Challenges in Asia's Clean Energy Transition Amid Rising Power Demand

Asia's transition to clean energy is facing significant challenges due to rising electricity demand from data centers and ongoing fossil fuel subsidies. Industry executives emphasize that without curbing these subsidies and providing stable policy frameworks, the region's clean energy ambitions may stall.

Reuters

The rapid growth of e-commerce, fintech, and artificial intelligence (AI) services in Southeast Asia has led to a surge in electricity demand, particularly from data centers. These facilities, which operate continuously and require substantial cooling, are projected to consume over 945 terawatt-hours (TWh) of electricity by 2030, more than double the total demand in 2024. In Malaysia, for instance, electricity demand from data centers could increase sevenfold by 2030, potentially accounting for 30% of national consumption. This escalating demand poses risks to the region's energy transition, especially if met predominantly by fossil fuel sources, which currently supply over 70% of Southeast Asia's electricity.

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Industry leaders, including Lawrence Wu from EDP Renewables and Nitin Apte from Vena Group, have pointed out that the continuation of fossil fuel subsidies, particularly for coal, undermines green investment efforts. Major economies like Indonesia and India justify these subsidies by citing their role in maintaining low retail power tariffs. However, this reliance on coal is seen as a significant barrier to achieving clean energy goals. The cancellation of renewable energy auctions and the revocation of licenses for offshore wind projects in Taiwan and India further exacerbate the situation, leading to uncertainty in the renewable sector.

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In response to these challenges, various initiatives are being launched to support the clean energy transition. Clime Capital has introduced the Southeast Asia Clean Energy Facility Technical Assistance Facility (SEACEF TAF) to provide strategic support for clean energy projects. This facility aims to bridge the gap between capital and scalable projects by offering pre-investment market development and post-investment capacity-building assistance. Supported by organizations like the Children’s Investment Fund Foundation and the Korea International Cooperation Agency, SEACEF TAF seeks to enhance operational capacity and improve impact outcomes for clean energy businesses.

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Despite these initiatives, there are concerns that hardware improvements alone will not suffice to meet the region's energy demands sustainably. Critics argue that a dual focus on hardware and software efficiency is essential. This includes developing energy-efficient AI applications and promoting smarter design practices to reduce overall energy consumption. Without a clear policy framework that prioritizes energy efficiency in AI development, the risk of exacerbating energy demands remains high.

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Petronas President Tan Sri Tengku Muhammad Taufik Tengku Aziz emphasized the need for Asia to actively shape its energy transition, stating, “Asia cannot be a passive participant in the global energy transition. It must shape its own path that reflects the realities and aspirations of its people.” This sentiment underscores the urgency for cohesive action among governments, investors, and stakeholders to navigate the complexities of energy transition.

Artificial intelligence, data centres jack up power demand

As Asia grapples with the dual challenges of rising energy demand and fossil fuel dependency, the focus must shift towards creating a balanced energy portfolio that includes renewables, natural gas, and other low-carbon alternatives. Policymakers are urged to implement stable frameworks that encourage investment in clean technologies while addressing the pressing needs of a growing population. The region's ability to adapt and innovate will be crucial in determining the success of its clean energy transition.

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