10 steps to building a resilient energy transition in Asia
Article by Brendan Dunlea - Asia Head, Underwriting, Property & Engineering
The continent’s switch from fossil fuels to low carbon sources has already encountered multiple roadblocks. How should governments, developers and insurers move forward?
Read any newspaper or watch any current affairs programme, and somewhere you’ll encounter commentary on today’s energy transition. It’s an enormous subject, and a shift that’s critical to limiting global warming and extreme weather events in the coming decades.
Asia stands front and central in this plight. On one hand, its burgeoning economies are responsible for generating about 60% of global emissions. Yet on the other hand, most nations across the continent have made net zero commitments by mid-century, and are heavily investing in low carbon technologies to meet these. By 2050, Asia will account for 50% of the world’s clean energy capacity. Already, renewables supply 27% of the region’s electricity, while the continent boasts the fastest growth rate of wind and solar deployment globally, at 35% a year.
Asia’s energy transition will require significant investment. One estimate puts this number at US$37 billion by 2050. Governments and financiers won’t be the only ones footing the bill, however. Others including project developers, energy technology companies, and the insurance industry will contribute in one way or another.
Getting to net zero won’t be easy, everyone agrees. The journey will be fraught with challenges. The recent Renewables and the Energy Transition Seminar, co-organised by QBE, Matthews Daniel and the Singapore College of Insurance, outlined the many risks impeding Asia’s energy transition and the proliferation of renewable power required to realise it. Accordingly, the event explored numerous solutions to make the transition — and the projects that will contribute to it — more resilient.
The seminar featured esteemed panellists: Andrew Norris, Director of Renewables Adjusting at Matthews Daniel International; Martin Beck, Global Head of Offshore Wind and Renewable Energy Practice at Marsh Asia; Melissa Sheperdson, Head of Natural Resources for Asia at Aon; Edgare Kerkwijk, Board Member at Asia Wind Energy Association; and Young Jun Lee, Country Lead, Engineering in QBE Singapore; with myself moderating.
Based on the views and experiences shared by speakers, below are 10 steps Asia should take to facilitate a resilient energy transition.
1. Prepare for a transition, not a revolution
Governments, developers and the general public must acknowledge that the energy transition is a gradual development from a fossil fuel-dependent energy economy to one powered by low carbon sources. Critically, this switch will take place over a period of multiple decades, as opposed to a mere few years. There simply isn’t enough low carbon energy capacity built, nor can most projects be constructed faster than they currently are.
Fossil fuels will therefore remain an important contributor to today’s energy mix. How countries move towards cleaner forms of fuel will vary as well. Some will move faster than others, due to varying levels of market openness and investment. There is also the contentious issue of local content: fortunately, some markets have backtracked on such requirements, which should now entice overseas suppliers and investors. Nonetheless, Asia’s energy transition will be gradual.
2. Set realistic goals
Globally, governments and the private sector are scaling back on their net zero agendas. Many are simply unrealistic in terms of bankability, and availability of equipment due to supply chain disruption and geopolitical tensions, among other reasons. Currently, Asia isn’t building enough projects to meet its transition goals.
Many of today’s net zero pledges lack integrity as well. A recent study of 4,000 entities across governments, states, cities, and major corporations found that fewer than 5% of these organisations meet the minimum criteria required to realise these. This includes explaining how goals will be met; setting interim targets; and disclosing all greenhouse gas emissions to demonstrate the credibility of commitments.
3. Business models and generation capacity are going to be different from conventional power sources
The energy transition isn’t simply about replacing one source of power with another. As is often explained, the intermittent nature of wind and solar energy means that despite advances in battery storage technology, grids cannot completely rely on these forms of power. Most Asian markets must rely on energy sourced from hydrocarbons for base load power. Others will rely on nuclear power as well.
There is also the issue of growing energy demand. In Southeast Asia, this is expected to surge by 60% by 2050. Given these evolving needs, it is crucial that Asia maintains a reliable and balanced energy mix, with low carbon energy — including nuclear power through small modular reactors — gradually increasing its presence over this period.
