Energy Transition – An evolving journey

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Renewable energy is energy derived from natural sources that are naturally replenished at a higher rate than they are consumed, for example, sunlight and wind.

Governments have recently focused more attention on renewable energy – wind, solar, geothermal and hydroelectric – due to concerns over the security of supply, price volatility and environmental issues.

Asia has been at the forefront of renewable capacity growth, consistently outperforming other regions over the past decade. Asia’s green energy capacity expanded 12% in 2022, which was the fastest rate among other major regions. According to Bloomberg, in 2022 APAC experienced an unprecedented surge in new investments, reaching a staggering $356 billion.

Some countries in Asia Pacific also committed to pumping the immense scale of investment stimulus into energy transition. Per a Det Norske Veritas® (DNV) report, South Korea’s 2050 Carbon Neutral Strategy and Green New Deal comprises of  $135 billion in investments in green and digital technologies. Japan has pledged more than JPY150 trillion ($1 trillion) to decarbonization in line with its Sixth Strategic Energy Plan. Whereas Australia is seeking to provide approximately AU$24.9 billion (US$17 bilion) for energy transition purposes over the next 10 years.

In addition, Asia is also a sizeable region for renewable energy infrastructure deals. According to Enerdatics, “the deal volume for renewable energy assets in Asia more than tripled to $13.6 billion in 2021, as the number of transactions surged by 53% year-on-year to 75.” In 2022, this growth trend continued with renewable energy M&A deal value rising 11% to $19 billion in Asia Pacific.

Looking ahead, the primary energy demand in Asia is projected to grow at a 2.5% annual rate until 2035, which would make Asia’s share of the global primary energy demand close to 42% by 2035 and account for approximately 61% of the world’s primary energy demand increase by 2035.

To meet such increasing energy demand and, at the same time, achieve the regional net-zero goals, Asia has to focus on the development of renewable energy projects as Asia’s demand for renewable energy is expected to grow at around 6% per annum until 2050.

Solar and wind are expected to be the main focuses for governments across Asia as they seek to bolster their energy security and push renewable energy agendas, as well as for companies expanding their portfolios in the region, according to a 2021 Boston Consulting Group (BCG) report. China, in particular, is predicted by DNV to lead solar energy by 2050, having secured a front-runner position in 2022 by generating 30% of global solar electricity. Additionally, China is anticipated to dominate most of the solar photovoltaic (PV) supply chain, where the majority of investments are expected to flow until 2030.

Per BCG projections, Asia could become the second-biggest offshore wind market, with capacity reaching 78 gigawatts (GW) by 2030 (a compound annual growth rate (CAGR) of 24% over the period 2021 to 2030). Per the DNV report, China currently stands out as a leading player in global onshore and fixed offshore capacities given the rapid rate of installations and economic incentives from the region's emerging carbon market in the power sector. DNV expects installed wind capacity, including off-grid, to be 0.8 terawatts (TW) by 2030, with onshore wind comprising 0.7 TW. The growth is projected to persist, with 2.5 TW of onshore, 430 GW of fixed offshore and 59 GW of floating offshore being anticipated by 2050.

Predicted rise in renewable energy demand in Asia Pacific from 2000 until 2050

This chart shows the predicted rise in renewable energy demand in Asia Pacific from 2000 until 2050, and it is anticipated that every year from now until 2050 will result in an approximate increase of 6% per annum in quadrillion British thermal units.

All of the aforementioned growth in renewable energy projects in Asia requires funding. Nevertheless, following the unprecedented levels of Covid-19-related expenditure by regional governments and their continuing efforts to dampen the effects of rising inflation, governments will struggle to fund the switch to renewable energy from public budgets. Reports suggest that the public sector in emerging Asia (and, in particular, in the developing members of the Association of Southeast Asian Nations (ASEAN)) cannot afford to pay for the energy transition itself. The annual infrastructure gap in Asia Pacific, which was estimated prior to the Covid-19 pandemic at $1.7 trillion, has likely expanded further post-pandemic, according to the Asian Development Bank.

Consequently, governments in emerging Asia will need to attract private capital into the energy transition infrastructure to meet their sustainability goals. As such, we expect to see a much greater role for private investment in Asia’s energy infrastructure sector than has historically been the case.

Key takeaways
  • Asia has been at the forefront of the renewable capability, steadily surpassing other regions over the past decade
  • With the demand for renewables being predicted to increase at 6% annually until 2050, stakeholders will begin expanding solar and wind capabilities across Asia
  • Given the need to fund such projects, the attraction of private capital will be crucial in meeting the rising demand and the region’s sustainability goals