Electricity grids are at the heart of the energy transition agenda. By 2040, the world will need to develop more than 80 million kilometres of power lines. This is important because increasing the use of green electricity is a key requirement for achieving net-zero emissions by 2050. Yet, grids are technically complex and require enormous investments. Globally, grid development is slower than the expansion of renewable energy capacities.
The case is similar in Southeast Asia. In 2020, more than 80 per cent of new capacity was from renewables, but to date, only eight out of 18 key interconnections planned under the Asean Power Grid (APG) have been completed. Most are bilateral arrangements. 2022 saw the implementation of the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP), transferring 100 megawatts (MW) of hydroelectricity from Laos through Thailand and Malaysia into Singapore using existing infrastructure (Figure 1). The agreement runs till 2024, after which energy trade may be increased to 300MW and the agreement’s term extended from two to five years.
The LTMS-PIP has been called a “pathfinder” project and has generated increasing momentum on cross-border grid development. It has been cited as an example that can inform another upcoming multilateral initiative, the Brunei-Indonesia-Malaysia-Philippines Power Integration Project (BIMP-PIP).
Launched in 2023, the BIMP-PIP envisions multiple interconnections across the grids of the four countries. While the project is still at the feasibility stage, its economic rationale is based on the export of cheaper hydroelectricity from Borneo to major demand centres. The BIMP-PIP is set to be the region’s first project that incorporates both overland and subsea cables.
A recent Iseas report on the APG demonstrates that the LTMS-PIP offers important lessons for the BIMP-PIP’s development, in terms of what the project did right and where it fell short.
In terms of best practices, the LTMS-PIP has set the standard in two key areas: politics and coordination.
First, public stakeholders used multiple channels to build high-levels of political endorsement for the project, a key requirement for major interconnection initiatives. The LTMS-PIP has been mentioned in every Joint Ministerial Statement from the 32nd to the 41st Asean Ministers on Energy Meeting (AMEM) over nine years. The project was also mentioned in discussions between state leaders and in statements by foreign ministry officials from the relevant countries.
Political support for interconnections has also been reflected in key policy documents. For example, Malaysia’s National Energy Transition Roadmap, mentions energy trade as a key pathway for reducing greenhouse gas emissions, while Laos’ Electricity Development Strategy aims to enhance trade with ASEAN countries.
Second, the LTMS-PIP uses a flexible governance structure to coordinate the project, which has been widely successful. The LTMS-PIP Working Group and Four Taskforces govern the project. They focus on technical viability, legal and regulatory frameworks, commercial arrangements, and tax and tariff structures. (Each country leads a taskforce.) This governance structure successfully facilitated coordination among officials from utilities, regulatory bodies, and ministries. The working group identified priorities in cooperation and facilitated meetings between technocrats that helped bridge differences in market structures and develop common protocols on energy trade. The working group allowed countries’ participation in energy trade without the need to cede control of national energy generation; the national Taskforces gave each country a sense of ownership.
While the BIMP-PIP can replicate these best practices, it also needs to address three critical challenges, the solutions to which can be derived from the LTMS-PIP experience.
First, the BIMP-PIP will require long-term commitment towards the development of new energy infrastructures. For the LTMS-PIP, the proposed increase in the length of the project agreement is an encouraging sign towards longer commitments in regional trade. However, the LTMS-PIP is based on existing, unidirectional grids while the BIMP-PIP envisions the development of new, bidirectional grids, which on average can take anywhere from five to 15 years to complete.
Yet, policymakers’ priorities often change. Planned projects can be scrapped after a new government takes office. For BIMP-PIP, the incoming Indonesian government’s progress in continuing with the proposed shift of its capital to Nusantara in East Kalimantan will have an impact on the demand for (clean and conventional) energy, the routing of electricity grids, and investment in renewable energy projects. Ensuring the BIMP-PIP’s completion will require sustained government support for it and long-term energy contracts, to increase the confidence of investors.
Second, the BIMP-PIP will require significant funding, which necessitates a reorientation of the type of stakeholders involved in governing interconnection projects. While the LTMS-PIP working group has been successful, most of its members are public officials. Working Groups for the BIMP-PIP can conceivably include stakeholders from financial institutions, which can enhance the bankability of interconnection projects. Financial experts can facilitate the use of non-traditional financial tools such as green bonds, sustainability linked loans, and green asset-backed securities.
Third, the BIMP-PIP is constrained by the absence of a standard regional wheeling charge or the fee that is paid for transferring electricity through the grid of another country. In the LTMS-PIP, Électricité du Laos pays wheeling charges to Malaysia’s Tenaga Nasional Berhad and the Electricity Generating Authority of Thailand. While the formulae for calculating the wheeling charges for the LTMS-PIP are not publicly available, Iseas’ report shows that some stakeholders feel that charges are too high, which discourages generation, while others feel that it is too low, which does not facilitate infrastructural investment. The BIMP-PIP can benefit from more transparency in formulating wheeling charges, based on four international principles: promoting efficiency; recovering costs; ensuring transparency, fairness and predictability; and promoting non-discriminatory behaviour.
Ultimately, it is up to the regional policymakers to apply the lessons learned from the LTMS-PIP process to the BIMP-PIP and other interconnection projects. If the APG is a continuum of small steps towards deeper energy integration, the multilateral interconnections the region has built should improve the ones it builds in future.
Mirza Sadaqat Huda is Lead Researcher in the Climate Change in Southeast Asia Programme, ISEAS - Yusof Ishak Institute.
This article was first published in Fulcrum, ISEAS – Yusof Ishak Institute’s blogsite.
