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Expensive fossil fuel subsidies must go
Last chance for ASEAN to adopt energy price transparency
By Olivier Duguet
The recent oil prices slump represents a unique opportunity for South East Asia to move towards energy price transparency by cutting expensive energy subsidy programmes which have been around for decades.
The Paris-based International Energy Agency (IEA) estimates the global cost of subsidising energy consumption (mainly in developing economies) is US$500 billion a year.
Current cheaper oil should reduce this bill to about US$400 billion a year, leaving governments with the choice of continuing oil, gas and electricity subsidies to encourage consumption or dismantle these very costly programmes for national budgets and restore economic fairness.
The choice is particularly important for South East Asia’s high growth and fuel dependant economies.
Energy demand from ASEAN’s 600 million inhabitants has risen two and a half times since 1990 and is now equivalent to three quarter of the energy demand of India.
Indonesia alone spent US$29.2 billion in 2013 to make fossil fuels cheaper for final consumers.
Total subsidies from three other ASEAN countries - Vietnam, Thailand and Malaysia – amounted to over US$10 billion for 2013, according to IEA’s World Energy Outlook.
The electricity support schemes have in return required subsidies of power generation fuels to keep state-owned utilities financially viable.
The difference between market and subsidised prices, which accounted for 2.16% of the GDP in ASEAN-5, has contributed to major imbalances in many countries and banned utilities to invest in new technologies and capacity building.
In 2012, the US$51 billion spent by ASEAN countries in subsidising fossil fuels was equivalent to 11% of all general government budgets in the region.
Vietnam, amongst others, has electricity prices capped and differentiated for different users. More than US$2.5 billion is spent yearly to subsidise electricity prices from national utility EVN, distorting any competitive advantage renewable energy sources could have in a sun and wind resourceful country.
Indonesia, under its new President, has just started to slash its fuel subsidies but is still artificially reducing the price of 60 to 75 million tonnes a year of coal used in its 12 GW of coal-fired power plants.
Thailand spent US$6.8 billion in 2012 in fossil fuel consumption support schemes, second only to Indonesia, according to IEA records.
Low income earners have to be protected against wild gyrations of fuel prices of course, but giving consumers the good price signal is crucial for the future of renewables.
The current plunge of oil prices will be one of the very last chances to implement true energy prices around South East Asia and enable renewables to compete directly with non-subsidised fuels.
Wind resources, even though not evenly distributed in the region, are the most cost competitive and easy to deploy of today’s renewable energy sources.
Recent economic weaknesses in China, Europe and Japan, coupled with market share war amongst oil producers, have pushed fuel prices to unexpected lows which may not last long before world economic growth resumes.
Bringing back energy prices transparency is what renewable power needs to thrive in a future low carbon world.
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Olivier Duguet is the Chief Executive Officer of The Blue Circle, a Singapore-based company which focuses on developing wind and solar energy projects in Thailand, Vietnam and Cambodia.
With twenty years’ experience in the renewable energy sector in Europe and Asia, Mr Duguet set up his company in 2013 to bridge the gap in project development in the Mekong Region, by bringing international project development experience, financial expertise and capabilities, together with local market understanding.
Last month (October 2014) The Blue Circle announced it installed its first 100 metre meteorological mast in Ninh Thuan province, Southern Vietnam, supported by the United States Agency for International Development (USAID), under its regional Private Financing Advisory Network-Asia programme (PFAN-Asia). This is the first meteorological campaign to measure wind energy potential in Southern Vietnam.
As a vertically integrated renewable energy developer, The Blue Circle announced in May this year the signing of a partnership with Armstrong Asset Management, which has agreed to commit up to US$40 million in equity to fund the construction of wind and solar projects in South East Asia developed or acquired by The Blue Circle.
In July, the company announced a partnership with Annex Power, a leading renewable energy group in South East Asia, to jointly develop wind power plants in Thailand.
The Blue Circle will identify greenfield sites, pursue project development milestones up until financing and operating of the generating assets.
For further information, please contact:
The Blue Circle
Olivier Duguet Tel: +65 62594921 firstname.lastname@example.org
Sustain Ability Showcase Asia (SASA)
Ken Hickson Tel: +65 8139 7472 Kenhickson@sustain-ability-showcase.com
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