Southeast Asia is a very dynamic region and a driving force behind global energy trends, with a projected rise in energy demand over the coming decades second only to India. It has accounted for 11% of global energy demand growth since 2010 but is projected to contribute more than 25% of the growth over the period to 2035 in the Stated Policies Scenario (STEPS), which indicates the direction of travel for the energy sector based on today’s policies. This increase in demand is underpinned by strong economic expansion, population growth, and Southeast Asia’s position as a global manufacturing and industrial hub. However, this scenario brings serious concerns for energy security and sustainability: rising dependence on fossil fuel imports, escalating import costs, and a projected one-third increase in energy-related CO₂ emissions by 2050.

Eight of the 10 countries in Southeast Asia have net zero emissions goals: Brunei Darussalam, Cambodia, Lao PDR, Malaysia, Singapore and Viet Nam have set a target date of 2050; Indonesia of 2060; and Thailand of 2065. While momentum is building for clean energy transitions across the region, far greater efforts are needed to get on track for these national goals, which would mean cutting today’s emissions by almost two-thirds by 2050. Aligning with the targets agreed at COP28 and achieving global net zero emissions by mid-century would demand an even faster transformation in Southeast Asia.

At a time of heightened geopolitical tensions, energy security and affordability remain top priorities for Southeast Asia. The recent global energy crisis highlighted the region’s vulnerability to fuel price shocks, with fossil fuel consumption subsidies soaring to a record USD 105 billion in 2022 – nearly 60% above the previous peak. Energy security risks continue to loom large as Russia’s war in Ukraine continues and conflicts in the Middle East escalate, with Southeast Asia reliant on the Middle East for 60% of its current oil imports.

Energy-related environmental issues, including poor air quality and the impacts of climate change, are becoming more urgent. In 2023, 85% of Southeast Asia’s population was exposed to polluted air, far exceeding the World Health Organization’s recommended safe limits, leading to 300 000 premature deaths from outdoor air pollution and 240 000 from indoor air pollution linked to the use of polluting fuels for cooking. The region also faces risks from extreme weather, including a crippling heat wave in 2024 and heightened flood risks around rivers and coastal areas.

Fossil fuels – led by coal – have met nearly 80% of Southeast Asia’s rising energy demand since 2010. Today, oil and coal each make up over a quarter of the region’s energy demand, with natural gas contributing around one-fifth. In 2023, coal generated half of the region’s electricity, accounting for 80% of power sector emissions, while also meeting 30% of industrial energy demand, including a rise in nickel production in Indonesia. Southeast Asia stands out as one of the few regions, alongside the Middle East, where GDP and emissions continue to rise in tandem, a sign that Southeast Asia’s economic development remains very carbon intensive.

The region’s energy future looks different from its past, but demand for all the major energy sources continues to rise in the STEPS. Clean energy is set to meet more than 35% of energy demand growth to 2035 in the STEPS, driven by a rapid expansion of wind and solar PV, along with sustained momentum for modern bioenergy, geothermal and other low-emissions technologies. As a result, the share of clean energy in the energy mix rises to one-quarter. However, fossil fuel use is also set to rise in this scenario, with oil demand increasing by 20% over the period to 2035 and coal and gas demand growing by over 30%. 

Significant progress has been made towards achieving universal access to energy, yet challenges remain in closing the access gap, especially for clean cooking. Over 95% of households in the region now have electricity, but around 20% of the population still lacks access to clean cooking technologies, notably in Lao PDR, Myanmar and Cambodia. Southeast Asia is on track to reach universal electricity access by 2030 in the STEPS; however, more than 100 million people (15% of the region’s population) continue to rely on traditional biomass, coal or kerosene for cooking. Stronger policies and pledges are needed to achieve universal clean cooking access by 2030.

Southeast Asia’s electricity demand is set to rise 4% annually to 2035 in the STEPS, outpacing the 3% growth in overall energy demand. From over 1 300 TWh today, electricity demand rises above 2 000 TWh by 2035 in the STEPS, more than double Japan’s current electricity demand and 15% higher than in the last edition of this Outlook. This is driven by the buildings sector, where air conditioning (AC) usage is surging, followed by transport and industry. Today, 16% of electricity used in buildings is for cooling; this grows to around 30% by 2035 in the STEPS. In Indonesia, the share of households with ACs rises from less than 15% today to 50% by 2035. Cooling alone accounts for almost one-third of the region’s growth in electricity use, underscoring the need for stronger efficiency regulations and standards for new buildings to mitigate peak demand and alleviate pressure on the power system.

