Can Red Sea attacks spur Southeast Asia's next phase of clean energy transition?

The recent spate of clashes in the Red Sea near Middle East oil hubs have once again exposed import-dependent Asia's energy vulnerability, underscoring its need to quickly fulfil last year's Cop28 pledge to triple renewable energy output.

Fortunately, oil's price rise has been muted despite the violence between US-backed allies and Iran-backed militants, but a fuel price shock could be one heartbeat away from an escalation in attacks.

While the world is better prepared to weather such volatility with the International Energy Agency (IEA) saying that, for every US$1 being spent on fossil fuels US$1.70 is directed towards renewable energy development, Southeast Asia remains heavily dependent on fossil fuels.

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Global annual renewable capacity additions increased by almost 50 per cent last year - the fastest growth in two decades - yet clean energy accounts for less than 10 per cent of energy production in most Southeast Asian nations.

One bright spot is the shifting momentum in the region with Thailand, Vietnam and Singapore speeding up renewable capacity, while lining up plans with their net-zero emission goals by 2050 or 2060.

But their intentions are facing a hard reality check - absorbing and distributing renewable energy through their largely legacy power grids.

Unlike fossil fuels, wind and solar power generation fluctuates through the day and different seasons, even as weather extremes are becoming common due to climate change. Therefore, smart grid systems with backup storage are vitally needed for clean energy which can be distributed in tune with the needs of consumers.

While developing renewable energy capacity can be considered as the first phase of moving towards green transition, developing such a flexible grid system to provide a bridge to consumers is a crucial second phase.

Home to around 9 per cent of the world's population and a major engine of economic growth, the region's energy demand growth outpaces the global average, translating into the largest absolute growth of carbon dioxide emissions of any region, the IEA says.

Many of the nations have to balance carbon transition objectives with the growing demand for power to meet economic and social goals, but the good news is that declining costs mean renewable systems can better serve the region's far-flung communities.

But moving to the next phase of energy transition requires more money and muscle.

"Asia is still a little bit of a laggard because a lot of the countries are still at the 1.0 stage. [But] Asia is in a very good position to move here quickly," said Mike Lim, partner at TRIREC, a Singapore-based venture capital firm involved in decarbonisation.

Southeast Asian nations have been moving towards smart grids - with the ultimate goal of interconnectivity across the region - with the idea being that power surplus nations can supply power-hungry pockets within the region.

The response has been mixed so far.

"[The] Philippines, Thailand, and Singapore stand out as well-prepared to handle the increasing share of renewable energy generation, thanks to their existing and planned battery energy storage systems," said Tristan Pheh, a Malaysia-based junior analyst at Norwegian energy research firm and consultancy Rystad Energy.

"On the other hand, Vietnam, despite having a significant operational solar PV [photovoltaic] capacity, has not yet implemented any supportive policies for the integration of batteries into their energy infrastructure," he said.

Putting all the parts together will probably be easier with the expertise of local companies rather than mega corporations. And given the long gestation period of projects, multilateral agencies are often the best bet for funding such small developers.

However, obtaining funds can take months of scrutiny because taxpayers' money is involved and there is a lack of clear plans by local players. But the IEA and the International Finance Corporation say annual investments in clean energy in emerging markets will need to triple to US$2.2 trillion-US$2.8 trillion annually from the early 2030s.

Southeast Asia is one of the regions facing one of the largest clean energy investment gaps, so clearly it would help to develop clearly defined standards for financing. It is here that the region's financial hubs Hong Kong and Singapore can take the lead.

Both the hubs have seen a burst of new green financial instruments in recent months, so crossing the line should be achievable. The United Nations says the Asia-Pacific region is six times more likely to be affected by natural disasters than other regions.

All hands on board are needed to reduce the region's energy vulnerability and push it further towards clean transition.

This article originally appeared on the South China Morning Post (SCMP).

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