4. Public education about the role of fossil fuels and mining is needed
Oil and gas companies are playing an important part in the energy transition, not just by providing the fuels needed for base load power, but also by investing in the development of new, low carbon technologies. These may include renewables solutions; alternative fuels like hydrogen and ammonia; or carbon capture and storage, to name a few.
There is also a role for mining. Of late, the industry is seen by many as a polluting and environmentally challenging exercise. However, many of the minerals extracted are required to build clean technologies. For example, Nickel is needed to build the batteries that power electric vehicles; and mines across Asia provide rare earth minerals required do manufacture solar panels and wind turbines.
5. Oil and gas, and mining companies must articulate what they are doing differently
Extraction companies can help educate the public better on their role in the energy transition. They should articulate how their tried and tested technologies are being adapted for use in the clean economy. For example, using parts once designed for offshore hydrocarbons extraction in the production of offshore wind energy.
However, they should not overstate their decarbonisation efforts. A 2022 study found many industry players increased the number of climate pledges, yet concrete actions to support these were rare. Such companies must therefore be factual in their claims, supported with empirical data. This includes the amount of capital they are allocating to low carbon projects: investments in these represent less than 1% of the capital expenditure of oil and gas companies.
6. Partner with China OEMs
In addition to working with established American and European OEMs, developers can’t ignore those from China. Competition from Chinese OEMs is intensifying, and the size and scale of their various technologies are surpassing those made in the West. Chinese OEMs are also establishing themselves in markets that until recently would have exclusively partnered with a European or American OEM. Recently, China’s Mingyang Smart Energy signed an MoU the Italian Ministry of Enterprises and Made in Italy, and Renexia, to build a 2.8 gigawatt floating wind project in the Mediterranean Sea.
Beyond the proven quality of their technology, questions remain: how robust are their contracts, especially when things go wrong; what happens should extensive tariffs be imposed on Chinese capital equipment; and will they be exposed to the same supply chain bottlenecks should orders significantly increase?
7. Ensure yesterday’s technology is compatible with today’s and tomorrow’s
The technology for solar panels and wind turbines is advancing at speed. Sometimes too fast. Turbines are getting much bigger, while solar panels are becoming increasingly more sophisticated. There are instances where solar farms built 10 years ago cannot replace faulty units, as the technology or even the shape and size they need is simply no longer on the market. The same is happening in the wind space as well, where availability of parts can be an issue.
Transporting these new technologies form one place top another is equally as challenging: many of the vessels and other transportation needed to take equipment to remote locations simply cannot carry today’s newer and bigger machinery. Transit losses are becoming more frequent.
8. Build for more severe weather
With climate change comes more frequent and extreme weather events. Solar panels must be more resilient to hailstorms, windstorms and excessive heat caused by wildfires; and wind turbines must cope with more typhoons. Project and asset owners must seek the resilient option, not the cheapest, for long term viability.
The issue of extreme weather is acute in Asia. In 2023, the region was the hardest hit globally regarding climate and weather disasters. During the year, 79 disasters associated with water-related weather hazards were reported regionally, where over 80% were floods and storms, with over 2,000 deaths and 9 million people directly affected.
9. Build better grids
So far, much of the focus has been on the technology to generate clean electricity. What is often ignored is are the robust grids needed to distribute energy to end-users.
Added complexities loom. Not only must governments invest in charging infrastructure, they must also account for the fact that in future, a higher proportion of vehicles will be running off electricity vis-à-vis conventional fuels, and subsequently build grids that can cope with heightened demand.
10. Insurers can better support projects — and better support itself
Insurance is a critical component in any renewable energy project. There is an opportunity for the industry to better understand the risks these face, and to work with developers and industry peers to create solutions to meet these. The insurance industry could rely on weather tracking systems to understand exposures to projects for example, and leverage other novel technologies that are emerging.
At QBE, supporting Asia’s energy transition is a key focus area. Our construction and engineering cover protects equipment, property, people and much more, from the plethora of risks that Asia’s energy economy faces. Our deep industry expertise going back over 20 years, and our track record, enables us to assess each project thoroughly, in order to provide clients with solutions that meet the unique risk profile of projects — with the ultimate goal of building resilience in Asia’s energy transition.
To discuss the above developments further, or to speak to me about a specific project, email me at [email protected].
Published: January 15, 2025