Achieving regional sustainability is a crucial objective and can be achieved through integrated action in areas such as cross-border connectivity, promotion of technology and a circular economy.
Cross-border interconnection plans
Regional integrated action is critical to a green transition, with the potential to achieve far greater impact than through independent actions taken by each country. Greater regional efforts would help to establish cross-border power grid connections, which would improve efficiency of power supply and help to secure more sustainable energy supply across the connected region. In terms of a green transition, regional interconnection enables more flexibility over site selection for large-scale wind or solar power plants, positioning these in the best place for energy-sharing with other countries. Some regional efforts are under way but are experiencing various challenges, as these examples show.
The ASEAN Power Grid
One of the more ambitious regional interconnection plans is the ASEAN Power Grid initiative whereby 10 ASEAN member states are aiming to integrate their respective power grids through cross-border transmission lines. The concept, formally adopted by ASEAN in 1997, was developed originally to respond more efficiently to rising energy demand and to encourage further economic growth, based on this enhanced regional infrastructure. Some progress has been seen on the connection between Cambodia, Laos, Thailand and Vietnam, and on that linking Thailand, Malaysia and Singapore. Yet, the initiative is expected to achieve only 5,000 megawatts (MW) of cross-border electricity transmission capacity out of a planned total of 30,000 MW by the end of 2020. With difficulties in coordination across the region, it is not clear how ASEAN member states plan to incorporate agreed targets into their respective national power development plans.
The IEA assessed the impact of accommodating viable renewable energy into increased cross-border connections and concluded that ‘cross-border interconnectors enhance the flexibility of the ASEAN power sector to accommodate an increasing share of renewables, particularly solar and wind. This allows a higher share of viable renewable energy to be integrated into the ASEAN power system in a cost-effective and reliable manner.’
To achieve the most efficient integrated electricity market it is vital to have multilateral electricity trade, where several parties trade electricity across the region when necessary.
Three major challenges lie ahead. The first is to ensure careful coordination to harmonize standards and operational regimes including state aid policies for the sector across the countries. The most difficult area is designing a multilateral electricity trading system, including the pricing mechanism. Most of the existing cross-border interconnections in ASEAN are backed by bilateral long-term power purchase agreements. These can be reached based on negotiation between the limited parties. Nevertheless, to achieve the most efficient integrated electricity market it is vital to have multilateral electricity trade, where several parties trade electricity across the region when necessary (for example, in the case where Malaysia purchases electricity from Vietnam via Cambodia and Thailand). The coordination of multilateral electricity trade is challenging as each country adopts different systems and policies for operation and pricing. Nevertheless, it is essential that ASEAN designs the power grid system taking into account lessons from power trading systems in other regions, such as the EU, but in line with its resources and capabilities.
The second challenge is to ensure that power grid integration supports the future development of renewable energy. Without an integrated policy, the interconnected network might rely on coal-fired power generation, as predicted by the IEA. ASEAN has set a renewable energy target of 23 per cent by 2025 under the ASEAN Plan of Action for Energy Cooperation 2016–2025. The IEA estimates that the energy demand increase will be largely supported by fossil fuels and, despite rising in absolute terms, the share of renewable energy will remain flat at around 15 per cent to 2025, well short of the current policy target. This implies the need for extra effort and support from strong leadership, beyond the scope of the current grid integration policy.
The third challenge is to establish how these projects can be financed. Cross-border projects require careful governance structure design, including clarity on ownership of transmission lines or other cross-border legal issues. An example of a successful partnership is the existing cross-border project between Thailand and Laos. The project company, owned by private companies and a Laotian state-owned enterprise, developed a hydropower plant in Laos and a transmission line between the two countries. Most of the generated electricity is exported to Thailand. Long-term power purchase agreements with Thailand’s credible state-owned enterprises secure future revenue using a predetermined pricing mechanism. There is also a clear public–private partnership mechanism including an ownership mechanism after the construction. Thanks to these mechanisms and agreements, the project has attracted investments from the private sector as well as project finance from commercial banks and public finance institutions, including the Asian Development Bank (ADB). The advantage of this structure is that both the power plant and transmission line can be simultaneously constructed under the single responsibility of a consortium of commercial companies.
