SCALE UP for net zero: benchmarking solar and wind growth in South, Southeast and East Asia

While fuel prices have moderated, concerns about energy security and affordability have remained elevated in South, Southeast and East Asia due to a combination of various factors: rapid growth in energy demand, high reliance on fossil fuel imports, pressing economic development priorities, constrained government resources, rising geopolitical tensions and ongoing repercussions from fuel supply shocks. Moreover, intensifying climate change impacts are set to further strain fiscal budgets and exacerbate existing issues, particularly in low-income countries.

Recognising the global analyses by the IPCC, IEA and IRENA, more than 130 countries committed during COP28 in 2023 to tripling the world’s installed renewable energy generating capacity to at least 11,000 GW by 2030, alongside doubling the rate of energy efficiency improvements. 

Yet, the target to triple renewables capacity is a global one – and does not mean that each renewable energy needs to triple, or that individual geographies need only to increase by this amount. The signatories of the Global Renewables and Energy Efficiency pledge highlighted that any such action should consider different starting points and circumstances and the unique realities of each region.

Renewable energies such as hydropower, bioenergy and geothermal will play an important role in future decarbonised energy systems. However, the bulk of renewable capacity additions will need to come from wind and solar power, given their potential in reducing emissions at least cost as well as their vast resource potential.

To investigate how much wind and solar is needed to remain on track with domestic net-zero targets, Agora Energiewende reviewed more than 35 long-term energy scenarios from Bangladesh, Indonesia, Japan, Pakistan, South Korea, Thailand, the Philippines, Vietnam, and Taiwan, China*. These scenarios are bottom-up analyses carried out by local institutions in close consultation with various stakeholders. They consider specific local constraints and political economy developments, including technology costs, resource potential and social development targets. As such, they complement global analyses such as those by the IEA and IRENA.

Strengthen targets to align with ambition

Governments should strengthen commitments and align targets with a net-zero trajectory. As highlighted in the previous section, for the region to realise such a pathway, it would need to scale up solar and wind capacity by more than five-fold by 2030. This would translate to a four-fold and nine-fold increase in solar and wind capacity, respectively, from 2023 levels. In addition, governments should clearly announce strategies and timelines to enhance target credibility and foster stakeholder confidence.

Coordinate across institutions for effective implementation

Institutional capacity and coordination efforts between government agencies, utilities and other stakeholders must also be strengthened across all levels to enable consistent planning and efficient implementation. Coordination should also be cross-sectoral to ensure that solar and wind deployment helps to advance social and economic development priorities and boost public support for the transition. For instance, policymakers across relevant government agencies can collaborate to incorporate socioeconomic considerations into land use planning for solar and wind. 

Activate enabling policy and regulatory frameworks

Policies and regulatory frameworks play a critical role in creating an enabling environment for solar and wind deployment. They should be designed to address the challenges encountered by project developers as well as potential social and environmental impacts to ensure a smooth transition. For example, regulators should streamline zoning, siting and permitting processes to reduce project development delays. At the same time, these arrangements must incorporate mechanisms to safeguard ecosystems and community interests. Furthermore, trade and industrial policies can be tailored to strengthen the supply chains for solar and wind technologies and enhance their resilience against future supply disruptions. 

Lower costs, risks and barriers to attract investments

A suite of approaches to lower costs, risks and barriers is crucial to stimulate solar and wind investments and drive growth. New capacity should be procured through transparent and predictable schemes (e.g., auctions) to effectively drive down costs. In addition, risk reduction and re-allocation measures such as government-backed guarantees and insurance schemes should be introduced to enhance project bankability and lower interest rates for developers. To complement these measures, efforts must be undertaken to phase out fossil fuel subsidies and other market barriers for solar and wind. 

Expand the consumer base for renewable electricity

Demand-side interventions are also essential. Governments can incentivise renewable energy consumption through tax credits, rebates and rooftop solar programmes. Mechanisms and initiatives that support demand for green electricity among large consumers, such as direct power purchase agreement (PPA) schemes and RE100, should be promoted as they hold significant potential to help accelerate solar and wind growth. Where feasible, regulations that mandate higher shares of renewables consumption may also be an effective tool.  

Upskill and reskill talent to support the transition

Countries must also set themselves up from a human capital perspective to adapt to the changing energy landscape. The transition away from a conventional fossil fuel-based system towards one based on green technologies necessitates the acquisition of new skills among the energy sector workforce and other stakeholders. This is especially vital given the increasing role of digital and automated solutions in power systems. Governments and industries must therefore collaborate to identify future skills gaps and ensure appropriate training opportunities are in place. 

