ASEAN's Clean Break
Southeast Asia finds itself at a critical juncture in its energy evolution. Faced with rapidly escalating energy demand, a relatively young fleet of coal-fired power plants, and the persistent need for affordable energy, the region grapples with a complex challenge in its ambition for a low-carbon future. While notable progress has been made in advancing clean energy initiatives, overcoming the deep-seated reliance on coal is absolutely essential for ASEAN to honour its climate commitments.
The enduring dominance of coal in Southeast Asia is undeniable. Over the past two decades, the region's electricity demand has tripled, with coal serving as the primary fuel. From 2010 to 2023, annual coal capacity additions averaged around 5 GW, solidifying coal's position as the largest electricity source in several economies, including Indonesia and the Philippines. This deep reliance stems partly from the availability of cheap local coal and the imperative of ensuring energy security. Projections indicate that coal's share in Southeast Asia's total energy consumption is expected to peak at 33.1% in 2037. Indonesia's 2025-2034 power supply plan, for example, aims to add 69.5 GW of capacity, with three-quarters slated for renewables; however, it also includes 6 GW of new coal, highlighting the ongoing challenges faced by developing nations in the region.
Phasing out coal presents multifaceted economic and social complexities. Despite being the largest single source of carbon emissions globally, its early retirement in Asia has been slow due to the significant financial commitments tied to the long remaining lifespans of these plants. A fair and inclusive transition also requires scaling alternative technologies and creating new employment opportunities to support coal-dependent communities. Initiatives like the Just Energy Transition Partnerships (JETP), a multilateral financing mechanism, aim to support countries like Indonesia and Vietnam. However, JETP implementations have faced hurdles, including unfavourable financing terms, with a disproportionately small portion comprising grants.
To accelerate the transition, ASEAN is employing a blend of strategic approaches. Carbon pricing frameworks are emerging as crucial policy instruments, creating economic incentives to reduce emissions and promote cleaner energy. Revenues from these mechanisms can then be reinvested in clean energy projects. Simultaneously, expanding clean energy deployment is vital. This involves enhancing regional cooperation and mobilising capital for comprehensive grid upgrades, improving resilience through energy storage, and ultimately working towards an ASEAN Power Grid. Initiatives like Singapore's Financing Asia's Transition Partnership (FAST-P) are committing significant funding to accelerate this shift. Crucially, bridging the economic gap is paramount. While blended finance like JETPs are valuable, transition credits are emerging as a pivotal complementary instrument. These credits compensate asset owners for economic value lost from early coal plant retirement, thereby creating an additional revenue stream and enhancing viability.
By integrating high-quality transition credits into the broader financing ecosystem, Southeast Asia can unlock new pathways to attract private capital at scale, complementing policy reforms and existing concessional finance mechanisms, and accelerating the retirement of coal assets.
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