ASEAN's energy evolution: Market liberalization vs. state control

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Freeing renewable energy in Southeast Asia’s electricity markets

Electricity market liberalization is needed for states to accelerate energy transition. (Photo: iStock)

Most ASEAN member states have declared national carbon neutrality targets and renewable energy goals (Graph 1). However, translating these commitments into actionable strategies varies widely across the region and demand electricity market liberalization. The Philippines has set some the most ambitious renewable energy targets in the coming decades, but together with Indonesia, is the most coal-reliant country in Southeast Asia, with coal generating 62% of its electricity.

As businesses seek to expand sustainably in emerging economies, understanding the power market structure and regulatory environment become crucial. Southeast Asia, with its dynamic economic landscape, presents unique opportunities and challenges. This article provides a comprehensive view of market readiness to meet renewable energy demand vis-à-vis national targets by analyzing the electricity market structures across ASEAN countries.


Why does market liberalization matter?

As much as vertically integrated markets are apt for ensuring long-term price and capacity stability, such market structure falls short in providing market competition in meeting affordable renewable energy demand. The biggest reason for this is new investments into renewable energy may be held back by state-owned utilities’ long-term investment in conventional fuels. In short, with the right policy support, market liberalization would accelerate the development renewable energy increasingly sought by businesses.

Degree of electricity market liberalization in ASEAN

To comprehend the readiness of ASEAN states in supporting corporate decarbonization goals, we first need to understand their electricity market structures. Electricity market structures in ASEAN can be broadly categorized into regulated, deregulated, or hybrid/transitioning as shown in the table below. Transmission and distribution of electricity are controlled by one or few state-owned entities in most countries in the region. In terms of market liberalization, Singapore is the front runner with multiple private generators and retailers that utilize the state grid for transmission.

There is a general pattern to how countries gradually liberalize their electricity markets. The first sector to open up for competition and new capacity is in generation, mainly driven by the need for private sector’s participation to invest in low-carbon energy sources to meet corporate demand and national targets. The generation sector is the first to unbundle, transmission is largely owned and operated by incumbent state-owned utilities due to infrastructure investment and grid security reasons, and then the retail sector is the last and often most difficult point to liberalize. In fact, almost all ASEAN states have some degree of IPPs participation and all but the Philippines have state-owned and operated grids for transmission. Only Singapore and the Philippines have competition in renewable energy retail. 

Significant differences in regulatory frameworks, the degree of market liberalization, and the presence of independent power producers (IPPs) exist across ASEAN states. Countries with higher degrees of liberalization, like the Philippines and Singapore, tend to have more competitive and transparent markets, facilitating easier access to renewable energy for corporates. Due to market maturity in these two countries, corporate consumers face less regulatory hurdles to enter PPAs to lock in long-term prices, although they may be confronted by other problems like outdated grid infrastructure and the lack of renewable energy supply respectively.

Countries like Thailand, Vietnam, and Indonesia on the other hand, also have considerable proportion of IPP generation in the power supply (Graph 2) but adopt the Single Buyer model, whereby one or few state utilities purchased distribute the power generated by IPPs, limiting space for price competition in the retail sector. EGAT in Thailand, TNB in Malaysia, and PLN in Indonesia are prominent examples of state-owned utilities with significant control over their respective electricity markets. 

Graph 2. Proportion of IPP Power Generation in Total Electricity Generation

State-owned utilities: Support or hindrance?

The role of state-owned utilities can be a double-edged sword. While they provide stability and infrastructure, their monopolistic control can stifle competition and slow down renewable energy integration. For instance, in Indonesia, PLN's control over the market has been a significant barrier to the entry of new renewable energy projects, despite the government's ambitious targets. The dominance of state-owned utilities in these models hence impacts the ability of corporates to procure renewable energy directly, affecting their decarbonization efforts. Corporates may face restrictions on entering into direct Power Purchase Agreements (PPAs) with renewable energy producers, limiting their options for sourcing green power. On the contrary, competitive and liberalized markets generally offer consumers more flexibility in terms of mechanisms and suppliers compared to regulated and single buyer models. 

Silver lining in Vietnam and Thailand: Direct PPA

There’s also good news. Parallel to the limitations imposed by the Single Buyer model are programs that help facilitate corporate PPAs and better utilize local renewable resources. Two countries in particular are taking strides in liberalization transition. After seven years of discussion, Vietnam has begun to allow for corporates to procure energy from renewable energy developers through PPAs, bypassing EVN. This is significant step towards market liberalization while encouraging private investment for grid infrastructure in places where grid performance is suboptimal. Thailand takes on a more nuanced approach to lower the threshold of high CAPEX of solar installation through rooftop leasing, in which commercial and industrial (C&I) consumers lease their roof space for solar developers and sign PPAs for the electricity generated. For now, there is no clear cut direct PPA mechanism in Thailand, but the Energy Regulatory Committee is implementing pilot project as a response to foreign investor demand by yearend. 

Unlocking ASEAN's renewable energy potential

Much has been promised for low-carbon transition in Southeast Asia, including greening the power supply as countries in the region expect continuous demand growth in the coming years. When putting actions against words, we see positive progress in market liberalization in some countries and much room for change in the rest.

Electricity market liberalization is needed for states to accelerate energy transition. A free market encourages the participation of private actors that are interested in the business opportunities from low-carbon energy transition. By understanding the market structure and changes within each ASEAN state, corporates can better navigate the renewable energy landscape, contributing to their decarbonization goals and supporting the region’s transition to a sustainable energy future.

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