April 2023

TABLE OF CONTENTSASEAN’s Energy Needs & The Case for Acceleration of Energy Transition

1

Practical Reasons for ASEAN's Energy Transition

2

The Role of Fossil Fuels in ASEAN’s Energy Transition

4

ASEAN’s Energy Transition Challenges

6

Restricted Green Financing Ecosystem

6

Conflicting Priorities to Enable Growth of Renewable Energy and
Low Carbon Energy Solutions

7

Continued Subsidy of Fossil Fuels

9

Underdeveloped Power Grid Capacity for Renewable Energy Integration

11

Protecting and Supporting Affected Communities

11

Recommendations
Strengthening ASEAN’s Sustainable Finance Ecosystem

1213Energy Transition Mechanism

13

De-risking Green Investments

15

Carbon Pricing Mechanism

18

Challenge-Recommendation Framework

19

Annex I: Cambodia

20

Annex II: Indonesia

31

Annex III: Malaysia

48

Annex IV: Philippines

67

Annex V: Thailand

73

Annex VI: Vietnam

81

ASEAN’s Energy Needs & The Case forAcceleration of Energy Transition
ASEAN’s demand for energy grew by more than 80% between 2000 and 2019, a hugeleap that demonstrates unwavering growth in the foreseeable future.[1] In line with
rapid economic growth, energy demand in the region is expected to triple by 2050 fromthe 2020 level under the Baseline Scenario.
The recovery from the worst of“Meeting the urgent climate challenge and seizing thethe economic ravages inopportunities will take massive investment. Emerging Markets andDeveloping Economies must transform their economies and
ASEAN brought about by theenergy systems to lower carbon emissions and net zero pathways,
COVID-19 pandemic is well andwhile ensuring that energy is secure and accessible to theircitizens, many of whom are still in poverty. To achieve global nettruly underway: collectively thezero targets by 2050, the International Energy Agency (IEA)
region has seen remarkableprojects that capital spending on clean energy in EMDEs (ex.
China) must increase over sixfold from under USD150 billion perlevels of GDP growth from theyear in 2020 to over USD1 trillion per year by 2030”
second half of 2021 andCode Red! Call for Urgent Action on Emerging Markets Transition Financecontinuing throughout 2022.
(EMTI), September 2022 Published by the EU-ASEAN Business Council,
SDIP and the UN-convened Net Zero Asset Owner Alliance
Foreign Direct Investment inflows to Southeast Asia is now
at record levels underlining the continued attraction of the region as a centre of global
growth. As ASEAN Member States (AMS) have significant developmental aspirations inareas like infrastructure, digitalisation, high-tech manufacturing, and electric vehicle
adoption which, coupled with a rapidly growing urban middle class that will become
greater energy consumers, will significantly grow ASEAN’s appetite for energy.
Currently, ASEAN’s rising energy demand has been met by increasing the usage of fossil
fuels, which constitute about 80% of the regional energy mix, with the remaining 20%
from renewable energy.[2] Fossil fuels are projected to continue to supply most of theregional energy demand, with oil accounting for 47.4% of total final energy consumption(TFEC), followed by electricity (20.3%), coal (14.5%), and bioenergy (9.2%) in 2050[3].
If ASEAN were to continue to rely mainly on fossil fuels for its development, this would
have serious consequences for the environment and would also mean that none of theASEAN member states would be able to meet their net-zero targets. In 2020, 40% ofSoutheast Asia’s CO2 emissions came from power generation[4]. With today’s policies,
energy demand, fossil fuel imports, and emissions are set to increase; the region would
also fall short of its target to provide access to clean cooking for all by 2030[5].

[1] IEA, “Southeast Asia Energy Outlook 2019” (Paris, 2019), pp. 10, 28.
[2] Dolf Gielen, “Singapore International Energy Week,” Singapore International Energy Week (August 18, 2020), https://www.siew.gov.sg/docs/defaultsource/event/2020/asean-energy-transition-outlook_dolf-gielen_irena.pdf?sfvrsn=2.
[3] See: https://aseanenergy.org/the-7th-asean-energy-outlook/[4] Rethinking Energy In Southeast Asia, Wärtsilä Energy, 2022 see: https://www.wartsila.com/rethinking-energy/southeast-asia[5] See: https://www.iea.org/reports/southeast-asia-energy-outlook-2022

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A well-managed shift to lower carbon energy sources and increased usage of
renewable energy sources is now, therefore, essential if ASEAN is to meet its
Paris Agreement commitments.
A secondary effect of a decisive transition to sustainable energy is that AMS will be able
to participate in an increasingly valuable economic sector. With a strong manufacturingbase and a competitive labour force, ASEAN can become an important regional player inthe rapidly growing economic value chain of sustainable energy equipment andsolutions.
The cost of renewable energy is also declining rapidly. It is already generally cheaper
than fossil fuel alternatives and will become more so in the coming years. A shift torenewable energy sources will reduce the cost for AMS of growing their domestic energy
supplies.
Lastly, large companies around the world are increasingly committing to net carbon-zero
operations. It will be difficult, if not impossible, for them to maintain and increase theirinvestments in AMS if they do not have access to clean energy. For domestic ASEAN
businesses with ambitions to grow their global trade, it will also become increasingly
important to have green sources of energy supply, as changes in market conditions intheir export destinations will either mean markets will be closed off without it, or someform of the carbon tax will be imposed on those exports.

Practical Reasons for ASEAN's Energy
Transition
The urgency in accelerating the transition towards renewable energy stems primarily
from the fact that the impact of climate change is pronounced for all AMS – increasingly
severe weather, rising sea levels, and widespread tropical diseases all accompany
climate change, to name a few scourges. There are estimates that climate change and its
effects will wipe out 11% of ASEAN’s GDP by 2100.
Findings from Swiss Re Institute’s Climate Economics Index warn that Indonesia,
Malaysia, the Philippines, Singapore, and Thailand would lose economic output totalling
more than seven times their GDP between now and 2050, and ASEAN as a region could
lose 37.4% of their current GDP by 2048, if steps are not taken to mitigate climatechange.[6] This makes the ASEAN market the most vulnerable in the Asian region.[7][6] Cherie Gray and Thomas Haller, ‘’The Economics of Climate Change: Impacts for Asia,’’ Swiss Re Group, May 21, 2021. https://www.swissre.com/riskknowledge/mitigating-climate-risk/economics-of-climate-change-impacts-for-asia.html[7] Ibid.

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The financial drivers for change extend beyond the impacts of damaging climate-related
events. The long-term trend of cost for power generation is clearly in favour of
renewable sources (see figure 2, page 11).
Manufacturing industries in ASEAN will be materially disadvantaged if they rely on
expensive fossil fuel-generated electricity, both because of the higher cost, and throughthe possibility of carbon border adjustment mechanisms that add a carbon price toexports. Further, without clean energy sources, ASEAN will become unattractive to
foreign investment flows. As large companies, both domestic and international,
implement their commitments to achieve net zero-carbon operations, investment
decisions will increasingly be driven by the availability of zero-carbon electricity supply
for factories, offices, and transport.
In addition, regulators and stock
exchanges have been placing more
focus on ESG disclosures. Stockexchanges in Singapore, Malaysia,
Thailand, Vietnam, Indonesia, and thePhilippines all require listed companies
to produce sustainability reports
annually. While some exchanges started
withvoluntary
guidelinesorrequirements only on a ‘comply-orexplain’ basis, there is an increasing shift
towards mandatory disclosures thatconverge towards global standards suchas the Global Reporting Initiative (GRI),
Task Force on Climate-Related Financial
Disclosures (TCFD) or Sustainability
Accounting Standards Board (SASB).
Both investors and investees will be
under increasing pressure to report on
climate-related metrics.
Therefore,
there
are
not
only
international pressures but also strong
economic rationale and practicalreasons to accelerate the energy
transition.

Role of Sustainable Aviation Fuel
Sustainable Aviation Fuel (SAF) plays a key rolein the aviation industry’s net zero carbon
emissions by 2050 goal. It is a next generation
aviation fuel and can reduce greenhouse gas
emissions by up to 80% over its full life cycle,
compared to using fossil jet fuel. SAF isestimated to contribute around 65% of thenecessary emissions reductions.
One of the challenges is ramping-up SAF
production capacity as currently SAF
represents less than 1% of global jet fuelconsumption. Governmental support plays acrucial role as it can help to create thedemand certainty needed to attract
investments in production capacity. This could
for example be done by introducing mandates
or incentivising SAF use.
Neste is the world’s leading producer of SAF
and has been supplying its Neste MY
Sustainable Aviation fuel to commercial
airlines across the globe since 2011, including
airlines in the Asia-Pacific region.
Neste is expanding its global SAF production
capacity 15-fold to 1.5 million tons per annum
by the end of 2023. Neste’s Singapore refineryis nearing the completion of an expansion
which includes an annual SAF production
capacity of 1 million tons by the end of thefirst quarter of 2023.

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The Role of Fossil Fuels in ASEAN’s
Energy Transition
While there is an urgent need to reduce carbon emissions, the reality of the situation isthat the world is still dependent on fossil fuels. As of 2019, 84% of the global energy
system still depended on fossil fuels, and 64.2% of global electricity generation used
uses fossil fuels.[8] In ASEAN, fossil fuels are projected to make up 86.4% of the totalenergy mix in 2025.[9]Industries such as cement, steel, aviation, maritime shipping, and long-haul trucking are
significant carbon emitters but face practical difficulties in incorporating renewableenergy sources into their operations.[10] These industries are important to ASEAN. For
example, ASEAN’s steel industry produces 77% of the long products and 30% of the flat
products consumed in Southeast Asia.[11] Vietnam and Indonesia are also large cement
producers with a domestic production capacity of around 100 Mega Tonnes (Mt).
Thailand produces 60Mt, and Malaysia and the Philippines produce around 33Mt. Eachof these countries produces equal to or more than their domestic demand, whichmeans that these industries are key to ASEAN’s aspirations for greater infrastructuredevelopment.[12] Although carbon pricing might encourage Carbon Capture Units,switching to natural gas and alternative renewable energy technologies for theseindustries are still unavailable at the scale needed. As such, these industries are still
heavily dependent on fossil fuels. Using biofuels as part of the transition process will
surely be part of the solution, as is being explored in the aviation sector (see side bar).
Moreover, renewable energy still faces challenges. For example, solar and wind generateenergy intermittently due to varying environmental conditions,[13] making energy
storage systems and flexible fast-starting grid-balancing power plants essential. Suchsolutions are increasingly both technically and commercially feasible. It is true that
ASEAN’s power grids will indeed require significant upgrading to incorporate electricity
from renewable sources, but again this is both technically and commercially feasible.
In short, the energy transition journey in ASEAN will be complex as it encounters
multiple overlapping constraints. A combination of levers must be used to facilitate thetransition of industries that remain dependent on fossil fuels from using carbon
intensive carbon-intensive fossil fuels. Carbon capture technology and projects may help
ASEAN achieve net-zero emissions in some of these economic and industry industrial
activities within AMS.
[8] Robert Rapier, “Fossil Fuels Still Supply 84 Percent Of World Energy - And Other Eye Openers From BP's Annual Review,” Forbes (Forbes Magazine,
June 25, 2020), https://www.forbes.com/sites/rrapier/2020/06/20/bp-review-new-highs-in-global-energy-consumption-and-carbon-emissions-in-2019/[9] ACE, “The 6th ASEAN Energy Outlook (AEO6)”, p. 18.
[10] Scott Foster and David Elzinga, “The Role of Fossil Fuels in a Sustainable Energy System,” The Role of Fossil Fuels in a Sustainable Energy System(United Nations, 2013), https://www.un.org/en/chronicle/article/role-fossil-fuels-sustainable-energy-system.
[11] Yeoh, Wee Jin. “The ASEAN Steel Industry Situation.” Steel Committee Meeting Organisation for Economic Co-Operation and Development. March
19, 2020.
[12] Manas Tamotia, “Southeast Asia: Tough Times – Consolidation Ahead?” (Singapore: L.E.K. Consulting, 2019).
[13] Gautam Gowrisankaran, Stanley S. Reynolds, and Mario Samano, “Intermittency and the Value of Renewables Energy” (Cambridge, Massachusetts:
National Bureau of Economic Research, 2011), 1.

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These may include a Carbon Capture Utilisation Storage (CCUS) system whereby carbon
is upcycled into chemicals, diamonds, and fuels, or a Carbon Capture Storage (CCS) that
stores carbon underground. However, these technologies are still costly and have yet to
be tested at scale. Therefore, AMS should embark on other decarbonisation measuresin the meantime. Shell recently published a scenario for Indonesia to achieve its netzero targets, which demonstrates the need to move through cleaner fossil fuels as partof the process decarbonising the economy (see below). In addition, this paper calls forpolicy frameworks that promote energy efficiency and support ASEAN’s energy
transition, such as government-led carbon pricing mechanisms to encourage companies
to decarbonise.
Indonesia: Transitioning Towards a Sustainable and Inclusive Energy Future
Shell published Indonesia scenario sketch (Indonesia Sketch) titled “Transitioning towards a sustainable
and inclusive energy future”, which outlines plausible pathways for Indonesia to achieve its net-zeroemissions target in 2060. To successfully make the transition to net-zero emissions by 2060, Indonesia
will need to fundamentally transform its energy and land use systems. This is to be done in a way that
ensure affordable and secure energy supplies to support the country’s economic growth anddevelopment during the transition. Changes in how energy is produced are matched by atransformation in how energy is consumed. There is large-scale electrification of end-use sectors suchas buildings, passenger road transport and light industry. Coal is phased out of the electricity system,with renewables such as wind and solar dominating. Difficult-to-electrify sectors are decarbonised witha combination of low-carbon fuels like clean hydrogen, advanced bioenergy and technologies likecarbon capture, utilization and storage. The transformation of the land use sector – from a net
contributor to a net negative source of emissions – proceeds alongside the transformation of the energy
system so that Indonesia achieves net-zero emissions by 2060.

0%5

ASEAN’s Energy Transition Challenges
To help ASEAN accelerate its transition towards renewable energy and low-carbon
solutions, it is crucial to understand the challenges this region face. This paper identifies
5 challenges ordered based on what the Council sees as the most pressing challenges inachieving ASEAN’s energy transition.
Restricted Green Financing Ecosystem
While the number of sustainable infrastructure projects – including those involving
renewable energy, is increasing, the financing of developing world sustainableinfrastructure is limited and lacks sufficient private investment. Green financing is crucial
in providing much-needed upfront capital to develop large renewable energy
infrastructure projects in ASEAN. Despite ASEAN having an estimated US$3 trillion worthof green finance opportunities between 2016 and 2030, the cumulative ASEAN issuanceof green loans and bonds is US$13.4 billion from 2013 to 2019. This makes up only
0.45% of the region’s green finance opportunities.[14] DBS Bank noted that, between
2016 and 2030, the current average annual supply of green finance is around US$40
billion, while the average annual demand is US$200 billion.[15] The growth rate of green
finance issuance in ASEAN is increasing rapidly, though it is not growing fast enough toensure that there is a sufficient supply of capital to fully meet ASEAN’s green investment
opportunities by 2030.[16] Furthermore, given that 75% of green finance is from publicfunds, the strained government budget caused by COVID-19 will significantly impact thegreen finance flows in the near future.[17] Thus, ASEAN needs to not only ramp up theflows of green finance but also needs to encourage greater private green investments. In
this respect, the development of the ASEAN Taxonomy[18] was very much welcomed
and the Council looks forward to the Phase 2 Development of the Taxonomy and hopesthat some of the recommendations it made in its report on the Taxonomy will be taken
into account in the revised version[19].

[14] DBS Bank, “Green Finance Opportunities in ASEAN”, p 13; Cedric Rimaud et al., “ASEAN Green Finance State of the Market 2019” (Singapore: Climate
Bonds Initiative, 2020), p 1.
[15] DBS Bank, “Green Finance Opportunities in ASEAN”, p 13.
[16] ASEAN Working Committee on Capital Market Development, “Report on Promoting Sustainable Finance in ASEAN” (Kuala Lumpur: ASEAN, 2020), pp.
3-7.
[17] DBS Bank, “Green Finance Opportunities in ASEAN”, p 13.
[18] See: https://asean.org/wp-content/uploads/2021/11/ASEAN-Taxonomy.pdf[19] See: https://www.eu-asean.eu/wp-content/uploads/2022/04/ASEAN-Taxonomy-Paper-For-Publication.pdf

6The need to drive more investment into emerging markets for transition finance wasfurther highlighted in a joint report from the EU-ASEAN Business Council, the UN
Convened Net Zero Asset Owner Alliance, and the Sustainable Development Investment
Partnership under the World Economic Forum. The report, entitled “Code Red! Call for
Urgent Action on Emerging Markets Transition Investment (EMTI)”[20] noted there wasan urgent need to “increase awareness among public and private financial institutions of
EMTI as an essential element of responsible investment strategies.” It went on to statethat “critical actions are also required by policymakers, regulators, stock exchanges,
rating agencies, standard setters, as well as multilateral development banks (MDBs) anddevelopment finance institutions (DFIs)”.In other words, for ASEAN, the entire financial
and project ecosystem needs to work better and smarter to ensure that funding fortransition projects is available.
Expand investors'
awareness of theopportunity and urgent
need for EMTI
Increase the supply ofgreen/transition
investments fromcompanies

MDBs and DFIs
modernise theirstrategies to the scale
and urgency required

Create national enabling
environment (keypolicies)

Figure 1: Thematic Action Areas to Increase Emerging Markets Transition Investments [21]Conflicting Priorities to Enable Growth of Renewable Energy and Low Carbon
Energy Solutions
The transition towards renewable energy will be difficult without robust public policies
that regulate and incentivise its growth and adoption. Currently, some AMS have been
more proactive in putting forward regulatory and fiscal policies to promote the growth
and adoption of renewable energy than others (see table 6).

[20] See: https://www.eu-asean.eu/wp-content/uploads/2022/10/EMTI-Paper_4-October-2022.pdf[21] Ibid.

7

Table 6. Summary of AMS regulatory and fiscal policies to promote the growth and adoption of renewable energy.[22]Type of
Policy

BN

KH

ID

LA

MY

MM

SG

TH

PH

VN

Renewable energy inIntended Nationally
Determined
Contributions

Renewable Energy
Targets

Feed-in Tariffs/ Auctions/
Premium Payment
Regulatory
Policies

Net Metering/ Billing/
Direct Consumption
supplyBiofuel blend obligation/
mandate/ target

Electric Utility quota
obligation/ RPS

Tradable Renewable
Energy Certificate

Tax Incentives

Public Investment/ loans/grants/ subsidies/rebates

FiscalIncentives
and publicfinancing

Reduction in sales, CO2,VAT or Taxes

Tendering

Investment or Production
Tax Credits

Energy Production
Payment[22] Roman Vakulchuk et al., “Singapore: How to Attract More Investment in Renewable Energy?,” vol. 11 (Jakarta: ASEAN Centre for Energy, 2020), p. 2

8

The effectiveness of public policies is just as important as the size of the policy portfolio.
The 6th ASEAN Energy Outlook found that many AMS’ policies and fiscal approaches canbe improved through more stable policies, clearer and less complicated permitting
processes, and stronger regulations and incentives.[23]In most AMS, the current power purchasing agreement frameworks do not incentivise
investment in power projects fuelled by renewable energy sources. This is because agovernment-controlled entity (e.g., Indonesia’s PLN and Malaysia’s Tenaga Nasional) thatoversees and regulates the power market sets power purchase agreements withindependent power producers. These agreements mean that the state-controlled utility
pays a fixed payment (capacity payment) to the independent power producer
irrespective of the actual amount of electricity generated. This incentivises the statecontrolled utility to use these independent power producers, even if they are poweredby fossil fuels. Hence, policymakers need to consider and adopt more competitive andsustainable power purchase arrangements that enable investment in economically
viable renewable energy projects in AMS.
Continued Subsidy of Fossil Fuels
Indonesia, Brunei, Malaysia, Thailand, and Vietnam allocate a considerable amount of
their GDP to costly fossil fuel subsidies (see table 7). Spending scarce public funds onfossil fuel subsidies constrains the growth and adoption of renewable energy and lowcarbon energy solutions in ASEAN as they make renewable energy artificially more
expensive than fossil fuels.[24] Moreover, fossil fuel subsidies divert public funds that
could be used to invest in renewable energy and low-carbon solutions projects or otherpublic goods.[25]Targeted policy support and industry drive since 2010 have spurred a remarkabledecrease in the costs of renewable electricity from solar and wind power, which are now
competitive with that fossil fuels. Specifically, between 2010 and 2020, the global
weighted average LCOE (levelised cost of energy) of utility-scale solar PV for newly
commissioned projects fell by 85%, while onshore and offshore wind projects fell by
about half (56% and 48% respectively) (Figure 2).[26] The global weighted average LCOE
of bioenergy for power projects experienced some volatility in the same period but
ended the decade at about the same level it began, which was a figure at the lower end
the cost of electricity from new fossil fuel-fired projects. The global weighted average
LCOE of hydropower rose by 18%, which was still lower than the cheapest new fossil
fuel-fired electricity option, and that of geothermal power has ranged between USD
0.071/kWh and USD 0.075/kWh since 2016. In 2020, this figure was at the lower end of
this range, at USD 0.071/kWh, having declined 4% year-on-year.

[23] ACE, “The 6th ASEAN Energy Outlook”, p. 131.
[24] Richard Bridle and Lucy Kitson, “The Impact of Fossil-Fuel Subsidies on Renewable Electricity Generation” (Winnipeg, Manitoba: International
Institute of Sustainable Development, 2014), pp. 5-9.
[25] Donald P. Kanak, ‘’For Health and Climate: Retiring Coal-Fired Electricity and Promoting Sustainable Energy Transition in Developing Countries,’’ PIFS
International, p.9[26] IRENA (2021), Renewable Power Generation Costs in 2020, International Renewable Energy Agency, Abu Dhabi, p. 14.

9

The results of an LCOE study in ASEAN similarly found that the LCOE generated fromvarious forms of renewable energy could compete with that of electricity generated fromconventional fuels.[27] In short, without taking into account subsidies, taxation, andother incentives, the costs of renewables are now cheaper or similar to that of fossil
fuels.
Figure 2. Global LCOE trends from newly commissioned, utility-scale renewable power generation technologies from 2010 to 2020,
screengrab from IRENA Renewable Cost Database

Table 7. Cost of Fossil Fuel Subsidies by ASEAN country for 2021[28]Country

Fossil Fuel Subsidy(% of GDP - 2021)

Actual Value - 2021 (in USD)[29]

Actual Value per Capita –2021 (in USD)

Indonesia

2.7

24.6 Billion

2.68

Brunei1.5

292.1 Million

1.53

Malaysia

1.0

3.03 Billion

0.95

Thailand

0.6

2.38 Billion

0.60

Vietnam

2.3

4.54 Billion

2.33[27] ACE, ‘’Levelised Costs of Electricity (LCOE) for Selected Renewable Energy Technologies in the ASEAN Member States II,’’ ASEAN Centre for Energy(ACE), February 2019.
[28] https://www.iea.org/data-and-statistics/data-product/fossil-fuel-subsidies-database#subsidies-database[29] https://www.iea.org/data-and-statistics/data-product/fossil-fuel-subsidies-database#subsidies-database10

Underdeveloped Power Grid Capacity for Renewable Energy Integration
Power grids are crucial in the transmission of renewable energy to households andindustries. As the AMS actively work towards their APAEC renewable energy targets, theymust ensure that their power grids can account for the increased demand andgeneration of intermittent electricity from renewable energy. Seeing how Vietnam, as
one of ASEAN’s leading countries in renewable energy development, has struggled with
its underdeveloped grid, power grids must develop in step with renewable energy
expansion.[30] Doing so will also strengthen AMS’ power networks as they work towards
implementing the ASEAN Power Grid.
Moreover, the uneven distribution of economic activities between urban and rural areas
has resulted in uneven access to power supplies. In archipelagic AMS like Indonesia andPhithe Philippines, many regions still do not have stable access to electricity.
Consequently, these regions often use small-scale diesel fuel. To ensure decarbonisation
across the country, electricity grids capable of providing renewable energy must be able
to reach sparsely populated areas.
Protecting and Supporting Affected Communities
The EU has developed a Just Transition Mechanism (JTM) to ensure that the transition
towards a climate-neutral economy happens fairly, leaving no one behind. The JTM
provides targeted support to people in industries and regions, such as coal mining
regions, which will suffer the greatest socio-economic impacts of the transition. ASEAN
will need to consider developing a similar tool, either at the regional level or in each
AMS. This will require funding, which can come from both public and private sector
sources as set out in the Energy Transition Mechanism below.
Indeed there have been a number of studies that have shown that moving to green
investments can actually create more jobs. A working paper from the World Resource
Institute[31] highlighted the following upsides for employment from green investments:
Green investments generally create more jobs per US$1 million than unsustainable
investments when comparing the near-term job effects from clean energy versus
fossil fuels, public transportation versus roads, electric vehicles versus internal
combustion engine vehicles, and nature-based solutions versus fossil fuels.
Investing in various types of clean energy generally creates more jobs than investingin fossil fuels. Investments in building efficiency have the highest employment
multipliers, creating 2.8 times as many jobs as fossil fuels per $1 million on averagein the near term. Solar PV creates 1.5 times as many jobs as fossil fuels and windcreates 1.2 times as many jobs as fossil fuels per $1 million on average. Other clean
energy investments like upgrades to existing grids, hydropower, geothermal energy,
and industrial efficiency also create more jobs than fossil fuel investments.
Renewable energy and energy efficiency investments generally create more nearterm jobs than fossil fuel investments, but efforts are needed to strengthen job
quality.
[30] Joyce Lee and Feng Zhao, “Global Wind Report 2019” (Brussels: Global Wind Energy Council, 2020), p. 52.
[31] See: https://files.wri.org/d8/s3fs-public/2021-10/the-green-jobs-advantage-how-climate-friendly-investments-are-better-job-creators.pdf?
VersionId=_4g3pkXM5qB8_DEy1MhhbF8AloDhqGUY

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Table 8: Green Investments Can Create More Jobs in the Near Term than Unstainable Investments[32]Recommendations
To assist ASEAN in overcoming the challenges it faces in its energy transition, this paper
believes that bolstering ASEAN’s sustainable finance ecosystem warrants AMS’ mosturgent attention amongst the other recommendations the Council has proposed. Viablelow-carbon technologies already exist for most industries. The bigger issue is improving
AMS’ access to these technologies at a reasonable cost while managing thesocioeconomic effects of change. On this note, the EU has the practical resources andexpertise to provide technological and financial support. More importantly, the rapid
success and feasibility of the following recommendations are premised on thecommitment of stakeholders in ASEAN (i.e., governments, industry players, and stateowned entities such as power generation companies) in ensuring their implementationand seeing them through the operation.

