(EnergyAsia, October 20 2011, Thursday) — Southeast Asia will need to invest at least US$125 billion in its power generation sector by 2020 to keep pace with the “aggressive” growth of its power demand, said UK consultant Wood Mackenzie.

The company examined the region’s demand hotspots of Java-Bali and Sumatra in Indonesia, Peninsular Malaysia, Singapore, Thailand and Vietnam in a report titled “Power Crunch in Southeast Asia”.

Graham Tyler, Wood Mackenzie’s Head of Asia Gas and Power Research, said:

“Southeast Asia’s power demand growth will outpace Gross Domestic Product (GDP) growth in the next decade. The major demand centres alone will see demand grow from about 92,000 Megawatts (MW) in 2011 to 163,000 MW in 2020, creating a drop in reserve margins, particularly in the 2014-to-2015 period. Therefore, timely investments for new power generation will be required.”

The report forecasts that capacity additions in the region are expected to top 30,000 MW and 85,000 MW by 2015 and 2020 respectively. This would require an increase in power project investment from US$44 billion by 2015 to at least US$125 billion by 2020, even if an economic downturn with GDP growth levels similar to 2009 occurs for two consecutive years from 2010-2013.

The report forecasts that 42% of the new investment will be in coal-fired capacity, while natural gas-fired capacity will account for 18% of the total.

Mr Tyler said: “If immediate actions are taken to correct the existing situation and attract the level of investment required, the impact of power shortages will be softened from 2015 onwards.

To achieve this, governments need to encourage the project financing required to meet the power capacity investment levels by speeding up regulatory and approval processes.”
Wood Mackenzie places reserve capacity at an optimal level of 15% which it sees as crucial to meet unplanned or unexpected power needs.

It said that a fall below this level will be uncomfortable but if it drops below 10%, scheduled power cuts should be expected as a regular feature, especially in peak demand seasons that usually fall within the warmer or drier months of the year. Vietnam is hardest hit in the drier months as 40% of their power needs are currently met by hydropower.

The report highlights that Vietnam and Indonesia are most exposed to a potential power crunch and therefore require the most investments, representing about 60% of the total required. The regions in West Java and South Vietnam, are particularly in need of new capacity, as they currently have low margins and an over-dependence on power flows from other regions.

Malaysia and Thailand will also see reserve capacity fall below optimal levels in the period to 2015, but the impact should be more manageable as they have been quick to respond to the power shortages by importing power, announcing new projects and speeding up the development of existing ones.

Wood Mackenzie said that  these steps will alleviate the power crunch unless project delays or higher demand growth occurs, in which case both countries will also need additional investments.

Mr Tyler said: “Power demand growth will increase substantially in the next decade. This strong growth signals that investments of US$125 billion are required to build power capacity additions, even if we see a repeat of 2009’s economic recession over the next two years. Encouraging timely investments in West Java and South Vietnam will be especially crucial and governments can play a part in prioritising investments by expediting processes where possible.”