Grid connectivity challenges in Southeast Asia

Summary

Grid planning and investment are beginning to receive due attention in Southeast Asia, following decades of taking a back seat in generation-focused power development strategies that are now hindering fast and scalable decarbonization progress across the region. The investment case for greenfield clean energy assets has been compromised by the lack of visibility on future deployment of associated grid infrastructure.

Emerging policy discussions in Indonesia, Vietnam and Singapore demonstrate that energy planners in the region are actively evaluating new system design options alongside generation choices, with a focus on high-priority investment in long-distance high-voltage transmission cables that can carry renewable energy from resource-rich areas to socio-economic hubs.

Modelling tools like TransitionZero’s Model Builder UI are designed to support energy planners and stakeholders in Southeast Asia adjust to this new paradigm for power system design.

Singapore’s role in rewiring the regional cross-border power network is worth watching. The recently proposed subsea interconnection projects are formidable economic and technical endeavours and the city-state and its utilities are in a strong position to move the projects forward. Singapore’s power planning decisions seem certain to be a catalyst for regional power planners to embrace open-source energy system models that can map a new class of interconnection design options.

A growing consensus on grids

There is a growing global consensus that grid underdevelopment is a key barrier to faster and broader renewable energy adoption.

To create a more robust picture of the potential of grid interconnection, over the past twelve months, TransitionZero has modelled regional and global grids to examine how more interconnected electric grids could support cost-effective transition pathways. Using the Model Builder UI – our flagship energy systems modelling tool – we were able to build scenarios based on differing assumptions about the scale of transmission build-out, either within or between countries. The stylized results then enabled comparisons across power system development pathways and the price tags associated with each transition scenario.

We investigated how interconnection would affect a country’s capacity mix by a chosen timeline, for instance 2040, if it is opened to electricity imports from neighbouring areas. Interconnection scenarios also shed light on how the grid’s carbon emissions might change compared to a baseline scenario with a status quo domestic power system. In addition, Model Builder answered the big question about changes to total capital expenditure, even when accounting for investments in new or enhanced interconnectors.

These are the sort of queries that Model Builder seeks to analyse. Among other things, our tools help to quantify the trade-offs between different grid expansion scenarios, while also offering better visibility on the most consequential drivers of specific policy outcomes. Open and regular access to this type of information is a crucial enabler of well-informed debates between stakeholders focused on different power sector design options.

Southeast Asia looks for more flexibility

Interest in grid planning and investment is picking up momentum in Southeast Asia. This is taking place as new sources of clean power and green hydrogen change planners’ assumptions about where electricity may be generated most cost-effectively and with the least carbon footprint, while countries like Singapore and Vietnam step up to support electricity import strategies at greater scale. The double challenge of generation constraints and the need for modernised green grid capacity is stretching energy planners across the region.

Vietnam has come to the realisation that grid investments must be an integral part of a renewable energy growth strategy, and it has done so the hard way. The country was able to deploy an impressive 20GW of solar and wind power capacity in just three years – between 2019 and 2021 – but failure to match this influx of variable generation capacity with grid upgrades has resulted in under-utilisation and even stranding of some renewable energy assets in congested areas in the south. This is particularly unfortunate as the curtailment is taking place while Vietnam is facing supply challenges in the country’s coal-dependent northern provinces. Vietnam’s ability to absorb more renewable energy in the coming years, and to phase down over-reliance on inflexible fossil fuel options, will rest on how efficiently existing transmission bottlenecks can be addressed. The government’s recent push to expedite the financing and construction of complex projects such as the $1 billion 500kV transmission line (third circuit) spanning nine provinces from Quang Binh to Hung Yen reflects this awareness. Targeted for completion by June 2024, the project is expected to double the transmission capacity from the central region to the north to 5GW, thus helping to alleviate supply constraints in the north the coming summer.

Meanwhile in Indonesia, the world’s largest archipelago state has recently signalled a step change from the previous generation-centric systems development mindset that resulted in over-investment in coal-fired power capacity on the Java grid over the past decade. An energy transition planning process carried out under the auspices of the Just Energy Transition Partnership (JETP) is now ushering in a re-design of Indonesia’s power system, away from one that has consistently prioritised localised generation and demand-supply balance. The goal is to capitalise on the country’s rich hydropower and geothermal resources, such as those in Kalimantan or Sumatra, and bring them to load centres like Java. New high-voltage transmission cables, both within and between the main islands, are expected to play a vital role in Indonesia’s transition journey.

