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Boosting Southeast Asia’s cross-border electricity trade

01 June 2022

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Paul Burke is a Professor in the Arndt-Corden Department of Economics, Crawford School of Public Policy. His research interests include energy economics, environmental economics, and Asia-Pacific economies. He teaches IDEC8029 Issues in Applied Microeconomics and IDEC8053 Environmental Economics.

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Southeast Asian countries should focus on bilateral power purchase agreements and large-scale investments in solar and wind power to boost regional electricity trade, Thang Nam Do and Paul Burke write.

The Association of Southeast Asian Nations (ASEAN) has been working toward regional electricity interconnectivity through an ASEAN Power Grid (APG) since 1997.

Increasing connectivity could enhance the security of ASEAN’s electricity supply by enabling effective utilisation of resources across borders. However there are questions over the best way to achieve this.

The current ASEAN Plan of Action for Energy Cooperation 2016–2025 prioritises the expansion of multilateral power trade as part of the ASEAN Economic Community 2025 agenda.

However, according to our new research – carried out under The Australian National University’s Zero-Carbon Energy for the Asia-Pacific Grand Challenge project – it remains premature for ASEAN to move too ambitiously towards multilateral cross-border electricity trade. A better approach would be for the region to continue to predominantly focus on boosting bilateral contracting between individual ASEAN countries.

A bilateral approach based on power purchase agreements has a number of benefits. It involves fewer requirements for technical and institutional harmonisation. Bilateral negotiations are faster, easier, and more likely to receive and maintain political and industry support. The model is a good fit with the electricity market structures of countries such as Indonesia, given their heavy reliance on power purchase agreements.

By far the largest current electricity exporter in ASEAN is the Lao People’s Democratic Republic (Lao PDR), which exported 27 terrawatt-hours (TWh) in 2018 – 80 per cent of its overall electricity generation. This is mostly under bilateral arrangements with Thailand and Vietnam.

To date, only one multi-country project has commenced in the region: a pilot whereby Lao PDR exports electricity to Malaysia via Thailand. Singapore also plans to import 100 megawatts of power from Lao PDR under this arrangement. However this scheme is still rather small in scale and does not involve a deep form of multilateral integration.

Policymakers would need a long timeframe – perhaps extending beyond 2030 – to make adequate progress in addressing the challenges in the way of broader multilateral power trade.

For now, it would be better to look to grow regional electricity trade through largely bilateral means as success would be more achievable.

Cross-border electricity trade in ASEAN would also benefit from ensuring that new electricity generation is from sustainable sources. In particular, solar and wind power offer a huge opportunity. Indeed, Indonesia is already moving towards selling solar power output to land-poor Singapore, and a project in Lao PDR will seek to sell wind power output to Vietnam.

There will be some setbacks along the way. For example, in October 2021 Malaysia decided to limit the export of renewable electricity to Singapore in an effort to help facilitate domestic use of renewables. Strong bilateral contracts between partner countries could help to reduce the risk of such actions.

By focusing on bilateral power purchase agreements and renewables projects, ASEAN could make progress towards both bolstering and diversifying electricity supply and decarbonising the electricity mix. Doing so could build a foundation for a deeper form of regional integration in the electricity sector in the years to come.

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Updated:  3 October 2022/Responsible Officer:  Crawford Engagement/Page Contact:  CAP Web Team