Challenges for international cooperation in the Asian power sector

Since the international community agreed to the Paris Agreement in 2016, development discourse in the energy sector has drastically changed. Though the three ‘pillars of energy policy’ – environment, efficiency and security – remain the same, the environmental pillar has taken on renewed importance. For instance, while Goal 7 of the Sustainable Development Goals (SDGs) targets energy specifically, it has become clear that it spills over into development activities not related exclusively to energy, such as water and sanitation, industry and infrastructure, cities and communities and production and consumption.

Asia has a crucial role to play in promoting development policies pertaining to the environmental pillar. The International Energy Agency (IEA) forecasts that global emissions are likely to increase 1.4-fold by 2040. Asian countries account for 60% of this increase, given the significant presence of coal-fired power plants in the region. As an economic powerhouse, striking the right balance between development and emissions reduction is of great interest, not only for Asia, but for the world as a whole. Effective development policy can catalyse energy sector transformations towards low-carbon approaches.

Traditionally, the intended objectives of power development and power system structures were rather straightforward. For urban or industrial centres,  the aim was to supply power by building large-scale generations and network systems. For rural areas, it was to enhance electrification by grid extension or small-scale hydropower development with public utility companies.

For the past 40 years, the Japan International Cooperation Agency (JICA) has worked side by side with countries in Asia to strategise how best to adapt their institutional capacity and physical infrastructure for sustainable economic development. The development intervention of JICA worked quite effectively. Long-term power development plans were created using ‘least cost’ methods. They managed to improve operational efficiency through loss reduction and the introduction of technical standards, and helped build infrastructure through concessional loans.

JICA projects have also turned utilities, such as the Electricity Generation Authority of Thailand (EGAT), into invaluable partners through its provision of technical trainings across Asia. This enhances not only mutual interactions and trust among utilities in the region but also facilitates regional integration. Relations built upon historical cooperation represent not only invaluable assets for the region as a whole, but also encourage an embrace of future challenges.

Indeed, recent years have seen a drastic paradigm shift in the power sector. Three elements are at the heart of this: i) the shift towards lower carbonisation brought on by the Paris Agreement and SDGs, along with a rapid cost decline in renewable energy (RE) and energy management system (EMS); ii) regional integration; and iii) the importance of private partners’ participation.

To achieve the goals set out by the Paris Agreement, the power sector, which accounts for around 30% of emissions, will need to reduce its emissions by 80%. This requires a comprehensive ‘disruptive’ shift in power systems. Some countries, particularly small Pacific island nations, have led the way in this regard.

The Solomon Islands provide an illustrative example. They have set an ambitious target of 100% RE by 2030. The decreasing costs for photovoltaic generation (PV) and batteries could prove useful in this endeavour. However, an increase in RE risks making measures against power fluctuations and electrical inertia prohibitively expensive. Thus, JICA will start a study with Solomon Power to produce an implementable road map for the islands’ ambitious goal, and to facilitate building consensus on the future directions of the country’s energy, economy and society as a whole.

In some cases, this kind of policy stirs up divisions among political parties. To take another example, Sri Lanka saw prolonged policy debates on RE and thermal power after the government and JICA developed a plan together. The study in question offered a long-term generation development plan that simulated various scenarios for utilities in accordance with different policy priorities.

Historically, Japan’s official development assistance (ODA) has been cautious about getting involved in domestic politics of partner countries. However, recent experience suggests that, though it strives to maintain impartiality and provide rigorous scientific studies in policy planning processes, it needs to take heed of political forces to achieve policy goals.

One political consequence of energy cooperation is enhanced regional integration. Indeed, under certain circumstances, the expansion of power network systems beyond borders provide opportunities for enhancing efficiency, stability and CO₂ reduction. One visible example is the Association of Southeast Asian Nations (ASEAN). Since the 1990s, heads of ASEAN power utilities gather periodically to formulate ‘master plans’ and to take action towards stronger regional integration.

Another example is the Greater Mekong Subregion (GMS), which came into being in 1992 after the Asian Development Bank (ADB) brought together six states: Cambodia, China, Laos, Myanmar, Thailand and Vietnam. Recently, countries from the GMS have made efforts to accelerate power exchange in cooperation with international development partners such as the ADB and JICA.

So far, power transactions have mainly taken place through dedicated transmission lines between independent power producers (IPPs) and off-takers in neighbouring countries. However, now they are gradually moving towards a ‘system-to-system’ regime whereby connected countries can exchange power through various means.

A great deal of technical and political effort must be undertaken to achieve this ‘system-to-system’ process. Coordinating mechanisms for power exchange is still in its primitive stage. As a result, JICA is working with power utilities in the GMS to develop their institutional capacities in power system planning, coordination and the enforcement of grid codes. The aim is to eventually create an integrated region-wide power network system. The political will of constituting countries will be a key to success.

While political actors have an important role to play, the private sector should also be involved. In most Asian countries, private entities account for the majority of investment in power generation. In Cambodia, the Philippines and Laos, they are even authorised to participate in investment and the operation of power network systems.

The coming decades will see several changes for businesses. Variable renewable energy (VRE) – such as wind or solar power – will play a much larger role in power generation. Moreover, various types of private ‘prosumers’, who produce and consume power on demand sides represented by virtual power plants, will play a substantial part in power systems.

These new businesses are already in operation – albeit on a small scale – in Thailand and some Pacific island nations. Expanding these will require effective yet flexible governance and regulatory frameworks as well as technical breakthroughs. This is an unprecedented challenge for development institutions like JICA as, unlike its past cooperation programmes, it has little experience to draw from and, therefore, needs to co-create knowledge and solutions from scratch with partners.

We are entering uncertain frontiers both in energy and development. Though the road ahead may be bumpy, it will lead us to a new stage where development partners and private entities in both recipient and donor countries can work together to produce innovative solutions. This is the way forward to achieve global sustainable development.

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