Promote system flexibility and grid development to integrate VRE

The power system must also evolve to successfully accommodate the variable nature of solar and wind and enable the realisation of their full potential. This requires a shift away from the baseload paradigm towards one based on flexibility, underpinned by a modernised grid and a wide range of resources to balance supply and demand. However, as the subsequent section demonstrates, this transformation need not – and should not – be tackled in one go but rather in a progressive manner.  

Countries in the region are currently at what the IEA regards as “low” phases of VRE integration (Phases 1-3). Specifically, based on the IEA’s analysis, the following power systems are at Phase 1: Bangladesh, Indonesia, Pakistan, the Philippines, South Korea, and Thailand. At this phase, system-level impacts are generally negligible, with challenges mostly confined to specific geographical areas (e.g., Jeju in South Korea). Therefore, efforts to integrate VRE in these systems should focus on easing local grid congestion and laying the groundwork for the next stages (e.g., establishing technical standards for VRE and building forecasting capabilities). In countries that are at Phase 3, such as Japan and Vietnam, the priority should shift towards modifying rules and assets to facilitate the flexible operation of the power system. This stage often requires a significant boost in the adoption of technologies that support system flexibility, including battery storage and smart meters.

It is important to keep in mind that each power system may not fit neatly into the categories outlined. Different regions within a country may not necessarily be at a similar phase of VRE integration (e.g., Kyushu is at Phase 4 despite Japan as a whole being at Phase 3). Consequently, power sector regulators and system operators should customise their VRE integration plans as appropriate. The system’s unique characteristics and constraints must be accounted for when referencing the VRE integration framework so that the most suitable set of interventions can be identified and deployed for each region based on their actual needs. For example, the need for system flexibility and ancillary services on Jeju Island is significantly more pronounced than in other regions in South Korea, due to the former’s higher level of VRE penetration, relatively low grid redundancy and limited connection to the mainland.

Regardless of the type of power system a country has, this principle remains essential: VRE integration measures should be implemented progressively, with priority at each stage assigned to those that can best meet system requirements in a cost-effective manner. 

Earlier this year, South Korea rejected a USD 7.5 billion offshore wind proposal, citing, among other reasons, a lack of transmission grid capacity. Southeast Asia faces similar challenges, with new solar and wind projects encountering substantial delays in grid connection and existing ones facing increasing technical curtailment risks. These issues combined significantly erode solar and wind’s financial viability and diminish investor confidence.

Beyond planning challenges, grid investments also require massive amounts of financial capital, which governments and utilities may struggle to secure. Developing countries in particular face several challenges with grid financing, including high cost of capital, tight fiscal budgets and limited access to private finance due to the structural constraints of their T&D business. In many countries, the transmission system operators (TSOs) and distribution system operators (DSOs) are state-owned and part of a vertically integrated utility. Their ability to raise capital for grid investments is significantly hampered by regulated rates of return that prioritise affordability for consumers at the expense of the utilities’ financial health. 

The IEA projects that over 80 million kilometres of grid infrastructure – roughly the size of the global grid infrastructure today – will need to be added or upgraded worldwide by 2040 for countries to reach their domestic energy and climate targets. In recognition of this urgency, the COP29 Presidency has called on countries to pledge their commitment to add or refurbish 25 million kilometres of grids globally by 2030, with an additional 65 million kilometres by 2040.

To achieve this goal, governments must bring grid development to the forefront of their agendas. Regulations must be designed to facilitate an accelerated build-out. This would involve measures to streamline processes and tackle bureaucratic hurdles. Proactive long-term planning is crucial, especially considering the long lead times for grid infrastructure projects. In countries where public consultation is extensive, permitting and construction for high-voltage and extra-high voltage lines can take up to 8 and 13 years,⁹ respectively. Grid planning must anticipate potential high growth rates of solar and wind penetration to ensure sufficient capacity to accommodate deployment and effectively evacuate power to demand centres. The planning process should also be integrated with that in other sectors to promote increased sector coupling.

For most jurisdictions in South, Southeast, and East Asia, overcoming financial barriers for grid investments requires restructuring utilities’ remuneration framework and enabling private sector participation. Remuneration structures for T&D utilities must be revised to strike a balance between current consumer needs and the utilities’ ability to fulfil grid investment requirements, keeping in mind the various benefits associated with a modern and robust grid that extend far beyond its ability to integrate VRE (e.g., network resilience against extreme weather events, reliable electricity supply that underpins economic growth). Alongside tariff reforms, efforts should be made to enable private investment in T&D projects. This would involve exploring alternative models for grid financing, such as corporate bond issuance by utilities, blended finance, public-private partnerships and independent power transmission projects. Opportunities to mobilise international climate finance should also be pursued as an additional source of funding for grid development.