[32] See: https://files.wri.org/d8/s3fs-public/2021-10/the-green-jobs-advantage-how-climate-friendly-investments-are-better-job-creators.pdf?
VersionId=_4g3pkXM5qB8_DEy1MhhbF8AloDhqGUY P.3

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This section is split into 2 portions – (1) Strengthening ASEAN’s Sustainable Finance
Ecosystem, which aims to provide practical-driven solutions to attract more private
capital into green projects, and (2) Challenges and Recommendations Framework, whichaims to provide high-level recommendations to the other challenges of ASEAN’s energy
transition journey highlighted in this paper.

Strengthening ASEAN’s Sustainable Finance Ecosystem

Energy Transition Mechanism
The EU-ABC advocates for an Energy Transition Mechanism (ETM) as a practical
recommendation in helping AMS transition to renewable energy and low-carbon
energy solutions.
The ETM is a financial mechanism originally championed by Prudential and is now
being promoted by the Asian Development Bank. It aims to retire carbon-intensive
fossil fuel-run power plants earlier than their intended lifespan (see figure 3).[33]The ETM is formed for a specific country and comprises two complementary
facilities: The Carbon Reduction Facility (CRF), and the Clean Energy Facility (CEF).
The ETM would be funded by long-term investors with low costs of funds, e.g.
developed country governments, national development finance institutions, andmultilateral banks. There is potential to blend those public sources with private
sector investment and philanthropic or impact capital. Instead of developing a
new and costly bureaucracy to oversee the ETM, ASEAN could form a study groupwith existing global or regional multilateral development banks (MDBs) to explore
the potential of MDBs acting as the lead shareholder and administrator thatdrives the establishment of each AMS’ ETM based on their different national
circumstances.[34] In return for ETM investment and technical assistance, thedeveloping country (and its energy and climate authorities) would commit to anagreed schedule the for replacement of carbon-intensive power, with agreed
standards for energy access and security, alongside programs to ensure a justtransition for affected stakeholders. These agreements would also require strong
provisions to ensure follow-through and to prevent the building of new coal-fired
power plants.
Current owners of carbon-intensive power assets would contribute their assets
towards the CRF in exchange for cash and potentially equity or debt in the ETM.
Those utility asset owners, which in many cases are state-owned powercompanies, would be expected to use the cash for renewables investments andjust transition.
[33] Donald Perry Kanak, “How to Accelerate the Energy Transition in Developing Countries,” World Economic Forum, January 25, 2021,
https://www.weforum.org/agenda/2021/01/how-to-accelerate-the-energy-transition-in-developing-economies[34] Donald Kanak, ‘’ How to replace coal power with renewables in developing countries,’’ Eco-Business, June 5, 2020, https://www.ecobusiness.com/opinion/how-to-replace-coal-power-with-renewables-in-developing-countries/

13

The power assets placed under the CRF’s supervision continue to operate for anagreed period which is shorter than the asset’s current expected lifetime, but longenough to pay back the ETM investors/lenders. In parallel, the CEF collaborates
with the national authorities and power sector to provide finance, technology
assistance, and know-how to accelerate renewables. As the CEF builds up
renewable energy capacity and storage, the CRF retires its assets.
If the ETM can be proven feasible in specific countries, it would be a practical way
to retire at least 50% of existing carbon-intensive power assets, dramatically scale
up demand for renewable energy (see figure 4) and provide resources for justtransition. If well integrated with national development plans, the ETM would also
create sustainable jobs to support a green recovery from the impacts of COVID19.
Figure 3. How Energy Transition Mechanism would work, by Donald Kanak,from https://www.weforum.org/agenda/2021/01/how-to-accelerate-the-energy-transition-in-developing-economies

Figure 4. How the ETM accelerates the retirement of carbon-intensive assets while boosting demand for renewable energy as the total energy
demand increases, by Donald Perry Kanak, from https://www.weforum.org/agenda/2021/01/how-to-accelerate-the-energy-transition

Thus, we strongly urge ASEAN to tailor the ETM to Southeast Asia’s unique anddynamic circumstances and launch a project with the goal of a nationwide rollout.

14

De-risking Green Investments
The major impediment to attracting private investment has been identified as thehigh investment risks associated with developing world sustainable infrastructure.
Hence, this paper recommends (1) the de-risking of green projects and (2) the
development of a sustainable infrastructure labelling system which also
contributes to reducing the uncertainty and risks surrounding sustainableinfrastructure investment.
Firstly, investments in developing regions like ASEAN inevitably carry higher risks.
Consequently, the costs of financing projects in ASEAN can be close to double thatof those in developed countries (see figure 5)[35]. For green investment
mechanisms like the ETM to be feasible, investment costs in ASEAN must be
reduced. This is because lower investment costs would translate to a lower
levelised cost of electricity from newer renewable energy sources, which means
more competitive utility prices for ferroelectricity generated from renewablesources as compared to fossil fuel. Thus, de-risking green projects is critical toachieving success in ASEAN’s energy transition.

Figure 5. The Impact of financing costs on wind and gas power generation costs in Developed vs Developing countries, from "Derisking Renewable
Energy Investment" by United Nations Development Programme, 2013, p.12.

AMS can de-risk green projects using 2 main instruments – (1) Public Policy
Derisking Instrument, and (2) Financial De-risking Instrument.

[35] O. Waissbein et al., “Derisking Renewable Energy Investment. A Framework to Support Policymakers in Selecting Public Instruments toPromote Renewable Energy Investment in Developing Countries.” (New York, New York: United Nations Development Programme, 2013), 12.

15

The Public Policy De-risking Instrument focuses on removing the underlying
barriers that heighten investment risks. Such barriers can exist in the form of
public policies that are unfriendly to investments or inefficient bureaucratic
processes. Examples of Public Policy De-risking Instruments include passing
policies that guarantee grid access for new renewable energy sources,
easing foreign ownership restrictions, or streamlining permit issuanceprocesses.
Policies that mandate the disclosure of the performance data ofsustainable infrastructure would also increase transparency and reduce therisks and uncertainties of private investment. A lack of understanding andquantification of the benefits (revenue, resultant economic activity, andenvironmental and socio-health benefits) and risks of infrastructure projects in theplanning and financing stages, and the absence of quantitative data on thefinancial and risk performance of infrastructure projects in the investment
evaluation process,[36] increases the risks and uncertainties of private
investment.
To reduce these risks and uncertainties, there must be mandatory obligations todisclose the ESG performance data of infrastructure projects across their full life
cycles. However, a consensus on the sorts of disclosures that the issuers of
securities should make to their investors must first be achieved. The Task Forceon Climate-related Financial Disclosures (TCFD) and Sustainability AccountingStandards Board (SASB) are two organisations that have begun the crystallisationof such a consensus. The SASB provides a clear set of industry-specific metrics
and standards for reporting ESG information. On the other hand, the TCFD
evaluates company exposure to and management of climate-related risks andopportunities and references SASB Standards as an appropriate framework bywhich to fulfill the TCFD recommendations.
Based on such a uniform agreed-upon standard, stock markets and funding
models for sustainable infrastructure projects must include mandatory obligations
for ESG data disclosure and assessment. This, as well as public-privateagreements that share risks and rewards between both sectors, will help mobilise
finance towards sustainable infrastructure, which will in turn improve the qualityof sustainable infrastructure projects in the region. To ensure the success of AMS’
public investment into green investments, the Council recommends AMS study as
many Public Policy De-risking Instruments as possible and select the best fitting
instrument for their context.

[36] “Increasing private sector investment into sustainable city infrastructure,” PwC and Global Infrastructure Facility, January 2020, p.12

16

Financial De-risking Instruments are meant to transfer financial risks to anotheractor. Utilising Financial De-risking Instruments shifts the risk-reward profile ofinvestment more favourably to the investor with a higher prospective rate of risk
adjusted returns. The Council commends ASEAN for innovating a financing andde-risking initiative called the ASEAN Catalytic Green Finance Facility (ACGF). The
ACGF provides public loans and technical assistance to public green infrastructure
projects to catalyse private capital into these projects. This initiative recognisesthat public funds (which make up 75% of the total investment in green projects)
are not sufficient and it is crucial to attracting private capital[37]. The United
Nations Development Programme further stressed the need for a stronger publicprivate partnership to attract private capital, mentioning that to successfully
scale-up renewable energy in developing countries, it is clear that private
sector investment must be at the forefront”.[38]As such, to further attract more private sector investment, the Council
recommends that AMS seek to enhance the adoption of insurance in theplanning and investment process. For example, green investments could
include construction insurance against delays and non-completion, or climate risk
insurance against residual risks related to weather and natural catastrophe
events, to mitigate the risks involved in constructing and operating new renewableenergy infrastructure.
Generally, this would significantly reduce the risk profile of green investments,
reduce the cost of financing which increases financial returns, makedecarbonisation mechanisms like the ETM more feasible, attract more private
investments, and lower the LCOE of renewable energy to make renewable sources
more price competitive than fossil fuel sources (see figure 6). Reinsurance would
also create an opportunity for large-scale investments to be pooled to accelerate
and achieve scale.

[37] “ASEAN Green Catalytic Facility,” ASEAN Green Catalytic Facility (Madaluyong, Philippines: Asian Development Bank, 2020), 4.
38] O. Waissbein et al., “Derisking Renewable Energy Investment”, 11.

17

Figure 6. Utilising Policy and Financial De-risking Instruments can enhance the feasibility of renewable energy projects, from "Derisking Renewable Energy
Investment," by United Nations Development Programme, adapted from Glemarec (2011), by United Nations Development Programme, 2013, p.13.

Secondly, there is currently no avenue through which investors can verify whichassets are genuinely sustainable. Thus, the Council calls for the development of asustainable infrastructure labelling system that (1) assesses sustainability issues
over the whole lifecycle of an asset, (2) helps the market easily signal asset
sustainability, and (3) through a globally applicable label, transforms sustainableinfrastructure into a mainstream, standardised, liquid asset class. Such a label
could be based upon the recommendations or best practices of the IPFS
(International Platform on Sustainable Finance) to make it compatible orcomparable with the EU Taxonomy. The label would help investors make capital
allocation choices that indeed support ASEAN’s transition to a sustainableeconomy.
Carbon Pricing Mechanism
In addition to phasing out fossil fuel subsidies and repurposing them to subsidise
renewable energy and low-carbon solutions projects, carbon pricing is anothermechanism that can harness market forces to encourage investments in lowcarbon technology and infrastructure. A carbon pricing mechanism, in the form ofa carbon tax or fee, a cap-and-trade system, or an emissions trading scheme that
depends on governments allotments or permits, would create fiscal incentives forcompanies and governments to lower their emissions by switching to more
efficient processes or cleaner fuels.
In a nutshell, further progress in ASEAN’s sustainable finance ecosystem would
benefit from closer public-private collaboration on data disclosure and project risk
allocation and a more consistent and coherent system for assessing andcommunicating priority ESG elements of sustainable infrastructure in financial
markets.

18

Challenge-Recommendation Framework
Challenges

1

Impact of COVID-19 andcurrent interest rate andinflation increases on PublicFiscal Capacity for Green
Recovery2

Restricted Green Financing
Ecosystem

3

Conflicting Priorities to Enable
Growth of Renewable Energy
and Low Carbon Energy
Solutions

Recommendations
1. Strengthening ASEAN’s Sustainable Finance Ecosystem
Continue the development of an ASEAN-specific Energy Transition
Mechanism with a view toward national implementation.
Increase the amount of Public Policy Derisking Instruments
being implemented to improve the regulatory climate for private
sector investors. This includes policies that guarantee grid access for
new renewable energy sources, easing foreign ownership restrictions,streamlining permit issuance processes, public-private collaboration todevelop clear policies for performance data disclosure, and multistakeholder engagement with the private sector to align energy andclimate policies based on APAEC targets and the ASEAN Comprehensive
Recovery Framework.
Enhance the adoption of Financial Derisking Instruments, suchas insurance for renewable energy projects, projects that involve thedecommissioning of legacy carbon-intense fossil fuel electric plants,
and public equity co-investments to improve the risk-reward profile forprivate investors.
Further develop and enhance the ASEAN-wide green financetaxonomy to improve the transparency of green investments forprivate investors.
Develop a sustainable infrastructure labelling system thatcomplements an ASEAN taxonomy, to incentivise governments andproject developers to embed ESG standards throughout the lifecycle of
new developing world infrastructure and mobilise private finance intodeveloping world sustainable infrastructure assets.
2. Support government-led carbon pricing mechanism that will enable
member states to meet the goals of the Paris Agreement. Furthermore,encourage member state governments to adopt mechanisms that help
ASEAN economies to be linked internationally, promote increased
ambition in reducing emissions and create incentives to invest in
low-carbon technology and infrastructure.
3. Policymakers to consider and adopt more competitive andsustainable power purchase arrangements that enable investment ineconomically viable renewable energy projects in AMS.
Begin phasing out fossil fuel subsidies, to ensure a more level-playing
field, and repurpose fossil fuel subsidies to invest in renewable energy andlow carbon solutions projects or other public goods.

4

Continued Subsidy of Fossil
Fuels

5

Underdeveloped Power Grid
Capacity for Renewable Energy
Integration

1. Engage the private sector in the rapid expansion of AMS’electrification network, particularly in rural areas.
2. Engage the private sector to ensure power system flexibility sothat grid capacity is scalable and able to integrate new sources ofrenewable energy.

6

Protecting and supporting
affected communities

1. Establish a Just Transition Mechanism for ASEAN to provide
support to affected communities.
2. Establish a Just Transition Fund and loan facility to mobilise funds
for investment in affected communities

19

ANNEX I: CAMBODIA
Executive Summary
The current exposure to fossil commodities’, though limited in their overall energy mix
share, might push Cambodia towards Energy Security Risks, not least a difficult financial
trade balance. Cambodia today stands at a crossroads, having to choose how to caterreliably to tripling demand (by 2040). In our opinion the country has an opportunity to
go beyond its existing and new renewable energy strategies in order to benefit from its
unique location between the two leading Greater Mekong Subregion (GMS) economiesof Thailand and Vietnam, and to position itself as a leader in green business. This
chapter advocates for that ambition.
The levelized cost of electricity benchmarks suggests that renewable energy from solar
panels, solar farms, onshore wind and even offshore wind projects have enormous
potential; therefore, the country should invest more with the help of international
institutions as well as private investors.
Leading international garment and shoe brands and garment purchase agencies haveestablished ambitious targets for green and sustainable sourcing, often with zeroemissions targets for their global supply chains by 2030, and made these ambitions
clear to the Cambodian government stakeholders. Also, local manufacturers haveexpressed a clear need for a more progressive legislation toward rooftop solar panels
that will allow the industry to remain competitive and become more sustainable.
As the Royal Government of Cambodia aims at a diversification of the manufacturingindustries in the country, pushing away from labor-intensive industry (Garments)
towards industries of higher-value, more skills-based and attracting outsourced
production from neighboring industry bases - these ambitions cannot be fulfilled
without bringing down cost of electricity while liberalizing green energy investments.
Rooftop solar without expensive capacity charges will be essential to signal such
openness to investors.
Currently, Cambodia has some of the highest energy costs in the region, averaging
between $0.1370/kWh to $0.17232/kWh. Cost reductions could be achieved with thehelp of Variable Renewable Energy (VRE) sources.
Advances in automation and the ambition of Cambodia to become part of regional
supply chains will make it crucial to reduce energy cost and consumption to:20

Stay competitive vis-a-vis regional peers (Vietnam, Thailand)
Diversify from garment production towards more advanced industries
Better integrate Cambodia’s economy with its more advanced regional peers
Benefit from skill and labor transfers
Receive investment from international investors already in neighboring countries
Outsourcing from these markets
Attract new residents and investors
Attract quality buyers and brands sourcing from Cambodia
Therefore, a more favorable policy on Solar PV and RE is required to create an
investment-friendly reputation as a “green” manufacturing, tourism and lifestyle
destination for Cambodia.
The Royal Government has in the past months accepted respective inputs, however,continues prioritizing affordable, reliable and improved energy security, as stated in its
Power Development Plan (PDP) 2040. An updated solar rooftop policy is expected in
2023, with observing stakeholders anticipating a reduction of the capacity charge byaround 50%.
Cambodia’s energy needs will triple by 2040
During the past 15 years, capacity of power sources has increased 9.58 times and power
supplied has increased 8.31 times. Demand is set to further increase threefold by 2040.
Even during the Covid-19 crisis, power demand increased: total energy delivered in 2021
was 12,601 Gigawatts hours (GWh), 1.61% higher than the previous year, according to
an Electricity Authority of Cambodia (EAC) report released in February 2022[39].

The above energy targets can be met by a diversified mix of supply: coal, gas, hydro,
solar, and wind. New technologies, imports, and improved energy efficiency will support.

[39] Consolidated Report 2021 – Electricity Authority of Cambodia, page 1

21

From 5 scenarios presented in the PDP 2040, “scenario 4” was chosen. This scenario
shows a path that relies less on imported coal and is overall less expensive in the longrun. However - it also shows a meager 14,2% of Variable Renewable Energy (VRE = Solarand Wind) in the total domestic generation (when talking of VRE we always prefer torefer to Generation mix rather than a sometimes misleading “installed capacity”), mix by
2040[40].

Source: Cambodia Power Development Plan - April 2022 - Scenario 4, page 31

This compares to approximately 6.36% of solar power generation and a total of 51.17%
of RE generation that shaped Cambodia’s energy mix in 2021, as the country’s still
modest demand is largely fed by hydropower, both national plants as well throughimported energy (from Laos PDR).
Covering its substantially growing demand will be a challenge that Cambodia, in our
opinion, could meet through appropriate incentives policies for RE in general and amore favorable legislation/tariff elimination on solar photovoltaic (PV) systems.
An increased growth in RE share (compared to the one shown in the PDP Scenario 4 will
significantly reduce power generation costs for the operator of Cambodia (EdC) andreduce cost for consumers (residential and industrial)[41].
International commitments by Cambodia regarding its energy transition
Cambodia presented its Long-Term Strategy for Carbon Neutrality (LTS4CN) in
December 2021 with a commitment to the Paris Agreement on Climate Change,
presenting a policy scenario of a carbon neutral and resilient society within the next 30
years. Its current power development plan does not reflect this ambition.

[41] Compare: https://www.eurocham-cambodia.org/uploads/4f977-positionpaperonrenewableenergycambodia.pdf

22Source: Long-Term Strategy for Carbon Neutrality of Cambodia, Page 2

Source: Long-Term Strategy for Carbon Neutrality of Cambodia, Page 2

As per the tables above, the LTS4CN modeling suggests that Cambodia could achievecarbon neutrality in 2050 with Forestry and Other Land Use (FOLU) sectors providing a
total carbon reduction of 50 megatons of carbon dioxide equivalent (MtCO2e).
This vision for carbon neutrality relies, most likely too confidently, on the implementationof existing commitments in the FOLU sector by reducing deforestation rates by 50
percent in 2030 and stopping deforestation by 2045, among other measures.
On the Energy side, reductions are to come from switching to electricity for cooking,increases in public transport and electric vehicles as well as higher efficiency in buildings.

23

Specifically, with regards to power generation the RGC committed the Kingdom of
Cambodia to the COP26 principles, three specific commitments in electricity generation
were made, through the Ministry of Environment:
No hydropower development on the Mekong Mainstream
No more coal power plants, beyond existing commitments (which are: Han Seng 3rdunit; CIIDG 2nd and 3rd unit; Royal Group Coal 1st and 2nd unit)
Injecting intermittent renewable energy to the maximum level the national grid cantolerate
Impact of climate change on Cambodia
There is no doubt that climate change will greatly affect Cambodia and its surrounding
neighbors. The country is ranked as one of the most climate-vulnerable countries, notonly in Southeast Asia, but in the world. The Climate Risk Index ranks countries mostaffected by climate change in the period 1996–2015 based on extreme weather events.
Cambodia ranked 13th out of 181 countries[42].
The Ministry of Economy and Finance and the National Council for Sustainable
Development estimate that climate change impacts could reduce Cambodia’s expected
GDP by almost 10% by 2050 - even if global temperature increases are kept within a 2°C
target[43].

[42] Arief Anshory Yusuf & Herminia A. Francisco, Climate Change Vulnerability Mapping for Southeast Asia, January 2009[43] https://cambodia.un.org/en/164901-information-note-16-climate-change

24

Why is a consequent and speedy transition to Renewable Energy needed?
From a pure perspective of the business and industry, we can say:a) A problem for investors
The push from consumers and brands for a more sustainable supply chain is shifting
manufacturing and sourcing patterns across the globe: repercussions on sourcing from
Cambodia are already a reality. Investment decisions for new and existing locations will
therefore depend on the availability of green policies, enabling companies to fulfill
greenhouse gas (GHG) commitments and targets.
Competition from large regional players to attract significant investment will be strong.
Cambodia has taken a first step with its 2020 Law on Investment (LOI), but it isimperative that this LOI is complemented with a liberalized and substantial renewableenergy policy.
As the RGC itself recently observed, “the responsibility for environmental protection orenvironmental sustainability in the garment industry is on the rise, especially among major
brands and buyers, who have begun implementing energy reduction programs byencouraging the factories or manufacturers within the industry to use the renewableenergy”[44]. Moreover, the Government will “encourage and promote the use of renewableenergy as an efficient option and continue to monitor electricity prices in a timely
manner”[45].
b) The garment industry: brand targets, global consumers & impact on sourcing
Traditionally the Garment Sector has been the backbone of Cambodia’s exports, job
creation and relative wealth distribution, therefore their ongoing commitments are
essential. Major garment brands are committing to reducing their GHG emissions within
five to 10 years. These are firm commitments requiring global supply chains todecarbonize speedily.
Through global programs such as RE100[46], SBTI, Race to Zero, or COP26, many
international companies operating in Cambodia have committed to sourcing 100%
renewable electricity. The ability by competing, industrializing countries will thus have an
impact on sourcing decisions.
Indeed, key players in this industry will make their decision about maintaining andexpanding to Cambodia as a sourcing country by 2025. These decisions are going to
be made based on progress made and a tangible strategy put in place to enable themachieving their 2030 goals.

[44] Cambodia Garment, Footwear and Travel Goods (GFT) Sector Development Strategy 2022 – 2027, page 16.
[45] Ibidem, page 25.
[46] https://www.there100.org/re100-members

25

European brands and retailers represent a substantial portion of Cambodia’s garment
exports (estimated at 30-35% of Cambodia’s total apparel export). The importance of
this bulk buying and the real possibility that these orders might shift to other countries
should not be underestimated. American, Canadian, and Japanese[47] brands, amongst
others, are also increasingly under pressure to use green energy in their supply chain.
c) Garment Factories & GMAC support consequent push for renewable energy
The Garment Manufacturing Association of Cambodia (GMAC) has a clear stance on theissue: “We want to be able to use more solar energy to reduce electricity costs”.
Garment factories use high energy consumption with consistent load profiles.
Nevertheless, garment factories typically operate on short two to three or five-year leaseagreements with site owners, making long term investments difficult to prioritize.
Current regulations that add capacity charges on top of an investment in Rooftop Solar,
push the Return on Investment (ROI) of a rooftop solar PV investment to 8-10 years,
effectively more than doubling a regular ROI for a rooftop project (typically about 4
years). Companies that want to install smaller systems have even negative paybacktimes.
It is not a coincidence that a letter from GMAC dated 15.02.2020 to the honorable
Minister of MME highlighted Prakas No. 40 (issued one day before) with the following
comments:“This regulation does not encourage the use of solar energy to consumers in the industrial
sector”;“This tariff policy does not seem to encourage the use of solar energy. Currently, buyers in
the garment and footwear industry are urging factories to increase their use of renewableenergy in order to reduce electricity demand from the national grid and reduce electricity
costs. Well, in case we cannot meet Requests and Requirements of Buyers, these factories
may be affected by the lack of orders or the cancellation of orders. In addition, under the
new electricity tariff, we may also have to pay more for solar energy use”;“The Garment Manufacturers Association of Cambodia (GMAC), which represents
members in the garment and footwear industry, is calling for more leverage reductions
and pricing reviews for companies that have installed solar energy”.
The challenging role of fossil fuels in Cambodia’s energy transition
Cambodia’s current energy mix sets RE at an impressive 51.17%[48] , providing a leading
RE position in the region, but the outlook is bleak with already approved coal and fossil
fuel investments.

