Southeast Asia remains heavily reliant on coal to meet its energy needs, and although some countries have embarked on initiatives to phase out coal-fired power, they will have to overcome considerable obstacles.
Coal is still projected to be the region's second-largest source of energy by 2030 after oil, according to the Asean Centre for Energy's 8th Asean Energy Outlook, released last month. The IEA expects southeast Asia's power demand to rise by 5pc/yr through 2026, with most of that additional demand to be met by fossil fuels. It sees coal's share of the regional power mix edging down in the coming year, but absolute coal-fired generation rising by 4pc/yr through 2025.
Regional coal dependency rose to 33pc in 2023 from 31pc in 2022, according to energy think-tank Ember. Coal's share of the mix in Indonesia hit a record 61.8pc in 2023, while its share in the Philippines rose to 61.9pc, making them the region's two most coal-reliant countries. Vietnamese demand is also growing fast, with coal accounting for 57pc of generation in the first half of 2024.
But Indonesia and the Philippines have also begun to take steps to reduce their coal dependence, in line with decarbonisation targets. The Monetary Authority of Singapore (MAS) last year launched the Transition Credits Coalition, to use carbon credits for the early retirement of coal-fired plants. Philippine energy firm Acen aims to use the transition credits to accelerate the retirement of the 246MW South Luzon coal-fired facility, and replace it with a clean energy dispatch facility.
Indonesia joined the Just Energy Transition Partnership (JETP) in 2022, putting it in line to receive $20bn from international financing partners. Under the JETP, a bank provides a loan to buy the coal-fired plant from the current operator, which receives compensation for debt equity and profits foregone for selling the asset for its early retirement, energy finance specialist at the Institute for Energy Economics and Financial Analysis, Mutya Yustika, told Argus. But the JETP has not been successful because policy makers want a higher proportion of grants than loans, Mutya added. Efforts to retire regional coal-fired plants early have yet to scale up because of a "heavy reliance on concessional capital", which is not enough to mobilise the necessary private capital to finance Asia's large and young fleet of coal-fired plants, a joint report by MAS and consultancy McKinsey said.
Locked in and loaded
Private sector financiers are also more interested in investing in renewable energy assets that generate returns, Mutya said, rather than taking on a polluting asset until it shuts. The JETP has motivated Indonesia to develop a comprehensive investment and policy plan, but the plan remains aspirational and lacks a clear strategy for implementing investment, Mutya said.
Coal plants in southeast Asia are on average less than 14 years old, according to a 2023 report by Climate Analytics. Phasing out young plants is challenging because of recent investments and unpaid debt, so this could lock in their emissions for decades. About 60pc of coal plants in south and southeast Asia are financed by state-owned utilities or based on a single-buyer model, which "shields them from market competition", Climate Analytics said. Most power purchase agreements with state utilitiesin Indonesia and Thailand extend beyond 2030. And Jakarta has yet to signal a move away from coal reliance, while public ownership and state officials' shareholdings in mining operations might complicate this, Mutya said.
China, Japan and South Korea dominate financing of regional coal plants, and their support checks renewables' expansion, Climate Analytics said. Unless governments and private-sector investors can reduce risk and raise concessionary funds, new coal-fired generation could stay in the region's energy mix until 2030.
By Prethika Nair and Tng Yong Li
