Risk and reward for renewables developers in Asia’s booming power market

Asia Pacific continues to set the pace for power market growth, creating a US$1.8 trillion opportunity for renewables in the next decade – but developers’ risks are increasing

3 minute read

Yamato Kawamata

Principal Analyst, Asia Pacific Power & Renewables Research

Yamato is an expert in power and renewables in Asia Pacific with a focus on Japan

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Asia Pacific has long been the engine room for global power markets, with a 200% increase in power demand over the past two decades. That stellar growth has been even more pronounced in recent years. Power demand in the region rose to nearly half the global total in 2021, as the market expanded by 6.5% – far outpacing the rest of the world.

By 2040, Asia Pacific’s power demand growth will average 2.5%, nearly double the rate of other regions. And there will be huge opportunities for solar and wind as fossil fuels decrease in importance and the region decarbonises.

But even as demand for electricity climbs and power prices soar, risks to renewables developers are mounting with supply chain, curtailment, financing and policy risks on the rise. Adding more uncertainty, the outlook for gas and LNG has changed significantly in the wake of Russia’s invasion of Ukraine.

Our Asia Pacific power & renewables strategic planning outlook draws on the expertise of our APAC Power & Renewables Service to explore the challenges and opportunities ahead. Fill in the form to download a complimentary extract or read on for a brief introduction.

Consumers will feel the pain of electricity price hikes

As in other regions, Asia Pacific’s power generation costs are going up. LNG, coal, fuel oil and diesel prices have all dramatically increased since the second quarter of 2021.

Overall, generation costs will be US$650 billion more each year for the next three years – a two-thirds increase on 2021 numbers. End users will bear the brunt of these hikes, with power set to be 27% more expensive, or a total of US$1.7 trillion more over the next three years to 2025.

Consumers in Japan, South Korea, Taiwan Region and Singapore will be hardest hit, with end-user tariffs expected to rise by at least 30%. These countries relied on relatively expensive fuel imports for between 64% to 98% of their power generation last year.

Similarly, inflationary pressures and supply disruption are driving up energy prices in North America and Europe. You can learn more about how these regions will adapt in our recent overview of global power markets. This insight also considers the massive shifts that have taken place – particularly in Europe – in response to the Russia-Ukraine war.

US$1.8 trillion opportunity for renewables in Asia Pacific

Supported by price inflation, Asia Pacific’s power market sector will attract US$2.9 trillion in investment in the next decade. Renewables will be a major beneficiary: 60% of the investments – or US$1.8 trillion – needed will go into clean energy. Wind and solar will make up the lion’s share.

Meanwhile, fossil fuels will decline gradually from 67% of the power mix today to less than a third by 2050. Many growth markets still rely on coal – but with decarbonisation targets now set across the region, the emphasis is on shifting to renewables.

Are renewables cost competitive in Asia Pacific?

There are huge opportunities to play for, but the challenges are mounting.

Renewable developers are increasingly exposed to risk as supply chain and financing costs rise and grid integration issues worsen. Curtailment also poses a risk to revenue. Solar and wind capacity is heading towards 90% of peak grid load in some markets by 2030. And not enough is being invested in storage: by the end of this decade, storage levels will only be at 15% of peak grid load.

Taking into account the full costs of renewables – including transmission, battery storage and gas peaker reserve units – they are not currently competitive with coal in the region.

Nonetheless, the direction of travel is clear. Asia Pacific will add an average of 327 GW/year of new power generation capacity in the next decade, with solar and wind hitting 200 GW/year.

Get a closer look at the future of power in Asia Pacific

The Asia Pacific power & renewables strategic planning outlook explores soaring prices, the investment outlook, demand growth and renewables developments in detail. Our complimentary extract includes charts on:

  • Emissions and the long road to carbon neutrality
  • How Asia’s power demand compares to other parts of the world
  • Capex deployment for power generation by technology, to 2050
  • Wind and solar’s share of peak load, and why that increases curtailment risk
  • Comparative costs of renewables versus coal
  • And more.

Fill in the form at the top of the page for your complimentary copy.