[47] UNIQLO – Fast Retailing signed the Fashion Industry Charter for Climate Action in January 2020. The Charter supports the goals of the Paris
Agreement in “limiting global temperature rise to well below two degrees Celsius above pre-industrial levels.” It also calls for a commitment to “30%aggregate GHG emission reductions in scope 1, 2 and 3 of the Greenhouse Gas Protocol Corporate accounting and Reporting Standard, by 2030
against a baseline of no earlier than 2015.”[48] Consolidated Report 2021 – Electricity Authority of Cambodia, page 1

26

The proposed Power Development Plan (PDP) in its Scenario 4 in fact envisions a
reduction, due to a tripling of demand, in the domestic renewable energy share to 35%
by 2030. This will again increase to a meager 43.1% a decade later, by 2040[49] effectively reducing the RE mix by almost 8.1% in 20 years.
The situation gets more challenging for the RE mix when accounting for coal power
imports from Lao PDR (via dedicated plants for Cambodia). In this case, the share of
renewable energy drops to approximately 25%[50]. Most of this fossil fuel energy will be
imported.
The future balance of the overall energy mix leans heavily towards coal (CIIDG/CHDHK,Royal Group) or gas (LNG)[51]. In the immediate future, the total Import Power will jump
5.24 points, rising from 26.55% in 2021 to 31.79% in 2022. At the same time, Total
Domestic Generation will decrease from 73.45% to 68.21%.
As of 2021, 62% of the electricity mix was dependent on imports:
26.55% electricity directly imported from neighbors and35.45% electricity generated from imported fuel (coal or oil burned in a domestic
power plant)
By 2040, 69% of the energy mix will be dependent on imports (the share of power
imports will remain the same, but the electricity produced with imported fuel will rise,according to the Cambodia PDP 2021-2040)[52].
Consequences
The impact of such less progressive policies supporting renewable energies will be:a) Energy security risk: In 2040, with 75% of electricity dependent on imports (either
primary as coal or gas or a secondary source) from neighbors. This will impact tradebalances. According to the World Bank in fact, Cambodia already has one of the highest
import dependencies of fuel and electricity in East Asia, when measured as a % of GDP.
b) Price volatility risk: Fossil fuel projects (such as the existing and planned
Sihanoukville coal plants) face exposure to global price volatility. Increasing the coal mix
means that Électricité du Cambodge (EDC) must pay more when global coal prices arehigh: currently at its highest in the past 22 years (US$388 per tonne in Nov. ’22; in 2020:
US$46 per tonne). Oil has reached a price peak in the last 14 years; gas prices are fourtimes higher than they were two years ago.

[49] MME ADB - Cambodia Power Development Plan - April 2022 Scenario 4, page 31[50] MME ADB - Cambodia Power Development Plan - April 2022 Scenario 4, page 27[51] On this topic also see a very informative article recently published on the Phnom Penh Post: https://www.phnompenhpost. com/specialreports/powering-coal-what-cost[52] MME ADB - Cambodia Power Development Plan - April 2022 - Calculated based on graph page 26, scenario 4, with 3GWh Lao PDR Hydro imports,
the rest (17GWh coal or Thai/VN)

27c) Finance risk: China, Korea, Japan have all stated they will cease financing coalprojects. The proposed power plan for 2040 includes 3,100MW of yet-to-be-financed coalprojects. This includes the 2,400MW coal projects in Lao PDR, with a fixed price of
7.7c/kWh. With current coal prices, these projects will struggle to be financially viable
and therefore struggle to find investors. Power produced here will be expensive.
d) New & existing investment risk: International investors in manufacturing andproduction are already demanding a higher share (not a decreasing share) of renewableenergy if they are to continue to invest in Cambodia.
e) Electricity cost risk: Solar and wind power are the cheapest sources of newelectricity supply. Cambodia’s solar auction for the 40MW solar park was announced lastmonth at 2.67 cents/ kWh cost for the operator - in 2019, it was 3.9 cents/kWh and in
2016, it was 9.1 cents/ kWh.

Although prices have to be adjusted for land cost and HV infrastructure, they represent
lower prices than the purchase price offered by the 2,400 MW Laman and Xekong
thermal coal-fired power plants - which have an electricity production price of 7.7
cents/kWh.
Cambodia will lose a competitive advantage if the country does not embrace benefits
from lower generation prices offered by renewables opportunities.
Source: https://tradingeconomics.com/commodity/coal28

Net exports of fuels and electricity as a % of GDP – KHM=Cambodia
Source: https://www.worldbank.org/en/publication/global-economic-prospects

Source: https://www.cable.co.uk/energy/worldwide-pricing/

29Conclusions & Recommendations
We urgently suggest that the government prioritizes RE sources (solar and wind inparticular) and to set more ambitious/higher RE targets when finalizing the PDP 20212040. The total energy mix in 2040 should at least reflect the current RE share of above
51% of the total generation mix. Neglecting the private sector and overall economic
requirements to RE will undoubtedly damage Cambodia’s development in multiple
aspects.
In terms of industry, the current solar tariff situation (and “Capacity Charge”) in fact
penalizes the private sector that intends to install rooftop Solar PV:
Very high capacity charges are levied for solar projects
Inability to access off-peak cheaper nighttime rates;
Capped at 50% of the contracted load;
No export excess solar electricity to the grid).
Advances in automation and the positioning of Cambodia as part of regional supply
chains will make it crucial to reduce energy cost and consumption to:
Stay competitive vis-a-vis regional peers (Vietnam, Thailand)
Diversify from garment production towards more advanced industries
Better integrate Cambodia’s economy with its more advanced regional peers
Benefit from skill and labor transfers
Receive investment from international investors already in neighboring countries
Outsourcing from these markets
Attract new residents and investors
Attract quality buyers and brands sourcing from Cambodia
Therefore, a more favorable policy on Solar PV and RE is required to improve
Cambodia’s reputation as a “green” manufacturing, tourism and lifestyle
destination.
At the time of writing this document in October 2022, the Republic of Singapore has
engaged Cambodia in talks for the supply of renewable energy to Singapore via HVDC
subsea cable by 2028. Cambodia intends to take advantage of this deal that is said to be
worth more than 85000 Terawatts of solar radiation to share clean energy with
Singapore.
We would suggest the RGC consider floating solar farms to implement this solar project.
These investments do not take up space much needed, leaving open resources for
agriculture/food production, avoid land conflicts, and could even contribute to fisheries
revenues by creating an undisturbed environment for fish reproduction. Not to mention
ample availability of water bodies and the cooling effect that water creates, allowing
floating solar cells to operate more efficiently (gain of 5.3%).

30

ANNEX II: INDONESIA
This Chapter on Energy Transition in Indonesia has been prepared by the European
Chamber of Commerce in Indonesia (EuroCham Indonesia).
Executive Summary
Indonesia is the world’s 9th largest emitter of CO2 emissions while its per capita
emissions are well below half the global average. The country’s sustainable and low
carbon development is therefore crucially important for the country itself as well as theglobal community as a whole. It may go both ways.
Indonesia has an enormous renewable energy potential estimated to be 3,686 gigawatts(GW). But it is also the largest global coal exporter by far and struggling with fossil fuelpower generation over capacity. Statistics Indonesia (BPS) reports that the energy
demand in 2050 is expected to reach 2.9 billion barrels of oil equivalent (BOE) in 2050.
This figure is higher than the 2040 projection of 2.1 billion BOE[53]. The projected
increase in energy demand is in accordance with economic growth, population, energy
prices, and government policies. Much of that energy is directly or indirectly subsidised
to support low-income groups and economic development. Unfortunately, subsidies
also result in low energy costs making energy efficiency investments less likely.
There is a keen interest from domestic and international investors due to the potentialof resources as well as the size of its population, economy, and expected growth. But
the country is struggling to successfully introduce or implement regulations supporting
such investments or raising the price of energy even to at-cost levels. Only 0.3%, or 11.5
gigawatts (GW), of the renewable energy potential has been utilised as of 2021[54].
Introduction of a modest carbon tax has been postponed several times. The reasons are
numerous, but the main driver is that low energy cost, nutrition, education, and healthcare are – understandably – of greater priority to voters than sustainability. The COVID19 pandemic added to the difficulties and presented a major shock, especially to theenergy and economically important tourism sectors.
Efforts are being made. Just this year, in September 2022, a presidential regulation
about the procurement of renewable energy by PLN as been signed after more than two
years of deliberation.

[53] Ibid.
[54] https://en.antaranews.com/news/248989/only-03-of-indonesias-new-renewable-energy-potential-utilized31

It also establishes a legal foundation for the development of a road map for the early
retirement of coal-fired power plants, as well as the government's support through afinancing framework that includes blended financing from the state budget, which is
expected to reignite Indonesia's energy transition implementation[55].
The mid-term RUPTL (Electricity Business Plan) of the state-owned electricity provider,
PLN, must consider the national energy targets and is including an addition of 20.9 GWof renewable energy capacity by 2030[56].
There is also a diesel power plant conversion program attempting to convert or modify
5,200 diesel power plants with a total capacity of 2.37 GW towards low-carbon
alternatives across the country[57]. Geothermal exploration shall be carried out in 20
working areas with a total resource of 1,869 megawatts. There are also government
investments in off-grid NRE electricity infrastructure, such as solar-powered street
lighting and a regulation to allow solar rooftop net metering. Lastly, in mid-September
2022, the Government of Indonesia finally issued Presidential Regulation on Renewable
Energy Development (Presidential Regulation No. 112 of 2022)[58].
International financial support, as well as attention, will be crucial for sustainable
development in Indonesia. Some steps in this direction are the development of theEnergy Transition Mechanism by multilateral banks and impact investors, the Japanese
Joint Crediting Mechanism (JCM), or the renewed Norwegian forest preservation fund forIndonesia. Otherwise, it will be difficult to provide access to affordable, reliable, andsustainable energy for all while leaving no one behind.
We propose recommendations on how Indonesia may turn its effort into success at theend of this report. In essence:
Provide a clear and predictable path to international-level carbon pricing
Clear and predictable renewable energy procurement conditions, ideally backed up
by a strong and independent regulator
Reduce subsidies on energy to promote efficient development and investments inenergy efficiency
Indonesia’s energy needs for the future
Indonesia is a large archipelago of over 17,000 islands spanning 5,000 kilometres acrossSoutheast Asia and Oceania. With a population of 269 million people, Indonesia is the
fourth most populous country in the world. More than half of its population lives on theisland of Java, where economic activity is concentrated. The other half is distributed over
Sumatra, Bali, the Southern parts of Borneo, and about 6.000 smaller inhabited islands.

[55] UMBRA Newsletter 15 September 2022
[56] https://en.antaranews.com/news/248989/only-03-of-indonesias-new-renewable-energy-potential-utilized[57] Ibid.
[58]
https://ebtke.esdm.go.id/post/2022/09/15/3261/telah.terbit.peraturan.presiden.ri.nomor.112.tahun.2022.tentang.percepatan.pengembangan.energi.ter
barukan.untuk.penyediaan.tenaga.listrik

32

The economy of Indonesia is heavily dependent on energy, and the nation's progress
depends on the segment's fair and practical development. Especially in the form of coal,natural gas, metals, and other mining and agricultural goods, Indonesia has anabundance of commodities. The energy industry and economy as a whole are based on
the extraction of natural resources.
Indonesia has been a net oil importer since 2004[59]. existing oil and gas fields arenearing depletion and new exploration and development has been slow over the last
decade.
But Indonesia is the 5th largest coal producer in the world exporting about 80% of its
500 million ton produced per year[60]. This makes Indonesia the world’s largest coalexporter by weight[61]. Palm oil is the largest export product by value[62].
With its demographic and geographic situation, Indonesia has vastly different challenges
depending on the region. Access to electricity is generally available in the connectedtransmission and distribution grids of Java, Madura, and Bali (“Jamali Grid”). A large
capacity extension program over the past ten years has even resulted in an oversupply
situation.
Meanwhile more remote areas depend on small diesel power generation, sometimes
managed by local communities in private initiative.
The government of Indonesia has policies in place to level this imbalance and promotes
economic development in regions outside of Java-Bali. One strong signal is plans to
relocate the capital city to the province of East Kalimantan (Southeast Borneo). Gridinterconnections between the Islands are part of the midterm energy plan (RUPTL 20212030)[63].
Strong drivers for future energy needs are large smelter developments. These smelters
are the result of regulations requiring domestic ore processing prior to export and areoften located outside the Jamali grid, e.g. eastern Sulawesi. Another factor is Indonesia’s
support to expand electric mobility on a large scale. This is a policy driven by the desire
to build a local manufacturing base for electric vehicles and batteries, absorb excess
capacity in the Jamali grid, and reduce oil imports.
These policies are also driven by a desire to reduce oil imports while expanding
domestic use of available resources such as coal and palm oil. Further examples of thisdevelopment are initiatives to expand biodiesel quotas and coal-to-liquid/gas projects.

[59] https://www.eia.gov/todayinenergy/detail.php?id=23352[60] https://www.worldometers.info/coal/indonesia-coal/[61] https://www.iea.org/reports/coal-2020/trade[62] https://oec.world/en/profile/country/idn[63] https://web.pln.co.id/statics/uploads/2021/10/ruptl-2021-2030.pdf

33

Generally, energy policy in Indonesia is driven by the mantra of security of supply,
affordability, and access. While public electrification rates have increased successfully,
the structure may be unable to keep up with demand. The cost of required additional
public generation capacity until 2025 is estimated to be $154 billion, but obtaining
financing will be difficult given the impact of the COVID-19 pandemic on public sector
earnings[64] as well as subsidies on Energy.
A major concern is the financial viability of the State Electricity Corporation (PLN) which isstruggling with low regulated electricity tariffs, a 15% falloff in electricity demand in 2020
during the pandemic, and increasing fuel prices as well as legacy power plant projects
resulting in significant overcapacity in the Jamali grid.
Statistics Indonesia (BPS) reports that energy demand in 2050 will reach 2.9 billion
Barrels of Oil Equivalent (BOE) in 2050.
This represents an increase from the 2040 projection of 2.1 billion BOE. The projected
increase in energy demand is in line with economic growth, population, energy prices,and government policies. With regards to the sector, energy demand will be dominatedby the industrial sector with an estimated average growth of 3.9% per year. This issubsequently followed by the commercial sector, household, and other sectors that also
continued to increase in line with economic and population growth. Meanwhile, thetransportation sector’s growth rate is estimated to be lower than the industrial sector,
which is at 3.2% per year[65].
By type, final energy demand is still dominated by fossil fuels with an average growthrate of 2.8% per year[66].
In addition, biodiesel use has increased due to its role as a substitute for fossil fuels.
Finally, the expansion of electricity-based technological innovations in almost every
sector, such as electric vehicles, is expected to result in an increase in electricity demandwith a growth rate of 4.7% per year by 2050[67].

[64] Ibid.
[65] https://databoks.katadata.co.id/datapublish/2021/12/03/kebutuhan-energi-indonesia-diproyeksikan-capai-29-miliar-setara-barel-minyak-pada-2050[66] Ibid.
[67] https://www.adb.org/sites/default/files/institutional-document/666741/indonesia-energy-asr-update.pdf

34Future risks of climate change in Indonesia and the implications to energy
transition
Indonesia is highly vulnerable to the effects of climate change, including extreme events
such as floods and droughts, as well as long-term changes caused by sea level rise, shifts
in rainfall patterns, and rising temperatures[68]. Therefore, steps towards energy
transition are high on the agenda. The energy transition is a long process that must be
carried out by countries globally to reduce carbon emissions that can lead to climatechange. The agreement in the energy transition aims to reach the same point, namely
the use of clean energy that continues to increase. President Joko Widodo has said thatIndonesia will achieve Net Zero Emission (NZE) in 2060 or sooner.
Given Indonesia's important geographical position in the global ocean conveyor belt
(thermohaline circulation), the largest archipelagic country and its tropical rainforests
rich in biodiversity, high carbon reserves as well as energy and mineral resources,
Indonesia is known for its role in efforts to deal with climate change[69]. However,Indonesia is also vulnerable to natural disasters that will be exacerbated by climatechange, especially in low-lying areas throughout the archipelago. Therefore, Indonesia
views comprehensive land-based and maritime adaptation and mitigation efforts as a
strategic consideration to achieve climate security related to food, water, andenergy[70].
Indonesia's Nationally Determined Contribution (NDC) outlines Indonesia's transition toa low-emissions and climate-resilient future. The NDC describes increased actions andsupportive conditions during the 2015-2019 period that form the basis for setting more
ambitious goals beyond 2020, which contributes to efforts to prevent a global
temperature rise of 20oC and pursue efforts to limit global temperature rise by 1.50oC
compared to pre-industrial times[71]. For 2020 and beyond, Indonesia views theachievement of archipelagic climate resilience as a result of implementing acomprehensive adaptation-mitigation program and disaster risk reduction strategy.
Indonesia has set ambitious goals for sustainable consumption and production related
to food, water, and energy. This goal will be achieved through empowerment andcapacity building, improving basic health and education services, technologicalinnovation, and sustainable natural resource management in line with good governanceprinciples[72].

[68]
https://climateknowledgeportal.worldbank.org/country/indonesia#:~:text=Indonesia%20is%20highly%20vulnerable%20to,rainfall%20patterns%20and%
20increasing%20temperature.
[69] Ibid.
[70] Ibid.
[71] Ibid.
[72] http://greengrowth.bappenas.go.id/updated-ndc-indonesia-untuk-masa-depan-yang-tangguh-iklim/

35

The international, regional, and domestic commitments that Indonesia maderegarding energy transition
Indonesia has a key role in the global effort to contain global warming to 1.5°C. It is 9thlargest emitter of fossil CO2 emissions in 2019 (with EU28 considered as a single block).
It is also the world’s fourth most populous nation. The CO2 emissions of 2.321 tCO2 percapita are therefore well below the global average of 4.93 tCO2 per capita[73]. Low
carbon intensity of Indonesia’s expected economic development is therefore criticallyimportant.
Indonesia actively participates in negotiations on the environment, climate change andsustainable development, and sometimes even take a leading position in such matters.
The Joko Widodo presidency incorporated commitment towards climate change by
putting in the National Medium Term Development Plan 2015-2019 a statement, “toenhance the quality of environment, disaster mitigation, and climate change.” Under
President Joko Widodo, Indonesia ratified the Paris Agreement in 2016 by promulgating
Law No. 16 of 2016 concerning Ratification of the Paris Agreement to The United
Nations Framework Convention on Climate Change[74].
As part of the Paris Agreement, Indonesia has pledged to reduce its national emissions
by 29 percent below its baseline emissions by 2030. In line with the Paris Agreement, in
COP26, Indonesia committed in a new ‘Global Coal to Clean Power Transition Statement’to phasing out coal power, scaling up clean power, and ensuring the transition awayfrom coal[75]. To accelerate the transitions, Indonesia also announced a partnershipwith the Climate Investment Funds and a pioneering partnership with the AsianDevelopment Bank[76].
In addition, Indonesia improves its Nationally Determined Contribution (NDC) in 2021.
The most noticeable difference as part of NDC 2021 is that various changes have been
made to the 2020-2024 Medium Term Plan and Indonesia's Vision 2045[77]. Updated
NDCs reflect progress beyond existing NDCs, particularly in increasing adaptation
ambitions, increasing clarity on mitigation by adopting the Paris Agreement rulebook(Katowice Package), aligning national contexts with existing conditions, milestonesaligned with national development period 2020-2024, and an indicative path towards along-term vision (Vision Indonesia 2045) and Long-Term Strategy on Low Carbon andClimate Resilient Development 2050 (LTS-LCCR)[78].

[73] JRC Report „Fossil CO2 emissions of all world countries - 2020 Report” https://publications.jrc.ec.europa.eu/repository/handle/JRC121460[74] Retrieved https://workingpapers.bappenas.go.id/index.php/bwp/article/view/100/73[75] https://www.ekon.go.id/publikasi/detail/3420/pertemuan-cop26-indonesia-sampaikan-komitmen-kembangkan-ekonomi-hijau-dan-kuatkan-ikliminvestasi
https://katadata.co.id/yuliawati/ekonomi-hijau/6188c1070bd18/dalam-cop26-pertamina-komitmen-turunkan-emisi-29-pada-2030[76] https://workingpapers.bappenas.go.id/index.php/bwp/article/view/100/73[77] https://iesr.or.id/en/check-out-6-differences-in-indonesias-2016-ndc-and-2021-update-results[78] http://greengrowth.bappenas.go.id/updated-ndc-indonesia-untuk-masa-depan-yang-tangguh-iklim/

36

In addition, to supplement this latest NDC, the MEF has issued a Long-Term Strategy
document[79]. Furthermore, the Indonesian government describes three climatechange risk mitigation scenarios: CPOS (Current Policy Scenario), TRNS (Transition
Scenario), and LCCP (Low Carbon scenario Compatible with Paris Agreement). In
addition to emission reduction targets, these three scenarios have a direct impact on
per capita income and government investment costs.
The government-owned electricity company, PLN, is tasked to help Indonesia reduce
temperature rises by gradually transitioning steam power plants to renewable energy
from 2030 to 2056. PLN will begin the first phase of retiring an old fossil fuel power plantof 1 gigatonne (GW) in 2030, followed by the shutdown of 9 GW of subcritical plants in2035[80]. The electricity company will then retire 10 GW of supercritical plants by 2040.
The retirement of 24 GW of ultra-supercritical plants will begin in 2045. The last of the 5
GW ultra-supercritical plants will be retired in 2055[81].
In terms of regional commitment, ASEAN member states issued a joint statement in
preparation for COP26, reaffirming their commitment to addressing the climate
emergency. The data emphasises the region's achievement of 21% energy intensity
reduction in the energy sector, exceeding its aspirational target, and 13.9 percent
renewable energy share in the energy mix in 2018[82]. The new ASEAN Plan of Action
for Energy Cooperation aims to reduce energy intensity by 32% by 2025. Phase II: 20212025 (APAEC 2016-2025)[83].
During the event, the ASEAN decision-makers expressed their contributions in different
ways. Indonesia announced its new regulation that puts a price on emissions andmechanisms to trade carbon[84]. The carbon emissions market should be implemented
transparently and inclusively, as the scheme should not be used to allow countries toavoid reducing emissions.
Indonesia is one of the forty signatories to the Global Coal to Clean Power Transition
Statement, an international effort to transition away from unrestricted coal power
generation by 2040, or as soon as possible thereafter. Indonesia and the Philippines,
however, excluded the third clause, which prohibits the issuance of permits for new
unabated coal-fired power plants. This has to be seen in light of Indonesia being one of
the world’s largest coal producers[85].
Some national, not multilateral, targets are to reach 23% of primary energy consumption
from renewable sources and a mix of 30% biofuel in the national diesel supply, 22% gas,
55% coal, and 0.4% oil by 2025[86][87].
[79] ibid[80] https://workingpapers.bappenas.go.id/index.php/bwp/article/view/100/73[81] ibid[82] https://aseanenergy.org/cop26-aseans-commitment-in-the-energy-sector-economy/[83] http://ditjenppi.menlhk.go.id/reddplus/images/adminppi/adaptasi/dokumen/Updated_NDC.pdf[84] https://aseanenergy.org/cop26-aseans-commitment-in-the-energy-sector-economy/[85] ibid[86] https://www.purnomoyusgiantorocenter.org/the-23-nre-target-within-grasp-or-not/[87] https://www.adb.org/sites/default/files/institutional-document/666741/indonesia-energy-asr-update.pdf

37

Presidential Regulation No. 112 of 2022 on the Acceleration of Renewable
Energy Development for Electricity Generation
The Indonesian government has issued Presidential Regulation (PR) No. 112 of 2022 on
the Acceleration of the Development of Renewable Energy for Electricity Generation (PPNo. 112/2022)[88] in September 2022. It is a long-awaited regulation and importantbecause the sector has previously been regulated by ministerial regulations. The hope isthat a presidential regulation will better align the relevant ministries of Energy, State
Owned Enterprises, Environment, Finance, and Industry. The regulation covers fivesubjects which are Electricity Business Plan (RUPTL) and energy transition roadmap forthe electricity sector; mechanisms, contracts, and electricity purchase prices;
government support on renewable energy; monitoring and supervision; and transition
provisions[89]. The MEMR is mandated in this recent regulation to prepare a road mapon the acceleration of early retirement of coal-fired power plants (CFPP) after
coordinating with the Ministry of Finance (MoF) and Ministry of State-owned Enterprises(MSoE), which will stipulate: reduction of CFPP GHG emissions; strategies to accelerate
CFPP early retirement; and harmonization with other various policies[90]. There arevarious minimum criteria set out in PR 112/2022 that PLN must perceive when
implementing the CFPP early retirement program, including the availability of domestic
and international financial support, emphasising the importance of financing support toallow successful implementation of the CFFP early retirement program. PR 112/2022
also states that the government may provide fiscal assistance in the form of funding andfinancing, including blended finance sourced from the state budget and/or other
legitimate sources, in order to accelerate the energy transition. This will be regulated
further in a MOF regulation[91].
In contrast to MEMR Reg. 4/2021[92], which stated that the price for renewable energy
electricity purchase must refer to PLN's cost of supply (BPP), PR 112/2022 states that theprice for renewable energy electricity purchase will be based on a ceiling price, which will
apply to all types of renewable projects regardless of capacity (including solar and windprojects with battery systems, Expansion Projects, and Excess Power); or an agreement,
which will apply only to hydro peaker[93]. PR 112/2022 specifies the ceiling price andpurchase price based on agreement, which are distinguished based on the types ofrenewable energy power plants and by also taking power plant capacity into account,with the ceiling price for smaller scale projects being higher than the ceiling price forlarger scale projects. The mechanisms outlined in PR 112/2022 are generally the sameas those outlined in MEMR Reg 4/2021 because both regulations use a specific cap forthe purchase price, but the cap reference differs. MEMR Reg 4/2021 is about the BPP,
while PR 112/2022 is about the ceiling price[94].

