Southeast Asia is widely considered the next world economic powerhouse; the region is home to more than 655 million people, which is expected to reach a peak of 800 million by 2062. Australia and Southeast Asia are inextricably intertwined. The future success and prosperity of Australian businesses depends to a large extent on the development of their relationship with the region.
The expansion of industrial activities, the increase in population and the increase in income are driving the rapid economic growth of Southeast Asia. It is estimated that the region’s energy demand increase by 60 percent by 2040. It is also undergoing a period of economic structural transformation, and the challenge of diversifying its economy and transitioning from fossil fuels to electrification will be a major challenge.
The governments of Southeast Asia are committed to a net zero future, with eight of 10 ASEAN member states commit to net zero targets by 2050. Australian companies can play an essential role in helping this energy transition, but they need to carefully consider where their competitive advantages lie. Australian companies should avoid exporting renewable energy to Southeast Asia and instead focus on accelerating the supply of critical minerals, deploying technology, and financing project development and supporting infrastructure development.
The recent news that SunCable, which had been spearheading the Australia-Asia PowerLink project, had entered into voluntary administration underlines the challenges of building a transnational green energy project. A key stakeholder, Squadron Energy, reportedly deemed the project, which aimed to export renewable energy from Australia to Singapore, no longer feasible. In the distant future, Australian renewable energy generators should avoid exporting green power and instead focus on meeting domestic demand in Australia.
Southeast Asia is considered one of the richest regions in renewable energy in the world. It has abundant renewable energy options, including world-leading geothermal and hydroelectric reserves, and boasts high-quality solar, wind, ocean, and bioenergy reserves.
Only Indonesia and the Philippines are home to a quarter of the world’s geothermal generating capacity. In addition, the development of renewable energy projects is materializing. Between 2019 and 2020, Vietnam installed 100,000 solar panels, increasing the solar capacity in the country to more than 16 gigawatts and demonstrating that the regional appetite for renewable energy is increasing. with the speed decrease in the cost of renewable energy In Southeast Asia, driven by economies of scale and complemented by low land acquisition costs, more projects will be feasible in the short to medium term.
A focus on enhancing energy independence in response to geopolitical turbulence has led Southeast Asian leaders to accelerate the development of sovereign renewable energy projects. Ensuring secure, consistent and affordable sources of energy has become a political imperative and has led to the development of a large number of renewable projects throughout the region.
Critical minerals are vital inputs for the energy transition; an inadequate supply could result in a more expensive, delayed and less efficient transition in the region. Southeast Asia has the potential to become a the world’s leading supplier of bauxite, nickel and rare earth elements.
However, Australia dominates the production of many critical minerals and has vast undeveloped reserves of critical minerals not found in Southeast Asia, including cobalt, lithium, rare earths, and vanadium. Australian reserves and/or production of these key minerals rank in the top five globally.
Additionally, an increased focus on environmental, social and corporate governance could prompt Southeast Asian companies to source critical minerals from Australia. Australia is known worldwide for its strong environmental safeguards. Australian companies can also stabilize and ensure the resilience of the region’s renewable energy supply chain.
Furthermore, Australia is a pioneer in renewable energy and possesses the technical capacity to solve the bottlenecks that Southeast Asian nations are likely to experience as they transition. There are opportunities for technology transfer and the creation of knowledge centers throughout the region. Collaborative research and development will allow Australian technology to better access and adapt to the South East Asian market. The introduction of intermittent renewables on grids is seen as a potential entry point for Australian companies, given the challenges in the region.
Australia is on its way to integrate renewable energy into the home grid; a study by the Australian Energy Market Operator (AEMO) found that Australia’s electricity grid could Get up to 75 percent of your energy from renewable energy sources by 2025. Australia’s energy transition is further along than in South East Asia, and there are opportunities to transfer knowledge and experience to shorten the region’s learning curve. Australian companies need to move now as they will face stiff competition from countries like China, Japan and South Korea.
Australia can also help by providing low-cost financing for renewable energy projects. Harnessing the region’s renewable potential will not come cheap. According to the International Renewable Energy Agency, a an average annual investment of $210 billion is needed until 2050 to support the transition of Southeast Asia and limit global temperature rise to 1.5 degrees Celsius. However, investing in the region’s green economy is well worth it, as the economy is estimated to provide up to a trillion dollar opportunity. per year by 2030. The timing of Australian investments is crucial as regional energy demand is increasing. Opportunities exist to take advantage of the first-mover advantage, and the Australian financial sector can establish itself as a market leader before other international players enter.
Given the region’s important market and the need for infrastructure upgrades, large-scale private investment is required to harness the enormous renewable energy potential of Southeast Asia. The low cost and high availability of land in many Southeast Asian countries means that the return on investment could be high.