Connectivity and Resilience in the ASEAN Power Grid 2.0 under Laos’ ASEAN Chairmanship

Laos will kick off the ASEAN calendar with a ministerial retreat in Luang Prabang this weekend (January 27-28) under the theme “ASEAN: Enhancing Connectivity and Resilience”. Among its nine priority areas, Laos aims to promote infrastructural connectivity and regional economic integration to showcase its ASEAN Chairmanship this year.

As ASEAN’s smallest and only landlocked member, Laos’ strategic objective is to become a land-linked country and it has done so using power interconnectivity since the late 1990s. Thanks to the abundance of hydropower sources, Laos’ main export and highest foreign income earnings come from hydropower electricity exports to its neighbours. Laos earned US$1.96 billion from electricity exports in 2021 and is ranked 12^th out of 97 electricity exporters.

Work on Laos’ first hydropower plant Nam Ngun 1 started modestly in 1968. It was not until 2000 when Laos announced its ambition to be the “Battery of Southeast Asia” that it exponentially scaled up its hydropower installed capacity from 400 MW to 7,000 MW in 2023. Commencement of commercial scale cross-border power trade to Thailand began in 2005 with the operation of Nam Ngum 2 Hydropower Plant. Subsequently, Laos accelerated development of hydropower projects and transmission lines with even bigger projects such as the Nam Theun 2 and Xayaburi dams. These significantly increased its power generation capacity but faced intense local and foreign criticisms of poor environmental management. In response, Laos implemented a domestic environmental impact assessment in 2010, which revealed there was much room for improvement.

Nonetheless, Laos managed to leapfrog over its immediate neighbourhood by exporting hydro-powered electricity to Singapore through the Laos-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP) in 2022. This is a pathfinder project under the aegis of the ASEAN energy sector. Laos aims to expand from its current 77 to 100 hydropower dams by 2035.

The last five years has seen increasing momentum in energy integration in Southeast Asia. Since it was envisioned in 1999, the progress of the ASEAN Power Grid (APG) has been incremental and limited to bilateral projects. The implementation of the LTMS-PIP has breathed new life into the APG vision. As shown in Table 1, currently, multiple subsea and overland interconnections are being implemented or planned, including the multilateral Brunei Darussalam, Indonesia, Malaysia and the Philippines Power Integration Project (BIMP-PIP). The region is moving towards ‘APG 2.0’ – a new era of interconnections, where reliable and efficient grids facilitate multilateral, multidirectional energy trade. A recent report by ISEAS highlights key pathways that can facilitate the timely completion of regional interconnections. Laos’ ASEAN Chairmanship provides opportunities for accelerating policy pathways towards energy integration.

Table 1: Planned subsea and overland interconnections in ASEAN

The most obvious requirement for developing energy infrastructure is money, and lots of it. By one estimate, Southeast Asia will need to invest as much as US$200 billion into upgrading domestic and regional energy infrastructures by 2030. A regional collective effort towards funding is required and in this context the European Union’s (EU) Project of Common Interest (PCI) might provide a useful example. The PCI is a category of infrastructure projects that the EU considers particularly important to energy integration and transition in the EU. Projects listed under the PCI are eligible for accelerated permitting procedures and funding by the Connecting Europe Facility (CEF), the EU’s collective fund for boosting connectivity.

As Laos chairs ASEAN, it may consider proposing something similar, like an ASEAN Projects of Common Interest (APCI). The first step will be holding extensive consultations with energy stakeholders in the region to identify and develop consensus on the most important interconnections. Transparency in the development of such an APCI can increase acceptance by ASEAN Member States and attract investment. A starting point for identifying projects for inclusion in the APCI can be found in the forthcoming ASEAN Interconnection Masterplan Study III.

Yet, a deeper issue related to connectivity lies within Laos itself. Its ambitions to be the region’s battery saw Laos give out long-term concessions to build power lines that export electricity directly from plants to neighbouring states using a Build-Operate-Transmit (BOT) model. Laos’ 77 hydropower dams run on a combination of export-oriented and domestic-serving independent power producers. The country wants to integrate its 120 KV domestic grid and the 240 KV export power lines; a plan for this is under way. In fact, grid integration is key to Laos’ ability to export farther afield and to truly partake in multi-directional trade, as the variability of renewable energy sources needs to be managed via a stable grid.

However, successful grid integration is challenging considering the lacklustre economic health of Laos, including its high levels of debt and intense inflationary pressures. As part of its debt restructuring deal with China, Laos reportedly formed a joint venture with China Southern Power Grid (CSPG) to form Electricite du Laos-Transmission (EDL-T) in 2021. EDL-T is the national grid operator that will consolidate Laos’ export and domestic grids, and eventually become its transmission system operator. Investments from CSPG needed for grid consolidation have been delayed, perhaps due to China’s domestic economic woes, which raises concern that there will be further deterioration of EDL-T’s assets.

Energy infrastructure resilience in the region is another issue that Laos can examine in its Chairmanship year. Climate change is set to drastically impact the amount of water available for hydropower generation in Southeast Asia, particularly in prolonged El Nino seasons. Research indicates that hydropower capacity of Southeast Asia is expected to decrease by 5.9 per cent in the ‘Below 2°C’ Scenario and by 8.2 per cent in the ‘Above 4°C’ Scenario. Energy infrastructure in the region is routinely damaged by extreme weather events. A study by ISEAS found that developing climate models that can predict the impact of climate change on infrastructure, laying grids underground and using legislation to facilitate a proactive approach to improving infrastructure resilience can enhance grid reliance.

If Laos can resolve its own challenges of grid integration, it might be able to lead in facilitating energy interconnectivity in ASEAN. Laos (and successive ASEAN Chairs) have their work cut out for them. Much depends on their combined political will to accelerate energy integration, at home and abroad.

Editor’s Note:
ASEANFocus+ articles are timely critical insight pieces published by the ASEAN Studies Centre.