Mobilizing private capital for the ASEAN Power Grid is vital to accelerate energy integration across the member states. The clear and simple structure in the Thai-Laos example was key in winning private capital and in benefiting from the capabilities of commercial companies.
GEIDCO
Beyond ASEAN, the Global Energy Interconnection Development and Cooperation Organization (GEIDCO), an international non-profit organization based in China, promotes the establishment of a global energy interconnection system. It advocates a modern system that is predominantly clean energy, globally interconnected and jointly constructed across a consortium of connected countries. GEIDCO’s role is to conduct research and organize seminars and conferences to build support for this agenda. The key technology to enable this cross-border connection in the region will be an ultra-high voltage (UHV) power grid, which would enable efficient distribution of energy across long distances without much energy loss. Similarly to the ASEAN Power Grid, the whole cross-border connection concept would enable optimization of the project site selection and maximize the potential of the green project. However, a big challenge remains regarding how to get multiple players across the world to agree to rely on this multilateral power supply network, particularly in terms of ensuring their national energy security. It will be challenging to build mutual trust across the region, particularly given that the project will likely result in heavier dependency on China. Furthermore, GEIDCO needs to give more details on how the UHV network can improve the efficiency of power distribution to enable deployment of large amounts of renewable energy.
At a smaller scale, the Chinese development of a domestic long-range UHV grid is a good trial to see how UHV transmission could mitigate GHG emissions by improving efficiency and driving investments in renewable energy. GEIDCO’s concept includes interconnections between China and ASEAN countries. China–ASEAN power cooperation via cross-border transmission lines aims to harness the hydropower potential across the Mekong region, and then export clean energy to China. This approach, however, needs careful consideration of side effects, including adverse downstream effects on biodiversity and water management along the Mekong river.
New technology and innovation
Innovation is another important factor in realizing green growth. Governments can play a vital role in promoting innovation in priority areas. For example, smart city development should look to incorporate energy efficiency, renewable energy and the circular economy, including waste management concepts, at the planning stage. Governments (either central or local) could incorporate development concerns as a bidding requirement whereby the private sector, particularly advanced technology companies, could compete on how effectively their products or business model can address sustainability issues.
Several challenges exist regarding more dynamic change on the energy supply side. Firstly, there are multiple approaches to improving and greening energy supply chains, many of which need government support to become commercially viable. From the perspective of policymakers, it is difficult to determine which technologies should be supported, given their limited budgets. For example, some companies promote coal-gasification technology or carbon capture, (utilization) and storage (CCS/CCUS) technology, while others are investing in the development of large-scale battery systems. Some governments also support hydrogen supply chains in their approaches to a green transition. Every technology contributes to the reduction of GHG emissions, but innovation can be expensive.
Secondly, cost sensitivity to electricity tariffs is generally high in developing countries. Some governments in Asia subsidize national electricity companies in order to ensure a supply of low-cost energy in low-income communities. As new technologies are often more costly, it is difficult for electricity companies to adopt them proactively without sign-off from their governments – particularly as, in Asia, such companies are often fully or partially state owned.
With continuous government promotion of renewable energy, one analysis suggests that by 2025 the average LCOE of solar photovoltaics could decrease by 59 per cent, and the LCOE of concentrating solar power could decrease by up to 43 per cent.
However, lessons can be learned from solar and wind power promotion. Government-led incentives have contributed to their market expansion, encouraging take-up of higher purchase prices than conventional energy through a guarantee of long-term fixed prices (known as a feed-in tariff). This market expansion has enabled a dramatic cost reduction coupled with improvements in the efficiency of solar and wind generation. With continuous government promotion of renewable energy, one analysis suggests that by 2025 the average levelized cost of electricity (LCOE) of solar photovoltaics (PV) could decrease by 59 per cent, and the LCOE of concentrating solar power (CSP) could decrease by up to 43 per cent. There could also be decreases in onshore and offshore wind, which could decline by 26 per cent and 35 per cent, respectively. This would enable renewable options to become more competitive than conventional energy and result in further shifts away from government subsidies.
