Powering ASEAN's growth. A look at the trends that will impact the use of power in ASEAN to 2020 and beyond

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How our use of energy will change in the next five years. Clashes in the South China Sea, rising fuel prices, nuclear disasters and choking smog levels have brought energy issues sharply into focus in the region. As the deadline for ASEAN’s Vision 2020 gets nearer, will the region transition to a unified economic group, connected by power, gas and water networks, working together to promote energy efficiency? Ipsos Business Consulting believes the future will involve a more complex array of energy options, but not necessarily a unified ASEAN program. In a whitepaper on this topic, author Tim Hill has outlined the energy trends that will shape the region. New technologies and practices will emerge in the latter part of this decade which will change the way the region extracts, produces, distributes and consumes energy. Hill hopes that some of these trends will enable ASEAN’s economies to grow without further damage to the environment. From national grids to micro-grids and off-grid power 160M people in ASEAN (about 28% of the region) have no electricity. Getting full access to all through extending the grid will prove challenging and expensive. Micro-grids, such as the one operating as a test centre in Pulau Ubin will help to bridge this gap. Smaller plants powered by hybrid fossil and renewable sources will help to bring electricity to rural communities in Southeast Asia that previously have had to rely on generators. Remote areas will benefit from advances in technology with solar power and battery storage that will create enough electricity for lighting and other low level devices. In the cities more households will take on individual solar panels to reduce their electricity bills. Electric vehicles Other parts of the world are using electric cars and buses, and Singapore is looking at options in this space. SMRT added 600 Toyota Prius hybrid cars to its fleet at the end of last year and there are experiments with fully electric cars. Charging stations are starting to appear in select parts of Singapore. Electric two wheelers are going to experience a tenfold increase during the course of this decade. Electric bikes are likely to replace petrol motorbikes and scooters throughout the region which will help to manage smog levels as urban populations grow. Other types of electric personal transport such as Segways, scooters, skateboards etc are starting to pop up in our parks. These will become more mainstream forms of transport for short commutes during the rest of the decade. Governments in the region have been slow to recognise the advantages of electric two wheelers, seeing it as something that needs to be regulated and kept off the roads and off the walkways. This will change as the advantages of low cost, low speed vehicles become more mainstream
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  • 1. Powering ASEAN’s Growth A look at the trends that will impact the use of power in ASEAN to 2020 and beyond
  • 2. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 Ipsos. All rights reserved. Contains Ipsos’ Confidential and Proprietary information and may not be disclosed or reproduced without the prior written consent of Ipsos. www.ipsosconsulting.com CONTACT US • • • • • • 3 4 5 6 8 10 12 14 14 17 19 23 25 28 29 31 Foreword from Peter Snell, CEO, Ipsos Business Consulting Executive Summary Prologue: ASEAN – A partnership in dynamic development? People power – Public attitudes to energy Laws of energy: Implementing change in national energy programmes The stickiness of fossil fuels and ASEAN’s growth New and renewable energy sources Trends that will impact the use of power • Efficiency in transmission and distribution • Efficiency in consumption: Trends with air conditioning • It’s the economy… • Cars and bikes • Government sticks and carrots • ASEAN power grid or ASEAN micro-grids? Fast forward Sources Tim Hill Business Development Director, ASEAN tim.hill@ipsos.com ENERGY RESEARCH AND CONSULTING FROM IPSOS BUSINESS CONSULTING A leader in fact-based consulting, Ipsos Business Consulting is trusted by top businesses, government sectors and institutions worldwide. We support businesses in the energy arena using our fact-based analysis to help them build, compete and grow in emerging and developed markets globally. Having opened our first office in 1994 in Hong Kong, Ipsos Business Consulting is immensely proud of its unique Asian heritage. Over the years we have steadily expanded across Asia Pacific into Europe and the US, and recently opened our first office in Africa. We have grown from being an Asia-Pacific market intelligence company into being an integral part of Ipsos’ global network, with a presence in 85 countries around the globe. Our energy practice can also trace its roots back to the 1990s when we quickly established ourselves as a leading provider of research and consulting services to energy clients operating around Asia-Pacific. Today our service range covers power generation, transmission, delivery and utilisation across a wide range of fuel and grid types. Ipsos Business Consulting continues to support clients doing business in the energy sector by providing practical advice based firmly in the realities of the market place. With more than two decades experience in the energy market we offer clients the best geographical coverage and solid experience across the region. For more information, contact energy@ipsos.com contents