For both Vietnam and Indonesia, funding for transmission projects is among the top priorities in their JETP packages. The current state of their grid infrastructure reflects legacy policy decisions made in previous decades that were based on system design principles which no longer meet today’s technology options or clean energy needs.

Indonesia and Vietnam are not the only countries in Southeast Asia to be shifting away from generation-focused planning to a more holistic system design approach that prioritises transmission development to speed up the integration of more renewable power. With the exception of Laos and Cambodia, most national power systems in Southeast Asia today are highly skewed towards baseload coal and gas-fired dependency with local grid infrastructure and limited interconnection. The historic preference for local electricity generation has dominated even if this meant that the coal and natural gas that fuelled the generators had to be imported from distant coal mines, offshore gas fields, or liquefied natural gas terminals. Most countries have been generally comfortable importing fossil fuels in large volumes but kept regional talks and initiatives on cross-border electricity cooperation at a high level.

The small scale of long-distance transmission infrastructure that we see today is both a cause and consequence of this planning mindset. However, power system planners across the region are now looking at new options. Southeast Asia has excellent renewable resources and is under pressure to make progress on net zero emissions goals. At the same time, growing energy security and reliability concerns have pushed the planners to map out new interconnection options to support cross-border electricity imports.

The Singapore experiment

Singapore’s role in driving this change is worth watching. Over the past two years, Singapore has been the force behind an unprecedented number of new policy announcements and business cooperation initiatives that could help Southeast Asia break new ground on cross-border grid connectivity and electricity trade.

Singapore’s 2050 net zero blueprint underpins this strategy shift. Released in March 2022, the plan targets clean electricity imports as one of the “Four Switches” to help shift the city-state away from today’s near-full dependency on natural gas imports and generation. To support this decarbonization strategy, Singapore must import 4GW of low-carbon electricity by 2035, which would make up a third of total supply. In response, the country’s regulators, utility companies and regional partners are charging ahead to make this vision a reality.

Anticipating possible deals with Singapore, in 2023, the government of Malaysia lifted its earlier ban on clean energy export to neighbouring markets. Indonesia, despite keeping its ban in place, has kept communication channels open to support enhanced cross-border collaboration with Singapore in the coming years. Vietnam has also warmed up to the prospect of selling electricity to Singapore and granted the country’s first seabed survey permit to an offshore wind project dedicated to exports to the city-state. At home, Singapore’s regulators launched bids and subsequently awarded a series of preliminary import approvals to sponsors and renewable energy projects to be developed in Cambodia (1GW of import capacity), Indonesia (2GW), and Vietnam (1.2GW). If plans stay on track, the first projects are expected to deliver electricity to Singapore as early as 2027, from the nearby Riau Islands of Indonesia.

Singapore’s ambitious import plans will serve as a test case for both the economic and technical challenges associated with long distance electricity transmission. Based on information available to date, Singapore is considering high-value investments in submarine high-voltage cables, some expected to span distances as far as 1,000km – more than the world’s current longest Viking Link connecting the United Kingdom with Denmark – any of which, if realised, would be the first of the kind in Southeast Asia.

The initiatives have also drawn attention to the existing power trading landscape in the region. Trading electricity across borders is by no means a new practice in some parts of Southeast Asia. Aided by geography, neighbours in mainland Indochina have been buying and/or selling power via cross-border interconnectors for many years, even though bilateral trading volumes vary significantly by country. The largest beneficiaries have been Laos, Thailand and Cambodia, whose imports account for 12-18% of total domestic demand. But even if trading volumes are limited, partners have generally benefited from complementary energy resources and usage patterns on either side of a border due to seasonal or time-of-day demand differences.

Relative to regional peers, Singapore is a latecomer to the scene, having just trialled its first electricity import in June 2022. Under this two-year pilot program, hydroelectricity generated in Laos is transmitted, or “wheeled”, to the city-state through the existing power networks of Thailand and Malaysia.

For the region as a whole, this event was a milestone as it marked Southeast Asia’s first multilateral transaction after more than two decades of discussion by regional regulators and utilities to foster better grid connectivity via the so-called ASEAN Power Grid initiative. Efforts to make progress on coordinated grid development have languished due to a wide range of technical, cost and financing complexities. Against this backdrop of policy uncertainty, Singapore’s move to double down on bilateral opportunities and alternative transmission routes stands out as a pragmatic risk mitigation plan.

