Southeast Asia can become a global leader in renewable energy manufacturing with potential revenues of $90 billion to $100 billion from low-carbon mobility and clean power by 2030, says a new study.
The report by the Asian Development Bank (ADB), Bloomberg Philanthropies, ClimateWorks Foundation, and Sustainable Energy for All says the region already produces 9% to 10% of the world’s solar photovoltaic (PV) cells and modules, about 50% of global nickel output, and 6% to 10% of all electric two-wheelers today. It also has natural advantages to support the scale-up of production: 16 terawatts (TW) of technical solar potential, 25% and 10% of global nickel and cobalt reserves respectively, and 25% of the global two-wheeler market.
The report draws on multiple sources, including analysis from McKinsey & Company, which estimate the sustainability revenue of the region at $160 billion to $200 billion by 2030.
“As we often say in ADB, the battle against climate change will be won or lost in Asia and the Pacific,” says ADB Director General and Group Chief of the Sectors Group Ramesh Subramaniam. “A decisive front in that battle is Southeast Asia. This research shows the promise of renewable energy manufacturing—with policy, technical, and financing support—in helping the region’s developing countries to transition away from coal-based energy, while lowering carbon emissions, expanding local industrial capabilities, spurring job creation, and driving long-term economic growth.”
“Southeast Asia has the potential to become a leader in renewable energy manufacturing to contribute to the global renewable energy deployment, while simultaneously achieving economic growth and mitigating the impacts of climate change,” says Bloomberg Philanthropies Environment Program Lead Antha Williams. This can be achieved by “increasing private sector investments into local renewable energy manufacturing sectors, strengthening regional value chain collaboration, and bringing together key stakeholders.”
According to the report, the region has made headways in capturing some opportunities in clean energy manufacturing. It has attracted international and local players to set up facilities for electric two-wheeler vehicles assembly. The region is already a global exporter of solar PV cells and modules. Plans to increase investments the batteries value chain will support the growth of both low-carbon mobility and clean power industries.
Growth potential and challenges
“The clean energy industry is already a massive growth opportunity, and will need to scale even more rapidly for us to achieve carbon neutrality globally by 2050,” says ClimateWorks Foundation President and CEO Helen Mountford. “Southeast Asia, which is home to one-fourth of the world’s population, is well positioned to become a global leader in renewable energy manufacturing with its vibrant business environment and large talent pool. In doing so, the region can boost the supply of affordable and reliable renewable energy solutions to people and communities in Southeast Asia and around the world, and create new job opportunities locally.”
While renewable energy manufacturing capacity in the region is growing, the regional market for electric vehicles and clean energy products is still quite small.
Solar PV manufacturing capacity in the region is largely concentrated in cells (55 gigawatts [GW]) and modules (70 GW), with the potential to achieve 125 to 150 GW module capacity by 2030. However, total demand in the region stands at only about 3 GW per annum.
Manufacturers interviewed for the study cited challenges around business environment, labor productivity, underdeveloped local supply chains, and inefficient logistic systems as key barriers to scaling solar PV in less established markets in the region.
The report sees Southeast Asia becoming a regional and global export hub for batteries, producing 140 to 180 gigawatt-hours (GWh) of battery cells by 2030. Although there is a limited battery manufacturing footprint in the region today, the region’s rich reserves of critical minerals like nickel and cobalt have caught the interest of downstream manufacturers seeking to expand production.
Given limited regional demand (representing less than 2% of the global market), prospective battery manufacturers would likely need to focus on exports as the main market driver, with growing domestic demand as a secondary driver. The emphasis on export sales will require competing with established global players primarily on cost.
The penetration rate of electric two-wheelers or motorcycles in total sales is currently less than 1% in most Southeast Asian countries. The report said the right demand, supply, and infrastructure factors must be in place to develop the sector’s growth potential. Assembly capacity for two-wheelers in the region is 1.4 million to 1.5 million units per annum, with the potential to reach 4 million units by 2030.
Challenges cited by potential investors include low domestic demand, poor potential for return on manufacturing investments, a lack of supplier ecosystem, and inconsistencies and lack of depth in government policies, with the degree and type of challenges varying by country.
Unlocking Southeast Asia’s potential
UN Secretary-General for Sustainable Energy for All CEO and Special Representative and UN-Energy Co-Chair Damilola Ogunbiyi says “this report highlights how countries within the region can establish strong, local industries that will contribute to a prosperous and sustainable future.”
Solar PV. To develop robust market demand, stakeholders will need to ensure the following are in place: parity of greenfield levelized cost of energy (when renewable energy sources are able to compete in terms of costs versus conventional sources of power without government subsidies); a supportive regulatory environment; mitigation of developer risk; availability of grid infrastructure; and sufficient grid flexibility and storage.
The report noted that the People's Republic of China (PRC), the global leader in solar PVs, has aligned industrial policy at the national level to advance the sector. It set ambitious industry targets and priorities that guided the implementation of manufacturer incentives, allocation of research and development funds, and stimulation of domestic demand.
Batteries. To ramp up domestic manufacturing, Southeast Asian countries would need to address the key concerns of investors: the scale of domestic demand, competitiveness of manufacturing, export potential, effectiveness of infrastructure and logistic network, and transparency in policy development and government effectiveness. Policy makers should draw up supportive mechanisms, such as facilitating partnerships to create an end-to-end battery ecosystem, encouraging demand and manufacturing investments, implementing operational excellence programs, and developing targeted educational plans to close labor productivity gaps.
The PRC is widely considered to be at the forefront of battery manufacturing today. It provides strong government support for the sector and cultivates local champions, who are instrumental in building a fully integrated value chain.
Electric two-wheelers. To unlock demand in Southeast Asian countries, there should be a parity in the total cost of ownership between electric two-wheelers and conventional motorcycles, a charging infrastructure, adequate capacity to meet domestic demand, supportive demand- and supply-side policies, the availability of products that meet customer preferences, electric motorcycle brands that can compete with conventional motorcycles brands, and vehicle financing and distribution networks. National policies must be put in place to accelerate the phaseout of conventional motorcycles, upgrade grid and charging infrastructure, and establish technical standards for battery swapping and charging.