(Yicai) May 14 -- Demand for renewable energy in South and Southeast Asia is on the rise, and the region finds itself at a critical junction where transition urgency meets capital scarcity, according to a report by Abundant Climate Action Institute.

The post-World War II multilateral order is fragmenting, and energy transition is caught in the middle, per the report released yesterday. In fact, energy transition is now troubled with fossil fuel import dependency, exposed by the Middle Eastern conflict, and financing difficulties caused by higher term premiums, volatility, and multilateral retreat.

The volume of renewable energy projects in the pipeline in South and Southeast Asia surged fivefold from 2020 to 2024. Over 400 gigawatt-hours of battery cell manufacturing capacity were added across the region in the period, with Indonesia and Vietnam as the main drivers.

As multilateral climate finance is retreating as fiscal pressure mounts in investor countries, the region finds itself at a critical point, given the accelerating demand for capital. Abundant Climate expects South and Southeast Asia's annual energy investment to reach USD200 billion by 2030.

Meeting this demand signal requires capital structures at scale, innovative financing solutions, and the financial safety nets that the crows in private capital, Abundant Climate explained. But there are striking disparities between countries in the region, which are divided into four tiers.

Singapore is seen as the regional capital gateway, a critical intermediary channeling global institutional capital into Southeast Asian markets. It tops the Association of Southeast Asian Nations' Power Grid and pioneers cross-border electricity trade while anchoring blended finance platforms and setting regional standards.

Thailand and Malaysia are commercially viable markets with a favorable investment environment and relatively low cost of capital, but need instruments that help them unlock non-concessional private finance at scale.

Indonesia, Vietnam, and the Philippines boast high demand with scaling opportunities. They have large mineral and renewable energy resource bases, meaningful progress and trajectory, moderate cost of capital, and ambitious targets, but their structural barriers, such as high solar power premium and climate risk exposure, require sustained de-risking to unlock private capital at scale.

Pakistan and Bangladesh are constrained markets with emerging potential. They have a high cost of capital and need capacity-building and instruments specifically designed to reduce perceived political and sovereign risks.

Domestic policy instability remains one of the critical uncertainties among all of the above four tiers.

"When a policy changes midway through a project, the entire business case built around it collapses, whether through restricted grid access, revised tariffs, or unfavorable power-purchase agreement terms," said Vivian Li, project manager at Abundant Climate.

"Infrastructure projects carry heavy upfront investments and long project cycles where investors need to trust that tariffs, subsidies, and off-take agreements will hold," she explained. "Across South and Southeast Asia markets, that trust is missing." 

Li noted that financial instruments such as guarantees and political-risk insurance are critical to make capital feel safe enough to commit. She also suggested practitioners watch macro signals beyond their immediate market, diversify across market tiers and technology bets, and build local networks that provide early warning and resilience in the face of regulatory shifts.

Southeast Asia is also the main investment destination of Chinese renewable energy companies seeking to expand overseas, which adopt three different financing mechanisms. The first method, with Longi Green Energy Technology, Jinko Solar, and JA Solar Vietnam as examples, is issuing offshore loans secured by onshore guarantees. This way, there is no local collateral as the subsidiary has no meaningful local asset pledged, and the bank lends to the parent company directly.

The second method is local loans with equity pledge, adopted by firms such as Risen Energy and Trina Solar Vietnam. The parent company still guarantees, but the bank also takes a 100 percent equity pledge on the subsidiary as collateral.

The third financing mechanism relies on policy-based loans with insurance, like in the case of Trina Solar Indonesia Joint Venture. When government-backed institutions support strategic sectors, such as green energy, they provide loans below market rates.

"Grid infrastructure, cross-border transmission, and artificial intelligence-driven energy demand require longer time horizons, broader political alignment, and capital from a more diverse international investors," Li said.

"Financing models must also become more innovative, supported by de-risking tools," she added. “Foreign exchange hedging, local currency lending, and power-purchase agreements with pass-through clauses could be the difference between a project that looks viable on paper and one that actually survives volatility.”

Editor: Futura Costaglione