Technology can help Southeast Asia manage its energy trilemma16 May 2018
Robust economic growth, generally inefficient and aged infrastructure, and a continuing generation dependence on fossil fuels present Southeast Asian economies with sustainable energy challenges. As with Europe, which faced the challenge of balancing energy affordability and supply security with increasing energy sustainability, SEA now faces a similar trilemma which has been accentuated by the climate commitments SEA countries made in the UNFCCC Paris Agreement.
SEA’s trilemma is broadly defined by the absence of market competition and market-related pricing, which restricts the development of affordable energy without recourse to subsidies, low generation capacity, reliability and energy security, and the need to accelerate energy sustainability to meet environmental commitments.
Driving this trilemma is economic growth, which is forecast to average 6% annually in the medium-term. This growth, which has largely been driven by manufacturing in many Asian countries, has accelerated energy demand, which has frequently outpaced the growth in sustainable energy development. According to the International Energy Agency, SEA energy demand will surge by more than 80% between 2015 and 2040. And while this region is rich in renewable resources it faces a significant challenge to produce sufficient sustainable energy to meet the increasing demand.
While growth in the industrial sector is responsible for most of this increased demand, it is also being enhanced by greater affluence as economies expand. While the shift from economic reliance on manufacturing to services over the medium to longer-term will help address greater demand, addressing domestic demand growth is more politically problematic.
Subsidised energy to improve affordability, and cross-subsidising tariffs to lower household prices at the expense of large consumers, has been a blunt political tool that has diverged prices from actual energy costs and has, arguably, increased socio-economic risks by limiting government capital available for social infrastructure improvements. But removing these subsidies also presents a political risk to populist governments that are supported by those benefiting from the subsidies.
If SEA countries are to successfully address their energy trilemma they must balance energy security, environmental sustainability and economic competitiveness. And to achieve this they will have to address energy demand growth, which can be achieved by policy and behavioural changes and through technological innovation.
From a policy perspective, demand growth can be tackled by removing subsidies that support increasing consumption as affluence rises, and by adopting market- related pricing. Market competition has been proved to lower energy prices, with the resulting increased market transparency having the additional benefit of supporting investment in new infrastructure.
Behavioural change is also necessary, both in the domestic and non-domestic sectors. There is significant potential to reduce energy waste from turning off electrical equipment when it is not being used, and modifying production schedules to increase economic efficiency and reduce energy intensity. Public awareness programmes that address the social value of limiting energy waste are an important part of this process, as market signals rather than social pressure must be the primary driver of energy demand. But technology will play the most important role in transitioning SEA towards a sustainable energy economy. Smart metering will be central to promoting efficient domestic energy usage, but it will be the deployment of data technology throughout the energy supply sector that will provide the greatest benefits for sustainable energy development and management.
Data technology advancements are already reaping benefits in Europe’s energy markets, which are gaining experience with ‘big data’ in the form of smart metering and grids combined with real time analysis using artificial intelligence (AI) tools. In Europe, domestic electricity supply is moving from deemed profiles to real time metering and the control of individual domestic appliances.
From an energy forecasting perspective this means dealing with significantly more data, with data technology allowing the deployment of multi-dimensional sensors in physical assets that act as leading variables as opposed to variables that lag electricity production and consumption. And as sensor data can be fed into AI systems they can recognise patterns that indicate imminent asset failure, so that these assets can be repaired before they fail.
The development of big data, and the increasing share of intermittent renewable generation, means that electricity trading has to move to increasingly shorter time periods with 15 minute or even 5 minute settlement periods becoming the norm for price and demand signals. The challenge to capture, process and act on this increasingly granular data will eventually strain human traders if asset scheduling decisions have to be made in mere milliseconds. European energy traders are now moving towards automated trading and the use of ‘bots’ to place orders and execute trades.
Clearly there is currently a significant divide between where Europe and SEA are in terms of sustainable energy development and management, but if SEA countries are to effectively manage their energy trilemma they will need to focus on improving energy efficiency, and the deployment of data technology systems will be critical in the medium to longer-term.
Before SEA can realise the opportunities presented by data technology it needs to develop the political commitment to invest in the necessary infrastructure. This will require more regional co-operation to share resources, the removal of protectionist policy and the embrace of competitive markets. And again, the Association of Southeast Asian countries has much to learn from the EU’s transition to a single energy market
Europe faced its own energy trilemma in the 1990s and is now reaping rewards from the resulting policies. SEA cannot wait two decades to resolve its trilemma, and with the advancements in data technology it should not have to ... providing it has the political will.
Jeremy Wilcox is managing director of the Energy Partnership, an independent Thailand-based energy and environment consulting firm.