  • 3. energy@ipsos.com IPSOS BUSINESS CONSULTING Powering ASEAN’s growth 3 Foreword from Peter Snell, CEO, lpsos Business Consulting In a summit meeting in Malaysia in 1997, ASEAN’s governments agreed on a mission statement for what the region should look like in 2020. This was dubbed the ASEAN Vision 2020 and covered many different aspects of the governance of the region including the energy program. Here, as elsewhere, the hope was that a unified economic group would be physically connected through initiatives such as the ASEAN Power Grid and a Trans-ASEAN Gas Pipeline and Water Pipeline. The idea was that the ASEAN member states would work together to promote energy efficiency and develop new renewable energy resources. With less than six years to go until the end of the decade, time will soon reveal whether the vision can become a reality and how the region is adapting to meet the energy needs to power its growth. This paper is part of a series of thought leadership pieces on the year 2020 published by Ipsos Business Consulting to celebrate our twentieth anniversary and contribute towards the region’s knowledge and understanding of some of the industries that will be driving forces for Asia’s growth in the decades to come. The paper will consider the energy challenges facing ASEAN countries up to the end of this decade and how they will shape the region in subsequent years. It’ll be asking whether the 2020 vision is achievable and whether regional policies can realistically form a viable energy program. ASEAN’s national governments will be viewed from the perspective of the role they have had in shaping the energy programs and the public perception of energy in the region. The ASEAN experience will be considered alongside other countries around the world to identify the sort of policies and environments that will meet the needs of the region. At the midway point of this decade, some exciting new technologies are getting adopted around the world that are enabling both the viable uptake of alternative sources and the more efficient use of fossil fuels and legacy systems. The topic is huge, so this paper will focus on technologies that improve energy efficiency and manage different electricity formats as well as some of the drivers and barriers to the uptake of these technologies. In particular the role of the private sector will be considered and its potential to help the region to modernise and to meet the energy demands of the countries at differing stages of economic development undergoing rapid economic growth.
  • 4. energy@ipsos.com IPSOS BUSINESS CONSULTING Powering ASEAN’s growth 4 Executive summary Territorial oil disputes, rising fuel prices, nuclear disasters and choking smog levels have brought energy issues sharply into focus in recent years. Opinion polls have highlighted the concerns from all countries about the safety, affordability and sustainable supply of energy. Governments around the world are responding in different ways. In the ASEAN group, there has been a lot of talk about regional energy programmes and policies, however it seems to be the individual national initiatives that will shape the future of the fledgling economic block. There are a lot of barriers to entry for alternative energy sources to feed the national grids. These barriers, consisting of economic, social and technological issues, as well as government policies such as subsidies, are keeping consumers a captive audience to their traditional suppliers and habits. All ASEAN countries suffer from low efficiency rates to varying degrees in the production, distribution and consumption process. This adds to the cost of electricity to both the state and the consumer as well as adding to the environmental impact. As economic progress continues and new technologies are used, less wastage can be expected. The ASEAN countries are at very different stages of economic growth. Members include a fully developed city state with nearly full national electricity coverage as well as several agrarian economies such as Cambodia and Myanmar whose citizens have limited or partial access to electricity and many of whom rely on biofuel from the surrounding countryside. As the ASEAN economies continue to grow, it seems likely that consumption rates of energy and hence, fossil fuels will soar, creating further strains on overloaded grids and further pollution in the skies and waterways. New technologies could help to avert this disastrous scenario. Just as a combination of oil extraction technologies known as “fracking” is helping the USA’s energy needs, other new technologies are poised to change the way the world extracts, develops, distributes and consumes electricity. The ASEAN group, as with other global economic groups, will forge its energy programs not just on a regional level but on a national, state, village and individual level in the future. The member states will be assisted in their journey by examples of best (and worst) practices of their neighbours and other suitable examples from around the world, as well as by the new technologies that will become available. ASEAN’s energy will continue to get delivered along traditional routes from the fossil fuel plant operated by the national utility companies to the end consumer. But the future will also offer alternative decentralized power sources, which will be the biggest equalizer in bringing electricity to rural communities.