[88]https://ebtke.esdm.go.id/post/2022/09/15/3261/telah.terbit.peraturan.presiden.ri.nomor.112.tahun.2022.tentang.percepatan.pengembangan.energi.ter
barukan.untuk.penyediaan.tenaga.listrik[89] https://pro.hukumonline.com/a/lt6322cdf73f95e/peraturan-energi-terbarukan-untuk-penyediaan-tenaga-listrik-akhirnya-terbit[90] UMBRA Newsletter 15 September 2022
[91] ibid[92] https://peraturan.bpk.go.id/Home/Details/141259/permen-esdm-no-4-tahun-2020[93] UMBRA Newsletter 15 September 2022
[94] ibid38

PR 112/2022 requires PLN to use domestic products in the implementation of RUPTL
and to report to MEMR every 6 months until the commercial operation date on its TKDN
implementation for renewable energy power plants[95]. PR 112/2022 also directs the
Minister of Industry to assist business entities with local content requirements, such asdetermining import quotas for renewable power plant components based on
domestic/national supply capability[96]. Such assistance will be further regulated in a
Minister of Industry regulation.
However, the introduction of numerous new concepts stipulated in PR 112/2022 is notwithout controversy.Some items in the regulation will require additional implementing
regulations to be implemented, such as CFPP early retirement. Furthermore, thetransition from a different tariff concept to a single tariff concept under PR 112/2022 will
necessitate additional clarification on how this concept will be implemented in the PPAs
tariff stipulation, which, in general, has a different tariff concept than a single tariff
concept. It remains to be seen whether PR 112/2022 will actually boost renewableenergy development in Indonesia, or if it will simply become another regulation in a slew
of regulations aimed at encouraging renewable energy development[97].
The role of fossil fuels in Indonesia’s energy transition
The energy sector is the second largest contributor of emissions after agriculture,
forestry, and other land uses. 8.5 million new vehicles are entering Indonesian roads
each year and 91% of its energy supply is currently from fossil sources[98]. The current
power generating capacity of about 40GW from coal is expected to rise further until
slowly declining from a 60GW peak expected in 2030.
The heavy dependence on coal as well as the political sensitivity of energy prices has
resulted in policies making coal-generated electricity artificially cheap. In 2022, theGovernment budgeted US$37.75 billion or 19.87% of its total 2022 expenditure budget
for subsidies and compensation in order to keep most energy and fuel prices
unchanged despite soaring global energy prices and significant domestic inflation. This is
more than Indonesia’s 2022 healthcare budget of US$17.73 billion, defence budget of
US$9.3 billion, and national police budget of US$ 6.1 billion combined.[99]This amount does not include the economic loss of opportunity cost of the coaldomestic market obligation forcing coal miners to sell 30% of production to the local
market at regulated prices. The cost of this policy is estimated at up to US$ 26.31 billion
adding another 70% to the official energy subsidy budget[100].

[95] Ibid.
[96] Ibid.
[97] Ibid.
[98] See:https://www.adb.org/sites/default/files/institutional-document/666741/indonesia-energy-asr-update.pdf[99] Bill Sullivan, “Coal BLU Scheme – Rearranging the deck chairs on the titanic”[100] Ibid.

39

These mechanisms make renewable energy sources seem uncompetitive – with nosimilar mechanisms in place. Another major issue is the expansion continued expansionof coal power plant capacity into an already saturated electricity market. This
overcapacity pushes PLN into rejecting renewable power plant development specificallyin the Jamali grid system – be it captive or IPP. This is projected to change from 2030
when coal and other fossil fuel power plant assets are starting to retire.
At the same time is this development promotes the expansion of electric vehicle use.
The policies are designed to increase power absorption and the development of adomestic manufacturing industry around electric mobility. But it may also be the nucleus
for an infrastructure to better deal with renewable intermittent sources in the future.
The cost of importing oil-based fuels as well as a weak market for edible oils late in thelast decade has resulted in a B30 policy to increase the mix of biodiesel to 30%.
Another policy pushed by the high cost of oil imports and the abundance of coalresources is a program to expand DME production in lieu of LPG.
Indonesia’s challenges with energy transition
Since 2014 the Government of Indonesia has set a target of reaching 23% renewableenergy in its primary energy consumption by the year 2025. In 2021 the Ministry ofEnergy and Mineral Resources reported to have reached 11.5%, which is only 0.3%
points more than in 2020[101]. A carbon tax and trade system introduced by the tax law
in 2021 has twice been postponed and is currently in jeopardy due to the high fossil fuelprices and the expected burden on PLN – despite the small amount of only about US$
1.5 per ton of CO2 (floor price potentially exceeded by trading prices). Clearly, there arechallenges with the Energy transition in Indonesia.
Most of the drivers have been described in the previous section; they are energy
subsidies distorting the market for fuels and electricity, oversupply of existing capacity inthe main markets of Java and Bali as well as the political sensitivity of energy prices ingeneral. This is understandable in a developing country where energy cost is a
substantial part of disposable spending for most of the population and sufficient supply
is not always and everywhere guaranteed. Indonesia’s President, Joko Widodo, hadpreviously revealed Indonesia’s three main challenges in energy transition[102]. The first
concern is access to clean energy. In the energy transition, the reality is that not all
Indonesians have access to affordable, dependable, sustainable, and modern energy.
The government and key stakeholders in clean energy development must promote theavailability of clean energy for all, particularly energy used for electrification and clean
cooking so that no one is left behind[103].

[101] Retrieved https://katadata.co.id/maesaroh/ekonomi-hijau/61e4fb91ae585/realisasi-bauran-ebt-sepanjang-2021-hanya-11-5-jauh-di-bawah-target[102] https://setkab.go.id/en/president-jokowi-reveals-three-big-challenges-in-just-energy-transition/[103] Ibid.

40

Another major obstacle is the difficulty to integrate the whole country into one electricalsystem. Numerous independent grid sections exist and are often separated by water.
Plans to interconnect these systems are being developed but require large financial
resources and will take a long time to be implemented.
Successes are possible where industry and political interests align. An example is thebiodiesel policy which has reached its goals of 30% biodiesel supply, an increased priceof palm oil as well as reduced oil imports for the diesel sector. A transition towards
electric mobility is favoured by a political desire to improve electricity absorption as wellas the establishment of a manufacturing base.
A CO2 trading scheme is more likely to succeed if it opens the door for export revenues
or investment foreign direct investment in return for the (temporary) transfer of carbon
credits to supporting countries without burdening the domestic economy andspecifically PLN. There are great hopes that multilateral carbon funds and other partners
can support such schemes. Japan is already implementing a mechanism along theselines.
A breakthrough might be the Energy Transition Mechanism (ETM) which is aiming tofund the early retirement of coal power plants. If successful, this could help reduce theelectricity oversupply situation and expansion of renewable power generation inIndonesia. As mentioned above, the Indonesian Government, in partnership with the
ADB, has committed to running one or more pilot projects to test the ETM. Lastly,
Indonesia is also supporting the use of depleting natural gas and oil fields for CCS/ CCUS
(Carbon capture and storage/ Carbon capture, utilisation, and storage)[104]. But theseprojects are currently struggling with economic concerns. The CCS/CCUS program isplanned in combination with a program to produce Dimethyl Ether (DME) from coal isbeing developed to lessen Indonesia’s dependence on oil and gas imports to provide analternative market to the coal industry for the future.
Finally, funding is a barrier to expanding and increasing the NRE mix in Indonesia.
Developers will have limited financing options if NRE projects are not bankable[105]. To
attract more investment in NRE, the government should also regulate tax breaks andattractive sales-purchase agreements within the PLN scheme[106].
Green Agenda Financing
The global challenges posed by the COVID-19 pandemic were unprecedented. The initial
epicentre, the health crisis, quickly expanded into a multidimensional crisis that causedsocioeconomic disruption. Various global macroeconomic indicators also recorded 'red'values, which governments in various countries have been attempting to combat withhuge money in fiscal stimulus[107].

[104] Ibid.
[105] https://www.reuters.com/article/indonesia-energy-idUSL1N2R106T[106] https://www.reuters.com/article/indonesia-energy-idUSL1N2R106T[107] http://portal.fiskal.kemenkeu.go.id/pustaka/index.php?p=show_detail&id=5950&keywords=green+economy

41However, amidst these economic recovery efforts, the world continues to face the samecatastrophic challenge, namely the threat of climate change. The World HealthOrganization (WHO) report shows that climate change affects more than 250,000 people
every year due to malnutrition, malaria, diarrhoea, and heat stress[108]. In fact, recent
research has shown that climate change correlates with the spread of the COVID-19
pandemic. In January 2021, a study found in the journal Science of the Total
Environment revealed the first evidence of a mechanism by which climate change canplay a direct role in the emergence of SARS-CoV-2, the virus that causes Covid-19[109].
In addition, the experts also explained that COVID-19 is not the only infectious diseaseassociated with climate change. Over the years, the WHO has forged a link betweenchanging environmental conditions and disease epidemics[110].
Climate change will pose a serious threat to humanity in the future. The world must shift
from a "black" economy that relied on fossil fuels such as coal and oil to a "green"
economy that prioritises harnessing renewable energy sources such as solar power,
wind power, and hydropower for long-term growth. Green economy itself, as portrayedby UNEP (United Nations Environment Program), serves as a system that improves
welfare and is a social phenomenon that significantly reduces risks to the environment
and the ecology; low carbon, resource efficient, and socially inclusive[111]. Therefore,
what steps need to be taken by the world in implementing a green economy andmitigating the impacts of climate change?
The UNEP report on emissions, that the earth's temperature has now experienced avery significant increase, with the average warming rate over the last fifty years almost
doubling the average warming of the last hundred years. This indicator has become oneof the main control targets in climate change, including those that have been ratified by
187 countries in the 2016 Paris Agreement[112]. As part of its commitment to reducing
climate change, Indonesia has developed a green growth program with a variety ofpolicy combinations in terms of content, institutions, and finance. Indonesia targets a
29% emissions reduction using its resources and efforts or a 41% reduction if it receives
international cooperation from a business as usual (BAU) scenario by 2030 in the NDC(Nationally Determined Contribution) document[113].
In expansion, Indonesia must include viewpoints of climate alteration within the 20202024 RPJMN through three endeavours, specifically making strides in the quality of theenvironment; expanding catastrophe versatility and climate alter; and low-carbon
advancement. In terms of climate governance in Indonesia, many ministries/agencies are
involved in sustainable development efforts. The Ministry of Finance bears the
responsibility for financing and funding through the fiscal instruments of the State
Budget.
[108] https://www.who.int/news-room/fact-sheets/detail/climate-change-and-health[109] https://www.cam.ac.uk/research/news/climate-change-may-have-driven-the-emergence-of-sars-cov-2[110] https://www.who.int/news-room/fact-sheets/detail/climate-change-and-health[111] https://www.unep.org/regions/asia-and-pacific/regional-initiatives/supporting-resource-efficiency/green-economy[112] https://www.kemenkeu.go.id/publikasi/artikel-dan-opini/pandemi-momentum-transformasi-green-economy/[113] http://greengrowth.bappenas.go.id/en/what-is-green-climate-fund-and-how-to-access-it-in-indonesia/42

In terms of income, expenditure, and financing, the arm's-length State Budget isintended to be a catalyst for low-carbon development while accelerating the process oftransforming the green economy, including mobilising various parties to take roles inclimate change mitigation commitments[114]. In terms of state revenues, the current
policy direction is directed at efforts to stimulate the development of new andrenewable energy. The Ministry of Finance provides various tax facilities in the form oftax holidays, tax allowances, import duty exemptions, reductions in VAT, Income Tax isborne by the government, and reductions in PBB (Land and Building Tax) to support thedevelopment of geothermal and other new renewable energy[115]. On the expenditureside, the Ministry of Finance implements the Climate Budget Tagging (CBT) policy toensure the alignment of budgetary commitments between the central and local
governments in addressing climate change.In terms of the financing side, the Ministry of
Finance develops innovative and prudent financing through the issuance of Green
Sukuks, SDGs Bonds, and other 'green financing' instruments[116].
However, the government continues to face the challenges of limited funding sourced
from the State Budget (APBN).During 2016-2019, the average realisation of spending on
climate change only touched Rp. 86,7 trillion from the ideal requirement of Rp. 266,2
trillion per year (before the NDC roadmap). Meanwhile, in the future, the need per year
will reach Rp. 343,6 trillion[117]. The size of the financial gap needs to be anticipatedand minimised through a comprehensive strategy mix. These include increasing theprivate sector's contribution to sustainable development through tax incentives,
strengthening the role of local governments through the RCBT (Regional Climate Budget
Tagging) program, and strengthening sustainable financing platforms[118]. The
government's initiative in implementing the Carbon Pricing or NEK (Carbon Economic
Value) policy is currently in the spotlight. Carbon pricing will provide an opportunity to
reduce greenhouse gas emissions while also providing a new source of funding forsustainable development.
The Continued Subsidy on Fuels
Since the beginning of the twenty-first century, the Indonesian government has
attempted numerous times to reform gasoline and diesel subsidies. Because thegovernment has the mandate to provide affordable energy to the poor, subsidies are
more targeted. In the 1970s, seven types of fuel were subsidised: aviation kerosene,
aviation gasoline, marine fuel oil, industrial and marine diesel oil, diesel, gasoline, andkerosene. However, aviation kerosene and gasoline have not been subsidised since
1999[119]. Until recently, the government heavily subsidised the majority of fuels tokeep energy prices stable and affordable for all levels of society. By keeping energy
prices below market, it allows low-income people to access energy that they could nototherwise afford.

[114] https://www.kemenkeu.go.id/publikasi/artikel-dan-opini/pandemi-momentum-transformasi-green-economy/[115] https://www.kemenkeu.go.id/publikasi/artikel-dan-opini/pandemi-momentum-transformasi-green-economy/[116] Ibid.
[117] Ibid.
[118] Ibid.
[119] Retrieved https://www.oecd.org/fossil-fuels/publication/Indonesia%20G20%20Self-Report%20IFFS.pdf

43

The policy also aims to optimise the use of fossil energy to propel the Indonesian
economy. As the most reliable energy source, securing fossil energy is critical fordeveloping countries to meet rising energy demands[120].
Energy subsidy implementation impedes the growth of renewable energy sources byencouraging the increased use of fossil fuels. Renewable energy becomes less costcompetitive with fossil fuels as a result of subsidies, and the general public has lessaccess to it. The provided subsidy might not fully account for the harmful externality of
the used fossil fuels. So, in terms of attempts to enhance Indonesia's renewable energy
mix and lessen the effects of climate change, the increased energy subsidies can beseen as a step backward[121].
Subsidies for liquefied petroleum gas (LPG) are expected to rise significantly in 2022,
from an estimated IDR 49.9 trillion (USD 3.38-3.48 billion) in 2021 to an estimated IDR
66.3 trillion (USD 4.62 billion) in 2022, as consumption is expected to rise from 7.5
million tonnes in 2021 to 8 million tonnes in 2022[122]. The state budget allocation for
subsidies was increased from 152 trillion rupiah ($10.2 billion) to 502 trillion rupiah($33.8 billion), according to a statement made by President Joko Widodo lastmonth[123]. These costs have risen dramatically as a result of rising global crude oil
prices and widespread public use of subsidized fuel and LPG. If the situation between
Russia and Ukraine is not resolved, energy subsidies will be increased. On the one hand,
this policy is required to preserve the populace's purchasing power and economic
stability in the aftermath of the COVID-19 pandemic. The implementation of the energy
subsidy, on the other hand, may have several unintended consequences. As a result,Indonesia's renewable energy reform remains uncertain because the country is still
reliant on fuel subsidies.
And these numbers do not yet include the cost of the domestic market obligation in thecoal sector, see chapter above.

Recommendations:
EuroChamIndonesia
proposesthefollowingrecommendations.
These
recommendations draw on the experience from the European success story in
becoming the world leading region in renewable energy generation and expertise, as
well as our members’ long-standing experience in Indonesia. These recommendations
are stated in our 2022 Energy Position Paper, which available in our website.

[120] Retrieved https://www.oecd.org/fossil-fuels/publication/Indonesia%20G20%20Self-Report%20IFFS.pdf[121] Ibid.
[122] Retrieved https://thedocs.worldbank.org/en/doc/9ef37aadd64d2804fd42171bedf9e1b2-0070012021/related/IEP-Presentation-Dec-2021-PartB.pdf.
[123] Ibid.

44

Financial Perspective
Provide a clear and predictable path to international level carbon pricing – the mostefficient way to reduce the cheapest emissions first and to put a price on
externalities.
Provide incentives for private sector energy efficiency projects or the purchase ofenergy efficient industrial or consumer products (certified EE-Products). This isespecially useful in regions with subsidised electricity. Otherwise, there is no reason
for facility- or home owners to purchase higher-cost energy efficiency products when
the financial returns are so poor due to the often artificially low energy cost.
Exempt interest payments from withholding taxes for all foreign infrastructure loans.
Granting this exemption to foreign infrastructure loans will level the playing field,
provide cheaper finance, and allow for more competitive bidders as withholding
taxes are usually considered non-recoverable cost by foreign financing institutions.
Embrace the Energy Transition Mechanism that has been presented by ADB whichaims to find a mechanism to acquire and transition coal fired power plants to a net
zero Scenario.
Regulatory Perspective
Establish a strong and independent electricity regulator to organise tenders for
power generation systematically and transparently as well as to settle disputes
between PLN, IPPs and users. Through this mechanism, PLN will still be responsible
and free to plan demand and supply, but the type of power generation and tender
will be controlled by an independent regulator. PLN will also be free to participate
directly or through its subsidiaries in such tenders.
Provide PLN decision-makers with clear guidelines and targets to encourage
decisions that support government targets or find a way to remove the conflict ofinterest PLN is currently facing.
Allow corporate PPA’s for renewable and hybrid on-site power generation projects aswell as off-site power wheeling structures.
Provide clarity to coal-fired power stations (PLTU) about possibilities to reduce oroffset carbon emissions. Make this as flexible as possible to promote competition forthe best ideas and lowest-hanging fruit. Do not limit PLTU operators to biomass cofiring and grid-connected renewable power offsets.
Unlock energy efficiency potential in the government sector by mandating energy
consumption reduction across all government-owned facilities (including SOEs) by aminimum of 17% by 2025 in line with the national target[124]. And mobilise private
capital investment, e.g., through Energy Savings Companies (ESCOs), by allowing
budgeting for multi-year contracts between government entities and ESCOs to sharethe savings from such private investment in government energy efficiency projects.

[124] Draft Rencana Umum Energi Nasional 2016, KESDM and Draft Energy Conservation Master Plan (RIKEN), 201345

Contracting Perspective for IPPs
Simplify and clarify procurement processes with predictable pricing mechanisms and
PPA terms to reduce costs and attract investment: the current framework requires
costly and time-consuming vendor qualifications, and extremely costly PPA
negotiations due to unclear tender procedures. The current unpredictability andcomplicated processes deter investors from participating and render smaller
projects too costly as a result of disproportional overhead expenses.
Provide higher prices or incentives for non-intermittent (i.e., dispatchable) renewable
power generation over intermittent sources.
Remove shareholder composition requirements and especially the participation of
PLN or its subsidiaries in IPPs from being a requirement in IPP tendering. The“assignment scheme,” and to a lesser extent the “mandatory participation scheme”
wherein private investors are forced to accept a PLN equity and governanceparticipation, lead to substantially higher costs, risks as well as potential conflicts ofinterest.
General Perspective
Improve PLN’s financial position
Electricity prices should be increased to reflect PLN’s actual costs (production,transmission, distribution, cash collection) to foster energy savings and investments
in renewable energy. Targeted subsidies could still be provided to those in need.
Equal support for all biofuels
Use the Palm Oil Estate Crop Fund to support compressed biogas (“bioCNG”) andpower generation from the sustainable palm oil industry’s unused biomass potential.
This would be like the biodiesel mechanism and will directly benefit oil palm growers,
while making more valuable CPO available for export.
Unbundling energy supply and generation
We recommend attracting private investment through unbundling. “Unbundling” isthe separation of energy supply and generation from energy transmission anddistribution grids by having them operated in separate independent entities. This will
improve transparency and reduce conflict of interest between grid operation andpower generation.
Affordable energy in remote areas
Many remote locations are currently supplied through very expensive local off-griddiesel generation, or through short-term solutions such as solar home packs. Manyinternational companies have developed solar + battery mini-grids that can be
integrated at a much lower cost. These grids provide more stable and sustainable
electricity to the villages and help the Government fulfil its objectives. To realise suchopportunities, a particular regulatory framework and revenue certainty is required.

46

While the acceptability of private parties electrifying remote areas remains aquestion, we believe that IPPs or PPP schemes are the most beneficial andcompetitive option, while allowing PLN to still manage the last meter electricity
supply.
Carbon Pricing Mechanism
Introduce clear and transparent implementing regulations for the existing laws on
emission pricing and offsetting. These rules should provide a clear outlook on staged
cost increase of carbon to immediately trigger long-term investment in emission
reduction projects and Indonesia’s energy transition.
Prioritise low-carbon power generation
Implement a CO2-based merit order to prioritise electricity dispatch from efficient
low-emitting power plants.

47

ANNEX III: MALAYSIAThis Chapter on Energy Transition in Malaysia has been prepared by the European
Chamber of Commerce in Malaysia (EuroCham Malaysia).
Executive Summary
Malaysia has seen consistent growth in both its population and GDP which has
increased its position as a regional player both politically and economically. However,
together with that growth, Malaysia’s energy needs have dramatically increased withpredictable impacts on the immediate environment and climate. Therefore, one of thecritical problems facing Malaysian policymakers is how to provide for the future energy
needs of the country in a sustainable and carbon-neutral way?
This paper acknowledges the significant steps that Malaysia has taken in this direction
while also pointing out the major pitfalls in Malaysia’s current energy mix, green
financing ecosystem and policy strategies. We advocate for a greater politicalcommitment to actions that can directly impact Malaysia’s path to a carbon-neutral
economy. Moreover, we call upon the government to make the most of public-private
partnerships in the future to leverage all necessary tools to solve one of the mostsignificant challenges in Malaysia’s history.
The policy needs are far-ranging and any actions will need to take a holistic approach
toward the multidimensional problem of climate change. However, the critical issues ofconcern include:
Transitioning away from Malaysia’s fossil fuel-reliant energy mix
Further developing the green-financing ecosystem through reducing risks andunleashing private capital
Reassessing the current fossil fuel subsidy regime to ensure that renewable energy
systems can operate on a level-playing field
Exploring and developing alternate forms of raising capital for green investments
such as carbon pricing and emission trading48

1. Malaysia’s energy needs for the future
Since 1965, Malaysia’s energy use per capita has grown tenfold from 3,473 kWh to
35,518 kWh in 2021[125]. This has been driven by strong economic growth with
Malaysia averaging annual GDP growth of 5.4%[126]. This increase in energy demand
will continue to grow as Malaysia proceeds toward its stated goal to be a high-income
nation before 2030[127]. Current estimates by the national energy authority
Suruhanjaya Tenaga state that the country’s net energy[128] demand will grow from18,808 MW in 2020 to 24,050 MW in 2039[129]. This will largely be driven by recoveringfrom the COVID-19 pandemic alongside the growth of the services sector and energyintensive manufacturing. Moreover, as this growth takes hold, Malaysia’s aspirations tobecome a high-income nation will also create a middle class with greater disposable
income and increased expectations regarding their quality of life. This will inevitably leadto higher energy usage as electric cars, high-tech equipment and travelling emerge as
facets of Malaysian daily life. The temporary ease of growth following the COVID-19
pandemic provides a useful opportunity for the government to take stock and assess
future energy policies that tackle future energy demands.
Malaysia’s current energy mix is still too dependent on fossil fuels. As demonstrated in
Figure 1, the nation’s total energy supply has historically relied on natural gas, oil andcoal[130]. Most concerning is the gradual replacement of oil with dirtier coal as (nearly)
the second most important source of energy in the Malaysian economy. Moreover, thecategory "Wind, solar etc.” is negligible as it only generated 0.1% of the total energy
supply in 2019.
This energy mix should be a major source of concern for businesses and private citizensof Malaysia. First and foremost, this energy mix is not sustainable. The increased use ofcoal and the reliance on fossil fuels for 96% of the energy supply will have devastating
impacts on the immediate environment and the climate as a whole. The devastating
extent of this will be explored later in this paper.

[125] Hannah Ritchie, Max Roser, and Pablo Rosado, “Malaysia: Energy Country Profile,” Our World in Data, November 28, 2020,
https://ourworldindata.org/energy/country/malaysia#per-capita-what-is-the-average-energy-consumption-per-person.
[126] “The World Bank in Malaysia,” The World Bank in Malaysia (World Bank, April 21, 2021), https://www.worldbank.org/en/country/malaysia/overview.
[127] “Malaysia to Achieve a Transition to High-Income Economy in 2024-2028 ...,” Malaysia to achieve a transition to high-income economy in 20242028 – World Bank (Official Portal of Ministry of Finance Malaysia, May 15, 2021), https://www.kwsp.gov.my/en/web/guest/w/malaysia-to-achieve-atransition-to-high-income-economy-in-2024-2028-world-bank.
[128] Net demand is the total electricity demand minus utility-scale solar and wind generation at a given time, and the net demand peak (the “net peak”
for short) typically occurs later in the evening than the total demand peak.
[129] “Peninsular Malaysia Generation Development Plan 2020 (2021-2039).” Kuala Lumpur: Suruhanjaya Tenaga, March 2021.
[130] IEA, “Energy Statistics Data Browser – Data Tools,” Energy Statistics Data Browser (IEA, October 3, 2022), https://www.iea.org/data-andstatistics/data-tools/energy-statistics-data-browser?country=MALAYSIA&fuel=Energy+supply&indicator=TESbySource.

