New ASEAN Power Grid Agreement Must Reflect New Needs

The adage “good fences make good neighbours” is becoming increasingly obsolete in Southeast Asia, thanks to ASEAN’s progress in connectivity across multiple areas, including energy. Despite the second Trump administration’s renewed attack on globalisation, the need of the day is not fences that separate us but rules-based systems that facilitate even greater levels of interconnection. In this context, the successor ASEAN Power Grid Memorandum of Understanding (MoU) is an opportunity to address three key priorities — the creation of a regional institution, an ASEAN Renewable Energy Certificate (REC) market and a transparent regional wheeling charge methodology.

The first APG MoU expired in March 2024, after which ASEAN member states agreed to extend it until 2025 while developing its successor agreement. The landscape of energy interconnection in ASEAN has changed dramatically since the first APG MoU came into force in 2009. Nine out of 18 key interconnection projects have been completed. Last year, the Laos-Thailand-Malaysia-Singapore Power Interconnection Project (LTMS-PIP) reached another milestone when it became a multidirectional initiative, with Singapore buying electricity from Laos and Malaysia.

After decades of slow progress, the success of the LTMS-PIP is driving cooperation on regional subsea and overland cables, energy storage systems and solar projects. To reflect this new reality, ASEAN needs to develop a regional institution that can drive energy integration, such as the European Network of Transmission System Operators (ENTSO-E), which plays a central role in the functioning of Europe’s electricity markets by implementing grid code harmonisation, data sharing and the planning of regional infrastructure. But what makes the ENTSO-E successful is that it has executive authority — energy stakeholders are legally obligated to provide it with data, which is crucial for the functioning of a regional market.

But regional energy organisations can also operate without a legal mandate. For example, the Southern African Power Pool (SAPP) operates under an intergovernmental MoU and a number of agreements on operations and markets, which has led to some success in driving the coordination of energy trade.

The new APG MoU needs to generate discussion on the need for a regional energy institution for ASEAN and examine the potential of developing binding agreements. A regional institution can formalise regional data sharing, dispute resolution mechanisms and market regulations.

The second issue that needs to be addressed in the MoU is the development of regional RECs markets. RECs are important financial instruments that attribute the environmental benefits of electricity generation through renewable energy sources. Growing demand for electricity by corporations such as Google and Samsung has led to increasing demand for RECs. Between 2019 and 2023, solar and wind RECs from Southeast Asia rose by almost 13 times, with the largest issuances coming from developers in Malaysia, Thailand, and Vietnam. RECs can potentially play a role in cross-border electricity trade, but many challenges impede this. According to the ASEAN Centre for Energy, international standards such as RE 100 do not recognise cross-border RECs related to grid-to-grid power traded in areas outside of North America and the European Union.

The new APG MoU needs to generate discussion on the need for a regional energy institution for ASEAN and examine the potential of developing binding agreements.

Meeting RE 100 and other international standards is crucial for selling RECs to multinational companies. Cross-border RECs will open up more investment into renewables, grids and battery storage systems while helping ASEAN countries decarbonise their energy sectors. The new MoU needs to facilitate discussion between ASEAN member states to engage RE 100 and other international standards to advocate the recognition of RECs associated with cross-border power trade while simultaneously taking steps to harmonise national RECs standards. 

Thirdly, the MoU needs to prioritise the development of a regional wheeling charge. Wheeling charges are fees paid for transmitting electricity from one national grid to another. In the case of the LTMS-PIP, wheeling charges were paid by Laos to Thailand and Malaysia for the use of their grid to transfer electricity to Singapore.

While the actual dollar amounts of wheeling charges are confidential for commercial reasons, the LTMS-PIP experience can be used to develop a transparent regional wheeling charge formula, which will be important for attracting investment and accelerating project development. For example, the Southern African Power Pool calculates wheeling charges based on three factors: the proportion of the country’s grid capacity used, the age of the grid infrastructure and its replacement cost, and the operational and maintenance cost of the infrastructure involved.

The new MoU can highlight the need to discuss a fair and transparent wheeling charge formula that is acceptable to all energy stakeholders. Such discussion can be informed by international experience, which highlights the need to balance three issues when developing a regional wheeling charge methodology: cost recovery, easy-to-use methods, and treating network users fairly.

While the first APG MoU played an important role in developing research and interaction between technocrats, the successor agreement needs to facilitate the development of institutions and market mechanisms that better reflect current opportunities and challenges.

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