Climate of change: Green versus black

'We're reaching a tipping point'

Mr Tim Buckley, director of Energy Finance Studies, Australasia, for The Institute for Energy Economics and Financial Analysis. PHOTO: IEEFA

This is an interview with Mr Tim Buckley, director of Energy Finance Studies, Australasia, for The Institute for Energy Economics and Financial Analysis (IEEFA).

Q: How does renewable energy capacity in Asean compare with other parts of Asia?

A: For South-east Asia, 2017 total non-hydro renewable energy capacity was 17 gigawatts (GW), up only 1GW on 2016, which was up 2GW on 2015, according to the latest International Energy Agency's (IEA) World Energy Outlook calculations.

So renewable energy installations in South-east Asia have materially underperformed relative to China, which added non-hydro renewable energy of 70GW in 2017; India, which added 14GW of renewables in 2017; and even Japan, which added 8GW in 2017.

But the IEA's new World Energy Outlook 2018 report predicts this will change dramatically over the coming two decades. It forecasts non-hydro renewable energy will rise eight-fold to 131GW in South-east Asia, or 21 per cent of total capacity by 2040 under its New Policies Scenario (NPS) - which assumes the world fails to stop climate change. And it could rise 24-fold to reach 50 per cent of total South-east Asian installed capacity by 2040 on the Sustainable Development Scenario (SDS) - which gives the world a 50 per cent chance of limiting temperature rise to 2 deg C.

The IEA has revised up South-east Asian renewable energy forecasts by 25 per cent to 131GW for 2040 under the NPS, and 30 per cent to 407GW on the SDS in just the last 12 months.

To IEEFA, the magnitude of the revisions highlights the massive deflation of renewable energy costs, a belated recognition of the unstoppable technology-driven disruption well under way in China, India, the United States, Taiwan, South Korea, Europe, Mexico, Brazil and Australia, and now clearly headed towards South-east Asia, notwithstanding the lack of a clear energy policy framework.

Q: How seriously do you think Asean countries see the advantages and need to boost renewable energy investment? Are you seeing adoption of the right policies?

A: Currency devaluations, a doubling of thermal coal prices, double-digit annual renewable energy deflation and reduced willingness by Japan and South Korea to provide state-subsidised capital to support new coal-fired power plant build-outs all undermine the growth profile of thermal coal across South-east Asia.

To date, we have not seen any consistent, clear, sustained policy commitment towards renewables in South-east Asia. Energy security concerns, economics and expanding fossil fuel-driven current account deficits should push South-east Asia towards domestic renewables. This makes a shift to renewable energy inevitable.

South-east Asia has been a laggard, but with developments in Japan, South Korea, Taiwan and India during 2018 all illustrating the magnitude of shift achievable, IEEFA expects South-east Asia to dramatically accelerate renewable energy deployments over the coming decade. This can be materially assisted by the adoption of the right policies.

Q: Also, what else needs to be done to enable greater renewable energy investment in the region?

A: So far, we have not seen the use of transparent reverse auction tendering in South-east Asia. India has proven this model, achieving a price reduction of 50 per cent for wind and solar since 2016. Transparent reverse auctions dramatically reduce the scope for corruption. Once this deflation is proven in the local context, finance for new coal-fired power plants is likely to evaporate.

Q: Would you say renewables have finally reached a tipping point in Asean in terms of being a much more attractive alternative to meet the region's energy security needs?

A: They are approaching a tipping point in South-east Asia. Renewable energy is not there yet, but it is rapidly approaching. And India has shown that once renewable energy reaches grid parity, the deflation doesn't just stop. Renewable energy in India is now 20 per cent below domestic coal-fired power costs, and half the cost of imported coal-fired power.

This makes the coal versus renewable energy fight very one-sided. Renewable energy has a zero marginal cost of production, so once built it will invariably win the fight. That time is rapidly approaching for South-east Asia, with all the associated benefits of decarbonisation and reduced air and water pollution, improved energy security and reduced current account deficits.

Find out more about climate change and how it could affect you on the ST microsite here.

A version of this article appeared in the print edition of The Sunday Times on November 25, 2018, with the headline 'We're reaching a tipping point'. Subscribe