  • 5. energy@ipsos.com IPSOS BUSINESS CONSULTING Powering ASEAN’s growth 5 Prologue: ASEAN – A partnership in dynamic development? The ASEAN leaders of 1997 had high hopes for the region by the year 2020. Their Vision 2020 statement foresaw “interconnecting arrangements in the field of energy and utilities for electricity, natural gas and water within ASEAN through the ASEAN Power Grid and a Trans-ASEAN Gas Pipeline and Water Pipeline”. There was to be “cooperation in energy efficiency and conservation, as well as the development of new and renewable energy resources.” The environment was to be respected with mechanisms to promote sustainable development, protect the regions natural resources and deal with problems of environmental pollution. ASEAN has certainly achieved one of its main objectives in providing a platform for dialogue amongst the member states, which arguably has kept the region peaceful for many years. This has certainly contributed towards its growth and visibility in a region straddled by the twin giants of China and India. ASEAN has also kept a constant dialogue going amongst the member states on the topic of energy and the options, technologies and best practices available. But there are many areas where the dialogue has yet to turn into action. As with other objectives set by ASEAN, the vision of 2020 might be better viewed as a process rather than a race with a countdown clock. From the perspective of 2014, it seems difficult now to envisage a region that is powered by a network of energy pipelines, let alone one that is managing its environment and cooperating in initiatives for energy conservation and renewable resources. Critics might argue that the ASEAN of 2020 may not look much different from the ASEAN of today, except that it will be more crowded, more polluted and probably even less unified in its approach to energy.
  • 6. energy@ipsos.com IPSOS BUSINESS CONSULTING Powering ASEAN’s growth 6 52% 60% 62% 68% 81% 90% 92% % very much support/somewhat support It will take more than one energy source to meet all of [Country]'s energy needs It is urgent that there is major investment in energy in [Country] In the future, renewable energy sources will be able to fully replace traditional fossil fuels Renewable sources of energy, such as hydroelectric, wind and solar power, cannot on their own meet the rising demand for energy It is very important for [Country]'s needs to generate more energy, even if it is not made from renewable or low carbon-emission sources Nuclear energy is less of a threat to the environment than energy produced from fossil fuels such as coal and oil We produce enough electricity in [Country] to meet your needs People power - Public attitudes to energy As with most other parts of the world, the ASEAN region is largely powered through traditional fossil fuels. Whether this will continue to be the case in the future depends on a number of factors, one of them being the viewpoints of the general public both in ASEAN as well as the rest of the region and other parts of the world. A survey from Ipsos Public Affairs in 2009 (Chart 1 below), well before Fukushima and the recent interest in renewables, indicated considerable global concern about the topic with most respondents agreeing that their countries need to invest more in energy and look at multiple sources. Chart 1: A global consensus on mixed energy solutions For each statement indicate whether you strongly support, somewhat support, somewhat oppose, or strongly oppose each way of producing electricity Source: Ipsos Public Affairs Global @dvisor, May 2009 A later global survey from Ipsos Energy Barometer (Chart 2 below) showed a consensus from most countries on the need for different energy sources and optimism in the potential for renewable energy sources. The survey also indicated the belief that, with the current state of technology, renewable sources have to co- exist with fossil fuels to supply the global demand for power, and hence respondents also agreed on the urgency for investment in energy in their country.
