The trillion-dollar question: how will Asia Pacific meet power supply needs in the next decade?

Investment opportunities in the world’s largest and fastest-growing power market

With analysis from Alex Whitworth, Head of APAC Power and Renewables, and Rishab Shrestha, Senior Research Analyst, APAC Power. 

Asia Pacific is a global engine of power demand and renewables growth, putting it centre stage in the global energy transition despite coronavirus impacts.

The Asia Pacific power generation market will attract US$1.5 trillion of investment in the next 10 years, making it the biggest global market by a significant margin. Its growth will outstrip all other regions combined in the next two decades.

Renewables will attract the largest chunk of that investment. But that does not signal a death knell for fossil and conventional fuels.

In a recent webinar, we explored three key questions about the opportunities in Asia Pacific’s power market. If you have 60 minutes, fill in the form to listen to the replay. Or if you have only 5 minutes, read on for the highlights.

What will the power mix look like over the next decade?

Power demand in Southeast Asia will grow the most rapidly at 5% per year in the next decade. However, China and India will dominate in scale. Despite lack of demand growth, Japan is set to be the third largest market for capacity investments.

To accommodate growing demand, huge investments will need to be made. Renewables represent a US$1 trillion opportunity through to 2030. A broadening array of solar and wind technologies is attracting investment – but in the short term, solar will dip as government subsidies are cut. Energy storage capacity will take centre stage in the 2020s as its share of peak load more than doubles to 9%.

While renewables will make up more than half of the capacity that will be added by 2030, coal and conventional fuels will still be required to meet demand.

Many growth markets continue to rely on coal. Historically, gas has been the more expensive energy source in Asia, but as economies develop gas investments will start to overtake those of coal. By 2030, 70% of the investment dollars earmarked for fossil fuels will go to gas.

Will there be major bottlenecks for renewable power investment?

Yes. But the impact varies widely by region.

Phenomenal growth in Asia Pacific’s power market in the last five years gave global investors the confidence to put money into new projects. Falling generation costs of solar and wind combined with government subsidies provided a further boost. However, the market is now entering a transition decade.

As the scale of renewable investments has increased, governments are moving to reduce or cancel their subsidies. Overall investments are set to decline with growing uncertainty on revenue streams in some key markets. In most of Asia, subsidy-free renewable power won’t be able to compete with coal until 2025 or later.

But technology and policy drivers will gradually strengthen, and by 2030, the cost of renewables will be competitive with new fossil fuel plants in most regions, creating incentives for further rapid growth.

The transition decade will be a period of uncertainty.

A renewables champion to date, Australia illustrates many of the challenges that lie ahead. Renewables’ share of power supply in the country increased rapidly from 9 to 21% in just five years. 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 capacity deployment will fall away by 2025. How long could it take to overcome those challenges? And how could government policy adjust? Listen to the webinar to find out.

Which untapped areas offer the greatest potential?

The slowdown in the next decade will not impact all regions equally.

Countries such as Australia that already have a high share of wind and solar power are experiencing constraints. But at the same time there is massive potential in the 80% of Asia Pacific regions have less than 10% renewables penetration.

Many smaller regions especially in developing countries have been neglected previously. Although those opportunities are relatively small scale, they have the potential to be extremely profitable.

Meanwhile, the biggest future opportunities are appearing in industrial demand centres, which make up approximately 60% of Asia Pacific power demand. Until now, several large demand centres in coastal regions have struggled to access renewable power despite high power prices. But new advances in offshore wind and distributed solar along with supportive government policies will allow renewables growth in these locations to take off.