Southeast Asia’s Energy Sector: An Opportunity to Strategically Apply Taiwan’s New Southbound Policy

Southeast Asia’s Energy Sector: An Opportunity to Strategically Apply Taiwan’s New Southbound Policy

Southeast Asia’s Energy Sector: An Opportunity to Strategically Apply Taiwan’s New Southbound Policy

Tsai Ing-wen has clearly marked the New Southbound Policy of improving business and social linkages between Taiwan and Southeast Asia as a foreign policy priority for her administration, with investment expos and student exchanges playing a central role. While these activities help improve broad linkages between Taiwan and the region, targeting activities that explicitly address development needs in ASEAN will contribute to the policy’s long-term success in fostering a sense of regional community. One potential avenue for this is through prioritizing investment and exchange in the energy sector, which underpins the industrialization, urbanization, and rising living standards that are vital aspects of economic growth throughout the region.

Electricity Demand in Southeast Asia

Southeast Asia’s future will be characterized by rapid rises in electricity demand: the region’s electricity needs are expected to rise 80 percent through 2040, which is approximately 400 GW of additional installed energy capacity. While there is significant variation between countries—Vietnam’s projected demand growth is between 8 – 10 percent per annum, while more mature economies like Malaysia and Thailand will grow at relatively sedate rates—the overall picture is one of rapid expansion of electricity sources and the grid.

Given the sheer amount of capacity that must be added in the coming decades, most ASEAN countries are adopting an “all hands on deck” approach towards energy development that includes significant buildout of coal, natural gas, and oil despite concerns over potentially significant impact on climate change. While renewables such as solar and wind are increasingly affordable, current power development plans indicate that coal will make up 40 percent of the added capacity through 2040.

There are two main factors for the relatively slow adoption of renewables: the first is a focus on energy security, which for many countries in the region is characterized as access to sufficient and reliable electricity production rather than concerns over import dependence. Brownouts threaten the industrial and foreign investments that drive economic growth as well as raise questions about the government’s ability to effectively address the urban, middle-class population’s expectations for better living standards. The intermittent nature of both wind and solar is therefore viewed by many policy-makers as an impassable obstacle to wide-scale adoption of renewables. As a result, power planners often prioritize older but proven fossil fuel and hydropower technologies, despite pressures over climate change emissions and growing domestic concerns over the environmental impacts from large-scale coal and hydropower plants.

The second factor inhibiting the adoption of new and emerging technologies is a lack of local expertise and financing, particularly in the least developed countries of Laos, Cambodia, Myanmar, and Timor-Leste. This includes not only renewables but also clean coal, deep sea oil extraction, and energy efficiency technologies and standards. Renewables and energy efficiency in particular are viewed as technologically challenging and too expensive compared to traditional fuels such as coal, natural gas, or hydropower. This viewpoint increasingly fails to reflect the reality of pricing, particularly for solar power: prices have been on a continuous downward trend, falling 12 percent in 2015 alone for commercial scale solar. American power purchase agreements commonly reach an agreed rate of 5 cents per kilowatt hour, with unsubsidized rates often reaching between six and eight cents per kilowatt hour. This reflects a global downward trend, and within the next few years will put solar close enough to traditional power sources in Southeast Asia that it will likely start to compete on pricing terms. For countries like Singapore or Cambodia, where the current market rate is upwards of 20 cents per kilowatt hour, commercial solar would already be competitive.

Opportunities for Taiwan

There are clear foreign policy opportunities for Taiwan to utilize its own recent and ongoing experience balancing energy development, environmental protection, and economic development to engage more effectively with ASEAN countries. There are two avenues, which are already identified in the New Southbound Policy, through which Taiwan can engage on these issues with Southeast Asia: investment and educational exchanges.

Investment and trade already form key elements of Taiwan’s New Southbound Policy, and regional needs mean that there will be significant opportunities for Taiwan’s energy companies to expand in Southeast Asia in the coming years. ASEAN countries’ comparatively low wages, strong economic growth, and emerging partnership in the form of the ASEAN Economic Community have already led it to play an integral role in the regional supply chain. Many Taiwanese companies already take advantage of this—Taiwanese investment in ASEAN made up approximately 15 percent of ODI from 2010-2015, more than double the amount from 2006-2010.

Taiwan is already a key producer in the solar panel market, and the administration’s ambitious goal to build out renewables to 20 percent of its domestic energy capacity by 2025 will require a further buildout in both the wind and solar sectors. There would be clear knock-on benefits if Taiwanese companies and officials seriously explore the further integration of ASEAN countries into Taiwan’s renewables supply chain and manufacturing. Doing so would provide benefits to both Taiwan and ASEAN: it would support economic ties, grow familiarity with and consideration of renewables in Southeast Asian nations, and provide opportunities for Taiwanese energy companies to diversify their production base in lower-cost manufacturing centers. As price shifts, anticipated improvements in battery storage, and grid buildout make renewables more feasible for domestic deployment in Southeast Asia in the coming decade, Taiwan would be well placed to pursue joint ventures.

Taiwan’s advanced education system, ongoing domestic efforts to integrate renewables, and national reputation for technological expertise make it an attractive partner for educational exchanges. Many Southeast Asian students and officials choose to go abroad for advanced educational degrees due to a lack of respected educational facilities at home, with Singapore, Australia, and China as the prime beneficiaries. Within this context, both long and short-term study-tours can play a crucial role in advancing mid-level officials’ careers while simultaneously supporting an understanding of other countries’ experiences balancing economic development with environmental protection.

Strategically targeting students, officials, and private sector representatives who work on energy issues to take part in Taiwan’s educational exchange programs that have been laid out in the New Southbound Policy would effectively set Taiwan up for long-term engagement with Southeast Asia on an issue that will remain key to each country’s national interests in the coming decades.

These tweaks to the New Southbound Policy would not require a significant departure from Taiwan’s previous approach, but could reap significant benefits for Taiwan’s long-term relationship with ASEAN members. Doing so could also provide opportunities for Taiwan to coordinate these efforts with Australia, New Zealand, the United States, and other development partners.

The main point: In order for Taiwan’s New Southbound Policy to succeed, initiatives must address high-priority development needs in the ASEAN countries, including support for energy development that underpins the region’s economic development. Taiwan has a great deal to offer in this arena, not only in terms of investment but through supporting technical and human resource capacity building and training exchanges with students and policy-makers in ASEAN countries.