Financing the Energy Transition 2025

East Asia and Southeast Asia 2.1 The East Asia and Southeast Asia region is diverse, with varying levels of economic development, energy policies and resources. This analysis focuses on selected countries, acknowledging that overarching statements may not apply across the whole region. China’s rapid shift from a coal-intensive economy to a renewable energy leader showcases its strategic policies and significant investments. Since the early 2010s, China has seen massive growth in energy transition technologies, including wind, solar and battery storage, driven by rapid industrialization. The country is set to surpass its 2030 renewable energy target ahead of schedule. While still reliant on coal for 60% of its power generation,5 China has taken a leadership role in the manufacture and deployment of energy transition technologies through the following measures: –Government subsidies for renewable energy technologies. –Carbon trading mechanisms. –Renewable Portfolio Standards (RPS), which mandate electricity suppliers to source increasing shares of their electricity supply from renewables. –Feed-in Tariffs (FITs), guaranteeing producers of renewable energy a fixed price for their electricity production. These policies have fostered a favourable environment for renewable energy. In 2024, China is expected to lead the world in energy transition technologies investment, with an estimated $675 billion of investment.6 Demonstration projects, such as the one in Suizhou City, Hubei Province, aim to achieve high renewable penetration rates7 using storage, smart grids, digitalization and demand-side flexibility. The Suizhou project has demonstrated that a renewable penetration rate of over 85% is achievable and while it requires substantial initial investment, it reduces operating costs and electricity bills in the long run. Other countries in the region, including Malaysia, Vietnam and Thailand, play a crucial role in the global energy transition as manufacturing hubs and significant energy consumers. However, the region still relies heavily on fossil fuels. Energy demand in Southeast Asia has grown by around 3% annually over the past two decades and is expected to continue.8 Currently, 72% of electricity in Southeast Asia is generated from fossil sources, with 46% from coal.9 The reliance of both East Asia and Southeast Asia on coal is due to its affordability and established infrastructure. The region’s vast coal reserves support industrial activities, making the shift to renewable energy challenging without risking economic setbacks. Investment in energy transition technologies varies across the region due to differences in policies, economic development and resources. Southeast Asia faces the dual challenge of increasing energy sector investment while decarbonizing its energy supply. To meet energy goals, investment in the region (excluding China) needs to double from 2021-2023 levels, with a significant reduction in fossil fuel investment.10 Renewable energy projects require significant upfront capital and many countries, especially developing ones, struggle to secure financing due to underdeveloped financial markets, limited access to green bonds and a lack of creditworthy offtakers. The absence of mechanisms to address these limitations in most Asian countries creates uncertainties about the financial performance of energy transition projects. In 2024, China led the world in energy transition technologies investment, with an estimated $675 billion of investment. For a world map denoting which countries fall within which regions, see Annex. Financing the Energy Transition: Meeting a Rapidly Evolving Electricity Demand 12