  • 7. energy@ipsos.com IPSOS BUSINESS CONSULTING Powering ASEAN’s growth 7 38 48 80 91 93 97 Nuclear Energy Coal Natural Gas Hydroelectric Power Wind Power Solar Power % very much support/somewhat support Chart 2: Support for energy sources Please indicate whether you strongly support, somewhat support, somewhat oppose, or strongly oppose each way of producing electricity Base: 18,787 global adults aged 16+; April 2011 Source: Ipsos Global @dvisor, Ipsos Social Research Institute, “After Fukushima, Global Opinions on Energy Policy” If people from around the world seem to agree that energy is a pressing national issue then presumably governments should be focusing their attentions on the topic. Some are and some are not. In the ASEAN region, as with other parts of the world the governments are at different stages and using different national policies. A later study from the Ipsos Social Research Institute which was published in a paper called “After Fukushima, Global Opinions on Energy Policy” found considerable support for renewable sources although there were clear concerns about the reliability of these sources at least in the short term. The paper1 states: “While the public sees renewable sources such as solar, wind and water power as more environmentally friendly and more viable long-term options than fossil fuels such as coal and oil, they retain significant doubts about their reliability, and still see the traditional and less environmentally friendly power sources such as gas, oil and nuclear power as being more dependable, at least in the short-term. The public (rightly) thinks there is some way to go before renewable energy sources can replace fossil fuels.” A more recent survey conducted for this study by Ipsos in association with Toluna, an online social community voting program, found that 49% of Asia Pacific respondents agree that they would pay more for energy from renewable sources. What was surprising about the results was that respondents from developing countries (India and Thailand) indicated a much higher likelihood to pay for energy from renewable sources rather than their neighbours from the more developed countries (Singapore, Hong Kong and Japan). The graph below shows the respondents from the lowest income groups in each of the countries surveyed, although the results do not differ substantially by income groups. Higher income groups did tend to indicate a higher propensity to pay for energy from renewable sources, but developed country respondents were still not as keen as their developing country counterparts to shoulder the economic burden. 1 “After Fukushima, Global Opinions on Energy Policy”, Ipsos Social Research Institute
  • 8. energy@ipsos.com IPSOS BUSINESS CONSULTING Powering ASEAN’s growth 8 Table 1: “I would pay more for energy from renewable sources” Question: “I would pay more for energy from renewable sources”. 3419 respondents. Survey conducted in March 2014 Source: Ipsos Business Consulting/Toluna The research does show that there is concern from the general public about national energy programmes, and some sense of the different sources that they might be relying on in the future and how they might have to pay for it. Change is in the air, although no-one is clear as to what that change will be and how it will impact their pocket. Laws of Energy: Implementing change in national energy programmes Physics teaches us that energy can be neither created nor destroyed, but can change form. National energy policies, fortunately, have a bit more flexibility. If change is imminent, then what factors will ASEAN’s governments need to consider in the implementation phase? It seems there are many complexities to consider. A country’s energy supply needs cannot be entirely subcontracted out to lower cost or neighbouring countries without the risk of political bargaining. The availability and pricing of power can swing elections, and make or break companies. Power outages in developed countries are regarded as a government failure. The huge economic costs of building a new power plant and the environmental impact or society objections to the siting mean that governments have to manage the process. As a result any changes to a national energy programme can only take place with government support. One of the problems with bringing in change is that the legacy power systems in place often make it difficult for new entries and new technologies to compete. Many renewable sources produce electricity in direct current (DC) format, whereas national power grids have long been established with alternating current (AC), which is the global established system for transmission and distribution of energy. A low-voltage DC network works well with solar panels, but it is difficult to feed this power into the AC mains grid. Electricity does not follow the same supply chain as other commodities. This makes for difficulties in bringing new players into the system and accommodating different forms of energy. Unlike a surplus of grain which can be kept in silos, traditional power systems have offered a supply of electricity that cannot be cost effectively stored to match a later demand. The national grids have to constantly balance power generation with power consumption. Total % Singapore Japan Hong Kong Thailand India Strongly agree 17 6 12 27 33 Agree 32 19 20 31 37 35 Neither agree nor disagree 32 46 52 36 22 20 Disagree 14 15 19 17 9 6 Strongly disagree 5 14 9 5 4 6
  • 9. energy@ipsos.com IPSOS BUSINESS CONSULTING Powering ASEAN’s growth 9 This often means that suppliers who feed power into the network have to produce the same quantity of electricity that their customers take out and are charged for any imbalances. The network operator needs to ensure a generating reserve to maintain a balance. This creates further challenges with the trading environment as the power generators have restrictions on their productivity and have to comply with the requests of the grid operators. In nearly all ASEAN countries the state subsidises the price consumers pay for fuel or electricity. National energy programs and the infrastructure investment that plants require have been underwritten by state guarantees of pricing to the utility operator. This can discourage cross border trading as well as providing a possible barrier to entry to potential private energy investors. Consumers and industrial end-users have less incentive to look for new alternatives if their current source of energy is subsidised. Most of the ASEAN countries now have plans in place to reduce these programs (see table 2 below), which have had a long term impact on the energy policies for the region and have caused a big burden on government resources. All of these factors make for complexity in implementing change in national energy operations. Some of these areas will be considered alongside other drivers and barriers to energy use in later parts of this paper. Before getting into the detail, it is essential to look at the projections for energy use in ASEAN to understand the size of the challenge ahead. Table 2. Fossil fuel subsidies and efforts at reform in ASEAN countries Source: Southeast Asia Energy Outlook 2013 WEO special report Country Products subsidised Reform efforts Brunei Darussalam Diesel, gasoline, LPG and electricity
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