Renewables In Asia Pacific A $1.8 Trillion Opportunity

Renewables In Asia Pacific A $1.8 Trillion Opportunity
Asia Pacific continues to set the pace for power market growth, creating a $1.8 trillion opportunity for renewables in the next decade.

Asia Pacific continues to set the pace for power market growth, creating a $1.8 trillion opportunity for renewables in the next decade.

Wood Mackenzie said that Asia Pacific has had a 200% increase in power demand over the past two decades. Power demand in the region rose to nearly half the global total in 2021, as the market expanded by 6.5% – far outpacing the rest of the world.

By 2040, APAC’s power demand growth will average 2.5%, nearly double the rate of other regions and there will be huge opportunities for solar and wind as fossil fuels decrease in importance and the region decarbonizes. But even as demand for electricity climbs and power prices soar, risks to renewables developers are mounting with supply chain, curtailment, financing, and policy risks on the rise. Adding more uncertainty, the outlook for gas and LNG has changed significantly in the wake of Russia’s invasion of Ukraine.

As in other regions, Asia Pacific’s power generation costs are going up. LNG, coal, fuel oil, and diesel prices have all dramatically increased since the second quarter of 2021.

Overall, generation costs will be $650 billion more each year for the next three years – a two-thirds increase in 2021 numbers. End users will bear the brunt of these hikes, with power set to be 27% more expensive, or a total of $1.7 trillion more over the next three years to 2025.

Consumers in Japan, South Korea, Taiwan, and Singapore will be hardest hit, with end-user tariffs expected to rise by at least 30%. These countries relied on relatively expensive fuel imports for between 64% to 98% of their power generation last year. Similarly, inflationary pressures and supply disruption are driving up energy prices in North America and Europe.

Supported by price inflation, Asia Pacific’s power market sector will attract $2.9 trillion in investment in the next decade. Renewables will be a major beneficiary: 60% of the investments – or $1.8 trillion – needed will go into clean energy. Wind and solar will make up the lion’s share.

Meanwhile, fossil fuels will decline gradually from 67% of the power mix today to less than a third by 2050. Many growth markets still rely on coal – but with decarbonization targets now set across the region, the emphasis is on shifting to renewables.

Woodmac believes that there were huge opportunities to play for, but also sees that the challenges were mounting.

Renewable developers are increasingly exposed to risk as supply chain and financing costs rise and grid integration issues worsen. Curtailment also poses a risk to revenue. Solar and wind capacity is heading towards 90% of peak grid load in some markets by 2030. And not enough is being invested in storage – by the end of this decade, storage levels will only be at 15% of peak grid load.

Considering the full costs of renewables – including transmission, battery storage, and gas peaker reserve units – they are not currently competitive with coal in the region.

Nonetheless, the direction of travel is clear. Asia Pacific will add an average of 327 GW/year of new power generation capacity in the next decade, with solar and wind hitting 200 GW/year.

To contact the author, email bojan.lepic@rigzone.com


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