Southeast Asia has been hit harder than anywhere else on Earth by the energy crisis stemming from the War in Iran, leaving many nations scrambling to shore up localized energy supply chains. The newfound volatility in global energy markets has catalyzed the clean energy transition worldwide, but particularly in cash-strapped, import-dependent nations, of which there are many in Southeast Asia. But the rapidly developing region’s ageing and overburdened grids are ill prepared for a quick build-out of indigenous renewable energy capacity, threatening energy security and transition capabilities in the near term.
When the Strait of Hormuz closed down in February of this year, 20 percent of the world’s oil and gas flows were cut off overnight, leaving many energy importing countries in the lurch. But no region was hit harder than Asia. Of the approximately 20 million barrels of oil and oil products that passed through the Strait on any given day before the the United States and Israel began a military offensive in Iran, about 80 percent of oil and 90 percent of natural gas exported through the channel were destined for Asian markets.
Southeast Asia was particularly vulnerable to the resultant price volatility due to the region’s comparatively high dependence on energy imports and low economic capacity to absorb market shocks. In the months after the closure of the Strait of Hormuz, the Philippines declared a national energy emergency, and governments across the region turned to energy rationing, work-from-home mandates, and even four-day work weeks to manage the strain on finite energy sources and an overstressed grid.
The same crisis has also kickstarted an overdue renewable revolution that will ultimately result in a more energy-secure, independent, and autonomous energy landscape. But that renewable revolution is at risk of failure if Southeast Asian nations don’t expand and reinforce their energy grids as a matter of top priority. In fact, the region’s beleaguered and fragile grids are already reportedly deterring billions of dollars in planned clean power investments.
According to a recent report from Climate Home News, “inadequate grid capacity and maintenance is already proving a major factor in the region’s stuttering rollout of new clean energy projects.” The report also points to “issues ranging from unclear power purchase agreement (PPA) structures, a failure of power policies to keep up with investor needs, permitting and licensing approval delays, grid connection constraints, limits to private sector involvement in electricity markets, and policy and tariff uncertainty.”
While green energy investing has shown massive growth in the region in recent years, many projects have also stalled out or been cancelled in recent years, in large part driven by concerns about whether the grid can handle the extra capacity. Even some of the region’s newest grids have had critical failures in recent months, indicating widespread fragility and a lack of infrastructural resilience.
As a result, a huge number of planned renewable energy projects across Southeast Asia have stalled out in recent years. A report published in May by consultancy Bain & Company and Standard Chartered notes that, from 2021 to 2025, between 50 percent and 60 percent of renewable energy projects in Vietnam, Thailand and Indonesia were cancelled or stalled.
The Bain & Company report states that, in addition to the energy stress introduced by the war in Iran, Southeast Asian grids have many more issues and demands to contend with as a result of rapid economic development. “More than 100 TWh of new electricity demand is expected to arrive by 2030, driven by data centers, electric vehicles (EVs), and industrial clusters,” the report finds. “However, while demand from these sources is set to materialize in one to three years, grid infrastructure takes five to fifteen years to build. This mismatch has made the grid a key binding constraint that increasingly determines where capital flows.”
By Haley Zaremba for Oilprice.com
