ASEAN Power Grid Opens Up New Business Opportunities

The Association of Southeast Asian Nations (ASEAN) is one of the world’s fastest-growing regions. Hand in hand with economic growth and the planned expansion of industries, the demand for energy is also rising. The think tank Ember estimates that electricity demand in the region will increase by more than 40 percent between 2023 and 2030.

At the same time, many ASEAN countries have significant potential for generating electricity from renewable sources such as wind, solar, and geothermal power. Laos, for example, is considered the “battery of Southeast Asia” due to its vast hydroelectric capacity.

However, the country’s potential has not yet been fully realized. Poor grid connectivity prevents green electricity from reaching the major consumption and production centres in sufficient quantities and at affordable prices. The expansion of the grid infrastructure into a shared power grid, the “ASEAN Power Grid” (APG), has been on the agenda for years. Now, progress toward its implementation is beginning to emerge.

Cross-border power project breaks new ground

The core of the APG and the first major step toward integration is the Laos-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP). The first phase of this project was launched in 2022. It involves the export of hydropower (100 megawatts) from Laos to Singapore via existing transmission lines in the two neighbouring countries, Thailand and Malaysia. This marks a milestone: for the first time, four ASEAN countries have collaborated in the field of cross-border electricity trade. 

To this end, Keppel Electric, the company responsible in Singapore, signed a Power Purchase Agreement with the Laotian electricity supplier Électricité du Laos. In a second phase beginning in September 2024, capacity was doubled to 200 megawatts, with electricity also set to be fed into the grid in Malaysia.

Significant investments are required

According to calculations by the International Energy Agency, the APG will reduce electricity costs in ASEAN by up to 5 billion US dollars (US$) per year. However, this is offset by high investment costs. ASEAN representatives forecast that investments for the construction of the APG will total US$764 billion by the planned completion in 2045. According to estimates by the Asian Development Bank (ADB), approximately US$100 billion will be required for the installation of transmission lines alone. For German companies, business opportunities could arise along the entire supply chain.

According to estimates by the Net Zero World Initiative, the project will require approximately $2 billion per year for research and development during the development phase. This presents opportunities for German research institutions. To ensure efficient cross-border electricity distribution, there will also be a growing need for modern power lines, substations, and grid control systems, as well as smart grid solutions. 

In ASEAN countries, pumped-storage power plants will gain in importance in the future. Similarly, the expansion of renewable energy will increase demand for items such as wind turbines and components like inverters. Products with high energy efficiency and environmental sustainability are likely to be in particularly high demand.

The expansion of the grid will also involve the laying of undersea cables. Other growing market segments are battery technologies and storage control systems for grid stabilization. Consulting firms can provide support in strategic planning, regulatory design, and the simulation of energy systems. Likewise, the demand for secure and scalable IT solutions for energy infrastructure, as well as sustainable financing for large infrastructure projects, is rising. 

Singapore must do the groundwork

An APG based on renewable energy offers numerous advantages for ASEAN, such as improved access to electricity and increased energy security. In addition, the region’s economic development would receive a boost. 

So far, the resource-poor city-state of Singapore has been the most enthusiastic about the project. Other ASEAN countries are more cautious - given the high investment costs and the lower added value for them. To convince the other members of the benefits of an integrated power grid, Singapore must support its neighbours in structuring and financing the projects and take on a coordinating role.

Further challenges

To realize an integrated power grid in ASEAN, a number of challenges must be overcome. For instance, the different regulations and standards in the individual countries must be harmonized. The electricity markets of the member states are organized differently. Another obstacle lies in the wheeling charges for electricity transmission, which grid operators in the individual countries levy. In discussions with Germany Trade & Invest, multinational organizations criticized the fact that very little money reaches the producers in Laos - even though this is where it is needed most. 

Financing with international donors

Industry experts see the high investment and infrastructure costs as a major problem. While green investments in the ASEAN region have risen sharply in 2024, particularly in renewable energy, the EMA estimates an investment gap of US$210 billion per year for Southeast Asia - even though the region is home to some of the countries most affected by climate change.

Singapore is therefore exploring innovative financing methods, involving international institutions such as banks and insurance companies. The ADB is supporting the expansion of the APG with financial and technical assistance and is working with the World Bank and other partners on a special financing solution amounting to approximately US$10 billion. In addition, the ADB is funding technical cooperation, feasibility studies, and capacity building. The AIIB (Asian Infrastructure Investment Bank), a multinational development bank initiated by China, has also announced its interest in the APG in a press statement.