Electrification is a readily available alternative to burning fossil fuels to run cars, buses and boilers. Emissions from producing electricity are a major problem. Southeast Asia's economic dynamism has led analysts to predict that the region's annual energy consumption could triple in the 30 years to 2050.
Surendra Rocha, co-chief executive officer, Asia Pacific, HSBC
Renewable energy is now the cleanest and most cost-effective way to meet this relentless demand. By decoupling economic growth from carbon emissions, ASEAN would be following a path established by developed countries such as the United States, whose GDP has more than doubled since 1990 even as emissions have fallen. To be sure, part of this was due to the decline of manufacturing in some Western countries, but cleaner energy production was paramount.
For ASEAN to reach net-zero, it will need to roughly triple its energy production from renewable sources by the end of the century. Introducing these clean sources onto the grid could deliver the bulk of the dramatic emissions reductions by 2030. This would then accelerate the decarbonization of “hard to abate” sectors such as steel and aviation as cost-competitive clean technologies mature.
But achieving this pace requires collaboration. Financial institutions, private, public, and philanthropic organizations have made notable progress in recent years in orchestrating change. Strengthening these partnerships can help expand renewable energy, get capital to industry where it needs it most, and address the coal challenge.
There are three reasons for optimism. First, ASEAN has huge potential for solar and wind deployment. But installing many times the current capacity of new renewables will require huge amounts of capital. That means rebalancing the investment ratio between fossil fuels and low-carbon sources from the current 50:50 to 3:1 in favor of cleaner sources.
Adding up the net-zero commitments made by financial institutions shows that there is ample capital available to address this issue. The holdback is more operational. In addition to the complex standards that commercial banks must apply in emerging markets, identifying bankable deals and viable contract structures can be difficult in many countries. Policymakers can remove this obstacle by building a pipeline of bankable projects to enable and accelerate the deployment of private capital.
Second, policies can scale up innovative financing. This means deploying more blended finance, which combines public funds, such as those from multilateral development banks, with private capital from financial institutions.
The financial plumbing to facilitate this has not yet been completed. Currently, most blended finance agreements are customized for each deal and are rarely repeatable. Establishing contract templates for wind, solar and other renewables would provide consistency and comparable projects to help banks assess risk.
That's part of the reason why HSBC partnered with Singapore's Temasek to launch a blended finance vehicle called Pentagreen to support sustainable infrastructure in Southeast Asia. Last year, HSBC completed its first transaction, financing a portfolio of six solar power projects across the Philippine island of Luzon.
Third, ASEAN can work together to tackle the coal issue. Currently, most of Southeast Asia's energy is produced by about 450 coal-fired power plants with long operating lives. Finding ways to retire these coal plants early and replace them with renewable energy is necessary to achieve the net-zero target.
Policymakers can help financial institutions participate in phasing out coal power as part of broader plans to build renewable energy and grid infrastructure. The Indonesia-Vietnam Just Energy Transition Partnership is a promising example. These multilateral financial agreements bring together G7 countries with financial institutions and governments to accelerate the phase-out of coal as part of a broader energy transition.
Our shared challenge today is to move from concept to execution. Here is where it gets difficult. Solutions need to be scalable so that the public sector can participate and the private sector can fund them. Credibility and replicability are key, and this can only be achieved through strengthened public-private partnerships.
Coal policy has focused on stopping new generation but has yet to move towards a managed phase-out of existing plants. The rapid expansion of renewables shows what is possible when economics and policy align. Independent think tank Ember predicts that this year will mark a dramatic turning point, with global energy emissions falling for the first time.
This progress is thanks to the same kind of innovation that made the modern tuk-tuk electric, quiet and clean. On the long road to net zero, we expect to see this story repeated many times over. Our partnership can help make the needed financing available, affordable and scalable across ASEAN.
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