Power systems' arrangements - their regulation, markets, institutional frameworks and financial structures - were originally designed around fossil fuels, which was the best solution at the time. Today, renewables are already the best option for the power sector in terms of cost-effectiveness, economic resilience, energy affordability, climate change mitigation, among others. However, market and regulatory arrangements remain anchored to an outdated paradigm that prevents current and future electricity systems from taking full advantage of the benefits of renewables. Rather than making minor adjustments to scale up and integrate renewables, regulatory and market structures need to be redesigned at the core, recognizing the fundamental differences in cost structures between fossil fuels and renewables. Most importantly, market designs for renewable-based transitions must provide long-term certainty in the return on investment and promote the development of flexible solutions to ensure the integration of renewables into the grid.
Southeast Asian power systems have been expanded significantly over the past decades to meet rapid increases in electricity demand and provide reliable services to growing customer bases. Despite the notable successes in system expansion, the rollout of variable renewables has fallen behind other regions and remains below potential. Wind and solar power in Southeast Asia contribute less than five percent of total power generation in most of the region’s countries today – with the notable exception of Viet Nam, where this share surpassed 13 percent in 2023. On the back of ambitious planning, conducive policy, market and regulatory arrangements can drive the large-scale deployment of variable renewables. A shift to renewables is set to empower countries, allowing them to benefit from cost-competitive electricity, clean generation profiles and insulation from international market swings in fossil fuel prices.
This report, published by the consortium behind the CASE project, assesses market and regulatory barriers to variable renewable energy investment and system integration in four of the region’s leading economies – Indonesia, Thailand, Viet Nam and the Philippines – and explores opportunities for fast-tracked renewable energy growth. The assessment and its recommendations build on a review of the countries’ electricity market designs, or power system arrangements, and are informed by in-country stakeholder consultations. Annex A of this report provides readers less familiar with the topic with an introduction to electricity market design and the requirements of renewables-based transitions.
Electricity sectors in Southeast Asia span a broad range of configurations: from vertically integrated monopolies to restructured competitive markets, variants of the single-buyer model dominate the market design landscape. This dynamic is reflected in the four countries of focus in this report: Indonesia has an integrated single-buyer system, Thailand operates a ring-fenced single-buyer system, Viet Nam an unbundled single-buyer system with nascent wholesale competition, and the Philippines has a liberalised system with a central dispatch market. Regardless of their form, enhanced market designs for renewables-based transitions should deliver on five interlinked objectives.
Key objectives:
-
Provide long-term investment certainty for variable renewable energies (VREs)
-
Enhance system flexibility to integrate variable renewables into the system at the least cost
-
Safeguard system adequacy in line with long-term decarbonisation and flexibility needs
-
Provide clarity on and efficiently manage the retirement of inflexible and carbon-intensive assets
-
Ensure affordable electricity for consumers while maintaining the sector’s financial sustainability
These objectives, or pillars, for renewables-ready power systems interact. Too narrow a focus on one can undermine the other. A system-level approach that considers the constituent parts can deliver on each of them in a mutually reinforcing way.