49Moreover, as nations take steps to dismantle subsidy systems combined with theongoing unpredictability of the fossil fuel market, the prices of these commodities will
increase. This would be in stark contrast to a gradual shift to renewable energy which
has seen major cost reductions in the past decade. The cost of electricity from utilityscale solar PV has fallen by 85%, concentrating solar power (CSP) by 68%, onshore windby 56% and 48% for offshore wind[131]. Therefore, a shift to renewable energy would
be necessary for Malaysia to maintain its competitive edge in a world economy seeking
cheaper alternatives of energy.
Critically, shifting this energy mix would also work towards maintaining Malaysia’s
position as a country which is inviting to businesses and foreign investment. In 2020,
Malaysia ranked 12th out of 190 countries in the World Bank’s “Ease of doing BusinessIndex”. A major part of this position was its ease of accessing electricity where Malaysia
was placed 4th internationally[132]. This was ahead of major world economies such as
France and the UK. Therefore, energy security and reliability are greatly prized by foreignand domestic businesses alike. This reliability would be bolstered by diversifying thecountry’s energy mix as well as taking advantage of the nation’s solar and hydro capacity.
Lastly, large companies around the world are increasingly committing to net carbon-zero
operations. Malaysia would therefore do well to shift towards clean energy to ensurethat it is an appealing place for domestic and foreign investments.
Based on the above concerns, this paper aims to reiterate why Malaysia needs toaccelerate its transition towards renewable energy and ensure a net carbon-zero
economy. Additionally, this paper aims to provide concrete recommendations on how
European businesses can work with Malaysian stakeholders to push towards ensuring ahealthy and more sustainable Malaysia for both its business and its people.

[131] “As Fossil Fuel Prices Skyrocket Globally, Renewables Grow Steadily Cheaper,” IEEFA (IEEFA, September 27, 2021), https://ieefa.org/resources/ieefafossil-fuel-prices-skyrocket-globally-renewables-grow-steadily-cheaper.
[132] “Doing Business Index.” Washington DC: World Bank, 2020.

50

2. International and domestic commitments
EuroCham Malaysia commends Malaysia’s current domestic and international
commitments to combat climate change. Nevertheless, Malaysia would do well to adopt
more ambitious policy commitments.
2.1 Domestic Commitments
Malaysia has made a series of domestic pledges either through international
agreements such as the UNFCCC Nationally Determined Contributions (NDCs) or
through domestic legislation such as the 12th Malaysia plan.
Malaysia has stated that it will grow its portion of renewable energy (excluding hydro) to
20% by 2025. It has also pledged to cut carbon intensity against GDP by 45% (compared
to 2005 levels) by 2030[133]. The critical headline of the 12th Malaysia plan was the goal
to be carbon neutral by 2050[134].
Concretely, Malaysia has also committed to preserving its natural forest as a proportionof 50% of its total land mass. It will also do this by planting 100 million trees by2025[135]. The government also pledged that it would not build any additional coal-fired
power plants in line with the development of a National Energy Policy that would provide
a long-term strategic direction for the nation’s energy ambitions. The environment
minister has further detailed how a Domestic Emissions Trading Scheme (DETS)[136]was being developed by the Environment and Water Ministry. It will also push throughmeasures to support the electric vehicle ecosystem and the development of the “blueeconomic blueprint” which aims to protect and develop coastal and marine areas[137].
2.2 International Commitments
As well as domestic commitments, Malaysia is bound to UNFCCC and ASEAN
commitments. Through ASEAN, Malaysia has made pledges in the ASEAN Plan of action
and Energy Cooperation (APAEC) in addition to other policy initiatives.

[133] “Malaysia Aims 31% Re Capacity by 2025,” MIDA (MIDA, June 28, 2021), https://www.mida.gov.my/mida-news/malaysia-aims-31-re-capacity-by2025/.
[134] “Executive Summary - Twelfth Malaysia Plan.” Kuala Lumpur: Prime Minister's Office, September 2021.
[135] “Malaysia Successfully Plants 33 Million Trees | New Straits Times.” New Straits Times. New Straits Times, May 29, 2022.
https://www.nst.com.my/news/nation/2022/05/800495/PIXELATE_URL_MACRO.
[136] “Malaysia Plans to Develop an Emissions Trading Scheme (ETS).” Publications. Enerdata, September 22, 2021.
https://www.enerdata.net/publications/daily-energy-news/malaysia-plans-develop-emissions-trading-scheme-ets.html.
[137] Amirul. “Revitalising the Maritime Industry through Blue Economy.” MIDA. MIDA, July 26, 2021. https://www.mida.gov.my/revitalising-the-maritimeindustry-through-blue-economy/.

51

Agreement

Theme

Aim

2016 Paris Agreement

Holistic climate change
policyLimit global warming to well below 2 compared to preindustrial levels.

ASEAN Plan of Action for
Energy Cooperation Phase II(2021 – 2025)

Energy Planning

The development of an ASEAN Power Grid to strengthen
regional energy resilience and increase capacity to tradeelectricity.
The development of a regional energy policy to accelerate
ASEAN’s renewable energy transition.

ASEAN Comprehensive
Recovery Framework

Energy Efficiency

A reduction of energy intensity by 32% by 2025 based on
2005 levels.

Power Sources

ASEAN aims to develop a new raft of power sources. The
stated aim is to increase renewable energy to 23% of theenergy mix by 2025. Nuclear energy will also play a rolewith ASEAN aiming to grow the technology required fornuclear power generation.

Holistic climate change
policy“Advancing towards a more sustainable and resilient
future”
This includes steps towards sustainable development,
energy, green infrastructure and sustainable financing.

Malaysia’s domestic net emissions policies are also ambitious when compared to theother ASEAN Member States (AMS). For example, Indonesia has only pledged to achieve
net emissions by 2060[138] while Thailand has placed its goal for 2065-2070[139].
Nevertheless, other nations are more ambitious regarding their renewable energy
growth. Thailand aims to have 49% of renewables in the energy mix by 2037 andIndonesia aims to have 23% by 2025.
Nevertheless, Malaysia needs to step up its policy and legislative efforts to reach its
stated aims. The 12th Malaysia Plan states plans for climate legislation which is urgently
necessary to make policy promises legally binding[140]. Current laws are either
outdated or need to be further refined and improved. These include the Clean Air
Regulations of 2014, the Renewable Energy Act of 2011 and the Environmental Quality
Act of 1974[141]. Malaysia is also currently running behind the stated aims of the ASEAN
Plan of Action for Energy Cooperation (APAEC)[142] and the Paris agreement of keeping
warming to “well below 2 degrees”.

[138] IEA. “Indonesia's Push to Reach Net Zero Emissions Can Help Power a New Phase in Its Economic Development - News.” Press Release. IEA,
September 1, 2022. https://www.iea.org/news/indonesia-s-push-to-reach-net-zero-emissions-can-help-power-a-new-phase-in-its-economicdevelopment.
[139] “Thailand Will Raise Its 2030 Net-Zero Target.” Thailand will raise its 2030 netzero target Comments. Royal Thai Embassy, September 8, 2022.
https://thaiembdc.org/2022/09/08/thailand-will-raise-its-2030-net-zero-target/.
[140] “Executive Summary - Twelfth Malaysia Plan.” Kuala Lumpur: Prime Minister's Office, September 2021.
[141] “The Laws Relating to Zero Emissions in Malaysia.” Azmilaw newsletter. Azmi & Associates, August 12, 2022. https://www.azmilaw.com/insights/thelaws-relating-to-zero-emissions-in-malaysia/.
[142] ACE, “The 6th ASEAN Energy Outlook (AEO6)” (Jakarta: ASEAN Centre for Energy, 2020), p. 18.

52

3. Future risk of climate change for Malaysia
Malaysia will see major changes to its climate which will have critical human, economicand environmental impacts.
3.1 Temperature
Malaysia will see increased temperatures leading to a larger number of heatwaves anddroughts. Between 1970-2013, peninsular Malaysia, Sabah and Sarawak experienced asurface mean temperature increase of 0.14°C-0.25°C per decade. If Malaysia were tocontinue on the highest emissions pathway, the average temperatures are expected toincrease by 3.11°C by 2090. Increased temperatures will have extended impacts on thewell-being of citizens, extreme weather events and agricultural production.
Malaysia will also see an alarming increase in the number of heatwaves and droughts. If
the path of highest emissions is followed, the median probability of a heatwave[143] is
expected to increase to 93% by 2090 compared to the current median of 2%. These
heatwaves could be accompanied by an increased number of droughts. While Southeast
Asia is less likely to experience droughts, under the path of most emissions, theprobability of severe droughts will double from 4% to 8% by 2090. Major droughts havealready caused major damage to agriculture such as in 2014 when a severe drought
affected 8,000 paddy farmers and caused USD 22 million in crop losses[144].
3.2 Precipitation
The climate change would also result in increased precipitation levels in Sabah, Sarawak
and Peninsular Malaysia. Under the highest emissions pathway, average annual
precipitation will increase by 12% by 2090 (to 3,061 mm) compared to the historical
median of 2,723.3 mm. This threat has already been acknowledged by the Malaysian
government with the development of a Flood disaster risk assessment by 2024[145].
This increased level of precipitation will have an impact on infrastructure, agricultural
production and urban areas.
The increased precipitation will also result in a greater risk of floods and cyclones.
Malaysia is ranked 41st internationally for risk of exposure to floods and 50th for cyclone
hazards according to the INFORM 2023 index for risk management for Malaysia. For
flooding and tropical cyclones, Malaysia is ranked in the top 33% of countries at risk. Thisis reflected in other data such as a study conducted by Paltan et al. (2018) showing thatwhat would historically have been a 1 in 100-year flow, could become a 1 in 50-year or 1
in 25-year event in most of Southeast Asia. This will have a major impact on civilians. The
population anticipated to be exposed to extreme floods in 2035-44 will increase to433,042 (from 245,505 in 1971-2004). Cyclone frequency is also expected to increase
which will increase the intensity and frequency of storm surge events in Malaysia.

[143] This is defined as a period of three or more days where the daily temperature is above the long-term 95th percentile of daily mean temperature.
[144] “Climate Risk Country Profile: Malaysia.” Washington DC & Mandaluyong: World Bank & Asian Development Bank, 2021.
[145] Tan, Vincent, and Bookmark Bookmark Share WhatsApp Telegram Face. “Malaysia to Develop Flood Disaster Risk Assessment Based on Climate
Change Forecasts: Environment Minister.” CNA, March 10, 2022. https://www.channelnewsasia.com/asia/malaysias-flood-disaster-risk-assessmentsystem-2554801.

53

This is expected to impact around 34% of the population by the end of the 21st century.
This combined with anticipated sea-level rise means that the risks of flooding in coastal
cities will dramatically increase[146].
3.3 Economic impact
As alluded to before, the above changes in temperature and precipitation will cause
major changes to a large variety of economic sectors. Tourism, which currently
contributes indirectly to 11.8% of jobs, will be negatively impacted as coastal cities comeunder threat from rising sea levels and increasingly extreme weather. Climate change
efforts in other countries might also reduce Malaysia’s attractiveness as a destination.
One manifestation of this is the possibility that long-haul flying might become more
expensive due to increased penalties in the aviation industry.
Agriculture will likewise be affected as climate change could influence food production.
Current agricultural models show that the presence of droughts and floods early in therice growing season could reduce yields by 60%. Drought conditions may likewise impact
the ability to cultivate rubber, palm oil and cocoa. Palm oil is a critical commodity to the
Malaysian economy. Subsequently, any impact on agriculture and in particular palm oilwill have long-standing consequences on the national economy.
Finally, urban spaces will increasingly become more hostile to the citizens of Malaysia.
Urban Heat Island (UHI), which is the phenomenon where urban surfaces absorb andemit heat, will be exacerbated along with rising temperatures. Research suggests that a
one-degree increase in ambient temperature can also result in a 0.5-8.5% increase inelectricity demand and therefore greater emissions. Moreover, if more steps are nottaken to tackle air pollution, then haze pollution damage will also be compounded. In
1997, the estimated aggregate value of haze damage in Kuala Lumpur was USD 321
million[147].
Subsequently, there are a variety of reasons why Malaysia should actively pursue an
ambitious climate change agenda for businesses and civilian communities.

[146] “Climate Risk Country Profile: Malaysia.” Washington DC & Mandaluyong: World Bank & Asian Development Bank, 2021.
[147] Ibid

54

4. Role of fossil fuels in Malaysia’s energy transition
While Malaysia should pursue all efforts to decarbonise its energy mix, EuroCham does
acknowledge the role that fossil fuels still have to play in reaching a carbon-neutral
economy. Currently, Malaysia’s national energy mix means that fossil fuels make up 96%
of Malaysia’s energy supply. Consequently, building the necessary renewable capacity
will take significant time and resources to completely replace the domination by fossil
fuels. Most concerning is the dominant position that coal and oil occupy within the
Malaysian energy mix, combined those two are responsible for 53% of Malaysia’s energy.
Besides as a source of electricity, Malaysia cannot easily wean itself off fossil fuels in its
industry. Many critical industries will be directly or indirectly impacted as Malaysia
transitions toward a carbon-neutral economy.

Firstly, the petrochemical industry is responsible for a significant proportion of thenational economy and any negative impact will likely cause a domino effect throughout
the whole Malaysian economy. Currently, refined petroleum, crude petroleum andpetroleum gas account for 10.96% of Malaysia’s exports[148]. Furthermore, the national
petrochemical producer, Petronas, employs around 50,000 people[149] and accounts
for 15% of the Malaysian government’s revenue between 2015-2020[150]. This relianceon oil and gas means that any tinkering with the current energy ecosystem means that it
will not only impact the Malaysian economy, but will also impact the government’s
finances and, paradoxically, its ability to tackle climate change.
Apart from the direct impact on the fossil fuel economy, attempts to curb carbon
emissions will inevitably impact other major sectors namely construction, maritime andmanufacturing industries. In the construction sector, Malaysia produces 33Mt of cement
which is a carbon-intense process releasing greenhouse gases, NOx, SO2 and mercury
vapours[151].

[148] “Malaysia (MYS) Exports, Imports, and Trade Partners.” Malaysia. OEC, 2020. https://oec.world/en/profile/country/mys.
[149] “Petronas’s Competitors, Revenue, Number of Employees, Funding ... - Owler.” Petronas. Owler, 2022. https://www.owler.com/company/petronas.
[150] “Petroliam Nasional Berhad (PETRONAS).” Rating Report. Fitch Ratings: Credit Ratings & Analysis for Financial Markets, December 11, 2020.
https://www.fitchratings.com/research/corporate-finance/petroliam-nasional-berhad-petronas-11-12-2020.
[151] “Environmental Impact Assessment Guidelines For Cement Industry.” Kuala Lumpur: Department of Environment Ministry of Environment andWater, 2019.

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Furthermore, the maritime industry has acknowledged that “zero-discharge” objectives
are not cost-effective and may “result in excessive economic burdens to society”[152].
Finally, Malaysia’s semiconductor sector, which takes up 13% of the global chip assembly
and testing market share[153], presents a major burden on the country’s energy
resources. A pertinent case study is TSMC in Taiwan which uses 5% of the island’s
energy[154]. Any attempt to curb fossil fuel use through carbon pricing or carbon
credits in the short to medium term will have a negative impact if alternative energy
sources are not found. Thus, while EuroCham commends the policy goals in the 12th
Malaysia plan, making a sudden complete switch is not feasible for the above industries
as Malaysia does not have the renewable capacity to do so.
Further from the reliance on traditional fossil fuels, establishing the necessary
infrastructure for renewable energy will produce many hurdles. Renewable energy
plants often have variable energy outputs depending on wind, solar and waterlevels[155] which means that energy storage systems will be crucial. The establishmentof renewable energy facilities also produces a significant carbon debt (due to theenvironmental damage of establishing these systems) as well as a significant financial
investment. It is estimated that Malaysia would require RM350 billion to RM400 billion in
cumulative investments, mainly in the energy sector, representing 0.8 per cent of thegross domestic product (GDP) every year until 2050[156]. Moreover, if Malaysia were toengage with renewable energy at an ASEAN level, as EuroCham believes it should,
investments in the ASEAN energy grid will cause debates around responsibility andfinancing within ASEAN.
Nevertheless, while renewable energy will require time and investment, it is important tonote that Malaysia operates a dirty energy mix. As aforementioned, coal and oil make up
53% of Malaysia’s energy. Coal itself is considered the dirtiest fossil fuel and is
responsible for over 0.3C-1C of the global temperature rise. Oil is itself further
responsible for a third of the world's emissions which does not include the impact thatoil spills have on the environment[157]. It is also concerning that gas, the least dirty
fossil fuel has been reduced as a portion of the energy mix since 2000 in favour of coaland oil.
Referring to the above, it is clear that Malaysia urgently needs to move away from coal
which is nearly two times more polluting than natural gas. Malaysia should view natural
gas as a bridge fuel allowing it to dismantle coal plants and develop gas plants as anintermediate measure.

[152] “Port Klang Initial Risk Assessment.” Shah Alam: Selangor Waters Management Authority, March 2005.
[153] Online, The Star. “Malaysia's Semiconductor Industry to Benefit from Chips and Science Act.” The Star. The Star, August 15, 2022.
https://www.thestar.com.my/business/business-news/2022/08/15/malaysia039s-semiconductor-industry-to-benefit-from-chips-and-science-act.
[154] “The Computer Chip Industry Has a Dirty Climate Secret.” The Guardian. Guardian News and Media, September 18, 2021.
https://www.theguardian.com/environment/2021/sep/18/semiconductor-silicon-chips-carbon-footprint-climate.
[155] Gautam Gowrisankaran, Stanley S. Reynolds, and Mario Samano, “Intermittency and the Value of Renewables Energy” (Cambridge, Massachusetts:
National Bureau of Economic Research, 2011), 1.
[156] “RM300BIL-rm400bil In Investments Needed for Malaysia to Achieve Net ...” NST Business. NST, September 13, 2022.
https://www.nst.com.my/business/2022/09/831170/rm300bil-rm400bil-investments-needed-malaysia-achieve-net-zero-greenhouse.
[157] “Fossil Fuels and Climate Change: The Facts.” ClientEarth Communications. ClientEarth, February 18, 2022.
https://www.clientearth.org/latest/latest-updates/stories/fossil-fuels-and-climate-change-the-facts/.

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This would provide the country with the necessary time to implement the more timeconsuming roll-out of newer, renewable alternatives. Moreover, natural gas can be madeless environmentally damaging by way of mitigation technologies such as input andoutput filters through fabric filtration[158].
Alternatively, Malaysia can work towards developing its hydrogen economy. The state
government of Sarawak is currently implementing their hydrogen road map 2005-2030
to become a large-scale hydrogen exporter by 2027[159]. This is a partnership between
the state government and SEDC engineering, Samsung engineering, Lotte chemicals andPosco holdings. Titled the H2biscus project, it aims to develop the use of hydrogen forboth industry and private use and is a prime example of a public-private partnership.
Such a case study can prove to be pivotal for the rest of Malaysia as it could act as a
proof of concept and encourage similar projects in other states. Therefore, EuroChamcommends Sarawak’s willingness to invest in new and emerging technologies.
5. Malaysia’s challenges with the energy transition
5.1 Impact of COVID-19 and other economic recovery programs on the fiscal
capacity to support a green agenda
To tackle the COVID-19 pandemic, Malaysia engaged in economic recovery programs
which have meant that its foreign reserves have been reduced along with fiscal deficit
expansion. Malaysia provided 27.81 billion USD of support in 2020 which constituted
7.93% of its GDP (2019)[160]. As a majority of the initial green financing has and will
come from government institutions, this means that obtaining the necessary financing
will provide a significant hurdle to Malaysia’s ambitions.
5.2 A limited “Green Financing” ecosystem
Malaysia has steadily been working on a “Green Financing” ecosystem and is one of thefrontrunners in the region. Nevertheless, steps do need to be taken to provide greater
resources for SMEs and other businesses to fund their green transition.
The Malaysian government currently operates the following green incentives[161]:
MyHIJAU Mark - This is the official green recognition scheme endorsed by the
Malaysian government.
Green Income Tax Exemption (GITE) - This is applicable to green technology service
providers listed under the MyHIJAU directory.
Green Investment Tax Allowance (GITA) Assets - These apply to companies that
acquire qualifying green technology assets that are used to reduce emissions,conserve energy, water or recycle waste. These assets must also be listed under the
MyHIJAU directory.

[158] Power Engineering International. “Power Plant Filtration Technology to Achieve Environmental Performance.” Power Engineering International.
Power Engineering International, October 21, 2015. https://www.powerengineeringint.com/coal-fired/filtering-out-power-plant-emissions/.
[159] Ling, Sharon. “Sarawak on Course to Become Hydrogen Economy, Says Abang Jo.” The Star. The Star, September 7, 2022.
https://www.thestar.com.my/news/nation/2022/09/07/sarawak-on-course-to-become-hydrogen-economy-says-abang-jo.
[160] DBS Bank, “Green Finance Opportunities in ASEAN” (Singapore: DBS Bank & UNEP, 2020), p 13.
[161] “Green Financing and Incentives in Malaysia.” The Edge Markets, July 20, 2022. https://www.theedgemarkets.com/article/green-financing-andincentives-malaysia.

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GITA Projects - These apply to companies that undertake qualifying green technology
projects for business or their consumption.
Apart from the above, the 2022 Budget also announced green incentives and funding to
reduce CO2 and greenhouse gas emissions (e.g. RM12 million matching grant for
research into LEDs and EVs). Malaysia has also set up a RM 1 billion fund to support
SMEs in reducing their carbon footprint and they have created Bursa Malaysia’s
Voluntary Carbon Market (VCM) platform to support the trading of carbon credits.
Financial institutions in Malaysia are actively pursuing green financial instruments andproducts with 91% of the banking sector now having at least one or more ‘green
products’ on offer[162]. Malaysia is also making strides in the green and Sustainable
Responsible Investment (SRI) Sukuk Framework which facilitates the financing ofinvestment initiatives through a shariah-compliant financial instrument.
The private sector, together with Bank Negara, has made moves to codify the “Climatechange and Principle-based taxonomy” (CCPT). Their first draft, published in April 2021,
demonstrates a willingness and preparedness to tackle the growing industry of greenfinancing head-on[163]. The CCPT was developed with the risk management subcommittee of the Joint Committee on Climate Change (JC3) along with the World Wide
Fund for Nature. The document codifies terms such as “climate change mitigation” and“climate change adaptation” which will serve to assess and categorise economic activities
according to their climate objectives. EuroCham welcomes such efforts as they areimportant steps in clarifying the current government position towards businesses
operating in Malaysia, as well as towards future Foreign Direct Investment opportunities.
Nevertheless, while Malaysia has taken significant steps to work towards a “Green
Financing” ecosystem, one cannot ignore the pitfalls that are still prevalent.
Lack of adequate capital: Before the COVID-19 pandemic, Malaysia had aconsiderably small investment pool according to the DBS bank due to a lack ofpersonal financial assets and the role that banks play in the financing
ecosystem[164]. The drain that the pandemic had on both public and private capitalundoubtedly means that these resources will be even more scarce.
Lack of adequate analytical data: Malaysia does not currently have the full gambit ofnecessary tools to provide investors with the necessary information to makeinformed investment decisions. Plans to do so have been highlighted in the 12th
Malaysia Plan but this will take time.

[162] “Green Financing and Incentives in Malaysia.” The Edge Markets, July 20, 2022. https://www.theedgemarkets.com/article/green-financing-andincentives-malaysia.
[163] “Joint Committee on Climate Change (JC3) Report on the Sustainable Finance Landscape in Malaysia.” Kuala Lumpur: Bank Negara Malaysia, April
2022.
[164] “Green Finance Opportunities in ASEAN.” Singapore: DBS, November 2017.

