Ensuring Southeast Asia’s energy security and financial stability are among the priorities while Indonesia is ASEAN Chair in 2023. To achieve these goals, the region needs to accelerate and strengthen its clean energy transition through innovative financing solutions.
Southeast Asia is a rapidly growing region, accounting for 3.6 per cent of the world’s economy in 2022.
The region has a diverse range of economies, and its growth has consistently outpaced the global average.
This growth has been accompanied by increasing energy consumption, with oil and coal being the primary energy sources, accounting for more than 70 per cent in 2022.
In response, Indonesia, chairing the Association of Southeast Asian Nations (ASEAN) this year, has prioritised sustainable energy transition among other goals.
This recognises the importance of clean energy in driving economic growth in this region.
ASEAN has set an aspirational target of achieving 23 per cent renewable energy in its total primary energy supply by 2025, up from 14.2 per cent in 2020.
To achieve this, the region must triple its annual renewable energy investment, increasing from US$8 billion annually (over the last five years) to US$27 billion annually. Hence, innovative financing and investment schemes should be explored and tested.
Climateworks Centre – together with the Centre for Policy Development (CPD), International Institute for Sustainable Development (IISD), Indonesia Research Institute for Decarbonization (IRID), and the Institute for Essential Services Reform (IESR) – have been exploring this topic since Indonesia’s G20 presidency last year.
And this year, we continue supporting Indonesia to succeed as ASEAN Chair and boost the region’s clean energy transition progress.
Leveraging public funds and mobilising private finance for just energy transitions in Southeast Asia
Energy investments in emerging and developing economies rely heavily on public sources of finance, according to a study by the International Energy Agency (IEA), the World Bank, and the World Economic Forum.
In the study’s scenarios, more than 70 per cent of clean energy investments are privately financed – especially in renewable power and efficiency. Consequently, an imminent mobilisation of public and private capital through blended finance is pivotal in narrowing the gap.
The Secretary General of Indonesia’s Ministry of Energy and Mineral Resources, Dr Dadan Kusdiana, reiterated the need for blended finance in his speech at our first side event of the ASEAN Chair 2023, where he represented the Minister for Energy.
‘Energy transition [is] very country-specific; hence the widest variety of energy sources, technology, and financing should be considered to ensure a just, inclusive, affordable and secure energy transition in accordance with the circumstances of each country,’ Dr Kusdiana said while speaking at the seminar Sustainable Energy Financing and Mobilisation of Energy Investment in ASEAN, held in Jakarta on 27 June 2023.
Regional long-term strategies and pathways are needed for a sound energy transition, including climate financing strategies based on NZE targets.
The President of the United Nations Sustainable Development Solutions Network (UN SDSN), Professor Jeffery Sachs, who joined online to deliver the keynote address at the event, outlined the importance of integrated target-based strategies.
He stated that many factors – including the power sector, the industrial sector, sustainable infrastructure, agroforestry, technological innovation, and research and development – will be key to developing a pathway to reach the renewable energy target.
Climateworks’ Chairman, Professor John Thwaites, echoed the importance of defining clear targets and formulating effective strategies to reach them, underscoring work currently in progress by UN SDSN to develop models for a net-zero energy framework across the region.
‘There are at least four key takeaways that Australia is learning and might apply in the region. First, strong targets are essential. Second, legislation and regulation are important to create a market to make renewable energy more profitable. Third, multiple sources of funding and finance are needed. And last but not least, a plan for a just energy transition is also important,’ John said.