South East Asia contains some of the most dynamic economies in the world but also some of the least developed. It is a region of great contrasts, from largely agrarian economies to highly industrialised ones with some countries facing particular geographical challenges.
In terms of electricity demand, South East Asia is one of the fastest growing regions of the world with demand in the Association of South East Asian Nations (ASEAN), with ten member states, 10% of the world population and as a group, the fourth largest economy in the world, having grown by more than 6% per annum over the last two decades, driven by an increasingly affluent consumer society with access to domestic appliances, goods and services1.
Four countries - Indonesia (26%), Vietnam (22%), Thailand (19%) and Malaysia (15%) - account for over 80% of total demand in the region2.
While the more industrialised countries tend to have well established power networks, a considerable amount of the capacity relies on coal-fired generation; coal being is in the region, particularly in Indonesia. The prevalence of cheap, locally available coal has led to South East Asia being one of the few regions of the world where coal fired generation continues to expand with around 20GW of new coal fired generation under construction in Indonesia, Philippines and Vietnam3. Plans for additional coal fired capacity are under review in some areas following an announcement of a moratorium on new coal fired generation at an IEA Ministerial conference in 20204. This sits alongside targets to produce a much higher share of generation from renewable sources. ASEAN targets 23% renewable energy by 20255.
To help realise these targets, two strategies have been adopted. The first is the development of the ASEAN power grid, which will connect the region on cross border bilateral terms to help to distribute energy from areas of high production but low usage to areas of low production but high usage. Hydropower generation in Laos is a good example of such a scenario, and the grid will allow power to be easily moved to countries such as Thailand and Malaysia where demand is very high. In time, the grid is expected to expand on a sub-regional basis to provide cover to areas that are currently off grid and finally into an integrated South East Asian power grid system.
This grid, already under construction, will eventually link much of the region and will allow for renewable energy projects to feed into the wider grid. For example, Floating PV projects on reservoirs are already underway in Singapore and Indonesia.
The second great challenge is to bring electricity to almost 45 million people in the region who currently have no access to power6.
Indonesia, Philippines and Thailand between them have more than 24,000 islands scattered across vast areas of ocean. In many cases these islands can never be economically linked to the grid without enormous subsidies. In these cases, alternative solutions are required to bring electricity to such communities. Already many of the larger islands have small local grids usually powered by diesel generation which is expensive to supply and maintain. In Indonesia, PLN the state power company are converting around 150 of these to run on natural gas, a cleaner and cheaper alternative.
The more remote islands, often with small populations, require a different solution that in most cases will look to micro grids and small-scale renewable energy solutions. Such solutions will depend on the energy sources available on or near the island but may include small scale Hydro, Solar and Wind solutions as well as Biomass. Such projects are often incentivised with supporting legislation to make them attractive to independent investors. PLN intend to increase their own renewable capacity from about 8GW in 2020 to around 16GW by 20257.
Similar considerations apply to remote communities in countries such as Myanmar and Vietnam, where very isolated hill communities are a long way from the grid and cannot be connected economically. The same renewable solutions connected through a microgrid solution are underway in many communities, very often supported by development agencies.
These smaller scale projects bring huge benefits to rural and island communities but also present significant challenges for insurers. The projects are often small and of little underwriting interest; they are by their nature remotely located, which present logistical challenges in moving materials, plant and skilled labour to the site. Flooding, soil conditions and prevailing weather are often not well documented, which can lead to further challenges in underwriting the risk.
Risk intermediaries and their claims teams with wide experience in helping power companies to understand these risks and present them to insurers – maybe using tools such as Global Peril Diagnostic and Strategic Risk assessments - have considerable experience in assisting those companies that have suffered losses in such locations with their recovery from the insurance market.
Neil Thomas is Head of Claims, Asia, Willis Towers Watson. richard.burge@willistowerswatson.com
1 https://www.iea.org/reports/electricity-market-report-december-2020/2020-regional-focus-southeast-asia 2 https://www.iea.org/reports/electricity-market-report-december-2020/2020-regional-focus-southeast-asia 3 https://www.iea.org/reports/electricity-market-report-december-2020/2020-regional-focus-southeast-asia 4 https://www.iea.org/reports/electricity-market-report-december-2020/2020-regional-focus-southeast-asia 5 https://www.iea.org/reports/electricity-market-report-december-2020/2020-regional-focus-southeast-asia 6 https://www.iea.org/reports/southeast-asia-energy-outlook-2019 7 https://www.powerengineeringint.com/coal-fired/history-in-the-making-how-pln-is-enabling-indonesias-energy-transition/