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Another broader issue is the lack of alignment at the ASEAN level. Due to thetransnational nature and scarcity of green investments, coordination at the ASEAN levelis critical in ensuring a uniform understanding of ‘green financing’ and access to capital
markets. EuroCham acknowledges ASEAN’s efforts in this area through the attempts byCentral Bank Governors to develop an ASEAN Taxonomy for Sustainable Finance.
Nevertheless, ASEAN must take further steps to develop a common taxonomy before its
member states develop conflicting taxonomies. Further to issues of taxonomy, ASEAN
also has a role to ensure political stability in transnational projects to keep theseinfrastructure projects desirable as a place for foreign capital.
This will have to be done through efforts from ASEAN but also via events such as the2019 International Platform for Sustainable Finance (IPSF). The IPSF is a multilateral
forum that was created with the support of the World Bank, the EU, and 16 otherpartner countries to share and align sustainable finance regulatory measures. Throughthe forum, members can exchange and disseminate information to promote bestpractices, compare their different initiatives, and identify barriers and opportunities forsustainable finance, while respecting national and regional contexts. EuroCham would
support broader Malaysian and ASEAN participation in the initiative to generate greateralignment on sustainable finance initiatives and approaches.
5.3 Conflicting priorities to enable the growth of renewable energy and lowcarbon energy solutions
Malaysia’s transition towards renewable energy and carbon neutrality will face many
policy conflicts. Thus, it is the task of the Malaysian government to ensure that policy
priorities are well-balanced and that public policy decisions remain effective andtargeted. In the 12th Malaysia Plan, “Theme 3: Advancing sustainability” serves toembrace the circular economy as well as accelerate the adoption of integrated water
resources management. While these are critical policy priorities, it is noticeable that this
could come into conflict with the other core themes of the 12th Malaysia Plan,
specifically “Theme 1: Resetting the Economy” and “Theme 2: Strengthening Security,
Wellbeing and Inclusivity”[165]. The adoption of these themes and the mobilisation of
the necessary resources to achieve them could mean that the push to advancesustainability could be neglected as the more politically sensitive election topics of
economic growth and security take precedence.
While we understand the political necessity of certain policy proposals, one cannot
underestimate the political salience of renewable energy and a sustainable economy.
EuroCham would like to stress that these measures are critical for long-term politicalstability as well as for harnessing the immediate climate challenges.
Further to the policy proposals developed in the 12th Malaysia plan, other more detailed
policy issues might cause conflicting priorities for businesses and public entities. A usefulexample is the current power purchasing agreement frameworks.
[164] “Climate Change and Principle-Based Taxonomy.” Kuala Lumpur: Bank Negara Malaysia, April 30, 2021.
[165] “Executive Summary - Twelfth Malaysia Plan.” Kuala Lumpur: Prime Minister's Office, September 2021.

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In Malaysia, Tenaga Nasional oversees and regulates the power market and sets
agreements with power producers. This has resulted in Tenaga Nasional paying a fixed
payment to the independent power producer regardless of the quantity of electricity
generated. This incentivises the utility provider to use the independent power producer
even if they use fossil fuels. Thus, policymakers should take steps to reassess thecurrent power purchasing system to allow for a more competitive ecosystem ensuring
renewable energy can take a prime position in the energy mix. Thus, Malaysia’s policies
can be improved through stronger regulations and incentives along with clearer and lesscomplicated processes.
5.4 Continued subsidy of fossil fuels
Malaysia continues to provide significant subsidies for fossil fuels. Many ASEAN countries
have adopted this economic policy, however, these subsidies do account for 0.6% of
Malaysia’s GDP, equivalent to 2.2 billion USD. Spending these scarce funds, particularly
following the COVID pandemic, on encouraging the use of harmful fossil fuels works
against the growth of a green economy as stipulated in the 12th Malaysia Plan.
Moreover, these funds could and should be shifted to encourage the use of renewableenergy sources and other forms of mobility. If Malaysia chooses not to invest in
renewable energy, this further compounds the upfront cost of adopting thesealternative energy systems and thus, ensures that renewable energy remains the more
expensive energy source in the long term.
A large concern regarding the dismantling of fossil fuels is the possible shock to theeconomy. However, data from a study conducted in France between 2001 and 2016
looked at 8000 manufacturing firms and the impact of a 10% energy price increase. The
evidence showed that this price increase resulted in a shift of production and workers toenergy-efficient firms, but it did not have an impact on net employment at the industry
level in France[166]. A similar study conducted in Indonesia between 1980 to 2015
found similar conclusions showing that despite a very small increase in employment
reductions in energy-intensive plants (-0.2%), the overall impact at the industry level wasnull[167]. Both case studies provide clear examples that policy-induced price changes
have little to no impact on the overall employment level. Thus, the Malaysian
government should focus on preparing firms for the energy transition while being lessconcerned about the possible impact on employment.
Nevertheless, it is important to note that any dismantling of subsidy systems will need tobe targeted at specific sectors of the economy and the population. Simply making fuel at
the pump more expensive will possibly cause major issues such as exacerbating the costof mobility for low-income households. However, a targeted reduction of subsidies on
fossil fuels will motivate businesses and certain sectors of the population to makeconcrete steps towards renewable energy.

[166] Dussaux, D. (2020), “The joint effects of energy prices and carbon taxes on environmental and economic performance: Evidence from the French
manufacturing sector”, OECD Environment Working Papers, No. 154, OECD Publishing, Paris[167] Brucal, A. and A. Dechezleprêtre (2021), “Assessing the impact of energy prices on plant-level environmental and economic performance: Evidence
from Indonesian manufacturers”, OECD Environment Working Papers, No. 170, OECD Publishing, Paris

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This would reflect the steps that Indonesia has taken towards subsidy reform. The
government initially phased out support for the 12 consumer classes with the largest
power connections between 2013-2016. The government also ceased the subsidy forpremium gasoline. Subsequently, they tackled the two most vulnerable residential
classes at the end of 2016 with adequate targeted support. These efforts saw the cost ofelectricity subsidies drop from USD 8.6 billion in 2014 to USD 3.4 billion in 2017[168].
These policy decisions can provide a suitable example for the Malaysian government infreeing up much needed capital during the transition to renewable energy.
Along with the issues of artificially depressing the price of fossil fuels, studies havedemonstrated that subsidies on renewable energy can have a positive impact on thetransition to renewable energy. In China, a study from 2007-2016 of 92 renewableenergy-listed enterprises demonstrated that government subsidies have had a positiveeffect on renewable energy investment in China. This same study found thatgovernment subsidies are the main force in supporting the development of SME
renewable energy enterprises[169]. These conclusions have been reflected in theEuropean Union which provides 73 billion euros in renewable energy support, which isgreater than the figure recorded in Japan, the UK, and the USA[170]. A study in the
Energy Policy Journal of the EU energy market further demonstrated that “subsidies ofenergy output are cost-effective for achieving renewable energy targets in the shortrun”.
Thus, looking at applicable case studies in the European Union and China, it is clear thatwith the necessary shift in subsidy focus, Malaysia could see a similar progression
towards a renewable energy market. Consequently, when analysing the hurdles towards
renewable energy, it is clear that Malaysia and the ASEAN region have the necessaryfinancial tools which would allow them to move towards a carbon-neutral economy.
5.5 Underdeveloped power grid capacity for renewable energy integration
Similarly to the debates in Europe, transnational power grids are both desirable andnecessary in the push for a green economy in both Malaysia and ASEAN. Power grids will
not only have to compensate for the intermittent generation of energy from renewableenergy sources, but they will also have to account for the increased demand forelectricity. This will occur due to increased economic activity and a shift from fossil fuels
to electric power (e.g. petrol cars to electric cars). Such investments in strengthening
power grids should happen at both the national and supranational levels as an ASEAN
power grid would allow Malaysia to benefit from excess energy production inneighbouring countries and vice versa.

[168] “Update on the Recent Progress in Reform of Inefficient Fossil-Fuel Subsidies That Encourage Wasteful Consumption 2021.” Naples: OECD & IEA,
July 23, 2021.
[169] Xiaolei Yang, Lingyun He, Yufei Xia, Yufeng Chen, Effect of government subsidies on renewable energy investments: The threshold effect, Energy
Policy, Volume 132, 2019.
[170] “Study on Energy Subsidies for the European Commission (2022 Edition).” Energy Subsidies | Monitoring of energy subsidies in the EU27.
Enerdata, October 5, 2022. https://www.enerdata.net/about-us/company-news/energy-subsidies.html.

61

A study conducted by the International Energy Agency demonstrated that optimisingcross-border flows with current infrastructure through multilateral power-sharing
agreements can reduce annual operational costs of the ASEAN power sector by USD 1
billion[171]. Therefore, Malaysia should actively pursue an ASEAN Power Grid as it would
benefit the nation both economically and environmentally.
Moreover, nationally Malaysia would also have to ensure that access to green energy is
spread evenly across all of its states and federal territories. As well as ensuring thedevelopment of a green economy throughout the country, it would also allow allprovinces to have an equally competitive green edge. One of the major issues facing
Malaysia is the technical and logistical issues in uprating the voltage of existingtransmission lines across the country to meet the power expectations of its growing
population. Most of the existing electrical infrastructure was constructed in the 1950s1960s which means that it requires significant refurbishment to absorb the increased
demand of the upcoming decades[172]. Therefore, along with developments in the
ASEAN grid, Malaysia needs urgent investment in its ageing infrastructure to ensure it
can maintain its competitive economic edge.
5.6 Protection and support towards communities affected by the transition
As stated throughout the text, Malaysia will need to ensure that low-income and isolated
communities are not left behind during the transition of the national economy. The
European Union has developed mechanisms to compensate for the negative impacts ofboth globalisation (European Globalisation Adjustment Fund) and the development of aclimate-neutral economy (Just Transition Mechanism).
Malaysia will have to undertake similar efforts to ensure that its communities are not left
behind and that progress towards a green economy does not exacerbate existing
demographic trends (financial inequality, education, mobility). This will likewise require
funding which will most likely have to come from the government as a private industry
will not be interested in providing such a public good.
6. Recommendations
Climate change and its subsequent consequences will present one of the mostimportant policy challenges for the Malaysian government in the coming decades. It istherefore of utmost importance that Malaysia adopts an ambitious and binding set ofpolicy commitments that will ensure a stable society and economy for its citizens andbusinesses. This paper believes there are three policy priorities that Malaysia should
actively pursue:
6.1 Changing the Energy Mix
EuroCham thoroughly encourages Malaysia to take major steps towards greening its
energy mix.

[171] “ASEAN Renewable Energy Integration Analysis.” Paris: IEA, October 2019.
[172] Nor, Shamsul Fahmi, Mohd Zainal Kadir, Azrul Mohd Ariffin, Miszaina Osman, Muhammad Syahmi Rahman, and Noorlina Mohd Zainuddin. “Issues
and Challenges in Voltage Uprating for Sustainable Power Operation: A Case Study of a 132 Kv Transmission Line System in Malaysia.” Sustainability 13,
no. 19 (2021): 10776. https://doi.org/10.3390/su131910776.

62

The increasing share that coal is taking within energy production is a concerning trend
due to the environmental damage along with increasing international disdain for coal as
an energy source.
Therefore, EuroCham was pleased to note the decision in the 12th Malaysian plan tostop the new construction of coal plants in Malaysia. However, EuroCham recommends
that this ban be extended to oil and that all new power plants should use natural gas or
renewable energy. As previously demonstrated, this is because coal and oil are the mostdestructive fossil fuels. Moreover, the inclusion of natural gas means that the
petrochemical industry will not see a sudden dramatic change in the energy mix of
Malaysia. Additionally, if such a ban were to be legislatively bound, this would also
provide investors with the necessary legal stability to know that investments inrenewable energy will not be superseded by ‘dirtier’ investments.
EuroCham also acknowledges the work conducted under the Malaysia Renewable
Energy Roadmap (MYRER) in defining a path towards the goal of 31% RE share by 2025.
The proposition of the 4 strategic pillars - solar, bioenergy, hydro and new technology demonstrates the steps the government has taken towards making a carbon-neutral
economy real[173]. However, Malaysia needs to find solutions to the various issues thatcome with the development of renewable energy capacity namely land for solar panels,
environmental damage of bioenergy and the high development costs associated withhydroelectricity. While around 17% of electricity[174] in Malaysia is generated throughhydroelectric (and other renewables), the difficulty of increasing electricity capacity to
31% cannot be underestimated. Consequently, EuroCham appreciates the planninghighlighted under the “Enabling initiatives” sections in the MYRER and is eager to workwith the government to implement such proposals[175].
Along with the legislation, the Malaysian government could take inspiration fromplatforms that include the Finance to Accelerate the Sustainable TransitionInfrastructure (FAST-Infra), which was developed by the Climate Policy Initiative (CPI),
HSBC, the International Finance Corporation (IFC), OECD and the Global Infrastructure
Facility[176]. This programme aims to motivate private investment in sustainability
projects in the developing world. The FAST-Infra is supported by standards forsustainable infrastructure which are originally based on the EU taxonomy for climatechange. Malaysia could take such an infrastructure labelling system and adapt it to its
domestic taxonomy system. This security and reliable model could free up muchneeded financial capital which will help Malaysia to build the necessary infrastructure to
move away from its fossil fuel-dependent energy mix.

[173] “Malaysia Renewable Energy Roadmap.” Putrajaya: SEDA, 2021.
[174] IEA. “Energy Statistics Data Browser – Data Tools.” IEA, October 3, 2022. https://www.iea.org/data-and-statistics/data-tools/energy-statistics-databrowser?country=MALAYSIA&fuel=Energy+supply&indicator=ElecGenByFuel.
[175] “Malaysia Renewable Energy Roadmap.” Putrajaya: SEDA, 2021. p. 91.
[176] Ridley, Michael, “FAST-Infra; a public-private initiative to raise private investment in developing world sustainable infrastructure,” HSBC Centre of
Sustainable Finance, p.3.

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Finally, further to the recommendations developed by the EU-ABC in their 2022
document, EuroCham advocates for an Energy Transition Mechanism (ETM) as apractical recommendation in helping Malaysia and other ASEAN member states totransition to renewable energy and other low-carbon solutions. The ETM is a financial
mechanism promoted by Prudential that aims to close carbon-intensive fossil fuel-run
power plants earlier than their lifespan[177]. This facility would be funded by long-term
investors with the potential to blend public sources of capital with private-sector
investment. This system would also be overseen by multilateral development banks andwould ensure commitment to an agreed schedule for the replacement of carbonintensive power. Moreover, the ETM would allow owners of carbon-intensive power
assets to contribute their assets to the carbon reduction facility (CRF - subsection ofETM) in exchange for cash or equity in the ETM. This could be a practical way to retire asignificant amount of the carbon-intensive assets currently in Malaysia’s power grid.
6.2 Pushing forward “Green Financing”
A further recommendation that EuroCham advocates for are pushing forward with“Green Financing”. As detailed previously, Malaysia has taken significant steps throughcreating a preliminary taxonomy for sustainable financing. However, there are still otherobstacles in the green-financing ecosystem that need to be overcome.
Firstly, it should also be understood that there is public support for a greater green
financing ecosystem. A study conducted by Mambu Cloud Banking found that 61% ofconsumers stated that green financial services have become more important to them inthe past 5 years. Moreover, 74% of respondents feel that current financial institutions
are guilty of green-washing. When asked if they would change financial institutions due
to sustainability concerns, 65% of Malaysian consumers stated they would[178]. This
demonstrates the clear business rationale for engaging in further green financing
schemes which is why EuroCham further encourages the Malaysian government and its
financial institutions to push forward with such initiatives.
One of the critical issues to the current ecosystem is that investments in the Malaysianenergy market can bring with them significant risks for investors such as politicalstability, grid access, foreign ownership restrictions and permit hurdles[179]. The
combination of financial and administrative barriers to investment may inhibit the flow offoreign capital into the Malaysian energy sector. If no steps are taken, investing will still
be considered risky, translating into high start-up costs and therefore high energy costs
for the consumer. Malaysia will need to engage in policy proposals that seek to reducethe issues associated with the sector by guaranteeing grid access, easing foreign
ownership restrictions and streamlining the current permit approval process.

[177] Donald Perry Kanak, “How to Accelerate the Energy Transition in Developing Countries,” World Economic Forum, January 25, 2021,
https://www.weforum.org/agenda/2021/01/how-to-accelerate-the-energy-transition-in- developing-economies[178] “Malaysians Want Green Finance to Go Mainstream.” The Malaysian Reserve, June 1, 2022.
https://themalaysianreserve.com/2022/06/01/malaysians-want-green-finance-to-go-mainstream/.
[179] DBS Bank, “Green Finance Opportunities in ASEAN” (Singapore: DBS Bank & UNEP, 2020)

64

Apart from actions by the government, private institutions and energy operators should
also be obligated to disclose economic activity, energy output and performance data ofall their infrastructure projects across their respective life cycles. Naturally, the precise
nature of this information would need to be discussed, however, this transparency is
critical to ensuring a climate of confidence for investors in the Malaysian market.
Moreover, certain financial de-risking instruments can be implemented to transfer
financial risks to another actor. ASEAN has previously created the ASEAN Catalytic Green
Finance Facility (ACCGF) to provide public loans and technical assistance to green
infrastructure projects. This facility aims to use public funds to attract private funds andensure that economies make a successful transition to green economies[180]. ASEAN
has likewise established the ASEAN Capital Market Forum (ACMF) which has published“Green Bond Standards”[181]. Malaysia should take full advantage of such a system andexplore the possibilities of developing a domestic version in a bit to overcome the lack ofpublic resources available for the green transition.
Even though ASEAN is commended for its financing of efforts around the ACCGF,
significant work still needs to be conducted to generate an ASEAN-wide taxonomy forgreen financing. Currently, Malaysia and Singapore have developed separate taxonomies
to foster their green financing. However, Malaysia should promote its taxonomy at theASEAN level to ensure that the whole region becomes an attractive area for green
investments. As many green infrastructure projects will cross borders, a common
understanding and approach around green investments will be to benefit Malaysia and
ASEAN as a whole.
6.3 Reassessing subsidies, carbon pricing mechanisms and emissions trading
schemes
A further consideration is the development of Carbon Pricing Mechanisms and thereassessment of subsidies. As highlighted in this paper, Malaysia engages in a policy offossil fuel subsidies to the cost of 0.6% of Malaysia’s GDP, equivalent to 2.2 billion USD.
This is a significant source of financial capital that artificially reduces the price of fossil
fuels and consequently artificially raises the prices of renewable energy. As stipulated inprevious sections, shifting the subsidy regime from fossil fuels to renewable energy has
and will continue to serve as a motivation for investment in this sector. There issignificant economic and political rationale to do so and thus, EuroCham recommends
taking steps to shift this regime to help reach a carbon-neutral economy. This would
have to be achieved in a gradual way to reduce the shock to the economy and the mostvulnerable citizens.

[180] “ASEAN Green Catalytic Facility” ASEAN Green Catalytic Facility (Madaluyong, Philippines: Asian Development Bank, 2020), 4.
[181] Nathan, Kasturi. “Sustainable Financing.” Kuala Lumpur: KPMG, 2021.

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Carbon Pricing Mechanisms and emission trading schemes are also methods that the
Malaysian government is exploring as part of the path to carbon neutrality. EuroCham
supports the government’s efforts in this direction and points to efforts conducted in
the European Union such as the European Emissions Trading System (EETS) and theCarbon Border Adjustment Mechanism (CBAM) as good examples. Moreover, in future
discussions on an EU-Malaysia Free trade agreement, such initiatives will be of greater
political salience. Current estimates state that Malaysia may lose trade worth more than
EUR24 billion to European countries if Malaysian exporters fail to produce goods with asmaller impact on greenhouse gas emissions[182]. Therefore Malaysia must adopt
similar initiatives before approaching negotiations with other parties. This would ensurethat Malaysia can bolster its negotiating position and minimise the impact of future
foreign policy. Overall, the Malaysian government needs to couple such systems withconcrete efforts to de-carbonise the economy as otherwise, they would artificially raise
prices for their citizens.

[182] Muhammad, Izlawanie. “Challenges in Implementing Carbon Pricing Policy in Malaysia.” The Bartlett. UCL, November 8, 2021.
https://www.ucl.ac.uk/bartlett/news/2021/nov/challenges-implementing-carbon-pricing-policy-malaysia.

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ANNEX IV: PHILIPPINESThis Chapter on Energy Transition in the Philippines has been prepared by theEuropean Chamber of Commerce in the Philippines (ECCP).
Executive Summary
The energy sector has evolved steadily in recent years, with countries increasingly
focusing on reducing emissions. In more recent cases, the increase in supply following a
recovery in energy demand with the reopening of borders, as well as the Russia-Ukraine
crisis, have significantly pushed economies to accelerate their energy transition.
It is evident that various sustainability-centric efforts across countries and sectors havetaken place. Nonetheless, there remain areas to be improved to materialise the benefitsof the said interventions and energy trajectory.
This paper looks into the recent energy sector developments in the Philippines, as wellas presents several policy recommendations including:
Developing an energy sector that is more competitive and attractive to clean energy
players
Strengthening financing mechanisms to further boost sustainable energy initiatives
and projects
Promoting active collaboration between government and private sector in terms ofpolicy development and implementation
Philippine energy situation and needs for the future, and the role of fossil fuelsin the country’s energy transition
On data reported by the Department of Energy (DOE), for 2021, on-grid installedcapacity is at 26,883 megawatts (MW), with a 43% share for coal, 29% for RE, 14% for oil,and 13% for natural gas. Peak demand was at 16,036 MW with a breakdown of 11,640
MW for Luzon, 2,252 MW for Visayas, and 2,144 MW for Mindanao[183].
Meanwhile, in terms of on-grid power generation, the latest DOE data reported that in
2021, coal maintained the lion’s share at 58% or 62,052 Gigawatt hours (GWh), followed
by RE at 22% or 23,771 GWh, natural gas at 18% or 18,675 GWh, and oil at 2% or 1,616
GWh. This being imported sources[184].

[183] Lotilla, R. (9 August 2022). Department of Energy Virtual Press Conference [Speech].
[184] Ibid.

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On the other hand, 2020 figures on off-grid power or missionary electrification showthat oil dominated the mix at 89% for both capacity and generation. RE share was at 9%,
and coal, was at 2%[185]. Overall, these data present that the Philippine energy sector,
to a great extent, continues to be reliant on coal.
Additionally, in terms of estimated energy requirements, the country’s energy agency
projects that with the increasing levels of economic activity, as well as the growing
population in the Philippines, there is a projected 5% annual increase in energy demand,
leading to a total of 49,287 MW demand by 2040[186]. Notwithstanding recent global
scenarios, including the escalating volatility of global oil prices, the Philippines seeks tocontinue to employ measures and programs that prioritise the use of indigenous clean
energy resources over imported sources and coal/fossil fuels.
Other crucial factors, which will be presented in the latter part of this paper, will also
highlight the increasing need to implement energy transition initiatives.
The international and regional policies and commitments that the Philippines
made regarding energy transition
To further support the energy sector, the DOE has laid out the Philippine Energy Plan
Targets as follows:[187]
Boost Indigenous Energy Production
Install Additional Capacities
Promote and Expedite Investment
Promote Consumer Welfare
Strengthen Partnerships – local and international
Additionally, the Sustainable Finance Framework [188] issued by the country’s central
bank – Bangko Sentral ng Pilipinas (BSP) – provides the fundamental concepts forincorporating sustainability principles and environmental, social, and governance factors
into business and risk governance frameworks, plans, and operations. The BSP targets
the full implementation of the said Framework by 2023.The issuance of the said
Framework was further strengthened by the release of the Philippine Sustainable
Finance Roadmap and Guiding Principles[189] in February 2022. This Roadmap
identifies three Pillars:
Policy Pillar on Creating a Conducive Environment
Financing Pillar on Mainstreaming Sustainable Finance
Investment Pillar on Developing a Sustainable Pipeline[185] Ibid.
[186] Department of Energy. (n.d.) Power Development Plan 2020-2040. Retrieved from https://www.doe.gov.ph/electric-power/greening-grid-report?
q=power-development-plan&ckattempt=1.
[187] Tamang, J. (2021). Energy Sector Updates [Virtual Forum]. 2021 Virtual Energy Investment IECs.
[188] Bangko Sentral ng Pilipinas. (February 2022). Circular Letter No. CL 2022-011. Retrieved fromhttps://www.bsp.gov.ph/Regulations/Issuances/2022/CL-2022-011.pdf.
[189] Bangko Sentral ng Pilipinas. (February 2022). Circular Letter No. CL 2022-011. Retrieved fromhttps://www.bsp.gov.ph/Regulations/Issuances/2022/CL-2022-011.pdf.

68More recently, in July 2022, the DOE released its National Renewable Energy
Program (NREP) 2020-2040[190]. The NREP sets the country’s goal for renewableenergy to reach a 35% share of its power generation mix by 2030, and a 50%
share by 2040, in accordance with the Renewable Energy Act of 2008.
On the aspect of international commitments in line with the energy transition, thePhilippines, through its Nationally Determined Contribution[191] (NDC) submitted in
April 2021, highlighted the country’s commitment to addressing climate change towards
a low-carbon and sustainable future The NDC presented the following commitments
and key points:
A projected reduction and avoidance of greenhouse gas (GHG) emissions by
75%, of which 2.71% is unconditional and 72.29% is conditional, which represents
the country's ambition for GHG mitigation for the sectors of agriculture, waste,industry, transportation, and energy from 2020 to 2030.
Seven thematic areas of government action to address climate change were
established under the National Climate Change Action Plan 2011 – 2028: foodsecurity, water sufficiency, ecological and environmental stability, human security,
climate-smart industries and services, sustainable energy, and knowledge andcapacity development. All of which are pursued in conjunction with the Sustainability
Development Goals and the Sendai Framework for Disaster Risk Reduction.
Finally, under the new administration, the government endeavors to prioritise further
promoting the use and development of renewable energy sources, expanding power
supply, and maximising the use of technology in the energy sector, as well as enhancing
the ease of doing business in the industry. The DOE’s thrust is likewise advancing
indigenous energy sources, pursuing increased electrification among households, andputting forward investment incentives in the energy sector[192].
The future risk of climate change for the Country? Why energy transition is needed?
The World Risk Report 2022[193] identified the Philippines as the most disaster-riskcountry worldwide, followed by India and Indonesia. The said report covers various
indicators that help identify countries’ exposure, vulnerability, susceptibility, lack of
coping capacities, and lack of adaptive capacities against extreme natural events andclimate change.
In line with this, the World Bank Group, in its 2022 Philippines Country Climate andDevelopment Report,[194] estimated that the economic damage of climate change to
the Philippines could reach up to 7.6% of its gross domestic product by 2030, and 13.6%
by 2040.
[190] Department of Energy. (December 2021). National Renewable Energy Program. Retrieved from https://www.doe.gov.ph/announcements/nationalrenewable-energy-program-nrep-2020-2040.
[191] United Nations Framework Convention on Climate Change. (2021). Republic of the Philippines Nationally Determined Contribution. Retrieved fromhttps://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Philippines%20First/Philippines%20-%20NDC.pdf.
[192] Lotilla, R. (26 July 2022). Post-SONA Economic Briefing [Speech][193] Bündnis Entwicklung Hilft. (2022). WorldRiskReport 2022. Retrieved from https://weltrisikobericht.de/wpcontent/uploads/2022/09/WorldRiskReport-2022_Online.pdf.
[194] The World Bank Group. (25 October 2022). Philippines Country Climate and Development Report. Retrieved fromhttps://www.worldbank.org/en/events/2022/10/25/launch-of-the-philippines-country-climate-and-development-report.

