ASEAN has long wanted to create an interconnected energy market but the project has yet to get off the ground. Thinking smaller may hold the key to long-term success.
The Formal Agreement on ASEAN Energy Cooperation signed by the bloc’s Member States in 1986 was the first attempt to build a framework that supported energy on a regional level. Efforts ebbed and flowed over the years. The establishment of the ASEAN Economic Community (AEC) in 2015 saw energy made a pillar of its goal to develop an integrated, competitive and resilient region.
An interconnected energy market is a potential solution. It can stabilise costs and allow for a greater reliance on renewable energy. With the 6th ASEAN Energy Outlook finding ASEAN’s energy demand will increase 146 percent by 2040, regional concepts are finally picking up support.
“There is a desire for an interconnected energy grid in ASEAN and this is gaining realistic traction. Now, there is a need to lay some groundwork. In Southeast Asia, you don’t always see collaboration between countries, especially in the energy sector. That approach is changing, however,” Mr Hans-Arild Bredesen, CEO at CEO Bredesen Consulting, reports. “Now, many countries have goals to decarbonise and work towards the green transition. These can drive further work on a single energy market.”
Collaboration is already being seen in some quarters of ASEAN. Commencement of the Lao PDR, Thailand, Malaysia, Singapore – Power Interconnection Project (LTMS–PIP) in 2022 allows 100 megawatts of hydropower generated in Laos to be supplied to Malaysia and Singapore.
Also in Singapore, Royal Group Power Company and Keppel Energy signed an energy purchase agreement that will see the city-state import renewable energy from Cambodia via submarine high-voltage transmission.
“The central region of Southeast Asia, including Thailand, Laos and Vietnam, has shown a willingness to start efforts on a connected energy grid. You also have projects such as the subsea cable between Cambodia and Singapore as another example of collaboration,” Mr Bredesen says. “These are important projects which show an interconnected energy market is possible in ASEAN.”
Mr Bredesen notes that the idea of the shared energy market is to maximise social welfare while meeting electricity demands in a region. That means there is a massive need for clean, affordable energy across Southeast Asia which must be supplied in a manner capable of minimising costs. He believes the successful implementation of an interconnected energy market can accomplish this along with providing greater stability to all participants.
“A shared energy market allows for a higher penetration for renewables. It is easy to absorb the clean energy generated over a larger area. This highlights another benefit for the region,” Mr Bredesen reports. “Smaller countries without a huge demand for energy can attract additional investments when connected to a regional grid as they have access to more consumption.”
Namibia is an example of the principle in action. The country, which is a member of the Southern African Power Pool, is seeing more investment in renewable energy because power producers have access to a regional market. He adds companies are confident they can tap into the country’s renewable resources and export electricity to other countries.
Starting smaller
While the AEC envisions a single, connected power grid between all ten member states, that may not be a viable starting point. Instead, the LTMS–PIP offers an outline of what these efforts can look like at the onset.
“A regional market doesn’t have to be one where all countries join simultaneously. All you need is a few interested countries to get things started and then others can be added when they feel comfortable. The priority should be starting,” Mr Bredesen states. “There is a belief you must have everyone involved from day one. In reality, it is possible to start smaller and grow over time. Don’t close the door on anyone who wishes to join in the future. Eventually, an ASEAN energy grid could be connected to China or India under the right circumstances.”
When it comes to the technical and operational aspects of a shared energy market, it would take roughly a year to get the project off the ground, according to Mr Bredesen. The timeframe is unrealistic, though, as several other time-consuming obstacles would need to be sorted.
“The legal framework and political approvals are what takes the most time,” Mr Bredesen explains. “It can be difficult to fully come to terms with just how a connected energy grid will work which isn’t ideal when you have stakeholders wanting certainty. For instance, politicians always want to know about how it is going to affect energy prices. You can run models, but these can’t always predict what will happen.”
One way to expedite action is through pilot programs, such as the LTMS–PIP, that allow all stakeholders to see how a potential system would work. These won’t solve everything but can be used as a reference point to build understanding. From here, the hard work begins.
“There is a need for a harmonised cross-border legal framework. Creating this is complex and takes time to develop. Then you have the operational aspect which requires coordination between countries,” Mr Bredesen details. “Most importantly, a mechanism to address problems, disputes and other issues must be built alongside the physical grid. Creating a system that everyone will be happy with doesn’t happen overnight, but this is how conflicts can be avoided in the future.”
An international practice that has helped regional markets get off the ground is the use of various forms of shadow trading, also known as dry-run simulations. Today´s access to existing software enables an easy yet still comprehensive setup of a shadow market, allowing interested parties to engage, test and see the potential effects of a regional market.
A shadow market also allows stakeholders to see the impact of increased interconnectivity or implementation of new transmission or generation capacity. Seeing this makes the effect of the regional market more tangible for all parties. In addition to that, an interconnected energy market in ASEAN should look to Europe and Africa for some answers. Namely, the bloc should strive for a decentralised solution.
“There needs to be regional cooperation but local control similar to what has been established elsewhere. Countries can operate their power markets while having access to cross-border trading. You want to find a balance that works best for everyone,” Mr Bredesen says. “It is a goal requiring everyone to work as they best see fit while agreeing to a regional framework which everyone abides by at the level.”
Process, not project
A common misnomer is that building a shared, regional power grid is a project and should be approached as such. Mr Bredesen stresses this is not the case.
“Market reform is a process, not a project. This is not something you work on and complete in a few years. There is a need for continuous development, something requiring time and resources. It takes a willingness to adapt and evolve over time,” Mr Bredesen notes. “Some see an interconnected energy market as an immediate revolution. You need to create and learn will approaching the process one step at a time. Stakeholders should have the ability to see how it works in a controlled manner. Power suppliers must be protected from any unintended consequences.”
In ASEAN, Mr Bredesen points out that a lot of capacity building and training are required so everyone understands how the market will function successfully. The right mindset can help as well.
“One thing you must have during the process is persistence. You must be willing to push past the stumbling blocks because they will always appear,” Mr Bredesen advises. “Additionally, it is advisable to possess a long-term strategy. Have a general idea of where you want to go. Don’t focus on specifics because that isn’t possible. Instead, chart a direction for the process.”
ASEAN can learn from other shared energy markets in operation and even possibly avoid common mistakes. The Nordics, for instance, understand the process, especially as it relates to the integration of renewables.
“Nordic consulting and services companies may find opportunities to support efforts in Asia. There are similarities between this region and the Nordic market which can allow for ancillary services to be exported as well,” Mr Bredesen says. “Ultimately, no two projects are the same though. It’s crucial not to approach this as a copy-and-paste job. Every location is different, meaning there will be unique challenges that require a new approach.”
Fact Box
- The ASEAN Economic Community made energy a pillar of its goal to develop an integrated region
- The 6th ASEAN Energy Outlook found regional energy demand will increase by 146 percent by 2040
- LTMS–PIP allows 100 megawatts of hydropower generated in Laos to be supplied to Malaysia and Singapore
- Shadow trading allows interested parties to engage, test and see the potential effects of a regional market
- Nordic consulting and services companies may find opportunities to support efforts in Asia due in part to market similarities
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