Investments in solar and wind could reach US$770 billion in the Asia Pacific region by the second half of the century, according to a new study by the Institute for Energy Economics and Financial Analysis (IEEFA), an energy think tank.
The bulk of this amount could be spent localising large parts of the region’s solar and offshore wind supply chains. Doing so would have a greater impact on the financial viability of both energy sources, than domestically manufacturing the panels and turbines that go in them, said Grant Hauber, IEEFA’s strategic energy finance advisor for Asia and author of the report.
“Solar and wind’s greatest advantage is that they’re currently the lowest cost form of energy available. Trying to manufacture solar panels or wind turbines in your own country not only wastes money, but also costs more energy,” Hauber told Eco-Business. “Countries should just buy the cheap solar modules and turbines from China.”
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Currently, China delivers nearly 85 per cent of global demand for solar PV (photovoltaic) modules, and about 60 per cent of global installations for offshore wind; both at costs unlikely to be matched for at least the rest of this decade, the study projected.
The investment potential for solar in the Asia Pacific, excluding Japan, is estimated at US$268 billion by 2050, with nearly 75 per cent going into non-solar module components such as infrastructure and supporting equipment. Offshore wind is projected to reach US$504 billion, with roughly 60 per cent being similarly spent on non-turbine equipment, according to the analysis.
“With most of the projected spending on non-solar module and non-wind turbine components, majority of the costs stay domestic. Why invest in a losing battle against China when you could just use that cheap supply to your advantage?,” added Hauber.
At present, Vietnam leads the region in both solar and wind investments, which is estimated to be worth US$232.8 billion by 2050.
Vietnam accounts for over 11 per cent of the global export market for PV modules, the final product of the solar plant supply chain, but still relies on inputs from Chinese suppliers. Instead of producing PV modules, the Southeast Asian nation can invest in other parts of the supply chain, like the structural systems that organise connections to the thousands of panels on a solar farm.
Previously, Vietnam also granted generous feed-in tariffs for renewables through 2021, including a swift addition of 1 gigawatts (GW) of offshore wind in 2021, but these have now ceased as the government considers a revised tariff regime. Instead of manufacturing wind turbines, Vietnam can just focus on creating steel fabrications that support towers, like how they are doing not just locally, but for offshore wind projects in Taiwan, said the report.
Wind turbines located near Sinchang Windmill Coastal Road, Sinchang-ri, Jeju Island, South Korea. Imag: Jeju Tourism Organisation
The rest of Asia Pacific could imitate Vietnam, while South Korea stands as the sole exception outside China with its own wind turbine development, noted Hauber. Manufacturers like Samsung, Doosan Enerability and Hyosung all have developed offshore prototypes in the nine to 10 megawatts (MW) range.
The report also took note of South Korea’s advanced shipbuilding industry, which made it more adaptable to the demands of the offshore wind supply chain than almost any other Asia Pacific country. However, windfarm developers still have to contend with issues like the licensing regime, which requires them to find their own project sites, which has led to stalled grid connections.
Unlike in the United States and other European markets where the licensing authorities pre-designate an area for wind development, South Korea requires developers to find their development sites, sometimes in contentious locations like fishing or marine habitats, which may incite protests from communities.
Vietnam is a promising clean energy leader, but needs policy revisions
Vietnam is at the forefront of the region in renewable energy investments until 2050, based on the IEEFA study’s projections, but must strengthen its policies for these numbers to materialise, said Hauber.
IEEFA’s report also suggested that direct power purchase agreements (DPPAs) issued this week between solar power producers and industrial power purchasers in Vietnam could kickstart a new boom in renewable energy.
The DPPAs will allow renewable energy producers to sell electricity directly to factories, effectively ending state-owned distributor Vietnam Electricity’s monopoly.
Multinational companies in particular have global renewable energy use mandates which are difficult to fulfill in Vietnam, despite it being a regional manufacturing hub for global players including Samsung, Heineken, Intel, and Lego.
The Philippines faces a similar issue, IEEFA’s study noted, with having the highest solar potential regionally, but one of the lowest installed capacity as of 2023, as it continues to focus on fossil fuel supplies,
The archipelago nation is now Southeast Asia’s most coal-dependent country, marginally ahead of Indonesia, while its liquified natural gas investments are estimated to peak by 2040.
However, the government has encouraged renewables development through the first two rounds of the Green Energy Auction programme that have taken place. Industry observers have applauded the programme’s encouraging uptake. The first round garnered 2 GW of commitments and the second with 3 GW. A third round seeking over 4GW of commitments is scheduled for August this year.
