ab10 January 2024Global Research and Evidence LabASEAN UtilitiesAPAC Focus: The 500GW clean-energy journey We examine three key steps in the ASEAN journey from 50GW of renewable energy now to 500GW by 2050: 1) the coal plant bottleneck, but potential early retirements; 2) grid infrastructure upgrades; and 3) growing regional linkages as the ASEAN Power Grid (APG) again rises up investor agendas. While we are early in a long-term story, policy developments are encouraging. Country mix, and favourable policy exposure is key to stock selection. Our top picks are SCI, ACEN and TEN, while we introduce coverage of Indonesia renewable stocks.ASEAN's RE capacity to reach 500GW by 2050, contributing 50% to power mixEnergy security urgency is rising in ASEAN. Rising power consumption has shrunk the gap between available supply (200GW) and demand (150GW). Assuming a 4% CAGR in power demand over 2024-50, we estimate ASEAN's demand will rise to roughly 400GW by 2050, requiring installed capacity to expand from 300GW to 1,000GW. With new coal plants not being considered, gas, hydro and other RE capacities would logically need to be expanded substantially to achieve this. Our analysis indicates that, in 2024-50, ASEAN's coal-fired capacity could fall 50%, while its gas capacity rises by 180%, hydro capacity by 250% and RE capacity by 900%. ASEAN's three key RE challenges are surmountable1) Early coal plant retirement: While 69% of ASEAN's 103GW coal capacity is set to be retired only after 2050 (of which 80% is in Indonesia and Vietnam), we expect financing programmes for 2050 net zero targets, eg Indonesia's Just Energy Transition Partnership, to accelerate the process. 2) Grid transformation: ASEAN is making progress with about 40% of its transmission and distribution grids being newly added in the last 10 years. The International Energy Agency (IEA) estimates ASEAN grid infrastructure could expand from 4.9m km now to 12.7m km by 2050. 3) Regional interconnection: Linkages are needed to allow countries with surplus RE to supply those with a deficit. To this end, the ASEAN Power Grid (APG) initiative resurfaced in 2023.Country exposure holds key to stock picks, as policies and IRR could vary Vietnam started ASEAN's clean energy journey in 2020, the Philippines picked up the baton in 2022, and passed it to Thailand and Malaysia in 2023. Singapore is also on board, picking up the pace of its clean energy imports. But while the RE transition has begun in most of ASEAN, power market structures and RE policies differ (Singapore and Philippines have merchant markets), and hence country IRRs vary significantly. We like stocks that are nimble (expanding into foreign markets) and have exposure to high IRR countries (India, Vietnam, Philippines). Our top three picks are SCI, ACEN and TEN.This report has been prepared by UBS Securities Pte. Ltd....
