Power demand growth remains strong in Asia Pacific

India, China and Southeast Asia will continue to be the three most important growth engines of power demand across the planet, says Alex Whitworth, Vice President, Head of Asia Pacific Power Research at Wood Mackenzie. With the Asia Pacific region seeing its share of global power demand surpass the 50% mark in 2023, according to Wood Mackenzie’s ‘Asia Pacific Power & Renewables: Five things to watch in 2024’ report. 

“Asia Pacific markets powered ahead in 2023 with strong overall demand growth, strong investments in the power sector and acceleration of some key energy transition trends. We are living through a boom of investment across the region in not only renewables but also conventional technologies including coal, gas, nuclear and hydro,” Whitworth adds. 

“Growth rates like these are a rarity in the world today, and it is no coincidence that these three regions have among the lowest end-user power tariffs in the world averaging less than US$100/MWh, about half the level in many developed markets. It is also no accident that these markets are heavily reliant on coal and furthermore still expanding their coal power fleets,” Whitworth adds.

Power demand growth in Japan, South Korea and Taiwan has been weak or negative, hurt by high power prices and weakening exports. But despite the slowdown of more developed markets, Asia Pacific markets are still providing over two thirds of global demand growth each year.

But are there any clouds on the horizon for power demand growth for the region in 2024? 

China appears to be at some risk because of continued slow-down in its real-estate sector and downbeat sentiment on domestic demand. In contrast, India and Southeast Asia look to be on stronger footing, says the report. 

Despite slowdown in China, structural factors are keeping power demand high. It is becoming clear that the Chinese government has shifted financing and support from real-estate towards a massive expansion of manufacturing muscle since the US-China trade war began about five years ago. China’s industrial sector still drives close to 70% of power demand and its share remains stubbornly high. 

Whitworth adds: “A fear of sanctions and laser-focus on energy and technology security have driven China’s energy demand towards domestic coal and renewables, and away from imported oil and gas. A side effect being rapid acceleration of the energy transition technology and supply chain, large-scale switch to electric vehicles in transport, with 25% of vehicles sales last year, and high likelihood of strong power demand growth for years to come.”

What is the endgame for China’s massive expansion of solar and renewables supply chain?

“One of the biggest conundrums facing power markets in 2024 is figuring out how long China can continue rapid investments in its already massive solar supply chain,” Whitworth says. 

By the end of 2023, China’s PV module production capacity had reached more than double the global demand for solar modules. Based on announced expansions and investments, China should easily surpass 1,000 gigawatts (GW) of annual production capacity in 2024, whereas global demand for solar modules is expected to remain relatively flat at 350 GW, as overloaded grids try to digest the ever-growing solar fleet. Despite overcapacity, Wood Mackenzie expects to see at least 25% more capacity coming online this year. 

“The most likely case is that global demand for solar will remain far below supply capacity, causing an extended price war and even lower prices of Chinese modules. The subsidies from the US Inflation Reduction Act are not enough to compete with Chinese modules once they start selling at or below cost, and that seems an increasingly likely outcome this year,” Whitworth adds. 

With rock bottom prices and stagnant demand, its expected Chinese players would dominate on low costs, but low profits would slow down technology advances, the reports states. 

Is the market for offshore wind in Asia Pacific cooling down or heating up?

Despite short-term hurdles such as cost inflation, construction delays and higher interest rates, the economics of offshore wind are improving strongly in the late 2020s, supporting a strong future for the technology in Asia Pacific markets.   

China’s offshore wind deployments make up 80% of Asia Pacific’s total offshore wind market in the next five years, states the report. Large market scale and a comprehensive supply chain has allowed Chinese wind manufacturers and developers to push costs of offshore wind power in China down to US$60/MWh or lower, less than half the costs seen in Japan. 

In addition to supporting a 15 GW per year expansion of China’s offshore market to displace coal power, Whitworth expects aggressive targeting of overseas markets by Chinese manufacturers. This provides an opportunity to push down the outlook for offshore wind costs further in markets such as Australia and Southeast Asia, with potential opportunities in Japan, South Korea, and Taiwan.