The novelty of the recent Singapore-led initiatives is that they are bringing into play new, meaningful export markets for low-carbon power, beyond Laos and the conventional – and at times controversial – hydropower sources. The scale of export and deployment via new subsea transmission infrastructure is striking, particularly given the 2035 timeline. Notably, the proposals deviate significantly from existing national plans and regional interconnectivity studies (i.e. on the ASEAN Power Grid) which have until now focused on enhanced on-land interconnectors wheeling electricity from mainland Southeast Asia to the Malay Peninsula.

Nonetheless, Singapore’s proposition is uniquely attractive given the city-state’s willingness to invest, its liberalised power market structure, and cost-reflective retail tariffs. The early involvement of prominent companies like Keppel Corporation and Sembcorp Industries, who are well-positioned to raise financing and execute large scale infrastructure projects, suggest that these path-breaking cross-border power projects have the potential to succeed.

A new normal requires better modelling

The combination of serious grid constraints across Southeast Asia and new power trading initiatives by Singapore is poised to change the way that regional planners and a diverse group of power sector stakeholders think about what the region’s power system will look like in 2030 and beyond.

The constantly shifting landscape – and outlook – also serves as a reminder that it’s time for regional analysts to move past the outdated view that standard 10-year national master plans can safely be treated as a fixed blueprint that will reliably guide funding for power asset investment decisions. In recent years, the market has observed growing gaps between the plans and the reality on the ground as planners struggle to match volatile demand forecasts and tariff pressures with an evolving menu of generation options. Modular clean energy solutions have proven their ability to deliver targeted capacity to the grid on tight timelines while traditional fossil fuel options have longer lead times, higher project development risks, lagging emissions impacts, and significant associated infrastructure costs. While new options for curbing emissions like flexible coal-fired power generation, biomass and ammonia co-firing, and carbon capture have their merits, neither the technology nor the cost profile of these options is easy to forecast.

As a result, power sector planning cycles across the region have been disrupted with many pivoting to address short-term system constraints as governments are forced to respond to new market variables and policy priorities.

For instance, host countries like Cambodia, Vietnam and Indonesia – whose planning processes are not in sync with that of Singapore – should be in a position to assess whether they can capitalise on Singapore’s newly proposed generation and interconnector projects. Is there any merit in accommodating these export projects in the local grids, or shall they remain secluded? Meanwhile for Malaysia, which aims to become the regional electricity trading hub, its planners and industry players should be prepared to revise the country’s solar investment plans as and when the outlook on Singapore’s import demand from Malaysia changes.

Instead of remaining rigidly focused on predetermined medium-term power development plans, energy planners and policymakers stand to benefit from a nimble and iterative process for testing and adjusting systems development scenarios when new technologies and policy priorities emerge. Furthermore, as planning processes in Southeast Asia become increasingly decentralised from central government to provincial or state-level authorities, this broader group of stakeholders will also need to be equipped with more sophisticated technical capabilities and modelling resources.

This is where our energy systems planning tools, like Model Builder, come in; to facilitate an inclusive and responsive approach to the analytical challenges that now surround power system planning. Model Builder allows decision-makers to ask a range of “what if…” questions to comb out the impact of different assumptions on future power system development scenarios. What if Singapore goes ahead with interconnection projects to support clean power purchase deals in Cambodia, Indonesia or Vietnam? What if Vietnam gives the nod to more wind power imports from Laos and how would this new capacity affect the investment case for domestic generation sources? What would be the impact on the grid’s carbon emissions in each scenario, and how would that affect physical investments by global corporations with decarbonization targets setting shop in these markets?

Our Model Builder interface will offer planners, project sponsors, or corporate buyers a chance to build their own models, stress test key assumptions on demand growth, capacity expansion, technology cost, fuel prices or transmission capacity, and compare the outputs to government targets or the well-established net zero and lowest cost scenarios.

Southeast Asian governments are signalling new intent in building a more interconnected electricity network in the region. The final architecture around each generation and cross-border grid project will ultimately be a reflection of the specific context, preferences and priorities of the nations involved. TransitionZero’s open-access energy systems analytics tools are not meant to prescribe policy choices on behalf of the energy planners, but to empower them and support country-led power system transition plans.