69

Said scenarios, in addition to the aforementioned projected growth in energy demand,
underscore the heightened importance of advancing stability, sustainability, and energy
transition efforts in the country.
Country’s challenges with energy transition:
Unmaximised green financing ecosystem
The Philippines has taken recent and significant steps to grow the green finance systemin the country.
In fact, the Philippines is recognised as one of the key performers in the region in termsof green finance,[195] tapping the international capital markets with its offering USD
2.25 billion triple tranche 5-year, 10.5-year and 25-year Global Bonds. Issued under thePhilippines’ Sustainable Finance Framework, the 25-year Global Bonds marks thecountry’s debut ESG Global Bonds and first triple tranche USD offering[196].
Nonetheless, closing the financing gap remains to be seen due to a number of factors,
including the lack of visibility and awareness on green investment opportunities, as wellas the pending incorporation of climate risk exposure into energy infrastructure
planning.
Pending integration of major regional grids
With the anticipated energy surplus in the Mindanao region and deficit in Luzon and
Visayas,[197] the establishment of an energy sharing system in the Philippines can help
mitigate opportunity costs caused by ongoing issues with access to electricity, while also
promoting further efficiency in managing energy sources.
However, the Mindanao-Visayas Interconnectivity Project (MVIP), which was launched in
November 2018, is yet to be finalised, due to delays in implementation due to COVID-19.
Nonetheless, progress has been seen in the execution of the project, with the National
Grid Corporation of the Philippines[198] reporting that in the first half of 2022, criticalcomponents of the MVIP have been completed and prepared.

[195] Asian Development Bank. (2020). Green Infrastructure Investment Opportunities: Philippines 2020 Report. Retrieved fromwww.adb.org/sites/default/files/publication/653566/green-infrastructure-investment-Philippines-2020.pdf.
[196] Department of Finance. (22 March 2022). Republic of the Philippines prices 5-Year, 10.5-Year and Debut 25-Year Sustainability Dollar Global
Bonds. Retrieved from www.dof.gov.ph/btr-release-republic-of-the-philippines-prices-5-year-10-5-year-and-debut-25-year-sustainability-dollar-globalbonds.
[197] Atty. Fuentabella, F. (2018). Energy Investment Opportunities.
[198] Leading the implementation of the MVIP

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Limited access for foreign investors to do business in the Philippine renewableenergy sector
At present, the renewable energy activities that have been opened to 100% foreign
ownership[199] in the Philippines are geothermal, impoundment hydro, and biomass
using waste-to-energy technologies. It has been underscored in more recent
engagements, however, that wind and solar energy still have 60% foreign ownership
limitation as indicated in the Implementing Rules and Regulations[200] (IRR) of theRenewable Energy Act of 2008[201][202].
This has limited the country’s potential to further develop renewable energy projects,
despite being recognised as the 2nd best investment destination for renewable energy
in Southeast Asia, next to Vietnam, and followed by Thailand, Singapore, Malaysia, andIndonesia, in an April 2021 study[203].
Recommendations
Various measures and policy reforms are being recommended to further advance thecountry and the region’s energy transition agenda. Among those particular to thePhilippines are:Developing an energy sector that is more competitive and attractive to clean
energy players
The renewable energy sector not only advances the country's sustainability andelectrification agendas, but it also significantly benefits the Philippine economy bygenerating employment and capital, among other benefits. Mechanisms to attract moreinvestments in the industry should be established, which involves granting more market
access to both domestic and international energy players.
In relation to this, the ECCP has expressed its strong support to relaxing the foreign
equity limitations in the renewable energy sector in different meetings and policy
dialogues with government decision-makers. In line with this, the Chamber supports therecent policy development, in which the DOE proposed for amendments to theRenewable Energy Act of 2008[204]. The said proposal seeks to lift the foreign
participation limitation in the solar, wind, and ocean renewable energy subsectors. The
Chamber and its members look forward to the finalisation and implementation of thesaid reform, to maximise the country’s potential to attract more foreign players in thesolar, wind, and ocean/tidal renewable energy sub-sectors, and support its sustainability
goals.
[199] Large-scale or with capital investment of at least USD 50 million.
[200] DOE. (2009). DC No. 2009-05-0008. Retrieved from https://www.doe.gov.ph/sites/default/files/pdf/issuances/dc2009-05-0008.pdf.
[201] Official Gazette. (2008). Republic Act No. 9513. Retrieved from https://www.officialgazette.gov.ph/2008/12/16/republic-act-no-9513/.
[202] Under Part IV, Rule 6, Section 19-A on State Ownership of All Forces of Potential Energy: All forces of potential energy and other natural resources
are owned by the State and shall not be alienated. These include potential energy sources such as kinetic energy from water, marine current and wind;thermal energy from solar, ocean, geothermal, and biomass.
[203] Bhatia, R. and Yang, D. (April 2021). ASEAN NEXT Renewables: All aboard for the second growth wave.
[204] DOE. (2022). Department Circular Prescribing Amendments to Sections 19 of Department Circular No. DC 2009-05-0008. Retrieved fromhttps://www.doe.gov.ph/sites/default/files/pdf/announcements/Draft%20DC%20Amending%20Section%2019%20of%20the%20RE%20Act%20IRR_Clean_LS10Oct2022.pdf.

71Moreover, in pursuit of easing business processes in the country, the Chamber has
likewise acknowledged that more work needs to be done in terms of streamlining
processes and promoting efficiency in services for businesses. In this light, the
ECCP strongly recommends revisiting project application proceedings in the sector byreviewing priority requirements and procedures, as well as application timelines.
In relation to this, the Chamber emphasises the importance of implementing clear,
integrated, robust, transparent, and timely leasing and permitting processes, andstrongly supports the rationalisation of regulatory permitting processes through theEnergy Virtual One-Stop Shop to obtain service contracts, environmental, andcommercial certifications and licenses.
Strengthening financing mechanisms to further boost sustainable energy
initiatives and projects
The opportunities that come along with boosting the clean energy sector can be fully
maximised if enabling mechanisms, including financing opportunities, are developed andutilised. To this end, recommendations on boosting the availability of information on
green investment and financing opportunities, as well as incorporating climate risk
exposure into energy infrastructure planning, are relevant.
Improving access to information on financing and investment mechanisms will help
businesses understand the investment opportunities in the energy sector. At the sametime, the availability of information on financing mechanisms will support clean andrenewable energy companies to gain confidence in undertaking energy projects.
Issuance of green bonds at local and national levels, as well as the provision of
incentives, should also continue to be reviewed and implemented. This further
encourages investments in the sector, while also supporting the country’s objectives intechnology- and knowledge transfer, as well as employment and human capitalupskilling.
Promoting active collaboration between government and private sector interms of policy development and implementation
Active collaboration in the development of policy reforms has proven effective inbringing about progress across sectors. For the energy sector, engagement among
relevant decision-makers and industry experts provide support in ensuring theavailability and development of technologies, programmes and projects, as well as
financing mechanisms.
Multi-stakeholder collaboration likewise proves to be significant in aligning andstreamlining processes and policies at a regional level.
To this end, the ECCP expresses its continuous commitment to working with the national
government policymakers as well as regional partners in further enhancing a sustainableenergy ecosystem and an increasingly competitive business environment.
72

ANNEX V: THAILAND
This Chapter on Energy Transition in Thailand has been prepared by the European
Association for Business & Commerce, Thailand (EABC Thailand).
Executive SummaryThailand is undergoing a transition away from fossil fuels towards renewable energy;
however, the speed, depth, and shape of the transition remain uncertain. This
uncertainty may arise due to the fact that Thailand has to balance issues of energy
security and economic development, with climate change and environmental
degradation.
The transition is primarily driven by the global energy outlook, government policy on
climate change, and changes in customer behaviour which may impact the future ofenergy markets. The Thai government has continued to set carbon neutrality targets andsignalled substantial shifts in public policy. As a result, there has been an emergence ofincreasingly complex environmental regulations in recent years.
In the past few years, the reduction of the percentage of total power capacity from coalfired power plants, the acknowledgment of the adoption of innovative technology, andthe willingness to decentralise the overall management of state utilities to a prosumer
structure, were the most critical steps towards the government’s continuous
commitment to transitioning the country to a low-carbon society. These developments
should help raise more interest from private investors and facilitate domestic innovationin the renewable energy sector with new methods and business models.
However, some of the key barriers to the energy transition include a lack of support byfinancial institutions for energy efficiency and renewable energy investments, a lack of
domestic technological and technical resources, and effective coordination acrossdifferent sectorial agencies. Another common barrier, as exists in many developing
countries, is that the government may be reluctant to adopt policies associated withenvironmental protection if they impact economic activity. Further, the weak
enforcement of existing environmental regulations could also further delay thetransition.
Thailand’s energy needs for the future
During the first half of 2022, secondary energy consumption came from oil at 52%,
followed by electricity at 22%, then 16% imported coal, and 10% natural gas.

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The Energy Policy and Planning Office ("EPPO") projects that energy consumption in
Thailand will continue to increase across all types of energy[205].
The Power Development Plan 2018-2037 Revision 1 ("PDP2018"), which is the national
plan for electric power development in Thailand, estimates that electricity demand could
rise to 53,997 MW by 2037; accordingly, the PDP2018 foresees an electricity generating
capacity of 77,211 MW by 2037 to meet this growing demand. The capacity foralternative energy generation is targeted at 18,696 MW by 2037, pursuant to theAlternative Energy Development Plan 2018-2037 ("AEDP2018").
With respect to natural gas, the Gas Plan 2018-2037 projects that the natural gas
demand could rise to 5,348 million cubic feet per day by 2037, with a larger portion ofwhich will be sourced from outside Thailand.
As for oil, the Oil Plan 2015-2036 projects that the demand for oil in 2037 will be 65,459
kilotons of oil equivalent (ktoe) on a business-as-usual basis and 49,125 ktoe on anenergy efficiency plan basis.
While energy consumption continues to increase overall, the data from EPPO between
January to May 2022 show that the domestic production capacity of primary energy has
reduced, other than with respect to oil and electricity. Accordingly, Thailand has relied on
substantial importation of primary energy, such as natural gas and crude oil. In the
future, an increase in domestic production capacity will be needed to serve the nation's
demands.
The international and regional commitments that Thailand made regarding
energy transition
On an international level, Thailand is a party to the United Nations Framework
Convention on Climate Change (UNFCCC), the Kyoto Protocol, and the Paris Agreement.
On a regional level, Thailand has endorsed, among others, the ASEAN Plan of Action for
Energy Cooperation (APAEC) 2016-2025 Phase II: 2021-2025.
Thailand pledged in its nationally determined contributions (NDC) to cut its emission by
30 to 40 percent from projected business-as-usual levels by 2030 in economy-wide
sectors, including energy. Following the UNFCCC’s Conference of the Parties (COP 27),
the prime minister further pledged to achieve carbon neutrality by 2050 and net zero
emissions by 2065 which has been reflected in Thailand’s NDC Roadmap on Mitigation
2021-2030. Under this plan, the Thai government has outlined its intention to reducegreenhouse gas, including through overt support for the energy transition, as the energy
sector has been and continues to be the largest contributor to Thailand’s greenhousegas emissions.

[205] http://www.eppo.go.th/index.php/th/?option=com_k2&view=item&id=18111:situation-info-highlight0600622

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The future risk of climate change for Thailand and why energy transition isneededThailand is highly vulnerable to the impacts of climate change and is ranked in the top
ten countries with the highest long-term climate change risks[206]. This could lead to
extreme weather events, e.g. heat waves, extreme precipitation, and flooding, which may
result in fatalities, disruption in communities’ livelihoods, and extreme economic losses,
as Thailand's economy relies on tourism, agriculture, and fisheries.
This risk of long-term climate change is acknowledged by the Thai government under the
NDC, where mitigation efforts have focused primarily on the energy and transport
sectors. As a result, the energy transition policy has been implemented by Thailand's
Ministry of Energy and its departments, as well as the state electricity utilities, i.e. theElectricity Generating Authority of Thailand ("EGAT"), the Provincial Electricity Authority("PEA") and the Metropolitan Electricity Authority ("MEA"), pursuant to the PDP2018 and
AEDP2018 which aim to increase renewable energy in the country’s overall energy mix to
30% of total energy consumption by 2037. By 2037, the main sources of power fromrenewable energy are expected to target solar power, biomass, and wind power.
The role of fossil fuels in Thailand’s energy transition
Thailand's households and industries have continuously relied on fossil fuels as a
primary source of energy. According to the data from EPPO, the majority of theconsumption of primary energy from January to May 2022 was generated by fossil fuels,
i.e. oil at 39%, natural gas at 38%, coal at 16%, lignite at 4%, and hydropower andimports at 3%. The transition to renewable energy transition is expected to effectively
reduce the use of fossil fuels; however, to date, national policies have not taken an
aggressive approach to curb the use of fossil fuels. By way of example, no carbon pricing
tools have been imposed on carbon emissions as of yet, though there are now many
examples of other jurisdictions around the globe and regionally implementing successfulcarbon taxes or cap-and-trade schemes. Also, given that a new bidding round for
petroleum exploration and production blocks in the Gulf of Thailand was announced in
2022, it can be assumed that the government intends fossil fuels to remain a part of thecountry’s energy mix for the foreseeable future.
However, with domestic reserves quickly depleting, this may provide a great opportunity
for Thailand to rethink and pivot to increase investments in renewable energy projects.
Challenges with energy transition:
Impact of COVID-19 and other economic recovery programs on the fiscal
capacity to support a green agenda
As citizens continue to face hardships due to the COVID-19 pandemic, the Thaigovernment has invested a significant amount of resources on recovery initiatives toalleviate the economic impacts on individuals and businesses.

[206] https://germanwatch.org/sites/germanwatch.org/files/publication/20432.pdf

75

Measures have aimed to alleviate the impacts of COVID-19 on the Thai economy, andhave included low-interest loans and debt restructuring initiatives.
Further, the Thai government has expedited various relief measures to support theeconomy, including an increase in tax-deductibility limits, tax deferrals, discounts onelectricity and water bills, and lowering of the rate of contributions to social security
funds for employers and employees.
The government’s utilisation of funds for financing the response to the COVID-19
pandemic will likely affect the government’s ability to allocate funds to other policy
priorities. Whilst COVID 19 related budget allocations have been seen as necessary, they
unavoidably affect other important planned public expenditures, which may result in an
opportunity cost in terms of forgone or delayed projects.
In 2022, according to Thailand’s Budget in Brief Fiscal Year 2018-2022 published by the
Budget Bureau, the Thai government set out a budget for its appropriation forenvironmental protection, e.g. waste management, wastewater management, pollution
abatement, of a little over THB 8.3 billion; this is the lowest amount allocated in the past
five years, and is significantly lower than other agenda items as illustrated in the diagram
below[207].

A limited “Green Financing” – ecosystem
As mentioned above, Thailand submitted its updated NDC to the UNFCCC in 2022,
where it is committed to reducing its GHG emissions by 30% compared to the projectedbusiness-as-usual by 2030, using 2005 as its baseline year. The updated NDC highlights
the need for financial support mechanisms for technical assistance in the energy sector.
It also emphasises that Thailand aims to use the opportunity from pandemic recovery tobuild a better ecosystem and economy that is climate resilient and sustainable.

[207] https://www.bb.go.th/topic3.php?gid=549&mid=312. The column on the left denominates millions of THB.

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Green financing is one of the drivers of sustainable development as it aims to increase
the level of financial flows from banking, micro-credit, insurance, and investment fromthe public, private and not-for-profit sectors to sustainable development priorities.
As noted by the UNEP, green financing could be promoted through changes incountries’ regulatory frameworks, harmonising public financial incentives, increases ingreen financing from different sectors, alignment of public sector financing decisionmaking with the environmental dimension of the Sustainable Development Goals(SDGs), increases in investment in clean and green technologies and financing forsustainable natural resource-based green economies and climate-smart blue
economy[208].
In order to meet Thailand’s commitments to the SDGs and the NDC, the Thai financial
regulators, i.e. the Bank of Thailand, the Securities and Exchange Commission ofThailand, the Office of Insurance Commission, and the Stock Exchange of Thailand, haveacknowledged their roles in driving Thailand’s sustainable growth and have setthemselves the goal of developing the ambitious yet practical Sustainable FinanceInitiatives for Thailand. This initiative intends to transform the financial sector and limit
potential negative impacts on businesses, the environment, and society as a whole. The
key objectives of the Sustainable Finance Initiatives are to:advance the financial sector’s current and future role in supporting Thailand and
ASEAN in achieving a sustainable economic development model through a continual
focus on the SDGs, and transitioning to a low-carbon economy by accomplishing its
NDCs;
facilitate the development and implementation of decisions and policies relevant tosustainable finance in the financial sector;
inspire the financial sector authorities, stakeholders, and society at large to value,
promote, and require the inclusion of environmental, climate, social, and governanceissues and considerations within the financial decision-making processes as a meansof fostering sustainable economic development; andset forth the implementation of recommendations and goals which advance thesustainable transformation of Thailand’s financial sector by December 2025.
In this regard, Thailand’s capital markets have made relatively more progress towards acomprehensive sustainable finance framework. The Stock Exchange of Thailand’s
collaboration with other stakeholders has been instrumental in positioning Thailand
among the recognised leaders in sustainable capital markets, not only in ASEAN butaround the world. The inclusion of 21 Thai listed companies in the Dow Jones
Sustainability Indices Emerging Markets indicates that Thai listed companies are
increasingly recognised for their environmental, social, and governance (ESG) efforts.
Moreover, several institutions in Thailand have successfully issued green bonds tofinance green infrastructure investment, particularly in the transport and energy sectors.

[208] “Vietnam, 2023 – 2026 – Fostering Inclusive, Green, and Private Sector-Led Growth”, Asian Development Bank

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Since the first issuance in 2018, more Thai companies embarking upon a green
transition have issued green bonds to finance various types of investments. For
example, in 2018, B. Grimm Power Public Company Limited issued maiden 5-year and 7year green bonds, the first certified climate bonds issued in Thailand, with proceeds
financing renewable energy projects in Thailand. In 2019, Energy Absolute PCL issued its
maiden green bond, the first green bond for a wind power project in Thailand, tosupport the long-term financing of its 260 megawatt (MW) Hanuman wind farm.
In the banking sector, the Bank of Thailand has played a key role in supporting the Thai
Bankers’ Association (TBA) in the development of the Memorandum of Understandingon Sustainable Banking Guidelines for Responsible Lending, signed by all TBA members
in October 2019 and by the Association of International Banks (AIB) members in
February 2020. The Memorandum of Understanding focuses on promoting responsible
lending, encouraging banks to incorporate ESG risk into their learning strategies, andtranslating them into implementation.
Moreover, the Siam Commercial Bank Public Company Limited (SCB), one of the leading
Thai commercial banks, has officially adopted and become a signatory of the Equator
Principles, a benchmark for environmental and social matters used by financial
institutions globally which encourages projects across five industries, i.e., project financeadvisory services, project finance, project-related corporate loans, bridge loans, projectrelated refinance, and project-related acquisition finance, to comply with the minimum
standard of due diligence and adoption of requirements in supporting ESG principles.
Despite the above, there are still many areas that must be improved. According to the
Sustainable Finance Initiatives for Thailand, while Thailand has made progress in theearly phases of developing their sustainable finance ecosystem, especially in comparison
with regional peers, several key dependencies should be addressed and overcome.
These key dependencies include developing a practical sustainable finance taxonomy
and improving the data environment.
Conflicting priorities to enable the growth of renewable energy and low-carbon
energy solutions
In response to the government’s policy to promote the growth of renewable energy,
there are several incentivising measures to attract operators and investors to therenewable energy sector, among which are investment promotion activities and policies
initiated by the Board of Investment of Thailand ("BOI"). The BOI provides corporate
income tax holidays for business operators to boost the deployment of electric vehicles(EV), the investment in carbon capture, utilisation, and storage technologies, and for
producing of renewable energy from waste, biomass, and biogas.
In contrast, the Thai government has been trying to cushion the impacts of high oil andgas prices by resorting to multiple policy tools to absorb the price shock for consumers.
The excise tax rates on diesel have been reduced twice this year to control the diesel
price, and the Oil Fuel Fund was drawn heavily to subsidise the retail prices of oil and
LPG, resulting in a record-high deficit as of July 2022.
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In addition, the promotion of investment in renewable energy and clean technology, andthe shift from fossil fuels may, at times, have conflicting interests to certain state-owned
entities. One example is the promotion of EV deployment and a shift from fossil fuels
may conflict with the state’s interest in the national oil company, PTT Public Company
Limited (PTT), and its subsidiaries. PTT and its affiliates occupy a key position across theoil and gas sector, from upstream exploration and production to refining, transportation,and distribution.
On a positive note, adapting to this energy transition, PTT has recently expanded its
business into the EV sector, as demonstrated by a joint venture with Hon Hai Precision
Industry Co., Ltd (Foxconn) in early 2021 to open a platform for producing EVs and key
components to serve the EV sector in Thailand.
The continued subsidy of fossil fuels
While climate change has far-reaching impacts around the world, fossil fuels are still
being subsidised by the Thai government. The size of the subsidies is several times
larger than the various forms of renewable energy subsidies, whether in the form of tax
incentives, price fixing, compensation via direct subsidies, or other forms of support.
For example, the 'Oil Fuel Fund' was first established in 1973 with the purpose toprovide funding to prevent fuel shortages, including maintaining the country's retail fuelprices if the price of oil in the world markets increases, and assisting those who sufferedfrom elevated prices. In 2022, the Russian-Ukrainian war and COVID-19-inflictedeconomic downturn have resulted in highly volatile and expensive crude oil prices in
global markets, resulting in many countries facing recurring inflationary pressures.
Thailand is no exception, where inflation is at its highest level since the Asian Financial
Crisis (Tom Yum Gung Crisis) of the late 1990s. Energy stabilisation in Thailand uses the
Oil Fuel Fund mechanism to cope with the impacts of elevated global energy prices.
Currently, the Oil Fuel Fund was drawn to subsidise retail prices of oil and LPG, such thatthe fund has run a deficit of over 100 billion baht at the end of the second quarter of2022.
The underdeveloped power grid capacity for renewable energy integration
The current evolution from centralised production to decentralised generation andsmart grids offers great opportunities to potentially resolve several problems related toenergy efficiency, energy security, and certain disadvantages of energy infrastructure inan aging power system. While power generation from renewable energy and small-scale
power plants has increased in Thailand in recent years, updates to the transmission anddistribution grids have been somewhat slower to catch up.
In order to meet the growing electricity demand, improve the quality of service, andenhance grid capacity within the country with flexibility for interconnection withdecentralised production, EPPO has introduced the master plan on Thailand’s Smart
Grid Development B.E. 2558-2579 (SGD2015) as a framework for developing a holistic
smart grid policy.
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The policy requires the relevant public agencies (i.e. EGAT, PEA, and MEA) to set
development and investment directions that are consistent with its framework. The
SGD2015 aims to enhance the security and efficiency of the power system and thecapability of the system to accommodate power from renewable energy sources andreduce detrimental environmental impacts.
The smart grid features five technology initiatives, consisting of 1) the energy
management system, 2) demand response, 3) microgrids, 4) energy storage systems,
and 5) renewable energy forecasting. In mid-2022, EGAT signed a purchase andconstruction contract for a smart grid pilot project in Mae Hong Son province with
Italthai Engineering Company Limited as part of Thailand’s SGD2015. The project
integrates many technologies to enhance grid stability in Mae Hong Son which will
prevent power outages within the province. The smart grid system will be connectedwith every power plant in the province via microgrid control center systems that
efficiently manage a balance between electricity generation and consumption. The
project also includes the construction of a 3MW solar power plant together with a 4 MW
/ 1 MWh Battery Energy Storage System (BESS) added to Mae Hong Son’s power
generation facilities. This smart grid pilot project is expected to be completed in
December 2022.
The protection and support towards communities affected by the transition
In achieving the ultimate goals of the PDP2018, while preserving environmental quality,
resources, health, and welfare of communities near power plants, the power
development fund ("Power Development Fund") has been established by the Officeof the Energy Regulatory Commission ("ERC") pursuant to the Energy Industry Act B.E.
2550 (2007). This scheme requires energy business operators to contribute to thePower Development Fund at rates varying according to the energy sources and capacityof the electricity generation. Beneficiaries of the Power Development Fund are thecommunities located within a 1-3-5 km radius of any power plant and other nearby
areas as prescribed by the fund management committee.
In addition to the Power Development Fund, the ERC has issued notifications regarding
the procurement of electricity from very small power producers aiming to support
community-based power plant projects in distributing income to local communities andpromoting their participation in local power projects.
The community-based power plant projects involve the development of power plantsthat require local community partnerships. Operators will be required to jointly invest in
projects with local communities where the local communities can hold shares in the
project ranging from 10-40%. Local communities will also be entitled to other social andwelfare development benefits located near the relevant projects, such as those related
to public health, utilities, and education. The operators will be required to enter into a
resources purchase agreement with the local communities to maintain the quantity,
quality, and price of the resources to be supplied by the local communities.

