Chairman and CEO
The Institute of Energy Economics, Japan
-Views from Asia-
Message for September 2022
I participated at the 7th Energy Research Institute Network (ERIN) Workshop held in Jakarta on August 16. Energy thinktanks in the East Asia region participated either in-person or on-line. It was an excellent opportunity to understand the Asian countries’ views about their energy policies while facing the energy crisis. I would like to share my observations with you in this month’s Chairman’s Message.Seven key takeaways
1. Asia is different from Europe
It was repeatedly emphasized at the workshop that the situation and challenges in Asia are very different from those in Europe. The strong economic growth and the aspiration for a better life leads to a substantial energy demand growth. The very young fleet of existing coal fired power plants in Asia are in stark contrast with the old coal fired power plants of Europe. Moreover, most areas in Asia are not endowed with strong wind potential as in Western and Northern Europe. The current rising energy prices are highlighting the need to improve the affordability of energy in Asia, far more than in the wealthy Europe.
With these differences, it was stressed that the solutions for Asia should be very different from those advocated by Europe.
2. Better use of existing infrastructure
With a strong energy demand growth and a young fleet of coal fired power plants in Asia, the existing power plants cannot be easily retired as in Europe. Asia must keep using its existing infrastructure more efficiently while reducing CO2 emissions.
Technology for improving the efficiencies of existing coal fired power plants is the obvious first step. Co-firing coal with biomass and/or ammonia and the use of CCS technology could be very helpful in reducing CO2 emissions to the atmosphere.
3. Role of gas remains crucial
Outsiders may have expected that the strategy of switching to gas in Asia would have been fundamentally shaken given the supply concerns and price hikes for LNG resulting from the current energy crisis. But the participants to the workshop, while pointing out the acceleration of renewable energies, continued to recognize the crucial role of natural gas/LNG in the transition for Asia. The need to diversify supply sources to enhance energy security was pointed out and there were no arguments to fundamentally change the role of natural gas/LNG.
The need to support a strong energy demand growth while reducing CO2 emissions as much as possible, leads to the use of natural gas/LNG. Gas fired power plants are expected to provide a substantial portion of the dispatchable power required to deal with the intermittency caused by the wider introduction of renewable energies.
What could be worrisome is that there is a very likely possibility of a prolonged and expanded use of coal, which is relatively cheaper under the current global energy market conditions created by the Ukraine crisis. To avoid such a development, I believe that policy support for gas should remain in place or be strengthened, rather than being watered down as advocated by some players both inside and outside of Asia.
4. Upstream investment
There were discussions surrounding the specific issue of upstream investment for natural gas. A question was raised about the IEA Net Zero Roadmap released in May 2021, which was reported to have concluded that there would be no necessity for new upstream investment. It was clarified that the “no need for new upstream investment” is only if net zero is to be realized. But considering the harsh reality that the world is departing away from the path towards net zero by 2050, the need to secure necessary investment in new upstream projects is crucial.
To address the surging imported gas prices, several countries in the region are refocusing on the development of their indigenous gas resources. As affordability is one of the major concerns in Asia, the importance of steady investments in the upstream was considered necessary to avoid future price hikes caused by an underinvestment in the upstream.
5. Transition is crucial
Most participants were stressing that the switch to clean energy will not happen overnight, especially for Asia. In this regard, technology transfers to help the transition was emphasized as being essential. Such technologies include, making the existing infrastructure more efficient, reducing CO2 emissions from existing coal fired power plants through co-firing with biomass and/or ammonia, and introducing highly efficient gas turbines for power generation.
It was also stressed that “Transition Finance” in addition to “Clean Energy Finance” is very important, especially for Asia.
To reduce CO2 emissions from Asia, which is the fastest growing area in the world, support through technology transfer and “Transition Finance” were strongly called for at the workshop.
6. Energy efficiency
Facing the rising cost of energy, the importance of energy efficiency was highlighted. Despite rigorous energy efficiency measures, however, it was also pointed out that improvement of living standards, including the installment of more air conditioners, would lead to a substantial energy demand growth.
7. Asia needs to speak out (and be heard)
Through the discussions at the workshop, it was widely shared that the situation and challenges that Asia faces are very different from Europe. Consequently, the appropriate solutions for Asia were recognized as significantly different from those advocated by European countries.
It was emphasized by a number of participants that Asia should be speaking out, become more vocal and share with the world its different situation that requires different solutions.
This year, the G20 Summit will be hosted by Indonesia, the APEC Summit will be hosted by Thailand and the East Asia Summit will be hosted by Cambodia. These series of international meetings hosted by ASEAN countries, this fall, could be excellent opportunities for Asia to speak out its views to the world.
These are my seven key takeaways from the ERIN Workshop. While there was near consensus on these points among the participants, there was one very distinct exception worth mentioning.
The representative from the Asian Development Bank (ADB) explained the current policies of the Bank regarding energy financing. He was clearly stressing that no financing for coal, no financing for nuclear, no financing for “blue hydrogen”, except for “green hydrogen”, would be available. The Bank is negative towards supporting co-firing of coal with hydrogen/ammonia, negative to anything that could lead to the extension of the operating lives of coal fired power plants and skeptical about “transition finance”. With very limited exceptions, the Bank would not finance any gas related projects.
It was my candid impression that the financing policies of ADB appeared to be so detached from the prevalent discussions at the workshop. One official from an ASEAN country privately asked me why Japan, being one of the two largest contributors for ADB, on par with the US, cannot change the policies of ADB to address the needs and realities of Asia. The only answer I could provide was that Japan has only 12.751 % of the voting rights at ADB while 34.876% of the voting rights rest with non-regional members, including North American and European countries.
This episode is another example, in my view, that Asia needs to speak out.