IEEJ: April 2012 All Right Reserved
Special Bulletin
A Japanese Perspective on the International Energy Landscape (81)

March 23, 2012

Future Asian Electricity Markets
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
I had an opportunity to participate in the 2012 Pacific Energy Summit hosted by theNational Bureau of Asian Research, a U.S. think tank, in Vietnam’s Hanoi on March 20-22. The
meeting was the third of its kind following a Tokyo gathering in 2009 and a Jakarta gathering in2011. At the Summit focusing on the main theme of future Asian electricity problems, participants
such as energy policy planners, industry people and experts had vigorous exchanges of views
through panel and other discussions. I here would like to outline the interesting and impressive
points discussed at the conference.
First, electricity problems were the main theme. This is an important point. In the world
including Asia, electricity is the most important and fundamental energy for supporting people’s
livelihood and economic activities. While electricity demand is expected to increase substantially in
Asia, electricity problems involve a wide range of important economic, social, cultural andenvironmental problems due to the diversity of Asian countries in terms of economic development
phases, income levels, resources, industrial structure and technological levels. Discussions on thefuture of electricity naturally cover energy sources for electricity generation including oil, gas, coal,nuclear, hydropower and renewable energy, as well as electricity industry arrangements, policies andmarkets. Thinking about Asian electricity problems is directly linked to thinking about the future ofenergy in Asia.
Second, responses to substantial growth in Asian electricity demand will be a very greatchallenge. The International Energy Agency’s World Energy Outlook and other representative energy
supply and demand forecasts share the view that Asia will be the center of growth in energy demand
including electricity. Our institute’s “Asia/World Energy Outlook 2011” forecasts that Asianelectricity demand will increase 2.5-fold by 2035 in the reference scenario. Given that overall energy
demand is projected to expand 1.9-fold by 2035, the forecast electricity demand growth turns out tobe particularly high, indicating progress in electrification. Asian electricity demand growth isexpected to account for some 60% of global growth. In response to the substantial demand growth,
Asia’s electricity sector will have to implement massive investment. Our institute estimates that Asia
will account for $12 trillion or about 40% of $31 trillion in accumulated global energy sector
investment to be required by 2035. Investment in the Asian electricity sector (covering overall
generation and transmission/distribution) will capture $8.8 trillion or three-quarters of the entire
Asian energy sector investment. However, the question of “When”, “Who” and “How” with regard
to realization of such massive investment are now uncertain. How to fulfill electricity demand andhow to implement appropriate investment in a timely manner in large cities, developing regions andunelectrified areas are great challenges for relevant stakeholders.
Third, there is the problem of nuclear energy. Attracting much attention at the Summit was
how the Fukushima nuclear plant accident in Japan, which possesses advanced nuclear technology,
would affect the future course of nuclear energy in Asia. Most of the participants in the Summit
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IEEJ: April 2012 All Right Reserved
shared the view that Asian nuclear power generation capacity will expand as nuclear plant
construction makes progress mainly in such emerging countries as China and India. In each country,
however, citizens have growing concerns over the safety of nuclear energy. The degree of concern
and the strength of anti-nuclear movements differ from country to country. Even in South Korea andTaiwan that have positioned nuclear energy as the mainstay power source, serious discussions haveemerged on the future course of nuclear energy. In China and India that have plans for a massive
expansion of nuclear power generation capacity, the enhancement of safety has become the biggest
and most necessary premise. Some Asian countries could reconsider or reform nuclear plant
construction plans. These points indicate that the Fukushima accident has greatly affected nuclear
power generation in Asia.
Fourth, expectations on natural gas have grown dramatically in Asia. Many participants inthe conference pointed out that demand for gas as a clean energy source with great supply potential
has grown sharply with future demand projections revised upward not only in Japan after the March2011 earthquake and tsunami but also in other Asian countries. On the other hand, the introductionof highly efficient technologies like CCGT (combined cycle gas turbine) plants and the procurementof gas/LNG at more competitive prices are indispensable for gas to play a major role in the power
generation sector. In this respect, a great matter of concern discussed at the Summit was plans tolaunch lower-priced LNG supply to the Asian market from the United States where the gas pricing
system is different from the Asian system.
Fifth, participants in the Summit paid renewed attention to the importance of coal thermal
power generation that now has the largest share of electricity output in Asia. As cheap, abundant coalplays a central role in generating electricity in Asia, other electricity generation methods mustcompete with coal thermal power generation. On the other hand, how to reduce high dependence on
coal is an important challenge in China and India. These countries have implemented various
policies to diversify electricity sources. Given the importance of coal, however, expectations arevery great on Clean Coal Technology (CCT) and Carbon Capture and Storage (CCS) in Asia. As
there are various problems with the commercialization and dissemination of these advanced
technologies at present, future technology development and cost reduction hold the key to theirdiffusion.
Sixth, Asian countries as well as the rest of the world have positioned the substantial
expansion of wind power, solar and other renewable energy-based electricity sources as a major
national policy objective. Renewable energy-based electricity generation is planned to expand forvarious purposes including global warming prevention, the improvement of energy self-sufficiency
rates, the development of renewable energy-related industries and the electrification of rural regionswith distributed electricity sources. Some participants in the Summit presented an optimistic viewthat renewable energy sources could diffuse substantially depending on sharp future cost reduction
and government incentives. But some others pointed out that Asia, without grid networks such as
those seen in the European Union, may face difficulties in addressing an expansion of intermittent
electricity sources and high costs for the development, enhancement and stabilization of grid
networks. They noted that Asia has many challenges in overcoming the high costs and instability ofrenewable energy-based power generation. Some participants focused on how Asia should takeadvantage of or learn lessons from renewable energy promotion measures in such European
countries as Germany and Spain.
In this way, discussions on Asian electricity problems can expand to cover market designs,
institutional problems and how to set electricity charges. While many participants in the Summit2

IEEJ: April 2012 All Right Reservedemphasized the importance of energy and electricity conservation, some noted that electricity
charges set at low levels for policy purposes may affect energy and electricity conservation
incentives and investment in power generation facilities. In many Asian countries, however,electricity charge problems are politically and socially sensitive issues. No easy solution can befound. Through discussions at the Summit, I felt anew that electricity policies requires to addressand solve very complicated equations with political, economic, social and cultural dimensions, as thepolicy must deal with such important and diversified challenges including electricity market designs,
industrial arrangements, the important preparation of optimum long-term electricity supply anddemand plans, setting appropriate government roles in such plans, and implementation ofappropriate measures for promoting specific energy sources including renewables.

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