border investments.

The region’s economic development model remains based on fossil fuels, with a high dependence on coal-fired power plants. And regulatory barriers, incumbent interests and inflexible commercial arrangements – that have enabled the continued prioritisation of fossil generation over renewables – remain.

Renewable power investment has grown inconsistently, with deployment being far from harnessing the region’s strong resource potential, the report said. Average annual capital expenditures of US$10 billion in solar photovoltaic (PV) and wind power over the past five years are among the lowest globally and only exceed that of Sub-Saharan Africa. On top of that, most of these investments were mobilised in only one country – Vietnam. There is much to recommend regional economies to clean-energy investors: they have committed to either net-zero emissions or carbon neutrality by 2050, and their governments have simultaneously increased the role of renewable power in national energy development plans.

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Looking at the historical risk and return for unlisted infrastructure in Asean, the report found that an index of unlisted renewable power assets (23 per cent return) outperformed the broader infrastructure index (11 per cent return) on a 10-year basis, with lower volatility. The renewables index had a narrow composition, however, making its performance dependent on existing hydropower in the Philippines.

Attracting low-cost financing remains a major hurdle for development. Despite falling costs around the world for renewable technologies, solar and wind project costs remain elevated in South-east Asia due to lack of deployment scale and underdevelopment of supply chains; and, the financial value proposition for private sector investment often remains less clear than in advanced economies.

Private capital has accounted for only 60 per cent of renewable power investment in South-east Asia, compared to about 90 per cent in advanced economies.

To meet their sustainability ambitions, countries in South-east Asia will require much higher levels of energy-sector investment – reaching at least US$200 billion by 2030, of which over three-quarters (US$180 billion) is in clean energy.

This would support a shift in the energy mix in the region, while building upon the factors necessary for a transition to net-zero emissions by 2050. These factors include the widespread rollout of renewables, improvements in energy efficiency, electrification of end uses and the deployment of low-emission fuels, including modern bioenergy, hydrogen-based fuels and carbon capture technology.

“To accelerate the transition to a lower carbon economy in the region, international and domestic policy support, as well as better regulatory frameworks, will be critical,” said Mili Fomicov, researcher at Imperial’s Centre for Climate Finance & Investment. “While there are things that individual countries in the region must do... there are also clear regional priorities that could help mobilise private capital, globally.”

These priorities are:

• Better data and transparency around project-level financial performance;

• Stronger regulatory frameworks concerning remuneration for renewables projects;

• More robust financial market frameworks for renewables and transition investments, such as the Asean Taxonomy;

• An enhanced role for development finance institutions and blended finance;

• Greater access to risk hedging tools to address credit and currency risks for private investors; and

• Improved power system connectivity across the region.

Progress is occurring in many of these areas, the report acknowledged, but stronger efforts are needed for the region to shift towards a more sustainable energy pathway, which would reduce vulnerabilities to climate change and fossil fuel price volatility, as well as enhance economic opportunities from clean energy development.