| Market forces
Jeremy Wilcox is managing director of the Energy Partnership, an independent Thailand-based energy and environment consulting firm 8/27 Sukhumvit Soi 8, Klongtoey, Bangkok 10110, Thailand | T: +66 2 653 1263 | Mobile: +66 860993375 | S: energypartnership
Asia’s power transition challenge
Asia has generally benefited from much lower electricity prices than Europe, although prices vary significantly within both continents. But this dichotomy is changing, with Europe’s prices expected progressively to benefit from a maturing renewable market advancing decarbonisation, while rising demand and rapid renewables expansion are expected to raise prices in Asia.
There are two key structural differences between the power markets in Europe and Asia, namely energy resources and contestability. While Europe is mainly dependent on imports, and mostly LNG, Asia is largely energy independent with the notable exceptions of Singapore and Japan, and again with the exceptions of Singapore and Japan, and to a lesser extent the Philippines, Asia’s electricity market is non- contestable with state-owned utilities setting tariffs. While Europe’s reliance on imported gas (historically, pipeline gas from Russia and now mostly LNG from the USA) has often led to higher, and volatile, wholesale costs, Asia has benefited from large domestic fossil fuel reserves and cheaper LNG imports from Australia and the Middle East.
Indonesia, the largest economy in Southeast Asia, provides a prime example of the market challenges faced in the short to medium- term. The power price outlook points towards increasing demand driven by economic growth, coupled with a significant push for renewable energy, while state utility PLN faces higher capital expenditure for energy transition that will either require raising tariffs or greater government subsidies, despite government efforts to keep costs stable amid global energy shifts and transition pressures. While growth in renewables, and particularly solar, could potentially stabilise fossil fuel costs, upward pressure on prices will be driven by infrastructure investment needs and rising demand.
This outlook is not without challenges that include mobilising sufficient investment for the clean energy transition, potential long-term reliance on expensive energy by prioritising gas over coal as the baseload fuel, and the risk of developer margins being squeezed by PLN’s purchasing power and fixed tariffs. Other Asia economies transitioning to ‘cheaper’ renewable energy face similar challenges. Malaysia aims for net-zero by 2050, accelerating a shift from coal to solar, hydro, and biomass, with renewables
Asia is largely energy independent with the notable exceptions of Singapore and Japan …
expected to hit the 30 GW mark by 2035. Hyperscale data centres and industrial growth will raise demand and require major generation and grid investment. While tariff reforms will improve renewable energy economics, and new Power Purchase Agreements and third-party access rules will empower corporate buyers, Malaysia faces challenges from an increasing level of variable solar power that necessitates significant grid enhancements and battery storage to manage stability, weak grids in East Malaysia needing substantial upgrades for renewables integration, and near-term renewable energy projects face financing challenges due to below-market returns.
South Korea’s power market aims to displace coal with renewables and nuclear, with a significant expansion in offshore wind supported by streamlined laws and corporate PPAs and new nuclear plants entering service. The low carbon energy plan includes huge grid investment, incentives for renewables and diversification into hydrogen, battery storage, and smart grids.
As with other Asian economies, South Korea’s ambition could be challenged by bottlenecks in grid modernisation and interconnection, hindering renewables deployment, unavailability of land owing to high population density and regulatory friction between existing and planned systems. Europe has faced all these challenges in its energy transition, so what could Asia learn from Europe? First and foremost, Europe has benefited from cross-border integration and interconnection through the creation
Indonesia, the largest
economy in Southeast Asia, provides a prime example of the market challenges faced in the short to medium-term.
of regional power pools and cross-border trading that allows for optimal dispatch of resources and handles renewable energy variability across a wider geographic area. Secondly, Europe has become more market-driven with carbon pricing not only providing a financial incentive to invest in renewables but also leveraging billions in Emissions Trading System revenues for net-zero technologies, hydrogen, and industrial process heat. A competitive and liberalised power market structure has also increased efficiency and encouraged private sector investment, while day- ahead and intraday markets have enabled better and faster price discovery that has helped to balance supply and demand. Strengthening the independence of energy regulators, separating them from industrial or government interests, has ensured a more competitive, fair, and efficient market. But there have also been pitfalls that need to be avoided, such as over-centralisation that can stifle flexibility and a reliance on single- source energy supplies. Asia is a long way from being an interconnected power market with the Asian Power Grid launched back in 1996 having a delivery date of 2045 now envisaged, while there is little government appetite for privatisation and liberalisation. But there is movement towards carbon pricing with Thailand aiming for a mandatory market launch by 2027 featuring a 15% offset limit to encourage participation. In the absence of liberalised markets and independent regulation, the overriding challenge in Asia’s energy transition is expected to be the investment risk in renewable generation and transmission capacity. These costs will have to be passed through, at least in part, in either in tariffs or general taxation. As Europe has discovered, energy transition costs recovered through subsidies and taxes raise the delivered price of electricity even when wholesale costs are reducing. And without a competitive power market Asian countries could be subject to rising costs in both energy and non-energy sectors. The days of cheaper Asian power prices will soon be over.
www.modernpowersystems.com | January/February 2026 | 13
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45
