Iran War Fuels South-East Asia's Renewable Shift, Yet Energy Storage Investments Lag Behind

The liquefied natural gas shock triggered by the Iran war is accelerating South-East Asia's transition towards solar and wind power. However, a recent report reveals that the region has secured less than a third of the necessary energy storage required by 2030.

According to a report published on Wednesday by energy think tank Ember, South-East Asia's current pipeline of utility-scale storage projects stands at about 7GW and is expected to be operational by 2030. This falls significantly short of the 23 to 26GW required to support regional renewable energy targets. Ember warns that maintaining the current growth rate will cause the region to fall even further behind by 2045.

“The financing bottleneck in Asean's energy transition has shifted from raising capital to creating bankable assets,” stated Alnie Demoral, an energy analyst at Ember.

These findings underscore the immense pressure faced by economies seeking to reduce their reliance on imported fuel following the Iran war, which severely disrupted shipping lanes through the Strait of Hormuz. Prior to the conflict in late February, the waterway handled nearly a fifth of global LNG, while South-East Asia sourced roughly a third of its gas imports from the Middle East, according to the Global Energy Monitor (GEM).

Asian spot LNG prices averaged $17.50 per million British thermal units in the second quarter, marking a 45 per cent increase compared to the previous year, GEM reported. The impact is clearly visible across the region: the Philippines declared a national energy emergency in March, and gas-fired power capacity in development dropped from 19.7GW in January to 13.8GW by August, based on GEM data. Meanwhile, in Vietnam, Vingroup moved to replace a planned 4.8GW LNG power plant with solar, wind, and battery storage alternatives.

Ember noted that while large solar farms are increasingly successful in attracting commercial financing, battery storage, smaller renewable installations, and transmission lines continue to face investor hesitation. Under identical tariff and financing assumptions, a half-megawatt solar project yields a 2.6 per cent return to equity, compared to 13.1 per cent for a 20MW plant. Ms Demoral emphasized that future investment will rely heavily on minimizing transaction costs and enabling storage and grids to generate returns that accurately reflect their value to the power system.

Overall investments currently fall well short of the $281 billion annually that South-East Asia requires by 2035 to fully achieve its energy transition, Ember stated. Furthermore, the International Energy Agency (IEA) projects that electricity demand in the region will increase by approximately 5.4 per cent annually through 2030.

At the same time, expensive gas is driving a resurgence in coal consumption. The IEA anticipates a 1.2 per cent rise in global coal demand to a record 8.94 billion tonnes this year, as high LNG prices prompt utilities across Europe, Japan, South Korea, and China to burn more coal. Ember concluded that the established financial models supporting major renewable projects have yet to successfully adapt to the storage and grid infrastructure needed to integrate intermittent power sources.