Asia-Pacific has $1.8 trillion in renewable energy opportunities, but with risks, says WoodMac

KUALA LUMPUR (September 23): Asia-Pacific continues to set the pace for electricity market growth, creating a US$1.8 trillion (RM8.23 trillion) opportunity for renewables over the next decade, but developer risks are increasing, said energy research and consultancy firm Wood Mackenzie (WoodMac).

In a report released Thursday, September 22, WoodMac said Asia-Pacific has long been the engine room of global power markets, with a 200% increase in power demand over the past two decades. .

He said the stellar growth has been even more pronounced in recent years, pointing out that electricity demand in the region reached nearly half of the global total in 2021, as the market grew by 6.5 percent, far surpassing the rest of the world.

The company said that by 2040, electricity demand growth in Asia-Pacific will average 2.5%, nearly double the rate of other regions.

And there will be huge opportunities for solar and wind as fossil fuels become less important and the region decarbonizes, he said.

However, WoodMac reported that even as demand for electricity increases and electricity prices soar, the risks for renewable energy developers increase with increasing supply chain risks, reduction, funding and policies.

He said that adding to the uncertainty, the outlook for gas and liquefied natural gas (LNG) has changed significantly following Russia’s invasion of Ukraine.

As in other regions, power generation costs in Asia-Pacific are rising. LNG, coal, heating oil and diesel prices have all increased significantly since the second quarter of 2021.

Overall, production costs will be an additional US$650 billion each year for the next three years, a two-thirds increase from 2021 figures.

End users will bear the brunt of these increases, with electricity expected to be 27% more expensive, or a total of US$1.7 trillion more over the next three years to 2025.

WoodMac said consumers in Japan, South Korea, Taiwan and Singapore will be the hardest hit, with end-user prices expected to rise by at least 30%.

He said these countries relied on relatively expensive fuel imports for 64% to 98% of their electricity generation last year.

US$1.8 trillion opportunity

WoodMac said that supported by price inflation, the Asia-Pacific power market sector will attract $2.9 trillion in investment over the next decade.

He said renewable energy would be one of the biggest beneficiaries: 60% of the investment ⁠— or US$1.8 trillion ⁠— needed will go to clean energy.

Wind and solar will take the lion’s share.

That said, the company pointed out that renewable energy developers are increasingly exposed to risk as supply chain and financing costs increase and grid integration issues worsen.

He said the reduction also poses a risk to revenue.

The company said solar and wind capacity is heading towards 90% of peak grid load in some markets by 2030.

And we are not investing enough in storage. By the end of this decade, storage tiers will be down to 15% of peak network load.

Given the full cost of renewables ⁠—including transmission, battery storage, and gas peaking reserve units ⁠—they are currently not competitive with coal in the region.