Opinion

How will dynamics shift in Asia Pacific’s power markets?

Still the engine room for growth, but there are challenges ahead

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With contributions from Alex Whitworth, Neoh Zi Sheng and Rishab Shrestha

Asia Pacific is the engine room for global power and renewables growth. Over the past five years, the region contributed over three-quarters of global demand growth for electricity. And it will account for nearly two-thirds of global power demand growth to 2050.

Has coronavirus put the brakes on, or is APAC still on course to outpace demand in all other regions combined in the next 20 years? And which markets and technologies will drive the US$1.5 trillion in investments that are expected by 2030?

At our recent Asia Pacific energy summit, we discussed the future of the region’s power markets and the dynamics that will shape them. Read on for the highlights.

Subscribers to Wood Mackenzie's services can access the full archive of APAC Energy Summit presentations here.

Where are the main opportunities for growth?

Traditionally, Asia Pacific has drawn about 60% of its power supply from coal. As that’s phased out, gas will be an important bridging fuel, but it will face increasing competition as renewables gain in popularity.

Renewables represent a US$1 trillion opportunity through to 2030. Offshore wind and distributed solar will be two of the biggest growth markets, while battery storage is growing at a rapid pace and is expected to increase at a CAGR of ~40% by 2030.

Market shifting to costlier power sources

Gas, offshore wind and distributed power are among the more expensive power generation and supply options. But there are signs that at least some parts of APAC are starting to behave like wealthier Western markets by demanding cleaner, lower-carbon alternatives and being willing to pay for them.

Governments are focused on diversifying the power mix and are broadening out their power sources. For example, offshore wind is reliable and consistent in comparison to other renewables. Although it is more expensive, it will help to bridge the gap as thermal power is replaced.

Profitability will come under pressure in the transition decade

As the region enters what we call the transition decade, market dynamics will shift. Renewables will be increasingly exposed to market forces as governments become less willing to protect those power sources from market risk and withdraw subsidies. The profitability of utilities is already under pressure in key markets, and policy changes will only add to those challenges.

It will be at least five or ten years before renewables will be able to compete directly with coal and other fossil fuels, which still have a role to play. But by 2030, costs will have fallen by 30% or more and will be competitive with new fossil fuel plants in most regions, creating incentives for further rapid growth.

Can renewables make money in a subsidy-free world?

The Australian market illustrates some of the challenges that lie ahead in the transition decade. The country’s share of renewable power supply increased rapidly from 9% in 2017 to 21% in 2020. But the pace of growth has saturated existing grid capacity and transmission infrastructure hasn’t kept up. Execution delays have increased costs, which chipped away at returns. As a result, 67% of Australia’s renewable capacity deployment will fall away by 2025.

Australia’s renewables boom has led to overcapacity, and curtailment, negative power prices and grid congestion have become concerns. In the longer term, renewable assets could be left stranded if oversupply is prolonged. Increasingly, developers in APAC will focus less on costs; value will become the watchword.

Governments across Asia Pacific can help to avoid the risk of curtailment and oversupply by planning grid investments in an integrated way so that renewables don’t become overly concentrated in certain areas.

  • 7,000 terawatt hours

    of new demand over the next twenty years

  • US$1 trillion

    opportunity for renewables to 2030

  • 60%

    traditionally supplied by coal