A comparative analysis of renewable electricity support mechanisms for Southeast Asia

Abstract

This study evaluates the applicability of eight renewable electricity policy mechanisms for Southeast Asian electricity markets. It begins by describing the methodology behind 90 research interviews of stakeholders in the electricity industry. It then outlines four justifications given by respondents for government intervention to support renewables in Southeast Asia: unpriced negative externalities, counteracting subsidies for conventional energy sources, the public goods aspect of renewable energy, and the presence of non-technical barriers. The article develops an analytical framework to evaluate renewable portfolio standards, green power programs, public research and development expenditures, systems benefits charges, investment tax credits, production tax credits, tendering, and feed-in tariffs in Southeast Asia. It assesses each of these mechanisms according to the criteria of efficacy, cost effectiveness, dynamic efficiency, equity, and fiscal responsibility. The study concludes that one mechanism, feed-in tariffs, is both the most preferred by respondents and the only one that meets all criteria.

Introduction

Southeast Asia—the ten countries of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam—faces a series of electricity and energy policy challenges. For these countries total energy consumption increased 4.2 percent per year from 1999 to 2009, coal consumption grew by 10.5 percent, natural gas by 7.5 percent, and electricity by 5.5 percent. Looking forward from 2005 to 2030, energy consumption is expected to grow 2.6 times and carbon dioxide emissions are expected to quadruple due to greater reliance on coal [1]. For some of the smaller Southeast Asian countries, electricity use is expected to grow 23 times current rates of consumption between now and 2030 [2].

In response to burgeoning demand for energy, the use of renewable electricity sources has grown in the past few years. The Philippines ranks second in the world for total geothermal electricity generation and Indonesia comes third, the Philippines is second for total biomass power, and solar photovoltaics have seen rapid annual growth in Thailand [3]. Yet using the most recent data available from 2007, renewable electricity accounted for slightly less than 17 percent of total supply, and this share was dominated by large-scale hydroelectric facilities. Fig. 1 and Table 1 show geothermal facilities produced less than 3 percent of the region's power, biomass less than 2 percent, wind and solar less than one half of a percent.

Why isn't Southeast Asia investing more in renewable sources of electricity? One 2007 survey concluded that Brunei and Singapore did not even have mechanisms to promote renewable energy. The assessment noted that Laos and Vietnam offered only short-term loans and that despite renewable portfolio standards in the Philippines and Thailand, investments in fossil fueled capacity continued to outpace investments in alternative sources. The study concluded that regulatory frameworks were not harmonized, too much variation existed between countries, many “improper policies and regulations” were in place, and the region as a whole was “not yet ready” for renewable energy [4].

Another recent assessment conducted by the International Energy Agency warned that conventional energy subsidies dominated the Southeast Asian energy market, support for renewable energy production was virtually nonexistent, countries suffered from huge gaps in policy and regulatory frameworks, and most investors and regulators lacked awareness of renewable energy technologies and the capacity to change course [5]. The assessment called for a removal of non-technical barriers to improve markets, attract investment, and foster innovation.

Based on extensive research interviews supplemented with a review of the peer-reviewed literature, this study evaluates the applicability of eight renewable electricity policy mechanisms for Southeast Asian electricity markets. It begins by describing the methodology utilized for these research interviews as well as some of the demographic details of respondents. It then outlines four justifications given by respondents for government intervention to support renewables in Southeast Asia: unpriced negative externalities, counteracting subsidies for conventional energy sources, the public goods aspect of renewable energy, and the presence of non-technical barriers. The article develops an analytical framework to evaluate eight commonly used mechanisms for harnessing the power of renewables—renewable portfolio standards, green power programs, public research and development expenditures, systems benefits charges, investment tax credits, production tax credits, tendering, and feed-in tariffs. It analyzes each of these mechanisms according to the criteria of efficacy (ability to encourage investments in renewable energy infrastructure), cost effectiveness (success at keeping electricity prices low), dynamic efficiency (ability to promote diversification), equity (applicability to a broad range of actors), and fiscal responsibility (ability to be financially self sustaining without government revenues). The study concludes that one mechanism, feed-in tariffs, is both the most preferred by respondents and the only one that meets all criteria.

The study's focus on Southeast Asia and renewable electricity policy is important for at least three reasons. First, a practically bewildering collection of policy mechanisms is available to policymakers around the world wishing to promote renewable electricity, making it difficult to identify optimal options. As of early 2009, policy targets for renewable energy existed in 73 countries worldwide including all 27 members of the European Union, 33 states in the United States, and 9 Canadian Provinces. No less than 64 countries had energy policies requiring the mandatory use of renewable energy. At least 37 countries had adopted some form of price-based support mechanism, 49 states and countries portfolio standards, and more than 30 countries tax credits, tax exemptions, and public financing [6]. This study boils these diffuse options down to the ones most applicable to Southeast Asia.

Second, discussions of energy policy in Asia are often dominated by the “big four” consumers China, Japan, India, and South Korea, in effect eclipsing Southeast Asian countries. Yet Southeast Asia is home to 10 percent of the world's population, 4.5 million square kilometers of land, and economies that produce $1.1 trillion in combined gross domestic product annually and annual total trade revenues of about $1.4 trillion. The region is larger in geographic size and population than the United States and contributed to 12 percent of the world's total greenhouse gas emissions in 2000. The region also features a mix of high and middle income countries such as Brunei and Singapore (which face energy challenges similar to those in Europe and North America) along with lower income countries such as Cambodia, Laos, and Indonesia (that face wholly different challenges such as energy poverty). Clearly these countries deserve a robust commentary about their energy and electricity policies, and a discussion of the options that best suit them can offer useful lessons for other countries and regions.

Third, it is essential that Southeast Asian countries begin rapidly investing in renewable forms of electricity supply. The Asian Development Bank warns that because of their unique geography, countries such as Indonesia, Philippines, Thailand, and Vietnam will suffer more from climate change than the global average [7]. These four countries alone are expected to lose 6.7 percent of combined GDP by 2100 if business as usual continues, more than twice the rate of global average losses. The ADB found that the energy sector would be the fastest growing contributor to the region's emissions, but also that aggressive investments in infrastructure such as renewable electricity could reduce 80 percent of emissions at a total cost below 1 percent of GDP by 2020. The key to capturing these benefits, however, is investing sooner rather than later. This study offers regulators a concise description of the policy architecture needed to incentivize that investment.