Regionally targeted government efforts could help to nurture innovative technologies by stimulating new market conditions, despite the initial high start-up costs. Strategic promotion of green technology can typically be seen in the EU. The European Commission (EC) established the European CCS project network in 2009 where member states agreed to support up to 12 large-scale CCS demonstration projects. The EC also launched the European Battery Alliance in October 2017 and the European Clean Hydrogen Alliance, a network to foster development of clean hydrogen between public authorities, industry and civil society, on 8 July 2020. The findings from these private–public partnerships run by the EC will be key to realizing the deployment of new technology-based energy. Regional forums in Asia could take inspiration from EU initiatives to develop and promote new technology in their region.
In 2020, the carbon-neutral declarations by China, Japan and South Korea helped to produce a visible shift in momentum in Asia. Hydrogen has been highlighted as a promising alternative energy option to help achieve the carbon-neutral goals, with active policy promotion in all three countries. Similar moves were seen from ASEAN, in India, and in Japan’s cross-border supply chain pilot projects with Australia and with Brunei. Clean hydrogen deployment at scale will require supply chain development at the regional level including development of a hydrogen trade network. The East Asia Summit (EAS) in 2020 also highlighted innovative technology including hydrogen and CCUS.
Regional circular economy
The circular economy is another area where governments can play a critical role. The EAS is intensifying its efforts to conserve the marine environment by developing policies that include an integrated ‘land-to-sea’ approach, to reduce levels of marine pollution. The EAS regards promotion of resource efficiency including the circular economy, product life cycle management, and the ‘reduce, reuse, recycle’ (3R) approach as key factors to control the marine environment. The circular economy also contributes to good waste management and to mitigation of GHG emissions through reduced reliance on mass production.
The circular economy in Asia faces new challenges, which require regional solutions. One of these has been regional coordination over plastic waste. In the early 2000s, Japan, South Korea and China each promoted the circular economy. Japan set out the vision of the circular economy in a report, Creation of a Recycling-Oriented Economic System (Vision of a Recycling Economy) in 1999 and, in 2000, enacted or revised six laws relating to waste and recycling, including the Basic Law for Promoting the Creation of a Recycling-Oriented Society. South Korea developed its circular economy framework under the Comprehensive National Waste Management Plans and the Fundamental Plan for Resource Circulation. China enacted the Circular Economy Promotion Law in 2008. Notwithstanding this national-level action, plastic waste was managed primarily through a regional supply chain of end-of-life recyclable goods, exported to China. In 2018, China refused to continue accepting these plastics. Malaysia, Thailand, Vietnam, Indonesia and India all imposed similar bans. According to the UN Conference on Trade and Development (UNCTAD), in 2019, the import ban led to a 46 per cent reduction in global trade of plastic waste. The sudden change disrupted the global waste plastic chain and is believed to have caused an increase in illegal waste – just at the time when the problem of marine plastic waste was attracting global attention. As a result of these pressures, waste management and circular economy issues have now become a regional priority for Asia.
City waste management has benefited from regional joint action. Also in response to marine plastic pollution, UNESCAP has partnered with Japan on the Closing the Loop project to make plastic waste management more circular by both reducing the leakage of plastics into the marine environment and increasing the rate of recovery from such leakages. It aims to achieve this through simulations and training across ASEAN cities, as well as through smart technologies to monitor and manage plastic waste and to strengthen waste management systems. As with the power grid, the circular economy, including the 3R approach, works most effectively if designed at the regional level. Follow-up actions should therefore be more focused on discussion about the regional circular economy including recycling networks and waste management cooperation.