Renewables meet more than half of the increase in electricity demand in the STEPS to 2035, but their growth in Southeast Asia lags global trends. The generation mix is changing as renewables, led by solar, enter a period of rapid expansion, supplying more than one-third of the region’s electricity by 2035 in the STEPS. Viet Nam continues to lead the region as the largest renewable power market, followed by Indonesia and the Philippines. However, the projected doubling in renewable capacity to 2030 is modest compared with global trends and falls well short of what is needed to match the growth in electricity demand. As a result, generation from unabated coal-fired power continues to rise by an average of 2% per year to 2035, although its share in the mix drops to around 35%. Increasing supplies of liquefied natural gas (LNG) support a slight uptick in the share of gas-fired power, which reaches a high point of 28% in the late 

Southeast Asia’s relatively young fleet of coal-fired plants – averaging under 15 years old – requires innovative strategies to reduce their emissions. Reducing reliance on coal without compromising electricity security means scaling up clean, affordable alternatives that can replace the energy services provided by coal, including generation and balancing services. Early retirement of coal plants requires funds and effective strategies for a managed phase-out. Several countries are working to operate coal plants more flexibly, allowing for better integration of low-cost wind and solar, which involves addressing inflexible contractual arrangements. Others are exploring co-firing coal plants with low-emissions fuels like biomass and ammonia. By incorporating more cost-competitive sources into the mix, the average cost of electricity decreases from around USD 120 per MWh today – above the global average – to just under USD 100 per MWh by 2035 and to USD 80 per MWh by 2050.

Expanding and modernising electricity grids, including enhancing regional interconnections, is essential for ensuring electricity security and flexibility. By 2035, annual investment needs for electricity networks more than double to around USD 22 billion in the STEPS. This includes infrastructure investments tied to regional initiatives such as the ASEAN Power Grid, which aims to connect all 10 ASEAN countries, and the power trade agreement among the six countries of the Greater Mekong Subregion, as well as renewables-based microgrids for remote areas and islands.

Today’s electricity systems can accommodate higher shares of variable renewables across much of Southeast Asia but additional sources of flexibility – both for short-term and seasonal needs – will be needed as wind and solar deployment gains momentum. Currently, thermal power plants are the main sources of flexibility and, together with hydropower, they remain important to meeting variations in demand. However, as the share of wind and solar increases, other flexibility sources come into play. These include batteries and demand response for short-term flexibility, as well as low-emissions dispatchable generation for seasonal needs, including geothermal and thermal power plants fired with low-emissions fuels. In the longer term, flexible grid-connected electrolysers emerge as an option for both short-term and seasonal balancing.

Southeast Asia is a major manufacturing centre, with potential to expand its role in clean energy value chains that have already created over 85 000 jobs in the region since 2019. Viet Nam, Thailand and Malaysia are the largest solar PV manufacturers after China. The region has 16 GWh of electric vehicle (EV) battery cell manufacturing capacity, with plans to add almost 40 GWh more by 2030, particularly in Indonesia, which is set to become one of the region’s leading hubs for lithium-ion batteries and components due to its natural resources. Indonesia and the Philippines are the world’s top producers of nickel, together accounting for about 65% of global mined production. However, increasing economic fragmentation and trade barriers present significant risks for Southeast Asia, given its integration into global value chains across various industries. While employment in clean energy is approaching parity with fossil fuel-related jobs, it holds much greater potential for growth. For large coal-producing countries like Indonesia and Viet Nam, ensuring just and orderly transitions for workers and local economies is crucial.

