"How" is the big question facing the electric industry across Asia as we look ahead to 2021 and a world post-COVID-19.
Over the past 20 years, considerable progress has been made towards achieving universal, reliable and affordable access to electric power. Whether the region will enable the transition to less carbon-intensive energy sources — principally through a step-change in the amount of renewable energy generation on the grid — is a question that will challenge all parties in the months ahead.
Two major challenges dominate our first-ever survey of opinion leaders in the electric industry in Asia, which occurred during the height of the pandemic. Significantly, 1) uncertainty of investment caused by a financial downturn; and 2) renewable energy generation clearly stands ahead of other issues, with more than one out of every three respondents identifying them as a top three challenge. These two critical issues must be addressed together, not separately.
As governments across Asia consider economic recovery, there is an opportunity to balance complementary goals of increasing affordable access, realizing more resilient and reliable generation, and achieving sustainable outcomes that reduce carbon and promote economic opportunities for more people in the region. That said, such solutions — while keeping renewable energy targets on track for many nations — would still demand considerable policy, financial and market adaptation.
How could the energy mix change?
Thanks to many years of growth and prosperity, the past two decades have seen power generation ramp up, using a full range of technologies. While overall energy demand has grown by greater than 80 percent in Southeast Asia, for example, most of this growth has been met by increasing fossil fuel use. Considerable capacity growth in renewables — namely solar photovoltaic (PV) and wind — is underway in China and India, for example, and a number of countries in Southeast Asia have made progress on frameworks that have improved the deployment of renewable energy.
By the end of 2019, Vietnam’s feed-in tariff program saw 5.6 gigawatts (GW) of solar and 900 megawatts of wind installed while Thailand’s cumulative capacity was nearing 5 GW. Large Southeast Asian countries like Malaysia, Indonesia and the Philippines were set for further capacity additions pre-COVID-19. It is inherent on leaders globally to consider the importance of a balanced generation portfolio and how a mix of fuel sources contributes to reliable power supplies.
Asia’s electric grid is growing and maturing
Contrasting with our annual U.S. electric report, few respondents in Asia identified aging infrastructure as a major concern (Figure 2), reflecting the growth characteristics of electricity capacities and systems in the region. Most other concerns reflect significant framework change ahead including economic regulation, market structure (both joint third) and environment regulation (joint sixth) alongside systems changes including energy storage (joint third), grid congestion (joint sixth) and distribution system upgrade and modernization (seventh).
Expectation for new coal-fired generation is on the wane. As recently as 2018, Southeast Asia saw an increase in coal’s share of the power mix*. However, respondents hold relatively strong views on coal’s future investment decline, with more than 70 percent seeing much less.
Along with government, the investment community in Asia is the most influential stakeholder in driving change, and pre-COVID-19 it was already becoming more difficult to secure competitive financing for new coal facilities.
Views on the role of gas-fired generation remain more varied and positive across a number of survey questions.
This will likely leave room for renewable energy. Land-based solar, energy storage, microgrids and other distributed energy resources (DER) are the top three technologies set to gain the most from coal’s waning investments. This creates a compelling picture of Asia’s future grid where storage technology — which itself has seen major advances in both efficiency and cost reduction — will work dynamically with solar PV at either utility scale or as part of microgrids.
Financial sustainability post COVID 19
The question on how to fund these next generation of renewable investments as well as the level of funding, however, requires further consideration given the current milieu.
Disruption to supply chains and day-to-day operations as well as workforce controls at projects under construction will have inevitable knock on financial impacts. There are difficulties forecasting demand, and shifting load curves from increased residential use are producing daily loads similar to weekend patterns. There is less commercial and industrial sector consumption leading to revenue declines, and either increases in rates for customers or the need for further cost recovery support from governments. These constraints will tighten the ability of many of the region’s electricity providers to finance and deliver an affordable energy transition, particularly where struggles to recover cost will affect credit ratings and make borrowing in debt markets more challenging.
COVID-19 also has fundamentally changed how the electric industry thinks about the workforce as well as asset management. More than 80 percent believe it has either probably or definitely changed this viewpoint, and there is a significant acknowledgement that remote asset performance monitoring is needed, with health screening and monitoring systems also scoring high in potential usefulness.
A focus on operational efficiency ahead
Utility modernization could be at an inflection point in the region. The pandemic may serve as a catalyst for regional utilities, regulators and policymakers to begin implementing measures to modernize traditional models.
A shift to an operationally digital and more flexible grid would align with an increasingly distributed renewable energy system. This would also support a drive to more efficient electricity consumption, where significant opportunity exists throughout Asia, as well as more resilient generation and transmission systems capable of weathering ever-present risks of natural disasters prevalent in many locations.
While uncertainty prevails, the biggest drivers of any change in the electric industry will be from government, followed by the influence of the investment community and then customers. In the near term, electricity providers will continue to recalibrate their infrastructure planning and operations, which is likely to see rising renewable capacities but limited change to the overall generation mix.
For significant and sustainable change to be realized over the mid-to-long term, upcoming policy decisions — as well as the influence of the investment community and some large customers — will be critical. If these powerful forces come together, Asia can integrate new and more efficient technologies, and achieve more affordable, resilient and greener electricity supply.
About the Author
Narsingh Chaudhary is Black & Veatch's executive vice president in the company’s Asia power business leading solutions across conventional and renewable generation, transmission and distribution. Chaudhary joined Black & Veatch in June 2019 and has more than 25 years of experience leading various energy businesses in the Asia region and globally. In his former role with Siemens, he developed and implemented energy projects in multiple countries.