80

ANNEX V: VIETNAM
This Chapter on Energy Transition in Vietnam has been prepared by the European
Chamber of Commerce in Vietnam (EuroCham Vietnam).
Viet Nam has been on a sustained path of transformation from a low-income to a
middle-income country since its Doi Moi (renovation) process was launched in 1986.
Rapid growth (averaging more than 6.8% annually during 1990–2019) has transformed
the country from one of the poorest nations in Asia into one of the most dynamic
economies in the world. Viet Nam achieved lower middle-income status in 2010, andGDP per capita reached $3,684 in 2021[209]. As one of the fast-growing economies inSouth East Asia, Vietnam has the most significant energy market in the region, with theenergy power system of Vietnam being only second to Indonesia in terms of capacity.
The power sector mainly uses most of the potential of hydroelectricity and other primaryresources: 29% coal, 22% gas, 3% oil[210].
The generating capacity in Viet Nam has increased from 50,0 GW in 2018 to 69,3 GW in
2020, including cross-border imports, which is three times larger than the capacity
recorded in 2010 (20,4 GW). Hydroelectricity and thermal power were the primarysources of electricity in the early, with the strong growth of (domestic) natural gas in thelast decade. Regarding renewable energy, Vietnam experienced sustained wind andsolar power growth, with 17.000 MW of solar power and nearly 4000 MW of wind power(both offshore and onshore) in commercial operation until October 2021[211].
The demand for electricity in Vietnam is rising rapidly to power the growing economy
and is drugged by the subsidized price. According to Electricity of Vietnam (EVN), thenational utility power demand growth was 10.3%–11.3% per year in 2016–2020, and it isprojected to grow by 8.0%–8.5% per year in 2021–2030. Viet Nam has relied on fossil
fuels to meet its fast-rising energy demand. As a result, carbon dioxide (CO2) emissions
have increased rapidly at 7.9% annually, faster than the real GDP rate (6.5%–7.0%
annually)[212]. As a result, Viet Nam’s carbon intensity, which measures CO2 emissions
per unit of GDP, is higher than that of other countries in the Association of Southeast
Asian Nations (ASEAN). Fossil CO2 emissions in Viet Nam in 2019 were also the highest
in the ASEAN.
[209] “Vietnam, 2023 – 2026 – Fostering Inclusive, Green, and Private Sector-Led Growth”, Asian Development Bank[210] TS. David Jacobs (IET - International Energy Transition GmbH), Toby D. Couture (E3 Analytics), Thorsten Schlößer, Leonard Hülsmann,(Energynautics GmbH), TS. Nguyễn Anh Tuấn (Viện Năng lượng),“Một số nghiên cứu về chuyển dịch cơ cấu năng lượng gắn với phát triển hạ tầng năng lượng hiệu quả và bền vững phục vụ phát triển kinh tế - xã hộiViệt Nam, giai đoạn 2030 và tầm nhìn 2045”[211] Ibid.
[212] OECD. 2022. Forthcoming. OECD Economic Surveys: Viet Nam. Paris: OECD.

81

On the other hand, climate change, natural hazards, and environmental degradation
impede growth. Viet Nam was the sixth country in the world most affected by climate
variability and extreme weather events from 1999–2018[213]. As a result, Vietnam's total
annual greenhouse gas emissions also rank 21st in the world and 2nd in ASEAN.
The international and regional agreements and commitments Vietnam maderegarding energy transition
At the 21st Conference of the Parties (COP21) in 2015, the Parties to the United Nations
Framework Convention on Climate Change (UNFCCC) adopted the Paris Agreement. Thisis a historic agreement, the first global legal framework binding the responsibilities of all
Parties in joint efforts to combat climate change. The implementation of each Party's
commitments to climate change response is primarily reflected through the Intended
Nationally Determined Contribution (INDC). With domestic resources, by 2030, Viet Nam
will have reduced GHG emissions by 8% compared to the BAU projected scenario.
However, this contribution can increase by up to 25% with international support throughbilateral and multilateral cooperation and implementing new mechanisms in the Paris
Agreement[214].
In 2021, the top-ranking delegation of Vietnam participated actively in the UN Climate
Change Conference in Glasgow (COP26), demonstrating a very high strategic vision,
determination, and political commitment of the Party and the State in accelerating the
economic transformation to contribute to solving the climate crisis. During theconference, Prime Minister Pham Minh Chinh committed that Vietnam achieve Net-Zeroemissions by 2050 and endorsed the “Coal to clean power transition” statement. The
commitment is expected to bring a transcending effect on Vietnam’s national energy
security landscape and the structural and regulatory reform the country might need toenable the financial and technological access needed for the energy transition process.
On the other hand, Vietnam also signed other multilateral sustainability commitments,
including the Glasgow Leaders’ Declaration on Forest and Land Use and the Global
Methane Pledge to reduce methane emissions by 30% by 2030 compared to 2020.
Furthermore, as a participant, Vietnam committed to implementing best practices set
out by the Inter-governmental Panel on Climate Change and improving national
greenhouse gas inventory reporting under the United Nations Framework Convention
on Climate Change (UNFCCC) and the Paris Agreement.
During the recent COP27, the Vietnam Delegation, led by Minister of Natural Resources
and Environment Tran Hong Ha, reiterated its commitments made in COP26 and sent
the message that the issue of green transition and energy transition are consistentpolicy and an economic model that Vietnam chooses. The three missions of the Vietnam
Delegation in COP27 are to work with other United Nations Framework Foundation
members to put the commitments into practice, emphasize Vietnam’s pioneering roleand mobilise capital resources for Vietnam’s energy transition.
[213] Intergovernmental Panel on Climate Change. 2022. Climate Change 2022: Impacts, Adaptation, and Vulnerability.
Cambridge (Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on
Climate Change).
[214] Vietnam Updated Nationally Determined Contribution (NDC), UNFCCC, July 202082

Viet Nam’s net zero carbon emissions commitment, therefore, requires redesigning thestrategy for power sector development, including transitioning from coal-fired power
generation to more environmentally friendly energy sources.
Regulatory framework
In general, the energy policy in Vietnam is implemented and reinforced through National
Energy Development Strategies (NEDS), promulgated by the Resolutions of the Vietnam
Communist Party and the Government. These legal documents must align with thenational long-term socio-economic development goals. In February 2020, the Political
Bureau – Vietnam’s highest political decision-making body - issued Resolution 55 –NQ/TW on the Orientation of Vietnam’s National Energy Development Strategy to 2030
and outlook to 2045 (Resolution 55). It aims, in particular, at fostering the developmentof renewable energy sources by easing the regulatory framework and improving the
economic structure of the energy sector. The three climate targets in this plan are: (1)Reduce greenhouse gas emissions from energy activities compared to the business-asusual (BAU) scenario by 15% in 2030 and 20% in 2045, (2) Ratio of energy efficiency tototal final energy consumption compared to the business-as-usual (BAU) scenario toreach approximately 7% in 2030 and 14% by 2045, and (3) 15-20% proportion ofrenewables in the energy mix by 2030, reaching 25-30% by 2045.
To satisfy the energy demand of the growing economy, the Vietnamese government has
adopted a mix of strategies. Vietnam launched the solar Feed-in-tariff (FiT) from 1 June2017 to 30 June 2019, which, by June 30, 2019, delivered 4.46 GW of new capacity forthe fast-growing power market. The next phase of market development is a wind FiT
program for onshore wind power at 8.5 US cents per kWh and offshore wind power at
9.8 US cents for projects that reach a commercial operation date (COD) before October
31, 2021[215].
Vietnam is also working to create a carbon emission trading market by 2028, which falls
within the framework of Degree 06/2022, dated 7 January 2022, on reducing Green
House Gas (GHG) emissions and protecting the ozone layer. The Degree forms the
backbone of Vietnam’s carbon emission commitment, outlining key reduction targets foreach ministry and the fields in which these ministries are responsible for GHG
emissions.

[215] Decision No.39/2018/QD-TTg

83

Figure 1: Vietnam’s GHG emissions reduction target by Ministries in 2030

Ministry

Field

CO2 million tons

Ministry of Industry and Trade

Energy production
Energy consumption in industry

268.5

The Ministry of Transportation

Energy consumption in transportation

37.5

Ministry of Agriculture and Rural
Development

Energy consumption in agriculture
Agricultural production
Forestry

129.8

Ministry of Construction

Industrial processes
Energy consumption in cement production
Building

74.3

Field

CO2 million tons

Ministry
Ministry of Natural Resources andEnvironment

Waste treatment

Total by 2030

53.7

563.8

These statistics further strengthen the pressure on the energy sector to reduce
emissions, with the heavy work lies with the Ministry of Industry and Trade (MOIT).
With a top-down planning model, Vietnam needs more efficient coordination between
the local and the central government and increased flexibility in the planning process.
The most important and most awaited legal document for the energy sector is thePower Development Plan VIII (PDP8) drafted by the MOIT. This document sets theroadmap for Vietnam’s national energy development to 2030 with a vision to 2045,
including energy mixes for the next five to ten years, investment milestones, and thedevelopment of renewable energies with a strategic shift to offshore wind. Up until now,wind and solar are considered the new clean energy source and encouraged to
exploitalbeit not to the maximum capacity, while the scale of imported LNG gas powershould be reduced by 2030. This is in line with a previous comment that LNG is still afossil fuel, costly and fluctuating due to ongoing geopolitical tensions and climatechange[216]. The master plan shall cover ten years, with a review every five years. This
proposed timeline does not allow a flexible planning process, raising concerns about theability to maintain the least-cost sector development[217].

[216] MOIT’s official answer to Deputy Prime Minister Le Van Thanh on 20 May 2022
[217] OECD, Clean Energy Finance and Investment Policy Review Vietnam84

Latest PDP8 Draft
Hydro was historically the main source in Vietnam’s energy mix. Later, coal began to takea larger role as the most controllable source to help drive the growing national economy
due to low price, compatibility with the current energy infrastructure, and capacity asbaseload electricity. However, Vietnam has gradually prioritised RE in recent years,
becoming a leading regional solar market with 17GW installed by the end of 2020
(between utility size and RTS. Vietnam Energy Outlook Report 2021 shows that Vietnam
could deliver on the net zero commitment but would require heavy inclusion ofrenewable energies, especially solar (71%) and wind (21%)[218].
Figure 2: Energy mix in 2019 and 2020[219]The orientations serving as the basis for formulating Draft PDP8 are as follows:
To enhance the autonomy of the power sector, maximum exploitation of thedomestic primary energy resource for electricity production to reduce thedependence on foreign countries:
To promote the development of RE sources (wind power, solar power, etc.) at areasonable price. Especially the development of renewable energy sources for local
consumption or export without transmission of electricity into the national grid(particularly for the production of hydrogen, green ammonia, etc.) will be prioritized;
To encourage the development of rooftop solar power and solar power at
production-business establishments in the form of self-production and selfconsumption without transmission of electricity into the national grid;[220] andTo promote the development of various types of pumped-storage hydroelectricity,hydroelectricity from irrigation reservoirs, and reservoirs for load regulation, capacity
backup, and utilization of hydroelectricity sources.

[218] EREA & DEA: Vietnam Energy Outlook Report 2021 (2022)[219] EVN Annual Report 2021
[220] It is to note that in fact, the PDP8 does not allow new solar project, and the RTF is also not included.

85

Throughout this year, the MOIT has submitted multiple PDP8 drafts, with the latest
dated 11 November 2022. The MOIT is showing stronger determination to cancel coalpipeline and making clearer roadmap toward converting coal-based and gas-based
power plants: No coal-fired thermal power plants shall be built after 2030, and coalbased power shall be stopped altogether by 2050. LNG-based power shall not be
developed after 2035, start burning with hydro from 2030 with the starting rate of 20%
and by 2050 all LNG-powered plants shall convert completely to hydro-powered.
Figure 3: Vietnam Power Mix Plan

(MOIT Report 7194 on the Draft PDP8, dated 11 November 2022)

Installed capacity: 145,989 MW (excluding rooftop solar power and cogeneration)

By 2030

By 2050

No

Category

Capacity (MW)

Percentage

Capacity (MW)

Percentage

1

Coal-fired thermal power*

37,127

20.6%

0

0

2

Domestic gas thermal power

14,930

10.2%

7,900

1.6%

3

LNG thermal power**

24,500

16.8%

0

0

4

Imported power

5,000

3.4%

11,0422.2%

5Large-scale solar power

8,736

6.0%

136,573

27.2%

6

Hydropower (including smallhydropower)

28,94619.8%

36,016

7.18%

7Offshore wind power

7,000

4.8%

87,00017.3%

8Onshore wind power

21,48014.7%

66,05013.2%

9Biomass and other RE

2,270

1.6%

6,015

1.2%

10

Pumped-store hydropowerand energy storage battery

2,700

1.8%

42,550

8.5%* From 2040, biomass/ammoniac mix with coal in thermal power plant. From 2050, coalfired thermal power plant shall convert completely to biomass** LNG power shall reach 28.500 MW (12,9%) in 2035. By 2050, it’s expected to be
reduced to 7,500 MW (1,5%) burnt with hydrogen, and 24.500 MW (4,9%) to beconverted completely to hydrogen.

86

The inclusion of a Battery Storage System (BESS) in the energy mix starting with 50MW in
2025 and increased capacity between now and 2050 signals a pragmatic shift of MOIT,
potentially paving the way to a new energy industry. However, there is no existing
regulatory framework on BESS.
Challenges with energy transition:
Impact of COVID-19 and the international situation
The country weathered the coronavirus disease (COVID-19) pandemic impact relatively
well in 2020. However, the Delta variant waves in 2021 had severe impacts on people’s
lives, employment, and income. Growth slowed to 2,9% in 2020 and further down to2021 compared with 7% in 2019[221].
The crisis left by COVID-19 has made businesses no longer focus on environmental
protection issues. After many months of operating in moderation or suspending
production and trade due to the distancing orders from the Government, several
businesses still operating so far have sought to maximise profits after a long time facing
the situation. A state-of-loss, can lead companies to pay little attention to ensuring
environmental targets but instead focus on the production and business process of
seeking profit[222].
During the outbreak of the COVID-19 pandemic, many winds and solar power plants the top priority energy source for maximum capacity - were forced to reduce output
many times in 2020 and 2021 because of grid overload and a lack of technicalrequirements to ensure the safety of the national power system. A report by theElectricity of Vietnam (EVN) shows that in 2020, about 365 million kWh of solar power
had to be reduced. In 2021, the untapped power output of renewable energy sources(including wind and solar power) increased to nearly 1.7 billion kWh due to the problemof oversupply at noon and road overload. 500kV super high voltage wire. This situation
wastes a large amount of produced clean energy, and the investment in economic andefficient energy use also could not reach the expectation[223]. One hundred forty windprojects were considered eligible for FiT. Still, many of these have been disrupted by the
pandemic due to a delay in the transportation and installation of wind turbines.
According to EVN, a total of 106 wind power plants submitted dossiers to register forenergising and grid connection, testing, and COD before the deadline with a total
capacity of 5,655MW; however, as of August 2021, only 24 wind power projects werelaunched, with a full capacity of 963MW[224].

[221] Vietnam, 2023-2026[222] ThS. Trần Linh Huân, Lê Phạm Anh Thơ, Trần Minh Thiện, “Cơ hội, thách thức đối với tăng trưởng xanh trong bối cảnh hậu Covid-19 tại Việt Nam vàđịnh hướng hoàn thiện”, Banking Review. Available at https://tapchinganhang.gov.vn/co-hoi-thach-thuc-doi-voi-tang-truong-xanh-trong-boi-canh-haucovid-19-tai-viet-nam-va-dinh-huong-ho.htm, last accessed 12 September 2022.
[223] “Covid đã ảnh hưởng thế nào đến hiệu quả năng lượng ở Việt Nam”, Voice of Vietnam (VOV). Available at https://vov.vn/kinh-te/covid-19-da-anhhuong-the-nao-toi-su-dung-hieu-qua-nang-luong-o-viet-nam-post927777.vov, last accessed 12 September 2022.
[224] “Looming FiT deadline impels actions”. 6 October 2021. Available at < https://vir.com.vn/looming-fit-deadline-impels-action-88229.html>

87

The war in Ukraine, followed by sanctions on Russia, has and will continue to impact the
global economy, especially in the energy sector. Several energy projects between
Vietnam and Russia are negatively affected[225]. At the same time, sanctions from
Western countries resulted in shortages and increased prices for many commodities
such as oil and gas, leading to unpredictable price fluctuations and supply chain
disruptions; energy security has become central to the strategic development choices
being made by many countries. And as domestic gas supplies declines, the greater
reliance on renewables may become the standard bearer of Vietnam’s national energy
security policy and practice.
Vietnam Wholesale Electricity Market
Vietnam’s energy sector is mainly state-owned, with State-owned enterprises dominating
the coal, oil, gas, and electricity sectors. The Vietnam Power Group or EVN is granted amonopoly over the national power supply chain and infrastructure, even if no more in
production. EVN is a barely break even company due to electricity tariffs beung at
susidized levels, so every year it needs the governemnt to input the missing capital.
Therefore, no significant investments in infrastructure were made in the past five years
due to a lack of extra financial allocation. The net-zero emission target set in COP26
presents renewable energy businesses with opportunities to undertake new policy
initiatives.
The past few years have observed a new generation of highly diverse and resourcefuldomestic power producers support Vietnam’s growth needs. These local players led
market growth thanks to their competitive strengths in local infrastructure project
development experience and the modular nature of renewable energy that enabledfinancing from the domestic capital market[226].

[225] Ảnh hưởng cuộc chiến Nga Ucraina đến các dự án hợp tác năng lượng tại Việt Nam. Available at < https://nangluongvietnam.vn/anh-huong-cuocchien-nga-ucraina-den-cac-du-an-hop-tac-nang-luong-tai-viet-nam-28460.html>. Last accessed on 15 September 2022
[226] Thu Vu, “The Quiet Rise to Prominence of Vietnam’s Renewable Energy Corporates: Homegrown Businesses on Track to Define Power Sector’s
Low-Carbon Future”, Institute for Energy Economics and Financial Analysis, September 2022.

88Figure 4: The Real Privatisation of Vietnam’s Power Sector

Source: EVN’s National Load Dispatch Center

Nevertheless, the transition requires more than domestic corporates to achieve thetargets. The World Bank estimates that Vietnam shall need around 12-14 billion USD peryear for the energy transition; timely innovations in the sector-specific investment
climate will spur private sector participation, helping to attract the bulk of the required
investments.
With the solar FiT expiry in December 2020 and the wind FiT expiry in November 2021,
there exists a regulatory vacuum as details of the future auction programme areunavailable.
In light of that, the MOIT has piloted scheme of– the Direct Power Purchase Agreement(DPPA). The pilot scheme, which was expected to run in the period 2021-2023, would,
for the first time, enable renewable energy generators to sell clean electricity to private
off-takers via a contract for difference (CfD)/virtual power purchase agreement (PPA)
arrangement. It is expected to run for two years from 2022-2024, and support Vietnam’stransition in the liberation of the wholesale and retail market prices. Under this PPA
scheme:the generator and EVN will enter into a PPA under which EVN will purchase from thephysical generator electricity at the wholesale spot price;
the off-taker will purchase physical electricity from EVN at the retail spot price (which
is marginally higher than the wholesale spot price to take into account EVN’stransmission and administrative costs); and89

the generator and the off-taker will enter into a CfD/virtual PPA mainly to documenta pre-agreed electricity purchase price (generally referred to as the strike price). The
off-taker and generator are at liberty to determine how this CfD pricing mechanism
will operate, but in simple terms, if at any given time, the strike price is:higher than the spot price, the off-taker will pay the generator the difference; orlower than the spot price, the generator will pay the off-taker thedifference[227].
This mechanism also provides a chance for generators of solar or wind power plantsthat either (1) have achieved COD but failed to do so before the expiry of the FiT forwind and solar (1 November 2021); or (2) are currently under construction and includedin the current Power Development Plan and which can achieve COD within 270 businessdays from commencement of the DPPA pilot scheme.
However, this PPA model is considered unbankable and hinders investors from investing
more in RE projects. As EVN is the sole buyer in Vietnam, project developers have noalternative market available and must factor the risk into the price. Generators also haveno security interests if EVN fails to complete the total payment obligation. In case of
disputes, the settlement procedures shall be handled by MOIT’s agencies, raisingconcerns about transparency in the process.
The MOIT has prepared several draft DPPA, with the latest dated 20 May 2022, forstakeholder consultation. Until the date of this report, however, no specific launch date
for the DPPA pilot scheme has yet to be confirmed by the Prime Minister.
Other regulatory issues
For transitional power projects:
For projects already priced at FiT, the most significant difficulty is having their capacitycut (curtailed). Since FiT expired for solar power projects (31 December 2020) and wind
power projects (31 October 2021), for “transitional projects” under active development
at the time of FiT expiry but failing to meet the relevant FiT deadline, they have not soldany electricity for the last two years (solar power) and one year (wind power). On 10
October 2022, the MOIT issued Circular 15/2022/TT-BCT providing regulations on
formulating power-generating tariff ranges for these projects. This Circular, nevertheless,does not provide any concrete provision on determining the tariff for a specifictransitional plant, and MOIT proposed involving EVN in the determination process.
Though there is much to discuss between the two agencies, it seems that they both
agree that transitional projects have the option to register to participate in the Vietnam
Wholesale Electricity Market voluntarily. The contracted tariff, in that case, might need to
be within the tariff range in respect of committed capacity. There is much uncertainty inthis approach regarding how a specifically contracted tariff would be agreed upon andhow committed capacity would be determined for a given plant[228].
[227] Vietnam’s Direct PPA Pilot Scheme| Energy Market Update – June 2022, Mayer Brown. Available at<https://www.mayerbrown.com/en/perspectives-events/publications/2022/06/vietnams-direct-ppa-pilot-scheme-energy-market-update-june-2022>[228] Giles Cooper, Huong Tran, “Circular 15 issuance a baby step towards resolving orphaned transitional wind and solar projects in Vietnam” 17
October 2022. Available at https://www.allens.com.au/insights-news/insights/2022/10/circular-15-issuance-a-baby-step-towards-resolving-orphanedtransitional-wind-and-solar-projects-in-vietnam/#Footnotes90On 20 November 2022, EVN sent a letter to MOIT and the Electricity Regulatory
Authority of Vietnam (ERAV), proposing four methods to calculate the tariff fortransitional projects based on the data submitted by 208 investors of these projects.
EVN disclaimed that they only used the submitted data for calculation; thus, the figures
were only hypotheses and would need further examination and approval from the MOIT.
The initial response from the business community seems to be negative, stating that the
low ceiling tariff rate proposed shall cause enormous losses for investors, consideringthat the investment amount increased by 20% - 30% due to the impacted supply chain
during COVID time.
Grid network challenges
One of the critical shortcomings existing during the implementation of PDP7 includes
the mass development of wind power and solar power. In contrast, the development of
the transmission grid has not kept the pace. This private sector propelled bloom
outpaced the ability of the grid to integrate the energy flows, resulting in a pause on
solar and wind projects earlier this year. The latest Draft PDP8 estimated that for theperiod 2021-2030, investment for grid transmission shall be around 15,2 – 15,6 billion
USD; this amount shall increase to about 21,7 – 35,1 billion USD for the period 2031 –2050.
The responsibility of managing and operating all transmission lines lies solely on EVN
and is becoming a burden not only for the state-owned agency but also a concern for RE
investors. The Electricity & Renewable Energy Authority, an agency under the MOIT, isdrafting a Decree guiding Article 6, Law No. 03/2022/QH15, on investment in theconstruction of transmission power grids to attract all economic sectors to invest inconnecting to the transmission power grids load to ensure national defence andsecurity.
Offshore wind projects
Offshore wind power shall account for 7.000 MW in 2030, according to the latest PDP8,
proving the importance of this energy source in the energy mix. The legal framework,
however, has not been developed to accompany this growth. The term “offshore wind” isnot yet defined in legal documents, and there’s no regulation on pricing and bidding
mechanism for these projects yet. The latest Draft PDP8 only states the capacity foroffshore wind energy by regions, not by provinces. Offshore wind development also
needs to be aligned with the Marine Spatial Plan, which is currently being developed.
Recommendations
Resolve regulatory uncertainty in the RE procurement mechanism to provide
investors and new market entrants confidence.
Increase the speed of implementation and ambition of the Nationally Determined
Contributions (NDCs) greenhouse gas emissions reductions, reflecting increased
targets for clean energy and better energy efficiency measures.
Maximise the contribution of solar, biomass, small hydropower, wind, and especiallyoffshore wind power within the energy system.
91

Define the industrial and commercial power tariffs that are likely to be applicable
under the PDP8 in a clear Roadmap to Power Tariffs to 2025.
Offer a temporary tariff to the producers who are ready but do not have a contract
Clarify security and other rules for RTS, as currently, all facilities are in regulatory
limbo.
Prepare the new auction mechanisms with clear regulatory conditions andtransparent and speedy procedures.
Encourage EVN and the IPPs to investigate the benefits of overall storage capacity atclean energy plants of all types, including rooftop solar power plants.
Revise the contracts between EVN and clean energy producers to meet international
standards to harvest the full cost-reduction benefits of the planned auction
processes.
Expand the DPPA pilot project, encourage private investment in the critical powertransmission network, and allow investors who meet the requirements to build
220kv and 500kv transmission lines.

92

EU-ASEAN Business Council 2023
Issued by the EU-ASEAN BusinessCouncil
April 2023
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