ASEAN Power Grid: A Critical Opportunity Amid Regulatory Hurdles

The ASEAN Power Grid (APG) stands at a crucial juncture, with its potential to catalyze regional economic growth increasingly recognized by business leaders across Southeast Asia. Originally conceived in 1997 under the ASEAN Vision 2020 blueprint, the APG aims to interconnect the electricity networks of member states to enhance energy security and economic integration. Recent geopolitical tensions, particularly the US-Iran conflict, alongside rising energy demands and the push for decarbonization, have intensified interest in the APG as a vehicle for clean energy trade.

A survey conducted by The Business Times Insights revealed that over 70% of 514 regional business leaders said that meaningful progress on the APG would increase their willingness to invest and expand within the region. Indonesian businesses exhibited the highest optimism, with 84% expressing optimism, followed by firms in the Philippines and Malaysia at 70% each. However, despite this optimism, significant regulatory challenges remain, which could hinder the APG's development.

One of the main obstacles is the lack of regulatory clarity necessary for making energy projects bankable. For instance, while Singapore has granted conditional licenses for six projects to import clean power from Indonesia, regulatory complexities have led to delays. Jakarta's licensing rules require power exporters to renew permits every five years, a timeframe that many stakeholders find overly restrictive. This uncertainty undermines investor confidence, as highlighted in a report by the Singapore Sustainable Finance Association.

Moreover, the absence of enforceable electricity-trade agreements between governments and the lack of a standardized framework for recognizing renewable energy certificates across borders further complicate matters. A recent report from Wood Mackenzie suggests that Singapore may fall short of its target to import 6 gigawatts of low-carbon electricity by 2035, despite having granted multiple project approvals.

Energy think tank Ember said that every year of delay on the APG beyond 2035 will cost the region US$2.6 billion. The challenge for each government lies in balancing the need for energy exports with ensuring reliable and affordable power for their citizens. For example, Laos, which aims to position itself as the “battery of Southeast Asia” through hydropower exports, faces internal challenges with frequent blackouts.

In light of these challenges, Indonesia has indicated a cautious approach, stating it will hold off on finalizing APG deals until terms are mutually beneficial. Even when agreements are reached, the need for consensus among third-party countries involved in electricity transmission complicates the process. This was evident in the Laos-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP), which faced delays due to disagreements over transmission routes.

Sentiment regarding the APG's near-term prospects is mixed. In the BT Insights survey, 80% of Vietnamese businesses expect meaningful progress in the next three to five years, but firms in the Philippines and Malaysia are more cautious, at just 54% each. Some industry players advocate for smaller, incremental agreements as a more pragmatic approach. Mike Ng, Chief Sustainability Officer at OCBC, suggested that bilateral agreements could serve as stepping stones, saying that as the process is repeated, project by project, corridor by corridor, the APG may emerge organically.

Nevi Cahya Winofa, a renewables and power research analyst at Rystad Energy, noted that Singapore’s power import projects could build investor confidence and serve as a model for future cross-border projects, referencing the Brunei-Indonesia-Malaysia-Philippines Power Integration Project.

Furthermore, the APG's potential to provide clean energy access could play a significant role in the region's competitiveness in the artificial intelligence (AI) sector. Sanjeev Gupta, ASEAN and Singapore energy leader at EY-Parthenon, remarked that the winner in AI won’t just be those with the best platforms or the technology they build; they will be the ones who also have access to efficient, reliable, and increasingly, clean energy.

As Southeast Asia grapples with urgent energy demands and the global energy crisis, the APG presents a significant opportunity for regional collaboration. However, if the window for action is missed, the initiative risks stagnation, leaving the region to navigate a fragmented energy landscape.