Enhancing Southeast Asia’s advantages as a manufacturing and production hub will require a reduction in its emissions intensity. The emissions associated with production processes around the world are coming under increasing scrutiny. In the STEPS, Southeast Asia’s industry remains dependent on fossil fuels; however, there are opportunities for clean electrification and greater use of low-emissions fuels, including modern bioenergy, hydrogen and fossil fuels with CCUS. In the nickel sector, replacing coal with natural gas, bioenergy and other low-emissions fuels for heat and refining is key. Singapore, as the world’s largest bunkering port, has a pivotal role in decarbonising shipping, with efforts focusing on ammonia and methanol bunkering.

Biofuels, electrification, fuel economy standards and the development of public transport are key strategies to reduce Southeast Asia’s dependence on imported oil for transportation and to bring down emissions. While the region’s oil production is declining, demand is set to rise from 5 mb/d today to 6.4 mb/d by 2035 in the STEPS. Biofuels are already well-established in Southeast Asia, meeting nearly 10% of road transport energy demand – twice the global average. When developed sustainably, biofuels can reduce transport emissions and reliance on oil imports. Electric vehicles are also gaining traction, accounting for 15% of car sales in Viet Nam and 10% in Thailand in 2023, with potential to exceed the projected 25% EV share of total car sales by 2035 in the STEPS. The electrification of two/three-wheelers presents another major opportunity, as ownership levels in Southeast Asia are nearly four times the world average. Additionally, implementing efficiency measures like fuel economy standards can further diminish oil dependence and accelerate the transition to EVs, while mass transit solutions can help alleviate traffic issues in rapidly developing cities.

Today’s policy settings leave Southeast Asia facing significant energy security risks. In the STEPS, Southeast Asia’s annual oil import bill surpasses USD 200 billion by mid-century, up from USD 130 billion today, and the region is set to become a net importer of gas by the late 2020s. Accelerating progress toward Southeast Asia’s structural transformation – in line with countries’ announced climate goals – would mitigate these vulnerabilities. In such a scenario, annual fossil fuel import bills peak at some USD 140 billion around 2030 before dropping to under USD 90 billion by 2050 – one-third of the amount projected in the STEPS. 

The pace of Southeast Asia’s energy transitions is enough to weaken the link between GDP growth and emissions, but not sever it entirely. The region’s net zero plans and the global energy targets agreed at COP28 outline the actions that can slow and then ultimately reverse projected emissions growth. Achieving this will require much more than the almost doubling of renewable capacity anticipated in the STEPS by 2030. It will also necessitate speeding up energy efficiency improvements, addressing methane leaks, expanding grid and storage infrastructure, advancing low-emissions fuels, and phasing out inefficient fossil fuel subsidies. Cost-competitive clean technologies open a huge opportunity for Southeast Asia to chart a new course for its energy sector.

Scaling up clean energy investment demands ambitious, credible and investable national transition pathways, along with active engagement from the private sector and enhanced international financial and technical support. In 2023, Southeast Asia accounted for only 2% of global clean energy spending, well below its share in global GDP (6%), global energy demand (5%) and population (9%). Today, for every dollar invested in fossil fuels in the region, about 80 cents go to clean energy – far from the global ratio of nearly 2-to-1 in favour of clean energy. Achieving a pathway aligned with the region’s climate goals requires over USD 190 billion in clean energy investments in 2035 – more than double the amount projected in the STEPS and five times the current level. Most of this additional financing needs to come from private and commercial sources, necessitating policy reforms and increased volumes of development and concessional funding to bring down risks that raise the cost of capital. At present, the cost of capital for clean energy projects in Southeast Asia is at least twice that of advanced economies or in China.

Robust regional and international cooperation frameworks provide an important anchor for secure, people-centred clean energy transitions in the face of geopolitical tensions and climate risks. Each of the ten countries in Southeast Asia is distinctive in terms of development, industrial output, politics, geography and energy needs. Advancing energy transitions in this region requires tailored approaches that reflect both regional and individual country circumstances. Cooperation within the ASEAN framework and with international partners brings important benefits. Initiatives like the Just Energy Transition Partnerships and the Asia Zero Emission Community bring stakeholders together to accelerate policy action and financing support. The establishment of the IEA’s Regional Cooperation Centre in Singapore – the first ever IEA office outside its Paris headquarters – is testament to Southeast Asia’s importance in global energy affairs and the shared commitment to supporting its countries in achieving a safer and more sustainable energy future.