Supporting the Development of ASEAN Economies: Understanding the Strong Growth in Electricity Demand

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The current growth rate of electricity demand is double the world average

Growth in electricity demand in Southeast Asia averaged 5.7% per year from 2010 to 2019, making it one of the fastest growing markets in the world. In the same During this period, growth in global electricity demand averaged 2.5%, less than half that of Southeast Asia. Electricity supply remains the engine of economic growth in this region. Therefore, Southeast Asia’s strong economic growth and accompanying high CIs are the main drivers of the overall strong increase in electricity demand.

High electricity intensity shows that regional demand growth exceeds GDP growth

The six key markets in the Southeast Asia region recorded an average high electricity intensity of 1.18, even including the impact of COVID-19 over the past decade. Electricity Intensity, or EUI, is defined here as the ratio of electricity demand growth to GDP growth over a 10-year period (2012-21). Southeast Asia’s EI of 1.18 is almost a third higher than the global average EI of 0.90 over the same period. A high EUI reflects an outsized increase in electricity demand relative to economic growth, an indicator that energy-intensive sectors drive economic growth (eg, during industrialization). It also indicates that the demand for electricity is elastic: in a market with an EUI of 1, for every 1% increase in national income, the demand for electricity also increases by 1%. Therefore, increased income and access to electricity leads to an outsized increase in electricity demand in high-EI markets.

Historical electricity intensity over 10 years (2012-21)

The sectors that have historically driven growth vary by market, with the three major sectors of commercial, industrial and residential electricity demand playing different roles. In Vietnam, commercial EI and growth were high, but industrialization was the main driver of demand. Meanwhile, in Thailand, Indonesia and the Philippines, residential demand rose 58% and was the main driver of growth. By contrast, residential demand was a less important driver in Malaysia and Singapore. Residential electricity consumption per capita in Singapore and Malaysia was already the highest in the region in 2012 and has grown moderately compared to other regional markets over the past 10 years. Rather, industrial growth has played a more important role in these two markets.

Historical EI over 10 years by sector (2012-21)

Southeast Asia electricity demand growth expected to remain strong at 4.5% (2022-31)

Growth in electricity demand in Southeast Asia will continue to be stronger than in most other markets. Regional electricity demand growth is expected to reach 4.5% over the next decade (2022-2031), almost 1.5 times faster than the global average of around 3.1%. After a rapid recovery from COVID-19, Vietnam, the Philippines and Indonesia are expected to lead electricity demand growth, each with growth rates of over 5% from 2022 to 2031.

10-year average growth rate forecast for total demand (2022-31)

Commercial and industrial demand to drive future growth

While economic performance remains tied to electricity demand, the economic sectors that drive demand growth will change. This is the result of three key trends in the commercial and industrial sectors: the general expansion of both sectors, changes in the composition of sub-sectors, and the electrification of commercial and industrial spaces and processes.

Commercial and industrial demand growth is expected to increase in Thailand, the Philippines and Indonesia, where overall demand growth is also expected to exceed that of the previous decade. Unlike the other three industrializing markets, Vietnam’s demand growth is expected to slow across all sectors as it continues its industrialization trajectory and early-stage business development. In Singapore and Malaysia, commercial electricity demand growth is expected to increase as industrial growth slows.

Growth in SEA electricity demand is double the global average

Among the major contributors that will overall support growth in the region are the recently implemented Regional Comprehensive Economic Partnership (RCEP) agreement and fixed infrastructure investments. Other sectors and market-specific growth drivers vary, including Thailand’s efforts to transition to “Thailand 4.0”, the Philippines’ business process outsourcing industry, Vietnam’s trade and export growth and Singapore data centers.

Technological developments are also introducing new dimensions to the electricity demand outlook. Emerging trends for which governments have allocated substantial resources include transportation electrification and energy efficiency considerations, which will be major disruptors over the next decade.

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

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